Edgar Filing: Tableau Software Inc

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-35925

TABLEAU SOFTWARE, INC.

(Exact name of Registrant as specified in its charter)



Delaware		47-0945740
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1621 North 34th Street

Seattle, Washington 98103

(Address of principal executive offices and zip code)

(206) 633-3400

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x		Accelerated filer	o
Non-accelerated filer	o	(Do not check if smaller reporting company)	Smaller reporting company	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of August 2, 2018, there were approximately 70,047,244 shares of the Registrant's Class A common stock and 12,896,296 shares of the Registrant's Class B common stock outstanding.

TABLEAU SOFTWARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2018

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	PART I. FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	4
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017	5
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2018 and 2017	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sale of Securities and Use of Proceeds	74
Item 6.	Exhibits	75
	Signatures	76

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Tableau Software, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)



	June 30, 2018			December 31, 2017
	(in thousands, except share data)
Assets
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
Liabilities and stockholders' equity
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	—			—
Class B common stock, $0.0001 par value, 75,000,000 shares authorized; 12,896,296 and 14,492,846 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	1			1
Class A common stock, $0.0001 par value, 750,000,000 shares authorized; 70,044,042 and 65,969,499 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	7			7
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

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tableau Software, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands, except per share amounts)
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	$	5,367
Sales and marketing	22,150		18,526		42,165		36,618
Research and development	26,837		25,648		51,994		49,163
General and administrative	6,026		5,150		13,630		10,161

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tableau Software, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(in thousands)
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			—			(775		)	—
Comprehensive loss	$	(13,306	)	$	(48,906	)	$	(60,041	)	$	(104,377	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tableau Software, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended June 30,
	2018			2017
	(in thousands)
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			—
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		)	—
Purchases of investments	(156,591		)	—
Maturities of investments	139,685			—
Sales of investments	99			—
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

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Tableau Software, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. 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.

Note 2. 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

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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.

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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.

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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.

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Note 3. 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.

Note 4. 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.

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•	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.

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Note 5. 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.

Note 6. 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.

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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.

Note 7. 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.

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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

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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	)

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	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	)

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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	)

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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

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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

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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.

Note 8. 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 1^st and December 1^st 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.

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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

Note 9. 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

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(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.

Note 10. 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

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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.

Note 11. Segments and Information about Revenues by Geographic Area

The following tables present our revenues by geographic region of end users who purchased products or services for the periods presented below:



	Three Months Ended June 30,
	2018							2017
	As Reported (ASC 606)		Impacts from Adoption			Without Adoption (ASC 605)		As Reported (ASC 605)
	(dollars in thousands)
United States and Canada	$	196,992	$	(27,758	)	$	169,234	$	146,102
International	85,297		(10,965		)	74,332		66,778
Total revenues	$	282,289	$	(38,723	)	$	243,566	$	212,880



	Six Months Ended June 30,
	2018							2017
	As Reported (ASC 606)		Impacts from Adoption			Without Adoption (ASC 605)		As Reported (ASC 605)
	(dollars in thousands)
United States and Canada	$	364,791	$	(41,114	)	$	323,677	$	287,598
International	163,705		(19,772		)	143,933		125,188
Total revenues	$	528,496	$	(60,886	)	$	467,610	$	412,786

For the three and six months ended June 30, 2018 and 2017, no individual country other than the United States represented 10% or more of our total revenues. Revenues from Canada represented less than 5% of our total revenues for the three and six months ended June 30, 2018 and 2017, respectively.

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Note 12. Net Loss Per Share

The following tables present the computation of basic and diluted net loss per share for the three and six months ended June 30, 2018 and 2017 and include additional information regarding the impacts from the adoption of the new revenue recognition standard 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, except per share amounts)
Net loss per share - basic and diluted
Net loss	$	(12,066	)	$	(47,501	)	$	(59,567	)	$	(42,522	)
Weighted average shares outstanding used to compute basic and diluted net loss per share	82,247						82,247			78,511
Net loss per share - basic and diluted	$	(0.15	)				$	(0.72	)	$	(0.54	)



	Six Months Ended June 30,
	2018									2017
	As Reported (ASC 606)			Impacts from Adoption			Without Adoption (ASC 605)			As Reported (ASC 605)
	(in thousands, except per share amounts)
Net loss per share - basic and diluted
Net loss	$	(58,538	)	$	(80,055	)	$	(138,593	)	$	(97,169	)
Weighted average shares outstanding used to compute basic and diluted net loss per share	81,647						81,647			77,966
Net loss per share - basic and diluted	$	(0.72	)				$	(1.70	)	$	(1.25	)

The following shares were excluded from the computation of diluted net loss per share for the periods presented as their effect would have been antidilutive:



	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
	(in thousands)
Shares subject to outstanding common stock awards	10,078	11,452	10,078	11,452

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 26, 2018.

Special Note Regarding Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "seek," "should," "strategy," "target," "will," "would" and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included under Part II, Item 1A of this report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Tableau and Tableau Software are trademarks of Tableau Software, Inc. All other company and product names may be trademarks of the respective companies with which they are associated.

Overview

Our mission is to help people see and understand data. 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.

We have sought to rapidly improve the capabilities of our products over time and intend to continue to invest in product innovation and leadership. We were founded in January 2003, and we introduced Tableau Desktop in December 2003, our first version of Tableau Server in March 2007, our first version of Tableau Public in February 2010, our first version of Tableau Online in July 2013 and our first version of Tableau Prep in April 2018. Building on our foundational technology innovations, we continue to expand and improve our platform. Our most recent release, Tableau 2018.2, further opens our platform to developers with a new Extensions API and also includes Tableau Services Manager, which gives customers a direct way to manage their Tableau Server deployments. Tableau Prep is a new data preparation product that integrates directly into the Tableau analytical workflow. In April 2018, we also introduced role-based subscription offerings to help organizations scale analytics. Tableau Creator, Explorer and Viewer subscriptions each provide tailored combinations of new and existing analytical capabilities that are designed for different user needs, from sophisticated analysts to casual users.

Our products are used by people of diverse skill levels across all kinds of organizations, including Fortune 500 corporations, small and medium-sized businesses, government agencies, universities, research institutions and non-profits. As of June 30, 2018, we had over 78,000 customer accounts. We define a customer account as a single purchaser of our products. Customer accounts are typically organizations. In some cases, organizations will have multiple groups purchasing our software, which we count as discrete customer accounts.

Our distribution strategy is designed to capitalize on the ease of use, low up-front cost, flexible deployment and collaborative capabilities of our software. To facilitate rapid adoption of our products, we provide fully-functional free trial versions of our products on our website and offer a flexible pricing model. After an initial trial or purchase, an organization has the flexibility to expand adoption of our products at any scale.

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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 to new and existing customers. Revenues from term and subscription licenses have been increasing in recent periods as we have been transitioning to a more subscription-based business model. Revenues from term and subscription licenses include license revenues from Tableau Online, enterprise license agreements, term license sales and OEM arrangements. We expect revenues from term and subscription licenses to continue to become a larger percentage of our total license revenues as demand from our customer base continues to shift to cloud-based and subscription products and as our customers enter into additional enterprise license agreements.

Maintenance and services revenues primarily consist of revenues recognized from the sale of maintenance agreements (including support and unspecified upgrades and enhancements if and when they are available) and, to a lesser extent, for training and professional services that help our customers maximize the benefits from using our products. A substantial majority of our maintenance and services revenues to date have been attributable to revenues from maintenance agreements that are recognized ratably over the maintenance period. Our contracts with customers for on-premises software licenses include maintenance services, with the opportunity to renew maintenance service annually thereafter. Some customers provide purchase commitments upfront for multiple years of subscription-based software licenses and maintenance services. We expect that maintenance and services revenues will continue to increase as our customer base grows. We expect that the shift to a more subscription-based business model will result in a larger proportion of our total revenues that will be recognized from recurring sources and make our revenues more predictable.

We adopted the new revenue recognition accounting standard, Accounting Standards Codification (“ASC”) 606, effective January 1, 2018 on a modified retrospective basis. Our results of operations as presented within the following discussion and analysis includes financial results for reporting periods during 2018, which are disclosed 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 the prior revenue recognition standard ASC 605. We have included additional information regarding the impacts from the adoption of the new revenue recognition standard for the three and six months ended June 30, 2018 and included financial results during 2018 under ASC 605 for comparison to the prior year. See Note 2 to the accompanying notes to the condensed consolidated financial statements for additional information related to our adoption of the new revenue recognition standard.

Our direct sales approach includes inside sales teams and field sales teams. We also sell our products through indirect sales channels including technology vendors, resellers, OEMs, independent software vendors ("ISV") and distributors. We view these partners as an extension of our team, playing an integral role in our growth. We plan to continue to invest in our partner programs to help us enter into and grow in new markets while complementing our direct sales efforts.

With approximately 30% and 31% of our total ASC 606 revenues generated from customers located outside the United States and Canada for the three and six months ended June 30, 2018, respectively, we believe there is significant opportunity to expand our international business. Our products currently support eight languages, and we are expanding our direct sales force and indirect sales channels outside the United States.

Our quarterly results reflect seasonality in the sale of our products and services. Historically, we believe a pattern of increased software license sales in the fourth quarter, as a result of industry buying patterns, has positively impacted total revenues in that period, which has resulted in low or negative sequential revenue growth in the first quarter compared to the prior quarter. The impacts from our adoption of the new revenue recognition standard should be considered when comparing total ASC 606 revenues for the three and six months ended June 30, 2018 to total ASC 605 revenues for the three and six months ended June 30, 2017. We have presented total ASC 605 revenues for the three and six months ended June 30, 2018 below for comparability against the prior period results.

We continue to expand our customer base. As of June 30, 2018, we had over 78,000 customer accounts compared to over 61,000 customer accounts as of June 30, 2017.

During the three and six months ended June 30, 2018, we closed 436 and 737 sales transactions greater than $100,000, respectively, compared to 372 and 666 during the three and six months ended June 30, 2017, respectively. We had 22 customer accounts that purchased greater than $1.0 million during the three months ended June 30, 2018, compared to 15 during the three months ended June 30, 2017. We anticipate that the quantity of sales transactions greater than $100,000 and quantity of customer accounts that purchase more than $1.0 million during the quarter will continue to fluctuate on a quarter by quarter basis. These metrics are impacted by our

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transition to a more subscription-based business model as the unit sales price of each subscription license is lower than a comparable perpetual license.

We use Subscription Annual Recurring Revenue (“Subscription ARR”) and Total Annual Recurring Revenue (“Total ARR”) to assess the results of our transition to a more subscription-based business model. Subscription ARR represents the annualized recurring value of all active subscription contracts at the end of a reporting period. Subscription ARR includes term licenses and renewals, subscription enterprise license agreements and Tableau Online subscriptions and renewals, and excludes distribution OEM license agreements and perpetual-style enterprise license agreements. As of June 30, 2018, Subscription ARR was $291.3 million, up from $103.5 million as of June 30, 2017. Total ARR represents the annualized recurring value of all active contracts at the end of a reporting period. Total ARR includes Subscription ARR and the annualized value of all maintenance contracts related to perpetual licenses active at the end of a reporting period. As of June 30, 2018, Total ARR was $697.7 million, up from $483.6 million as of June 30, 2017.

We measure renewal rates for our customers over a 12-month period of time, based on a dollar renewal rate for contracts expiring during that time period. Our renewal rate is measured three months after the 12-month period ends to account for late renewals. Our renewal rate for the 12-month period ended March 31, 2018 was over 90%.

Factors Affecting Our Performance

We believe that our performance and future success are dependent upon a number of factors, including our ability to continue to expand and further penetrate our customer base, including shifts in the mix of term-based and subscription license sales versus perpetual license sales; innovate and enhance our products; and invest in our infrastructure. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must successfully address. See the section of this report titled "Item 1A. Risk Factors."

Investment in Expansion and Further Penetration of Our Customer Base

Our performance depends on our ability to continue to attract new customers and to increase adoption of our products within our existing customer base, both domestically and internationally. Our ability to increase adoption among existing customers is important to our business model. We operate in a rapidly growing analytics and business intelligence software market. We believe that we are well-positioned in the market to expand our customer base and to increase adoption of our products within and across our existing customers, including further adoption of our term and subscription software licenses. Our term and subscription pricing reduces initial investment costs, allowing customers to more easily deploy Tableau at scale. We recently introduced role-based subscription offerings to help organizations scale analytics. These offerings provide tailored combinations of new and existing analytical capabilities that are designed for different user needs from sophisticated analysts to casual users. We expect revenues from term and subscription licenses to continue to become a larger percentage of our total license revenues as demand from our customer base shifts to cloud-based and subscription products and as our customers enter into additional enterprise license agreements.

In order to expand and further penetrate our customer base, we have made and plan to continue to make investments to grow our direct sales teams and indirect sales channels and to increase our brand awareness. We plan to continue to increase the size of our sales and marketing team domestically and internationally. We also intend to continue to expand our online and offline marketing efforts to increase our brand awareness.

Investment in Innovation and Advancement of Our Products

Our performance is also dependent on the investments we make in our research and development ("R&D") efforts and in our ability to continue to innovate, improve our platform, adapt to new technologies or changes to existing technologies and allow our customers to analyze data from a large and expanding range of data stores. We intend to continue to invest in product innovation and leadership, including hiring top technical talent, focusing on core technology innovation and maintaining an agile organization that supports rapid release cycles.

Investment in Infrastructure

We have made and expect to continue to make investments in our infrastructure in order to enhance and expand our operations. We expect to continue to open new offices internationally and domestically. Our international expansion efforts have resulted and will result in increased costs and are subject to a variety of risks including those associated with communication and integration problems resulting from geographic dispersion and language and cultural differences as well as those associated with compliance with laws of multiple countries. Moreover, the investments we have made and will make in our international organization may not result in our expected benefits. We expect to rely on our current cash on hand and cash generated from our operations to fund these investments. These costs could adversely affect our operating results.

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Mix and Timing of Sales

Our business model results in a wide variety of sales transaction sizes. The time it takes to close a transaction, defined as the time between the entering of a sales opportunity into our customer relationship management system and the signing of a related license agreement with the customer, generally varies based on the size of the transaction. Our enterprise license agreements generally have more extended sales cycles and take longer to close.

Components of Operating Results

Revenues

License revenues. License revenues consist of revenues recognized from the sale of perpetual, term and subscription licenses to new and existing customers. Our on-premises software licenses are sold through both perpetual and term-based license agreements. We also generate license revenues from the sale of software OEM arrangements and from sales of Tableau Online, a cloud-based subscription, which allows customers to access our software during a contractual period without taking possession of the software. Revenues from our cloud-based subscriptions are included in license revenues. We adopted the new revenue recognition accounting standard ASC 606 effective January 1, 2018 on a modified retrospective basis. The new revenue recognition standard materially impacts the way we recognize revenues related to our on-premises term-based software license agreements. See Note 2 to the accompanying notes to the condensed consolidated financial statements for additional information related to our adoption of the new revenue recognition standard.

Maintenance and services revenues. Maintenance and services revenues consist of revenues recognized from the sale of maintenance agreements (including support and unspecified upgrades and enhancements if and when they are available) and, to a lesser extent, for training and professional services. A substantial majority of our maintenance and services revenues to date have been attributable to revenues from maintenance agreements that are recognized ratably over the maintenance period. Our contracts with customers for on-premises software licenses include one year of maintenance services, with the opportunity to renew maintenance service annually thereafter. Some customers provide purchase commitments upfront for multiple years of subscription-based software licenses and maintenance services.

We also have a professional services organization focused on both training and assisting our customers to fully leverage the use of our products. We recognize the revenues associated with these professional services on a time and materials basis as we deliver the services or provide the training.

Cost of Revenues

Cost of license revenues. Cost of license revenues primarily consists of referral fees paid to third parties, expenses related to hosting our SaaS-based Tableau Online service, amortization of acquired intangible assets and other costs including providing support and allocated overhead. Allocated overhead includes overhead costs for depreciation of equipment, facilities (consisting of leasehold improvements amortization and rent) and technical operations (including costs for compensation of our personnel and costs associated with our infrastructure). We expect that the cost of license revenues will increase as a percentage of license revenues as sales of subscriptions to Tableau Online increase.

Cost of maintenance and services revenues. Cost of maintenance and services revenues includes salaries, benefits and stock-based compensation expense associated with our technical support and services organization, as well as allocated overhead, which includes facilities-related costs. We recognize expenses related to our technical support and services organization as they are incurred.

Gross Profit and Gross Margin

Gross profit is total revenues less total cost of revenues. Total gross margin is gross profit expressed as a percentage of total revenues.

Operating Expenses

Our operating expenses are classified into three categories: sales and marketing, research and development, and general and administrative. For each category, the largest component is personnel costs, which include salaries, payroll taxes, employee benefit costs, bonuses, commissions, as applicable and stock-based compensation expense.

Sales and marketing. Sales and marketing expenses primarily consist of personnel-related costs attributable to our sales and marketing personnel, commissions earned by our sales personnel, including the amortization of deferred costs of obtaining contracts with customers, other marketing and travel-related costs and

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allocated overhead, which includes facilities-related costs. We expect sales and marketing expenses to continue to increase, in absolute dollars, for the remainder of 2018 compared to 2017 primarily due to growth in our sales and marketing organization, both domestically and internationally. We expect sales and marketing expenses to be our largest category of operating expenses as we continue to expand our business.

Research and development. R&D expenses primarily consist of personnel-related costs attributable to our R&D personnel and contractors, as well as allocated overhead, which includes facilities-related costs. We have devoted our product development efforts primarily to incorporate additional features, improve our platform, support additional languages, develop new products and adapt to new technologies or changes to existing technologies. We expect that our R&D expenses will continue to increase, in absolute dollars, for the remainder of 2018 compared to 2017 as we increase our R&D headcount to further enhance and develop our products.

General and administrative. General and administrative expenses primarily consist of personnel-related costs attributable to our executive, finance, legal, human resources and administrative personnel, allocated overhead, which includes facilities-related costs, as well as outsourced legal, accounting and other professional services fees. We expect that general and administrative expenses will continue to increase, in absolute dollars, for the remainder of 2018 compared to 2017 as we further expand our operations both domestically and internationally.

Other Income (Expense), Net

Other income (expense), net consists primarily of gains and losses on foreign currency transactions and interest income on our cash and cash equivalents and investment balances. We expect interest income will continue to increase, in absolute dollars, for the remainder of 2018 compared to 2017 due to our investments in fixed income securities and rising interest rates.

Income Tax Expense (Benefit)

Our income taxes are based on the amount of our taxable income and enacted federal, state and foreign tax rates, adjusted for allowable credits, deductions and the valuation allowance against deferred tax assets, as applicable. Our provision for income taxes consists of federal, state and foreign taxes.

We generally conduct our international operations through wholly-owned subsidiaries, branches and representative offices and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our corporate structure and intercompany arrangements align with the international expansion of our business activities. The application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine the manner in which we operate our business is not consistent with the manner in which we report our income to the jurisdictions. If such a disagreement were to occur, and our positions were not sustained, we could be required to pay additional taxes, interest and penalties, resulting in higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Additionally, our future worldwide tax rate and financial position may be affected by changes in the relevant tax laws, interpretation of such tax laws or the influence of certain tax policy efforts of the European Union and the Organization for Economic Co-operation and Development ("OECD").

Our income tax provision may be significantly affected by changes to our estimates for taxes in jurisdictions in which we operate and other estimates utilized in determining our global effective tax rate. Actual results may also differ from our estimates based on changes in tax laws and economic conditions. Such changes could have a substantial impact on the income tax provision and effective income tax rate.

We are subject to the continuous examinations of our income tax returns by the taxing authorities in various tax jurisdictions, which authorities may assess additional income tax liabilities against us. Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different from our historical income tax provisions. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between

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our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows could be affected.

We adopted the new revenue recognition accounting standard ASC 606 effective January 1, 2018 on a modified retrospective basis. See Note 2 to the accompanying notes to the condensed consolidated financial statements for additional information related to our adoption of the new revenue recognition standard. There were no other material changes to our critical accounting policies and estimates compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K, filed with the SEC on February 26, 2018.

Recent Accounting Pronouncements

The anticipated impact of recent accounting pronouncements is discussed in Note 2 to the accompanying notes to the condensed consolidated financial statements of this Quarterly Report on Form 10-Q.

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Results of Operations

The following tables set forth our results of operations for the periods presented and as a percentage of our total revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods. We adopted the new revenue recognition accounting standard ASC 606 effective January 1, 2018 on a modified retrospective basis. Our results of operations presented in the following tables include financial results for reporting periods during 2018, which are disclosed 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 the prior revenue recognition standard ASC 605. We have included additional information regarding the impacts from the adoption of the new revenue recognition standard for the three and six months ended June 30, 2018 and included financial results during 2018 under ASC 605 for comparison to the prior year. See Note 2 to the accompanying notes to the condensed consolidated financial statements for additional information related to our adoption of the new revenue recognition standard.



	Three Months Ended June 30,
	2018							2017
	As Reported (ASC 606)		Impacts from Adoption			Without Adoption (ASC 605)		As Reported (ASC 605)
	(in thousands)
Condensed Consolidated Statements of Operations Data:
Revenues
License	$	137,848	$	(15,267	)	$	122,581	$	103,296
Maintenance and services	144,441		(23,456		)	120,985