Accrued Liabilities and Deferred Revenue (Tables)

9 Months Ended

Sep. 30, 2014

Accrued liabilities are comprised of the following (in thousands):

	September 30,		December 31,
	2014		2013
Payroll and benefits	$	1,852	$	1,898
Warranty accrual, current portion		999		1,096
Sales and excise tax		410		527
Accrued professional services		2,004		912
Accrued insurance premium		—		428
Other		432		136
Total accrued liabilities	$	5,697	$	4,997

Changes in Initial Product Warranty Accrual and Expenses Under Initial and Extended Warranties

Changes in the initial product warranty accrual, and the expenses incurred under the Company’s initial and extended warranties, for the three and nine months ended September 30, 2014 and 2013 were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Initial warranty accrual, beginning balance	$	1,255		$	1,518		$	1,096		$	1,699
Provision for estimated warranty cost		310			69			919			429
Warranty expenditures		(199	)		(257	)		(649	)		(798	)
		1,366			1,330			1,366			1,330
Less warranty accrual, long-term		367			—			367			—
Total warranty accrual, current portion	$	999		$	1,330		$	999		$	1,330

In June 2014, the Company extended the warranty for WaterLase systems from one year to two years for systems purchased after January 1, 2014.

Summary of Deferred Revenue

Deferred revenue is comprised of the following (in thousands):

	September 30,		December 31,
	2014		2013
Undelivered elements (training, installation and product and support services)	$	892	$	1,823
Extended warranty contracts		1,539		1,642
Total deferred revenue		2,431		3,465
Less long-term amounts:
Extended warranty contracts		—		1
Total deferred revenue, long-term		—		1
Total deferred revenue, current portion	$	2,431	$	3,464

In connection with its initiative to measure and improve customer satisfaction, which was initiated during the three months ended September 30, 2014, the Company performed a review of its training service policies and procedures and determined that substantially all of the training service for new customers was used within nine months of the related sale transaction. Accordingly, the Company changed the period over which deferred training service revenue is being recognized from an estimated period of 24 months to nine months.

The Company accounted for this change as a change in accounting estimate which, pursuant to GAAP, was accounted for on a prospective basis effective July 1, 2014. The change resulted in a reduction of deferred revenue and a corresponding recognition of revenue totaling approximately $708,000 for the three and nine months ended September 30, 2014. Revenue recognized for training is included in product and services revenue in the accompanying consolidated statements of operations.