Revenue from Contracts with Customers

3 Months Ended

Dec. 31, 2020

Revenue From Contract With Customer [Abstract]

Revenue from Contracts with Customers

2. Revenue from Contracts with Customers

Contract Assets and Contract Liabilities

(in thousands)	December 31, 2020		September 30, 2020
Contract asset	$	12,016	$	11,984
Deferred revenue	$	434,055	$	426,465

As of December 31, 2020, $7.0 million of our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. The remainder is included in other long-term assets and expected to be transferred within the next 24 months. Approximately $5.3 million of the September 30, 2020 contract asset balance was transferred to receivables during the three months ended December 31, 2020 as a result of the right to payment becoming unconditional. Additions to contract assets of approximately $5.3 million related to revenue recognized in the period, net of billings. The majority of the contract asset balance relates to two large professional services contracts with invoicing terms based on performance milestones. There were no impairments of contract assets during the three months ended December 31, 2020.

During the three months ended December 31, 2020, we recognized $193.4 million of revenue that was included in deferred revenue as of September 30, 2020 and there were additional deferrals of $201.0 million, primarily related to new billings. For subscription contracts, we generally invoice customers annually. The balance of total short- and long-term receivables as of December 31, 2020 was $529.9 million, compared to total short- and long-term receivables as of September 30, 2020 of $511.3 million.

Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the subscription with other software. Although the exchange right is limited to software products within a similar product grouping, the exchange right is not limited to products with substantially similar features and functionality as those originally delivered. We determined that this right to exchange previously delivered software for different software represents variable consideration to be accounted for as a liability. We have identified a standard portfolio of contracts with common characteristics and applied the expected value method of determining variable consideration associated with this right. Additionally, where there are isolated situations that are outside of the standard portfolio of contracts due to contract size, longer contract duration, or other unique contractual terms, we use the most likely amount method to determine the amount of variable consideration. In both circumstances, the variable consideration included in the transaction price is constrained to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. As of December 31, 2020 and September 30, 2020, the total refund liability was $37.7 million and $34.5 million, respectively, primarily associated with the annual right to exchange on-premises subscription software.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Effective October 1, 2020, we adopted ASC 326, Financial Instruments—Credit Losses, which replaces the incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic conditions, and accounts receivable aging trends. Our allowance for doubtful accounts on trade accounts receivable was $0.5 million as of December 31, 2020 and September 30, 2020. Uncollectible trade accounts receivable written-off and bad debt expense were immaterial in the first quarter of 2021.

Costs to Obtain or Fulfill a Contract

We recognize an asset for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred costs (primarily commissions) are amortized proportionately related to revenue over five years, which is generally longer than the term of the initial contract because of anticipated renewals as commissions for renewals are not commensurate with commissions related to our initial contracts. As of December 31, 2020 and September 30, 2020, deferred costs of $36.7 million and $33.9 million, respectively, were included in other current assets and $74.7 million and $72.9 million, respectively, were included in other assets (non-current). Amortization expense related to costs to obtain a contract with a customer was $10.4 million and $7.7 million in the three months ended December 31, 2020 and December 28, 2019, respectively. There were no impairments of the contract cost asset in the three months ended December 31, 2020 and December 28, 2019.

Remaining Performance Obligations

Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of December 31, 2020, the amounts include additional performance obligations of $434.1 million recorded in deferred revenue and $941.4 million that are not yet recorded in the Consolidated Balance Sheets. We expect to recognize approximately 85% of the total $1,375.5 million over the next 24 months, with the remaining amount thereafter. Certain of our multi-year subscription contracts with start dates on or after October 1, 2018 contain a limited annual cancellation right. For such cancellable subscription contracts, we consider each annual period a discrete contract. Early in the fourth quarter of 2019, we discontinued offering the cancellation right for substantially all new contracts.

Remaining performance obligations do not include the cancellable value for subscriptions which contain this clause.

Disaggregation of Revenue

(in thousands)	Three months ended
	December 31, 2020		December 28, 2019
Recurring revenue	$	384,957	$	305,368
Perpetual license		8,463		8,998
Professional services		35,630		41,744
Total revenue	$	429,050	$	356,110

For further disaggregation of revenue by geographic region and product group see Note 11. Segment and Geographic Information.