Revenue Recognition

6 Months Ended

Mar. 31, 2020

Revenue Recognition

Revenue Recognition

Note 5 — Revenue Recognition

We account for revenue in accordance with ASC 606, Revenue from Contracts with Customers.

Contract Estimates: Use of the cost-to-cost or other similar methods of revenue recognition requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. Revisions or adjustments to estimates of the transaction price, estimated costs at completion and estimated profit or loss of a performance obligation are often required as work progresses under a contract, as experience is gained, as facts and circumstances change and as new information is obtained, even though the scope of work required under the contract may not change. Revisions or adjustments may also be required if contract modifications occur. The impact of revisions in profit or loss estimates are recognized on a cumulative catch-up basis in the period in which the revisions are made. The revisions in contract estimates, if significant, can materially affect our results of operations and cash flows, and in some cases result in liabilities to complete contracts in a loss position. The aggregate impact of net changes in contract estimates are presented in the table below (amounts in thousands, except per share numbers):

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Operating income (loss)	$	(5,155)	$	(817)	$	(11,312)	$	308
Net income (loss) from continuing operations		(5,522)		(503)		(11,304)		292
Diluted earnings (loss) per share		(0.18)		(0.02)		(0.36)		0.01

Backlog: Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. It is comprised of both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (“IDIQ”) contracts are not included in backlog until the time the option or IDIQ task order is exercised or awarded. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly. As of March 31, 2020, our ending backlog was $3.6 billion, compared to $3.4 billion at September 30, 2019. We expect to recognize approximately 30% of our March 31, 2020 backlog over the next 12 months, and approximately 50% over the next 24 months as revenue, with the remainder recognized thereafter.

Accounts Receivable: Amounts billed include $30.0 million and $60.3 million due on U.S. federal government contracts at March 31, 2020 and September 30, 2019, respectively.

In our normal course of business, we may sell trade receivables to financial institutions as a cash management technique. We do not retain financial or legal obligations for these receivables that would result in material losses. Our ongoing involvement is limited to the remittance of customer payments to the financial institutions with respect to the sold trade receivables; therefore, our sold trade receivables are not included in our Condensed Consolidated Balance Sheet in any period presented. As of September 30, 2019, we sold $31.1 million of outstanding trade receivables to financial institutions. No trade receivables were sold as of March 31, 2020. During the first half of fiscal 2020, we received $5.5 million related to withheld proceeds from receivables we sold as of September 30, 2019, which is included in cash provided by investing activities in our Condensed Consolidated Statements of Cash Flows.

Contract Assets and Liabilities: Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer per the contractually agreed project milestones. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows (in thousands):

	March 31,		September 30,
	2020		2019
Contract assets	$	270,153	$	349,559
Contract liabilities	$	69,222	$	46,170

Contract assets decreased $79.4 million during the six months ended March 31, 2020, due to billings in excess of revenue recognized related to the satisfaction or partial satisfaction of performance obligations. There were no significant impairment losses related to our contract assets during the six months ended March 31, 2020.

Contract liabilities increased $23.1 million during the six months ended March 31, 2020, due to payments received in excess of revenue recognized on these performance obligations. During the three- and six-month periods ended March 31, 2020, we recognized $7.1 million and $16.3 million of our contract liabilities at September 30, 2019 as revenue, respectively. We expect our contract liabilities to be recognized as revenue over the next 12 months.