REVENUE RECOGNITION

6 Months Ended

Jun. 30, 2021

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

(3) REVENUE RECOGNITION

The Company primarily sells hardware products to its customers. The hardware products include cable modems and gateways, mobile broadband modems, wireless routers, MoCA adapters and mesh home networking devices. The Company derives its net sales primarily from the sales of hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel partners via the Internet. The Company accounts for point-of-sale taxes on a net basis.

The Company also sells and earns revenues from software as a service (“SaaS”), including software service that enables and secures a better-connected home with the AI-driven smart home WiFi management and security platform. Customers do not have the contractual right or ability to take possession of the hosted software.

The Company has concluded that transfer of control of its hardware products transfers to the customer upon shipment or delivery, depending on the delivery terms of the purchase agreement. Revenues from sales of hardware products are recognized at a point in time upon transfer of control.

The Company sells software as a SaaS offering. The SaaS agreements are offered over a defined contract period, generally one year, and are sold to Internet service providers, who then promote the services to their subscribers. These services are available as an on-demand application over the defined term. The agreements include service offerings, which deliver applications and technologies via cloud-based deployment models that the Company develops functionality for, provides unspecified updates and enhancements for, and hosts, manages, provides upgrade and support for the customers access by entering into solution agreements for a stated period. The monthly fees charged to the customers are based on the number of subscribers utilizing the services each month, and the revenue recognized generally corresponds to the monthly billing amounts as the services are delivered.

Multiple Performance Obligations

During the six months ended June 30, 2021, the Company introduced new hardware products that include SaaS software services as a bundled product to its customers. The Company accounts for these sales in accordance with the multiple performance obligation guidance of ASC Topic 606. For multiple performance obligation contracts, the Company accounts for the promises separately as individual performance obligations if they are distinct. Performance obligations are determined to be distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria of being distinct, the Company considers a number of factors, such as degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. SaaS included with certain hardware products is considered distinct from the hardware, and therefore the hardware and SaaS software services offerings are treated as separate performance obligations.

After identifying the separate performance obligations, the transaction price is allocated to the separate obligations on a relative standalone selling price basis (“SSP”). SSP’s are generally determined based on the prices charged to customers when the performance obligation is sold separately or using an adjusted market assessment. The estimated SSP of the hardware and SaaS offerings are directly observable from the sales of those products and software based on a range of prices.

Revenue is recognized for each distinct performance obligation as control is transferred to the customer. In general, control of the hardware transfers to the customer at time of shipment or delivery while the SaaS offering is delivered over the service period. Revenue attributable to hardware products bundled with SaaS offerings are recognized at the time control of the product transfers to the customer. The transaction price allocated to the SaaS offering is recognized ratably beginning when the customer is expected to activate their account and over a three-year period that the Company has estimated based on the expected replacement of the hardware.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations for the SaaS offering that are unsatisfied or (partially unsatisfied) as of June 30, 2021:

	1 year		2 years		Greater than 2 years		Total
Performance obligations	$	349,961	$	330,391	$	322,508	$	1,002,860

Other considerations of ASC 606 include the following:

● Warranties - the Company does not provide separate warranty for purchase to customers. Therefore, there is not a separate performance obligation. The Company does account for assurance-type warranties as a cost accrual and the warranties do not include any additional distinct services other than the assurance that the goods comply with agreed-upon specifications. The warranty reserve was not material at June 30, 2021 and December 31, 2020.

● Returned Goods - analyses of actual returned products are compared to the product return estimates and historically have resulted in immaterial differences. The Company has concluded that the current process of estimating the return reserve represents a fair measure to adjust revenue. Returned goods are a form of variable consideration and under Topic 606 are estimated and recognized as a reduction of revenue as performance obligations are satisfied (e.g., upon shipment of goods). The sales returns accrual was $1.3 million and $775 thousand at June 30, 2021 and December 31, 2020, respectively.

● Price protection - price protection provides that if the Company reduces the price on any products sold to the customer, the Company will guarantee an account credit for the price difference for all quantities of that product that the customer still holds. Price protection is variable and under Topic 606 is estimated and recognized as a reduction of revenue as performance obligations are satisfied (e.g., upon shipment of goods). The price protection accrual was not material.

● Volume Rebates and Promotion Programs - volume rebates are variable dependent upon the volume of goods sold-through the Company’s customers to end-users and under Topic 606 are estimated and recognized as a reduction of revenue as performance obligations are satisfied (e.g., upon shipment of goods). The rebate and promotion accrual was $113 thousand and $384 thousand at June 30, 2021 and December 31, 2020, respectively.

Contract Balances

The Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of deferred revenue, where the Company has unsatisfied performance obligations.

The following table reflects the contract balances as of periods ended:

	Balance Sheet Location	June 30, 2021		December 31, 2020
Accounts receivable, net	Accounts receivable, net	$	9,254,845	$	9,203,334
Contract liabilities - current	Deferred revenue, current	$	349,961	$	—
Contract liabilities – non-current	Deferred revenue, non-current	$	652,899	$	—

The Company’s business is controlled as a single operating segment that consists of the manufacture and sale of cable modems and gateway, and the majority of the Company’s customers are retailers and distributors.

Disaggregated revenue by distribution channel for three and six months ended:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Retailers	$	12,995,760	$	8,321,755	$	26,787,278	$	19,296,044
Distributors		1,872,934		1,587,617		2,786,084		2,185,146
Other		24,451		363,385		337,357		747,170
Total	$	14,893,145	$	10,272,757	$	29,910,719	$	22,228,360

Disaggregated revenue by product for three and six months ended:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cable Modems & gateways	$	12,808,320	$	9,192,784	$	27,395,410	$	20,362,794
Software as a service		152,704		—		277,376		—
Other		1,932,121		1,079,973		2,237,933		1,865,566
Total	$	14,893,145	$	10,272,757	$	29,910,719	$	22,228,360