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Revenue and Deferred Revenue
 9 Months Ended
Sep. 30, 2022
Revenue from Contract with Customer [Abstract]  
Revenue and Deferred Revenue

Note 2 — Revenue and Deferred Revenue

 

Revenue

 

During the three and nine months ended September 30, 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.

 

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

  

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
(In thousands)  2022   2021   2022   2021 
Transferred at a point in time  $5,657   $2,757   $28,675   $4,110 
Transferred over time   1,362    12,994    23,694    30,474 
Total revenue  $7,019   $15,751   $52,369   $34,584 

  

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 $540 thousand and $398 thousand for September 30, 2022 and December 31, 2021, respectively. The Company’s reserve for warranty returns is included in accrued expenses and other current liabilities in its consolidated balance sheets. Additional information regarding the Company’s warranty reserve may be found in Note 3 – Supplemental Consolidated Balance Sheet Information, included elsewhere in the notes to the consolidated financial statements.

 

Deferred Revenue

 

Changes in the Company’s current deferred revenue balance for the nine months ended September 30, 2022 and the year ended December 31, 2021 were as follows:

  

(In thousands)  Nine Months Ended
September 30,
2022		   Year
Ended
December 31,
2021		 
Deferred revenue – beginning of period  $3,772   $152 
Additions   18,167    3,758 
Interest income on deferred revenue   
—
    4 
Recognized   (11,803)   (142)
Deferred revenue – end of period  $10,136   $3,772 

  

Deferred revenue balances primarily consist of customer deposits on its cultivation and extraction solutions equipment. As of September 30, 2022 and December 31, 2021, all of the Company’s deferred revenue balances were reported as current liabilities in the accompanying consolidated balance sheets.