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Revenue recognition and accounts receivable | 12 Months Ended
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Dec. 31, 2016
Revenue Recognition And Accounts Receivable [Abstract] |
Revenue recognition and accounts receivable |
14. | Revenue recognition and accounts receivable
The table below presents net sales, which includes product sales and marketing service fees, for each of the years ended December 31, 2016, 2015, and 2014.
|  | For the year ended December 31, |
(U.S. Dollars, in thousands) |  | 2016 |  |  | 2015 |  |  | 2014 |
Product sales |  | $ | 355,652 |  |  | $ | 341,084 |  |  | $ | 351,525 |
Marketing service fees |  |  | 54,136 |  |  |  | 55,405 |  |  |  | 50,752 |
Net sales |  | $ | 409,788 |  |  | $ | 396,489 |  |  | $ | 402,277 |
Product sales primarily consist of stimulation devices and implant products. Marketing service fees are received from MTF based on total sales of biologics tissues. Revenues exclude any value added or other local taxes, intercompany sales and trade discounts. Shipping and handling costs for products shipped to customers are included in cost of sales, and were $2.0 million, $2.2 million and $2.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. BioStim BioStim revenue is comprised of third-party payor transactions and wholesale revenue. The largest portion of BioStim revenue is derived from third-party payors. This includes commercial insurance carriers, health maintenance organizations, preferred provider organizations and governmental payors such as Medicare, in connection with the sale of the Company’s stimulation products. Revenue is recognized when the stimulation product is placed on and accepted by the patient. Amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates. These revenues are recorded at the expected or preauthorized reimbursement rates, net of any contractual allowances or adjustments. Certain billings are subject to review by the third-party payors and may be subject to adjustment. Wholesale revenue is related to the sale of the Company’s bone growth stimulators directly to physicians and other healthcare providers. Wholesale revenues are recognized upon shipment and receipt of a confirming purchase order. Biologics Biologics revenue is primarily related to a collaborative arrangement with MTF through which the Company markets tissue for bone repair and reconstruction under the brand names Trinity Evolution and Trinity ELITE. The Company has exclusive global marketing rights for Trinity Evolution as well as non-exclusive marketing rights for other products, and receives marketing fees from MTF based on total sales. MTF is considered the primary obligor in these arrangements and therefore the Company recognizes these marketing service fees on a net basis within net sales upon shipment of the product to the customer. In 2008, the Company and MTF entered into an agreement to develop and commercialize the Trinity Evolution tissue, a stem cell-based bone growth biologic matrix. With the development process completed in 2009, the Company and MTF operated under the terms of a separate commercialization agreement. Under the terms of the 10-year agreement, MTF sourced the tissue, processed it to create the bone growth matrix, packaged and delivered it to the customer in accordance with orders received from the Company. On January 10, 2012, the Company announced that it had reached an agreement with MTF to both co-develop and commercialize a new technology for use in bone grafting applications and to expand MTF’s Trinity Evolution processing capacity. The collaborative agreement between the Company and MTF extends through July 28, 2025. In July 2013, the Company, in collaboration with MTF, released its next generation Trinity ELITE allograft with viable cells, which, unlike its predecessor, has unique graft containment properties and is fully moldable by the user. Extremity Fixation and Spine Fixation Revenue within Extremity Fixation and Spine Fixation is comprised of commercial revenue and revenue from distributor arrangements. Commercial revenue is related to the sale of the Company’s implant products, generally representing hospital customers. Revenues are recognized when these products have been utilized and a confirming purchase order has been received from the hospital. Revenue for certain government entities is recorded on a cash-basis as collectability is not reasonably assured. For revenue from distributor arrangements, the Company recognizes revenue once the product is delivered to the end customer (the “sell-through method”). Because the Company does not have reliable information about when its distributors sell the product through to end customers, the Company uses cash collection from distributors as a basis for revenue recognition under the sell-through method. Although in many cases the Company is legally entitled to the accounts receivable at the time of shipment, the Company has not recognized accounts receivables or any corresponding deferred revenues associated with distributor transactions for which revenue is recognized on the sell-through method. For distributor arrangements, the Company also considers whether to match the related cost of sales with revenue or to recognize cost of sales upon shipment. In making this assessment, the Company considers the financial viability of its distributors based on their creditworthiness to determine if collectability of amounts sufficient to realize the costs of the products shipped is reasonably assured at the time of shipment to these distributors. In instances where the distributor is determined to be financially viable, the Company defers the costs of sales until the revenue is recognized. Trade Accounts Receivable and Allowances Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for doubtful accounts and contractual allowances. Revisions in allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. The Company’s estimates are periodically tested against actual collection experience. The Company will generally sell receivables from certain Italian hospitals each year. During 2016, 2015, and 2014 the Company sold €10.0 million, €10.9 million, and €9.8 million ($11.1 million, $11.9 million, and $12.8 million) of receivables, respectively. The estimated related fee for 2016, 2015 and 2014 was $0.4 million, $0.5 million and $0.4 million, respectively, which is recorded as interest expense. Trade accounts receivables sold without recourse are removed from the balance sheet at the time of sale.

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