Note 4 – Revenue

As described in Note 2, the Company adopted Topic 606 on January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below.

The Company adopted Topic 606 using the modified retrospective method under which the cumulative effect of initially applying Topic 606 is an adjustment to the opening balance of Accumulated Income at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The details of the significant changes and quantitative impact of the changes are set out below.

Term Licenses

For revenues generated from arrangements that included term licenses to our software, the Company previously recognized revenue ratably over the term of the contract when VSOE did not exist for all undelivered elements. Under Topic 606, these licenses are considered licenses of functional intellectual property, which requires recognition at the point in time all of the revenue recognition criteria per Topic 606 are met, which for the Company is generally when the customer is provided access to the software and the license term has commenced. We have established a stand-alone selling price (SSP) for all other performance obligations in the contract. Accordingly, the Company now recognizes revenue from these licenses, based on the residual approach due to highly variable pricing, at the beginning of the license period and recognizes the transaction price allocated to the other performance obligations in the contract (typically maintenance and support) over the period in which those performance obligations are satisfied. This is consistent with the method of recognizing revenue for perpetual licenses of intellectual property. Fees paid to third party software providers in term license arrangements are now recognized under Topic 606 when the term license revenues are recognized.

Sales Commissions

The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. For commissions earned by sales personnel, the Company previously recognized these amounts when they were earned by the employees. As a result of adopting Topic 606, the Company now capitalizes commissions associated with new customers and amortizes the costs over a period in which the Company is expected to benefit, which can be up to seven years. The amortization is reflected in Sales and Marketing in the statement of operations. For certain contracts, any commission that is subject to a service period, such as employment, is expensed as incurred within Sales and Marketing in the statement of operations.

Disaggregation of Revenues

The following tables present our revenues disaggregated by major products and services, geographical region and timing of revenue recognition.

Revenue by major products and services (in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2018		2017*		2018		2017*
Hardware products	$	27,056	$	26,606	$	69,123	$	73,607
Software licenses		9,826		11,815		36,239		30,847
Subscription		4,161		3,023		10,949		7,634
Professional services		1,594		1,354		3,715		3,384
Maintenance, support and other		9,858		8,328		27,455		23,313
Total Revenue	$	52,495	$	51,126	$	147,481	$	138,785

Revenue by location of customer for the three months ended September 30, 2018 and 2017 (in thousands)


	EMEA			Americas			APAC			Total
Total Revenue:
2018	$	25,281		$	11,055		$	16,159		$	52,495
2017*	$	22,768		$	14,419		$	13,939		$	51,126

Percent of Total:
2018		48	%		21	%		31	%		100	%
2017*		45	%		28	%		27	%		100	%

Revenue by location of customer for the nine months ended September 30, 2018 and 2017 (in thousands)


	EMEA			Americas			APAC			Total
Total Revenue:
2018	$	65,148		$	40,246		$	42,087		$	147,481
2017*	$	62,868		$	37,880		$	38,037		$	138,785

Percent of Total:
2018		44	%		27	%		29	%		100	%
2017*		45	%		27	%		28	%		100	%

* Prior period amounts are presented under ASC 605 and ASC 985-605

Timing of revenue recognition (in thousands)


	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
Products and Licenses transferred at a point in time	$	36,882	$	105,362
Services transferred over time		15,613		42,119
Total Revenue	$	52,495	$	147,481

Impacts on Financial Statements

The following tables summarize the impacts of adopting Topic 606 on the Company’s consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018.

Balance Sheet (in thousands)


	September 30, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606
ASSETS
Current assets
Accounts receivable, net of allowance	$	42,534	$	(340)	$	42,194
Contract asset		6,653		(6,653)		—
Other current assets		7,309		(369)		6,940
Total current assets		168,939		(7,362)		161,577
Deferred income taxes		4,911		507		5,418
Contract asset - non-current		4,407		(4,407)		—
Other assets		7,476		(289)		7,187
Total assets	$	333,421	$	(11,551)	$	321,870
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Deferred revenue	$	28,344	$	3,402	$	31,746
Short-term income taxes payable		1,600		(1,200)		400
Other accrued expenses		10,683		(352)		10,331
Total current liabilities		56,914		1,851		58,765
Deferred revenue - non-current		5,254		2,958		8,212
Deferred income taxes		6,111		(424)		5,687
Total liabilities		83,545		4,385		87,930
Stockholders' equity
Accumulated income		168,409		(15,936)		152,473
Total stockholders' equity		249,876		(15,936)		233,940
Total liabilities and stockholders' equity	$	333,421	$	(11,551)	$	321,870

Statement of Operations (in thousands)


	Three months ended September 30, 2018						Nine months ended September 30, 2018
	As Reported		Adjustments		Balances without the adoption of Topic 606		As Reported		Adjustments		Balances without the adoption of Topic 606
Revenue
Product and license	$	36,882	$	1,425	$	38,307	$	105,362	$	1,350	$	106,712
Services and other		15,613		(1,959)		13,654		42,119		(4,350)		37,769
Total revenue		52,495		(534)		51,961		147,481		(3,000)		144,481

Cost of goods sold
Product and license		14,321		(83)		14,238		32,897		451		33,348
Services and other		3,631		—		3,631		9,363		—		9,363
Total Cost of goods sold		17,952		(83)		17,869		42,260		451		42,711

Gross profit		34,543		(451)		34,092		105,221		(3,451)		101,770

Operating Costs
Sales and marketing		16,039		235		16,274		46,938		842		47,780
Total operating costs		37,657		235		37,892		109,298		842		110,140

Operating loss		(3,114)		(686)		(3,800)		(4,077)		(4,293)		(8,370)

Loss before taxes		(2,610)		(686)		(3,296)		(1,061)		(4,293)		(5,354)

Provision (benefit) for income taxes		(1,702)		1,490		(212)		(943)		(277)		(1,220)

Net loss	$	(908)	$	(2,176)	$	(3,084)	$	(118)	$	(4,016)	$	(4,134)

Basic EPS	$	(0.02)			$	(0.08)	$	(0.00)			$	(0.10)
Diluted EPS	$	(0.02)			$	(0.08)	$	(0.00)			$	(0.10)

The adoption of Topic 606 did not impact total operating, investing or financing cash flows in the statement of cash flows.

Contract balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.


	January 1,			September 30,
	2018			2018
Receivables, inclusive of trade and unbilled	$	48,217	$		42,534
Contract Assets (current and non-current)	$	8,167	$		11,060
Contract Liabilities (Deferred Revenue current and non-current)	$	33,752	$		33,598

Contract assets relate primarily to multi-year term license arrangements and the remaining contractual billings. These contract assets are transferred to receivables when the right to billing occurs, which is normally over 3-5 years. The contract liabilities primarily relate to the advance consideration received from customers for subscription and maintenance services. Revenue is recognized for these services over time.

As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We do not typically include extended payment terms in our contracts with customers.

During the nine months ended September 30, 2018, the Company’s contract asset balances increased approximately $2.9 million, primarily due to new term contracts exceeding billings during the period, partially offset by transfers to accounts receivable. Deferred Revenue decreased in the same period due to timing of annual renewals, partially offset by Dealflo deferred revenue of $1.7 million.

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.


in thousands	2018		2019		2020		Beyond 2020		Total
Future revenue related to current unsatisfied performance obligations	$	1,825	$	6,898	$	4,509	$	9,273	$	22,505

The Company applies practical expedients and does not disclose information about remaining performance obligations a) that have original expected durations of one year or less, or b) where revenue is recognized as invoiced.

Costs of obtaining a contract

The Company incurs incremental costs related to commissions, which can be directly tied to obtaining a contract. Under Topic 606, the Company capitalizes commissions associated with certain new contracts and amortizes the costs over a period of benefit based on the transfer of goods or services that we have determined to be up to seven years. The Amortization is reflected in Sales and Marketing in the Statement of Operations. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors, including customer attrition. Commissions are payable upon receipt of payment by the customer and requires the employee to be a current employee. For contracts with multiple year payment terms, as the commissions that are payable after year 1 are payable based on continued employment, they are expensed when incurred. Commissions and amortization expense are included in Sales and Marketing expenses on the consolidated statements of operations.

Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period for the assets that the Company otherwise would have recognized is one year or less. These costs are included in Sales and Marketing expense in the consolidated statement of operations.

The following tables provide information related to the capitalized costs and amortization recognized in the period:



in thousands				September 30, 2018
Capitalized costs to obtain contracts, current			$	354
Capitalized costs to obtain contracts, non-current			$	1,884


		Three months ended		Nine months ended
in thousands		September 30, 2018		September 30, 2018
Amortization of capitalized costs to obtain contracts	$	85	$	205
Impairments of capitalized costs to obtain contracts	$	-	$	-