Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition (Notes)

Revenue Recognition (Notes)

9 Months Ended

Dec. 31, 2018

Revenue from Contract with Customer [Abstract]

Revenue from Contract with Customer [Text Block]

Revenue Recognition and Deferred Revenue

Significant Accounting Policy Update

The Company records revenue based on a five-step model in accordance with ASC 606. The Company's revenue is derived from the sale of products, software, and services identified in contracts. A contract exists when both parties have an approved agreement that creates enforceable rights and obligations, identifies performance obligations and payment terms and has commercial substance. The Company records revenue from these contracts when control of the products or services transfer to the customer. The amount of revenue to be recognized is based upon the consideration, including the impacts of any variable consideration, that the Company expects to be entitled to receive in exchange for these products and services.

The majority of the Company’s revenue is recorded at a point in time from the sale of tangible products. Revenue is recorded when control of the products passes to the customer, dependent upon the terms of the underlying contract. For right-to-use software, revenue is recognized at the point in time the customer has the right to use and can substantially benefit from use of the software. Products regularly include warranties that include bug fixes, and minor updates so that the product continues to function as promised in a dynamic environment, and phone support. These standard warranties are assurance type warranties which do not offer any services beyond the assurance that the product will continue working as specified. Therefore, warranties are not considered separate performance obligations. Instead, the Company accrues the expected cost of warranty. Extended warranties are sold separately with a post contract support (PCS) agreement. PCS revenue is recognized over time during the support period. Revenue from installation services is recognized when the services have been completed or transferred as this is when the customer has obtained control.

The Company has contracts with multiple performance obligations. When the sales agreement involves multiple performance obligations, each obligation is separately identified and the transaction price is allocated based on the amount of consideration the Company expects to be entitled to in exchange for transferring the promised good or service to the customer. In most cases, the Company allocates the consideration to each performance obligation based on the relative standalone selling price (RSP) of the distinct performance obligation. In circumstances where RSP is not observable, the Company allocates the consideration for the performance obligations by utilizing the residual approach.

For performance obligations that the Company satisfies over time, revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. The Company utilizes the method that most accurately depicts the progress toward completion of the performance obligation. If the measure of remaining rights exceeds the measure of the remaining performance obligations, the Company records a contract asset. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, the Company records a contract liability. Contract assets and liabilities related to product returns will be recorded as contract assets and liabilities and presented on the Condensed Consolidated Balance Sheets in Prepaid expenses and other current assets and Deferred revenue, respectively.

Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. The associated deferred revenue is included in Deferred revenue or Deferred revenue non-current, as appropriate, in the Condensed Consolidated Balance Sheets.

The Company allows certain customers to return unused product under specified terms and conditions. The Company estimates product returns based on historical sales and return trends and records a corresponding refund liability. The refund liability is included within accrued expenses on the accompanying Condensed Consolidated Balance Sheets. Additionally, the Company records an asset based on historical experience for the amount of product the Company expects to return to inventory as a result of the return, which is recorded in prepaid and other current assets in the Condensed Consolidated Balance Sheets. Under previous guidance, the Company netted the asset against the refund liability and presented the net refund liability within accrued expenses. The gross product return asset was $0.1 million and $0.1 million at April 1, 2018 and December 31, 2018, respectively.

Financial Statement Impact of Adopting ASC 606

The following table summarizes the changes made to the Company's unaudited Condensed Consolidated Balance Sheets as of March 31, 2018 for the adoption of ASC 606:



(in thousands)	As reported March 31, 2018			Adjustments due to ASC 606			Adjusted as of April 1, 2018
Assets:
Prepaid expenses and other current assets	$	816		$	72		$	888
Liabilities:
Accrued expenses	3,328			72			3,400
Deferred revenue	1,790			(110		)	1,680
Deferred revenue non-current	846			(219		)	627
Stockholders' Equity:
Accumulated deficit	$	(329,645	)	$	329		$	(329,316	)

The following table summarizes the impacts of adopting ASC 606 on the Company’s unaudited Condensed Consolidated Balance Sheets as of December 31, 2018:



(in thousands)	As of December 31, 2018
	As reported under ASC 606			Effect of Change Increase/ (Decrease)			Proforma under ASC 605
Assets:
Prepaid expenses and other current assets	$	1,169		$	(57	)	$	1,112
Liabilities:
Accrued expenses	2,854			(57		)	2,797
Deferred revenue	679			110			789
Deferred revenue non-current	514			137			651
Stockholders' Equity:
Accumulated deficit	$	(332,652	)	$	(247	)	$	(332,899	)

The following table summarizes the impacts of adopting ASC 606 on the Company’s unaudited Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2018:



(in thousands)	For the three months ended December 31, 2018								For the nine months ended December 31, 2018
	As reported under ASC 606			Effect of Change Increase/ (Decrease)		Proforma under ASC 605			As reported under ASC 606			Effect of Change Increase/ (Decrease)		Proforma under ASC 605
Revenue	$	10,722		$	27	$	10,749		$	33,865		$	82	$	33,947
Gross Profit	4,590			27		4,617			14,718			82		14,800
Net income (loss) from continuing operations	(1,556		)	27		(1,529		)	(3,198		)	82		(3,116		)
Net income (loss)	$	(1,556	)	$	27	$	(1,529	)	$	(3,336	)	$	82	$	(3,254	)

Practical Expedients and Exemptions

The Company has adopted certain practical expedients available under ASC 606.

Contract Costs

The Company adopted the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that otherwise would have been recognized is one year or less. These costs are included in sales and marketing and general and administrative expenses. If the incremental direct costs of obtaining a contract, which consist of sales commissions, relate to a service recognized over a period longer than one year, costs are deferred and amortized in line with the related services over the period of benefit. As of December 31, 2018, there were no deferred contract costs.

Financing

The Company adopted the practical expedient that permits the Company to forego adjusting contract consideration for the effects of any financing component if payments for goods and services are expected to be received one year or less from when control of the goods or services has transferred to the customer. Payment terms vary by customer. Generally, the time between invoicing and when payment is due is not significant. Occasionally, the Company requires customers to make a payment before delivery of the products or services to the customer.

Sales Taxes

The Company made the accounting policy election to record revenue net of sales taxes. This is consistent with the Company's practice under the previous guidance.

Shipping and Handling

Shipping and handling billed to customers is recorded as revenue. The Company classifies shipping and handling costs associated with both inbound freight and the distribution of finished product to our customers as cost of revenue. This is consistent with the Company's practice under the previous guidance.

Disaggregation of revenue

The following table disaggregates our revenue by major source:



(In thousands)	Three months ended December 31,				Nine months ended December 31,
	2018 (under ASC 606)		2017 (under ASC 605)		2018 (under ASC 606)		2017 (under ASC 605)
Revenue:
Products	$	9,400	$	11,476	$	30,230	$	41,873
Software	408		278		982		1,523
Services	914		1,921		2,653		4,085
Total revenue	$	10,722	$	13,675	$	33,865	$	47,481

The following is the expected future revenue recognition timing of deferred revenue as of December 31, 2018:



(in thousands)	< 1 year		1-2 years		> 2 years
Deferred Revenue	$	679	$	283	$	231

During the nine months ended December 31, 2018, the Company recognized $1.6 million of revenue that was deferred as of the beginning of the period.