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SEC Filings

10-Q
SERES THERAPEUTICS, INC. filed this Form 10-Q on 11/08/2018
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of the applicable six-month offering period or (ii) the fair market value of the Company's common stock on the purchase date. The Company estimates the fair value of common stock under the ESPP using a Black-Scholes valuation model. The fair value was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions: risk-free interest rate (2.30%); expected term (0.5 years); expected volatility (60.2%); and an expected dividend yield (0%).  The Company recorded an immaterial amount of stock-based compensation expense under the ESPP for the three and nine months ended September 30, 2018.

The total number of available ESPP shares is increased annually, beginning in 2016 and ending in 2025. The ESPP allows for share replenishment equal to the lesser of (i) 400,000 shares and (ii) 1% of the number of shares of the Company’s common stock outstanding on the last day of the preceding calendar year, or an amount determined by the Company’s Board of Directors. As of September 30, 2018, a total of 1.6 million shares were reserved and available for issuance under the ESPP.

 

8.

Collaboration Revenue

Adoption of ASC Topic 606, Revenue from Contracts with Customers

The Company adopted ASC 606 on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”), which is also referred to herein as "legacy GAAP" or the "previous guidance". The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's services and will provide financial statement readers with enhanced disclosures.

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.

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