TABLEAU SOFTWARE INC, 10-Q filed on 8/6/2018
Quarterly Report
v3.10.0.1
Document and Entity Information Statement - shares
6 Months Ended
Jun. 30, 2018
Aug. 02, 2018
Document Information    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Entity Registrant Name TABLEAU SOFTWARE INC  
Entity Central Index Key 0001303652  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Class A common stock    
Document Information    
Entity Common Stock, Shares Outstanding   70,047,244
Class B common stock    
Document Information    
Entity Common Stock, Shares Outstanding   12,896,296
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Current assets    
Cash and cash equivalents $ 611,091 $ 627,878
Short-term investments 301,054 226,787
Accounts receivable, net of allowance for doubtful accounts of $1,097 and $1,003 170,907 203,366
Prepaid expenses and other current assets 115,605 30,514
Income taxes receivable 778 673
Total current assets 1,199,435 1,089,218
Long-term investments 89,991 148,364
Property and equipment, net 95,603 106,753
Goodwill 42,530 35,083
Deferred income taxes 4,072 5,287
Other long-term assets 41,626 14,090
Total assets 1,473,257 1,398,795
Current liabilities    
Accounts payable 3,829 4,448
Accrued compensation and employee-related benefits 75,129 96,390
Other accrued liabilities 54,745 37,722
Income taxes payable 1,986 4,743
Deferred revenue 320,305 419,426
Total current liabilities 455,994 562,729
Deferred revenue 15,615 28,058
Other long-term liabilities 53,686 54,385
Total liabilities 525,295 645,172
Commitments and contingencies (Note 10)
Stockholders' equity    
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; none issued 0 0
Common stock 8 8
Additional paid-in capital 1,256,854 1,168,563
Accumulated other comprehensive loss (11,811) (11,991)
Accumulated deficit (297,089) (402,957)
Total stockholders' equity 947,962 753,623
Total liabilities and stockholders' equity 1,473,257 1,398,795
Class B common stock    
Stockholders' equity    
Common stock 1 1
Class A common stock    
Stockholders' equity    
Common stock $ 7 $ 7
v3.10.0.1
Condensed Consolidated Balance Sheets Balance Sheet Parenthetical - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Allowance for doubtful accounts $ 1,097 $ 1,003
Preferred Stock, Par Value (in usd per share) $ 0.0001 $ 0.0001
Preferred Stock, Shares Authorized 10,000,000 10,000,000
Preferred Stock, Shares Issued 0 0
Class B common stock    
Common Stock, Par Value (in usd per share) $ 0.0001 $ 0.0001
Common Stock, Shares Authorized 75,000,000 75,000,000
Common Stock, Shares Issued 12,896,296 14,492,846
Common Stock, Shares Outstanding 12,896,296 14,492,846
Class A common stock    
Common Stock, Par Value (in usd per share) $ 0.0001 $ 0.0001
Common Stock, Shares Authorized 750,000,000 750,000,000
Common Stock, Shares Issued 70,044,042 65,969,499
Common Stock, Shares Outstanding 70,044,042 65,969,499
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Revenues        
License $ 137,848 $ 103,296 $ 246,641 $ 200,540
Maintenance and services 144,441 109,584 281,855 212,246
Total revenues 282,289 212,880 528,496 412,786
Cost of revenues        
License 4,626 2,942 8,580 6,209
Maintenance and services 30,599 23,723 59,070 47,111
Total cost of revenues [1] 35,225 26,665 67,650 53,320
Gross profit 247,064 186,215 460,846 359,466
Operating expenses        
Sales and marketing [1] 144,150 124,160 282,556 242,178
Research and development [1] 94,033 81,067 187,538 165,369
General and administrative [1] 29,846 25,875 62,096 50,320
Total operating expenses 268,029 231,102 532,190 457,867
Operating loss (20,965) (44,887) (71,344) (98,401)
Other income, net 6,866 4,029 8,328 5,254
Loss before income tax expense (benefit) (14,099) (40,858) (63,016) (93,147)
Income tax expense (benefit) (2,033) 1,664 (4,478) 4,022
Net loss $ (12,066) $ (42,522) $ (58,538) $ (97,169)
Net loss per share:        
Basic $ (0.15) $ (0.54) $ (0.72) $ (1.25)
Diluted $ (0.15) $ (0.54) $ (0.72) $ (1.25)
Weighted average shares used to compute net loss per share:        
Basic 82,247 78,511 81,647 77,966
Diluted 82,247 78,511 81,647 77,966
[1] Includes stock-based compensation expense as follows: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 (in thousands)Cost of revenues$3,299 $2,790 $6,286$5,367Sales and marketing22,150 18,526 42,16536,618Research and development26,837 25,648 51,99449,163General and administrative6,026 5,150 13,63010,161
v3.10.0.1
Condensed Consolidated Statements of Operations Parenthetical - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Cost of revenues        
Stock-based Compensation Expense $ 3,299 $ 2,790 $ 6,286 $ 5,367
Sales and marketing        
Stock-based Compensation Expense 22,150 18,526 42,165 36,618
Research and development        
Stock-based Compensation Expense 26,837 25,648 51,994 49,163
General and administrative        
Stock-based Compensation Expense $ 6,026 $ 5,150 $ 13,630 $ 10,161
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Loss Statement - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net loss $ (12,066) $ (42,522) $ (58,538) $ (97,169)
Other comprehensive income (loss), net of tax:        
Foreign currency translation (1,314) (6,384) (728) (7,208)
Net unrealized gain (loss) on available-for-sale securities 74 0 (775) 0
Comprehensive loss $ (13,306) $ (48,906) $ (60,041) $ (104,377)
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Operating activities    
Net loss $ (58,538) $ (97,169)
Adjustments to reconcile net loss to net cash provided by operating activities    
Depreciation and amortization expense 19,050 23,837
Amortization of premiums on investments, net 137 0
Stock-based compensation expense 114,075 101,309
Deferred income taxes (3,965) 465
Changes in operating assets and liabilities    
Accounts receivable, net 31,490 72,493
Prepaid expenses and other assets (44,925) 19,519
Income taxes receivable (125) (97)
Deferred revenue (3,893) 30,072
Accounts payable and accrued liabilities 8,663 (16,421)
Income taxes payable (2,713) 523
Net cash provided by operating activities 59,256 134,531
Investing activities    
Purchases of property and equipment (11,076) (33,860)
Business combination, net of cash acquired (10,947) 0
Purchases of investments (156,591) 0
Maturities of investments 139,685 0
Sales of investments 99 0
Net cash used in investing activities (38,830) (33,860)
Financing activities    
Proceeds from issuance of common stock 25,581 21,646
Repurchases of common stock (60,013) (40,014)
Net cash used in financing activities (34,432) (18,368)
Effect of exchange rate changes on cash and cash equivalents (2,781) 1,884
Net increase (decrease) in cash and cash equivalents (16,787) 84,187
Cash and cash equivalents    
Beginning of period 627,878 908,717
End of period 611,091 992,904
Non-cash activities    
Accrued purchases of property and equipment $ 2,513 $ 1,875
v3.10.0.1
Description of Business
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business
Description of Business
Tableau Software, Inc., a Delaware corporation, and its wholly-owned subsidiaries (the "Company," "we," "us" or "our") are headquartered in Seattle, Washington. Our software products put the power of data into the hands of everyday people, allowing a broad population of business users to engage with their data, ask questions, solve problems and create value. Based on innovative core technologies originally developed at Stanford University, our products dramatically reduce the complexity, inflexibility and expense associated with traditional business intelligence applications. We currently offer five key products: Tableau Desktop, a self-service, powerful analytics product for anyone with data; Tableau Server, a business intelligence platform for organizations; Tableau Online, a hosted software-as-a-service ("SaaS") version of Tableau Server; Tableau Prep, a data preparation product for combining, shaping and cleaning data; and Tableau Public, a free cloud-based platform for analyzing and sharing public data.
v3.10.0.1
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial information has been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet data as of December 31, 2017 was derived from audited financial statements but does not include all disclosures required by GAAP. The condensed consolidated financial information should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 26, 2018.
In the opinion of management, the accompanying unaudited condensed consolidated financial information includes all normal recurring adjustments necessary for a fair statement of the Company's financial position, results of operations, comprehensive loss and cash flows for the interim periods, but is not necessarily indicative of the results that may be expected for the year ending December 31, 2018. All intercompany accounts and transactions have been eliminated in consolidation.
We adopted the new revenue recognition accounting standard, codified as Accounting Standards Codification (“ASC”) 606, effective January 1, 2018 on a modified retrospective basis (see Recently Adopted Accounting Pronouncements). Financial results for reporting periods during 2018 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to 2018 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, ASC 605. These financial statements include additional information regarding the impacts from the adoption of the new revenue recognition standard on our financial results for the three and six months ended June 30, 2018. This includes the presentation of financial results during 2018 under ASC 605 for comparison to the prior year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include but are not limited to: the collectability of our receivables; the useful lives of our property and equipment and other lease-related assets, liabilities and costs; the benefit period for deferred commissions; the valuation of investments and the determination of other-than-temporary impairments; and the reported amounts of accrued liabilities. For revenue, we make estimates and assumptions related to the standalone selling prices of our products and services and the nature and timing of the delivery of performance obligations from our contracts with customers. We also use estimates in stock-based compensation, income taxes and business combinations. Actual results could differ from those estimates.
Risks and Uncertainties
Inherent in our business are various risks and uncertainties, including our limited history of operating our business at its current scale and development of advanced technologies in a rapidly changing industry. These risks include our ability to manage our growth and our ability to attract new customers and expand sales to existing customers, as well as other risks and uncertainties. In the event that we do not successfully implement our business plan, certain assets may not be recoverable, certain liabilities may not be paid and investments in our capital stock may not be recoverable. Our success depends upon the acceptance of our technology, development of sales and distribution channels and our ability to generate significant revenues from the sale of our technology.
Segments
We follow the authoritative literature that establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products and services, geographic regions and major customers.
We operate our business as one operating segment. Our chief operating decision makers are our Chief Executive Officer and Chief Financial Officer, who review financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources.
Revenue Recognition - ASC 606
We generate revenues primarily in the form of software license fees and related maintenance and services fees. Software license revenues include fees from the sales of perpetual, term and subscription licenses. Maintenance and services revenues primarily consist of fees for maintenance services (including support and unspecified upgrades and enhancements if and when they are available), training and professional services.
We recognize revenues related to contracts with customers that meet the following criteria:
the contract contains reasonable evidence of approval and both parties' commitment to perform their respective obligations;
the contract includes identifiable rights to goods and services to be transferred and payment terms related to the transfer of those goods and services;
the contract has commercial substance; and
collection of substantially all of the consideration we are entitled to under the contract is probable.
We identify performance obligations in our contracts with customers, which may include software licenses and/or related maintenance and services. We determine the transaction price based on the amount we expect to be entitled to in exchange for transferring the promised goods or services to the customer. We allocate the transaction price in the contract to each distinct performance obligation in an amount that depicts the relative amount of consideration we expect to receive in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied.
Our contract payment terms are typically net 30 days. We assess collectability based on a number of factors including collection history and creditworthiness of the customer, and we may mitigate exposures to credit risk by requiring payments in advance. If we determine that collectability related to a contract is not probable, we may not record revenue until collectability becomes probable at a later date.
Our revenues are recorded based on the transaction price excluding amounts collected on behalf of third parties, such as sales taxes which are collected on behalf of and remitted to governmental authorities.
Nature of Products and Services
Our on-premises software licenses are sold through both perpetual and term-based license agreements. These licensing arrangements provide customers with the same product functionality and differ mainly in the duration over which the customer benefits from the software. We deliver our software licenses electronically. Electronic delivery occurs when we provide the customer with access to the software and license key via a secure portal. Revenue from on-premises software licenses is generally recognized upfront at the point in time when the software is made available to the customer.
Our contracts with customers for on-premises software licenses include maintenance services and may also include training and/or professional services. Maintenance services agreements consist of fees for providing software updates on an if and when available basis and for providing technical support for software products for a specified term. We believe that our if and when available software updates and technical support each have the same pattern of transfer to the customer and are substantially the same. Therefore, we consider these updates and technical support to be a single distinct performance obligation. Revenues allocated to maintenance services are recognized ratably as the maintenance services are provided. Revenues related to training services are billed on a fixed fee basis and are recognized as the services are delivered. Payments received in advance of services performed are deferred and recognized when the related services are performed. Revenues related to professional services are billed on a time and materials basis and are recognized as the services are performed.
We also provide cloud-based subscriptions, which allow customers to access our software during a contractual period without taking possession of the software. We recognize revenue related to these cloud-based subscriptions ratably over the life of the subscription agreement beginning when the customer first has access to the software. Revenues from our cloud-based subscriptions are included in license revenues.
Judgments and Estimates
Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately from one another sometimes requires judgment.
Judgment is also required to determine standalone selling prices (“SSP”) for each distinct performance obligation. We typically have more than one SSP for each of our products and services based on customer stratification, which is based on the size of the customer, their geographic region and market segment. We use other comparable software license sales to determine SSPs for perpetual software licenses. For our cloud-based subscriptions and for maintenance services, training and professional services, SSPs are generally observable using standalone sales and/or renewals. Our on-premises term-based software licenses generally do not have directly observable inputs for determining SSP. Therefore, we determine SSP using other observable inputs including customer buying patterns, renewal rates, cumulative spend comparisons and other industry data.
We evaluate contracts that include options to purchase additional goods or services to determine whether or not the options give rise to a separate performance obligation that is material. If we determine the options are material, the revenue allocated to such options is not recognized until the option is exercised or the option expires.
Our revenue recognition accounting policy for ASC 605 is included in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 26, 2018. We applied the revenue recognition accounting policy for ASC 605 to our disclosures in Note 7, which include amounts presented for 2018. There were no changes to the ASC 605 policy during the six months ended June 30, 2018.
Assets Recognized from the Costs to Obtain a Contract with a Customer
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain costs related to our sales incentive programs meet the requirements to be capitalized and deferred. Assets recorded are included in other current assets and other long-term assets. We amortize these deferred costs proportionate with related revenues over the benefit period, currently estimated to be four years. We consider the benefit period to exceed the initial contract term for certain costs because of anticipated renewals and because our sales commission rates for renewal contracts are not commensurate with sales commissions for initial contracts.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable.
Our investment portfolio consists of investment-grade securities diversified among security types, industries and issuers. Our cash and cash equivalents and investments are held and managed by recognized financial institutions that follow our investment policy. Our policy limits the amount of credit exposure to any one security issue or issuer.
We extend credit to customers based upon an evaluation of the customer's financial condition. As of June 30, 2018 and December 31, 2017, no individual customer accounted for 10% or more of total accounts receivable. For the three and six months ended 2018 and 2017, no individual customer represented 10% or more of our total revenues.
Recently Adopted Accounting Pronouncements
We adopted the new revenue recognition accounting standard, ASC 606, effective January 1, 2018. The new revenue recognition standard changed the way we recognize revenue, including the identification of contractual performance obligations and the allocation of transaction price, to depict the transfer of promised goods or services to customers at the amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We adopted the new revenue recognition standard on a modified retrospective basis and applied the new revenue recognition standard only to contracts that were not completed contracts prior to January 1, 2018. Upon adoption, we recorded an adjustment of $146.8 million to our accumulated deficit. The adjustment was offset by a $105.9 million reduction to deferred revenue, which was primarily related to on-premises term licenses, and the addition of a $40.9 million contract asset.
The new revenue recognition standard materially impacts the timing of revenue recognition related to our on-premises term license agreements. Prior to our adoption of the new revenue recognition standard, we historically recognized revenue related to on-premises term license agreements ratably over the term of the licensing agreement. Under the new revenue recognition standard, revenue allocable to the license portion of the arrangement is recognized upon delivery of the license. Maintenance revenue related to on-premises term license agreements continue to be recognized ratably over the term of the licensing agreement. Under the new revenue recognition standard, we allocate total transaction price to performance obligations based on estimated standalone selling prices, which impacts the timing of revenue recognition depending on when each performance obligation is recognized. These impacts to the timing of revenue recognition also affect our deferred revenue balances.
The new revenue recognition standard requires the capitalization of certain incremental costs of obtaining a contract, which impacts the period in which we record our sales commissions expense. Prior to our adoption of the new revenue recognition standard, we recognized sales commissions expense as incurred. Under the new revenue recognition standard, we are required to recognize these expenses over the period of benefit associated with these costs. This results in a deferral of sales commissions expense each period and subsequent amortization of those costs over the estimated benefit period. Upon adoption of the new revenue recognition standard, we reduced our accumulated deficit by $25.5 million and recognized an offsetting asset for deferred sales commissions related to contracts that were not completed contracts prior to January 1, 2018.
For further discussion regarding the impacts of adopting the new revenue recognition standard, see Note 7.
In October 2016, the FASB issued ASU 2016-16 related to the accounting for income tax effects on intra-entity asset transfers of assets other than inventory. The new guidance requires reporting entities to recognize tax expense from the sale of assets when the transfer occurs, even though the pre-tax effects of the transaction are eliminated in consolidation. We adopted the new standard in the first quarter of 2018 on a modified retrospective basis. The adoption resulted in the recognition of a U.S. deferred tax asset, which was fully offset by a corresponding increase to the valuation allowance on our U.S. federal and state deferred income tax assets, and therefore did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02 related to lease accounting. The new guidance will require lessees to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases that do not meet the definition of a short-term lease. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018 and requires modified retrospective transition. Under the new standard we anticipate that our current real estate leases will continue to be classified as operating leases and a significant amount of our currently outstanding operating lease commitments will be recorded to the balance sheet as right-of-use assets with corresponding lease liabilities. We expect the adoption of the new lease accounting standard to have a material impact on our balance sheet on the date of adoption. Our evaluation of the new standard will extend into future periods and we will update our disclosures as we progress towards the required adoption date.
In June 2016, the FASB issued ASU 2016-13, related to credit losses. The new guidance replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
v3.10.0.1
Short-Term and Long-Term Investments
6 Months Ended
Jun. 30, 2018
Schedule of Short-Term and Long-Term Investments  
Short-term and Long-term Investments
Short-Term and Long-Term Investments
The following tables represent our short-term and long-term investments in available-for-sale securities as of June 30, 2018 and December 31, 2017, based on remaining contractual years to maturity:
 
June 30, 2018
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
(in thousands)
Short-term investments
 
 
 
 
 
 
 
U.S. treasury securities
$
178,842

 
$

 
$
(395
)
 
$
178,447

U.S. agency securities
21,403

 

 
(112
)
 
21,291

Corporate bonds
101,626

 

 
(310
)
 
101,316

Total short-term investments
301,871

 

 
(817
)
 
301,054

Long-term investments

 

 

 

U.S. treasury securities
59,340

 

 
(400
)
 
58,940

U.S. agency securities
3,578

 

 
(33
)
 
3,545

Corporate bonds
27,695

 
2

 
(191
)
 
27,506

Total long-term investments
90,613

 
2

 
(624
)
 
89,991

Total short-term and long-term investments
$
392,484

 
$
2

 
$
(1,441
)
 
$
391,045

 
December 31, 2017
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
(in thousands)
Short-term investments
 
 
 
 
 
 
 
Commercial paper
$
9,970


$


$


$
9,970

U.S. treasury securities
160,206

 

 
(121
)
 
160,085

U.S. agency securities
9,917

 

 
(24
)
 
9,893

Corporate bonds
46,901

 
3

 
(65
)
 
46,839

Total short-term investments
226,994

 
3

 
(210
)
 
226,787

Long-term investments
 
 
 
 
 
 
 
U.S. treasury securities
79,371

 

 
(202
)
 
79,169

U.S. agency securities
18,570

 

 
(102
)
 
18,468

Corporate bonds
50,880

 

 
(153
)
 
50,727

Total long-term investments
148,821

 

 
(457
)
 
148,364

Total short-term and long-term investments
$
375,815

 
$
3

 
$
(667
)
 
$
375,151


As of June 30, 2018 and December 31, 2017, there were no investments that had been in a net loss position for 12 months or greater. The unrealized losses on investments as of June 30, 2018 were primarily caused by increases in interest rates. None of the unrealized losses represent other than temporary impairments based on our evaluation of available evidence as of June 30, 2018.
v3.10.0.1
Fair Value Measurements
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
We categorize assets and liabilities recorded at fair value based upon the level of judgment associated with inputs used to measure their fair value. The levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3—Inputs are unobservable inputs based on our own assumptions and valuation techniques used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.
Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
We value our investments using quoted prices for identical instruments in active markets when available. If we are unable to obtain quoted prices for identical instruments in active markets, we value our investments using quoted market prices for comparable instruments. To date, all of our investments can be valued using one of these two methodologies.
The following tables present the fair value of our financial assets using the fair value hierarchy as of June 30, 2018 and December 31, 2017:


June 30, 2018


Level 1

Level 2

Level 3

Total


(in thousands)
Cash and cash equivalents

 
 
 
 
 
 
 
Money market funds

$
516,081


$


$


$
516,081

Short-term investments

 
 
 
 
 
 
 
U.S. treasury securities
 

 
178,447

 

 
178,447

U.S. agency securities
 

 
21,291

 

 
21,291

Corporate bonds
 

 
101,316

 

 
101,316

Long-term investments
 
 
 
 
 
 
 
 
U.S. treasury securities



58,940




58,940

U.S. agency securities



3,545




3,545

Corporate bonds
 

 
27,506

 

 
27,506

Total

$
516,081


$
391,045


$


$
907,126


 
 
December 31, 2017
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in thousands)
Cash and cash equivalents
 
 
 
 
 
 
 
 
Money market funds
 
$
582,835

 
$

 
$

 
$
582,835

Commercial paper
 

 
8,984

 

 
8,984

Short-term investments
 
 
 
 
 
 
 
 
Commercial paper
 

 
9,970

 

 
9,970

U.S. treasury securities
 

 
160,085

 

 
160,085

U.S. agency securities
 

 
9,893

 

 
9,893

Corporate bonds
 

 
46,839

 

 
46,839

Long-term investments
 
 
 
 
 
 
 
 
U.S. treasury securities
 

 
79,169

 

 
79,169

U.S. agency securities
 

 
18,468

 

 
18,468

Corporate bonds
 

 
50,727

 

 
50,727

Total
 
$
582,835

 
$
384,135

 
$

 
$
966,970


We did not have any investments in prime money market funds as of June 30, 2018. We had no financial assets or liabilities measured using Level 3 inputs as of June 30, 2018 and December 31, 2017.
v3.10.0.1
Stockholders' Equity
6 Months Ended
Jun. 30, 2018
Equity [Abstract]  
Stockholders' Equity
Stockholders' Equity
Common Stock
Our certificate of incorporation, as amended and restated, authorizes us to issue 75,000,000 shares of Class B common stock at $0.0001 par value per share, and 750,000,000 shares of Class A common stock at $0.0001 par value per share. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each holder of Class B common stock is entitled to ten votes per share and each holder of Class A common stock is entitled to one vote per share. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder and are automatically converted upon sale or transfer to Class A common stock, subject to certain limited exceptions. At its discretion, the board of directors may declare dividends on shares of common stock, subject to the rights of our preferred stockholders, if any. Upon liquidation or dissolution, holders of common stock will receive distributions only after preferred stock preferences have been satisfied.
Preferred Stock
Our certificate of incorporation, as amended and restated, authorizes us to issue 10,000,000 shares of preferred stock at $0.0001 par value per share. Our board of directors has the authority to provide for the issuance of all the shares in one or more series. At its discretion, our board of directors may designate the voting rights and preferences of the preferred stock. As of June 30, 2018 and December 31, 2017, no shares of preferred stock were outstanding.
Stock Repurchase Program
On November 1, 2016, we announced that our board of directors approved a stock repurchase program, under which we were authorized to repurchase up to $200 million of our outstanding Class A common stock. On April 26, 2018, our board of directors authorized us to repurchase up to an additional $300 million of our outstanding Class A common stock under our previously announced stock repurchase program. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time. Repurchases under the program may be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in transactions structured through investment banking institutions or a combination of the foregoing, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
During the six months ended June 30, 2018, we repurchased 679,081 shares of our outstanding Class A common stock at an average price of $88.37 per share for $60.0 million. During the six months ended June 30, 2017, we repurchased 703,086 shares of our outstanding Class A common stock at an average price of $56.91 per share for $40.0 million. All repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. As of June 30, 2018, we were authorized to repurchase a remaining $340.0 million of our Class A common stock under our repurchase program.
v3.10.0.1
Business Combination
6 Months Ended
Jun. 30, 2018
Business Combinations [Abstract]  
Business Combinations
Business Combination
On June 7, 2018, we acquired all issued and outstanding stock of Empirical Systems, Inc., a privately-held Delaware corporation, for $11.0 million in cash. Empirical Systems, Inc. is a startup specializing in automated statistical analysis. As a result of this acquisition, we acquired all of the assets and assumed all of the liabilities of Empirical Systems, Inc., and we accounted for this transaction as a business combination. Pro forma results of operations for this acquisition have not been presented as the effects were not material to our financial results. The following table summarizes the purchase price allocation based on the estimated fair value of the net assets acquired:
 
June 7, 2018
 
(in thousands)
Cash
$
53

Technology asset
3,500

Goodwill
7,447

Net assets acquired
$
11,000


The technology asset acquired in this business combination is being amortized on the straight-line method over a period of five years. Goodwill generated from this business combination is primarily attributable to expected synergies between the technology asset acquired and our key products. None of the goodwill recognized with this transaction is expected to be deductible for U.S. income tax purposes.
Certain employees hired in conjunction with the acquisition receive restricted stock units ("RSUs") that are subject to service conditions as well as the completion of certain technology milestones. We will account for these awards as a post-business combination expense.
Additional information, such as that related to income taxes or other contingencies, existing as of the acquisition date but unknown to us may become known at a later time. In accordance with GAAP, if this occurs during the next 12 months, we may update the amounts and allocations recorded as of the acquisition date, which are presented in the table above.
v3.10.0.1
Revenue Revenue
6 Months Ended
Jun. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue
We adopted the new revenue recognition accounting standard, ASC 606, effective January 1, 2018 on a modified retrospective basis and applied the new standard only to contracts that were not completed contracts prior to January 1, 2018. See Note 2 for a description of our ASC 606 revenue recognition accounting policy. Financial results for reporting periods during 2018 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to 2018 have not been retroactively restated and are presented in conformity with amounts previously disclosed under ASC 605. This note includes additional information regarding the impacts from the adoption of the new revenue recognition standard on our financial results for the three and six months ended June 30, 2018. This includes the presentation of financial results during 2018 under ASC 605 for comparison to the prior year. Our revenue recognition accounting policy for ASC 605 is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 26, 2018. There were no changes to our ASC 605 policy during the six months ended June 30, 2018.
Condensed Consolidated Balance Sheets (Unaudited) - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
The following schedule summarizes the impacts from the adoption of the new revenue recognition standard on our condensed consolidated balance sheets as of June 30, 2018:
 
June 30,
 2018
 
December 31, 2017
 
As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)
 
(in thousands)
Assets
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
611,091

 
$

 
$
611,091

 
$
627,878

Short-term investments
301,054

 

 
301,054

 
226,787

Accounts receivable, net
170,907

 

 
170,907

 
203,366

Prepaid expenses and other current assets
115,605

 
(85,423
)
 
30,182

 
30,514

Income taxes receivable
778

 
269

 
1,047

 
673

Total current assets
1,199,435

 
(85,154
)
 
1,114,281

 
1,089,218

Long-term investments
89,991

 

 
89,991

 
148,364

Property and equipment, net
95,603

 

 
95,603

 
106,753

Goodwill
42,530

 

 
42,530

 
35,083

Deferred income taxes
4,072

 
1,509

 
5,581

 
5,287

Other long-term assets
41,626

 
(24,972
)
 
16,654

 
14,090

Total assets
$
1,473,257

 
$
(108,617
)
 
$
1,364,640

 
$
1,398,795

Liabilities and stockholders' equity

 
 
 
 
 

Current liabilities

 

 
 
 

Accounts payable
$
3,829

 
$

 
$
3,829

 
$
4,448

Accrued compensation and employee-related benefits
75,129

 

 
75,129

 
96,390

Other accrued liabilities
54,745

 

 
54,745

 
37,722

Income taxes payable
1,986

 
2,264

 
4,250

 
4,743

Deferred revenue
320,305

 
121,922

 
442,227

 
419,426

Total current liabilities
455,994

 
124,186

 
580,180

 
562,729

Deferred revenue
15,615

 
12,022

 
27,637

 
28,058

Other long-term liabilities
53,686

 
(775
)
 
52,911

 
54,385

Total liabilities
525,295

 
135,433

 
660,728

 
645,172

Stockholders' equity
 
 
 
 
 
 
 
Common stock
8

 

 
8

 
8

Additional paid-in capital
1,256,854

 

 
1,256,854

 
1,168,563

Accumulated other comprehensive loss
(11,811
)
 
411

 
(11,400
)
 
(11,991
)
Accumulated deficit
(297,089
)
 
(244,461
)
 
(541,550
)
 
(402,957
)
Total stockholders' equity
947,962

 
(244,050
)
 
703,912

 
753,623

Total liabilities and stockholders' equity
$
1,473,257

 
$
(108,617
)
 
$
1,364,640

 
$
1,398,795


Condensed Consolidated Statements of Operations (Unaudited) - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
The following schedules summarize the impacts from the adoption of the new revenue recognition standard on our condensed consolidated statement of operations for the three and six months ended June 30, 2018:

Three Months Ended June 30,

2018

2017

As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)

(in thousands)
Revenues







License
$
137,848


$
(15,267
)

$
122,581


$
103,296

Maintenance and services
144,441


(23,456
)

120,985


109,584

Total revenues
282,289


(38,723
)

243,566


212,880

Cost of revenues







License
4,626


(91
)

4,535


2,942

Maintenance and services
30,599


106


30,705


23,723

Total cost of revenues
35,225


15


35,240


26,665

Gross profit
247,064


(38,738
)

208,326


186,215

Operating expenses







Sales and marketing
144,150


6,352


150,502


124,160

Research and development
94,033




94,033


81,067

General and administrative
29,846




29,846


25,875

Total operating expenses
268,029


6,352


274,381


231,102

Operating loss
(20,965
)

(45,090
)

(66,055
)

(44,887
)
Other income, net
6,866


118


6,984


4,029

Loss before income tax expense (benefit)
(14,099
)

(44,972
)

(59,071
)

(40,858
)
Income tax expense (benefit)
(2,033
)

2,529


496


1,664

Net loss
$
(12,066
)

$
(47,501
)

$
(59,567
)

$
(42,522
)

Six Months Ended June 30,

2018

2017

As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)

(in thousands)
Revenues







License
$
246,641


$
(18,394
)

$
228,247


$
200,540

Maintenance and services
281,855


(42,492
)

239,363


212,246

Total revenues
528,496


(60,886
)

467,610


412,786

Cost of revenues
 
 
 
 
 
 
 
License
8,580


(143
)

8,437


6,209

Maintenance and services
59,070


167


59,237


47,111

Total cost of revenues
67,650


24


67,674


53,320

Gross profit
460,846


(60,910
)

399,936


359,466

Operating expenses
 
 
 
 
 
 
 
Sales and marketing
282,556


10,959


293,515


242,178

Research and development
187,538




187,538


165,369

General and administrative
62,096




62,096


50,320

Total operating expenses
532,190


10,959


543,149


457,867

Operating loss
(71,344
)

(71,869
)

(143,213
)

(98,401
)
Other income, net
8,328


80


8,408


5,254

Loss before income tax expense (benefit)
(63,016
)

(71,789
)

(134,805
)

(93,147
)
Income tax expense (benefit)
(4,478
)

8,266


3,788


4,022

Net loss
$
(58,538
)

$
(80,055
)

$
(138,593
)

$
(97,169
)

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
The following schedules summarize the impacts from the adoption of the new revenue recognition standard on our condensed consolidated statement of comprehensive loss for the three and six months ended June 30, 2018:
 
Three Months Ended June 30,
 
2018
 
2017
 
As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)
 
(in thousands)
Net loss
$
(12,066
)
 
$
(47,501
)
 
$
(59,567
)
 
$
(42,522
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(1,314
)
 
2,383

 
1,069

 
(6,384
)
Net unrealized gain on available-for-sale securities
74

 

 
74

 

Comprehensive loss
$
(13,306
)
 
$
(45,118
)
 
$
(58,424
)
 
$
(48,906
)
 
Six Months Ended June 30,
 
2018
 
2017
 
As Reported
(ASC 606)
 
Impacts from Adoption
 
Without Adoption
(ASC 605)
 
As Reported
(ASC 605)
 
(in thousands)
Net loss
$
(58,538
)
 
$
(80,055
)
 
$
(138,593
)
 
$
(97,169
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(728
)
 
2,094

 
1,366

 
(7,208
)
Net unrealized loss on available-for-sale securities
(775
)
 

 
(775
)
 

Comprehensive loss
$
(60,041
)
 
$
(77,961
)
 
$
(138,002
)
 
$
(104,377
)


Condensed Consolidated Statements of Cash Flows (Unaudited) - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
The following schedule summarizes the impacts from the adoption of the new revenue recognition standard on our condensed consolidated statement of cash flows for the six months ended June 30, 2018:
 
Six Months Ended June 30,
 
2018
 
2017
 
As Reported
(ASC 606)
 
Impacts from Adoption
 
Without Adoption
(ASC 605)
 
As Reported
(ASC 605)
 
(in thousands)
Operating activities
 
 
 
 
 
 
 
Net loss
$
(58,538
)
 
$
(80,055
)
 
$
(138,593
)
 
$
(97,169
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
 
 
 
 
 
 
Depreciation and amortization expense
19,050

 

 
19,050

 
23,837

Amortization of premiums on investments, net
137

 

 
137

 

Stock-based compensation expense
114,075

 

 
114,075

 
101,309

Deferred income taxes
(3,965
)
 
3,784

 
(181
)
 
465

Changes in operating assets and liabilities

 

 
 
 

Accounts receivable, net
31,490

 

 
31,490

 
72,493

Prepaid expenses and other assets
(44,925
)
 
45,078

 
153

 
19,519

Income taxes receivable
(125
)
 
(270
)
 
(395
)
 
(97
)
Deferred revenue
(3,893
)
 
29,522

 
25,629

 
30,072

Accounts payable and accrued liabilities
8,663

 

 
8,663

 
(16,421
)
Income taxes payable
(2,713
)
 
2,263

 
(450
)
 
523

Net cash provided by operating activities 
59,256

 
322

 
59,578

 
134,531

Investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(11,076
)
 

 
(11,076
)
 
(33,860
)
Business combination, net of cash acquired
(10,947
)
 

 
(10,947
)
 

Purchases of investments
(156,591
)
 

 
(156,591
)
 

Maturities of investments
139,685

 

 
139,685

 

Sales of investments
99

 

 
99

 

Net cash used in investing activities
(38,830
)
 

 
(38,830
)
 
(33,860
)
Financing activities
 
 
 
 
 
 
 
Proceeds from issuance of common stock
25,581

 

 
25,581

 
21,646

Repurchases of common stock
(60,013
)
 

 
(60,013
)
 
(40,014
)
Net cash used in financing activities
(34,432
)
 

 
(34,432
)
 
(18,368
)
Effect of exchange rate changes on cash and cash equivalents
(2,781
)
 
(322
)
 
(3,103
)
 
1,884

Net increase (decrease) in cash and cash equivalents
(16,787
)
 

 
(16,787
)
 
84,187

Cash and cash equivalents
 
 
 
 
 
 
 
Beginning of period
627,878

 

 
627,878

 
908,717

End of period
$
611,091

 
$

 
$
611,091

 
$
992,904


Disclosures Related to our Contracts with Customers
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. We record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. These assets are recorded as contract assets rather than receivables when receipt of the consideration is conditional on something other than the passage of time. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. These liabilities are classified as current and non-current deferred revenue.
Contract Assets and Contract Liabilities
A summary of the activity impacting our contract assets during the six months ended June 30, 2018 is presented below:
 
Contract Assets
 
(in thousands)
Balances at December 31, 2017
$

Adoption of ASC 606
40,854

Contract assets transferred to receivables
(12,286
)
Additions to contract assets
43,991

Balances at June 30, 2018
$
72,559

As of June 30, 2018, our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. There were no impairments of contract assets during the six months ended June 30, 2018.
A summary of the activity impacting our deferred revenue balances during the six months ended June 30, 2018 is presented below:
 
Deferred Revenue
 
(in thousands)
Balances at December 31, 2017
$
447,484

Adoption of ASC 606
(105,933
)
Deferred revenue recognized
(220,112
)
Additional amounts deferred
214,481

Balances at June 30, 2018
$
335,920

Assets Recognized from the Costs to Obtain our Contracts with Customers
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We amortize these deferred costs proportionate with related revenues over the benefit period, currently estimated to be four years.
A summary of the activity impacting our deferred contract costs during the six months ended June 30, 2018 is presented below:
 
Deferred Contract Costs
 
(in thousands)
Balances at December 31, 2017
$

Adoption of ASC 606
25,489

Additional contract costs deferred
15,011

Amortization of deferred contract costs
(4,578
)
Balances at June 30, 2018
$
35,922


As of June 30, 2018, $10.9 million of our deferred contract costs are expected to be amortized within the next 12 months and therefore are included in other current assets. The remaining amount of our deferred contract costs are included in other long-term assets. There were no impairments of assets related to deferred contract costs during the six months ended June 30, 2018. There were no assets recognized related to the costs to fulfill contracts during the six months ended June 30, 2018 as these costs were not material.
Remaining Performance Obligations
Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. These amounts include additional performance obligations that are not yet recorded in the consolidated balance sheets. As of June 30, 2018, amounts allocated to these additional contractual obligations are $138.5 million, of which we expect to recognize $111.4 million as revenue over the next 24 months with the remaining amount thereafter.
v3.10.0.1
Stock-Based Compensation
6 Months Ended
Jun. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
Our 2004 Equity Incentive Plan (the "2004 Plan") authorized the granting of options to purchase shares of our Class B common stock, RSUs and other stock-based awards to our employees, consultants, officers and directors. Our 2013 Equity Incentive Plan, as amended, (the "2013 Plan" and, together with the 2004 Plan, the "Plans"), which is the successor to our 2004 Plan, authorizes the granting of options to purchase shares of our Class A common stock, RSUs and other stock-based awards to our employees, consultants, officers and directors. Options granted under the Plans may be incentive or nonstatutory stock options. Incentive stock options may only be granted to employees. The term of each option is stated in the award agreement but shall be no more than ten years from the date of grant. The board of directors determines the period over which options and RSUs become vested. Currently, the vesting period for our options and RSUs is typically four years.
Our 2013 Employee Stock Purchase Plan ("2013 ESPP") allows eligible employees to purchase shares of our Class A common stock, at a discount, through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. The 2013 ESPP currently includes purchase periods approximately six months in duration starting on the first trading date on or after June 1st and December 1st of each year. Participants are able to purchase shares of our common stock at 85% of the lower of its fair market value on (i) the first day of the purchase period or on (ii) the purchase date, which is the last day of the purchase period.
A summary of the option activity during the six months ended June 30, 2018 follows:    
 
 
Options Outstanding
 
 
Shares
 
Weighted Average Exercise Price Per Share
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
 
 
 
 
 
(in years)
 
(in thousands)
Balances at December 31, 2017
 
3,017,113

 
$
10.13

 
 
 
 
Options exercised
 
(890,382
)
 
9.16

 
 
 
 
Balances at June 30, 2018
 
2,126,731

 
$
10.54

 
3.87
 
$
185,469

Vested and expected to vest at June 30, 2018
 
2,126,731

 
$
10.54

 
3.87
 
$
185,469

Exercisable at June 30, 2018
 
2,084,543

 
$
9.64

 
3.78
 
$
183,660


The intrinsic value is the difference between the fair value of our Class A common stock as of June 30, 2018 and the exercise price of each of the respective stock options.
A summary of the RSU activity during the six months ended June 30, 2018 follows:
 
 
Number of Shares Underlying Outstanding RSUs
 
Weighted Average Grant-Date Fair Value per RSU
Non-Vested outstanding at December 31, 2017
 
7,178,015

 
$
62.79

RSUs granted
 
2,982,656

 
85.22

RSUs vested
 
(1,975,245
)
 
66.40

RSUs forfeited
 
(445,779
)
 
66.42

Non-Vested outstanding at June 30, 2018
 
7,739,647

 
$
70.31


An RSU award entitles the holder to receive shares of our Class A common stock as the award vests, which is generally based on length of service. Our non-vested RSUs do not have nonforfeitable rights to dividends or dividend equivalents. For awards subject to technology milestones, we recognize compensation cost over the estimated requisite service period if we believe it is probable that the associated technology milestone will be met. If our assessment of the probability of the technology milestone being met changes, we recognize the impact of the change in estimate in the period of the change.
Stock-based compensation expense is amortized using the straight-line method over the requisite service period. We account for forfeitures as they occur. As of June 30, 2018, total unrecognized compensation expense related to stock options and non-vested RSUs was $505.4 million, which is expected to be recognized over a weighted average period of 2.9 years.
The summary of shares available for issuance of equity-based awards (including stock options, RSUs and shares issuable under our 2013 ESPP) during the six months ended June 30, 2018 follows:
 
 
Shares Available for Grant
 
 
2013 Plan
 
2013 ESPP
Balances at December 31, 2017
 
7,207,291

 
3,666,392

Authorized
 
4,023,117

 
804,623

Granted
 
(2,982,656
)
 
(291,447
)
Forfeited
 
445,779

 

Balances at June 30, 2018
 
8,693,531

 
4,179,568

v3.10.0.1
Income Taxes
6 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The income tax provision for interim periods is generally determined using an estimate of our annual effective tax rate, excluding jurisdictions for which no benefit can be recognized due to valuation allowance, and adjusted for discrete items, if any, in the relevant period. The impact of adjustments to our effective tax rate for discrete items and non-deductible expenses is greater in periods close to break-even. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our effective tax rate is impacted by and differs from the federal statutory rate primarily due to the full valuation allowance on our U.S. federal and state deferred tax assets, the effect of income or losses incurred in foreign jurisdictions where the statutory tax rate differs from the federal statutory rate and non-deductible stock-based compensation.
We recognized an income tax benefit of $2.0 million and $4.5 million under ASC 606 for the three and six months ended June 30, 2018, respectively, compared to an income tax expense of $1.7 million and $4.0 million for three and six months ended June 30, 2017, respectively. Our effective tax rate was 14.4% and 7.1% for the three and six months ended June 30, 2018, respectively, compared to (4.1)% and (4.3)% for the three and six months ended June 30, 2017, respectively. The difference in the effective tax rates is primarily attributable to additional income as a result of our adoption of ASC 606 combined with a year to date tax benefit in foreign jurisdictions, which was increased by the recognition of excess tax benefits of stock-based compensation during the period.
We recognized an income tax expense of $0.5 million and $3.8 million under ASC 605 for the three and six months ended June 30, 2018, respectively, compared to an income tax expense of $1.7 million and $4.0 million for the three and six months ended June 30, 2017, respectively. Our effective tax rate under ASC 605 was (0.8)% and (2.8)% for the three and six months ended June 30, 2018, respectively, compared to (4.1)% and (4.3)% for the three and six months ended June 30, 2017, respectively. The difference in the effective tax rates was primarily attributable to an increase in taxes in foreign jurisdictions, offset by an income tax benefit from the recognition of excess tax benefits of stock-based compensation during the three and six months ended June 30, 2018. The difference in effective tax rates between ASC 606 and ASC 605 is primarily attributable to the differences in the amount of revenue recognized under ASC 606 compared to ASC 605.
As a result of adopting ASC 606 in the first quarter of 2018, we recognized an immaterial amount of net deferred tax liabilities, which reduced our opening adjustment to stockholders' equity. During the first quarter of 2018, we also adopted ASU 2016-16 and recognized a U.S. deferred tax asset, which was fully offset by a corresponding increase to the valuation allowance on our U.S. federal and state deferred income tax assets.
We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative such as historic results, future reversals of existing deferred tax liabilities, projected future taxable income, as well as prudent and feasible tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as the cumulative loss in recent years. As of June 30, 2018, we maintain a full valuation allowance on our U.S. federal and state deferred tax assets.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed with an effective date of January 1, 2018. The Act, which significantly revised U.S. tax law, included many important changes. On the same day, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to assist in addressing uncertainty in applying GAAP to the accounting and reporting of tax reform changes related to the Act. We considered these changes, including all available guidance, in determining our income tax provision for the period ending December 31, 2017. As of June 30, 2018, we have not yet completed our analysis of historical foreign earnings as well as potential correlative adjustments. As we complete the analysis, any subsequent adjustment to these amounts may be recorded to current income tax expense in that period. We expect to complete our analysis within the measurement period in accordance with SAB 118. No adjustments to the provisional amount have been made.
v3.10.0.1
Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Operating Lease Commitments and Expected Sublease Receipts    
As of June 30, 2018, our principal obligations consisted of obligations outstanding under non-cancellable operating leases that expire at various dates through 2029. The following table represents our non-cancellable minimum lease payments, net of future expected sublease payments to be received under non-cancellable subleases, remaining as of June 30, 2018 (in thousands):
Period Ending
 
Operating Lease Commitments
 
Expected Sublease Receipts
 
Net
Remainder of 2018
 
$
21,833

 
$
(4,401
)
 
$
17,432

2019
 
41,019

 
(10,606
)
 
30,413

2020
 
42,637

 
(7,113
)
 
35,524

2021
 
43,152

 
(1,180
)
 
41,972

2022
 
42,828

 
(597
)
 
42,231

Thereafter
 
175,708

 
(121
)
 
175,587

Total
 
$
367,177

 
$
(24,018
)
 
$
343,159


Contractual Commitments
Our contractual commitments are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Obligations under contracts that we can cancel without a significant penalty are not included. There have been no material changes in our contractual commitments compared to those discussed in Note 10 in our Annual Report on Form 10-K for the year ended December 31, 2017.
Legal Proceedings
We are subject to certain routine legal proceedings, as well as demands and claims that arise in the normal course of our business. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.
We are not aware of any pending legal proceedings that we believe, individually or in the aggregate, would be expected to have a material adverse effect on our business, operating results, or financial condition. We may, in the future, be party to litigation arising in the ordinary course of business, including claims that we allegedly infringe upon third party intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources.