3. Adoption of New Accounting Policy

As described in Note 2, the Company adopted ASU 2014-09 on January 1, 2018 using the full retrospective method and applying the practical expedient in paragraph 606-10-65-1(f)(2) of the FASB Accounting Standards Codification (“ASC”), under which the Company used the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods for those completed contracts with variable consideration. The following is a summary of the changes in accounting policies and presentation resulting from the adoption of ASU 2014-09 on the Company’s consolidated unaudited financial statements.

MRM services

Per member per month fees bundled with prescription fulfillment services fees in the Company’s MRM contracts were previously classified as product revenue. Under ASU 2014-09, the per member per month fees are classified as service revenue and based on relative stand-alone selling prices. The Company continues to recognize the per member per month fees as the services are provided.

Health plan management services

Certain contracts for the Company’s health plan management services include fees based on the gains recognized by clients as a result of services provided. Revenue for these contracts was historically recognized when billed because the price was not fixed or determinable. Under ASU 2014-09, revenue from these contracts is recognized monthly as the health plan management services are provided. The revenue includes the contractual per member per month rate and an estimated gain earned during each reporting period.

Pharmacy cost management services

Data and statistics fees from drug manufacturers were previously recognized as revenue when received due to the unpredictable nature of the payment amounts and because fees were not fixed and determinable until received. Under ASU 2014-09, these fees are recognized when the data is submitted to the drug manufacturers. The fees recognized are estimated using historical data, and adjusted as necessary to reflect new information. The estimated fees are recorded as data analytics related contract assets and are included in other current assets on the consolidated balance sheets. As of September 30, 2018 and December 31, 2017, the balance of the data analytics contract asset was $4,732 and $1,842, respectively.

Impact on financial statements

The following tables summarize the impact of the adoption of ASU 2014-09 on the previously reported consolidated balance sheets as of December 31, 2017 and consolidated statements of operations for the three and nine months ended September 30, 2017. Financial statement line items that were not materially affected by the adoption of ASU 2014-09 are excluded. The adoption of ASU 2014-09 had no impact on cash provided by or used in operating, investing or financing activities in the consolidated statements of cash flows for the nine months ended September 30, 2017.


		For the year ended
		December 31,
		2017
		As Previously Reported		Adjustment for ASU on Revenue Recognition		As Adjusted
Assets
Current assets:
Other current assets	$	702	$	1,842	$	2,544
Total current assets		33,609		1,842		35,451
Total assets	$	185,990	$	1,842	$	187,832
Liabilities and stockholders’ equity
Deferred income tax liability	$	545	$	444	$	989
Total liabilities		63,500		444		63,944
Stockholders' equity:
Accumulated deficit		(20,627)		1,398		(19,229)
Total stockholders’ equity		122,490		1,398		123,888
Total liabilities and stockholders’ equity	$	185,990	$	1,842	$	187,832


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2017						2017
		As Previously Reported		Adjustment for ASU on Revenue Recognition		As Adjusted		As Previously Reported		Adjustment for ASU on Revenue Recognition		As Adjusted
Revenue:
Product revenue	$	24,621	$	(841)	$	23,780	$	71,391	$	(2,396)	$	68,995
Service revenue		8,647		304		8,951		19,222		1,928		21,150
Total revenue		33,268		(537)		32,731		90,613		(468)		90,145
Cost of revenue, exclusive of depreciation and amortization shown below:
Product cost		18,979		(561)		18,418		54,847		(1,696)		53,151
Service cost		4,486		561		5,047		9,241		1,696		10,937
Total cost of revenue, exclusive of depreciation and amortization		23,465		—		23,465		64,088		—		64,088
Loss from operations		(236)		(537)		(773)		(4,168)		(468)		(4,636)
Net income	$	7,695	$	(1,530)	$	6,165	$	3,350	$	(1,461)	$	1,889

Net income attributable to common stockholders, basic	$	7,695	$	(1,530)	$	6,165	$	3,350	$	(1,461)	$	1,889
Net income attributable to common stockholders, diluted	$	7,695	$	(1,530)	$	6,165	$	3,350	$	(1,461)	$	1,889

Net income per share attributable to common stockholders, basic	$	0.46	$	(0.09)	$	0.37	$	0.20	$	(0.09)	$	0.11
Net income per share attributable to common stockholders, diluted	$	0.41	$	(0.08)	$	0.33	$	0.18	$	(0.08)	$	0.10