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 March 31, 2018

or

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 May 2, 2018, there were approximately 67,911,962 shares of the Registrant's Class A common stock and 13,631,046 shares of the Registrant's Class B common stock outstanding.

 
 



TABLEAU SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2018
Table of Contents

 
PART I. FINANCIAL INFORMATION
Page
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.
 


 
 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Tableau Software, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

March 31, 2018
 
December 31, 2017

(in thousands, except share data)
Assets

 
 
Current assets
 
 
 
Cash and cash equivalents
$
623,994

 
$
627,878

Short-term investments
241,652

 
226,787

Accounts receivable, net of allowance for doubtful accounts of $972 and $1,003
132,611

 
203,366

Prepaid expenses and other current assets
98,461

 
30,514

Income taxes receivable
883

 
673

Total current assets
1,097,601

 
1,089,218

Long-term investments
157,497

 
148,364

Property and equipment, net
101,121

 
106,753

Goodwill
35,083

 
35,083

Deferred income taxes
4,215

 
5,287

Other long-term assets
35,139

 
14,090

Total assets
$
1,430,656

 
$
1,398,795

Liabilities and stockholders' equity

 

Current liabilities

 

Accounts payable
$
2,817

 
$
4,448

Accrued compensation and employee-related benefits
81,268

 
96,390

Other accrued liabilities
41,935

 
37,722

Income taxes payable
4,467

 
4,743

Deferred revenue
314,698

 
419,426

Total current liabilities
445,185

 
562,729

Deferred revenue
21,687

 
28,058

Other long-term liabilities
53,911

 
54,385

Total liabilities
520,783

 
645,172

Commitments and contingencies (Note 9)

 

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; 13,631,046 and 14,492,846 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
1

 
1

Class A common stock, $0.0001 par value, 750,000,000 shares authorized; 67,904,088 and 65,969,499 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
7

 
7

Additional paid-in capital
1,205,459

 
1,168,563

Accumulated other comprehensive loss
(10,571
)
 
(11,991
)
Accumulated deficit
(285,023
)
 
(402,957
)
Total stockholders' equity
909,873

 
753,623

Total liabilities and stockholders' equity
$
1,430,656

 
$
1,398,795


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

4

Table of Contents

Tableau Software, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(in thousands, except per share amounts)
Revenues

 
 
License
$
108,793

 
$
97,244

Maintenance and services
137,414

 
102,662

Total revenues
246,207

 
199,906

Cost of revenues

 

License
3,954

 
3,267

Maintenance and services
28,471

 
23,388

Total cost of revenues (1)
32,425

 
26,655

Gross profit
213,782

 
173,251

Operating expenses

 

Sales and marketing (1)
138,406

 
118,018

Research and development (1)
93,505

 
84,302

General and administrative (1)
32,250

 
24,445

Total operating expenses
264,161

 
226,765

Operating loss
(50,379
)
 
(53,514
)
Other income, net
1,462

 
1,225

Loss before income tax expense (benefit)
(48,917
)
 
(52,289
)
Income tax expense (benefit)
(2,445
)
 
2,358

Net loss
$
(46,472
)
 
$
(54,647
)
 
 
 
 
Net loss per share:
 
 
 
Basic
$
(0.57
)
 
$
(0.71
)
Diluted
$
(0.57
)
 
$
(0.71
)
 
 
 
 
Weighted average shares used to compute net loss per share:
 
 
 
Basic
81,039

 
77,416

Diluted
81,039

 
77,416


(1) Includes stock-based compensation expense as follows:
 
Three Months Ended March 31,
 
2018
 
2017
 
(in thousands)
Cost of revenues
$
2,987

 
$
2,577

Sales and marketing
20,015

 
18,092

Research and development
25,157

 
23,515

General and administrative
7,604

 
5,011


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

5

Table of Contents

Tableau Software, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(in thousands)
Net loss
$
(46,472
)
 
$
(54,647
)
Other comprehensive income (loss), net of tax:

 

Foreign currency translation
586

 
(824
)
Net unrealized loss on available-for-sale securities
(849
)
 

Comprehensive loss
$
(46,735
)
 
$
(55,471
)

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)
 
Three Months Ended March 31,
 
2018
 
2017
 
 (in thousands)
Operating activities

 
 
Net loss
$
(46,472
)
 
$
(54,647
)
Adjustments to reconcile net loss to net cash provided by operating activities

 

Depreciation and amortization expense
9,647

 
13,435

Amortization of premiums on investments, net
118

 

Stock-based compensation expense
55,763

 
49,195

Deferred income taxes
(4,226
)
 
128

Changes in operating assets and liabilities

 

Accounts receivable, net
73,012

 
76,878

Prepaid expenses and other assets
(22,891
)
 
11,270

Income taxes receivable
(194
)
 
6

Deferred revenue
(7,507
)
 
4,008

Accounts payable and accrued liabilities
(4,279
)
 
(16,620
)
Income taxes payable
(356
)
 
842

Net cash provided by operating activities 
52,615

 
84,495

Investing activities

 

Purchases of property and equipment
(5,251
)
 
(23,238
)
Purchases of investments
(102,450
)
 

Maturities of investments
77,385

 

Sales of investments
99

 

Net cash used in investing activities
(30,217
)
 
(23,238
)
Financing activities

 

Proceeds from issuance of common stock
2,492

 
4,309

Repurchases of common stock
(30,007
)
 
(20,008
)
Net cash used in financing activities
(27,515
)
 
(15,699
)
Effect of exchange rate changes on cash and cash equivalents
1,233

 
374

Net increase (decrease) in cash and cash equivalents
(3,884
)
 
45,932

Cash and cash equivalents

 

Beginning of period
627,878

 
908,717

End of period
$
623,994

 
$
954,649

 
 
 
 
Non-cash activities
 
 
 
Accrued purchases of property and equipment
$
4,192

 
$
8,039


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

7

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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 four 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; 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 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 months ended March 31, 2018. This includes the presentation of financial results during 2018 under ASC 605 for comparison to the prior year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include but are not limited to: the collectability of our receivables; the useful lives of our property and equipment and other lease-related assets, liabilities and costs; the benefit period for deferred commissions; the valuation of investments and the determination of other-than-temporary impairments; and the reported amounts of accrued liabilities. For revenue, we make estimates and assumptions related to the standalone selling prices of our products and services and the nature and timing of the delivery of performance obligations from our contracts with customers. We also use estimates in stock-based compensation, income taxes and business combinations. Actual results could differ from those estimates.
Risks and Uncertainties
Inherent in our business are various risks and uncertainties, including our limited history of operating our business at its current scale and development of advanced technologies in a rapidly changing industry. These risks include our ability to manage our growth and our ability to attract new customers and expand sales to existing customers, as well as other risks and uncertainties. In the event that we do not successfully implement our business plan, certain assets may not be recoverable, certain liabilities may not be paid and investments in our capital stock

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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 established 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 Interim 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 when and if they are available), training and professional services.
We recognize revenues related to our contracts with customers based on 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 both perpetually and through 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.
When purchasing an on-premises software license, a customer typically bundles with a maintenance services agreement and may also purchase training and/or professional services. Maintenance services agreements consist of fees for providing software updates on a when and if available basis and for providing technical support for software products for a specified term. We believe that our when and if 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 to be a single distinct performance obligation. Revenues allocated to maintenance services are recognized ratably as the services are provided. Revenues related to training services are billed on a fixed fee basis and are recognized as the services are delivered. Payments received in advance of services performed are deferred and recognized when the related services are performed. Revenues related to professional services are billed on a time and materials basis and are recognized as the services are performed.
We also provide cloud-based subscriptions, which allow customers to access our software during a contractual period without taking possession of the software. We recognize revenue related to these cloud-based

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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 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 6, which include amounts presented for 2018. There were no changes to the ASC 605 policy during the first quarter of 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 four years, which is generally longer than the term of the initial contract because of anticipated renewals as sales commissions for renewals are not commensurate with sales commissions related to our 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 March 31, 2018 and December 31, 2017, no individual customer accounted for 10% or more of total accounts receivable. For the three months ended March 31, 2018 and 2017, no individual customer represented 10% or more of our total revenues.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09 related to revenue recognition and later issued additional ASUs including ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20 and ASU 2017-14, all of which clarified certain aspects of ASU 2014-09, and together with ASU 2014-09, which we refer to collectively as the new revenue recognition standard. 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 in the first quarter of 2018 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. Upon adoption, 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 6.
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. Our evaluation of the new standard will extend into future periods and we will update our disclosures, including the expected impacts of the new standard, 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 March 31, 2018 and December 31, 2017, based on contractual years to maturity:
 
March 31, 2018
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
(in thousands)
Short-term investments
 
 
 
 
 
 
 
U.S. treasury securities
$
158,727

 
$

 
$
(255
)
 
$
158,472

U.S. agency securities
21,407

 

 
(94
)
 
21,313

Corporate bonds
62,058

 

 
(191
)
 
61,867

Total short-term investments
242,192

 

 
(540
)
 
241,652

Long-term investments

 

 

 

U.S. treasury securities
99,562

 

 
(502
)
 
99,060

U.S. agency securities
8,576

 

 
(71
)
 
8,505

Corporate bonds
50,332

 

 
(400
)
 
49,932

Total long-term investments
158,470

 

 
(973
)
 
157,497

Total short-term and long-term investments
$
400,662

 
$

 
$
(1,513
)
 
$
399,149

 
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 March 31, 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 March 31, 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 March 31, 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 March 31, 2018 and December 31, 2017:


March 31, 2018


Level 1

Level 2

Level 3

Total


(in thousands)
Cash and cash equivalents

 
 
 
 
 
 
 
Money market funds

$
553,667


$


$


$
553,667

Short-term investments

 
 
 
 
 
 
 
U.S. treasury securities
 

 
158,472

 

 
158,472

U.S. agency securities
 

 
21,313

 

 
21,313

Corporate bonds
 

 
61,867

 

 
61,867

Long-term investments
 
 
 
 
 
 
 
 
U.S. treasury securities



99,060




99,060

U.S. agency securities



8,505




8,505

Corporate bonds
 

 
49,932

 

 
49,932

Total

$
553,667


$
399,149


$


$
952,816

 
 
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 March 31, 2018. We had no financial assets or liabilities measured using Level 3 inputs as of March 31, 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 March 31, 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. 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.
During the three months ended March 31, 2018, we repurchased 366,160 shares of our outstanding Class A common stock at an average price of $81.95 per share for $30.0 million. During the three months ended March 31, 2017, we repurchased 383,411 shares of our outstanding Class A common stock at an average price of $52.18 per share for $20.0 million. All repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. As of March 31, 2018, we were authorized to repurchase a remaining $70.0 million of our Class A common stock under our repurchase program.
On April 26, 2018, our board of directors authorized us to repurchase up to an additional $300 million of our Class A common stock under our previously announced stock repurchase program. Including the additional $300 million, we are authorized to repurchase up to a remaining $370.0 million of our Class A common stock under the existing stock repurchase program. As of March 31, 2018, we had repurchased and retired 2,077,105 shares of our Class A common stock, under the existing stock repurchase program, for a total purchase price of $130.0 million.
Note 6. 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 months ended March 31, 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 first quarter of 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 March 31, 2018:
 
March 31, 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
$
623,994

 
$

 
$
623,994

 
$
627,878

Short-term investments
241,652

 

 
241,652

 
226,787

Accounts receivable, net
132,611

 

 
132,611

 
203,366

Prepaid expenses and other current assets
98,461

 
(68,249
)
 
30,212

 
30,514

Income taxes receivable
883

 

 
883

 
673

Total current assets
1,097,601

 
(68,249
)
 
1,029,352

 
1,089,218

Long-term investments
157,497

 

 
157,497

 
148,364

Property and equipment, net
101,121

 

 
101,121

 
106,753

Goodwill
35,083

 

 
35,083

 
35,083

Deferred income taxes
4,215

 
1,589

 
5,804

 
5,287

Other long-term assets
35,139

 
(21,264
)
 
13,875

 
14,090

Total assets
$
1,430,656

 
$
(87,924
)
 
$
1,342,732

 
$
1,398,795

Liabilities and stockholders' equity

 
 
 
 
 

Current liabilities

 

 
 
 

Accounts payable
$
2,817

 
$

 
$
2,817

 
$
4,448

Accrued compensation and employee-related benefits
81,268

 

 
81,268

 
96,390

Other accrued liabilities
41,935

 

 
41,935

 
37,722

Income taxes payable
4,467

 
1,826

 
6,293

 
4,743

Deferred revenue
314,698

 
104,407

 
419,105

 
419,426

Total current liabilities
445,185

 
106,233

 
551,418

 
562,729

Deferred revenue
21,687

 
5,521

 
27,208

 
28,058

Other long-term liabilities
53,911

 
(746
)
 
53,165

 
54,385

Total liabilities
520,783

 
111,008

 
631,791

 
645,172

Stockholders' equity
 
 
 
 
 
 
 
Common stock
8

 

 
8

 
8

Additional paid-in capital
1,205,459

 

 
1,205,459

 
1,168,563

Accumulated other comprehensive loss
(10,571
)
 
(1,972
)
 
(12,543
)
 
(11,991
)
Accumulated deficit
(285,023
)
 
(196,960
)
 
(481,983
)
 
(402,957
)
Total stockholders' equity
909,873

 
(198,932
)
 
710,941

 
753,623

Total liabilities and stockholders' equity
$
1,430,656

 
$
(87,924
)
 
$
1,342,732

 
$
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 schedule summarizes the impacts from the adoption of the new revenue recognition standard on our condensed consolidated statement of operations for the three months ended March 31, 2018:
 
Three Months Ended March 31,
 
2018
 
2017
 
As Reported
(ASC 606)
 
Impacts from Adoption
 
Without Adoption
(ASC 605)
 
As Reported
(ASC 605)
 
(in thousands)
Revenues
 
 
 
 
 
 
 
License
$
108,793

 
$
(3,127
)
 
$
105,666

 
$
97,244

Maintenance and services
137,414

 
(19,036
)
 
118,378

 
102,662

Total revenues
246,207

 
(22,163
)
 
224,044

 
199,906

Cost of revenues

 
 
 
 
 

License
3,954

 
(52
)
 
3,902

 
3,267

Maintenance and services
28,471

 
61

 
28,532

 
23,388

Total cost of revenues
32,425

 
9

 
32,434

 
26,655

Gross profit
213,782

 
(22,172
)
 
191,610

 
173,251

Operating expenses

 
 
 
 
 

Sales and marketing
138,406

 
4,607

 
143,013

 
118,018

Research and development
93,505

 

 
93,505

 
84,302

General and administrative
32,250

 

 
32,250

 
24,445

Total operating expenses
264,161

 
4,607

 
268,768

 
226,765

Operating loss
(50,379
)
 
(26,779
)
 
(77,158
)
 
(53,514
)
Other income, net
1,462

 
(38
)
 
1,424

 
1,225

Loss before income tax expense (benefit)
(48,917
)
 
(26,817
)
 
(75,734
)
 
(52,289
)
Income tax expense (benefit)
(2,445
)
 
5,737

 
3,292

 
2,358

Net loss
$
(46,472
)
 
$
(32,554
)
 
$
(79,026
)
 
$
(54,647
)
Condensed Consolidated Statements of Comprehensive Loss (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 comprehensive loss for the three months ended March 31, 2018:
 
Three Months Ended March 31,
 
2018
 
2017
 
As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)
 
(in thousands)
Net loss
$
(46,472
)
 
$
(32,554
)
 
$
(79,026
)
 
$
(54,647
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
586

 
(289
)
 
297

 
(824
)
Net unrealized loss on available-for-sale securities
(849
)
 

 
(849
)
 

Comprehensive loss
$
(46,735
)
 
$
(32,843
)
 
$
(79,578
)
 
$
(55,471
)

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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 three months ended March 31, 2018:
 
Three Months Ended March 31,
 
2018
 
2017
 
As Reported
(ASC 606)
 
Impacts from Adoption
 
Without Adoption
(ASC 605)
 
As Reported
(ASC 605)
 
(in thousands)
Operating activities
 
 
 
 
 
 
 
Net loss
$
(46,472
)
 
$
(32,554
)
 
$
(79,026
)
 
$
(54,647
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
 
 
 
 
 
 
Depreciation and amortization expense
9,647

 

 
9,647

 
13,435

Amortization of premiums on investments, net
118

 

 
118

 

Stock-based compensation expense
55,763

 

 
55,763

 
49,195

Deferred income taxes
(4,226
)
 
3,869

 
(357
)
 
128

Changes in operating assets and liabilities

 

 
 
 

Accounts receivable, net
73,012

 

 
73,012

 
76,878

Prepaid expenses and other assets
(22,891
)
 
23,230

 
339

 
11,270

Income taxes receivable
(194
)
 

 
(194
)
 
6

Deferred revenue
(7,507
)
 
3,521

 
(3,986
)
 
4,008

Accounts payable and accrued liabilities
(4,279
)
 

 
(4,279
)
 
(16,620
)
Income taxes payable
(356
)
 
1,825

 
1,469

 
842

Net cash provided by operating activities 
52,615

 
(109
)
 
52,506

 
84,495

Investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(5,251
)
 

 
(5,251
)
 
(23,238
)
Purchases of investments
(102,450
)
 

 
(102,450
)
 

Maturities of investments
77,385

 

 
77,385

 

Sales of investments
99

 

 
99

 

Net cash used in investing activities
(30,217
)
 

 
(30,217
)
 
(23,238
)
Financing activities
 
 
 
 
 
 
 
Proceeds from issuance of common stock
2,492

 

 
2,492

 
4,309

Repurchases of common stock
(30,007
)
 

 
(30,007
)
 
(20,008
)
Net cash used in financing activities
(27,515
)
 

 
(27,515
)
 
(15,699
)
Effect of exchange rate changes on cash and cash equivalents
1,233

 
109

 
1,342

 
374

Net increase (decrease) in cash and cash equivalents
(3,884
)
 

 
(3,884
)
 
45,932

Cash and cash equivalents
 
 
 
 
 
 
 
Beginning of period
627,878

 

 
627,878

 
908,717

End of period
$
623,994

 
$

 
$
623,994

 
$
954,649





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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 three months ended March 31, 2018 is presented below:
 
Contract Assets
 
(in thousands)
Balances at December 31, 2017
$

Adoption of ASC 606
40,854

Contract assets transferred to receivables
(1,315
)
Additions to contract assets
21,127

Balances at March 31, 2018
$
60,666

As of March 31, 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 three months ended March 31, 2018.
A summary of the activity impacting our deferred revenue balances during the three months ended March 31, 2018 is presented below:
 
Deferred Revenue
 
(in thousands)
Balances at December 31, 2017
$
447,484

Adoption of ASC 606
(105,933
)
Deferred revenue recognized
(120,820
)
Additional amounts deferred
115,654

Balances at March 31, 2018
$
336,385

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 four years.
A summary of the activity impacting our deferred contract costs during the three months ended March 31, 2018 is presented below:
 
Deferred Contract Costs
 
(in thousands)
Balances at December 31, 2017
$

Adoption of ASC 606
25,489

Additional contract costs deferred
6,736

Amortization of deferred contract costs
(2,048
)
Balances at March 31, 2018
$
30,177

As of March 31, 2018, $8.9 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 three months ended March 31, 2018. There were no assets recognized related to the costs to fulfill contracts during the three months ended March 31, 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 March 31, 2018, amounts allocated to these additional contractual obligations are $114.5 million, of which we expect to recognize $93.1 million as revenue over the next 24 months with the remaining amount thereafter.
Note 7. 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, restricted stock units ("RSUs") and other stock-based awards to our employees, consultants, officers and directors. Our 2013 Equity Incentive Plan, as amended, (the "2013 Plan" and, together with the 2004 Plan, the "Plans"), which is the successor to our 2004 Plan, authorizes the granting of options to purchase shares of our Class A common stock, RSUs and other stock-based awards to our employees, consultants, officers and directors. Options granted under the Plans may be incentive or nonstatutory stock options. Incentive stock options may only be granted to employees. The term of each option is stated in the award agreement but shall be no more than ten years from the date of grant. The board of directors determines the period over which options and RSUs become vested. Currently, the vesting period for our options and RSUs is typically four years.
Our 2013 Employee Stock Purchase Plan ("2013 ESPP") allows eligible employees to purchase shares of our Class A common stock, at a discount, through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. The 2013 ESPP currently includes purchase periods approximately six months in duration starting on the first trading date on or after June 1st and December 1st of each year. Participants are able to purchase shares of our common stock at 85% of the lower of its fair market value on (i) the first day of the purchase period or on (ii) the purchase date, which is the last day of the purchase period.
A summary of the option activity during the three months ended March 31, 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
 
(216,308
)
 
11.52

 
 
 
 
Balances at March 31, 2018
 
2,800,805

 
$
10.03

 
4.09
 
$
198,276

Vested and expected to vest at March 31, 2018
 
2,800,805

 
$
10.03

 
4.09
 
$
198,276

Exercisable at March 31, 2018
 
2,753,930

 
$
9.26

 
4.01
 
$
197,059

The intrinsic value is the difference between the current fair value of the stock and the exercise price of the stock option.

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A summary of the RSU activity during the three months ended March 31, 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
 
2,376,440

 
83.32

RSUs vested
 
(1,222,641
)
 
65.24

RSUs forfeited
 
(238,327
)
 
63.38

Non-Vested outstanding at March 31, 2018
 
8,093,487

 
$
68.43

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 March 31, 2018, total unrecognized compensation expense related to stock options and non-vested RSUs was $519.1 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 three months ended March 31, 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
 
(2,376,440
)
 

Forfeited
 
238,327

 

Balances at March 31, 2018
 
9,092,295

 
4,471,015

Note 8. 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 $2.4 million under ASC 606 for the three months ended March 31, 2018 compared to an income tax expense of $2.4 million for three months ended March 31, 2017. Our effective tax rate was 5.0% and (4.5)% for the three months ended March 31, 2018 and 2017, respectively. The difference in the effective tax rates between the three month periods 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 $3.3 million under ASC 605 for the three months ended March 31, 2018 compared to an income tax expense of $2.4 million for the three months ended March 31, 2017. Our effective tax rate was (4.3)% and (4.5)% for the three months ended March 31, 2018 and 2017, respectively. The difference in the effective tax rates between the three month periods was related to an increase in taxes in foreign

20

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jurisdictions, offset by an income tax benefit from the recognition of excess tax benefits of stock-based compensation during the three months ended March 31, 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 as 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 March 31, 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 March 31, 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.
On July 27, 2015, the U.S. Tax Court issued an opinion related to litigation in Altera Corp v. Commissioner. This litigation relates to the treatment of stock-based compensation expense in an intercompany cost sharing arrangement with one of Altera's foreign subsidiaries. In its opinion, the U.S. Tax Court invalidated the portion of the Treasury regulations requiring the inclusion of stock-based compensation expense in such intercompany cost-sharing arrangements. On February 19, 2016, the IRS appealed the U.S. Tax Court's decision. As the final resolution of this litigation remains uncertain, we have not recorded potentially favorable benefits related to the current or prior periods. We will continue to monitor developments related to this case and the potential impact of those developments on our current and future financial statements.
Note 9. Commitments and Contingencies
Operating Lease Commitments and Expected Sublease Receipts    
As of March 31, 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 March 31, 2018 (in thousands):
Period Ending
 
Operating Lease Commitments
 
Expected Sublease Receipts
 
Net
Remainder of 2018
 
$
33,177

 
$
(6,793
)
 
$
26,384

2019
 
41,480

 
(10,606
)
 
30,874

2020
 
43,138

 
(7,113
)
 
36,025

2021
 
43,603

 
(1,180
)
 
42,423

2022
 
43,216

 
(597
)
 
42,619

Thereafter
 
176,759

 
(121
)
 
176,638

Total
 
$
381,373

 
$
(26,410
)
 
$
354,963

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

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compared to those discussed in Note 10 in our Annual Report on Form 10-K for the year ended December 31, 2017.
Legal Proceedings
We are subject to certain routine legal proceedings, as well as demands and claims that arise in the normal course of our business. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.
We are not aware of any pending legal proceedings that we believe, individually or in the aggregate, would be expected to have a material adverse effect on our business, operating results, or financial condition. We may, in the future, be party to litigation arising in the ordinary course of business, including claims that we allegedly infringe upon third party intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources.
Note 10. Segments and Information about Revenues by Geographic Area
The following table presents our revenues by geographic region of end users who purchased products or services for the periods presented below:
 
Three Months Ended March 31,
 
2018
 
2017
 
As Reported
(ASC 606)
 
Impacts from Adoption
 
Without Adoption
(ASC 605)
 
As Reported
(ASC 605)
 
(dollars in thousands)
United States and Canada
$
167,799

 
$
(13,356
)
 
$
154,443

 
$
141,496

International
78,408

 
(8,807
)
 
69,601

 
58,410

Total revenues
$
246,207

 
$
(22,163
)
 
$
224,044

 
$
199,906

For the three months ended March 31, 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.

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Note 11. Net Loss Per Share
The following table presents the computation of basic and diluted net loss per share for the three months ended March 31, 2018 and 2017 and includes additional information regarding the impacts from the adoption of the new revenue recognition standard for the three months ended March 31, 2018:
 
Three Months Ended March 31,
 
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
$
(46,472
)
 
$
(32,554
)
 
$
(79,026
)
 
$
(54,647
)
Weighted average shares outstanding used to compute basic and diluted net loss per share
81,039

 


 
81,039

 
77,416

Net loss per share - basic and diluted
$
(0.57
)
 


 
$
(0.98
)
 
$
(0.71
)
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 March 31,
 
2018
 
2017
 
(in thousands)
Shares subject to outstanding common stock awards
11,193

 
12,658



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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 four 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 SaaS version of Tableau Server; 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 and our first version of Tableau Online in July 2013. Building on our foundational technology innovations, we continue to expand and improve our platform. Our most recent release, Tableau 2018.1, expanded our platform to include new web authoring capabilities. Tableau Server and Tableau Online customers can connect to data sources through the web and engage in end-to-end web authoring through their browser. In April 2018, we introduced Tableau Prep, a new data preparation product that integrates directly into the Tableau analytical workflow and can be shared with Tableau Server or Tableau Online. In April 2018, we also introduced new 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 March 31, 2018, we had over 74,000 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 when and if 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. When purchasing a software license, a customer typically also purchases one year of maintenance service and has 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 become a larger percentage of our total revenues 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 months ended March 31, 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 and independent software vendors ("ISV"). 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 and grow in new markets while complementing our direct sales efforts.
With approximately 32% of our total ASC 606 revenues from customers located outside the United States and Canada for the three months ended March 31, 2018, 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 from the first quarter of 2018 to total ASC 605 revenues from the fourth quarter of 2017. We have presented total ASC 605 revenues for the first quarter of 2018 below for comparability against the prior quarter.
We continue to expand our customer base. As of March 31, 2018, we had over 74,000 customer accounts compared to over 57,000 customer accounts as of March 31, 2017.
During the three months ended March 31, 2018, we closed 301 sales transactions greater than $100,000, compared to 294 during the three months ended March 31, 2017. We had 13 customer accounts that purchased greater than $1.0 million during the three months ended March 31, 2018, compared to 10 during the three months ended March 31, 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 transition to a more subscription-based business model as the unit sales price of each subscription license is lower than a comparable perpetual license.

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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 March 31, 2018, Subscription ARR was $237.5 million, up from $72.0 million as of March 31, 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 March 31, 2018, Total ARR was $641.9 million, up from $439.0 million as of March 31, 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 December 31, 2017 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 have recently introduced new 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 in expanding our direct sales teams and indirect sales channels and 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 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 connection with enhancing and expanding our operations domestically and internationally. 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 when a sales opportunity is entered into our customer relationship management system until when a related license agreement is signed with the customer, generally varies with 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 both perpetually and through 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 when and if 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. When purchasing a software license, a customer typically also purchases one year of maintenance service and has 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 our term licenses and 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 as compared to 2017 due to interest income associated with our investments in fixed income securities, which we began investing in during the third quarter of 2017, and due to 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 quarter ended March 31, 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 March 31,
 
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
$
108,793

 
$
(3,127
)
 
$
105,666

 
$
97,244

Maintenance and services
137,414

 
(19,036
)
 
118,378

 
102,662

Total revenues
246,207

 
(22,163
)
 
224,044

 
199,906

Cost of revenues
 
 

 
 
 
 
License
3,954

 
(52
)
 
3,902

 
3,267

Maintenance and services
28,471

 
61

 
28,532

 
23,388

Total cost of revenues (1)
32,425

 
9

 
32,434

 
26,655

Gross profit
213,782

 
(22,172
)
 
191,610

 
173,251

Operating expenses
 
 

 
 
 
 
Sales and marketing (1)
138,406

 
4,607

 
143,013

 
118,018

Research and development (1)
93,505

 

 
93,505

 
84,302

General and administrative (1)
32,250

 

 
32,250

 
24,445

Total operating expenses
264,161

 
4,607

 
268,768

 
226,765

Operating loss
(50,379
)
 
(26,779
)
 
(77,158
)
 
(53,514
)
Other income, net
1,462

 
(38
)
 
1,424

 
1,225

Loss before income tax expense (benefit)
(48,917
)
 
(26,817
)
 
(75,734
)
 
(52,289
)
Income tax expense (benefit)
(2,445
)
 
5,737

 
3,292

 
2,358

Net loss
$
(46,472
)
 
$
(32,554
)
 
$
(79,026
)
 
$
(54,647
)

(1) Includes stock-based compensation expense as follows:
 
Three Months Ended March 31,
 
2018
 
2017
 
(in thousands)
Cost of revenues
$
2,987

 
$
2,577

Sales and marketing
20,015

 
18,092

Research and development
25,157

 
23,515

General and administrative
7,604

 
5,011


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Three Months Ended March 31,
 
2018
 
2017
 
As Reported
(ASC 606)
 
Without Adoption
(ASC 605)
 
As Reported
(ASC 605)
 
(as a percentage of total revenues)
Condensed Consolidated Statements of Operations Data:
 
 
 
 
 
Revenues
 
 
 
 
 
License
44.2
 %
 
47.2
 %
 
48.6
 %
Maintenance and services
55.8
 %
 
52.8
 %
 
51.4
 %
Total revenues
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of revenues
 
 
 
 
 
License
1.6
 %
 
1.7
 %
 
1.6
 %
Maintenance and services
11.6
 %
 
12.7
 %
 
11.7
 %
Total cost of revenues
13.2
 %
 
14.5
 %
 
13.3
 %
Gross profit
86.8
 %
 
85.5
 %
 
86.7
 %
Operating expenses
 
 
 
 
 
Sales and marketing
56.2
 %
 
63.8
 %
 
59.0
 %
Research and development
38.0
 %
 
41.7
 %
 
42.2
 %
General and administrative
13.1
 %
 
14.4
 %
 
12.2
 %
Total operating expenses
107.3
 %
 
120.0
 %
 
113.4
 %
Operating loss
(20.5
)%
 
(34.4
)%
 
(26.8
)%
Other income, net
0.6
 %
 
0.6
 %
 
0.6
 %
Loss before income tax expense (benefit)
(19.9
)%
 
(33.8
)%
 
(26.2
)%
Income tax expense (benefit)
(1.0
)%
 
1.5
 %
 
1.2
 %
Net loss
(18.9
)%
 
(35.3
)%
 
(27.3
)%



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Comparison of Three Months Ended March 31, 2018 and 2017
Revenues
 
Three Months Ended March 31,
 
 
 

 
2018
 
2017
 
% Change
 
As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)

As Reported

Without Adoption
 
(dollars in thousands)
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
License
$
108,793

 
$
(3,127
)
 
$
105,666

 
$
97,244

 
11.9
%
 
8.7
%
Maintenance and services
137,414

 
(19,036
)
 
118,378

 
102,662

 
33.9
%
 
15.3
%
Total revenues
$
246,207

 
$
(22,163
)
 
$
224,044

 
$
199,906

 
23.2
%
 
12.1
%
Total ASC 605 revenues were $224.0 million for the three months ended March 31, 2018 compared to $199.9 million for the three months ended March 31, 2017, an increase of $24.1 million. The increase in total ASC 605 revenues was largely related to an increase in maintenance and services revenues resulting from our growing customer base. For example, as of March 31, 2018, we had over 74,000 customer accounts compared to over 57,000 customer accounts as of March 31, 2017.
ASC 605 license revenues were $105.7 million for the three months ended March 31, 2018 compared to $97.2 million for the three months ended March 31, 2017, an increase of $8.4 million. The increase in ASC 605 license revenues was impacted by the continued growth in customer demand for our term and subscription licenses. Revenues from term and subscription licenses represented approximately 54% of total ASC 605 license revenues during the three months ended March 31, 2018 as compared to approximately 19% during the three months ended March 31, 2017. Our term and subscription licenses have lower unit sales prices and are generally recognized ratably under ASC 605 as compared to our perpetual licenses, which have comparably higher unit sales prices and are recognized upfront under ASC 605. The growth in customer demand for our term and subscription licenses has also increased the amount of amortized license revenues under ASC 605 for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017.
ASC 605 maintenance and services revenues were $118.4 million for the three months ended March 31, 2018 compared to $102.7 million for the three months ended March 31, 2017, an increase of $15.7 million, driven by our growing customer base. Total ASC 605 revenues derived from our customer accounts outside of the United States and Canada increased, as a percentage of total ASC 605 revenues, to 31% for the three months ended March 31, 2018 from 29% for the three months ended March 31, 2017.
Total ASC 606 revenues were $246.2 million for the three months ended March 31, 2018 compared to total ASC 605 revenues of $224.0 million. 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 under ASC 605 related to on-premises term license agreements ratably over the term of the licensing agreement. Term license revenues were then included in license revenues. Under the new revenue recognition standard, revenue allocable to the license portion of the arrangement is recognized in license revenues upon delivery of the license. Maintenance and services revenues continue to be recognized ratably.

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Cost of Revenues and Gross Margin
 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
% Change
 
As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)

As Reported

Without Adoption
 
(dollars in thousands)
 
 
 
 
Cost of revenues
 
 
 
 
 
 
 
 
 
 
 
License
$
3,954

 
$
(52
)
 
$
3,902

 
$
3,267

 
21.0
%
 
19.4
%
Maintenance and services
28,471

 
61

 
28,532

 
23,388

 
21.7
%
 
22.0
%
Total cost of revenues
$
32,425

 
$
9

 
$
32,434

 
$
26,655

 
21.6
%
 
21.7
%

 
Three Months Ended March 31,
 
2018
 
2017
 
As Reported
(ASC 606)
 
Without Adoption
(ASC 605)
 
As Reported
(ASC 605)
Gross Margin
 
 
 
 
 
License
96.4
%
 
96.3
%
 
96.6
%
Maintenance and services
79.3
%
 
75.9
%
 
77.2
%
Total gross margin
86.8
%
 
85.5
%
 
86.7
%
Total cost of revenues was $32.4 million for the three months ended March 31, 2018 compared to $26.7 million for the three months ended March 31, 2017. The increase of $5.8 million was largely related to an increase in compensation expense of $4.1 million, which includes a $0.4 million increase in stock-based compensation expense, primarily due to headcount growth to support the delivery of our maintenance and services and to support Tableau Online.
Operating Expenses
 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
% Change
 
As Reported
(ASC 606)

Impacts from Adoption

Without Adoption
(ASC 605)

As Reported
(ASC 605)
 
As Reported
 
Without Adoption
 
(dollars in thousands)