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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Significant estimates and assumptions by management affect the Company’s revenue recognition for multiple element arrangements, allowance for doubtful accounts, the net realizable value of inventory, estimated fair value of cost method investments, valuations and purchase price allocations related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, stock-based compensation, fair value estimates of contingent consideration, contingent liabilities, tax reserves and recoverability of the Company’s net deferred tax assets and related valuation allowance.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Repligen Sweden AB, Repligen GmbH, Spectrum LifeSciences LLC and its subsidiaries (“Spectrum,” acquired on August 1, 2017) and Repligen Singapore Pte. Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year balances have changed to reflect current year presentation.

Foreign Currency

The Company translates the assets and liabilities of its foreign subsidiary at rates in effect at the end of the reporting period. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments, including adjustments related to the Company’s intercompany loan with Repligen Sweden AB and Repligen Sweden AB’s intercompany loan with Repligen GmbH, are remeasured at each period end and included in accumulated other comprehensive income.

Revenue Recognition

We generate revenue from the sale of

bioprocessing

products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. Under ASC 606, “

Revenue from Contracts with Customers,”

revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of December 31, 2018.

Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

The Company recognizes product revenue under the terms of each customer agreement upon transfer of control to the customer, which occurs at a point in time.

Shipping and handling fees are recorded as a component of product revenue, with the associated costs recorded as a component of cost of product revenue.

Risks and Uncertainties

The Company evaluates its operations periodically to determine if any risks and uncertainties exist that could impact its operations in the near term. The Company does not believe that there are any significant risks which have not already been disclosed in the consolidated financial statements. A loss of certain suppliers could temporarily disrupt operations, although alternate sources of supply exist for these items. The Company has mitigated these risks by working closely with key suppliers, identifying alternate sources and developing contingency plans.

Cash, Cash Equivalents, Restricted Cash and Marketable Securities

Cash and cash equivalents include cash on hand and on deposit and highly liquid investments in money market mutual funds. All cash equivalents are carried at cost, which approximates fair value. Restricted cash represents cash that is restricted as to withdrawal or usage. In 2011, the Company issued a letter of credit in lieu of a security deposit for its leased facility in Waltham, Massachusetts, which was collateralized by a certificate of deposit held by the bank that issued the letter of credit. This certificate of deposit was classified as restricted cash in the accompanying consolidated balance sheets. As of December 31, 2016, the letter of credit was $

0.5

million, the balance of restricted cash as of December 31, 2016. During 2017, the issuing bank no longer required collateral to secure the letter of credit. As a result, the Company released the funds from restricted cash.

We adopted ASU

2016-18,

“Statement of Cash Flows (Topic 230): Restricted Cash,”

on January 1, 2018, which changed the presentation of our consolidated statements of cash flows and related disclosures for all periods presented. Accordingly, the following is a summary of our cash, cash equivalents, and restricted cash total as presented in our consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016:

	For the Years Ended December 31,
	2018		2017		2016
	(Amounts in thousands)
Cash and cash equivalents	$	193,822	$	173,759	$	122,233
Restricted cash		—		—		450
Total cash, cash equivalents, and restricted cash	$	193,822	$	173,759	$	122,683

At December 31, 2016, the Company’s investments included money market funds and short-term marketable securities. There were no such investments as of December 31, 2018 and 2017. Short-term marketable securities are investments with original maturities of greater than 90 days. Long-term marketable securities are securities with maturities of greater than one year at the original date of purchase.

There were no realized gains or losses on the investments for the years ended December 31, 2018, 2017 and 2016.

Fair Value Measurement

In determining the fair value of its assets and liabilities, the Company uses various valuation approaches. The Company employs a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:


Level 1 –				Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 –				Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3 –				Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

As of December 31, 2018, cash and cash equivalents on our consolidated balance sheet includes $126.6 million in a money market account. These funds are valued on a recurring basis using Level 1 inputs.

As of December 31, 2018 and 2017, the Company had no assets or liabilities for which fair value measurement is either required or has been elected to be applied.

In May 2016, the Company

issued $115.0

million aggregate principal amount of the Notes due June

2021

. Interest is payable

semi-annually

in arrears on June

and December

of each year, beginning on December

2016

. As of December

2018

, the carrying value of the Notes was $103.5

million, net of unamortized discount, and the fair value of the Notes was $184.6

million. The fair value of the Notes is a Level

valuation and was determined based on the most recent trade activity of the Notes as of December

2018

. The Notes are discussed in more detail in Note

“Convertible Senior Notes”

to these consolidated financial statements

There were no

remeasurements

to fair value during the year ended December 31, 2018 of financial assets and liabilities that are not measured at fair value on a recurring basis.

Inventories

Inventories relate to the Company’s bioprocessing business. The Company values inventory at cost or, if lower, net realizable value, using the

first-in,

first-out

method. The Company reviews its inventories at least quarterly and records a provision for excess and obsolete inventory based on its estimates of expected sales volume, production capacity and expiration dates of raw materials,

work-in-process

and finished products. Expected sales volumes are determined based on supply forecasts provided by key customers for the next 3 to 12 months. The Company writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements to cost of product revenue. Manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment.

A change in the estimated timing or amount of demand for the Company’s products could result in additional provisions for excess inventory quantities on hand. Any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results. During all periods presented in the accompanying financial statements, there have been no material adjustments related to a revised estimate of inventory valuations.

Work-in-process

and finished products inventories consist of material, labor, outside processing costs and manufacturing overhead.

Lease Accounting

Certain of the Company’s operating leases where the Company is the lessee provide for minimum annual payments that increase over the life of the lease. The aggregate minimum annual payments are expensed on the straight-lined basis beginning when the Company takes possession of the property and extending over the term of the related lease, including renewal options when the exercise of the option is reasonably assured as an economic penalty may be incurred if the option is not exercised. The amount by which straight-line rent exceeds actual lease payment requirements in the early years of the leases is accrued as deferred rent and reduced in later years when the actual cash payment requirements exceed the straight-line expense. The Company also accounts in its straight-line computation for the effect of any “rental holidays” and lessor-paid tenant improvements.

Accrued Liabilities

The Company estimates accrued liabilities by identifying services performed on the Company’s behalf, estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date. For example, the Company would accrue for professional and consulting fees incurred with law firms, audit and accounting service providers and other third-party consultants. These expenses are determined by either requesting those service providers to estimate unbilled services at each reporting date for services incurred or tracking costs incurred by service providers under fixed fee arrangements.

The Company has processes in place to estimate the appropriate amounts to record for accrued liabilities, which principally involve the applicable personnel reviewing the services provided. In the event that the Company does not identify certain costs that have begun to be incurred or the Company under or over-estimates the level of services performed or the costs of such services, the reported expenses for that period may be too low or too high. The date on which certain services commence, the level of services performed on or before a given date, and the cost of such services often require the exercise of judgment. The Company makes these judgments based upon the facts and circumstances known at the date of the financial statements.

Income Taxes

Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions using a

“more-likely-than-not”

threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates this tax position on a quarterly basis. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.

Property, Plant & Equipment

Property, Plant & Equipment is recorded at cost less allowances for depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the asset as follows:

Classification		Estimated Useful Life
Buildings		Thirty years
Leasehold improvements		Shorter of the term of the lease or estimated useful life
Equipment		Three to twelve years
Furniture and fixtures		Three to eight years

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Potential common share equivalents consist of restricted stock awards and the incremental common shares issuable upon the exercise of stock options and warrants. Under the treasury stock method, unexercised

“in-the-money”

stock options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase common shares at the average market price during the period. Share-based payment awards that entitle their holders to receive

non-forfeitable

dividends before vesting are considered participating securities and are included in the calculation of basic and diluted earnings per share. There are no such participating securities as of December 31, 2018.

A reconciliation of basic and diluted share amounts is as follows:

	For the Years Ended December 31,
	2018		2017		2016
		(Amounts in thousands, except per share data)
Net income	$	16,617	$	28,353	$	11,681
Weighted average shares used in computing net income per share - basic		43,767		38,234		33,573
Effect of dilutive shares:
Stock options and restricted stock awards		581		441		526
Convertible senior notes		1,123		475		—
Dilutive potential common shares		1,704		916		526
Weighted average shares used in computing net income per share - diluted		45,471		39,150		34,099
Earnings per share:
Basic	$	0.38	$	0.74	$	0.35
Diluted	$	0.37	$	0.72	$	0.34

At December 31, 2018, there were outstanding options to purchase 998,226 shares of the Company’s common stock at a weighted average exercise price of $27.54 per share and 705,413 shares of common stock issuable upon the vesting of restricted stock units (“RSUs”). For the year ended December 31, 2018, 479,854 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares and were therefore, anti-dilutive.

As provided by the terms of the indenture underlying the senior convertible notes, the Company has a choice to settle the conversion obligation for the Convertible Notes in cash, shares or any combination of the two. The Company currently intends to settle the par value of the Convertible Notes in cash and any excess conversion premium in shares. The Company applies the provisions of ASC 260,

“Earnings Per Share”,

Subsection 10-45-44, to determine the diluted weighted average shares outstanding as it relates to the conversion spread on its convertible notes. Accordingly, the par value of the Convertible Notes is not included in the calculation of diluted income per share, but the dilutive effect of the conversion premium is considered in the calculation of diluted net income per share using the treasury stock method. The dilutive impact of the Convertible Notes is based on the difference between the Company’s current period average stock price and the conversion price of the convertible notes, provided there is a premium. Pursuant to this accounting standard, there is no dilution from the accreted principal of the Convertible Notes.

At December 31, 2017, there were outstanding options to purchase 734,940 shares of the Company’s common stock at a weighted average exercise price of $20.80 per share and 505,235 shares of common stock issuable upon the vesting of RSUs. For the year ended December 31, 2017, 317,923 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares and were therefore, anti-dilutive.

At December 31, 2016, there were outstanding options to purchase 1,236,586 shares of the Company’s common stock at a weighted average exercise price of $12.05 per share. For the year ended December 31, 2016, 381,686 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares and were therefore, anti-dilutive.

Segment Reporting

The Company views its operations, makes decisions regarding how to allocate resources and manages its business as one operating segment and two reporting units. As a result, the financial information disclosed herein represents all of the material financial information related to the Company.

The following table represents product revenues by product line:

	For the Years Ended December 31,
	2018		2017 (1)		2016 (2,3)
	(Amounts in thousands)
Chromatography products	$	45,326	$	36,309	$	29,520
Filtration products		90,586		49,050		19,774
Protein products		54,375		53,969		54,716
Other		3,604		1,761		431
Total product revenue	$	193,891	$	141,089	$	104,441

(1)	2017 revenue for filtration, chromatography and other products includes revenue related to Spectrum from August 1, 2017 through December 31, 2017.

(2)	2016 revenue for filtration products includes revenue related to TangenX from December 14, 2016 through December 31, 2016.

(3)	2016 revenue for chromatography products includes revenue related to Atoll from April 1, 2016 through December 31, 2016.

Revenue from protein products includes our Protein A ligands and cell culture growth factors. Revenue from filtration products includes our XCell ATF Systems and consumables as well as our KrosFlo and SIUS filtration products. Revenue from chromatography products includes our OPUS and OPUS PD chromatography columns, chromatography resins and ELISA test kits. Other revenue primarily consists of revenue from the sale of operating room products to hospitals as well as freight revenue.

The following table represents the Company’s total revenue by geographic area (based on the location of the customer):

	For the Years Ended December 31,
	2018			2017			2016
Revenue by customers’ geographic locations:
North America		48	%		43	%		39	%
Europe		40	%		46	%		54	%
APAC		12	%		11	%		7	%
Other		0	%		0	%		0	%
Total revenue		100	%		100	%		100	%

The following table represents the Company’s total assets by geographic area:

	December 31,
	2018		2017
	(Amounts in thousands)
Total assets by geographic locations:
North America	$	665,833	$	654,673
Europe		104,750		85,169
APAC		4,038		3,677
Total assets by geographic location	$	774,621	$	743,519

The following table represents the Company’s long-lived assets by geographic area:

	December 31,
	2018		2017
	(Amounts in thousands)
Long-lived assets by geographic locations:
North America	$	464,253	$	465,453
Europe		29,426		34,430
APAC		848		854
Total long-lived assets by geographic location	$	494,527	$	500,737

Concentrations of Credit Risk and Significant Customers

Financial instruments that subject the Company to significant concentrations of credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. Per the Company’s investment policy, cash equivalents and marketable securities are invested in financial instruments with high credit ratings and credit exposure to any one issue, issuer (with the exception of U.S. treasury obligations) and type of instrument is limited. At December 31, 2018 and 2017, the Company had no investments associated with foreign exchange contracts, options contracts or other foreign hedging arrangements.

Concentration of credit risk with respect to accounts receivable is limited to customers to whom the Company makes significant sales. While a reserve for the potential

write-off

of accounts receivable is maintained, the Company has not written off any significant accounts to date. To control credit risk, the Company performs regular credit evaluations of its customers’ financial condition.

Revenue from significant customers as a percentage of the Company’s total revenue is as follows:

	For the Years Ended December 31,
	2018			2017			2016
MilliporeSigma		15	%		18	%		28	%
GE Healthcare		15	%		21	%		29	%

Significant accounts receivable balances as a percentage of the Company’s total trade accounts receivable and royalties and other receivable balances are as follows:

	December 31,
	2018			2017
GE Healthcare		17	%		11	%
MilliporeSigma		11	%		19	%

Goodwill, Other Intangible Assets and Acquisitions

Acquisitions

Total consideration transferred for acquisitions is allocated to the assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. Any excess of the fair value of the net tangible and intangible assets acquired over the purchase price is recognized in the statement of operations and comprehensive income. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made and the extent of royalties to be earned in excess of the defined minimum royalties. Management updates these estimates and the related fair value of contingent consideration at each reporting period. Changes in the fair value of contingent consideration are recorded in the consolidated statements of operations and comprehensive income.

The Company uses the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimating

after-tax

cash flows attributable to these assets over their respective useful lives and then discounting these

after-tax

cash flows back to a present value. The Company bases its assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. Discount rates used to arrive at a present value as of the date of acquisition are based on the time value of money and certain industry-specific risk factors.

Goodwill

Goodwill is not amortized and is reviewed for impairment at least annually at the reporting unit level. There was no evidence of impairment to goodwill at December 31, 2018 and 2017. There were no goodwill impairment charges during the years ended December 31, 2018, 2017 and 2016.

Intangible Assets

Intangible assets are amortized over their useful lives using the estimated economic benefit method, as applicable, and the amortization expense is recorded within cost of product revenue and selling, general and administrative expense in the statements of operations and comprehensive income. Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. If impairment indicators are present, the Company determines whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its intangible assets are recoverable at December 31, 2018.

Stock Based Compensation

The Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award and recognizes it as expense over the employee’s requisite service period on a straight-line basis. The Company records the expense for share-based awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates whether the achievement of a performance-based milestone is probable as of the reporting date. The Company has no awards that are subject to market conditions. The Company recognizes stock-based compensation expense based upon options that are ultimately expected to vest, and accordingly, such compensation expense has been adjusted by an amount of estimated forfeitures.

The Company uses the Black-Scholes option pricing model to calculate the fair value of share-based awards on the grant date. The following assumptions are used in calculating the fair value of share-based awards:

Expected term

– The expected term of options granted represents the period of time for which the options are expected to be outstanding. For purposes of estimating the expected term, the Company has aggregated all individual option awards into one group as the Company does not expect substantial differences in exercise behavior among its employees.

Expected volatility

– The expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate during the expected term of options granted. The Company determines the expected volatility based primarily upon the historical volatility of the Company’s common stock over a period commensurate with the option’s expected term.

Risk-free interest rate

– The risk-free interest rate is the implied yield available on U.S. Treasury

zero-coupon

issues with a remaining term equal to the option’s expected term on the grant date.

Expected dividend yield

– The Company has never declared or paid any cash dividends on any of its capital stock and does not expect to do so in the foreseeable future. Accordingly, the Company uses an expected dividend yield of zero to calculate the grant-date fair value of a stock option.

Estimated forfeiture rates

– The Company has applied, based on an analysis of its historical forfeitures, annual forfeiture rates of 8% for awards granted to

non-executive

level employees, 3% for awards granted to executive level employees and 0% for awards granted to

non-employee

members of the Board of Directors to all unvested stock options as of December 31, 2018. The Company reevaluates this analysis periodically and adjusts these estimated forfeiture rates as necessary. Ultimately, the Company will only recognize expense for those shares that vest.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising expense for the years ended December 31, 2018, 2017 and 2016 was $0.2 million, $0.2 million and $0.4 million, respectively.

Recent Accounting Standards Updates

We consider the applicability and impact of all Accounting Standards Updates on our condensed consolidated financial statements. Updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations. Recently issued Accounting Standards Updates which we feel may be applicable to us are as follows:

Recently Issued Accounting Standard Updates – Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. (“ASU”) 2016-02,

“Leases (Topic 842).”

ASU 2016-02, along with subsequent ASUs issued to clarify certain provisions of ASU 2016-02 (collectively known as “ASC 842”), establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Certain qualitative and quantitative disclosures are also required. The Company will adopt ASU 2016-02 and related amendments on January 1, 2019 using an optional method allowed with the issuance of ASU 2018-11,

“Leases – Targeted Improvements (Topic 842),”

in July 2018. ASU 2018-11 gives entities the option to not provide comparative period financial statements and instead apply the transition requirements as of the effective date of the new standard. Pursuant to additional guidance under ASC 842, the Company will also elect the optional package of practical expedients, which will allow the Company to not reassess: (i) whether expired or existing contracts contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. ASC 842 also allow entities to make certain policy elections, some of which the Company plans to elect, including a policy to not record short-term leases on the balance sheet as mentioned above. The Company is currently working through the implementation of transition-related controls and finalizing accounting elections. Although the Company is still assessing the potential impact this standard will have on its consolidated financial statements and disclosures, the Company currently estimates total ROU assets to be within the range of approximately $12 million to $14 million and lease liabilities to be within the range of approximately $16 million to $18 million upon adoption, before considering deferred taxes. The difference between the two ranges is due to approximately $4 million of unamortized lease incentives and deferred rent at the Company’s Marlborough and Waltham facilities as of December 31, 2018. The Company does not expect the adoption of ASC 842 to have a material impact on the consolidated statements of operations or consolidated statements of cash flows.

In February 2018, the FASB issued ASU 2018-02,

“Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,”

which gives entities the option to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the “Act”). For all entities, the guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Entities can choose whether to apply the amendments retrospectively to each period in which the effect of the Act is recognized or to apply the amendments in the period of adoption. The Company will adopt this guidance on January 1, 2019 and does not expect its adoption to have a material impact on the its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13,

“Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”

ASU 2018-13 includes amendments that aim to improve the effectiveness of fair value measurement disclosures. The amendments in this guidance modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement,

“Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements

”

including the consideration of costs and benefits. The amendments become effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15,

“Intangibles – Goodwill and Other –

Internal-Use

Software (Subtopic

350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

internal-use

software (and hosting arrangements that include an

internal-use

software license). The guidance also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The guidance becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18,

“Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606.”

ASU 2018-18 clarifies the interaction between Topic 808,

“Collaborative Arrangements,”

and Topic 606,

“Revenue from Contracts with Customers,”

by making targeted improvements to US GAAP for collaborative arrangements and providing guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. This includes improving comparability in the presentation of revenue for certain transactions between collaborative arrangement participants by allowing presentation of the units of account in collaborative arrangements that are within the scope of Topic 606 together with revenue accounted for under Topic 606. The guidance becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.

Recently Issued Accounting Standard Updates – Adopted During the Period

In May 2014, the FASB issued ASU 2014-09,

“Revenue from Contracts with Customers (Topic 606),”

(“ASC 606”) which supersedes the revenue recognition requirements in ASC 605,

“Revenue Recognition

”

and creates a new Topic 606,

“Revenue from Contracts with Customers

”

Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. The adoption of this ASU included updates as provided under ASU 2015-14,

“Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”

; ASU 2016-08,

“Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”

; ASU 2016-10,

“Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”

; and ASU 2016-12,

“Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.”

The Company adopted the provisions of ASC 606 using the modified retrospective method effective January 1, 2018. See Note 4,

“Revenue Recognition”,

below for further discussion of the effects of this standard on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU

2016-15,

“Statement of Cash Flows (Topic 203): Classification of Certain Cash Receipts and Cash Payments.”

ASU

2016-15

addresses eight specific cash flow issues and clarifies their presentation and classification in the Statement of Cash Flows. ASU

2016-15

is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively with early adoption permitted. The Company has historically classified payments up to the amount of its contingent consideration liability recognized at the date of its acquisition as financing activities, with additional payments classified as operating activities. Because the Company has classified its contingent consideration payments as required by this standard, the adoption of this standard did not have any impact on its consolidated financial statements when applied on a retrospective basis.

In October 2016

, the FASB issued ASU

2016

“Intra-Entity Transfers of Assets Other Than Inventory.”

ASU

2016

requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. An entity will continue to recognize the income tax consequences of an intercompany transfer of inventory when the inventory is sold to a third party. The Company adopted this standard on a modified-retrospective basis on January

2018

. See Note

“Income Taxes”

, below for a discussion of the impact of this ASU on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU

2016

“Statement of Cash Flows (Topic

230)

Restricted Cash,”

which requires that the statement of cash flows explain the change during the period in the total cash, which is inclusive of cash and cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. The Company adopted this standard on a retrospective basis on January

2018

. The adoption resulted in an increase to cash, cash equivalents and restricted cash of $450,000

in the statement of cash flows at December

2016

and September

2017

. The Company did not hold any restricted cash at December

2018

or December

2017

In January 2017, the FASB issued

ASU 2017-01,

“Business Combinations (Topic 805): Clarifying the Definition of a Business”

, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted this standard as of January 1, 2018, and the adoption of ASU

2017-01

did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU

2017-04,

“Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,”

eliminating the requirement to calculate the implied fair value, essentially eliminating step two from the goodwill impairment test. ASU

2017-04

requires goodwill impairment to be based upon the results of step one of the impairment test, which is defined as the excess of the carrying value of a reporting unit over its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard is effective for the Company on a prospective basis beginning on January 1, 2020, with early adoption permitted. The Company adopted this standard as of January 1, 2018, and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.