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Revenue | 9 Months Ended
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Jun. 30, 2019
Revenue from Contract with Customer [Abstract] |
Revenue | 3. Revenue Effective October 1, 2018, the Company adopted ASU No. 2014‑09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. See Note 11 for effects of initial adoption. The following reflects the accounting policy change for revenue starting on the date of adoption: We derive revenue from the sale of integrated hardware and software, third-party service contracts, professional services, managed services, financing of hardware and software, and other services. We recognize revenue from hardware upon transfer of control, which is at a point in time typically upon shipment when title transfers. Revenue from software is recognized at a point in time when the license is granted. We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether the Company is acting as a principal party to the transaction or simply acting as an agent or broker based on control and timing. The Company is a principal if it controls the good or service before that good or service is transferred to the customer. We record revenue as gross when the Company is a principal party to the arrangement and net of cost when we are acting as a broker or agent. Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold. Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction. Third-party service contracts are sold in different combinations with hardware, software, and services. We have determined the third-party services contracts are a single performance obligation in each sale. When the Company is an agent, revenue is typically recorded at a point in time. When the Company is the principal, revenue is recognized over the contract term. Professional services generally include implementation, installation, and training services. Professional services are considered a series of distinct services that form one performance obligation and revenue is recognized over time as services are performed. Revenue generated from managed services is recognized over the term of the contract. Certain managed services contracts include financing of hardware and software. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease components include the hardware and software, which are subject to ASC 840. The non-lease component includes the managed services and is subject to ASC 606. Other services generally include revenue generated through our royalty, extended warranty, multicomputer repair, and maintenance contracts. Royalty revenue is sales-based and recognized on date of subsequent sale of the product, which occurs on the date of customer shipment. Revenue from extended warranty contracts is recognized evenly over the period of the warranty. Multicomputer repair services revenue is recognized upon control transfer when the customer takes possession of the computer at time of shipping. Revenue generated from maintenance services is recognized evenly over the term of the contract. Variable consideration is immaterial. Any products sold with right to return exists with the manufacturer. Managed service contracts contain the right to refund if canceled within 30 days of inception. Any products with a standard warranty are treated as a warranty obligation under ASC 460, Guarantees. The following policies are applicable to our major categories of segment revenue transactions: HPP Segment Revenue HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the Multicomputer and Myricom product lines. Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products functionality, and post contract maintenance and support. Post contract maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation. TS Segment Revenue TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software. Financing revenue is recognized in accordance with ASC 840, Leases. Financing revenue is recorded in revenue as equipment leasing and is part of the Company’s operations. Third-party service contracts are evaluated to determine whether such service revenue should be recorded as gross sales or net and whether over time or at point in time. See disaggregated revenues below by products/services and geography.
|  |  |  | Technology Solutions Segment |  |
|  | High |  |  |  |  |  |  |  |  |  |  |  |
|  | Performance |  |  |  |  |  |  |  |  |  |  |  |
|  | Products |  | United |  |  |  |  |  |  |  | Consolidated
For the three months ended June 30, |  | Segment |  | Kingdom |  | U.S. |  | Total |  | Total
|  | (Amounts in thousands)
2019 |  |  |  |  |  |  |  |  |  |
Sales: |  |  |  |  |  |  |  |  |  |
Product |  | $ | 1,592 |  | $ | 720 |  | $ | 15,731 |  | $ | 16,451 |  | $ | 18,043
Service |  |  | 548 |  |  | 109 |  |  | 2,837 |  |  | 2,946 |  |  | 3,494
Finance * |  |  | — |  |  | — |  |  | 33 |  |  | 33 |  |  | 33
Total sales |  | $ | 2,140 |  | $ | 829 |  | $ | 18,601 |  | $ | 19,430 |  | $ | 21,570
|  |  |  | Technology Solutions Segment |  |
|  | High |  |  |  |  |  |  |  |  |  |
|  | Performance |  |  |  |  |  |  |  |  |  |  |  |
|  | Products |  | United |  |  |  |  |  |  |  | Consolidated
For the nine months ended June 30, |  | Segment |  | Kingdom |  | U.S. |  | Total |  | Total
|  | (Amounts in thousands)
2019 |  |  |  |  |  |  |  |  |  |
Sales: |  |  |  |  |  |  |  |  |  |
Product |  | $ | 4,700 |  | $ | 4,340 |  | $ | 38,244 |  | $ | 42,584 |  | $ | 47,284
Service |  |  | 1,080 |  |  | 274 |  |  | 8,156 |  |  | 8,430 |  |  | 9,510
Finance * |  |  | — |  |  | — |  |  | 106 |  |  | 106 |  |  | 106
Total sales |  | $ | 5,780 |  | $ | 4,614 |  | $ | 46,506 |  | $ | 51,120 |  | $ | 56,900
* Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers. Significant Judgments The input method using labor hours expended relative to the total expected hours is used to recognize revenue for professional services. Only the hours that depict the Company’s performance toward satisfying a performance obligation are used for progress. An estimate for professional services is made at the beginning of each contract based on prior experience and monitored throughout the services. This method is most appropriate as it depicts the measure of progress towards satisfaction of the performance obligation. When product and services are sold together, the allocation of the transaction price to each performance obligation is calculated using a budgeted cost-plus margin approach. Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price. These estimates are periodically reviewed by project managers, engineers, and other staff involved to ensure estimates are appropriate. For items sold separately, including hardware, software, professional services, maintenance contracts, other services, and third-party service contracts, there is no allocation performed as there is one performance obligation. Contract Assets and Liabilities When the Company has performed work but does not have an unconditional right to payment, a contract asset is recorded. When the Company has the right to bill a customer, accounts receivable is recorded as an unconditional right exists. Current contract assets were $0.6 million and $1.1 million as of June 30, 2019 and October 1, 2018, respectively. The current portion is recorded in other current assets on the consolidated balance sheets. There were no non-current contract assets as of June 30, 2019 and October 1, 2018. The difference in the balances is due to regular timing differences between when work is performed and having an unconditional right to payment. Contract liabilities arise when payment is received before the Company transfers a good or service to the customer. Current contract liabilities were $0.8 million and $0.9 million as of June 30, 2019 and October 1, 2018, respectively. The current portion of contract liabilities is recorded in deferred revenue on the consolidated balance sheets. There were no non-current contract liabilities as of June 30, 2019 and October 1, 2018. Revenue recognized for the nine months ended June 30, 2019 that was included in contract liabilities as of the beginning of the period was $0.7 million. Contract Costs Incremental costs of obtaining a contract involving customer transactions where the revenue and the related transfer of goods and services are less than a one-year period, are expensed as incurred, utilizing the practical expedient in ASC 340‑40‑25‑4. For a period greater than one year, incremental contract costs are capitalized if the Company expects to recover these costs. These costs are only capitalized if the contract is obtained. The costs are amortized over the contract term and expected renewal periods. The period of amortization is generally three to six years. Incremental costs are related to commissions in the TS portion of the business. Current capitalized contract costs are within the account other current assets on the consolidated balance sheets for the periods ended June 30, 2019 and September 30, 2018. The portion of current capitalized costs was $54 thousand and $71 thousand as of June 30, 2019 and October 1, 2018, respectively. There are no non-current capitalized costs on the consolidated balance sheets. The amount of incremental costs amortized for the three months ended June 30, 2019 and nine months ended June 30, 2019 was $66 thousand and $174 thousand, respectively, which is recorded in selling, general, and administrative expenses. There was no impairment related to incremental costs capitalized during the three and nine months ended June 30, 2019. Costs to fulfill a contract are capitalized when the costs are related to a contract or anticipated contract, generate or enhance resources that will be used in satisfying performance obligations in the future, and costs are recoverable. Costs to fulfill a contract are related to the TS portion of the business and involve activities performed before managed services can be completed. Current capitalized fulfillment costs are in the account other current assets on the consolidated balance sheets. The portion of current capitalized costs was $48 thousand and $60 thousand as of June 30, 2019 and October 1, 2018, respectively. There are no non-current capitalized fulfillment costs on the consolidated balance sheets. The amount of fulfillment costs amortized for the three and nine months ended June 30, 2019 was $1 thousand and $9 thousand, respectively, which is recorded in cost of sales. There was no impairment related to fulfillment costs capitalized. Other Projects are typically billed upon completion or at certain milestones. Product and services are typically billed when shipped or as services are being performed. Payment terms are typically 30 days to pay in full except in Europe where it could be up to 90 days. Most of the Company’s contracts are less than one year. As a practical expedient, the Company has elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less. The Company elected to use the optional exemption to not disclose the aggregate amount of the transaction price allocated to performance obligations that have an original expected duration of one year or less. This is due to a low amount of performance obligations less than one year being unsatisfied at each period end. Most of these contracts are related to product sales. The Company has certain contracts that have an original term of more than one year. The royalty agreement is longer than one year and managed service contracts are generally longer than one year. For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2019 is mainly related to managed service contracts and is set forth in the table below:
|  | (Amounts in thousands)
Remainder of fiscal 2019 |  | $ | 583
Fiscal 2020 |  |  | 1,907
Fiscal 2021 |  |  | 973
Fiscal 2022 |  |  | 173
Fiscal 2023 and after |  |  | 60
|  | $ | 3,696

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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