4.	REVENUE FROM CONTRACTS WITH CUSTOMERS

Electric Power and Solar Infrastructure Services segment and Integrated Energy Infrastructure and Services segment

The Electric Power and Solar Infrastructure Services provides a full service building, maintenance and support to the electrical power distribution, transmission, substation, renewables, and emergency response sectors of North America through Orbital Power Services and Reach Construction Group, LLC provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility scale solar construction.

The Integrated Energy Infrastructure and Services segment subsidiaries generate their revenue from a portfolio of products, services and resources that offer a diverse range of energy infrastructure services including gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries through the Orbital Gas Systems subsidiaries.

The Company accounts for a majority of its contract revenue proportionately over time in both segments. For performance obligations satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For construction contracts, revenue is generally recognized over time as the Company's performance creates or enhances an asset that the customer controls. The Company's fixed price construction projects generally use a cost-to-cost input method to measure progress towards complete satisfaction of the performance obligation as the Company believes it best depicts the transfer of control to the customer. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

The timing of revenue recognition for Integrated Energy Infrastructure and Services products also depends on the payment terms of the contract, as the Company's performance does

not

create an asset with an alternative use to the Company. For those contracts which the Company has a right to payment for performance completed to date at all times throughout the Company's performance, inclusive of a cancellation, the Company recognizes revenue over time. As discussed above, these performance obligations use a cost-to-cost input method to measure the Company's progress towards complete satisfaction of the performance obligation as the Company believes it best depicts the transfer of control to the customer. However, for those contracts for which the Company does

not

have a right, at all times, to payment for performance completed to date, the Company recognizes revenue at the point in time when control is transferred to the customer.

For the Company's service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of the Company's performance as the Company performs the service. For the Company's fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when the Company's inputs are expended evenly, and the customer receives and consumes the benefits of the Company's performance throughout the contract term.

For certain of the Company's revenue streams, such as call-out repair and service work, and outage services, that are performed under time and materials contracts, the Company's progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of the Company's performance completed to date.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Product-type contracts (for example, sale of GasPT units) out of the Integrated Energy Infrastructure and Services segment for which revenue does

not

qualify to be recognized over time are recognized at a point in time. Revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period.

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when the Company's right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition

may

differ from the timing of invoicing to customers. Contract assets include unbilled amounts from the Company's construction projects when revenue recognized under the cost-to-cost measure of progress exceed the amounts invoiced to the Company's customers, as the amounts have been earned in direct alignment with revenue recognition, but

not

yet eligible to be billed under the terms of the Company's contracts. Such amounts are recoverable from the Company's customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are amounts the Company seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). The Company's contract assets do

not

include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Condensed Consolidated Balance Sheets.

Contract liabilities from the Company's construction contracts occur when amounts invoiced to the Company's customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from the Company's customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when the Company expects to recognize such revenue.

Activity in the contract liabilities for the

six

months ended

June 30, 2020

and

2019

was as follows:

	As of December 31,
(in thousands)	2019		2018
Current contract liabilities	$	1,668	$	1,956
Long-term contract liabilities (1)		192		129
Total contract liabilities	$	1,860	$	2,085

	For the Six Months
	Ended June 30,
	2020			2019
Total contract liabilities - beginning of period	$	1,860		$	2,085
Contract liability additions acquired - Reach Construction		3,201			—
Contract additions, net		3,553			1,618
Revenue recognized		(1,741	)		(1,663	)
Translation		(95	)		(5	)
Total contract liabilities - end of period	$	6,778		$	2,035

	As of June 30,
	2020		2019
Current contract liabilities	$	6,616	$	1,876
Long-term contract liabilities (1)		162		159
Total contract liabilities	$	6,778	$	2,035

(

)

Long-term contract liabilities are included in Other long-term liabilities on the Condensed Consolidated Balance Sheets.

Performance Obligations

Remaining Performance Obligations

Remaining performance obligations represents the transaction price of firm orders for which work has

not

been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of

June 30, 2020

, the Company's remaining performance obligations are generally expected to be filled within the next

months.

Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments

may

result from positive program performance, and

may

result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments

may

result in a decrease in operating income if we determine we will

not

be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in

one

or more of these estimates could affect the profitability of

one

or more of our performance obligations. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for contracts in both of the Company's segments, the Company evaluates whether a single contract should be accounted for as more than

one

performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

For most of our contracts in both segments, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as

one

performance obligation. Less commonly, however, we

may

promise to provide distinct goods or services within a contract in which case we separate the contract into more than

one

performance obligation. If a contract is separated into more than

one

performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Performance Obligations Satisfied at a Point in Time

Revenue from goods and services transferred to customers at a single point in time accounted for

20%

and

21%

of revenues for the

three

month periods ended

June 30, 2020

and

2019

, respectively and

26%

and

21%

for the

six

months ended

June

30,

2020

and

2019,

respectively. Revenue on these contracts is recognized when the product is shipped and the customer takes control of the product. Determination of control transfer is determined by shipping terms delineated on the customer purchase orders and is generally when shipped.

Variable Consideration

The nature of our contracts gives rise to several types of variable consideration, including new product returns and scrap return allowances primarily in the discontinued operations of the Power and Electromechanical segment. In rare instances in both our Electric Power and Solar Infrastructure Services segment and our Integrated Energy Infrastructure and Services segment, we include in our contract estimates, additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include new product introduction and scrap return estimates in our calculation of net revenue when there is a basis to reasonably estimate the amount of the returns. These estimates are based on historical return experience, anticipated returns and our best judgment at the time. These amounts are included in our calculation of net revenue recorded for our contracts and the associated remaining performance obligations.

Significant Judgments

Our contracts with certain customers

may

be subject to contract cancellation clauses. Contracts with other cancellation provisions

may

require judgment in determining the contract term, including the existence of material rights, transaction price and identifying the performance obligations and whether a contract should be accounted for over time or on a completed contract basis. Revenue is recognized for certain integration systems and construction projects over time using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

At times, customers

may

request changes that either amend, replace or cancel existing contracts. Judgment is required to determine whether the specific facts and circumstances within the contracts require the changes to be accounted for as a separate contract or as a modification. Generally, contract modifications containing additional goods and services that are determined to be distinct and sold at their stand-alone selling price are accounted for as a separate contract. For contract modifications where goods and services are

not

determined to be distinct and sold at their stand-alone selling price, the original contract is updated and the required adjustments to revenue and contract assets, liabilities, and other accounts will be made accordingly.

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately rather than together

may

require significant judgment. For, example, we consider many of our contracts that coordinate multiple products into an integrated system to be a single performance obligation, while the same products would be considered separate performance obligations if

not

so integrated.

In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that good or service, we have determined that, our contracts do

not

include a significant financing component.

The following tables present the Company's revenues disaggregated by timing of revenue recognition:

	For the Three Months						For the Three Months
	Ended June 30, 2020						Ended June 30, 2019
(in thousands)	Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total		Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total

Revenues recognized at point in time	$	1,526	$	—	$	1,526	$	1,311	$	—	$	1,311
Revenues recognized over time		2,221		4,028		6,249		4,950		—		4,950
Total revenues	$	3,747	$	4,028	$	7,775	$	6,261	$	—	$	6,261

	For the Six Months						For the Six Months
	Ended June 30, 2020						Ended June 30, 2019
(in thousands)	Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total		Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total

Revenues recognized at point in time	$	3,505	$	—	$	3,505	$	2,464	$	—	$	2,464
Revenues recognized over time		5,531		4,427		9,958		9,256		—		9,256
Total revenues	$	9,036	$	4,427	$	13,463	$	11,720	$	—	$	11,720

The following tables present the Company's revenues disaggregated by region:

	For the Three Months						For the Three Months
	Ended June 30, 2020						Ended June 30, 2019
(in thousands)	Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total		Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total

North America	$	1,547	$	4,028	$	5,575	$	1,970	$	—	$	1,970
Europe		2,177		—		2,177		4,288		—		4,288
Asia		4		—		4		1		—		1
Other		19		—		19		2		—		2
Total revenues	$	3,747	$	4,028	$	7,775	$	6,261	$	—	$	6,261

	For the Six Months						For the Six Months
	Ended June 30, 2020						Ended June 30, 2019
(in thousands)	Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total		Integrated Energy Infrastructure Solutions and Services		Electric Power and Solar Infrastructure Services		Total

North America	$	4,390	$	4,427	$	8,817	$	3,794	$	—	$	3,794
Europe		4,503		—		4,503		7,852		—		7,852
Asia		20		—		20		20		—		20
Other		123		—		123		54		—		54
Total revenues	$	9,036	$	4,427	$	13,463	$	11,720	$	—	$	11,720