Revenue | Revenue Adoption of ASC Topic 606, "Revenue from Contracts with Customers" On January 1, 2019, we adopted ASU 2014-09, Revenue from Contracts with Customers, which replaced the existing revenue recognition guidance, ASC 605, and outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP. Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We determine revenue recognition through the following five-step approach: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, we satisfy a performance obligation. We adopted ASU 2014-09 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 606, while prior period amounts are not adjusted, and continue to be reported in accordance with our historical accounting under Topic 605. We recorded a cumulative catch-up adjustment to the opening retained earnings of $5.7 million , as of January 1, 2019, due to the cumulative impact of adopting Topic 606 and Topic 340, Other Assets and Deferred Costs. The area impacted was related to the treatment of incremental costs of obtaining contracts with customers. The impact from applying Topic 606 and Topic 340 as of and for the three and six months ended June 30, 2019 is as follows: Condensed Consolidated Statements of Operations Three Months Ended June 30, 2019 Six months ended June 30, 2019 As currently reported Impact of adopting new revenue standards As would have been reported under previous revenue standards As currently reported Impact of adopting new revenue standards As would have been reported under previous revenue standards (in thousands) Sales and marketing $ 16,906 $ (4 ) $ 16,902 $ 31,945 $ 67 $ 32,012 Total operating expenses 37,070 (4 ) 37,066 70,985 67 71,052 Loss from operations (11,681 ) 4 (11,677 ) (19,758 ) (67 ) (19,825 ) Loss before income taxes (15,505 ) 4 (15,501 ) (25,177 ) (67 ) (25,244 ) Net loss (15,587 ) 4 (15,583 ) (25,314 ) (67 ) (25,381 ) Comprehensive loss (15,594 ) 4 (15,590 ) (25,265 ) (67 ) (25,332 ) Net loss attributable to common stockholders $ (15,587 ) $ 4 $ (15,583 ) $ (25,314 ) $ (67 ) $ (25,381 ) Condensed Consolidated Balance Sheets As of June 30, 2019 As currently reported Impact of adopting new revenue standards As would have been reported under previous revenue standards (in thousands) Other assets $ 12,856 $ (5,794 ) $ 7,062 Total assets 356,376 (5,794 ) 350,582 Accumulated deficit (165,773 ) (5,794 ) (171,567 ) Total stockholders’ equity 267,322 (5,794 ) 261,528 Total liabilities and stockholders’ equity $ 356,376 $ (5,794 ) $ 350,582 Revenue recognition Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, each of which are distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our estimate of the standalone selling price ("SSP") of each distinct good or service in the contract. Judgment is required to determine the SSP for each distinct performance obligation. We analyze separate sales of our products and services as a basis for estimating the SSP of our products and services. We then use that SSP as the basis for allocating the transaction price when our product and services are sold together in a contract with multiple performance obligations. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such geographic region and distribution channel in determining the SSP. The transaction price in a contract is typically equal to the minimum commit price in the contract less any discounts provided. Because our typical contracts represent distinct services delivered over time with the same pattern of transfer to the customer, usage-based consideration primarily related to actual consumption over the minimum commit levels is allocated to the period to which it relates. The amount of consideration recognized for usage above the minimum commit price is limited to the amount we expect to be entitled to receive in exchange for providing services. We have elected to apply the practical expedient for estimating and disclosing the variable consideration when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation from our remaining performance obligations under these contracts. Performance obligations represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits provided by us. These obligations can be content delivery, security, professional services, support, edge cloud platform services, and others. Accordingly, our revenue is recognized over time, consistent with the pattern of benefit provided to the customer over the term of the agreement. At times, customers may request changes that either amend, replace, or cancel existing contracts. Judgment is required to determine whether the specific facts and circumstances within the contracts should be accounted for as a separate contract or as a modification. In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that good or service, we have determined our contracts do not include a significant financing component. We have also elected the practical expedient to not measure financing components for any contract where the timing difference is less than one year. From time to time we enter into arrangements to establish and run private POPs for customers. These arrangements include content delivery services as well as professional services and the provision of hardware. For accounting purposes, we have determined that the provisioning of hardware is an operating lease. We recognize the revenue from these leases monthly on a straight-line basis over the term of the relevant customer agreements. Nature of products and services We primarily derive revenue from the sale of services to customers executing contracts in which the standard contract term is one year, although terms may vary by contract. Most of our contracts are non-cancelable over the contractual term. These contracts can commit the customer to a minimum monthly level of usage and specify the rate at which the customer must pay for actual usage above the monthly minimum. Revenue by geography is based on the billing address of the customer. The following table presents our net revenue by geographic region: Three months ended June 30, Six months ended June 30, 2019 2018 2019 2018 (in thousands) United States $ 32,521 $ 26,901 $ 65,943 $ 52,242 All other countries 13,652 7,547 25,786 14,704 Total revenue $ 46,173 $ 34,448 $ 91,729 $ 66,946 Our revenue includes a subset of customers who have leveraged our platform substantially from a usage standpoint. These enterprise customers are defined as customers with revenue in excess of $100,000 over the previous 12-month period. The following table presents our net revenue for enterprise and non-enterprise customers: Three months ended June 30, Six months ended June 30, 2019 2018 2019 2018 (in thousands) Enterprise customers $ 39,421 $ 27,872 $ 78,465 $ 55,019 Non-enterprise customers 6,752 6,576 13,264 11,927 Total revenue $ 46,173 $ 34,448 $ 91,729 $ 66,946 Contract balances The timing of revenue recognition may differ from the timing of invoicing to customers. We have an unconditional right to consideration when we invoice our customers and record a receivable. We record a contract asset when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue is recognized subsequent to invoicing. Deferred revenue includes amounts billed to customers for which revenue has not been recognized and consists of the unearned portions of edge cloud platform usage and Web Application Firewalls ("WAF") security tuning services. Payment terms and conditions vary by contract type, but our standard terms are that payments are due within 15 days from the date of invoice. The following tables present our contract assets, contract liabilities and certain information related to these balances as of and for the three and six months ended June 30, 2019 : As of June 30, 2019 As of January 1, 2019 (in thousands) Contract liabilities (1) $ 653 $ 1,622 __________ (1) Balance as of January 1, 2019 represents contract liabilities as adjusted for Topic 606. Three months ended Six months ended (in thousands) Revenue recognized in the period from: Amounts included in contract liability at the beginning of the period $ 1,069 $ 2,006 Remaining performance obligations As of June 30, 2019 , we had $65.5 million of remaining performance obligations, which includes deferred revenue and amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet definition of a contract under Topic 606 as of June 30, 2019 . In addition to the practical expedient discussed above, we applied the practical expedient giving the optional exemption from disclosing the information about our remaining performance obligations for our service contracts for which the original contract duration is one year or less. The typical contract term is one year, although terms may vary by contract. We expect to recognize 52% of this balance over the next twelve months and the remainder within the following year. Costs to obtain a contract We capitalize incremental costs associated with obtaining customer contracts, specifically for sales commissions. These costs are deferred on our Condensed Consolidated Balance Sheets and amortized over the expected period of benefit on a straight-line basis. Based on the nature of our unique technology and services, the rate at which we continually enhance and update our technology, and our historical customer retention, the expected period of benefit is determined to be approximately five years. Amortization is within the sales and marketing line item on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Deferred commissions are included in other assets on the accompanying Condensed Consolidated Balance Sheets. As of June 30, 2019 and January 1, 2019, our costs to obtain contracts were as follows: As of June 30, 2019 As of January 1, 2019 (in thousands) Deferred commissions (1) $ 6,514 $ 5,727 __________ (1) Balance as of January 1, 2019 represents deferred commissions as adjusted for Topic 606. During the three and six months ended June 30, 2019 , we recognized $0.6 million and $1.1 million of amortization related to deferred commission, respectively. These costs are recorded within the sales and marketing line item on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. |