2. NEW ACCOUNTING PRONOUNCEMENTS

Financial Instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets measured at amortized cost, including accounts receivable, upon initial recognition of that financial asset using a forward-looking expected loss model, rather than an incurred loss model for credit losses. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses when the fair value is below the amortized cost of the asset, removing the concept of “other-than-temporary” impairments. The effective date for the Company will be January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures.

Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to record most leases on their balance sheets, recognizing a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The effective date for the Company will be January 1, 2019, with early adoption permitted. The Company expects that most of its operating lease commitments will be subject to this ASU and recognized as operating lease liabilities and right-of-use assets upon adoption with no material impact to its results of operations and cash flows.

ASC 606 and ASC 340-40

On January 1, 2018 the Company adopted the ASC 606 revenue recognition standard and has adjusted prior periods to conform.

The most significant impacts of adopting ASC 606 and ASC 340-40 were as follows:

•

Perpetual licenses with extended payment terms and term licenses - Revenue from perpetual licenses with extended payment terms and term licenses is now recognized when control is transferred to the client, the point in time when the client can use and benefit from the license. Previously, the Company recognized revenue over the term of the agreements as payments became due or earlier if prepaid. Any unrecognized license revenue from these arrangements is recognized in the period that control transfers or as a cumulative adjustment to retained earnings as of December 31, 2015. Unbilled receivables in the Company’s unaudited condensed consolidated balance sheets increased significantly upon adoption due to the revenue from term licenses being recognized prior to amounts billed, or prepaid by, clients and perpetual licenses with extended payment terms.

•

Allocation of future credits and significant discounts - Perpetual or term licenses delivered are a separate performance obligation which now requires us to allocate any future credits and discounts to the performance obligations in the arrangement based upon their relative stand-alone selling prices.

•

Deferred contract costs - Sales incentive programs and other incremental costs to obtain a contract were previously expensed when incurred. ASC 340-40 requires these costs be recognized as an asset when incurred and expensed over the period of expected benefit, which is on average five years. This change primarily impacts the Company’s contracts related to multi-year cloud offerings, maintenance on term and perpetual licenses, and those long-term term and perpetual licenses with client usage rights that increase over time.

•

Taxes - The corresponding effect on tax balances of the above impacts has also been recognized.

For additional information on the Company’s accounting policies as a result of the adoption of ASC 606 and ASC 340-40 see Note 4. “Receivables, Contract Assets, and Deferred Revenue”, Note 5. “Deferred Contract Costs”, and Note 9. “Revenue”.

The impact of the adoption ASC 606 and ASC 340-40 on the Company’s unaudited condensed consolidated balance sheet and unaudited condensed consolidated statement of operations is:


	December 31, 2017
(in thousands)	Previously reported		Adjustments		As adjusted
Assets
Accounts receivable, unbilled receivables, and contract assets	$	248,331	$	134,216	$	382,547
Long-term unbilled receivables		—		160,708		160,708
Deferred income taxes		57,127		(42,887)		14,240
Deferred contract costs		—		37,924		37,924
Other assets⁽¹⁾		416,148		—		416,148

Total Assets	$	721,606	$	289,961	$	1,011,567

Liabilities and stockholders’ equity
Deferred revenue	$	195,073	$	(28,776)	$	166,297
Long-term deferred revenue		6,591		(2,885)		3,706
Deferred income tax liabilities		—		38,463		38,463
Other liabilities⁽²⁾		148,864		—		148,864

Total liabilities		350,528		6,802		357,330
Foreign currency translation adjustments		(3,494)		(2,966)		(6,460)
Retained earnings		221,926		286,125		508,051
Other equity⁽³⁾		152,646		—		152,646

Total stockholders’ equity		371,078		283,159		654,237

Total liabilities and stockholders’ equity	$	721,606	$	289,961	$	1,011,567

⁽¹⁾

Includes cash, cash equivalents, marketable securities, income taxes receivable, other current assets, property and equipment, intangible assets, goodwill, and other long-term assets (as reflected in the consolidated balance sheets in the Annual Report on Form 10-K for the year ended December 31, 2017).

⁽²⁾

Includes accounts payable, accrued expenses, accrued compensation and related expenses, income taxes payable, and other long-term liabilities (as reflected in the consolidated balance sheets in the Annual Report on Form 10-K for the year ended December 31, 2017).

⁽³⁾

Includes common stock, additional paid-in capital, and net unrealized loss on available-for-sale marketable securities (as reflected in the consolidated balance sheets in the Annual Report on Form 10-K for the year ended December 31, 2017).


	Three months ended June 30, 2017						Six months ended June 30, 2017
(in thousands, except per share amounts)	Previously Reported		Adjustments		As Adjusted		Previously Reported		Adjustments		As Adjusted
Revenue:
Software license	$	61,037	$	(9,887)	$	51,150	$	153,427	$	24,731	$	178,158
Maintenance		59,590		(166)		59,424		118,555		(418)		118,137
Services		77,353		(1,331)		76,022		149,245		(2,635)		146,610

Total revenue		197,980		(11,384)		186,596		421,227		21,678		442,905

Cost of revenue:
Software license		1,250		—		1,250		2,550		—		2,550
Maintenance		7,011		—		7,011		14,229		—		14,229
Services		59,614		—		59,614		119,186		—		119,186

Total cost of revenue		67,875		—		67,875		135,965		—		135,965

Gross profit		130,105		(11,384)		118,721		285,262		21,678		306,940

Operating expenses:
Selling and marketing		75,887		(687)		75,200		147,175		(2,294)		144,881
Research and development		39,762		—		39,762		80,058		—		80,058
General and administrative		12,706		—		12,706		25,041		—		25,041

Total operating expenses		128,355		(687)		127,668		252,274		(2,294)		249,980

Income/(loss) from operations		1,750		(10,697)		(8,947)		32,988		23,972		56,960
Foreign currency transaction loss		(917)		(1,325)		(2,242)		(241)		(1,256)		(1,497)
Interest income, net		161		41		202		326		81		407
Other income, net		566		—		566		287		—		287

Income/(loss) before benefit from income taxes		1,560		(11,981)		(10,421)		33,360		22,797		56,157
Benefit from income taxes		(9,846)		(4,277)		(14,123)		(5,067)		4,559		(508)

Net income	$	11,406	$	(7,704)	$	3,702	$	38,427	$	18,238	$	56,665

Earnings per share:
Basic	$	0.15			$	0.05	$	0.50			$	0.74

Diluted	$	0.14			$	0.04	$	0.47			$	0.69

Weighted-average number of common shares outstanding:
Basic		77,313				77,313		77,039				77,039
Diluted		82,945				82,945		82,412				82,412

Adoption of ASC 606 and ASC 340-40 had no impact on total cash from or used in operating, financing, or investing activities in the Company’s unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2017.