| Revenue | Revenue We recognize revenue upon transferring control of products and services and the amounts recognized reflect the consideration we expect to be entitled to receive in exchange for these products and services. We consider customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. As part of our consideration of the contract, we evaluate certain factors, including the customer's ability to pay (or credit risk). For each contract, we consider the promise to transfer products, each of which is distinct, as the identified performance obligations. We allocate the transaction price to each distinct product based on its relative standalone selling price. Master sales agreements or purchase orders from customers could include a single product or multiple products. Regardless, the contracted price with the customer is agreed to at the individual product level outlined in the customer contract or purchase order. We do not bundle prices; however, we do negotiate with customers on pricing for the same products based on a variety of factors (e.g., level of contractual volume). We have concluded that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product. We often receive orders with multiple delivery dates that may extend across several reporting periods. We allocate the transaction price of the contract to each delivery based on the product standalone selling price and invoice for each scheduled delivery upon shipment or delivery and recognize revenues for such delivery at that point, when transfer of control has occurred. As scheduled delivery dates are generally within one year, under the optional exemption provided by ASC 606-10-50-14a, revenues allocated to future shipments of partially completed contracts are not disclosed as performance obligations for point in time revenue. Further, we recognize, over time, revenue as per ASC 606-10-55-18 (invoice practical expedient) for our cost plus contracts and, accordingly, elect not to disclose information related to those performance obligations under ASC 606-10-50-14b. As of September 30, 2023, we had approximately $33 million of performance obligations relating to firm fixed price contracts with scheduled delivery dates that extended beyond one year, which did not qualify for the aforementioned disclosure exemptions. We expect to recognize approximately 80% of these performance obligations by the end of 2024 and the remaining 20% in 2025. Rights of return generally are not included in customer contracts. Accordingly, product revenue is recognized upon transfer of control at shipment or delivery, as applicable. Rights of return are evaluated as they occur. Revenues recognized at a point in time consist of sales of semiconductor lasers, fiber lasers and other related products. Revenues recognized over time generally consist of development arrangements that are structured based on our costs incurred. For long-term contracts, we estimate the total expected costs to complete the contract and recognize revenue based on the percentage of costs incurred at period end. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials, subcontractors costs, other direct costs, and indirect costs applicable on government and commercial contracts. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer. Billing under these arrangements generally occurs within one month of the costs being incurred or as milestones are reached. The following tables represent a disaggregation of revenue from contracts with customers for the periods presented (in thousands): Sales by End Market Three Months Ended September 30, Nine Months Ended 2023 2022 2023 2022 Industrial $ 19,607 $ 22,217 $ 56,078 $ 68,112 Microfabrication 12,000 17,682 37,285 51,416 Aerospace and Defense 19,027 20,194 64,666 65,851 $ 50,634 $ 60,093 $ 158,029 $ 185,379 Sales by Geography Three Months Ended September 30, Nine Months Ended 2023 2022 2023 2022 North America $ 31,330 $ 32,793 $ 94,750 $ 103,619 China 2,624 5,230 9,134 17,041 Rest of World 16,680 22,070 54,145 64,719 $ 50,634 $ 60,093 $ 158,029 $ 185,379 Sales by Timing of Revenue Three Months Ended September 30, Nine Months Ended 2023 2022 2023 2022 Point in time $ 37,913 $ 45,268 $ 117,361 $ 138,931 Over time 12,721 14,825 40,668 46,448 $ 50,634 $ 60,093 $ 158,029 $ 185,379 Our contract assets and liabilities were as follows (in thousands): Balance Sheet Classification As of September 30, 2023 December 31, 2022 Contract assets Prepaid expenses and $ 8,617 $ 10,377 Contract liabilities Deferred revenues and other long-term liabilities 3,477 2,455 Contract assets generally consist of revenue recognized on an over-time basis where revenue recognition has been met, but the amounts are subsequently billed and collected in the following period. In our services contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, which is generally monthly, or upon the achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets recorded in unbilled receivables and retentions on the Consolidated Balance Sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities recorded in customer advances on the Consolidated Balance Sheets. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. For our product revenue, we generally receive cash payments subsequent to satisfying the performance obligation via delivery of the product, resulting in billed accounts receivable. For our contracts, there are no significant gaps between the receipt of payment and the transfer of the associated goods and services to the customer for material amounts of consideration. During the three and nine months ended September 30, 2023, we recognized revenue of $0.3 million and $1.4 million, respectively, that was included in the deferred revenue balances at the beginning of the period as the performance obligations under the associated agreements were satisfied. |
