The following is a description of principal activities - separated by reportable segments - from which the Company generated its revenue. As noted in Note 3, Discontinued Operations Classified as Assets and Liabilities Held for Sale under Going Concern Basis, the Company sold its Pharmaceutical segment in September 2020. On October 1, 2020, the Company spun off its Medical device segment. See Note 21, Subsequent Events, for additional information. For more detailed information about reportable segments, see Note 18, Segment Information.

Product and Service revenue are recognized from our Medical Device segment. Revenue is recognized from the sale of products and services when the company transfers control of such promised products and services. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for these products and services. A five-step model is utilized to achieve the core principle and includes the following steps: (1) identify the customer contract; (2) identify the contract’s performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when the distinct performance obligations are satisfied.

LENSAR principally derives its revenue from the sale and lease of the LENSAR Laser System and the sale of other related products and services, including PIDs, procedure licenses, and extended warranty service agreements. A procedure license represents a one-time right to utilize the LENSAR Laser System surgical application in connection with a surgery procedure. Without separately procuring procedure licenses granted by LENSAR, either together with the purchase of the LENSAR Laser System or under separate subsequent contracts, the customer does not have the right to use the surgical software application to perform surgical procedures. Typically, returns are not allowed.

LENSAR’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgement is required to determine the level of interdependency between the LENSAR Laser System and the sale of other related products and services. LENSAR evaluates each product or service promised in a contract to determine whether it represents a distinct performance obligation. A performance obligation is distinct if (1) the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and (2) the products or service is separately identifiable from other promises in the contract.

For contracts involving the sale or lease of the LENSAR Laser System, LENSAR’s performance obligations generally include the LENSAR Laser System, PID, procedure license, and extended warranty service agreements. In addition, customer contracts contain provisions for installation and training services, which are not assessed as performance obligations as they are determined to be immaterial promises in the context of the contract and are required for a customer to use the LENSAR Laser System.

LENSAR has determined that the LENSAR Laser System, PID and procedure license are each capable of being distinct because they are each sold separately and the customer can benefit from these products with the other readily available resources that are sold by the Company. In addition, LENSAR has determined each are separately identifiable because the LENSAR Laser System, PID and procedure license (1) are not highly interdependent or interrelated; (2) do not modify or customize one another; and (3) LENSAR does not provide a significant service of integrating the promised goods into a bundled output. This is because LENSAR is able to fulfill each promise in the contract independently of the others. That is, LENSAR would be able to fulfill its promise to transfer the LENSAR Laser System even if the customer did not purchase a PID or procedure license and LENSAR would be able to fulfill its promise to provide the PID or the procedure license even if the customer acquired the LENSAR Laser System separately.

LENSAR recognizes revenue as the performance obligations are satisfied by transferring control of the product or service to a customer as described below. LENSAR records a contract liability, or deferred revenue, when it has an obligation to provide a product or service to the customer and payment is received or due in advance of LENSAR’s performance.

Equipment. LENSAR Laser System sales are recognized as Product revenue when LENSAR transfers control of the system. This usually occurs after the customer signs a contract, LENSAR installs the system, and LENSAR performs the requisite training for use of the system for direct customers. LENSAR Laser System sales to distributors are recognized as revenue upon shipment.

PID and procedure licenses. The LENSAR Laser System requires both a PID and a procedure license to perform each procedure. We recognize Product revenue for PIDs when the company transfers control of the PID. LENSAR recognizes Product revenue for procedure licenses, which represents a one-time right to utilize the LENSAR Laser System surgical software application, at the point in time when control of the procedure is transferred to the customer. Control transfers at the time a customer receives the license key. For the sale of PIDs and procedure licenses, LENSAR may offer volume discounts to certain customers. To determine the amount of revenue that should be recognized at the time control over these products transfers to the customer, LENSAR estimates the average per unit price, net of discounts.

Service revenue. LENSAR offers an extended warranty that provides additional maintenance services beyond the standard limited warranty and recognizes Service revenue from the sale of extended warranties over the warranty period on a ratable basis. Customers have the option of renewing the warranty period, which is considered a new and separate contract.

Lease revenue is recognized from our Medical Device segment. For LENSAR Laser System operating leases, LENSAR recognizes Lease revenue over the length of the lease. For additional information regarding accounting for leases, see Note 1, Summary of Significant Accounting Policies—Revenue Recognition and Note 9, Leases to our financial statements included herein.

For lease arrangements with lease and non-lease components where LENSAR is the lessor, it allocates the contract’s transaction price (including discounts) to the lease and non-lease components on a relative standalone selling price which requires judgments. For those leases with variable lease payments, the variable lease payment is typically based upon use of the leased equipment or the purchase of procedure licenses and PIDs used with the leased equipment.

The Pharmaceutical segment principally generated revenue from products sold to wholesalers and distributors. Customer orders were generally fulfilled within a few days of receipt resulting in minimal order backlog. Contractual performance obligations were usually limited to transfer of the product to the customer. The transfer occurred either upon shipment or upon receipt of the product in certain countries outside the United States after considering when the customer obtained control of the product. In addition, in some countries outside of the United States, the Company sold product on a consignment basis where control was not transferred until the customer resold the product to an end user. At these points, customers were able to direct the use of and obtain substantially all of the remaining benefits of the product.

Sales to customers were initially invoiced at contractual list prices. Payment terms were typically 30 to 90 days based on customary practice in each country. Revenue was reduced from the list price at the time of recognition for expected chargebacks, discounts, rebates, sales allowances and product returns, which were collectively referred to as gross-to-net adjustments. These reductions were attributed to various commercial agreements, managed healthcare organizations and government programs such as Medicare, Medicaid, and the 340B Drug Pricing Program containing various pricing implications such as mandatory discounts, pricing protection below wholesaler list price and other discounts when Medicare Part D beneficiaries were in the coverage gap. These various reductions in the transaction price were estimated using either a most likely amount, in the case of prompt pay discounts, or expected value method for all other variable consideration and were reflected as liabilities and was settled through cash payments, typically within time periods ranging from a few months to one year. Significant judgment is required in estimating gross-to-net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.

For licenses that were bundled with other promises, the Company utilized judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation was satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front license fees. The Company evaluated the measure of progress each reporting period and, if necessary, adjusted the measure of performance and related revenue recognition.


	Two Months Ended				Three Months Ended
	August 31, 2020				September 30, 2019
(in thousands)	Medical Devices		Pharmaceutical (1)		Medical Devices		Pharmaceutical (1)

Primary geographical markets:
North America	$	2,172	$	1,709	$	2,779	$	6,119
Europe	522		3,144		699		5,496
Asia	618		1,428		3,178		654
Other	63		—		68		—
Total revenue from contracts with customers (2)	$	3,375	$	6,281	$	6,724	$	12,269


	Eight Months Ended				Nine Months Ended
	August 31, 2020				September 30, 2019
(in thousands)	Medical Devices		Pharmaceutical (1)		Medical Devices		Pharmaceutical (1)

Primary geographical markets:
North America	$	6,656	$	10,093	$	7,066	$	21,295
Europe	2,078		13,008		2,421		16,532
Asia	4,137		6,378		8,540		4,817
Other	200		—		253		—
Total revenue from contracts with customers(2)	$	13,071	$	29,479	$	18,280	$	42,644

(1) The revenue from the Company’s Pharmaceutical segment for the two and eight months ended August 31, 2020 and the three and nine months ended September 30, 2019 is included in Income (loss) from discontinued operations. For additional information, see Note 3, Discontinued Operations Classified as Assets held for sale under Going Concern Basis.

(2) The tables above do not include lease revenue from the Company’s Medical Devices segment for the two months ended August 31, 2020 and three months ended September 30, 2019, of $0.7 million and $1.4 million, respectively, , for the eight month period ended August 31, 2020 and nine month period ended September 30, 2019, of $2.1 million and $3.9 million, respectively. For additional information, see Note 9, Leases.

Receivables, Net—Receivables, net include amounts billed and due from customers. The amounts due are stated at their net estimated realizable value based on the timing of when the Company expects to receive payment. The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. The allowance is based

upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, collateral to the extent applicable and reflects the possible impact of current conditions and reasonable forecasts not already reflected in historical loss information. The Company classifies Receivables, net as current or noncurrent on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2019. Receivables, net for the Company’s Pharmaceutical segment are classified as a current asset and included in Assets held for sale as of December 31, 2019. See Note 3, Discontinued Operations Classified as Assets Held for Sale under Going Concern Basis, for additional information.

Contract Assets—The Company’s contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing or associated reporting from the customer regarding the computation of the net product sales has not yet occurred. The Company’s contract assets are only attributable to the Pharmaceutical segment, and, as such, are classified as current in Assets held for sale in the Company’s Condensed Consolidated Balance Sheet as of December 31, 2019.


(in thousands)	Medical Devices		Pharmaceutical		Total

Contract assets at December 31, 2019	$	—	$	3,512	$	3,512
Contract assets recognized	—		(6,730)		(6,730)
Payments received	—		8,562		8,562
Contract assets sold with the Noden subsidiaries	—		(5,344)		(5,344)
Contract assets at September 30, 2020	$	—	$	—	$	—

Contract Liabilities—The Company’s contract liabilities consist of deferred revenue for products sold to customers for which the performance obligation has not been completed by the Company. The Company classifies Medical Devices deferred revenue as a liability and is included in Other liabilities on the Company’s Condensed Consolidated Statement of Net Assets as of September 30, 2020. The Company classified Medical Devices deferred revenue as current or noncurrent based on the timing of when it expected to recognize revenue. The current portion of deferred revenue is included in Accrued liabilities and the noncurrent portion of deferred revenue is included in Other long-term liabilities in the Company’s Condensed Consolidated Balance Sheet as of December 31, 2019. The Pharmaceutical deferred revenue is classified as a current liability and included in Liabilities held for sale on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2019.


(in thousands)	Medical Devices		Pharmaceutical		Total

Contract liabilities at December 31, 2019	$	1,075	$	2,949	$	4,024
Contract liabilities recognized	658		1,659		2,317
Amounts recognized into revenue	(851)		(888)		(1,739)
Contract liabilities sold with the Noden subsidiaries	—		(3,720)		(3,720)
Contract liabilities at September 30, 2020	$	882	$	—	$	882