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. 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 a material impact to the Company’s balance sheet but an immaterial impact to its results of operations and cash flows. The Company expects to elect the optional transition method to apply the new lease standard prospectively at the adoption date, as opposed to recasting prior reporting periods. As a result, the Company expects to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

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 adoption impacts 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, which is defined as 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 being due, 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 the Company 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 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 of 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).


	September 30, 2017
	Three Months Ended						Nine Months Ended
(in thousands, except per share amounts)	Previously Reported		Adjustments		As Adjusted		Previously Reported		Adjustments		As Adjusted
Revenue:
Software license	$	41,793	$	11,441	$	53,234	$	195,220	$	36,172	$	231,392
Maintenance		62,204		(392)		61,812		180,759		(810)		179,949
Services		75,818		93		75,911		225,063		(2,542)		222,521

Total revenue		179,815		11,142		190,957		601,042		32,820		633,862

Cost of revenue:
Software license		1,276		—		1,276		3,826		—		3,826
Maintenance		6,716		—		6,716		20,945		—		20,945
Services		61,739		—		61,739		180,925		—		180,925

Total cost of revenue		69,731		—		69,731		205,696		—		205,696

Gross profit		110,084		11,142		121,226		395,346		32,820		428,166

Operating expenses:
Selling and marketing		70,209		(846)		69,363		217,384		(3,140)		214,244
Research and development		41,031		—		41,031		121,089		—		121,089
General and administrative		13,133		—		13,133		38,174		—		38,174

Total operating expenses		124,373		(846)		123,527		376,647		(3,140)		373,507

(Loss) income from operations		(14,289)		11,988		(2,301)		18,699		35,960		54,659
Foreign currency transaction loss		(552)		(4,500)		(5,052)		(793)		(5,756)		(6,549)
Interest income, net		144		(4)		140		470		77		547
Other income, net		—		—		—		287		—		287

(Loss) income before benefit from income taxes		(14,697)		7,484		(7,213)		18,663		30,281		48,944
Benefit from income taxes		(12,885)		4,384		(8,501)		(17,952)		8,943		(9,009)

Net (loss) income	$	(1,812)	$	3,100	$	1,288	$	36,615	$	21,338	$	57,953

(Loss) earnings per share:
Basic	$	(0.03)			$	0.01	$	0.47			$	0.75

Diluted	$	(0.03)			$	0.01	$	0.44			$	0.70

Weighted-average number of common shares outstanding:
Basic		77,691				77,691		77,258				77,258
Diluted		77,691				83,323		82,717				82,717

Adoption of ASC 606 and ASC 340-40 did not change the Company’s total cash provided by or used in operating, financing, or investing activities in the Company’s unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2017.