Contract Balances and Contract Costs

9 Months Ended

Oct. 30, 2020

Revenue from Contract with Customer [Abstract]

Contract Balances and Contract Costs

CONTRACT BALANCES AND CONTRACT COSTS

Promises to provide services related to the Company's subscription-based solutions are accounted for as a single performance obligation over an average period of two years. Performance obligations related to the Company's security and risk consulting professional service contracts are separate obligations associated with each service. Although the Company has many multi-year customer relationships for its various professional service solutions, each arrangement is typically structured as a separate performance obligation over the contract period and recognized over a duration of less than one year.

The following table presents revenue by service type (in thousands):

	Three Months Ended				Nine Months Ended
	October 30, 2020		November 1, 2019		October 30, 2020		November 1, 2019
Managed Security Solutions revenue	$	108,265	$	109,344	$	320,881	$	311,210
Security and Risk Consulting revenue	33,376		31,988		100,417		99,569
Total revenue	$	141,641	$	141,332	$	421,298	$	410,779

The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. Rather, it represents the aggregate amount of billing in advance of service delivery. The Company invoices its customers based on a variety of billing schedules. During the nine months ended October 30, 2020, on average, 57% of the Company's recurring revenue was billed in advance and approximately 43% was billed on either a monthly or a quarterly basis in advance. In addition, many of the Company's professional services engagements are billed in advance of service commencement. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration and invoice timing.

Changes to the Company's deferred revenue during the nine months ended October 30, 2020 and November 1, 2019 are as follows (in thousands):

	As of January 31, 2020		Upfront payments received and billings during the nine months ended October 30, 2020		Revenue recognized during the nine months ended October 30, 2020		As of October 30, 2020
Deferred revenue	$	188,537	$	217,903	$	(222,974)	$	183,466

	As of February 1, 2019		Upfront payments received and billings during the nine months ended November 1, 2019		Revenue recognized during the nine months ended November 1, 2019		As of November 1, 2019
Deferred revenue	$	173,929	$	209,596	$	(199,673)	$	183,852

Remaining Performance Obligation

The remaining performance obligation represents the transaction price allocated to contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancellable contracts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation consists of two elements: (i) the value of remaining services to be provided through the contract term for customers whose services have been activated (“active”); and (ii) the value of services contracted with customers that have not yet been installed (“backlog”). Backlog is not recorded in revenue, deferred revenue or elsewhere in the consolidated financial statements until the Company establishes a contractual right to invoice, at which point it is recorded as revenue or deferred revenue, as appropriate. The Company applies the practical expedient in Accounting Standards Codification (“ASC”) paragraph 606-10-50-14(a) and does not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.

The Company expects that the amount of backlog relative to the total value of its contracts will change from year to year due to several factors, including the amount invoiced at the beginning of the contract term, the timing and duration of the Company's customer agreements, varying invoicing cycles of agreements and changes in customer financial circumstances. Accordingly, fluctuations in backlog are not always a reliable indicator of future revenue.    

As of October 30, 2020, the Company expects to recognize remaining performance obligations as follows (in thousands):

	Total		Expected to be recognized in the next 12 months		Expected to be recognized in 12-24 months		Expected to be recognized in 24-36 months		Expected to be recognized thereafter
Performance obligation - active	$	281,346	$	159,004	$	82,343	$	30,638	$	9,361
Performance obligation - backlog	13,789		4,783		4,693		3,364		949
Total	$	295,135	$	163,787	$	87,036	$	34,002	$	10,310

Deferred Commissions and Fulfillment Costs

The Company capitalizes a significant portion of its commission expense and related fringe benefits earned by its sales personnel. Additionally, the Company capitalizes certain costs to install and activate hardware and software used in its managed security solutions, primarily related to a portion of the compensation for the personnel who perform the installation activities. These deferred costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate.

Changes in the balance of total deferred commission and total deferred fulfillment costs during the nine months ended October 30, 2020 and November 1, 2019 are as follows (in thousands):

	As of January 31, 2020		Amount capitalized		Amount recognized		As of October 30, 2020
Deferred commissions	$	62,785	$	11,369	$	(16,040)	$	58,114
Deferred fulfillment costs	11,366		4,163		(4,312)		11,217

	As of February 1, 2019		Amount capitalized		Amount recognized		As of November 1, 2019
Deferred commissions	$	62,895	$	11,113	$	(13,823)	$	60,185
Deferred fulfillment costs	10,973		4,520		(4,115)		11,378

As referenced in the Annual Report, deferred commissions are recognized on a straight-line basis over the life of the customer relationship, which historically had been estimated to be seven years. During the third quarter of fiscal 2020, the Company determined a change in the estimated life of the customer relationship to be six years. The net impact of this change was an increase in operating loss for the nine months ended October 30, 2020 of $3.0 million on a pre-tax basis, or $0.03 on a per share basis. The Company did not record any impairment losses on the deferred commissions or deferred fulfillment costs during the three and nine months ended October 30, 2020 or November 1, 2019.