Recently Issued Accounting Standards | 3. Recently Issued Accounting Standards Compensation—Stock Compensation 2017-09, “ Compensation—Stock Compensation ” 2017-09 Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets” 610-20): 2017-05 Business Combinations – Clarifying the Definition of a Business No. 2017-01, Business Combinations – Clarifying the Definition of a Business” No. 2017-01”). 2017-01 2017-01 2017-01 2017-01 Revenue from Contracts with Customers Adoption Impact The Company identified three contracts which previously resulted in revenue recognition occurring at the time of shipment; however, under the new revenue recognition standard, the Company is required to recognize revenue over time. The assessment of our January 1, 2018, condensed consolidated balance sheet under ASC Topic 606 resulted in a cumulative-effect adjustment to opening retained earnings, unbilled accounts receivable and costs incurred for inventory. The effects of the adoption under ASC Topic 606 are outlined in the following table: Year Ended Impact January 1, 2018 Accounts receivable $ 35,081 $ 4,014 $ 39,095 Inventories - net 111,927 (1,766 ) 110,161 Accrued expenses — 1,110 1,110 Deferred tax assets 9,575 (266 ) 9,309 Accumulated deficit (237,066 ) 872 (236,194 ) The impact of adoption of Topic 606 to the Company’s condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2018 was as follows: For the Three Months Ended June 30, 2018 For the Six Months Ended June 30, 2018 Excluding Impact Excluding Impact As Reported of Topic 606 As Reported of Topic 606 Total revenues $ 70,685 $ 69,777 $ 140,575 $ 138,348 Cost of processing and distribution 40,645 40,331 76,853 75,896 Income tax benefit 2,702 2,889 2,453 2,852 Net loss (6,441 ) (6,848 ) (8,372 ) (9,243 ) Disaggregation of revenue The Company operates in one reportable segment composed of four lines of business. Effective January 1, 2018, the reporting of the Company’s lines of business are composed primarily of four categories: spine; sports; original equipment manufacturer (“OEM”) and international. The following table presents revenues from these four categories for the three and six months ended June 30, 2018: For the Three Months Ended For the Six Months Ended Revenues: Spine $ 18,934 $ 38,197 Sports 14,190 27,625 OEM 31,170 61,290 International 6,391 13,463 Total revenues from contracts with customers $ 70,685 $ 140,575 The following table presents revenues recognized at a point in time and over time for the three and six months ended June 30, 2018: For the Three Months Ended For the Six Months Ended Revenue recognized at a point in time $ 61,534 $ 121,697 Revenue recognized over time 9,151 18,878 Total revenues from contracts with customers $ 70,685 $ 140,575 Performance Obligations The Company’s performance obligations consist mainly of transferring control of implants identified in the contracts. Some of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to a customer. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation and are not material to the condensed consolidated financial statements. When Performance Obligations Are Satisfied The Company typically transfers control at a point in time upon shipment or delivery of the implants for direct sales, or upon implantation for sales of consigned inventory. The customer is able to direct the use of, and obtain substantially all of the benefits from, the implant at the time the implant is shipped, delivered, or implanted, respectively based on the terms of the contract. For performance obligations related to the aforementioned three contracts with exclusively built inventory clauses, the Company typically satisfies its performance obligations evenly over the contract term as inventory is built. Such exclusively manufactured inventory has no alternative use and the Company has an enforceable right to payment for performance to date. The Company uses the input method to measure the manufacturing activities completed to date, which depicts the progress of the Company’s performance obligation of transferring control of exclusively built inventory. For the contracts with upfront and annual exclusivity fees, revenue related to those fees is recognized over the contract term following a consistent method of measuring progress towards satisfaction of the performance obligation. The Company uses the method and measure of progress that best depicts the transfer of control to the customer of the goods or services to date relative to the remaining goods or services promised under the contract. Significant Payment Terms The contract with the customer states the final terms of the sale, including the description, quantity, and price of each implant distributed. Payment for OEM contracts is typically due in full within 30 days of delivery or the start of the contract term. For the remaining lines of business, payment terms are typically due in full within 30 to 60 days of delivery. The Company performs a review of each specific customer’s credit worthiness and ability to pay prior to acceptance as a customer. Further, the Company performs periodic reviews of its customers’ creditworthiness prospectively. Since the customer agrees to a stated price in the contract that does not vary over the contract, the majority of contracts do not contain variable consideration. Nature of Goods and Services The Company distributes biologic, metal and synthetic implants. In some instances, the Company also enters into contracts with customers for exclusively manufactured inventory based on customer specifications. Returns In the normal course of business, the Company does accept product returns. The amount of consideration the Company ultimately receives varies depending upon the return terms that the Company may offer, which are accounted for as variable consideration when estimating the amount of revenue to recognize. The Company establishes provisions for estimated returns based on historical experience. The amount recorded on the Company’s balance sheets for product return allowance was $1,190 million and $1,110 million at June 30, 2018 and December 31, 2017, respectively. Liabilities for return allowances are included in “Accrued expenses”. Actual product returns have not differed materially from estimated amounts reserved in the accompanying condensed financial statements. Critical Accounting Estimates Estimates are used to determine the amount of variable consideration in contracts, and the measure of progress for contracts where revenue is recognized over time. The Company reviews and updates these estimates regularly. Our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation. Some contracts with customers include variable consideration primarily related to volume rebates. The Company estimates variable consideration at the most likely amount to determine the total consideration which the Company expects to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available. Contract Asset and Liability The opening and closing balances of the Company’s accounts receivable, contract asset and current and long-term contract liability are as follows: Accounts Contract Contract Opening 1/1/2018 $ 39,095 $ 5,978 $ 3,741 Closing 6/30/2018 45,576 6,210 3,155 Increase/(decrease) 6,481 232 (586 ) Contract liabilities consist primarily of the return allowance described above, and of deferred revenue arising from upfront and annual exclusivity fees. The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the Company’s performance of the Company’s contractual obligations over time. The Company recognizes sales commissions as incurred because the amortization period is less than one year. The Company does not incur other incremental costs relating to obtaining a contract with a customer, and therefore, does not have material contract assets, or impairment losses associated therewith. Revenue recognized for the six months ended June 30, 2018 from amounts included in contract liabilities at the beginning of the period was $2,434. |