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Revenue and Deferred Revenue
 3 Months Ended
Mar. 31, 2022
Revenue from Contract with Customer [Abstract]  
Revenue and Deferred Revenue

Note 4 — Revenue and Deferred Revenue

 

Revenue

 

During the three months ended March 31, 2022 and 2021, the Company generated revenue from the following sources: (1) equipment sales, (2) services sales and (3) construction contracts.

 

The Company sells its equipment and services to customers under a combination of a contract and purchase order. Equipment revenue includes sales from proprietary products designed and engineered by the Company such as Agrify Vertical Farming Units (“VFUs”), container farms, integrated grow racks, and LED grow lights, and non-proprietary products designed, engineered, and manufactured by third parties such as air cleaning systems and pesticide-free surface protection.

 

Construction contracts normally provide for payment upon completion of specified work or units of work as identified in the contract. Although there is considerable variation in the terms of these contracts, they are primarily structured as time-and-material contracts. The Company enters into time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and other expenses, including materials, as incurred at rates agreed to in the contract. The Company uses three main sub-contractors to execute the construction contracts.

 

Disaggregation of Revenue — The following table provides the Company’s revenue disaggregated by timing of revenue recognition:

  

    Three Months ended
March 31,		  
(In thousands)   2022     2021  
Transferred at a point in time   $ 12,774     $ 6,828  
Transferred over time     13,247       180  
Total revenue   $ 26,021     $ 7,008  

 

In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the Company’s contracts, these reporting requirements are not applicable, because the majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less and (ii) the right to invoice practical expedient.

 

The Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and generally transfers to its customers the warranties it receives from its vendors, if any, which generally cover this one-year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. The Company maintains a reserve for warranty returns of $398 thousand for both March 31, 2022 and December 31, 2021. The Company’s reserve for warranty returns is included in accrued expenses and other current liabilities in its consolidated balance sheets.

 

Deferred Revenue

 

Changes in the Company’s current deferred revenue balance for the three months ended March 31, 2022 and the year ended December 31, 2021 were as follows:

 

(In thousands)  Three Months
ended
March 31,
2022		   Year ended
December 31,
2021		 
Deferred revenue – beginning of period  $3,772   $152 
Additions   5,089    3,758 
Interest income on deferred revenue   
—
    4 
Recognized   (4,679)   (142)
Deferred revenue – end of period  $4,182   $3,772 

 

Deferred revenue balances primarily consist of customer deposits on our cultivation and extraction solutions equipment. As of March 31, 2022 and December 31, 2021, all of the Company’s deferred revenue balances were reported as current liabilities in our accompanying consolidated balance sheets.