UNITED STATES | ||
SECURITIES AND EXCHANGE COMMISSION | ||
WASHINGTON, D.C. 20549 | ||
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FORM 10-Q | ||
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| (Check One) |
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þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) | ||
OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
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For the quarterly period ended | ||
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o TRANSITION PURSUANT TO SECTION 13 OR 15(D) | ||
OF THE SECURITIES EXCHANGE ACT | ||
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For the transition period from ______ to ______ | ||
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COMMISSION FILE NO. (0-16577) | ||
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CYBEROPTICS CORPORATION | ||
(Exact name of registrant as specified in its charter) |
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Minnesota |
| 41-1472057 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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5900 Golden Hills Drive |
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MINNEAPOLIS, MINNESOTA |
| 55416 |
(Address of principal executive offices) |
| (Zip Code) |
(763) 542-5000 |
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(Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | CYBE | NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☐ |
| Accelerated Filer |
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Non-Accelerated Filer |
| Smaller Reporting Company | ☑ | |
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| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. At July 31, 2019,April 30, 2020, there were 7,139,0817,177,154 shares of the registrant’s Common Stock, no par value, issued and outstanding.
1 |
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION
(Unaudited)
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(In thousands, except share information) |
| June 30, |
| December 31, |
| March 31, |
| December 31, | ||||||||
ASSETS |
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Cash and cash equivalents |
| $ | 9,664 |
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| $ | 9,248 |
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| $ | 6,069 |
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| $ | 5,836 |
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Marketable securities |
| 8,245 |
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| 5,771 |
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| 7,593 |
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| 8,295 |
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Accounts receivable, less allowances of $300 at June 30, 2019 and $314 at December 31, 2018 |
| 15,553 |
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| 15,859 |
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Accounts receivable, less allowances of $299 at March 31, 2020 and $322 at December 31, 2019 |
| 14,327 |
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| 16,059 |
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Inventories |
| 17,563 |
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| 16,163 |
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| 17,050 |
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| 15,580 |
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Prepaid expenses | 569 | 559 | ||||||||||||||
Other current assets |
| 1,437 |
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| 2,096 |
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| 1,060 |
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| 1,020 |
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Total current assets |
| 52,462 |
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| 49,137 |
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| 46,668 |
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| 47,349 |
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Marketable securities, long-term |
| 7,893 |
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| 10,322 |
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| 15,187 |
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| 12,168 |
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Equipment and leasehold improvements, net |
| 3,778 |
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| 2,861 |
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| 3,063 |
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| 3,341 |
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Intangible assets, net |
| 310 |
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| 333 |
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| 280 |
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| 310 |
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Goodwill |
| 1,366 |
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| 1,366 |
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| 1,366 |
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| 1,366 |
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Right-of-use assets (operating leases) | 2,105 | — | 2,850 | 2,111 | ||||||||||||
Other assets |
| 252 |
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| 259 |
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Trade notes receivable, long-term | 876 | 962 | ||||||||||||||
Deferred tax assets |
| 5,189 |
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| 5,422 |
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| 4,892 |
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| 4,992 |
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Total assets |
| $ | 73,355 | $ | 69,700 |
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| $ | 75,182 | $ | 72,599 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable |
| $ | 7,670 |
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| $ | 8,513 |
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| $ | 8,192 |
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| $ | 7,023 |
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Advance customer payments |
| 818 |
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| 636 |
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| 548 |
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| 499 |
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Accrued expenses |
| 2,877 |
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| 3,568 |
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| 2,559 |
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| 2,572 |
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Current operating lease liabilities | 410 | — | 736 | 688 | ||||||||||||
Total current liabilities |
| 11,775 |
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| 12,717 |
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| 12,035 |
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| 10,782 |
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Other liabilities |
| 113 |
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| 629 |
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| 204 |
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| 202 |
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Long-term operating lease liabilities | 3,397 | — | 3,758 | 3,141 | ||||||||||||
Reserve for income taxes |
| 143 |
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| 143 |
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| 150 |
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| 150 |
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Total liabilities |
| 15,428 |
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| 13,489 |
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| 16,147 |
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| 14,275 |
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Commitments and contingencies | ||||||||||||||||
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Stockholders’ equity: |
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Preferred stock, no par value, 5,000,000 shares authorized, none outstanding |
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Common stock, no par value, 25,000,000 shares authorized, 7,114,675 shares issued and outstanding at June 30, 2019 and 7,100,825 shares issued and outstanding at December 31, 2018 |
| 36,189 |
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| 35,637 |
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Preferred stock, no par value, 5,000,000 shares authorized, NaN outstanding |
| — |
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Common stock, no par value, 25,000,000 shares authorized, 7,164,654 shares issued and outstanding at March 31, 2020 and 7,154,591 shares issued and outstanding at December 31, 2019 |
| 37,016 |
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| 36,659 |
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Accumulated other comprehensive loss |
| (1,518 | ) |
| (1,690 | ) |
| (1,896 | ) |
| (1,406 | ) | ||||
Retained earnings |
| 23,256 |
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| 22,264 |
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| 23,915 |
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| 23,071 |
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Total stockholders’ equity |
| 57,927 |
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| 56,211 |
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| 59,035 |
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| 58,324 |
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Total liabilities and stockholders’ equity |
| $ | 73,355 |
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| $ | 69,700 |
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| $ | 75,182 |
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| $ | 72,599 |
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SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CYBEROPTICS CORPORATION
(Unaudited)
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| Three Months Ended June 30, |
| Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||
(In thousands, except per share amounts) | 2019 | 2018 |
| 2019 |
| 2018 | 2020 | 2019 | ||||||||||||||||
Revenues | $ | 15,044 | $ | 15,854 |
| $ | 30,020 |
| $ | 29,974 |
| $ | 16,429 | $ | 14,976 | |||||||||
Cost of revenues | 8,455 | 8,590 |
| 16,405 |
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| 16,491 |
| 9,146 | 7,950 | ||||||||||||||
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Gross margin | 6,589 | 7,264 |
| 13,615 |
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| 13,483 |
| 7,283 | 7,026 | ||||||||||||||
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Research and development expenses | 2,249 | 2,243 |
| 4,542 |
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| 4,423 |
| 2,395 | 2,293 | ||||||||||||||
Selling, general and administrative expenses | 3,761 | 4,146 |
| 7,924 |
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| 8,503 |
| 4,159 | 4,163 | ||||||||||||||
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Income from operations | 579 | 875 |
| 1,149 |
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| 557 | 729 | 570 | |||||||||||||||
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Interest income and other | 77 | 95 |
| 136 |
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| 157 | 264 | 59 | |||||||||||||||
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Income before income taxes | 656 | 970 |
| 1,285 |
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| 714 | 993 | 629 | |||||||||||||||
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Income tax expense | 192 | 230 |
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| 326 |
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| 147 | 149 | 134 | ||||||||||||||
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Net income | $ | 464 | $ | 740 |
| $ | 959 |
| $ | 567 | $ | 844 | $ | 495 | ||||||||||
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Net income per share – Basic | $ | 0.07 | $ | 0.11 |
| $ | 0.14 |
| $ | 0.08 | $ | 0.12 | $ | 0.07 | ||||||||||
Net income per share – Diluted | $ | 0.06 | $ | 0.10 |
| $ | 0.13 |
| $ | 0.08 | $ | 0.11 | $ | 0.07 | ||||||||||
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Weighted average shares outstanding – Basic | 7,106 | 7,010 |
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| 7,103 |
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| 6,998 |
| 7,157 | 7,100 | ||||||||||||
Weighted average shares outstanding – Diluted | 7,296 | 7,242 |
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| 7,309 |
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| 7,114 |
| 7,367 | 7,322 |
SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CYBEROPTICS CORPORATION
(Unaudited)
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| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||||||
(In thousands) | 2019 | 2018 |
| 2019 |
| 2018 | ||||||||||
Net income | $ | 464 | $ | 740 |
| $ | 959 |
| $ | 567 | ||||||
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Other comprehensive income, before tax: |
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Foreign currency translation adjustments | (17 | ) | (422 | ) |
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| 70 |
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| (202 | ) | |||||
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Unrealized gains (losses) on available-for-sale securities: |
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Unrealized gains (losses) | 70 | 4 |
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| 128 |
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| (36 | ) | |||||||
Reclassification adjustment for gains included in net income | — | — |
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Total unrealized gains (losses) on available-for-sale securities | 70 | 4 |
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| 128 |
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Other comprehensive income (loss) before income taxes | 53 | (418 | ) |
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| 198 |
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| (238 | ) | ||||||
Income tax (provision) benefit | (14 | ) | (1 | ) |
| (26 | ) |
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| 8 | ||||||
Other comprehensive income (loss) after income taxes | 39 | (419 | ) |
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| 172 |
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| (230 | ) | ||||||
Total comprehensive income | $ | 503 | $ | 321 | $ | 1,131 |
| $ | 337 |
| Three Months Ended March 31, | |||||||
(In thousands) | 2020 | 2019 | ||||||
Net income | $ | 844 | $ | 495 | ||||
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Other comprehensive income (loss) before income taxes: | ||||||||
Foreign currency translation adjustments | (600 | ) | 87 | |||||
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Unrealized gains on available-for-sale securities | 140 | 58 | ||||||
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Total other comprehensive income (loss) before income taxes | (460 | ) | 145 | |||||
Income tax provision | (30 | ) | (12 | ) | ||||
Total other comprehensive income (loss) after income taxes | (490 | ) | 133 | |||||
Total comprehensive income | $ | 354 | $ | 628 |
SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION
(Unaudited)
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| Six Months Ended June 30, |
| Three Months Ended March 31, | |||||||||||||
(In thousands) | 2019 | 2018 |
| 2020 | 2019 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income | $ | 959 | $ | 567 |
| $ | 844 | $ | 495 | |||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization | 1,358 | 1,224 |
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| 664 | 663 |
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Provision (recovery) for doubtful accounts | (14 | ) | 25 | |||||||||||||
Non-cash operating lease expense | 137 | 236 | ||||||||||||||
Recovery for doubtful accounts |
| (23 | ) | (44 | ) | |||||||||||
Deferred taxes | 201 | 29 |
| 64 | 71 | |||||||||||
Foreign currency transaction (gains) losses | 29 | (113 | ) | |||||||||||||
Foreign currency transaction losses (gains) |
| (381 | ) | 70 | ||||||||||||
Share-based compensation | 493 | 484 |
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| 272 | 244 |
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Unrealized loss on available-for-sale equity security | 5 | 37 |
| 18 | 1 |
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Changes in operating assets and liabilities: |
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Accounts receivable | 320 | (2,034 | ) |
| 1,841 | 2,866 | ||||||||||
Inventories | (1,881 | ) |
| (821 | ) |
| (2,086 | ) | (1,625 | ) | ||||||
Other assets | 648 |
| (363 | ) | ||||||||||||
Prepaid expenses and other assets |
| (111 | ) | 445 | ||||||||||||
Accounts payable | (865 | ) | 2,088 |
| 1,348 | (2,353 | ) | |||||||||
Advance customer payments | 186 | 321 | ||||||||||||||
Advance customer payments and other |
| 51 | 207 | |||||||||||||
Accrued expenses | (561 | ) |
| 556 |
| 14 | (802 | ) | ||||||||
Operating lease assets and liabilities | 397 | — | ||||||||||||||
Operating lease liabilities | (200 | ) | (34 | ) | ||||||||||||
Net cash provided by operating activities | 1,275 |
| 2,000 |
| 2,452 | 440 | ||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from maturities of available-for-sale marketable securities | 2,860 | 3,969 |
| 3,106 | 1,052 |
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Proceeds from sales of available-for-sale marketable securities | — | 70 |
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Purchases of available-for-sale marketable securities | (2,758 | ) |
| (4,479 | ) | (5,294 | ) | (1,263 | ) | |||||||
Additions to equipment and leasehold improvements | (957 | ) |
| (642 | ) | (129 | ) | (183 | ) | |||||||
Additions to patents | (61 | ) |
| (36 | ) | (17 | ) | (32 | ) | |||||||
Net cash used in investing activities | (916 | ) |
| (1,118 | ) | (2,334 | ) | (426 | ) | |||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from exercise of stock options | 59 | 251 |
| 85 | 59 |
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Net cash provided by financing activities | 59 | 251 |
| 85 | 59 |
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Effects of exchange rate changes on cash and cash equivalents | (2 | ) | 9 | 30 | (6 | ) | ||||||||||
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Net increase in cash and cash equivalents | 416 |
| 1,142 | 233 |
| 67 |
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Cash and cash equivalents – beginning of period | 9,248 | 6,944 |
| 5,836 | 9,248 |
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Cash and cash equivalents – end of period | $ | 9,664 | $ | 8,086 |
| $ | 6,069 | $ | 9,315 |
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SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5 |
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
1. INTERIM REPORTING:
The interim condensed consolidated financial statements of CyberOptics Corporation and its wholly-owned subsidiaries ("we", "us" or "our") presented herein as of June 30, 2019March 31, 2020, and for the three and six month periods ended June 30, 2019March 31, 2020 and 2018,2019, are unaudited but, in the opinion of management, include all adjustments, consisting of normal recurring adjustments necessary, for a fair presentation of financial position, results of operations and cash flows for the periods presented.
The results of operations for the three and six month periods endedJune 30, 2019March 31, 2020 do not necessarily indicate the results to be expected for the full year. The December 31, 20182019 consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). The unaudited interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 20182019.
2. COVID-19 PANDEMIC:
2.In December 2019, a novel strain of coronavirus ("Covid-19") was first identified, and in March 2020, the World Health Organization categorized Covid-19 as a pandemic. The Covid-19 pandemic is affecting our customers, suppliers, service providers and employees, and the ultimate impacts of Covid-19 on our business, results of operations, liquidity and prospects are not fully known at this time. The Covid-19 outbreak has had a minimal impact on our business to date. However, the following risks and uncertainties are impacting our business:
·Our key factories are located in Minnesota and Singapore. Both of these locations are subject to government mandated shelter-in-place orders. Because our operations have been deemed essential, we have been able to keep our factories up and running while the shelter-in-place mandates are in effect. We have implemented split-shifts for our factory operations to minimize the number of employees in our facilities at any given time, however, this has not affected our production capacity. Our non-factory employees are required to work remotely. To date, the shelter-in-place mandates have had a minimal impact to operations, but that could change if the pandemic worsens and is more than temporary.
·Sales of some products, mainly our SQ3000 Multi-Function inspection and measurement systems and MX memory module inspection products, require customer acceptance due to performance or other criteria that is considered more than a formality. Many of our customer’s factories have remained open during the Covid-19 pandemic because they are deemed to be essential under most government shelter-in-place mandates. However, this could change if the pandemic worsens and continuing global travel restrictions could hinder our ability to obtain customer acceptances in a timely manner, and therefore impact the timing of revenue recognition.
·We have experienced some supply disruptions due to the Covid-19 pandemic, mainly from suppliers not deemed essential by shelter-in-place mandates in certain countries. Key supply chain disruptions have mostly been resolved currently, but that could change significantly if the pandemic worsens and is more than temporary. To date, our on-hand inventories have been sufficient to enable us to work through any supply disruptions.
Although we cannot estimate the length or gravity of the impact of the Covid-19 outbreak at this time, if the pandemic continues, it may have an adverse effect on our results of future operations, financial position and liquidity in fiscal year 2020.
CARES Act
On March 27, 2020, the "Coronavirus Aid, Relief and Economic Security (CARES) Act" was signed into law in the United States. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods and alternative tax credit refunds. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain circumstances to promote continued employment. We have analyzed the provisions of the CARES Act and presently do not believe it will have a material impact on our financial condition, results of operations or liquidity. However, we will continue to monitor the impact the CARES Act may have on our business.
6 |
3. RECENT ACCOUNTING DEVELOPMENTS:
In February 2016,January 2017, the Financial Accounting Standards Board (the "FASB") issued new lease accounting guidance, ASU 2016-02, Leases (also referred to as Topic 842), which we adopted on January 1, 2019. Under Topic 842, at the commencement date, lessees are required (a) to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and (b) to record a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, which gave companies the option of applying the new standard at the adoption date, rather than retrospectively to the earliest period presented in the financial statements, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We choose the option to apply the new standard at the adoption date, and therefore we were not required to restate the financial statements for prior periods, nor are we required to provide the disclosures required by Topic 842 for prior periods. Upon adoption of Topic 842, we recognized an approximate $2.6 million right-of-use asset, and an approximate $3.2 million lease liability. Our previously recognized liability for lease incentives recorded under prior accounting standards was eliminated. The cumulative-effect adjustment to the opening balance of retained earnings related to our adoption of Topic 842 was inconsequential. Our adoption of Topic 842 did not impact our cash flows or have a material impact on our results of operations. We have expanded our consolidated financial statement disclosures to comply with the requirements of Topic 842.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"), which allows an entity to elect an option to reclassify the stranded tax effects related to the application of the Tax Cuts and Jobs Act (the TCJA) from accumulated other comprehensive loss to retained earnings. ASU 2018-02 was effective January 1, 2019 and can be applied either in the period of adoption or retrospectively to all applicable periods.We did not elect to reclassify the stranded tax effects related to the application of the TCJA from accumulated other comprehensive loss to retained earnings.
In January 2017, the FASB issued guidance on simplifying the test for goodwill impairment, ASU 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). Under ASU 2017-04, goodwill impairment would beis measured as the amount by which a reporting unit’s carrying value exceeds its fair value, but not in an amount in excess of the carrying value of goodwill. The new standard eliminateseliminated the requirement to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. ASU 2017-04 was effective for is to be applied prospectively to impairment tests beginning January 1, 2020, with early2020. Our adoption permitted. We are currently evaluating when we will adoptof ASU 2017-04 and dodid not expect the adoption to have a materialany impact on our consolidated financial statements.
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There are no other new accounting pronouncements that are expected to have a significant impact on our consolidated financial statements.
3.4. REVENUE RECOGNITION:
Our revenue performance obligations are primarily satisfied at a point in time and limited revenue streams are satisfied over time as work progresses.
The following is a summary of our revenue performance obligations in the three and six months ended June 30, 2019 and the three and six months ended June 30, 2018:obligations:
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | |||||||||||
(In thousands except percentages) | Revenues | Percent of Revenues | Revenues | Percent of Revenues | ||||||||
Revenue recognized over time | $ | 292 | 2 | % | $ | 1,127 | 7 | % | ||||
Revenue recognized at a point in time | 14,752 | 98 | % | 14,727 | 93 | % | ||||||
$ | 15,044 | 100 | % | $ | 15,854 | 100 | % |
Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||||||||||
(In thousands except percentages) | Revenues | Percent of Revenues | Revenues | Percent of Revenues | Revenues | Percent of Revenues | Revenues | Percent of Revenues | ||||||||||||||||
Revenue recognized over time | $ | 638 | 2 | % | $ | 2,021 | 7 | % | $ | 193 | 1 | % | $ | 346 | 2 | % | ||||||||
Revenue recognized at a point in time | 29,382 | 98 | % | 27,953 | 93 | % | 16,236 | 99 | % | 14,630 | 98 | % | ||||||||||||
$ | 30,020 | 100 | % | $ | 29,974 | 100 | % | $ | 16,429 | 100 | % | $ | 14,976 | 100 | % |
See Note 1011 for additional information regarding disaggregation of revenue.
Contract Balances
Contract assets consist of unbilled amounts from sales where we recognize the revenue over time and the revenue recognized exceeds the amount billed to the customer at a point in time. Accounts and trade notes receivable are recorded when the right to payment becomes unconditional. Contract liabilities consist of payments received in advance of performance under the contract. Contract liabilities are recognized as revenue when we perform under the contract.
The following summarizes our contract assets and contract liabilities:
(In thousands) | June 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | ||||||||||||
Contract assets, included in other current assets | $ | 6 |
| $ | — |
| $ | 27 |
| $ | 2 |
| ||||
Contract liabilities, included in advance customer payments/other liabilities | $ | 667 |
| $ | 366 |
| ||||||||||
Contract liabilities - advance customer payments | $ | 406 |
| $ | 389 |
| ||||||||||
Contract liabilities - deferred warranty revenue | $ | 309 | $ | 275 |
Changes in contract assets in the sixthree months ended June 30, 2019March 31, 2020 and the sixthree months ended June 30, 2018March 31, 2019 resulted from unbilled amounts under sensor product arrangements and longer duration 3D3D scanning service projects in which revenue is recognized over time. Changes in contract liabilities primarily resulted from reclassification of beginning contract liabilities to revenue as performance obligations were satisfied or from cash received in advance and not recognized as revenue. See Note 89 for changes in contractual obligations related to deferred warranty revenue. Unsatisfied performance obligations are generally expected to be recognized as revenue over the next one to three years. There were no0 impairment losses for contract assets in the sixthree months ended June 30, 2019March 31, 2020 or the sixthree months ended June 30, 2018.March 31, 2019.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Amounts reclassified from beginning contract liabilities to revenue | $ | 443 | $ | 166 |
| $ | 216 |
|
| $ | 223 |
| ||||
Amounts reclassified from deferred warranty revenue | 110 | 91 | 224 | 211 | ||||||||||||
Total | $ | 553 | $ | 257 | $ | 440 | $ | 434 |
Three Months Ended March 31, | ||||||||
(In thousands) | 2020 | 2019 | ||||||
Amounts reclassified from beginning contract liabilities to revenue | $ | 76 | $ | 30 | ||||
Amounts reclassified from deferred warranty revenue | 100 | 114 | ||||||
Total | $ | 176 | $ | 144 |
7 |
4.5. MARKETABLE SECURITIES:
Our investments in marketable securities are classified as available-for-sale and consist of the following:
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| June 30, 2019 |
| March 31, 2020 | ||||||||||||||||||||||||||||
(In thousands) |
| Cost |
| Unrealized |
| Unrealized |
| Fair Value |
| Cost |
| Unrealized |
| Unrealized |
| Fair Value | ||||||||||||||||
Short-Term |
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| ||||||||
U.S. government and agency obligations |
| $ | 5,293 |
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| $ | 14 |
|
| $ | (6 | ) |
| $ | 5,301 |
|
| $ | 5,386 |
|
| $ | 60 |
|
| $ | — |
| $ | 5,446 |
| |
Corporate debt securities and certificates of deposit |
| 1,466 |
|
| 2 |
|
| (1 | ) |
| 1,467 |
|
| 1,170 |
|
| 2 |
|
| (1 | ) |
| 1,171 |
| ||||||||
Asset backed securities |
| 1,475 |
|
| 3 |
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| (1 | ) |
| 1,477 |
|
| 975 |
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| 1 |
|
| — |
| 976 |
| |||||||||
Marketable securities – short-term |
| $ | 8,234 |
|
| $ | 19 |
|
| $ | (8 | ) |
| $ | 8,245 |
|
| $ | 7,531 |
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| $ | 63 |
|
| $ | (1 | ) |
| $ | 7,593 |
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Long-Term |
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U.S. government and agency obligations |
| $ | 4,109 |
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| $ | 38 |
|
| $ | (1 | ) |
| $ | 4,146 |
|
| $ | 7,349 |
|
| $ | 141 |
|
| $ | — |
| $ | 7,490 |
| |
Corporate debt securities and certificates of deposit |
| 1,243 |
|
| 8 |
|
| — |
| 1,251 |
|
| 4,760 |
|
| 21 |
|
| (12 | ) |
| 4,769 |
| |||||||||
Asset backed securities |
| 2,424 |
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| 20 |
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| (2 | ) |
| 2,442 |
|
| 2,886 |
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| 17 |
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| (5 | ) |
| 2,898 |
| ||||||||
Equity security |
| 42 |
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| 12 |
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| — |
|
| 54 |
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| 42 |
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| — |
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| (12 | ) |
| 30 |
| ||||||||
Marketable securities – long-term |
| $ | 7,818 |
|
| $ | 78 |
|
| $ | (3 | ) |
| $ | 7,893 |
|
| $ | 15,037 |
|
| $ | 179 |
|
| $ | (29 | ) |
| $ | 15,187 |
|
| December 31, 2018 | |||||||||||||||
(In thousands) |
| Cost |
| Unrealized |
| Unrealized |
| Fair Value | ||||||||
Short-Term |
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U.S. government and agency obligations |
| $ | 3,377 |
|
| $ | — |
|
| $ | (20 | ) |
| $ | 3,357 |
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Corporate debt securities and certificates of deposit |
| 1,787 |
|
| 3 |
|
| (5 | ) |
| 1,785 |
| ||||
Asset backed securities |
| 633 |
|
| — |
|
| (4 | ) |
| 629 |
| ||||
Marketable securities – short-term |
| $ | 5,797 |
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| $ | 3 |
|
| $ | (29 | ) |
| $ | 5,771 |
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Long-Term |
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U.S. government and agency obligations |
| $ | 6,114 |
|
| $ | 10 |
|
| $ | (23 | ) |
| $ | 6,101 |
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Corporate debt securities and certificates of deposit |
| 754 |
|
| 1 |
|
| (3 | ) |
| 752 |
| ||||
Asset backed securities |
| 3,422 |
|
| 2 |
|
| (15 | ) |
| 3,409 |
| ||||
Equity security |
| 42 |
|
| 18 |
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| — |
|
| 60 |
| ||||
Marketable securities – long-term |
| $ | 10,332 |
|
| $ | 31 |
|
| $ | (41 | ) |
| $ | 10,322 |
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In Unrealized Loss Position For Less Than 12 Months | In Unrealized Loss Position For Greater Than 12 Months | |||||||||||||||
(In thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||
June 30, 2019 | ||||||||||||||||
U.S. government and agency obligations | $ | — | $ | — | $ | 3,286 | $ | (7 | ) | |||||||
Corporate debt securities and certificates of deposit | — | — | 534 | (1 | ) | |||||||||||
Asset backed securities | — | — | 1,356 | (3 | ) | |||||||||||
Marketable securities | $ | — | $ | — | $ | 5,176 | $ | (11 | ) | |||||||
December 31, 2018 | ||||||||||||||||
U.S. government and agency obligations | $ | 1,548 | $ | (4 | ) | $ | 4,608 | $ | (39 | ) | ||||||
Corporate debt securities and certificates of deposit | 250 | — | 1,178 | (8 | ) | |||||||||||
Asset backed securities | 1,023 | (3 | ) | 2,137 | (16 | ) | ||||||||||
Marketable securities | $ | 2,821 | $ | (7 | ) | $ | 7,923 | $ | (63 | ) |
| December 31, 2019 | |||||||||||||||
(In thousands) |
| Cost |
| Unrealized |
| Unrealized |
| Fair Value | ||||||||
Short-Term |
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| ||||
U.S. government and agency obligations |
| $ | 5,766 |
|
| $ | 22 |
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| $ | — |
| $ | 5,788 |
| |
Corporate debt securities and certificates of deposit |
| 1,085 |
|
| 1 |
|
| — |
| 1,086 |
| |||||
Asset backed securities |
| 1,417 |
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| 4 |
|
| — |
|
| 1,421 |
| ||||
Marketable securities – short-term |
| $ | 8,268 |
|
| $ | 27 |
|
| $ | — |
| $ | 8,295 |
| |
Long-Term |
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| ||||
U.S. government and agency obligations |
| $ | 6,524 |
|
| $ | 30 |
|
| $ | (1 | ) |
| $ | 6,553 |
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Corporate debt securities and certificates of deposit |
| 3,004 |
|
| 14 |
|
| — |
| 3,018 |
| |||||
Asset backed securities |
| 2,535 |
|
| 15 |
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| (1 | ) |
| 2,549 |
| ||||
Equity security |
| 42 |
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| 6 |
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| — |
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| 48 |
| ||||
Marketable securities – long-term |
| $ | 12,105 |
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| $ | 65 |
|
| $ | (2 | ) |
| $ | 12,168 |
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We received proceeds from sales of
8 |
Investments in marketable securities ofin an unrealized loss position are as follows:$70,000 in the six months ended June 30, 2018. Nogains or losses were recognized on these sales.
In Unrealized Loss Position For Less Than 12 Months | In Unrealized Loss Position For Greater Than 12 Months | |||||||||||||||
(In thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||
March 31, 2020 | ||||||||||||||||
Corporate debt securities and certificates of deposit | $ | 2,045 | $ | (13 | ) | $ | — | $ | — | |||||||
Asset backed securities | 1,140 | (5 | ) | — | — | |||||||||||
Marketable securities | $ | 3,185 | $ | (18 | ) | $ | — | $ | — | |||||||
December 31, 2019 | ||||||||||||||||
U.S. government and agency obligations | $ | 149 | $ | (1 | ) | $ | — | $ | — | |||||||
Asset backed securities | 684 | (1 | ) | — | — | |||||||||||
Marketable securities | $ | 833 | $ | (2 | ) | $ | — | $ | — |
Investments in marketable securities classified as cash equivalents of $5.3totaled $2.0 million at June 30, 2019March 31, 2020 and $2.52.6 million at December 31, 20182019 and consist of corporate debt securities and certificates of deposit. There were no0 unrealized gains or losses associated with respect to any of these securities at June 30, 2019March 31, 2020 or December 31, 2018.2019.
Cash and marketable securities held by foreign subsidiaries totaled $329,000$853,000 at June 30, 2019March 31, 2020 and $362,000$327,000 at December 31, 2018.2019.
56. FAIR VALUE MEASUREMENTS:
We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last is considered unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3). The following provides information regarding fair value measurements for our marketable securities as of June 30, 2019March 31, 2020 and December 31, 20182019 according to the three-level fair value hierarchy:
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| Fair Value Measurements at | ||||||||||||||
(In thousands) |
| Balance June 30, |
| Quoted Prices |
| Significant |
| Significant | ||||||||
Marketable securities: |
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| ||||
U.S. government and agency obligations |
| $ | 9,447 |
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| $ | — |
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| $ | 9,447 |
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| $ | — |
|
Corporate debt securities and certificates of deposit |
| 2,718 |
|
| — |
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| 2,718 |
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| — |
| ||||
Asset backed securities |
| 3,919 |
|
| — |
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| 3,919 |
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| — |
| ||||
Equity security |
| 54 |
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| 54 |
|
| — |
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| — |
| ||||
Total marketable securities |
| $ | 16,138 |
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| $ | 54 |
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| $ | 16,084 |
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| $ | — |
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| Fair Value Measurements at | ||||||||||||||
(In thousands) |
| Balance December 31, 2018 |
| Quoted Prices |
| Significant |
| Significant | ||||||||
Marketable securities: |
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| ||||
U.S. government and agency obligations |
| $ | 9,458 |
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| $ | — |
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| $ | 9,458 |
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| $ | — |
|
Corporate debt securities and certificates of deposit |
| 2,537 |
|
| — |
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| 2,537 |
|
| — |
| ||||
Asset backed securities |
| 4,038 |
|
| — |
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| 4,038 |
|
| — |
| ||||
Equity security |
| 60 |
|
| 60 |
|
| — |
|
| — |
| ||||
Total marketable securities |
| $ | 16,093 |
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| $ | 60 |
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| $ | 16,033 |
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| $ | — |
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| Fair Value Measurements at | ||||||||||||||
(In thousands) |
| Balance March 31, |
| Quoted Prices |
| Significant |
| Significant | ||||||||
Marketable securities: |
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| ||||
U.S. government and agency obligations |
| $ | 12,936 |
|
| $ | — |
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| $ | 12,936 |
|
| $ | — |
|
Corporate debt securities and certificates of deposit |
| 5,940 |
|
| — |
|
| 5,940 |
|
| — |
| ||||
Asset backed securities |
| 3,874 |
|
| — |
|
| 3,874 |
|
| — |
| ||||
Equity security |
| 30 |
|
| 30 |
|
| — |
|
| — |
| ||||
Total marketable securities |
| $ | 22,780 |
|
| $ | 30 |
|
| $ | 22,750 |
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| $ | — |
|
9 |
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| Fair Value Measurements at | ||||||||||||||
(In thousands) |
| Balance December 31, 2019 |
| Quoted Prices |
| Significant |
| Significant | ||||||||
Marketable securities: |
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| ||||
U.S. government and agency obligations |
| $ | 12,341 |
|
| $ | — |
|
| $ | 12,341 |
|
| $ | — |
|
Corporate debt securities and certificates of deposit |
| 4,104 |
|
| — |
|
| 4,104 |
|
| — |
| ||||
Asset backed securities |
| 3,970 |
|
| — |
|
| 3,970 |
|
| — |
| ||||
Equity security |
| 48 |
|
| 48 |
|
| — |
|
| — |
| ||||
Total marketable securities |
| $ | 20,463 |
|
| $ | 48 |
|
| $ | 20,415 |
|
| $ | — |
|
The fair value for our U.S. government and agency obligations, corporate debt securities and certificates of deposit and asset backed securities are determined based on valuations provided by external investment managers whichwho obtain the valuationsthem from a variety of industry standard data providers. The fair value for our equity security is based on a quoted market price obtained from an active market.
67. SHARE-BASED COMPENSATION:
We have three3 share-based compensation plans that are administered by the Compensation Committee of the Board of Directors. We have (a) an Employee Stock Incentive Plan for officers, other employees, consultants and independent contractors under which we have granted options and restricted stock units to officers and other employees, (b) an Employee Stock Purchase Plan under which shares of our common stock may be acquired by employees at discounted prices, and (c) a Non-Employee Director Stock Plan that provides for automatic grants of restricted shares of our common stock to non-employee directors. New shares of our common stock are issued upon stock option exercises, vesting of restricted stock units, issuances of shares to board members and issuances of shares under the Employee Stock Purchase Plan.
Employee Stock Incentive Plan
As of June 30, 2019March 31, 2020, there were 273,764185,351 shares of common stock reserved in the aggregate for issuance pursuant to future awards under our Employee Stock Incentive Plan and 539,628558,654 shares of common stock reserved in the aggregate for issuance pursuant to outstanding awards under such plan. Although our Compensation Committee has authority to issue options, restricted stock, restricted stock units, share grants and other share-based benefits under our Employee Stock Incentive Plan, to date only restricted stock units and stock options have been granted under the plan. Options have been granted at an option price per share equal to the market value of our common stock on the date of grant, vest over a four year period and expire seven years after the date of grant. Restricted stock units vest over a four year period and entitle the holders to one1 share of our common stock for each restricted stock unit. Reserved shares underlying outstanding awards, including options and restricted stock units, that are forfeited are available under the Employee Stock Incentive Plan for future grant.
10 |
Non-Employee Director Stock Plan
As of June 30, 2019,March 31, 2020, there were 52,000 shares of common stock reserved in the aggregate for issuance pursuant to future restricted share grants under our Non-Employee Director Stock Plan and 16,000 shares of common stock reserved in the aggregate for issuance pursuant to outstanding stock option awards under our Non-Employee Director Stock Plan (which previously authorized the granting of stock options to non-employee directors). Under the terms of the plan, each non-employee director receives annual restricted share grants of 2,000 shares of our common stock on the date of each annual meeting at which such director is elected to serve on the board. The annual restricted share grants of common stock vest in four4 equal quarterly installments during the year after the grant date, provided the non-employee director is still serving as a director on the applicable vesting date.
On the date of our 2019 annual meeting, we issued a total of 8,000 shares of our common stock to our non-employee directors, which were restricted as specified in the Non-Employee Director Stock Plan. The shares granted at the 2019 annual meeting had an aggregate fair market value on the date of grant equal to $138,000 (grant date fair value of $17.26 per share). As of June 30, 2019, noneMarch 31, 2020, 6,000 of these shares were vested. The aggregate fair value of the outstanding2,000 unvested shares based on the closing price of our common stock on June 30, 2019March 31, 2020 was $130,000.
$34,000.
Stock Option Activity
The following is a summary of stock option activity in the sixthree months ended June 30, 2019March 31, 2020:
|
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| Options Outstanding |
| Weighted Average Exercise | Options Outstanding |
| Weighted Average Exercise | ||||||
Outstanding, December 31, 2018 | 523,042 |
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| $ | 11.48 |
| ||||||
Outstanding, December 31, 2019 | 520,513 |
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| $ | 12.25 |
| ||||||
Granted | — |
|
| — |
| — |
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| — |
| ||
Exercised | (5,850 | ) |
| 9.92 |
| (10,063 | ) |
| 8.44 |
| ||
Expired | (5,750 | ) |
| 10.83 |
| — |
| — |
| |||
Forfeited | (7,350 | ) |
| 16.67 |
| — |
| — |
| |||
Outstanding, June 30, 2019 | 504,092 |
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| $ | 11.43 |
| ||||||
Outstanding, March 31, 2020 | 510,450 |
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| $ | 12.33 |
| ||||||
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Exercisable, June 30, 2019 | 349,968 |
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| $ | 9.37 |
| ||||||
Exercisable, March 31, 2020 | 370,876 |
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| $ | 10.39 |
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The intrinsic value of an option is the amount by which the market price of the underlying common stock exceeds the option's exercise price. For options outstanding at June 30, 2019March 31, 2020, the weighted average remaining contractual term of all outstanding options was 3.53.4 years and their aggregate intrinsic value was $2.9 million. At June 30, 2019March 31, 2020, the weighted average remaining contractual term of options that were exercisable was 2.82.5 years and their aggregate intrinsic value was $2.6$2.8 million. The aggregate intrinsic value of stock options exercised was $140,000 in the sixthree months ended June 30, 2019 was $57,000.March 31, 2020 and $57,000 in the three months ended March 31, 2019. We received proceeds from stock option exercises of $85,000 in the three months ended March 31, 2020 and $59,000 in the sixthree months ended June 30, 2019 and $251,000 in the six months ended June 30, 2018. The aggregate fair value ofMarch 31, 2019. No stock options that vested in the sixthree months ended June 30, 2019 was $5,000.March 31, 2020.
Restricted Shares and Restricted Stock Units
Restricted shares are granted under our Non-Employee Director Stock Plan. There were 8,000 restricted shares granted in the six months ended June 30, 2019. Restricted stock units are granted under our Employee Stock Incentive Plan. NoNaN restricted shares or restricted stock units were granted in the sixthree months ended June 30, 2019.March 31, 2020. The aggregate fair value of outstanding restricted shares and restricted stock units based on the closing share price of our common stock as ofJune 30, 2019March 31, 2020 was $966,000.$1.1 million. The aggregate fair value of restricted shares and restricted stock units that vested, based on the closing price of our common stock on the vesting date, was $77,000$45,000 in thesix three months ended June 30, 2019.March 31, 2020 and $43,000 in the three months ended March 31, 2019.
The following is a summary of activity in non-vested restricted shares and restricted stock units in the sixthree months ended June 30, 2019March 31, 2020:
Non-vested restricted stock units and restricted shares |
| Shares |
| Weighted Average Grant Date Fair Value | ||||||||||
Non-vested at December 31, 2018 |
| 56,411 |
|
| $ | 17.59 |
| |||||||
Restricted shares and restricted stock units |
| Shares |
| Weighted Average Grant Date Fair Value | ||||||||||
Non-vested at December 31, 2019 |
| 68,204 |
|
| $ | 17.39 |
| |||||||
Granted |
| 8,000 |
|
| 17.26 |
|
| — |
|
| — |
| ||
Vested |
| (4,000 | ) |
| 16.25 |
|
| (2,000 | ) |
| 17.26 |
| ||
Forfeited |
| (875 | ) |
| 16.19 |
|
| — |
| — |
| |||
Non-vested at June 30, 2019 |
| 59,536 |
|
| $ | 17.66 |
| |||||||
Non-vested at March 31, 2020 |
| 66,204 |
|
| $ | 17.39 |
|
11 |
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan available to eligible U.S. employees. Under the terms of the plan, eligible employees may designate from 1% to 10% of their compensation to be withheld through payroll deductions, up to a maximum of $6,500 in each plan year, for the purchase of common stock at 85% of the lower of the market price on the first or last day of the offering period (which begins on August 1st and ends on July 31st of each year). No shares were purchased under this plan in the sixthree months ended June 30, 2019.March 31, 2020 or the three months ended March 31, 2019. As of March 31, 2020, As of June 30, 2019, 174,469156,688 shares remain available for future purchase under the Employee Stock Purchase Plan.
Share-Based Compensation Information
All share-based compensation awarded to our employees and non-employee directors, including grants of stock options, restricted stock units and restricted shares, are required to be recognized as an expense in our consolidated statements of operations based on the grant date fair value of the award. We utilize the straight-line method of expense recognition over the award's service period for our graded vesting options. The fair value of stock options has been determined as of the date of grant using the Black-Scholes model. We have classified employee share-based compensation within our statements of operations in the same manner as our cash-based employee compensation costs.
Share-basedPre-tax share-based compensation expense in the three months ended June 30, 2019March 31, 2020 totaled $249,000,$272,000, and included $110,000$114,000 for stock options, $31,000$23,000 for our Employee Stock Purchase Plan, $77,000$101,000 for unvested restricted stock units and $31,000$34,000 for unvested restricted shares.
Share-based
Pre-tax share-based compensation expense in the sixthree months ended June 30,March 31, 2019 totaled $493,000,$244,000, and included $217,000$107,000 for stock options, $60,000 for our Employee Stock Purchase Plan, $153,000 for unvested restricted stock units and $63,000 for unvested restricted shares.
Share-based compensation expense in the three months ended June 30, 2018 totaled $225,000, and included $109,000 for stock options, $21,000$29,000 for our Employee Stock Purchase Plan, $58,000$76,000 for unvested restricted stock units and $37,000$32,000 for unvested restricted shares. Share-based compensation expense in the six months ended June 30, 2018 totaled $484,000, and included $234,000 for stock options, $55,000 for our Employee Stock Purchase Plan, $117,000 for unvested restricted stock units and $78,000 for unvested restricted shares.
At June 30, 2019March 31, 2020, the total unrecognized compensation cost related to non-vested share-based compensation arrangements was $1.8$2.1 million and the related weighted average period over which such cost is expected to be recognized is 2.592.79 years.
78. CHANGES IN STOCKHOLDERS’ EQUITY:
A reconciliation of the changes in our stockholders' equity is as follows:
Three months ended March 31, 2020:
Common Stock | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||
(In thousands) | Shares | Amount | |||||||||||||||||
Balance, December 31, 2019 | 7,155 | $ | 36,659 | $ | (1,406 | ) | $ | 23,071 | $ | 58,324 | |||||||||
Exercise of stock options | 10 | 85 | — | — | 85 | ||||||||||||||
Share-based compensation | — | 272 | — | — | 272 | ||||||||||||||
Other comprehensive loss, net of tax | — | — | (490 | ) | — | (490 | ) | ||||||||||||
Net income | — | — | — | 844 | 844 | ||||||||||||||
Balance, March 31, 2020 | 7,165 | $ | 37,016 | $ | (1,896 | ) | $ | 23,915 | $ | 59,035 |
Three months ended June 30, 2019March 31, 2019::
| Common Stock | Accumulated Other Comprehensive Loss |
| Retained Earnings | Total Stockholders’ Equity | ||||||||||||||
(In thousands) | Shares |
| Amount |
| |||||||||||||||
Balance, March 31, 2019 | 7,107 |
| $ | 35,940 |
| $ | (1,557 | ) |
| $ | 22,792 |
| $ | 57,175 |
| ||||
Share issuances for director compensation | 8 | — | — | — | — | ||||||||||||||
Share-based compensation | — |
|
| 249 |
|
| — |
|
| — |
|
| 249 |
| |||||
Other comprehensive income, net of tax | — |
|
| — |
|
| 39 |
|
| — |
|
| 39 | ||||||
Net income | — |
|
| — |
|
| — |
|
| 464 |
| 464 | |||||||
Balance, June 30, 2019 | 7,115 |
| $ | 36,189 |
| $ | (1,518 | ) |
| $ | 23,256 |
| $ | 57,927 |
|
Six months ended June 30, 2019:
Common Stock | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||
(In thousands) | Shares | Amount | |||||||||||||||||
Balance, December 31, 2018 | 7,101 | $ | 35,637 | $ | (1,690 | ) | $ | 22,264 | $ | 56,211 | |||||||||
Increase related to adoption of ASU 2016-02 | — | — | — | 33 | 33 | ||||||||||||||
Exercise of stock options, vesting of restricted | 6 | 59 | — | — | 59 | ||||||||||||||
Share issuances for director compensation | 8 | — | — | — | — | ||||||||||||||
Share-based compensation | — | 493 | — | — | 493 | ||||||||||||||
Other comprehensive income, net of tax | — | — | 172 | — | 172 | ||||||||||||||
Net income | — | — | — | 959 | 959 | ||||||||||||||
Balance, June 30, 2019 | 7,115 | $ | 36,189 | $ | (1,518 | ) | $ | 23,256 | $ | 57,927 |
Common Stock | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||
(In thousands) | Shares | Amount | |||||||||||||||||
Balance December 31, 2018 | 7,101 | $ | 35,637 | $ | (1,690 | ) | $ | 22,264 | $ | 56,211 | |||||||||
Increase related to adoption of ASU 2016-02 | — | — | — | 33 | 33 | ||||||||||||||
Exercise of stock options | 6 | 59 | — | — | 59 | ||||||||||||||
Share-based compensation | — | 244 | — | — | 244 | ||||||||||||||
Other comprehensive income, net of tax | — | — | 133 | — | 133 | ||||||||||||||
Net income | — | — | — | 495 | 495 | ||||||||||||||
Balance, March 31, 2019 | 7,107 | $ | 35,940 | $ | (1,557 | ) | $ | 22,792 | $ | 57,175 |
12 |
| Common Stock | Accumulated Other Comprehensive Loss |
| Retained Earnings | Total Stockholders’ Equity | ||||||||||||||
(In thousands) | Shares |
| Amount |
| |||||||||||||||
Balance, March 31, 2018 | 7,006 |
| $ | 34,521 |
| $ | (1,264 | ) |
| $ | 19,264 |
| $ | 52,521 |
| ||||
Exercise of stock options, vesting or restricted stock units and grants of restricted shares, net of share exchanged as payment | 10 |
|
| 69 |
|
| — |
|
| — |
|
| 69 |
| |||||
Share issuances for director compensation | 8 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
Share-based compensation | — | 225 | — | — | 225 | ||||||||||||||
Other comprehensive loss, net of tax | — |
|
| — |
|
| (419 | ) |
|
| — |
|
| (419 | ) | ||||
Net income | — |
|
| — |
|
| — |
|
| 740 |
| 740 | |||||||
Balance, June 30, 2018 | 7,024 |
| $ | 34,815 |
| $ | (1,683 | ) |
| $ | 20,004 |
| $ | 53,136 |
|
Six months ended June 30, 2018:
Common Stock | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||
(In thousands) | Shares | Amount | |||||||||||||||||
Balance December 31, 2017 | 6,980 | $ | 34,080 | $ | (1,409 | ) | $ | 19,611 | $ | 52,282 | |||||||||
Increase related to adoption of ASU 2016-01 | — | — | (44 | ) | 44 | — | |||||||||||||
Decrease related to adoption of ASU 2014-09 | — | — | — | (218 | ) | (218 | ) | ||||||||||||
Exercise of stock options, vesting of restricted stock units and grants of restricted shares, net of shares exchanged as payment | 36 | 251 | — | — | 251 | ||||||||||||||
Share issuances for director compensation | 8 | — | — | — | — | ||||||||||||||
Share-based compensation | — | 484 | — | — | 484 | ||||||||||||||
Other comprehensive loss, net of tax | — | — | (230 | ) | — | (230 | ) | ||||||||||||
Net income | — | — | — | 567 | 567 | ||||||||||||||
Balance, June 30, 2018 | 7,024 | $ | 34,815 | $ | (1,683 | ) | $ | 20,004 | $ | 53,136 |
8.9. OTHER FINANCIAL STATEMENT DATA:
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) |
| June 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 | ||||||||
Raw materials and purchased parts |
| $ | 9,435 |
|
| $ | 8,821 |
|
| $ | 10,556 |
|
| $ | 9,845 |
|
Work in process |
| 1,819 |
|
| 2,446 |
|
| 2,055 |
|
| 1,837 |
| ||||
Finished goods |
| 6,309 |
|
| 4,896 |
|
| 3,055 |
|
| 2,373 |
| ||||
Demonstration inventories, net | 1,384 | 1,525 | ||||||||||||||
Total inventories |
| $ | 17,563 |
|
| $ | 16,163 |
|
| $ | 17,050 |
|
| $ | 15,580 |
|
Excess and obsolete inventories were written down by $656,000 at March 31, 2020 and $649,000 at December 31, 2019. Demonstration inventories are stated at cost less accumulated amortization, generally based on a 36 month useful life. Accumulated amortization for demonstration inventories totaled $2.4 million at both March 31, 2020 and December 31, 2019.
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
(In thousands) |
| June 30, 2019 |
| December 31, 2018 | ||||
Wages and benefits |
| $ | 1,426 |
|
| $ | 2,166 |
|
Warranty liability |
| 806 |
|
| 758 |
| ||
Income taxes payable | 504 | 393 | ||||||
Other |
| 141 |
|
| 251 |
| ||
|
| $ | 2,877 |
|
| $ | 3,568 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| March 31, 2020 |
| December 31, 2019 | ||||
Wages and benefits |
| $ | 1,487 |
|
| $ | 1,319 |
|
Warranty liability |
| 748 |
|
| 761 |
| ||
Income taxes payable | 219 | 333 | ||||||
Other |
| 105 |
|
| 159 |
| ||
|
| $ | 2,559 |
|
| $ | 2,572 |
|
Warranty costs:
We provide for the estimated cost of product warranties, which cover products for periods ranging from one to three years, at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of components provided to us by suppliers, warranty obligations do arise. These obligations are affected by product failure rates, the cost of materials used in correcting product failures and service delivery expenses incurred to make these corrections. If actual product failure rates and material or service delivery costs differ from our estimates, revisions to the estimated warranty liability are required and could be material. At the end of each reporting period, we revise our estimated warranty liability based on these factors. The current portion of our warranty liability is included as a component of accrued expenses. The long-term portion of our warranty liability is included as a component of other liabilities.
A reconciliation of the changes in our estimated warranty liability is as follows:
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, | ||||||
(In thousands) |
| 2019 |
| 2018 | ||||
Balance at beginning of period |
| $ | 789 |
|
| $ | 767 |
|
Accrual for warranties |
| 450 |
|
| 218 |
| ||
Warranty revision |
| (22 | ) |
| 20 | |||
Settlements made during the period |
| (379 | ) |
| (270 | ) | ||
Balance at end of period |
| 838 |
|
| 735 |
| ||
Current portion of estimated warranty liability |
| (806 | ) |
| (680 | ) | ||
Long-term estimated warranty liability |
| $ | 32 |
|
| $ | 55 |
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, | ||||||
(In thousands) |
| 2020 |
| 2019 | ||||
Balance at beginning of period |
| $ | 798 |
|
| $ | 789 |
|
Accrual for warranties |
| 230 |
|
| 174 |
| ||
Warranty revision |
| 1 |
| 17 | ||||
Settlements made during the period |
| (244 | ) |
| (154 | ) | ||
Balance at end of period |
| 785 |
|
| 826 |
| ||
Current portion of estimated warranty liability |
| (748 | ) |
| (795 | ) | ||
Long-term estimated warranty liability |
| $ | 37 |
|
| $ | 31 |
|
13 |
Deferred warranty revenue:
The current portion of our deferred warranty revenue is included as a component of advance customer payments. The long-term portion of our deferred warranty revenue is included as a component of other liabilities. A reconciliation of the changes in our deferred warranty revenue is as follows:
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Six Months Ended June 30, |
| Three Months Ended March 31, | ||||||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||||||
Balance at beginning of period |
| $ | 218 |
|
| $ | 259 |
|
| $ | 275 |
|
| $ | 218 |
|
Revenue deferrals |
| 238 |
|
| 235 |
|
| 134 |
|
| 87 |
| ||||
Amortization of deferred revenue |
| (224 | ) |
| (211 | ) |
| (100 | ) |
| (114 | ) | ||||
Total deferred warranty revenue |
| 232 |
|
| 283 |
|
| 309 |
|
| 191 |
| ||||
Current portion of deferred warranty revenue |
| (214 | ) |
| (273 | ) |
| (227 | ) |
| (186 | ) | ||||
Long-term deferred warranty revenue |
| $ | 18 |
|
| $ | 10 |
|
| $ | 82 |
|
| $ | 5 |
|
9.10. INTANGIBLE ASSETS:
Impairment Considerations (goodwill and intangibles)
The current Covid-19 pandemic has caused a significant deterioration in global economic conditions, including high levels of unemployment and a significant contraction in economic activity. The global economy may be in the midst of an economic recession or depression. We evaluate the carrying value of goodwill and intangibles for impairment whenever management believes indicators of impairment might exist. A significant deterioration in macroeconomic conditions is a key indicator of possible impairment. In addition to macroeconomic conditions, management considered the factors in ASC 350 when analyzing goodwill and intangibles for possible impairment, including the following:
After carefully considering the factors outlined above, among others, we determined that it is more likely than not that our goodwill and intangibles were not impaired as of March 31, 2020.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 |
| December 31, 2018 | ||||||||||||||||||||
(In thousands) |
| Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||
Patents |
| $ | 2,815 |
|
| $ | (2,597 | ) |
| $ | 218 |
|
| $ | 2,754 |
|
| $ | (2,533 | ) |
| $ | 221 |
|
Software |
| 206 |
|
| (156 | ) |
| 50 |
|
| 206 |
|
| (141 | ) |
| 65 |
| ||||||
Marketing assets and customer relationships |
| 101 |
|
| (59 | ) |
| 42 |
|
| 101 |
|
| (54 | ) |
| 47 |
| ||||||
Non-compete agreements |
| 101 |
|
| (101 | ) |
| — |
|
| 101 |
|
| (101 | ) |
| — |
| ||||||
|
| $ | 3,223 |
|
| $ | (2,913 | ) |
| $ | 310 |
|
| $ | 3,162 |
|
| $ | (2,829 | ) |
| $ | 333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| December 31, 2019 | ||||||||||||||||||||
(In thousands) |
| Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||
Patents |
| $ | 2,916 |
|
| $ | (2,700 | ) |
| $ | 216 |
|
| $ | 2,898 |
|
| $ | (2,662 | ) |
| $ | 236 |
|
Software |
| 206 |
|
| (178 | ) |
| 28 |
|
| 206 |
|
| (170 | ) |
| 36 |
| ||||||
Marketing assets and customer relationships |
| 101 |
|
| (65 | ) |
| 36 |
|
| 101 |
|
| (63 | ) |
| 38 |
| ||||||
|
| $ | 3,223 |
|
| $ | (2,943 | ) |
| $ | 280 |
|
| $ | 3,205 |
|
| $ | (2,895 | ) |
| $ | 310 |
|
14 |
Amortization expense for our intangible assets in the three and six months ended June 30, 2019March 31, 2020 and the three and six months ended June 30, 2018March 31, 2019 was as follows:
|
| |||||||||||||||||||||||
| Three Months Ended June 30, |
| Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||
(In thousands) | 2019 | 2018 |
| 2019 |
| 2018 | 2020 | 2019 | ||||||||||||||||
Patents | $ | 33 | $ | 28 |
| $ | 64 |
| $ | 56 |
| $ | 38 | $ | 31 | |||||||||
Software | 8 | 7 |
| 15 |
| 15 |
| 8 | 7 | |||||||||||||||
Marketing assets and customer relationships | 2 | 1 |
| 4 |
| 5 |
| 2 | 2 | |||||||||||||||
Non-compete agreements | — | — |
| — |
| 5 |
| |||||||||||||||||
| $ | 43 | $ | 36 |
| $ | 83 |
|
| $ | 81 |
| $ | 48 | $ | 40 |
Amortization of patents has been classified as research and development expense in the accompanying consolidated statements of operations. Estimated aggregate future amortization expense based on current intangible assets for the next five years is expected to be as follows: $82,000$126,000 for the remainder of 20192020; $139,000$100,000 in 20202021; $65,000$43,000 in 2021; $13,000 in 2022; $9,000 in 2023; and and $2,000 in 2024.
Intangible and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when future undiscounted cash flows expected to result from use of the asset and its eventual disposition are less than the carrying amount. There were no impairments in the six months ended June 30, 2019 or the six months ended June 30, 2018.
10.11. REVENUE CONCENTRATIONS, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC AREAS:
The following summarizes our revenue by product line:
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||||||||||
High Precision 3D and 2D Sensors | $ | 2,004 | $ | 5,253 | $ | 5,753 | $ | 10,308 | ||||||||||||||||
High Precision 3D and 2D Sensors | $ | 4,122 | $ | 3,749 | ||||||||||||||||||||
Inspection and Metrology Systems | 8,361 | 7,091 | ||||||||||||||||||||||
Semiconductor Sensors | 3,122 | 3,940 | 7,258 | 7,101 | 3,946 | 4,136 | ||||||||||||||||||
Inspection and Metrology Systems | 9,918 | 6,661 | 17,009 | 12,565 | ||||||||||||||||||||
Total | $ | 15,044 | $ | 15,854 | $ | 30,020 | $ | 29,974 | $ | 16,429 | $ | 14,976 |
Export sales revenues as a percentage of total salesrevenues was 72% in the three and six months ended June 30, 2019March 31, 2020 and were 73% and 72%, respectively. Export sales as a percentage of total sales 71% in the three and six months ended June 30, 2018March 31, 2019 were 71% and 72%, respectively. Virtually. Export revenues are attributed to the country where the product is shipped. Substantially all of our export salesrevenues are negotiated, invoiced and paid in U.S. dollars. Export salesrevenues by geographic area are summarized below:as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||||||||
(In thousands) |
| 2019 | 2018 | 2019 |
| 2018 |
| 2020 | 2019 | |||||||||||||||
Americas |
| $ | 205 | $ | 142 | $ | 576 |
| $ | 213 |
|
| $ | 401 | $ | 371 | ||||||||
Europe |
| 1,606 | 2,686 |
| 4,264 |
|
| 5,266 |
|
| 2,103 | 2,658 | ||||||||||||
China | 3,559 | 2,427 | 6,334 | 5,395 | 3,880 | 2,775 | ||||||||||||||||||
Taiwan | 999 | 676 | 3,144 | 841 | 1,716 | 2,144 | ||||||||||||||||||
Other Asia |
| 4,207 | 5,294 |
| 6,819 |
|
| 9,622 |
|
| 3,680 | 2,613 | ||||||||||||
Other |
| 339 | 95 |
| 384 |
|
| 200 |
|
| — | 44 | ||||||||||||
Total export sales |
| $ | 10,915 | $ | 11,320 | $ | 21,521 |
| $ | 21,537 |
|
| $ | 11,780 | $ | 10,605 |
In the sixthree months ended June 30, 2019,March 31, 2020, sales to significant customer A accounted for 14%15% of our total revenue. As of June 30, 2019,March 31, 2020, accounts receivable from significant customer A werewas $2.21.4 million.
15 |
11.12. NET INCOME PER SHARE:
Basic netNet income per basic share for a period is computed by dividing net income by the weighted average number of common shares outstanding during the period. Net income per diluted share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of common shares to be issued upon exercise of stock options, vesting of restricted stock units, vesting of restricted shares and from purchases of shares under our Employee Stock Purchase Plan, as calculated using the treasury stock method. Net income per diluted share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are excluded from the calculation of net income per diluted share if their effect is anti-dilutive. The components of net income per basic and diluted share were as follows:
(In thousands except per share amounts) |
| Net Income |
| Weighted Average |
| Per Share Amount |
| Net Income |
| Weighted Average |
| Per Share Amount | ||||||||||
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
| |||||||||||||
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
| |||||||||||||
Basic |
| $ | 464 |
| 7,106 |
|
| $ | 0.07 |
| $ | 844 |
| 7,157 |
|
| $ | 0.12 | ||||
Dilutive effect of common equivalent shares |
| — |
|
| 190 |
|
| (0.01 | ) |
| — |
|
| 210 |
|
| (0.01 | ) | ||||
Dilutive |
| $ | 464 |
| 7,296 |
|
| $ | 0.06 |
| $ | 844 |
| 7,367 |
|
| $ | 0.11 |
(In thousands except per share amounts) |
| Net Income |
| Weighted Average |
| Per Share Amount | |||||
Three Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
| ||
Basic |
| $ | 740 |
| 7,010 |
|
| $ | 0.11 | ||
Dilutive effect of common equivalent shares |
| — |
|
| 232 |
|
| (0.01 | ) | ||
Dilutive |
| $ | 740 |
| 7,242 |
|
| $ | 0.10 |
(In thousands except per share amounts) |
| Net Income |
| Weighted Average |
| Per Share Amount | |||||
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
| ||
Basic |
| $ | 959 |
| 7,103 |
|
| $ | 0.14 | ||
Dilutive effect of common equivalent shares |
| — |
|
| 206 |
|
| (0.01 | ) | ||
Dilutive |
| $ | 959 |
| 7,309 |
|
| $ | 0.13 |
(In thousands except per share amounts) |
| Net Income |
| Weighted Average |
| Per Share Amount |
| Net Income |
| Weighted Average |
| Per Share Amount | ||||||||||
Six Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
| |||||||||||||
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
| |||||||||||||
Basic |
| $ | 567 |
| 6,998 |
|
| $ | 0.08 |
| $ | 495 |
| 7,100 |
|
| $ | 0.07 | ||||
Dilutive effect of common equivalent shares |
| — |
|
| 116 |
|
| — |
| — |
|
| 222 |
|
| — | ||||||
Dilutive |
| $ | 567 |
| 7,114 |
|
| $ | 0.08 |
| $ | 495 |
| 7,322 |
|
| $ | 0.07 |
Potentially dilutive shares consist of stock options, restricted stock units, restricted shares and purchases of shares under our Employee Stock Purchase Plan. Potentially dilutive shares excluded from the calculations of net income per diluted share due to their anti-dilutive effect were as follows: 200,000145,000 shares in the three months ended June 30, 2019; 180,000 shares in the March 31, 2020six months ended June 30, 2019 and ;123,000160,000 shares in the three months ended June 30, 2018; and 369,000 shares in the six months ended June 30, 2018March 31, 2019.
12.13. OTHER COMPREHENSIVE INCOME:INCOME (LOSS):
Reclassification adjustments are made to avoid double counting for items included in other comprehensive income (loss) that are also recorded as part of net income. Reclassifications and taxesThere were 0 reclassification adjustments in the three months ended March 31, 2020 or the three months ended March 31, 2019. Taxes related to items of other comprehensive income (loss) are as follows:follows:
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | |||||||||||||||||||||||
(In thousands) | Before Tax | Tax Effect | Net of Tax Amount | Before Tax | Tax Effect | Net of Tax Amount | ||||||||||||||||||
Foreign currency translation adjustments | $ | (17 | ) | $ | — | $ | (17 | ) | $ | (422 | ) | $ | — | $ | (422 | ) | ||||||||
Net changes related to available-for-sale securities: | ||||||||||||||||||||||||
Unrealized gains (losses) | 70 | (14 | ) | 56 | 4 | (1 | ) | 3 | ||||||||||||||||
Reclassifications included in interest income and other | — | — | — | — | — | — | ||||||||||||||||||
Net changes related to available-for-sale securities | 70 | (14 | ) | 56 | 4 | (1 | ) | 3 | ||||||||||||||||
Other comprehensive income | $ | 53 | $ | (14 | ) | $ | 39 | $ | (418 | ) | $ | (1 | ) | $ | (419 | ) |
Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |||||||||||||||||||||||
(In thousands) | Before Tax | Tax Effect | Net of Tax Amount | Before Tax | Tax Effect | Net of Tax Amount | ||||||||||||||||||
Foreign currency translation adjustments | $ | 70 | $ | — | $ | 70 | $ | (202 | ) | $ | — | $ | (202 | ) | ||||||||||
Net changes related to available-for-sale securities: | ||||||||||||||||||||||||
Unrealized gains (losses) | 128 | (26 | ) | 102 | (36 | ) | 8 | (28 | ) | |||||||||||||||
Reclassifications included in interest income and other | — | — | — | — | — | — | ||||||||||||||||||
Net changes related to available-for-sale securities | 128 | (26 | ) | 102 | (36 | ) | 8 | (28 | ) | |||||||||||||||
Other comprehensive income | $ | 198 | $ | (26 | ) | $ | 172 | $ | (238 | ) | $ | 8 | $ | (230 | ) |
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||
(In thousands) | Before Tax | Tax Effect | Net of Tax Amount | Before Tax | Tax Effect | Net of Tax Amount | ||||||||||||||||||
Foreign currency translation adjustments | $ | (600 | ) | $ | — | $ | (600 | ) | $ | 87 | $ | — | $ | 87 | ||||||||||
Unrealized gains on available-for-sale securities | 140 | (30 | ) | 110 | 58 | (12 | ) | 46 | ||||||||||||||||
Other comprehensive income (loss) | $ | (460 | ) | $ | (30 | ) | $ | (490 | ) | $ | 145 | $ | (12 | ) | $ | 133 |
16 |
At June 30,March 31, 2020 and March 31, 2019, and June 30, 2018, components of accumulated other comprehensive loss are as follows:
(In thousands) |
| Foreign |
| Available- for-Sale |
| Accumulated | ||||||
Balances at December 31, 2018 |
| $ | (1,649 | ) |
| $ | (41 | ) |
| $ | (1,690 | ) |
Other comprehensive income for the six months ended June 30, 2019 | 70 |
| 102 | 172 | ||||||||
Balances at June 30, 2019 |
| $ | (1,579 | ) |
| $ | 61 |
| $ | (1,518 | ) |
(In thousands) |
| Foreign |
| Available- for-Sale |
| Accumulated | ||||||
Balances at December 31, 2019 |
| $ | (1,475 | ) |
| $ | 69 |
| $ | (1,406 | ) | |
Other comprehensive income (loss) for the three months ended March 31, 2020 | (600 | ) |
| 110 | (490 | ) | ||||||
Balances at March 31, 2020 |
| $ | (2,075 | ) |
| $ | 179 |
| $ | (1,896 | ) |
(In thousands) |
| Foreign |
| Available- for-Sale |
| Accumulated | ||||||
Balances at December 31, 2017 |
| $ | (1,394 | ) |
| $ | (15 | ) |
| $ | (1,409 | ) |
Decrease related to adoption of ASU 2016-01 | — | (44 | ) | (44 | ) | |||||||
Other comprehensive loss for the six months ended June 30, 2018 |
| (202 | ) |
| (28 | ) |
| (230 | ) | |||
Total change for the period |
| (202 | ) |
| (72 | ) |
| (274 | ) | |||
Balances at June 30, 2018 |
| $ | (1,596 | ) |
| $ | (87 | ) |
| $ | (1,683 | ) |
(In thousands) |
| Foreign |
| Available- for-Sale |
| Accumulated | ||||||
Balances at December 31, 2018 |
| $ | (1,649 | ) |
| $ | (41 | ) |
| $ | (1,690 | ) |
Other comprehensive income for the three months ended March 31, 2019 |
| 87 |
| 46 |
| 133 | ||||||
Balances at March 31, 2019 |
| $ | (1,562 | ) |
| $ | 5 |
| $ | (1,557 | ) |
1314. INCOME TAXES:
We recorded income tax expense of $192,000$149,000 in the three months ended June 30, 2019,March 31, 2020, compared to income tax expense of $230,000134,000 in the three months ended June 30, 2018March 31, 2019.. We recorded income tax expense of $326,000 in the Oursix months ended June 30, 2019, compared to income tax expense of $147,000 in the six months ended June 30, 2018. Our income tax expense in thesix three months ended June 30, 2019March 31, 2020 reflectedan effective income tax rate of approximately 25%, which included $9,00015% compared to an effective tax rate of excess tax benefits from employee share-based payments. approximately 21% in thethree months ended March 31, 2019.Our income tax expenseThe reduction in the six months ended June 30, 2018 reflected an effective income tax rate of approximately 21%, which included $33,000 of excess tax benefits from employee share-based payments. Ourour effective tax rate in the sixthree months ended June 30, 2019 andMarch 31, 2020, when compared to the sixthree months ended June 30, 2018March 31, 2019, was due to deductions for Foreign Derived Intangible Income ("FDII") and Global Intangible Low-Taxed Income ("GILTI") and foreign tax credits. We previously were unable to take advantage of these additional deductions and credits due to our un-used federal net operating loss carry-forwards which are being forecasted to be used up in 2020. wasOn a recurring basis, our effective income tax rate is significantly impacted by Global Intangible Low Tax Income (GILTI),the GILTI and FDII regulations, U.S. federal R&D tax credits and excessforeign tax benefits from employee share-based payments.credits.
We have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and developmentR&D tax credit carry forwards and federal, state and foreign net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes, when net operating loss carry forwards could be applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.
Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forwardcarry-forward periods and tax planning alternatives. In addition, we considered both our near-term and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets waswere not required.
We have amended our income tax returns for prior periods in connection with the Inland Revenue Authority of Singapore's audits of our 2016 and 2015 income tax returns. We anticipate recognizing an approximate $200,000 non-cash income tax benefit from the release of an income tax reserve in the third quarter of 2019 in connection with the completion of these audits.
1415. OPERATING LEASES:
We determine if an arrangement is a lease at inception.
Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The operating lease ROU assets exclude lease incentives. As our leases do not provide an implicit rate, we use our incremental borrowing rate to determine the present value of lease payments. Our leases may include renewal options to extend the lease term, the exercise of which are at our sole discretion. In our accounting treatment of leases, the lease terms used do not include any option to extend the lease, because it is not reasonably certain that we will exercise the option. Lease expense is recognized on a straight-line basis over the lease term.We have lease agreements with lease and non-lease components (e.g., common-area or other maintenance costs) which are generally accounted for separately and expensed monthly. We do not recognize a ROU asset and lease liability for leases having a term of 12 months or less at the effective date.
We lease a 61,208 square foot mixed office and warehouse facility in Golden Valley, Minnesota. The lease has a term of 91 months and expires on July 31, 2026. The lease contains a rent escalation clause, one three year renewal option and incentives. Rental expense, including the effects of lease incentives, is recognized on a straight-line basis over the term of the lease. We are also required to pay insurance, property taxes and other operating expenses related to the leased facility, which are not fixed or tied to an index.
We
17 |
In February 2020, we finalized an extension to our lease afor our existing 19,805 square foot mixed office and warehouse facility in Singapore. Singapore, which serves as a sales, development and final assembly and integration facility for our inspection and metrology system products.The lease expiresruns from the expiration date of our old lease in July 2020 contains a rent escalation clausethrough July 24, 2023. The new lease does not contain any incentives or renewal options. Rent and one three year renewal option. Wfacility operating costs under the new lease are expected to remain unchanged when compared to the old lease expiring in July 2020.e also have operating leases in the United Kingdom and China, which expire in May 2023 and November 2020, respectively. We did not enter into any new leases in the six months ended June 30, 2019.
The components of our costs for operating leases in the three and six months ended June 30, 2019 are as follows:
Three Months Ended | Six Months Ended | |||||||
Component (in thousands) | June 30, 2019 | June 30, 2019 | ||||||
Operating lease cost | $ | 179 | $ | 359 | ||||
Variable lease cost | 67 | 134 | ||||||
Short-term lease cost | 2 | 4 | ||||||
Total | $ | 248 | $ | 497 |
Variable lease costs generally consists of real estate taxes and insurance for leased facilities, which are paid based on actual costs incurred by the lessor.
At June 30, 2019,March 31, 2020, the future maturities of lease liabilities are as follows:
Twelve months ending June 30, | (In thousands) | |||||
2020 | $ | 829 | ||||
Twelve months ending March 31, | (In thousands) | |||||
2021 | 629 | $ | 952 | |||
2022 | 619 | 961 | ||||
2023 | 634 | 977 | ||||
2024 | 650 | 778 | ||||
2025 and thereafter | 1,406 | |||||
2025 | 662 | |||||
2026 and thereafter | 909 | |||||
Total lease payments | 4,767 | 5,239 | ||||
Less: amount representing interest | 960 | 745 | ||||
Present value of operating lease liabilities | $ | 3,807 | $ | 4,494 |
At June 30, 2019,March 31, 2020, the weighted average remaining term for our operating leases is 6.445.58 years, and the weighted average discount rate applied to our operating leases was 5.73%5.18%.
Cash paid for amounts includedOperating lease liabilities were increased by $886,000 in the measurement of operating lease liabilities in the sixthree months ended June 30, 2019 was $191,000.March 31, 2020 for ROU assets related to the extended lease for our Singapore facility. Incentives from the landlord recorded as leasehold improvements in the sixthree months ended June 30,March 31, 2019 were $691,000.
As the company has not restated prior year information for its adoption of ASC Topic 842, the following presents its future minimum lease payments for operating leases under ASC Topic 840. These amounts include common-area or other maintenance costs under ASC Topic 840. At December 31, 2018 the future minimum lease payments required under noncancelable operating lease agreements are as follows:
|
|
|
|
Year ending December 31, | (In thousands) | ||
2019 | $ | 1,095 |
|
2020 | 1,298 |
| |
2021 | 1,049 |
| |
2022 | 1,064 | ||
2023 | 1,080 |
| |
2024 & Thereafter | 3,049 | ||
Total | $ | 8,635 |
|
15.16. SHARE REPURCHASE:REPURCHASES:
1617. CONTINGENCIES:
We are periodically a defendant in miscellaneous lawsuits, claims and disputes in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, management presently believes the disposition of these matters will not have a material effect on our financial position, results of operations or cash flows.
In the normal course of business to facilitate sales of our products and services, we at times indemnify other parties, including customers, with respect to certain matters. In these instances, we have agreed to hold the other parties harmless against losses arising out of intellectual property infringement or other types of claims. These agreements may limit the time within which an indemnification claim can be made, and almost always limitlimits the amount of the claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made, if any, under these agreements have not had a material impact on our operating results, financial position or cash flows. However, there can be no assurance that intellectual property infringement and other claims against us or parties we have indemnified will have the same impact in the future.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS:
The following management’s discussion and analysis of the financial condition and results of operations of CyberOptics Corporation and its wholly-owned subsidiaries ("we", "us" and "our") contains a number of estimates and predictions that are forward looking statements rather than statements based on historical fact. Among other matters, we discuss (i) a possible world-wide recession or depression resulting from the economic consequences of the Covid-19 pandemic; (ii) the negative effect on our revenue and operating results of the Covid-19 crises on our customers and suppliers and the global supply chain; (iii) the availability of parts to meet customer orders; (iv) the level of anticipated revenues, gross margins, and expenses; (ii)(v) the timing of orders and shipments of our existing products, particularly the SQ3000, our 3D3D Multi-Reflection Suppression™ (MRS™)-enabled SQ3000™ Multi-Function system for automated optical inspection ("AOI") system; (iii)and MX systems for memory module inspection; (vi) the level of orders from our original equipment manufacturer ("OEM") customers; (vii) the timing of initial revenue and projected improvements in gross margins from sales of new products that have been recently introduced, that we have under development or that we anticipate introducing in the future; (iv)(viii) the amountmarket acceptance of anticipated revenueour SQ3000 Multi-Function inspection and potential revenue opportunity from recently introduced newmeasurement system and products or potential new products we may launch in the future;for semiconductor advanced packaging inspection and (v)metrology (ix) our assessment of trends in the economy in general and, the surface mount technology ('SMT"("SMT") and semiconductor capital equipment markets, in particular, and theirthe impact of the current economic crisis resulting from the Covid-19 pandemic on the markets for our products.products; and (x) changes in the level of tariffs and other trade policies of the United States. Although we have made these statements based on our experience and expectations regarding future events, there may be events or factors that we have not anticipated, andanticipated. Therefore, the accuracy of our forward-looking statements and estimates are subject to a number of risks, including those risks identified in our Annual Report on Form 10-K for the year endedDecember 31, 2018.2019.
RESULTS OF OPERATIONS
General
AsWe are a leading global developer and manufacturer of high precision 3D3D sensors and system products for inspection and metrology. We also develop and manufacture our WaferSense® products, which is a family of wireless, wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process. We intend to leverage our sensor technologies in the surface mount technology ("SMT") and semiconductor industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression ("MRS") technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to leveragesignificantly expand our 3D sensor technologies in our three key vertical markets: SMT; semiconductor; and metrology. Amarkets. Another key element in our strategy is the continued development and saleintroduction of new high precisionsensor applications for our WaferSense® family of products.
3D sensors based on our proprietary multi-reflection suppression ("MRS") technology. We believe that MRS is a break-through optical technology for high precision inspection and metrology. Our operating results in the three months ended June 30, 2019 were affected by the cyclical, industry-wide slowdown in demand for SMT and semiconductor capital equipment as well as uncertainty surrounding the global trade environment. We expect sluggish market conditions to persistbelieve that the three months ended September 30, 2019 marked the trough of the downturn in the second half of 2019.SMT and semiconductor capital equipment markets, and that industry conditions have started to strengthen. Over the longer-term (i.e., the next several years), we expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology. We believe MRS hasthat our 3D MRS-enabled sensor and system products and our WaferSense® family products have the potential to expand our presence in the markets for SMT and semiconductor capital equipment. However, our sales of MRS-based products in the second half of 2019 will most likely continue to be negatively impacted by the sluggish conditions in the SMT and semiconductor capital equipment markets.
Manufacturing yield challenges as electronics and semiconductors become more complex are driving the need for more precise inspection and metrology. We believe 3DIn our view, 3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. Over the longer-term, we expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology. We believe our 3D3D MRS technology platform is well suited for many applications in these markets, particularly with respect to complex circuit boards and semiconductor wafer level back-end and advanced packaging inspection and metrology applications. We are taking advantage of current market trends by deploying our 3D3D MRS sensor technology in the following products:
|
| Our |
· | Our next generation MX3000 AOI system for 3D inspection of memory modules following the singulation step of the manufacturing process. We recognized our first revenue from the sale of the MX3000 in the first quarter of 2020. |
19 |
| ||
|
|
| Our next generation ultra-high resolution three micron pixel |
Revenue from our MRS based products, including 3D AOI systems and high precision 3D MRS sensors, increased by $2.9 million or 66% to $10.3$7.2 million in the six months ended June 30, 2019, an increasefirst quarter of approximately $1.7 million or 20%2020, from $8.6$4.3 million in the six months ended June 30, 2018. Salesfirst quarter of 3D MRS sensors declined 23% on a year-over-year basis in the six months ended June 30, 20192019. We believe we will continue to $2.8 million, as OEM customers reduced their orders due to sluggish market conditions in the global SMT and semiconductor markets. Despite the weak market conditions,increase sales of 3D MRS-enabled SQ3000 AOI systems increased 47%products based on a year-over-year basis in the six months ended June 30, 2019 to $7.1 million. Over the longer-term, we anticipate increasing sales of MRS-based productsour MRS technology in the SMT and semiconductor capital equipment marketsmarkets. In particular, we believe inspection and metrology products for semiconductor wafer level and advanced packaging applications represent significant long-term growth opportunities. We anticipate increasing sales of MRS-based products by utilizingreaching new OEM customers and system integrators, and by expanding direct sales to end-user customers.
We have continued to invest in our semiconductor sensors, principally consisting of our WaferSense® family of products, because fabricators of semiconductors and other customers view these products as valuable tools for improving yields and productivity. We have recently introduced several new WaferSense® products to further enhance our revenue growth prospects, including the In-Line Particle Sensor™ (IPS™), which detects particles in gas and vacuum lines in semiconductor process equipment, and is particularly relevant for EUV lithography tools. Additional WaferSense® applications are currently under development. Over the longer-term, strong future sales growth is anticipated for our WaferSense® family of products.
Our order backlog was $13.0 million at June 30, 2019, up from $11.6$24.8 million at March 31, 2019, but down2020, an increase from $13.8$17.7 million at June 30, 2018. OrdersDecember 31, 2019, and $11.6 million at March 31, 2019. We are forecasting sales of $15.5 to $17.5 million for our products started to weaken in the second quarter of 2019 due to2020. We believe that demand in the cyclical, industry-wide slowdownSMT and semiconductor capital equipment markets will remain solid in 2020. However, an increase in the severity of the current Covid-19 outbreak, or a resulting prolonged economic recession or depression, could cause a slow-down in demand for SMT and semiconductor capital equipmentequipment. Over the long-term, anticipated sales growth of our 3D MRS-enabled products and WaferSense sensors should increase our revenues and net income in the future.
Impact from Covid-19
In December 2019, a novel strain of coronavirus ("Covid-19") was first identified, and in March 2020, the World Health Organization categorized Covid-19 as well asa pandemic. The Covid-19 pandemic is affecting our customers, suppliers, service providers and employees, and the uncertainty surroundingultimate impacts of Covid-19 on our business, results of operations, liquidity and prospects are not fully known at this time. However, the global trade environment. Covid-19 outbreak has had a minimal impact on our business to date. Our backlog at June 30, 2019 includes a large order for 3D MRS sensors from an existing OEM customer which is primarily scheduled for deliveryrevenues increased by 10% to $16.4 in periods after 2019. We are forecasting sales of $12.0 to $13.5 million for the thirdfirst quarter of 2019, down2020, from $16.7$15.0 million in the thirdfirst quarter of 2018.2019. As noted above, we ended the first quarter of 2020 with a record quarterly backlog, and are still forecasting a solid year-over-year revenue growth in the second quarter of 2020. However, this could change if the pandemic worsens. The most significant impacts currently on our business from the Covid-19 pandemic include the following:
· Our key factories are located in Minnesota and Singapore. Both of these locations are subject to government mandated shelter-in-place orders. Because our operations have been deemed essential, we have been able to keep our factories up and running while the shelter-in-place mandates are in effect. We intendhave implemented split-shifts for our factory operations to investminimize the number of employees in our facilities at any given time, however, this has not affected our production capacity. Our non-factory employees are required to work remotely. To date, the shelter-in-place mandates have had a minimal impact on employee productivity, mainly some disruption to ongoing research and development throughout("R&D") activities, but that could change if the current market downturn sopandemic worsens and is more than temporary.
·Sales of some products, mainly our SQ3000 Multi-Function inspection and measurement systems and MX memory module inspection products, require customer acceptance due to performance or other criteria that weis considered more than a formality. Many of our customer’s factories have remained open during the Covid-19 pandemic because they are well positioneddeemed to capitalizebe essential under most government shelter-in-place mandates. However, this could change if the pandemic worsens and global travel restrictions could hinder our ability to obtain customer acceptances in a timely manner, and therefore impact the timing of revenue recognition.
·We have experienced some supply disruptions due to the Covid-19 pandemic, mainly from suppliers not deemed essential by shelter-in-place mandates in certain countries. Key supply chain disruptions have been mostly resolved, but that could change significantly if the pandemic worsens and is more than temporary. To date, our on-hand inventories have been sufficient to enable us to work through any supply disruptions with minimal impact on our sales or ability to service customers. We presently do not expect that supply chain disruptions will have a significant impact on our revenue in the compelling long-term growth opportunities forsecond quarter of 2020.
20 |
We currently do not anticipate any significant credit losses or asset impairments resulting from the Covid-19 pandemic. As of March 31, 2020, our MRS basedavailable balances of cash and WaferSense® family ofmarketable securities totaled $28.8 million. products. We believe that we have the resources required to attain our growth objectives givenand to meet any unforeseen difficulties resulting from the Covid-19 pandemic. We will continue to closely monitor the Covid-19 pandemic and its impact on our available cash and marketable securities balances totaling $business in the coming months.
25.8 million at
June 30, 2019CARES Act.
On March 27, 2020, the "Coronavirus Aid, Relief and Economic Security (CARES) Act" was signed into law in the United States. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods and alternative tax credit refunds. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain circumstances to promote continued employment. We have analyzed the provisions of the CARES Act and presently do not believe it will have a material impact on our financial condition, results of operations or liquidity. However, we will continue to monitor the impact the CARES Act may have on our business.
Revenues
Our revenues decreasedincreased by 510% to $15.016.4 million in the three months ended June 30, 2019,March 31, 2020, from $15.915.0 million in the three months ended June 30, 2018. Our revenues of $30.0 million in the six months ended June 30, 2019 were virtually unchanged when compared to the six months ended June 30, 2018. March 31, 2019. The following table sets forth revenues by product line for the three and six months ended June 30, 2019March 31, 2020 and 20182019:
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||
(In thousands) | 2019 | 2018 | % Change | 2019 | 2018 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||||||||||||||
High Precision 3D and 2D Sensors | $ | 2,004 | $ | 5,253 | (62 | ) | % | $ | 5,753 | $ | 10,308 | (44 | ) | % | |||||||||||||||||||||||||
High Precision 3D and 2D Sensors | $ | 4,122 | $ | 3,749 | 10 | % | |||||||||||||||||||||||||||||||||
Inspection and Metrology Systems | 8,361 | 7,091 | 18 | % | |||||||||||||||||||||||||||||||||||
Semiconductor Sensors | 3,122 | 3,940 | (21 | ) | % | 7,258 | 7,101 | 2 | % | 3,946 | 4,136 | (5 | ) | % | |||||||||||||||||||||||||
Inspection and Metrology Systems | 9,918 | 6,661 | 49 | % | 17,009 | 12,565 | 35 | % | |||||||||||||||||||||||||||||||
Total | $ | 15,044 | $ | 15,854 | (5 | ) | % | $ | 30,020 | $ | 29,974 | 0 | % | $ | 16,429 | $ | 14,976 | 10 | % |
Revenues from sales of high precision 3D and 2D2D sensors decreasedincreased by $3.2 million$373,000 or 6210% to $2.0$4.1 million in the three months ended June 30, 2019,March 31, 2020, from $5.3$3.7 million in the three months ended June 30, 2018March 31, 2019. Revenues from salesSales of high precision 3D and 2D3D MRS-enabled sensors decreasedincreased by $4.6$1.3 million or 44%76% to $5.8 million in the six months ended June 30, 2019, from $10.3$3.1 million in the sixthree months ended June 30, 2018March 31, 2020 from $1.7 million in the three months ended March 31, 2019..The increase was due to improving conditions in the global semiconductor capital equipment market. Sales of older 2D legacy sensors, which declined on a year-over-year basis in the three months ended March 31, 2020, are expected to rebound and post modest year-over-year growth in the second quarter of 2020. OEM customers reduced their purchasesSales of high precision 3D and 2D sensors in response to weak conditions in the global SMT and semiconductor capital equipment markets. Sales of high precision 3D and 2D sensors are dependent on the success of our OEM customers selling products that incorporate our sensors. Although sales of high precision 3D and 2D sensors are expected to rebound modestly in the third quarter of 2019 on a sequential basis, soft market conditions are expected to persist, resulting in lower year-over-year sales. We believe sales of our new 3D MRS enabled sensors will represent an increasing percentage of our total high precision 3D and 2D sensor sales in the future. However, quarterlyQuarterly sales of high precision 3D and 2D sensors, including 3D MRS enabled sensors, are prone to significant fluctuations both sequentiallydue to variations in market demand.
Revenues from sales of inspection and onmetrology systems increased by $1.3million or18% to $8.4million in thethree months ended March 31, 2020, from $7.1million in the three months ended March 31, 2019.The revenue increase was primarily due to higher sales of SQ3000™ Multi-Function inspection and measurement systems, which increased by $848,000 or 34% to $3.3 million in the three months ended March 31, 2020 from $2.5 million in the three months ended March 31, 2019. The increase in sales of SQ3000™ Multi-Function systems was due to the competitive advantages offered by our SQ3000™ Multi-Function system products, and because many companies are transitioning from 2D AOI to 3D AOI to meet the increasingly demanding product inspection and metrology requirements in the SMT and semiconductor markets. The market transition away from 2D AOI is expected to result in an industry-wide 30% compound annual rate of growth in global sales of 3D AOI systems through 2024. Given these market dynamics and because of the competitive advantages inherent in our 3D MRS sensor technology, we anticipate sales of SQ3000™ Multi-Function systems will represent an increasing percentage of our total inspection and metrology system sales in the future. Revenues from sales of 2D and 3D memory module inspection systems were down slightly in the three months ended March 31, 2020, when compared to the three months ended March 31, 2019. In the three months ended March 31, 2020, we recognized revenue from the first order for our next generation 3D MRS-enabled MX3000 memory module inspection system. This order was made to a year-over-year basis.new memory customer. As a result, two of the world’s three largest memory manufacturers now use either our 2D MX600 or 3D MX3000 memory module inspection systems. We believe the potential market opportunity for the MX3000 system is significant. Revenues from sales of legacy inspection system products were up approximately $1.0 million in the three months ended March 31, 2020, when compared to the same period of last year.
Revenues from sales of semiconductor sensors, principally our WaferSense productWaferSense® line of products, decreased by $190,000818,000 or 521% to $3.93.1 million in the three months ended June 30, 2019, from $3.9 million in the three months ended June 30, 2018. Revenue from sales of semiconductor sensors increased by $157,000 or 2% to $7.3 million in the sixthree months ended June 30, 2019March 31, 2020, from $4.17.1 million in the sixthree months ended June 30, 2018March 31, 2019. InThe sales decrease in 2020 occurred because significant sales of WaferSense products were made in the three months ended June 30,March 31, 2019 customers for our semiconductor sensors reduced their purchases in response to weak conditions in the global semiconductor market. In the six months ended June 30, 2019, incremental sales of WaferSense products to advanced Asian semiconductor manufacturing facilities that were commissioned in 2018 were substantially offset by reduced sales resulting from weak conditions in the global semiconductor market. Sales2018. The order backlog of semiconductor sensors areremains strong, although a sequential sales decline is forecasted to be flat to down slightly infor the thirdsecond quarter of 2019 on both a sequential and year-over-year basis. 2020.Over the longer-term, we anticipate that the benefits from growing market awareness of our WaferSense products, improved account penetration at major semiconductor manufacturers and capital equipment suppliers and new product introductions will lead to additional WaferSenseWaferSense® product sales.
Revenues from sales of inspection and metrology systems increased by $3.3 million or 49% to $9.9 million in the three months ended June 30, 2019, from $6.7 million in the three months ended June 30, 2018. Revenues from sales of inspection and metrology systems increased by $4.4 million or 35% to $17.0 million in the six months ended June 30, 2019, from $12.6 million in the six months ended June 30, 2018. The revenue increases resulted from higher sales of 3D MRS-enabled SQ30003D AOI systems, including the new SQ3000™ 3D CMM system, and sales of MX600 memory module inspection systems. Sales of SQ3000 systems increased by $2.0 million or 75% to $4.6 million in the three months ended June 30, 2019, when compared to the three months ended June 30, 2018. Sales of SQ3000 systems increased by $2.3 million or 47% to $7.1 million in the six months ended June 30, 2019, when compared to the six months ended June 30, 2018. Sales of MX600 memory module inspection systems were $1.1 million and $2.7 million in the three and six months ended June 30, 2019, respectively. There were no sales of MX600 memory module inspection systems in the three and six months ended June 30, 2018.Sales of legacy 2D AOI and solder paste inspection systems were lower in the three and six months ended June 30, 2019, when compared to the three and six months ended June 30, 2018. Sales of inspection and metrology systems are forecasted to decline in the third quarter of 2019 on both a sequential and year-over-year basis due to weak conditions in the global SMT and semiconductor capital equipment markets.
We believe a growing number of companies are transitioning from 2D AOI to 3D AOI systems to meet the increasingly demanding product inspection requirements in the semiconductor, electronics and industrial markets. As a result, demand for 3D AOI systems is growing rapidly. We anticipate sales of 3D MRS enabled SQ30003D AOI systems, including the new SQ3000™ 3D CMM system, will represent an increasing percentage of our total inspection and metrology system sales in the future. Also, we expect that the competitive advantages of our unique 3D MRS technology will provide us with an opportunity to capture significant market share in the 3D AOI systems market.
Export revenues totaled $10.9$11.8 million or 73%72% of our total revenues in the three months ended June 30, 2019,March 31, 2020, compared to $11.3$10.6 million or 71%71% of total revenues in the three months ended June 30, 2018. Export revenues totaled $21.5 million or 72% of our total revenues in both the six months ended June 30, 2019 and six months ended June 30, 2018. Export revenue as a percentage of total revenue was higher in the three months ended June 30, 2019, when compared to the three months ended June 30, 2018, due to increases in sales of inspection and metrology systems outside the United States.March 31, 2019. There was no significant change in export revenues as a percentage of total revenues in the sixthree months ended June 30, 2019March 31, 2020, when compared to the sixthree months ended June 30, 2018March 31, 2019.
Cost of Revenues and Gross Margin
Cost of revenues decreasedincreased by $135,000$1.2 million or 15% to $9.1 or 2% to $8.5million in the three months ended June 30, 2019,March 31, 2020, from $8.6$8.0 million in the three months ended June 30, 2018March 31, 2019. . The decreaseincrease in cost of revenues was due to a 10% increase in revenues in the three months ended June 30, 2019 was due to the 5% decrease in revenues for this periodMarch 31, 2020 and a change in product mix. Higher cost, lower gross margin products constituted a greater percentage of our total revenues in the three months ended June 30, 2019, when compared to the three months ended June 30, 2018. The change in cost of revenues in the six months ended June 30, 2019 when compared to the six months ended June 30, 2018 was inconsequential.
Total gross margin as a percentage of revenues was 44%44% in the three months ended June 30, 2019,March 31, 2020, compared to 4647% in the three months ended June 30, 2018March 31, 2019. . Total gross margin as a percentage of revenues was 45% in both the six months ended June 30, 2019 and 2018. The reduction in gross margin percentage in the three months ended June 30, 2019March 31, 2020 was primarily due to a change in mix of products sold.less favorable product mix. Sales of higher margin semiconductor sensors represented a smaller percentage of our total revenues in the three months ended June 30, 2019,March 31, 2020 when compared to the three months ended June 30, 2018. TotalMarch 31, 2019. In addition, the gross marginsmargin percentage for our next generation 3D MRS-enabled MX3000 memory module inspection system is lower than many of our other products due the significant material handling and automation required. Continued pricing pressures also contributed to the decline in total gross margin as a percentage of revenues.
Our total gross margin as a percentage of revenues in the thirdsecond quarter of 2019 are2020 is expected to be slightly higher on a sequential basis due to a more favorable product mix.consistent with the first quarter of 2020.
Our markets are highly price competitive, particularly in the electronicelectronics assembly market.and SMT markets. As a result, we have experienced continual pressure on our gross margins. We compensate for the pressure to reduce the price of our products by introducing new products with more features and improved performance and through manufacturing cost reduction programs. Sales of many products that we have recently introduced or are about to introduce, including our current and future SQ3000 3D AOI productsMRS-enabled SQ3000™ Multi-Function inspection and SQ3000™ 3D CMM products,measurement systems, next generation 3D MRS sensors and WaferSense sensorsemiconductor sensors, primarily our WaferSense® line of products, have, or are expected to have, more favorable gross margins than many of our existing products. Our next generation 3D MRS-enabled sensor and system products are being designed for more complex and demanding inspection and metrology applications in the SMT and semiconductor markets, including wafer level and advanced packaging inspection and metrology. Sales prices and gross profit margins for these applications tend to be higher than margins for products sold in the broader SMT market.
Operating Expenses
Research and development ("R&D")&D expenses were $2.2$2.4 million or 15% of revenues in the three months ended June 30, 2019,March 31, 2020, compared to $2.2$2.3 million or 14%15% of revenues in the three months ended June 30, 2018March 31, 2019. . R&D expenses were $4.5 million or 15% of revenues in the six months ended June 30, 2019, compared to $4.4 million or 15% of revenues in the six months ended June 30, 2018. The increasesincrease in R&D expenses in both the three and six months ended June 30, 2019March 31, 2020 were the result of higher compensation costs due to pay increases for new and existing R&D employees, and hiring of new R&D employees, offset in part by lowerincluding higher bonus accruals for employees working indue to our R&D department. improved financial performance. Current R&D expenditures are primarily focused on continued development of our MRS technology, including 3D sensor subsystems and commercializationportfolio of our next generation ultra-high resolution three micron pixel 3D NanoResolution MRS sensor,MRS-enabled sensors and systems, and the continued development of new applicationsWaferSense® products. We also continue to enhance our SQ3000™ Multi-Function inspection and measurement machines. The Covid-19 pandemic has caused some disruption to ongoing R&D activities due to requirements for 3D wafer level and memory module inspection.employees to work remotely.
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Selling, general and administrative ("S,G&A") expenses were $3.8$4.2 million or 25% of revenues in the three months ended June 30, 2019,March 31, 2020, compared to $4.1$4.2 million or 26%28% of revenues in the three months ended June 30, 2018. S,G&A expenses were $7.9 million or 26% of revenues in the six months ended June 30, 2019, compared to $8.5 million or 28% of revenues in the six months ended June 30, 2018. March 31, 2019. The decrease in S,G&A expenses as a percentage of revenues in both the three and six months ended June 30, 2019 wasMarch 31, 2020 primarily reflected our higher revenue level. S,G&A expenses in the three months ended March 31, 2020 were favorably impacted by lower costs for travel and the cancellation of trade shows due to lower compensationthe Covid-19 pandemic, offset by higher costs resulting from employee departuresfor professional fees and lower bonus accruals.accruals due to our improved financial performance.
Total operating expenses in the thirdsecond quarter of 20192020 are expected to be slightly higher when compared to operating expenses in the second quarter of 2019.roughly unchanged on a quarterly sequential basis.
Interest Income and Other
Interest incomeincome and other includes interest earned on investments and gains and losses associated with foreign currency transactions, primarily intercompany financing transactions associated with our subsidiaries in the United Kingdom, Singapore and China. WeIn the three months ended March 31, 2020, we recognized gains from foreign currency transactions of $172,000. In the three months ended March 31, 2019, we recognized losses from foreign currency transactions of $7,000 in thethree months ended June 30, 2019, compared to gains of $96,000 in the three months ended June 30, 2018. We recognized losses from foreign currency transactions of $25,000 in thesix months ended June 30, 2019, compared to gains from foreign currency transactions of $139,000 in the six months ended June 30, 201818,000.
Income Taxes
We recorded income tax expense of $192,000$149,000 in the three months ended June 30, 2019March 31, 2020, compared to income tax expense of $230,000134,000 in the three months ended June 30, 2018March 31, 2019. We recorded income tax expense of $326,000 in thesix months ended June 30, 2019, compared to income tax expense of $147,000 in the six months ended June 30, 2018. Our income tax expense in the sixthree months ended June 30, 2019March 31, 2020 reflected an effective income tax rate of approximately 25%, which included $9,00015% compared to an effective tax rate of excess tax benefits from employee share-based payments. Our income tax expenseapproximately 21% in the sixthree months ended June 30, 2018March 31, 2019. reflected anThe reduction in our effective tax rate in the three months ended March 31, 2020, when compared to the three months ended March 31, 2019, was due to deductions for Foreign Derived Intangible Income ("FDII") and Global Intangible Low-Taxed Income ("GILTI") and foreign tax credits.We previously were unable to take advantage of these additional deductions and credits due to our un-used federal net operating loss carry-forwards which are being forecasted to be used up in 2020.On a recurring basis, our effective income tax rate of approximately 21%, which included $33,000 of excess tax benefits from employee share-based payments. Our effective income tax rate in the six months ended June 30, 2019 and the six months ended June 30, 2018 wasis significantly impacted by Global Intangible Low Tax Income (GILTI),the GILTI and FDII regulations, U.S. federal R&D tax credits and excessforeign tax benefits from employee share-based payments. credits.
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We have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and developmentR&D tax credit carry forwards and federal, state and foreign net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes, when net operating loss carry forwards could be applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.
Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first considered our history of cumulative operating results for income tax purposes over the pastthree years in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forwardcarry-forward periods and tax planning alternatives. In addition, we considered both our near-term and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets waswere not required.
We have amended our income tax returns for prior periods in connection with the Inland Revenue Authority of Singapore's audits of our 2016 and 2015 income tax returns. We anticipate recognizing an approximate $200,000 non-cash income tax benefit from the release of an income tax reserve in the third quarter of 2019 in connection with the completion of these audits.
Backlog
Backlog totaled $13.0 million at June 30, 2019, a decrease from $13.6 million at December 31, 2018 and $13.8 million at June 30, 2018. Our products are typically shipped two weeks to two months after receipt of an order. Sales of some inspection system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these product sales, revenue is recognized at the time of customer acceptance. Our backlog at any time may vary significantly based on the timing of orders from OEM customers. In some instances, our OEM customers may place orders for shipment of products covering periods of nine months or longer. Accordingly, backlog may not be an accurate indicator of performance in the future.
Liquidity and Capital Resources
Our cash and cash equivalents increased by $416,000$233,000 in the sixthree months ended June 30, 2019.March 31, 2020. Cash provided by operating activities was $2.5 million. Investing activities used $2.3 million of $cash, with 1.3 million and proceeds of $2.9 million from maturities of marketable securities were mostly offset by purchases of marketable securities totaling $2.8$5.3 million and purchases of fixed assets and capitalized patent costs totaling $1.0$146,000, million.being partially offset by proceeds of $3.1 million from maturities of marketable securities. Our cash and cash equivalents fluctuate in part because of sales and maturities of marketable securities and investment of cash balances in marketable securities, and from other sources of cash. Accordingly, we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity than cash balances alone. Combined balances of cash and marketable securities increased by approximately $500,000$2.5 million to $25.8$28.8 as of March 31, 2020, from $26.3 million as of June 30, 2019 from $25.3 million as of December 31, 2018.2019.
Operating activities provided $1.3$2.5 million of cash in the sixthree months ended June 30, 2019.March 31, 2020. The amount of cash provided by operations was favorably impacted by net income of $959,000.$844,000. Net income was affected by non-cash expenses totaling $2.1million$751,000 for depreciation and amortization, provisionnon-cash operating lease expense, recovery for doubtful accounts, deferred income taxes, non-cash lossesgains from foreign currency transactions, share-based compensation costs and an unrealized loss on our available-for-sale equity security. Changes in operating assets and liabilities providing cash in the six months ended June 30, 2019, included a decrease in accounts receivable of $320,000, a decrease in other assets of $648,000, an increase in advance customer payments of $186,000$1.8 million and an increase in operating lease assets and liabilitiesaccounts payable of $397,000.$1.3 million. Changes in operating assets and liabilities using cash in the six months ended June 30, 2019 included an increase in inventories of $1.9$2.1 million, a decreasepayments for operating lease liabilities of $200,000 and minimal changes in accounts payable of $865,000other operating assets and a decrease in accrued expenses of $561,000.liabilities totaling $46,000. Accounts receivable decreased due to lowerfaster collection of accounts receivable and a small decrease in sales in the secondfirst quarter of 2019, when2020 compared to the fourth quarter of 2018, offset in part by slower collection2019. We ended the first quarter of 2020 with a record quarterly backlog. Inventories and accounts receivable, mainly resulting from a change in product mix. Sales of inspection and metrology systems, which typically have longer collection periods than sales of our sensor products, constituted a larger portion of our revenues in the six months ended June 30, 2019. Other assets decreased because deposits previously paid to a key supplier of materials were used to purchase inventories. The increase in advance customer payments resulted from receipt of cash prior to revenue recognition for sales with customer acceptance provisions. The increase in operating lease assets and liabilities resulted from lease incentives, including free rents and facility operating costs, and the effects of straight-line rent expense. Inventoriespayable at March 31, 2020 increased due to sluggish conditions in the global SMT and semiconductor capital equipment markets,planned purchases of raw materials to meet customer demand, with a corresponding negative impact on sales also causing inventory levels to rise. Accounts payable decreased due to timing of inventory purchases, with more raw materials being acquired in the first quarter of 2020 compared to the fourth quarter of 2018 and the early months of 2019. These materials were subsequently paid for in the second quarter of 2019, resulting in a lower accounts payable balance. Accrued expenses decreased due to payment of 2018 bonuses in 2019, offset in part by accruals for taxes and other items.
Investing activities used $916,000$2.3 million of cash in the sixthree months ended June 30, 2019.March 31, 2020. Changes in the level of investment in marketable securities, resulting from purchases sales and maturities of those securities, provided $102,000 of cash in the six months ended June 30, 2019. We used $1.0$2.2 million of cash in the sixthree months ended June 30, 2019March 31, 2020. We used $146,000 of cash in the three months ended March 31, 2020 for the purchase of fixed assets and capitalized patent costs.
Financing activities from the exercise of stock options provided $59,000$85,000 of cash in the sixthree months ended June 30, 2019March 31, 2020..
In July 2019, our boardBoard of directorsDirectors authorized a $3.0 million share repurchase program that runs through June 30, 2020. No shares were repurchased under this program in the three months ended March 31, 2020.
In February 2020, we finalized an extension to our lease for our existing 19,805 square foot mixed office and warehouse facility in Singapore, which serves as a sales, development and final assembly and integration facility for our inspection and metrology system products.The new lease runs from the expiration date of our old lease in July 2020 through July 24, 2023. Rent and facility operating costs under the new lease are expected to remain unchanged when compared to the old lease expiring in July 2020.
At June 30, 2019,March 31, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. These entities are established by some companies for the purpose of establishing off-balance sheet arrangements or for other contractually narrow or limited purposes.
We believe that on-hand cash, cash equivalents and marketable securities, coupled with anticipated future cash flow from operations, will be adequate to fund our cash flow needs for the foreseeable future.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 – CONTROLS AND PROCEDURES
a. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
b. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
None.
ITEM 1A – RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I “Item 1A.1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, which could materially affect our business, financial condition or future results. There are no material changes from these risk factors, other than the addition of the following risk factor:
The Covid-19 pandemic has significantly and negatively impacted worldwide economic conditions likely resulting in a recession or depression, and could have a material adverse effect on our operations and business in the future. The Covid-19 pandemic is likely to affect our business, especially if government authorities continue to impose mandatory closures, shelter-in-place mandates and social distancing protocols, and seek voluntary facility closures or impose other restrictions. These actions could materially adversely affect our ability to adequately staff and maintain our operations and negatively impact long-term research and development projects. Global travel restrictions could continue to hinder our ability to obtain timely customer acceptance for some product sales, which would negatively impact our revenue and operating results. Our global supply chain has been and may continue to be disrupted, which could negatively impact our sales and ability to service our customers. In addition, the economic disruptions caused by the Covid-19 outbreak could prevent customers from paying us for our products and result in significant credit losses. A prolonged global recession or depression resulting from the Covid-19 pandemic most likely would have a significant negative impact on our revenue and operating results, and could lead to asset impairment charges. As we cannot predict the duration or scope of the Covid-19 pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated, but could be material and last for an extended period of time.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
None.In July 2019, our Board of Directors authorized a $3.0 million share repurchase program. Our common stock may be acquired from time to time in open market transactions, block purchases and other transactions complying with the Securities and Exchange Commission’s Rule 10b-18. There were no share repurchases under this program in the three months ended March 31, 2020. The share repurchase program will terminate on June 30, 2020.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
None.
ITEM 5 – OTHER INFORMATION
None.
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ITEM 6 – EXHIBITS
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| Financial statements formatted in Inline Extensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to the Interim Condensed Consolidated Financial Statements |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CYBEROPTICS CORPORATION |
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| /s/ Subodh Kulkarni |
| By Subodh Kulkarni, President and Chief Executive Officer |
| (Principal Executive Officer and Duly Authorized Officer) |
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| /s/ Jeffrey A. Bertelsen |
| By Jeffrey A. Bertelsen, Vice President, Chief Financial Officer and Chief Operating Officer |
| (Principal Accounting Officer and Duly Authorized Officer) |
Dated: August 7, 2019May 8, 2020