Quarterly report pursuant to Section 13 or 15(d)

REVENUE RECOGNITION

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REVENUE RECOGNITION
9 Months Ended
Sep. 30, 2020
Revenue from Contract with Customer [Abstract]  
REVENUE RECOGNITION REVENUE RECOGNITIONWe record contract assets and contract liabilities in connection with revenue recognized for filter design projects.
Contract Assets - Contract assets, other than accounts receivable, consist of unbilled revenue and generally arise when revenue is recognized on a contract whose transaction price includes an estimate of variable consideration from milestone payments. We do not have material amounts of contract assets as we have relatively few contracts, only modest design service fees and a small number of contracts containing milestone payments. Contract asset balances are included in prepaid expenses and other current assets in our condensed consolidated balance sheets.
Contract Liabilities - Our contract liabilities consist of deferred revenue, which represents the revenue associated with remaining performance obligations within our customer contracts. We classify contract liabilities as current or long-term based on the expected timing of the remaining performance obligations. The current and long-term portions of deferred revenue are separately stated in our condensed consolidated balance sheets.
Summary of changes in contract assets and liabilities for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30,
2020 2019
Contract assets
Contract assets, beginning $ —  $ 36,000 
Contract assets at beginning of year transferred to accounts receivable —  (36,000)
Reversal of contract assets due to changes in transaction price —  (8,000)
Contract assets recorded on contracts during the period —  8,000 
Contract assets, ending $ —  $ — 
Contract liabilities
Contract liabilities, beginning $ 1,731,000  $ 271,000 
Recognition of revenue included in beginning of year contract liabilities (1,679,000) (199,000)
Contract liabilities, net of revenue recognized on contracts during the period 2,326,000  2,037,000 
Contract liabilities, ending $ 2,378,000  $ 2,109,000 

We derive a substantial majority of our revenue from a single customer. Effective September 30, 2019 we entered into a collaboration and license agreement with Murata Manufacturing Co., Ltd. Pursuant to the collaboration agreement, we have agreed with Murata to collaborate on the development of proprietary circuit designs using our XBAR® technology, and we licensed to Murata rights for products in four specific radio frequencies, or bands. Murata has agreed to pay us up to an aggregate of $9.0 million as pre-paid royalties and other fees for the licensed designs and certain other intellectual property developed in the collaboration, payable in installments over a multi-year development period, with each installment conditional upon our achievement of certain milestones and deliverables acceptable to Murata in its discretion. Murata may terminate the collaboration agreement at any time upon thirty (30) days prior written notice to us.
Murata’s rights to our XBAR® technology are exclusive for a period of 30 months, through March 2022, during which period we may not grant to any third party the right to develop, make, have made, use, sell, offer for sale or import any filter or resonator produced through the use of the XBAR® technology for use in mobile communication devices.
Under the collaboration agreement, the first payment of $2.0 million was collected in October 2019 and the second payment of $2.5 million was collected in September 2020 upon the achievement of the second milestone.
In accordance with the guidance of ASC 606, we are required to evaluate the variable consideration within the contract, primarily the milestone payments, and assess the likelihood of achievement in determining our transaction price. Additionally, we must assess whether the variable consideration is constrained and whether recording such variable revenue may result in a significant reversal of revenue due to uncertainties. We continue to evaluate variable consideration for inclusion in the transaction price, and ultimately the revenue recognized, at each reporting period. We recognize revenue for the Murata contract over the estimated design development period, based on the level of effort expended, as measured by costs incurred, over total expected costs, as the services are performed. For the periods ended September 30, 2020 and December 31, 2019, we have determined that some of the milestone payments due upon achievement of certain performance criteria are constrained and are thus not included in the transaction price. Therefore, revenue related to those milestone payments has not been recognized. Revenue recognition related to each milestone payment will commence once the constraint is lifted. Consequently, revenue recognition related to the Murata contract will vary from quarter to quarter. During the three and nine months ended September
30, 2020 we recognized $1.2 million and $2.7 million, respectively, of revenue related to the collaboration and license agreement.