Revenue Recognition

9 Months Ended

Sep. 30, 2023

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

•Step 1: Identify the contract with the customer

•Step 2: Identify the performance obligations in the contract

•Step 3: Determine the transaction price

•Step 4: Allocate the transaction price to the performance obligations in the contract

•Step 5: Recognize revenue when the company satisfies a performance obligation

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight related to contracts with customers are accounted for as a fulfillment cost and are included in cost of sales when control of the goods transfers to the customer.

Nature of goods and services

The following is a description of principal activities from which the Company generates its revenue.

The Company currently operates in one market segment, the hemodialysis market, which involves the manufacture, sale and distribution of hemodialysis products to hemodialysis clinics, including pharmaceutical, dialysis concentrates, dialysis kits and other ancillary products used in the dialysis process. Rockwell's customer mix is diverse, with most customer sales concentrations under 10% and one customer, DaVita, Inc. ("DaVita"), at approximately 50% of total net product sales for each of the three and nine months ended September 30, 2023. Rockwell's accounts receivable from this customer were approximately 31% and 30% of the total net consolidated accounts receivable balance at September 30, 2023 and December 31, 2022, respectively.

Product sales – The Company accounts for individual products and services separately if they are distinct (i.e., if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices. The stand-alone selling prices are determined based on the cost plus margin approach.

Drug and dialysis concentrates products are sold directly to dialysis clinics and to wholesale distributors in both domestic and international markets. Distribution and license agreements for which upfront fees are received are evaluated upon execution or modification of the agreement to determine if the agreement creates a separate performance obligation from the underlying product sales.  For all existing distribution and license agreements, the distribution and license agreement is not a distinct performance obligation from the product sales.  In instances where regulatory approval of the product has not been established and the Company does not have sufficient experience with the foreign regulatory body to conclude regulatory approval is probable, the revenue for the performance obligation is recognized over the term of the license agreement (over time recognition). Conversely, when regulatory approval already exists or is probable, revenue is recognized at the point in time control of the product transfers to the customer.

The Company received upfront fees under five distribution and license agreements that have been deferred as a contract liability.  The amounts received from Wanbang Biopharmaceuticals Co., Ltd. (“Wanbang”), Sun Pharmaceutical Industries Ltd. ("Sun Pharma"), Jeil Pharmaceutical Co., Ltd. ("Jeil Pharma") and Drogsan Pharmaceuticals ("Drogsan Pharma") are recognized as revenue over the estimated term of the applicable distribution and license agreement as regulatory approval was not received and the Company did not have sufficient experience in China, India, South Korea and Turkey, respectively, to determine regulatory approval was probable as of the execution of the agreement.  The amounts received from Baxter Healthcare Corporation (“Baxter”) were deferred and recognized as revenue at the point in time the estimated product sales under the agreement occurred. During the three months ended September 30, 2023, the amounts received from Wanbang were accelerated out of deferred license revenue and into revenue upon notice that the development effort was terminated (see Note 10).

In November 2022, Rockwell reacquired its distribution rights to its hemodialysis concentrates products from Baxter and terminated the exclusive distribution agreement. Under the exclusive distribution agreement, Baxter distributed and commercialized Rockwell’s hemodialysis concentrates products and provided customer service and order delivery to nearly all U.S. customers. Following the reacquisition of these rights, Rockwell is now unrestricted in its ability to sell its hemodialysis concentrates products to dialysis clinics throughout the U.S. and around the world. For additional information, see Note 10.

Rockwell agreed to pay Baxter a fee for the reacquisition of its distribution rights which was reflected as an expense at that time. This fee was payable in two equal installments on January 1, 2023 and April 1, 2023. As of September 30, 2023, all payments were completed.

On September 18, 2023, the Company and its long-time partner, DaVita, a leading provider of kidney care, entered into an Amended and Restated Products Purchase Agreement (the "Amended Agreement"), which amends and restates the Product Purchase Agreement, dated July 1, 2019, as amended, under which the Company supplies DaVita with certain dialysis concentrates. Under the Amended Agreement, the Company and DaVita agreed to an increase in product pricing, effective September 1, 2023 and a one-time payment to Rockwell on or after December 1, 2023. The term of the Amended Agreement will expire on December 31, 2024. DaVita will have the right, in its sole discretion upon written notice to the Company given no later than September 30, 2024, to further extend the term through December 31, 2025. In the event of such an extension, product pricing will be increased for the extended term. In addition, DaVita is required to provide the Company with nine-month purchasing forecasts and a commitment to purchase at least the forecasted amounts. In the event that DaVita does not meet its forecasts, it is required to pay the Company for the amount forecasted, purchase additional product, or the Company may terminate the Amended Agreement. Upon expiration or termination of the Amended Agreement, and upon request by DaVita, the Company has agreed to provide transition services to DaVita during a transition period.

Additionally during the third quarter of 2023, the Company entered into several long-term product purchase agreements, which include supply and purchasing commitments from certain parties.

For the majority of the Company’s U.S. and international customers, the Company recognizes revenue at the shipping point, which is generally the Company’s plant or warehouse. For other business, the Company recognizes revenue based on when the customer takes control of the product. The amount of revenue recognized is based on the purchase order less returns and adjusted for any rebates, discounts, chargebacks or other amounts paid to customers estimated at the time of sale. There were no such adjustments for the periods reported. Customers typically pay for the product based on customary business practices with payment terms averaging 30 days, while a small subset of customers have payment terms averaging 60 days.

Disaggregation of revenue

Revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.

In thousands	Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
Products By Geographic Area	Total		U.S.		Rest of World		Total		U.S.		Rest of World
Drug Revenues
Product Sales – Point-in-time	$	—	$	—	$	—	$	—	$	—	$	—
License Fee – Over time	2,197		—		2,197		2,327		—		2,327
Total Drug Products	2,197		—		2,197		2,327		—		2,327
Concentrates Products
Product Sales – Point-in-time	21,574		19,741		1,833		57,720		52,326		5,394
License Fee – Over time	—		—		—		1,472		1,472		—
Total Concentrate Products	21,574		19,741		1,833		59,192		53,798		5,394
Net Revenue	$	23,771	$	19,741	$	4,030	$	61,519	$	53,798	$	7,721

In thousands	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
Products By Geographic Area	Total		U.S.		Rest of World		Total		U.S.		Rest of World
Drug Revenues
Product Sales – Point-in-time	$	193	$	193	$	—	$	834	$	561	$	273
License Fee – Over time	65		—		65		192		—		192
Total Drug Products	258		193		65		1,026		561		465
Concentrates Products
Product Sales – Point-in-time	17,953		16,619		1,334		51,035		46,334		4,701
License Fee – Over time	480		480		—		1,436		1,436		—
Total Concentrate Products	18,433		17,099		1,334		52,471		47,770		4,701
Net Revenue	$	18,691	$	17,292	$	1,399	$	53,497	$	48,331	$	5,166

Contract balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.

In thousands	September 30, 2023		December 31, 2022
Accounts Receivable, net	$	9,361	$	6,259
Contract Liabilities, which are included in deferred license revenue	$	533	$	4,331

There were no other material contract assets recorded on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.  The Company does not generally accept returns of its concentrates products and no material reserve for returns of concentrates products was established as of September 30, 2023 or December 31, 2022. 

The contract liabilities primarily relate to upfront payments and consideration received from customers in advance of the customer assuming control of the related products.