Revenue

We derive our revenue primarily from product revenue, which includes industrial digital inkjet printers, ink, and parts; print production software; and Fiery DFEs. We receive service revenue from printer maintenance agreements, customer support, training, software development, and consulting.

In accordance with ASC 606, revenue is recognized when control of the promised products and/or services is transferred to our customers in an amount reflecting the consideration we are entitled to in exchange for those products or services. In accordance with ASC 340-40, incremental costs of obtaining a contract with a customer are deferred and recognized over the contract term.

Upon the adoption of ASC 606 and ASC 340-40, we recorded a net increase to our opening balance of retained earnings of $4.7 million as of January 1, 2018, after considering the income tax impact, due to the cumulative effect of adoption. The adoption impact primarily related to capitalizing customer contract acquisition costs consisting of sales commissions, partially offset by an increase in deferred revenue to reflect the inclusion of a significant financing component that will be recognized as interest income as payments are received over the contractual terms, and deferral of upfront setup fees that will recognized ratably over the expected contractual terms.

The cumulative effect of applying ASC 606 and ASC 340-40 to active contracts as of the adoption date resulted in the following adjustments to the Condensed Consolidated Balance Sheet as of January 1, 2018 (in thousands):



	As previously Reported at December 31, 2017		ASC 606 Adjustments			As Adjusted January 1, 2018
Assets
Accounts receivable, net	$	244,416	$	102		$	244,518
Other current assets	41,799		(1,628		)	40,171
Deferred tax assets	45,083		(1,466		)	43,617
Other assets	15,504		8,062			23,566
Liabilities
Deferred revenue	55,833		(95		)	55,738
Noncurrent contingent and other liabilities	28,801		491			29,292
Stockholders’ equity:
Retained earnings	402,544		4,674			407,218

The impact of adopting ASC 606 and ASC 340-40 on our Condensed Consolidated Statement of Operations is summarized as follows (in thousands):



	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	Amounts in Accordance with ASC 606			Amounts in Accordance with ASC 605			Effect of change higher (lower)			Amounts in Accordance with ASC 606			Amounts in Accordance with ASC 605			Effect of change higher (lower)
Revenue	$	261,072		$	260,195		$	877		$	500,938		$	498,602		$	2,336
Cost of revenue	132,484			132,625			(141		)	253,243			253,442			(199		)
Gross profit	128,588			127,570			1,018			247,695			245,160			2,535
Operating expenses	114,944			115,069			(125		)	236,116			236,102			14
Income from operations	13,644			12,501			1,143			11,579			9,058			2,521
Interest income and other income (expense), net	(355		)	(490		)	135			934			624			310
Income before income taxes	8,300			7,022			1,278			2,570			(261		)	2,831
Provision for income taxes	(4,532		)	(4,386		)	(146		)	(2,397		)	(2,102		)	(295		)
Net income	3,768			2,636			1,132			173			(2,363		)	2,536

The impact of adopting ASC 606 and ASC 340-40 on our Condensed Consolidated Balance Sheet as of June 30, 2018 was as follows (in thousands):



	Amounts in Accordance with ASC 606		Amounts in Accordance with ASC 605		Effect of change higher (lower)
Assets
Accounts receivable, net	$	243,400	$	240,814	$	2,586
Other current assets	57,814		59,243		(1,429		)
Deferred tax assets	44,384		46,145		(1,761		)
Other assets	29,885		21,837		8,048
Liabilities
Deferred revenue	66,581		66,735		(154		)
Noncurrent contingent and other liabilities	20,185		19,798		387
Stockholders’ equity
Retained earnings	407,392		400,181		7,211

The following table presents our disaggregated revenue by source (in thousands). Sales and usage-based taxes are excluded from revenue:



	Three Months Ended June 30, 2018								Six Months Ended June 30, 2018
	Industrial Inkjet		Productivity Software		Fiery		Total		Industrial Inkjet		Productivity Software		Fiery		Total
Major Products and Service Lines:
Industrial Inkjet
Printers and parts	$	97,599	$	—	$	—	$	97,599	$	185,973	$	—	$	—	$	185,973
Ink, supplies, and maintenance	58,835		—		—		58,835		112,670		—		—		112,670
Productivity Software															—
Licenses	—		10,656		—		10,656		—		23,312		—		23,312
Professional services	—		8,025		—		8,025		—		15,570		—		15,570
Maintenance and subscriptions	—		22,931		—		22,931		—		46,505		—		46,505
Fiery															—
Digital front ends and related products	—		—		59,360		59,360		—		—		109,456		109,456
Maintenance and subscriptions	—		—		3,666		3,666		—		—		7,452		7,452
Total	$	156,434	$	41,612	$	63,026	$	261,072	$	298,643	$	85,387	$	116,908	$	500,938
Timing of Revenue Recognition:
Transferred at a Point in Time	$	151,149	$	10,656	$	59,360	$	221,165	$	288,259	$	23,312	$	109,456	$	421,027
Transferred Over Time	5,285		30,956		3,666		39,907		10,384		62,075		7,452		79,911
Total	$	156,434	$	41,612	$	63,026	$	261,072	$	298,643	$	85,387	$	116,908	$	500,938
Recurring/Non-Recurring:
Non-Recurring	$	97,599	$	18,681	$	59,360	$	175,640	$	185,973	$	38,882	$	109,456	$	334,311
Recurring	58,835		22,931		3,666		85,432		112,670		46,505		7,452		166,627
Total	$	156,434	$	41,612	$	63,026	$	261,072	$	298,643	$	85,387	$	116,908	$	500,938

Remaining Performance Obligations

Revenue allocated to remaining performance obligations includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods (“backlog”). Remaining performance obligations were $128.2 million as of June 30, 2018, of which we expect to recognize substantially all of the revenue over the next 12 months.

Contract Balances

Timing of revenue recognition may differ from timing of invoicing to customers. Payment terms and conditions vary by contract. Deferred revenue (contract liability) represents amounts received in advance, or invoiced in advance, for product support contracts, software customer support contracts, consulting and integration projects, SaaS arrangements, or product sales. We defer these amounts when we collect or invoice the customer and then generally recognize revenue either ratably over the support contract term, upon performing the related services, under the cost-to-cost method, or in accordance with our revenue recognition policy. Revenue recognized during the three and six months ended June 30, 2018, which was included in deferred revenue as of December 31, 2017, was $11.8 and $37.7 million, respectively.

Unbilled accounts receivable represents contract assets for revenue that have been recognized in advance of billing the customer, which is common for long-term contracts. Billing requirements vary by contract but are generally structured around the completion of certain development milestones. Unbilled accounts receivable as of December 31, 2017, that were transferred to accounts receivable during the three and six months ended June 30, 2018, were $10.3 and $21.9 million, respectively.

The following table reflects the balances in unbilled accounts receivable and deferred revenue (in thousands):



	June 30, 2018		January 1, 2018
Unbilled accounts receivable – current	$	30,557	$	23,296
Unbilled accounts receivable – noncurrent	4,055		4,122
Deferred revenue – current	66,581		55,738
Deferred revenue – noncurrent	434		565