NOTE 12 – REVENUE

Adoption of ASC Topic 606, "Revenue from Contracts with Customers"

On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts that were in progress as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605. The impact to revenues as a result of applying Topic 606 was an increase of $458 for the three months ended March 31, 2018.

Revenue Recognition

Revenues are recognized when control of the promised goods is transferred to our customers, in an amount that reflects the consideration we expect to realize in exchange for those goods.

The following table presents our revenues disaggregated by revenue source (in thousands, unaudited). Sales and usage-based taxes are excluded from revenues.

	Three Months Ended March 31,
	2018		2017
Product Sales	$	148,782	$	124,623
Co-manufacturing		8,839		10,099
Bill and Hold		1,289		983
Consignment		1,045		643
Product Sales Revenue		159,955		136,348
Royalty Revenue		1,455		1,380
Total Revenue	$	161,410	$	137,728

The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers (in thousands, unaudited):

	Three Months Ended March 31,
	2018		2017
Domestic Revenue	$	120,668	$	106,300
Foreign Revenue		40,742		31,428
Total Revenue	$	161,410	$	137,728

Product Sales Revenues

Balchem’s primary operation is the manufacturing and sale of health and wellness ingredient products, in which Balchem receives an order from a customer and fulfills that order. Balchem’s product sales have three sub-streams of revenue: co-manufacturing, bill and hold, and consignment.

Royalty Revenues

Royalty revenue consists of agreements with customers to use Balchem’s intellectual property in exchange for a sales based royalty. Royalty revenue is recorded as part of the Human Nutrition & Health segment.

Contract Liabilities

We record contract liabilities when cash payments are received or due in advance of our performance, including amounts which are refundable.

Our payment terms vary by the type and location of our customer and the products offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, we require payment before the products are delivered to the customer.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling and marketing expenses.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for products shipped.