Note 14. Recent Accounting Guidance

Accounting Standards or Updates Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers” (Topic 606): Identifying Performance Obligations and Licensing, which further clarifies performance obligations in a contract with a customer. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers” (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides a more narrow interpretation of ASU No. 2014-09. In July 2017, the FASB issued ASU 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which clarify the transition periods related to public and private business entities. These ASUs (collectively referred to as “Topic 606”) are effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods.

Effective January 1, 2018, we adopted FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. In accordance with ASC 606, we changed certain characteristics of our revenue recognition accounting policy as described below. In our adoption, ASC 606 was applied only to open contracts using the modified retrospective method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at January 1, 2018. Therefore, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition, or ASC 605.

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statement of operations for the three months ended March 31, 2018 and consolidated balance sheet as of March 31, 2018 was as follows (in thousands):


Consolidated Statement of Operations	As Reported March 31, 2018		ASC 606 Adjustments		Pro Forma Under ASC 605
Revenue:
Product	$	116,022	$	(1,006)	$	115,016
Total revenue		122,185		(1,006)		121,179
Gross profit		47,156		(1,006)		46,150
Income from operations		18,502		(1,006)		17,496
Income before income taxes		17,473		(1,006)		16,467
Income tax provision		3,558		(232)		3,326
Net income	$	13,915	$	(774)	$	13,141
Net income per share:
Basic	$	0.43	$	(0.02)	$	0.41
Diluted	$	0.41	$	(0.02)	$	0.39

Consolidated Balance Sheet	As Reported March 31, 2018		ASC 606 Adjustments		Pro Forma Under ASC 605
Deferred income taxes	$	80,697	$	232	$	80,929
Total assets	$	505,144	$	232	$	505,376

Deferred revenue	$	18,522	$	2,606	$	21,128
Total current liabilities		77,084		2,606		79,690
Total liabilities		133,617		2,606		136,223
Accumulated deficit		(189,230)		(2,374)		(191,604)
Total stockholders' equity		371,527		(2,374)		369,153
Total liabilities and stockholders' equity	$	505,144	$	232	$	505,376

The impact of the adoption of ASC 606 on consolidated statements of comprehensive income and cash flows for the three months ended March 31, 2018 was not material.

Upon adoption of ASC 606, we changed our accounting policy for the installation performance obligation included in all system sales. Previously under ASC 605, the Company deferred revenue for the greater of the fair value of the installation or the portion of contract consideration for which collection was contingent upon installation completion (the “retention”). The concept of contingent consideration is no longer relevant under ASC 606 and therefore we will only defer the portion of the transaction price allocated to the installation performance obligation. As a result of this change, we recorded a cumulative effect adjustment to increase retained earnings and decrease deferred revenue on January 1, 2018 by $1.6 million. Upon the adoption, all new contracts will be accounted for under ASC 606. Disclosures related to the nature, amount and timing of revenue and cash flows arising from contracts with customers are included in Note 3.

In August 2016, the FASB issued ASU No. 2016-15 “Classification of Certain Cash Receipts and Cash Payments.” The ASU is intended to add or clarify guidance on the classification relating to specific cash flow receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The guidance in ASU 2016-15 is required for annual reporting periods beginning after December 15, 2017, and is to be applied retrospectively for each period presented. Adoption of ASU 2016-15 had no material effect on our consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU No. 2017-07 “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The ASU is intended to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendment applies to all entities offering a defined benefit pension plan, other postretirement benefit plans, or other types of benefits accounted for under Topic 715. The amendments in the ASU require an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within the annual period. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. Adoption of ASU 2017-07 had no material effect on the consolidated financial statements and disclosures.

Accounting Standards or Updates Not Yet Effective

In February 2016, the FASB issued ASU No. 2016-02 “Leases.” The ASU requires lessees to recognize the rights and obligations created by most leases as assets and liabilities on their balance sheet and continue to recognize expenses on their income statement over the lease term. It will also require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluating the impact of ASU 2016-02 on the consolidated financial statements and disclosures. The Company anticipates adopting the new standard on January 1, 2019 using the modified retrospective approach with the primary effect of adopting the new standard to be the recognition of additional assets and corresponding liabilities related to operating leases. The adoption is not expected to have a material impact on the Company’s results of operations and cash flows.