3.	Revenue Recognition

The Company commenced recognizing revenue in accordance with the provisions of ASC

606,

Revenue from Contracts with Customers

starting

July 1, 2018

using the modified retrospective method. Net revenues in the Company’s AEON lab test business accounted for approximately

95%

and

93%

of the Company’s total net revenues for the

three

months ended

September 30, 2018

and

2017

and are primarily comprised of a high volume of relatively low-dollar transactions. The AEON business, which provides clinical testing services and other services, satisfies its performance obligation and recognizes revenues upon completion of the testing process or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from customer groups, determined using the portfolio approach, in exchange for providing services. The portfolios determined using the portfolio approach consist of the following groups of customers: healthcare insurers, government payers, client payers and patients. In determining the amount to accrue for a delivered test, the Company considers factors such as payment history, payer coverage, whether there is a reimbursement contract between the payer and the Company, payment as a percentage of agreed upon rate (if applicable), amount paid per test and any current developments of changes that could impact reimbursement. These estimates require significant judgement by management. Revenues for hosted software services, telehealth products, and customer support services are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and collectability is reasonably assured. Contracts with customers in the AEON business do

not

contain significant financing components based on the typical period of time between performance of services and collection of consideration. Net revenues from the telehealth business accounted for approximately

and

of the Company’s total net revenues for the

three

months ended

September 30, 2018.

The following are descriptions of the AEON business’ portfolios:

Healthcare Insurers

Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules. Revenues consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and the terms of the Company’s contractual arrangements. Adjustments to the allowances, based on actual receipts from the commercial payers, are recorded upon settlement.

Collection of consideration the Company expects to receive is normally a function of providing complete and correct billing information to the healthcare insurers within the various filing deadlines and typically occurs within

days of billing.

Government Payers

Reimbursements from government payers are based on fee-for-services schedules set by government authorities, including traditional Medicare and Medicaid. Revenues consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and other factors. Adjustments to the allowances, based on accrual receipts from the government payers, are recorded upon settlement.

Client Payers

Client payers include physicians, hospitals, accountable care organizations, integrated delivery networks, employers and other commercial laboratories and institutions for which services are performed on a wholesale basis and are billed based on negotiated fee schedules. Collection of consideration the Company expects to receive typically occurs within

days of billing.

Patients

Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients. Insured patients (includes coinsurance and deductible responsibilities) are billed based on fees negotiated with healthcare insurers. Collection of billings from patients is subject to credit risk and ability of the patients to pay. Revenues consist of amounts billed net of discounts provided to uninsured patients. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, which considers historical collection experience and other factors including current market conditions. Adjustments to the estimated allowances, based on actual receipts from the patients, are recorded upon settlement.

Telehealth

The Company enters into contracts with customers that

may

include software license agreements and/or hosting services. The vast majority of revenue derived from these contracts are recognized ratably over the life of the contract. A minority of such contracts contain a price per transaction, in which case the revenue is recognized in the period when the transaction occurs.

The approximate percentage of net revenue by type of customer was as follows:

	Three Months Ended
	September 30,
	2018

Healthcare Insurers		46.9	%
Government Payers		23.5	%
Client Payers		24.4	%
Patient		0.2	%
Telehealth		5.0	%
Net revenues		100.0	%