Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Recently Adopted and Issued Accounting Guidance

v3.10.0.1
Recently Adopted and Issued Accounting Guidance
6 Months Ended
Jun. 30, 2018
Accounting Changes and Error Corrections [Abstract]  
Recently Adopted and Issued Accounting Guidance
Recently Adopted and Issued Accounting Guidance
 
Adopted

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation. This standard expands the scope of current stock compensation recognition standards to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. The Company early adopted this ASU on April 1, 2018. The adoption of this standard substantially aligned the accounting for share based payments to employees and nonemployees. Under the new standard, the Company recorded a cumulative adjustment of $1.1 million to increase retained earnings and decrease APIC.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging.  This standard refines hedge accounting to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amended guidance also expands items eligible for hedge accounting and simplifies the hedge effectiveness testing. ASU 2017-12 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods.  Early adoption is permitted.  The Company early adopted this standard on April 1, 2018 and applied this guidance to the cash flow hedge entered into in June 2018. See Note F. The adoption of ASU 2017-12 did not have a material effect on its consolidated financial statements.

 
In May 2014, the FASB issued ASU 2014-09, which amends FASB Accounting Standards Codification by creating Topic 606, Revenues from Contracts with Customers.  This standard update calls for a number of revisions in the revenue recognition rules. The Company adopted this ASU on January 1, 2018 using a full retrospective method of adoption.  Under this method, the Company has restated its results for each prior reporting period presented as if ASC 606 had been effective for those periods.
The adoption of this standard required us to implement new revenue policies, procedures and internal controls related to revenue recognition.  In addition, the adoption resulted in enhanced financial statement disclosures surrounding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. For further details, see Note C. 
The new standard impacts each of our two reportable segments differently due to the transactional nature of the Clinical Services Division versus the generally long-term nature of our Pharma Services Division contracts.  The specific effect on our reportable segments is explained below:
Clinical Services Revenue
Under the new standard, substantially all of our bad debt expense, which has historically been presented as part of general and administrative expense, is considered an implicit price concession and is reported as a reduction in revenue.  As a result of ASC 606, we reported a material cumulative reduction in clinical revenue from previously reported periods and a similar reduction in general and administrative expenses.
Pharma Services Revenue
The adoption of ASC 606 also resulted in changes to the timing of revenue recognition related to Pharma Services contracts as certain individual deliverables such as study setup fees, for which revenue was previously recognized in the period when the deliverables were completed and invoiced, will be recognized over the remaining performance period under the new standard. Additionally, certain costs to obtain contracts, primarily for sales commissions, are capitalized when incurred and are amortized over the term of the contract. Under ASC 606, the Company is required to make estimates of the total transaction price per contract, including estimates of variable consideration and the number of performance obligations, and recognize the estimated amount as revenue as it transfers control of the product or performance obligations to its customers.  The estimation of total transaction price, number of performance obligations, variable consideration and the application of the related constraint, was not required under previous GAAP and requires the use of significant management judgment and estimates. The Company elected certain practical expedients as allowed under the standard including the following: contracts that began and ended within the same annual reporting period were not restated; contracts with variable consideration were estimated using the transaction price at the date the contract was completed; contract modifications that occurred prior to earliest reporting period have not been retrospectively restated but have rather been reflected as an aggregate adjustment in the earliest reporting period. The cumulative effect of this standard did not result in a material change to our Pharma Services revenue.
 ASC 606 Adoption Impact to Previously Reported Results
We adjusted our condensed consolidated financial statements from amounts previously reported due to the adoption of ASC 606.
Select condensed consolidated balance sheet line items, which reflect the adoption of ASC 606, are as follows (in thousands):
 
December 31, 2017
 
As Reported
 
Impact of Adoption
 
As Adjusted
Other current assets
$
4,241

 
$
912

 
$
5,153

Other assets
689

 
202

 
891

Total Assets
$
343,340

 
$
1,114

 
$
344,454

 
 
 
 
 
 
Pharma contract liability
$

 
$
1,406

 
$
1,406

Long-term pharma contract liability

 
283

 
283

Deferred income tax liability, net
6,307

 
381

 
6,688

Stockholders' Equity
172,918

 
(956
)
 
171,962

Total Liabilities and Stockholders' Equity
$
343,340

 
$
1,114

 
$
344,454


Select unaudited condensed consolidated statement of operations line items, which reflect the adoption of ASC 606, are as follows (in thousands):
 
For the Three Months Ended June 30, 2017
 
For the Six Months Ended June 30, 2017
 
As Reported
 
Impact of Adoption
 
As Adjusted
 
As Reported
 
Impact of Adoption
 
As Adjusted
Net Revenue
 
 
 
 
 
 
 
 
 
 
 
Clinical Services
$
59,791

 
$
(4,244
)
 
$
55,547

 
$
116,482

 
$
(8,027
)
 
$
108,455

Pharma Services
6,299

 
418

 
6,717

 
11,285

 
(47
)
 
11,238

Total Revenue
$
66,090

 
$
(3,826
)
 
$
62,264

 
$
127,767

 
$
(8,074
)
 
$
119,693

Gross Profit
$
31,178

 
$
(3,826
)
 
$
27,352

 
$
58,374

 
$
(8,073
)
 
$
50,301

 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses (1)
$
29,864

 
$
(4,353
)
 
$
25,511

 
$
57,175

 
$
(8,137
)
 
$
49,038

Income from Operations
1,314

 
527

 
1,841

 
1,199

 
64

 
1,263

Interest expense
1,411

 

 
1,411

 
2,775

 

 
2,775

Income tax (benefit) expense
(54
)
 
1

 
(53
)
 
(879
)
 
47

 
(832
)
Net Income (Loss)
$
(43
)
 
$
526

 
$
483

 
$
(697
)
 
$
17

 
(680
)


In May 2017 the FASB issued ASU 2017-09, Compensation – Stock Compensation.  This standard provides guidance related to the scope of stock option modification accounting, to reduce diversity in practice and reduce cost and complexity regarding existing guidance. This update is effective for annual periods beginning after December 15, 2017.  The Company adopted this standard on January 1, 2018. The adoption of this standard did not have an impact on the consolidated financial statements.
 
In January 2017 the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other:  Simplifying the Test for Goodwill Impairment.  This standard eliminates Step 2 of the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This update is effective for annual and interim periods beginning after December 15, 2019.  The Company early adopted this standard on January 1, 2018. The adoption of this standard did not have an impact on the consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.  This standard clarifies how specific cash receipts and cash payments are classified and presented in the statement of cash flows. This update is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017.  The Company adopted this standard on January 1, 2018. The adoption of this standard did not have an impact on the consolidated financial statements.
Issued
 
In February 2016, the FASB issued ASU 2016-02, Leases.  The update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities, including for operating leases, on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The adoption of this ASU will result in an increase on the balance sheet for lease liabilities and right to use assets.  The Company is currently evaluating the quantitative impact that adopting ASU 2016-02 will have on its consolidated financial statements and assessing any changes to its processes and controls.