14. Revenues

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

The Company adopted the guidance under ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Therefore, the comparative prior year information has not been adjusted and continues to be reported under ASC 605 with the impact of the adoption reflected in opening retained earnings. As a result of adoption, the cumulative impact to our retained earnings at January 1, 2018 was $0.3 million.

The adoption of ASC 606 represents a change in accounting principle that more closely aligns the timing of revenue recognition with the point in time that a performance obligation is satisfied. The Company’s performance obligations are satisfied at a point in time. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue from prior periods, however additional disclosures have been added in accordance with the guidance.

As required by ASC 606, the impact of adoption of the new revenue standard on the Company's consolidated statements of operations and comprehensive income and consolidated balance sheets was as follows (in thousands):



	As of December 31, 2018
						Adjusted Balance
	As Reported		Adjustments			Without 606 Adoption
Consolidated Balance Sheet Data:
Assets
Accounts receivable, net of doubtful accounts	$	81,896	$	(984	)	$	80,912
Inventories	115,741		343			116,084
Deferred taxes	32,940		181			33,121
Equity
Retained Earnings	$	9,064	$	(460	)	$	8,604



	Year Ended December 31, 2018
							Adjusted Balance
	As Reported			Adjustments			Without 606 Adoption
Consolidated Income Statement Data:
Revenue	$	444,938		$	(326	)	$	444,612
Cost of revenue	152,405			(126		)	152,279
Loss from operations	(852		)	(200		)	(1,052		)
Income (loss) before income taxes and equity in losses of unconsolidated investee	1,608			(200		)	1,408
Benefit from income taxes	(4,403		)	(37		)	(4,440		)
Net income (loss) attributable to Penumbra, Inc.	$	6,601		$	(163	)	$	6,438

Revenue Recognition

Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. All revenue recognized in the income statement is considered to be revenue from contracts with customers.

The Company’s revenues disaggregated by geography, based on the destination to which the Company ships its products, for the year ended December 31, 2018, 2017 and 2016 was as follows (in thousands):



	Year Ended December 31,
	2018		2017		2016
United States	$	290,716	$	219,173	$	176,104
Japan	41,805		33,790		30,284
Other International	112,417		80,801		56,929
Total	$	444,938	$	333,764	$	263,317

The Company’s revenues disaggregated by product category, for the year ended December 31, 2018, 2017 and 2016 was as follows (in thousands):



	Year Ended December 31,
	2018		2017		2016
Neuro	$	294,333	$	232,446	$	185,533
Vascular	150,605		101,318		77,784
Total	$	444,938	$	333,764	$	263,317

Performance Obligations

Delivery of Penumbra products - Penumbra’s contracts with customers typically contain a single performance obligation, delivery of Penumbra products. Satisfaction of that performance obligation occurs when control of the promised goods transfers to the customer, which is generally upon shipment for non-consignment sale agreements and upon utilization for consignment sale agreements.

Payment terms - Our payment terms vary by the type and location of our customer. The timing between fulfillment of performance obligations and when payment is due is not significant and does not give rise to financing transactions. The Company did not have any contracts with significant financing components as of December 31, 2018.

Product returns - The Company may allow customers to return products purchased at the Company’s discretion. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using its own historic sales information, trends, industry data, and other relevant data points.

Warranties - Penumbra offers its standard warranty to all customers and it is not available for sale on a standalone basis. Penumbra’s standard warranty represents its guarantee that its products function as intended, are free from defects, and comply with agreed-upon specifications and quality standards. This assurance does not constitute a service and is not a separate performance obligation.

Transaction Price

Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns utilizing historical return rates, rebates, discounts, and other adjustments to net revenue. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price. When determining if variable consideration should be constrained, management considers whether there are factors that could result in a significant reversal of revenue and the likelihood of a potential reversal. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are re-assessed each reporting period as required. During the year ended December 31, 2018, the Company made no changes in estimates for variable consideration. When the Company performs shipping and handling activities after control of goods is transferred to the customer, they are considered as fulfillment activities, and costs are accrued for when the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.