Revenue Recognition

On April 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method applied to those contracts that were not completed as of the adoption date. Results for reporting periods beginning after the adoption date are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under prior guidance. For in depth discussion regarding our revenue recognition procedures for our revenue streams, see Note 2, Summary of Significant Accounting Policies.

Disaggregation of Revenue

We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $39.0 million and over time (support, maintenance and subscription services and professional services) totaled $101.8 million for the fiscal period 2019.

Contract Balances

Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.

Revenue recognized during the fiscal year ending March 31, 2019 from amounts included in contract liabilities at the beginning of the period was $33.1 million. During the fiscal period ending March 31, 2019, we transferred $4.6 million to accounts receivable from contract assets recognized at April 1, 2018 because the right to the transaction consideration became unconditional.

Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of March 31, 2019 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less.

Assets Recognized from Costs to Obtain a Contract

Sales commission expenses would not have occurred absent the customer contract and are therefore considered incremental. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less, and are therefore expensed as incurred in line with the practical expedient elected.

We have capitalized $1.9 million of sales incentive costs in prior periods as part of our opening retained earnings adjustment on April 1, 2018. As of March 31, 2019, we had $3.3 million of capitalized sales incentive costs. These balances are included in other non-current assets on our Consolidated Balance Sheet. During the fiscal period ending March 31, 2019, we expensed $4.5 million of sales commissions, including amortization of capitalized amounts of $1.1 million which is included in operating expenses - sales and marketing in our Consolidated Statement of Operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.

Financial Statement Impact of Adoption on Previously Reported Results

We adopted Topic 606 using the modified retrospective method. The cumulative impact of applying the new guidance to all contracts with customers that were not completed as of April 1, 2018 was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new standard, the following adjustments were made to noted accounts on the Consolidated Balance Sheet as of April 1, 2018:



(In thousands)	March 31, 2018	Adjustment from Topic 606		April 1, 2018
Assets:
Accounts receivable, net	16,389	3,124		19,513
Contract assets	—	4,583		4,583
Prepaid expenses and other current assets	5,593	(496	)	5,097
Other non-current assets	2,484	2,409		4,893

Liabilities:
Contract liabilities	26,820	7,006		33,826

Shareholders' equity:
Retained earnings	103,601	2,614		106,215

The acceleration of revenue that was deferred under prior guidance as of the adoption date was primarily attributable to the requirement of Topic 606 to allocate the transaction price to the performance obligations in the contract on a relative basis using SSP rather than allocating under the residual method, which allocates the entire arrangement discount to the delivered performance obligations.

Due to the Company's full valuation allowance as of the adoption date, there is no tax impact associated with the adoption of Topic 606.

We made certain presentation changes to our Consolidated Balance Sheet on April 1, 2018 to comply with Topic 606. Prior to adoption of the new standard, we offset accounts receivable and contract liabilities (previously presented as deferred revenue on our Consolidated Balance Sheet) for unpaid deferred performance obligations included in contract liabilities. Under the new standard, we record accounts receivable and related contract liabilities for non-cancelable contracts with customers when the right to consideration is unconditional. Upon adoption, the right to consideration in exchange for goods or services that have been transferred to a customer when that right is conditional on something other than the passage of time were reclassified from accounts receivable to contract assets.

Impact of Topic 606 on Financial Statement Line Items

The impact of adoption of Topic 606 on our Consolidated Balance Sheet as of March 31, 2019 and on our Consolidated Statement of Operations for the fiscal period ending March 31, 2019 was as follows:



	March 31, 2019
	As reported	Balance without adoption of Topic 606	Effect of Change Higher (Lower)
(In thousands)	As reported	Balance without adoption of Topic 606	Effect of Change Higher (Lower)
Assets:
Accounts receivable, net	27,000	23,046	3,954
Contract assets	2,921	—	2,921
Prepaid expenses and other current assets	6,272	6,665	(393	)
Other non-current assets	6,118	3,152	2,966

Liabilities:
Contract liabilities	38,669	32,343	6,326

Shareholders' equity:
Retained earnings	93,051	89,929	3,122



	March 31, 2019
	As reported		Balance without adoption of Topic 606		Effect of Change Higher (Lower)
(In thousands)	As reported		Balance without adoption of Topic 606		Effect of Change Higher (Lower)
Net revenue:
Products	39,003		37,466		1,537
Support, maintenance and subscription services	75,496		76,330		(834	)
Professional services	26,343		27,201		(858	)
Total net revenue:	140,842		140,997		(155	)

Operating expenses:
Sales and marketing	19,646		20,309		(663	)

Net Loss	(13,164	)	(13,672	)	(508	)

The adoption of Topic 606 had no material impact to cash used in operating, investing or financing activities on our Consolidated Statement of Cash Flows.