Re:          Allot Ltd.

Form 20-F for the Fiscal Year Ended December 31, 2019

Filed March 26, 2020

 

Dear Ms. Collins and Ms. Pyles:

 

 

 

 

In a small number of instances, the Company provides specific customization as part of its professional services.

The Company’s customization services include development of customer-requested functions and features on the Company’s hardware and software products per customer specifications. These services are provided to the customer pursuant to a separate contract from the products already purchased and received.  Such services are undertaken specifically for the customer in question and do not necessarily benefit other customers.

Large service providers might seek significant customization requirements. In order to meet such requirements, the Company may be required to allocate resources and efforts for development activities that are not part of its R&D roadmap and there is therefore a risk that the Company will not be able to meet those requirements. This creates a risk, in case of failure to meet those requirements, that the Company may incur higher costs and reputational harm, which can lead to large service providers deciding not to continue their future engagements with the Company.

 

Response:

As described above, the arrangement involves customizing an existing product that was previously provided to the customer. The customization services are accounted for as a separate contract and, as such, are distinct from the promise to transfer the product. 

The Company considered the contract combination guidance in paragraph 606-10-25-9 and assessed that the customization professional services contract was not entered into at or near the same time as the original product and, therefore, is not combined with the initial contract for the provision of the product.

 

Specifically address how you considered the guidance in 606-10-25-27 or explain what guidance you applied to these arrangements; and

Response:

The Company has considered ASC 606-10-25-27 and determined that it does not satisfy the customization services performance obligation over time:

 

 

 

The Company recognizes revenues from the customization services at a point in time when the performance obligation is satisfied and control is transferred.

 

Response:

The revenues recognized from customization arrangements were $0.6 million in 2019, $1.0 million in 2018 and $0.6 million in 2017.

 

Response:

The Company pays commissions to salespeople or third parties for both initial contracts and renewal contracts.

The Company capitalizes the incremental and recoverable costs of obtaining a contract with a customer and amortizes those costs on a systematic basis that is consistent with the transfer of the goods or services to which the asset relates. The Company’s typical contracts include performance obligations related to products, maintenance and support and other professional services. In these contracts, the incremental costs of obtaining a contract are allocated to the performance obligations based on the relative estimated standalone selling prices. Costs allocated to products are expensed when revenue from the sale of product is recognized. Costs allocated to maintenance and support are amortized ratably over the original contract period, which is the expected period of benefit of the asset capitalized. Costs related to professional services are amortized when the professional services are provided.

As stated in the Basis for Conclusions to ASU 2014-09 (BC 309), the amortization period for a contract cost asset should include specifically anticipated renewal periods when the entity concludes that it will continue to benefit from the contract cost asset over a period that is longer than the stated contract period.  However, amortizing an asset over a period longer than the initial contract period would not be appropriate when the entity pays a commission on a contract renewal that is commensurate with the commission paid on the initial contract.

Costs related to maintenance and support are limited to the contractual period of the arrangement as the Company pays a commission on a contract renewal that is commensurate with the commission paid on the initial contract.

 

Response:

The portion of the transaction price allocated to remaining performance obligations represents contracts that have not yet been recognized that include deferred revenue and amounts not yet received that will be recognized as revenue in future periods. The aggregate amount of the transaction price allocated to remaining performance obligations that the Company expects to recognize before December 31, 2020 is estimated to be $100,332 thousand and after the year ending December 31, 2020 is estimated to be $37,875 thousand.

In future filings, the Company will disclose when it expects to recognize revenues related to unsatisfied (or partially unsatisfied) performance obligations in order to comply with ASC 606-10-50-13(b).

Sincerely,

/s/ Colin Diamond
Colin Diamond

 

cc  Ziv Leitman, Chief Financial Officer, Allot Ltd.

 

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