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SEC Filings

10-Q
SERES THERAPEUTICS, INC. filed this Form 10-Q on 05/09/2018
Entire Document
 

Financial Statement Impact of Adopting ASC 606

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018, was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2018:

 

 

 

As Reported at

 

 

Adjustments Due to

 

 

Balance at

 

 

 

December 31, 2017

 

 

ASC 606

 

 

January 1, 2018

 

Deferred revenue - related party

 

 

12,079

 

 

 

5,339

 

 

 

17,418

 

Deferred revenue, net of current portion - related party

 

 

84,847

 

 

 

21,518

 

 

 

106,365

 

Accumulated deficit

 

 

(263,571

)

 

 

(26,857

)

 

 

(290,428

)

 

Collaboration Revenue

The adoption of ASC 606 changed the pattern and timing of revenue recognition under the Company’s license and collaboration agreement with NHS. Under ASC 605, the upfront fee of $120,000 received by the Company in the first quarter of 2016 was deferred and recognized on a straight-line basis over the estimated performance period of 10 years. In addition, the Company recognized revenue associated with substantive development milestones not considered probable at the inception of the license and collaboration agreement with NHS in their entirety in the period in which the milestone was achieved, in accordance with FASB ASC Topic 605-28, Revenue Recognition-Milestone Method.

Under ASC 606, the Company recognizes revenue using the cost-to-cost method which best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue will be recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. The estimate of the Company’s measure of progress and estimate of transaction price will be updated at each reporting date, as a change in estimate, and will require judgement. The amount of consideration allocated to satisfied performance obligations, based on the Company’s measure of progress will be recognized immediately on a cumulative catch-up basis, resulting in an adjustment to revenue in the period of change. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time.  In addition, substantive development milestones, which were previously recognized in the period when the milestone was achieved, will be recognized over the remaining performance period under ASC 606. As the adoption method does not result in a recast of the prior year consolidated financial statements, ASC 606 requires the Company to provide additional disclosures during the year of adoption of the amount by which each financial statement line item is affected by adoption of the new standard and explanations of the reasons for significant changes.

We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. At March 31, 2018, we have not capitalized any costs to obtain any of our contracts.

Income Taxes

The adoption of ASC 606 resulted in an increase to deferred revenue, which in turn generated an additional deferred tax asset that increased the Company’s net deferred tax asset position. As the Company fully reserves its net deferred tax assets, the impact was offset by the valuation allowance.

Impact of New Revenue Guidance on Financial Statement Line Items

The following table compares the reported condensed consolidated balance sheet, statement of operations and cash flows, as of and for the three months ended March 31, 2018, to the pro-forma amounts had the previous guidance (ASC 605) been in effect:

 

 

 

As of March 31, 2018

 

 

 

As Reported under

ASC 606

 

 

Pro forma as if accounted for under ASC 605

 

Deferred revenue - related party

 

 

17,859

 

 

 

12,097

 

Deferred revenue, net of current portion - related party

 

 

102,333

 

 

 

81,945

 

Accumulated deficit

 

 

(318,347

)

 

 

(292,197

)

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