Note 2. Revenues

Adoption of ASC Topic 606, Revenue from Contracts with Customers

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605. See Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for the Company’s revenue recognition policy under Topic 605.

The Company recorded a one-time increase to opening accounts receivable, net, and a reduction to opening accumulated deficit of $14.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact related to certain payors who were not accrual payors.

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on the Company’s condensed consolidated balance sheet as of June 30, 2018 and statements of operations for the three and six months ended June 30, 2018 was as follows:


	As Reported		Balance Without Adoption of ASC 606		Adjustments
			(In thousands)
Income statement
Three Months Ended June 30, 2018
Revenues:
Product revenues	$	95,619	$	95,789	$	(170)
Operating expenses:
General and administrative		18,487		18,990		(503)
Net income		8,317		7,984		333

Income statement
Six Months Ended June 30, 2018
Revenues:
Product revenues		188,244		189,828		(1,584)
Operating expenses:
General and administrative		38,205		39,732		(1,527)
Net income		4,542		4,599		(57)

Balance Sheet at June 30, 2018
Assets:
Accounts receivable, net		48,982		34,549		14,433
Equity:
Accumulated deficit		(227,460)		(241,526)		14,066

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The estimated uncollectible amounts that were historically classified as bad debt expense are now generally considered implicit price concessions that are a direct reduction to accounts receivable rather than allowance for doubtful accounts.

The majority of the Company’s historical product revenues have been derived from the sale of its Oncotype DX breast cancer test. For product revenues, the Company estimates the transaction price which is the amount of consideration it expects to be entitled to receive in exchange for providing services based on its historical collection experience using a portfolio approach as a practical expedient to account for patient contracts as collective groups rather than individually. The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the Company subsequently determines that it will collect more consideration than it originally estimated for a contract with a patient, it will account for the change as an increase in the estimate of the transaction price in the period identified. Similarly, if the Company subsequently determines that the amount it expects to collect from a patient is less than it originally estimated, it will generally account for the change as a decrease in the estimate of the transaction price, provided that such downward adjustment does not result in a significant reversal of cumulative revenue recognized.

The Company’s performance obligations are satisfied at one point in time when test reports are delivered. The Company also provides services to patients with whom the Company does not have contracts as defined in Topic 606. The Company recognizes revenue for these patients when contracts as defined in Topic 606 are established at the amount of consideration to which it expects to be entitled or when the Company receives substantially all of the consideration subsequent to the performance obligations being satisfied.

During the first half of 2018, cash collections for certain tests delivered during the three months ended March 31, 2018 came in at rates higher than originally accrued. As a result, the Company changed its estimate of the amounts to be recognized for these tests and recognized an additional $884,000 of revenue for the three and six months ended June 30, 2018. These changes in estimates resulted in increases in net income per share of approximately $0.02 for the three and six months ended June 30, 2018.

The following table presents the Company’s product revenues disaggregated by revenue source:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(In thousands)				(In thousands)
Invasive breast cancer test	$	86,478	$	78,517	$	171,029	$	156,575
Prostate cancer test		6,777		4,154		12,617		7,504
Other		2,364		2,816		4,598		5,388
Total product revenues	$	95,619	$	85,487	$	188,244	$	169,467

Contract revenues are generally derived from studies conducted with biopharmaceutical and pharmaceutical companies. The specific methodology for revenue recognition is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract. The Company typically uses an input method that recognizes revenue based on the Company’s efforts to satisfy the performance obligation relative to the total expected inputs to the satisfaction of that performance obligation. Advance payments received in excess of revenues recognized are classified as deferred revenue until such time as the revenue recognition criteria have been met.