Note 9—Revenue from Contracts with Clients

Contract Assets and Liabilities

Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 days. As of December 31, 2019 and 2018, there were no allowances for doubtful accounts.

Contract assets consist of demobilization revenue that we expect to receive and is recognized ratably throughout the contract term but invoiced upon completion of the demobilization activities. Once the demobilization revenue is invoiced, the corresponding contract asset is transferred to accounts receivable.

Contract liabilities include payments received for mobilization, contract preparation and capital upgrade activities, which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract.

Contract assets and liabilities are netted at a contract level, such that deferred revenue for mobilization, contract preparation and capital upgrade (contract liabilities) is netted with any accrued demobilization revenue (contract asset) for each applicable contract. Any net current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Deferred revenue, current,” respectively, and any net noncurrent contract asset and liability balances are included in “Other assets” and “Deferred revenue,” respectively, on our consolidated balance sheets.

The following table provides information about trade receivables, contract assets and contract liabilities:

Significant changes in contract assets and contract liabilities for the year ended December 31, 2019 are as follows:


	Contract Assets		Contract Liabilities
	(in thousands)
Balance at December 31, 2018	$	—	$	—
Decrease due to amortization of deferred revenue		—		(1,931)
Increase due to billings related to client capital upgrades		—		9,511
Increase due to demobilization revenue recognized		13		—
Transfers between balances		(13)		(13)
Balance at December 31, 2019	$	—	$	7,567

Contract Fulfillment Costs

As of December 31, 2019 and 2018, contract fulfillment costs were $14.9 million and $0.4 million, respectively, and reported in “Deferred costs, current” on our consolidated balance sheets. During the Successor periods in 2019 and 2018 and the Predecessor period in 2018, amortization of such costs was $0.8 million, $0.1 million and $7.5 million, respectively.

Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred for capital upgrades for a contract are capitalized as property and equipment and depreciated over the estimated useful life of the asset.

Future Amortization of Contract Liabilities

The following table reflects revenue expected to be recognized in the future related to unsatisfied performance obligations as of December 31, 2019:


	For the years ending December 31,
	2020		2021		2022 and thereafter		Total
	(in thousands)
Amortization of contract liabilities	$	7,580	$	—	$	—	$	7,580

The expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract as of December 31, 2019. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have applied the optional exemption in Topic 606 and have not disclosed the variable consideration related to our estimated future dayrate revenue.

December 31,

(in thousands)

Trade receivables, net

Current contract liabilities (deferred revenue)