Revenue from Contracts with Customers

3 Months Ended

Mar. 31, 2021

Revenue From Contract With Customer [Abstract]

Revenue from Contracts with Customers

Note 9. Revenue from Contracts with Customers

Product and Product-related Services Revenue

The Company had product and product-related services revenue consisting of revenue from the sale of instruments and consumables and the use of the HTG EdgeSeq proprietary technology to process samples and design custom RUO assays for the three months ended March 31, 2021 and 2020 as follows:

	Three Months Ended March 31,
	2021		2020
Product revenue:
Instruments	$	224,013	$	234,625
Consumables		604,382		545,939
Total product revenue		828,395		780,564
Product-related services revenue:
Custom RUO assay design		48,350		629,182
RUO sample processing		558,401		578,391
Total product-related services revenue		606,751		1,207,573
Total product and product-related services revenue	$	1,435,146	$	1,988,137

As the Company’s agreements for product and product-related services revenue have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

Sale of Instruments and Consumables

The delivery of each instrument and the related installation and calibration are considered to be a single performance obligation, as the HTG EdgeSeq instrument must be professionally installed and calibrated prior to use. Instrument product revenue is generally recognized upon installation and calibration of the instrument by field service engineers, which represents the point at which the customer has the ability to use the instrument and has accepted the asset. Installation generally occurs within one month of instrument shipment.

The delivery of each consumable is a separate performance obligation. Consumables revenue is recognized upon transfer of control, which represents the point when the customer has legal title and the significant risks of ownership of the asset. The Company’s standard terms and conditions provide that no right of return exists for instruments and consumables, unless replacement is necessary due to delivery of defective or damaged product. Customer payment terms vary but are typically between 30 and 90 days of revenue being earned from shipment or delivery, as applicable.

The Company provides instruments to certain customers under reagent rental agreements. Under these agreements, the Company installs an instrument in the customer’s facility without a fee and the customer agrees to purchase consumable products at a stated price over the term of the agreement; in some instances, the agreements do not contain a minimum purchase requirement. Terms range from several months to multiple years and may automatically renew in several month or multiple year increments unless either party notifies the other in advance that the agreement will not renew. The Company measures progress toward complete satisfaction of this performance obligation to provide the instrument and deliver the consumables using an output method based on the number of consumables delivered in relation to the total consumables to be provided under the reagent rental agreement. This is considered to be representative of the delivery of outputs under the arrangement and the best measure of progress because the customer benefits from the instrument only in conjunction with the consumables. The Company expects to recover the cost of the instrument under the agreement through the fees charged for consumables, to the extent sold, over the term of the agreement.

RUO Sample Processing

The Company also provides sample preparation and processing services and molecular profiling of retrospective cohorts for its customers through its VERI/O laboratory, whereby the customer provides samples to be processed using HTG EdgeSeq technology specified in the order. Customers are charged a per sample fee for sample processing services which is recognized as revenue upon delivery of a data file to the customer showing the results of testing and completing delivery of the agreed upon service. This is when the customer can use and benefit from the results of testing and the Company has the present right to payment.

Custom RUO Assay Design and Related Agreements

The Company enters into custom RUO assay design agreements that may generate up-front fees and subsequent payments that might be earned upon completion of design process phases. The Company measures progress toward complete satisfaction of its performance obligation to perform custom RUO assay design using an output method based on the costs incurred to date compared with total expected costs, as this is representative of the delivery of outputs under the arrangements and the best measure of progress. However, because in most instances the assay design fees are contingent upon completion of each phase of the design project and the decision of the customer to proceed to the next phase, the amount to be included in the transaction price and recognized as revenue is limited to that which the customer is contractually obligated to pay upon completion of that phase, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Changes in estimates of total expected costs are accounted for prospectively as a change in estimate. From period to period, custom RUO assay design service revenue can fluctuate substantially based on the completion of design-related phases.

Collaborative Development Services Revenue

The Company enters into collaborative development services agreements with biopharmaceutical companies for the development of NGS-based companion diagnostic assays in support of and in conjunction with, biopharmaceutical companies’ drug development programs. These collaborative development services agreements may generate upfront fees, and in some cases subsequent milestone payments that may be earned upon completion of certain product development milestones or activities. The Company follows ASC 606 and ASC 808 to determine the appropriate recognition of revenue under its collaborative research, development and commercialization agreements. For the three months ended March 31, 2020, collaborative development services revenue was generated through statements of work entered into a Master Assay Development, Commercialization and Manufacturing Agreement (the “Governing Agreement”) with QIAGEN Manchester Limited (“QML”) discussed below.  

	Three Months Ended March 31,
	2021		2020
Collaborative development services	$	—	$	237,337

Master Assay Development, Commercialization and Manufacturing Agreement

The Governing Agreement created the framework for QML and the Company to combine their technological and commercial strengths to offer biopharmaceutical companies a complete NGS-based solution for the development, manufacture and commercialization of companion diagnostic assays. Under the Governing Agreement, the parties jointly sought companion diagnostic programs with biopharmaceutical companies, with QML entering into sponsor project agreements with interested biopharmaceutical companies for specified projects, and QML and the Company entering into statements of work which set forth the rights and obligations of QML and the Company with respect to each project. In November 2019, the Company elected to terminate the Governing Agreement with QML. The Company’s termination of the Governing Agreement did not terminate active statements of work under the Governing Agreement.

Because each SOW has an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations for each SOW.

Contract Liabilities

The Company may receive up-front payments from customers for custom RUO assay design and sample processing services. In addition, payments for instrument extended warranty contracts are required to be made in advance. The Company recognizes such up-front payments as contract liabilities. The contract liabilities are subsequently reduced as revenue is recognized. Contract liabilities of approximately $0.5 million and less than $0.1 million were included in contract liabilities – current and other non-current liabilities, respectively, in the accompanying condensed consolidated balance sheets as of March 31, 2021. The Company expects all of its deferred revenue to be realized within the next 12 months as of March 31, 2021.

Changes in the Company’s contract liability were as follows as of the dates indicated:

	Product Revenue			Custom RUO Assay Design		Sample Processing			Total Contract Liability
Balance at January 1, 2021	$	103,580		$	-	$	93,884		$	197,464
Deferral of revenue		80,525			—		301,379			381,904
Recognition of deferred revenue		(57,795	)		—		(21,754	)		(79,549	)
Balance at March 31, 2021	$	126,310		$	—	$	373,509		$	499,819

	Product Revenue			Custom RUO Assay Design			Sample Processing			Total Contract Liability
Balance at January 1, 2020	$	95,148		$	66,216		$	438,090		$	599,454
Deferral of revenue		229,927			300,000			62,329			592,256
Recognition of deferred revenue		(214,712	)		(366,216	)		(30,119	)		(611,047	)
Balance at March 31, 2020	$	110,363		$	—		$	470,300		$	580,663