Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Revenue Recognition

v3.8.0.1
Note 2 - Revenue Recognition
3 Months Ended
Mar. 31, 2018
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
2.
Revenue Recognition
 
A
doption of ASC
606
 
Except for the changes below, we have consistently applied the accounting policies to all periods in these condensed consolidated financial statements.
 
On
January 1, 2018
the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
606
- Revenue from Contracts with Customers (“ASC
606”
) and concluded that, consistent with prior reporting, the Company has
two
separate revenue streams: rentals and product sales. The adoption of ASC
606
had
no
impact upon adoption on the Company’s net income for the
first
quarter of
2018.
  However, the adoption of ASC
606
requires certain customer concessions associated with rental revenues reported in accordance with ASC
605
- Revenue Recognition, previously reported in selling, general and administrative expenses as “provisions for doubtful accounts” to now be recorded as a reduction of net rental revenues as they are considered price concessions of the transaction price under the new revenue guidance.  As ASC
606
was adopted on a modified retrospective method, prior quarters are
not
restated.  
 
ASC
606
defines a
five
-step process to recognize revenues at the time and in an amount that reflects the consideration expected to be received for the performance obligations that have been provided. ASC
606
defines contracts as written, oral and through customary business practice. Under this definition, the Company considers contracts to be created at the time that the rental service is authorized or an order to purchase product is agreed upon regardless of whether or
not
there is a written contract.
 
Performance Obligations
 
The Company has
two
separate and distinct performance obligations offered to its customers: a rental service performance obligation or a product sale performance obligation. These performance obligations are related to separate revenue streams and at
no
point are they combined into a single transaction.
 
The Company generates the majority of its revenue from the rental and servicing of infusion pumps to its customers and a minority of its revenue from product sales. Revenue related to rentals is recognized at the point in time that a patient concludes a treatment and the proper documentation has been received by the Company, or in certain arrangements, based on the number of pumps that a facility has onsite. Revenue related to product sales is recognized at the time that control of the product has been transferred to the customer; either at the time the product is shipped or the time the product has been received by the customer depending on the shipping terms. The Company does
not
commit to long-term contracts to sell customers a certain minimum quantity of products.
 
Significant Judgments
 
The Company employs certain significant judgments to estimate the dollar amount of revenue, and related concessions, allocated to the rental service and sale of products. These judgments include, among others, the estimation of variable consideration. Variable consideration, specifically related to the Company’s
third
-party payor rental revenues, is estimated as a contractual allowance for commercial payors and implied customer concessions, which has been traditionally considered bad debt for self-pay customers. The estimates for variable consideration are based on historical collections with similar payors which provide a reasonable basis for estimating the variable portion of a transaction. The Company uses the “expected value” method to estimate the component of variable consideration, which is consistent with the expectations set forth in ASC
606.
The Company doesn’t believe that a significant reversal of revenue will occur in future periods because (i) there is
no
significant uncertainty about the amount of considerations that are expected to be collected based on collection history and (ii) the large number of sufficiently similar contracts allows the Company to adequately estimate the component of variable consideration.
 
Financial Impact of ASC
606
Adoption
 
The following table presents the impact of ASC
606
on the Condensed Consolidated Statements of Operations (unaudited) for the
three
months ended
March 31, 2018 (
in thousands):
 
   
Three Months Ended
 
   
March 31, 2018
 
                         
   
As Reported
   
Adjustments
   
Pro-Forma as if
Previous Accounting
Guidance Was in Effect
 
Net revenues:
                       
Rentals
  $
14,421
    $
1,904
    $
16,325
 
Net revenues
   
16,483
     
1,904
     
18,387
 
                         
Gross profit
   
10,073
     
1,904
     
11,977
 
                         
Selling, general and administrative expenses:
                       
Provision for doubtful accounts
   
-
     
1,904
     
1,904
 
Total selling, general and administrative
  $
9,485
    $
1,904
    $
11,389
 
 
The following table presents disaggregated revenue by offering type:
 
   
Three Months Ended
 
   
March 31, 2018
 
       
Third-Party Payor Rentals
 
48.6%
 
Direct Payor Rentals
 
38.9%
 
Product Sales
 
12.5%
 
       
Total - Net revenues
 
100.0%