Revenue Recognition

On January 1, 2018, we adopted ASC 606, applying the modified retrospective method to all contracts that were not completed as of that date. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period results are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded an increase to opening accumulated deficit of $4.1 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606. The impact on revenue for the year ended December 31, 2018 was an increase of $5.0 million as a result of adopting ASC 606. The increase in revenues from the adoption of ASC 606 was primarily due to revenue from a product that was recognized over time as we have a right to payment from the customer under a binding, non-cancellable purchase order, and there is no alternate use of the product for us as it is specifically for the customer’s use, and revenues from research and development contracts that were recognized when we had the right to invoice our customers for monthly services completed to date. Also, revenue from a distinct, functional license granted on January 1, 2018 contributed to the increase in revenue from the adoption of ASC 606.

We are entitled to certain future milestone payments under our collaborative arrangements. Such milestone payments represent variable consideration that was fully constrained as the realization of the variable consideration is highly uncertain.

Disaggregation of Revenue

The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services, and geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments. The geographic regions that are tracked are the Americas (United States, Canada, Latin America), EMEA (Europe, Middle East, Africa), and APAC (Australia, New Zealand, Southeast Asia, China).

We identified our biotherapeutics business as a standalone business segment in the beginning of 2018 and revenues related to the Novel Biotherapeutics segment were first generated in 2017. Therefore, segment information for fiscal year 2016 is not provided.

Segment information for fiscal year 2018 is as follows (in thousands):



	Year Ended December 31, 2018
	Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	25,590	$	—	$	25,590
Research and development revenue	21,483		13,521		35,004
Total revenues	$	47,073	$	13,521	$	60,594

Primary geographical markets:
Americas	$	15,332	$	38	$	15,370
EMEA	8,878		13,483		22,361
APAC	22,863		—		22,863
Total revenues	$	47,073	$	13,521	$	60,594

Segment information for fiscal year 2017 is as follows (in thousands):



	Year Ended December 31, 2017
	Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	26,685	$	—	$	26,685
Research and development revenue	15,648		7,691		23,339
Total revenues	$	42,333	$	7,691	$	50,024

Primary geographical markets:
Americas	$	15,575	$	—	$	15,575
EMEA	11,919		7,691		19,610
APAC	14,839		—		14,839
Total revenues	$	42,333	$	7,691	$	50,024

The following table shows the reconciliation of contract liabilities from what was disclosed in the Form 10-K for the year ended December 31, 2017 and gives effect to the modified retrospective adoption of the revenue guidance on January 1, 2018 (in thousands):



	Balance
Deferred Revenue, balance at December 31, 2017	$	13,793
Changes in estimated consideration	—
Unsatisfied performance obligations	$	5,173
Deferred Revenue, balance at January 1, 2018	$	18,966

Contract Balances

The following table presents changes in the contract assets, unbilled receivable, contract costs, and contract liabilities (in thousands):



	January 1, 2018 balance		Additions	Deductions ⁽¹⁾		December 31, 2018
Contract Assets	$	—	8,934	(8,899	)	$	35
Unbilled receivables, current	$	—	2,908	(992	)	$	1,916
Unbilled receivables, non-current	$	—	786	—		$	786
Contract Costs	$	239	—	(197	)	$	42
Contract Liabilities: Deferred Revenue	$	18,966	6,446	(17,124	)	$	8,288

⁽¹⁾ The asset or liability balances are presented as a net position per contract and accordingly the deductions column includes the netting effect of presenting each contract on a net position basis as either a net liability or asset.

We recognize accounts receivable when we have an unconditional right to recognize revenue and have issued an invoice to the customer. Our payment terms are generally between 30 and 90 days. We recognize unbilled receivables when we have an unconditional right to recognize revenue and have not issued an invoice to our customer. Unbilled receivables, current are transferred to accounts receivable on issuance of an invoice. Unbilled receivables, non-current are transferred to accounts receivable on issuance of an invoice; payment is expected from the customer thereon. Unbilled receivables are classified separately on the consolidated balance sheet as assets.

Contract assets represent our right to recognize revenue for custom products with no alternate use and under binding non-cancellable purchase orders and are largely related to our procurement of product. We recognize contract assets when we have a conditional right to recognize revenue. The delivery pattern of certain of products occurs in advance of the invoicing process, which generates contract assets. In addition, we recognize a contract asset related to milestones not eligible for royalty accounting when we assess it is probable of being achieved and there will be no significant reversal of cumulative revenues. Contract assets are classified separately on the consolidated balance sheet as an asset and transferred to accounts receivable when our rights to payment become unconditional.

Contract liabilities, or deferred revenue, represent our obligation to transfer a product or service to the customer, and for which we have received consideration from the customer. We recognize a contract liability when we receive advance customer payments under development agreements for research and development services, upfront license payments, and from upfront customer payments received under product supply agreements. Contract liabilities are classified as a liability on the consolidated balance sheet.

Contract costs relate to incremental costs of obtaining a contract with a customer. Contract costs are amortized along with the associated revenue over the term of the contract.

We had no asset impairment charges related to contract assets in the period.

During the year ended December 31, 2018, we recognized the following revenues (in thousands):



Revenue recognized in the period for:	Year Ended December 31, 2018
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	13,615
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods	374
Performance obligations satisfied from new activities in the period - contract revenue	46,605
Total revenue	$	60,594

Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of December 31, 2018. We did not recognize any revenue from performance obligations satisfied in previous periods.

The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts (in thousands):



	2019		2020		2021		2022 and Thereafter		Total
Product Revenue	$	2,201	$	1,729	$	1,623	$	—	$	5,553
Research and development revenue	2,735		—		—		—		2,735
Total revenues	$	4,936	$	1,729	$	1,623	$	—	$	8,288

Practical Expedients, Elections, and Exemptions

We used a practical expedient available under ASC 606 which permits us to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

We also used a practical expedient available under ASC 606 which permits us not to adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less.

We perform monthly services under our research and development agreements and we use a practical expedient available under ASC 606 permitting us to recognize revenue at the same time that we have the right to invoice our customer for monthly services completed to date.

We have elected to treat shipping and handling activities as fulfillment costs.

Additionally, we have elected to record revenue net of sales and other similar taxes.

Impact on Financial Statements

In accordance with ASC 606, the disclosure of the impact of adoption to our consolidated statements of operations and balance sheets was as follows (in thousands, except per share amounts):



	Year Ended December 31, 2018
	As reported			Adjustments			Balances without adoption of ASC 606
Revenues:
Product revenue	$	25,590		$	(3,422	)	$	22,168
Research and development revenue	35,004			(1,609		)	33,395
Total revenues	60,594			(5,031		)	55,563
Costs and operating expenses:
Cost of product revenue	12,620			(285		)	12,335
Research and development	29,978			(196		)	29,782
Selling, general and administrative	29,291			—			29,291
Total costs and operating expenses	71,889			(481		)	71,408
Loss from operations	(11,295		)	(4,550		)	(15,845		)
Interest income	671			—			671
Other expenses	(291		)	—			(291		)
Loss before income taxes	(10,915		)	(4,550		)	(15,465		)
Provision for (benefit from) income taxes	(37		)	—			(37		)
Net loss	$	(10,878	)	$	(4,550	)	$	(15,428	)

Net loss per share, basic and diluted	$	(0.21	)	$	(0.09	)	$	(0.30	)
Weighted average common shares used in computing net loss per share, basic and diluted	52,205						52,205



	December 31, 2018
	As reported			Adjustments			Balances without adoption of ASC 606
Assets
Accounts receivable	$	11,551		$	(1,253	)	$	10,298
Unbilled receivables, current	1,916			(1,916		)	—
Contract assets	35			(35		)	—
Inventories	589			1			590
Unbilled receivables, non-current	786			(786		)	—
Other non-current assets	265			(42		)	223
Liabilities
Other accrued liabilities	4,855			(520		)	4,335
Deferred revenue - current	4,936			(1,574		)	3,362
Deferred revenue - non-current	3,352			(1,445		)	1,907
Stockholders' equity
Accumulated deficit	(330,474		)	(492		)	(330,966		)