| Revenue Recognition | 3. Revenue Recognition
Prior to January 1, 2018
Product revenue was recognized in the period when persuasive
evidence of an arrangement with a customer existed, the products
were shipped and title was transferred to the customer, the price
was fixed or determinable, and collection was considered
probable.
The Company deferred revenue and the related cost of sales on
shipments to stocking distributors until the distributors resold
the products to their customers. The agreements with these stocking
distributors allowed them to receive price adjustment credits or to
return qualifying products for credit, as determined by the
Company, in order to reduce the amounts of slow-moving,
discontinued, or obsolete product from their inventory. These
stocking distributors were also granted price adjustment credits in
the event of a price decrease subsequent to the date the product
was shipped and invoiced to the stocking distributor. Given the
uncertainties associated with the levels of price adjustment
credits to be granted to stocking distributors, the sales price to
the stocking distributor was not fixed or determinable until the
stocking distributor resold the products to its customers.
Therefore, the Company deferred revenue and the related cost of
sales on shipments to stocking distributors until the stocking
distributors resold the products to their customers. Accordingly,
the Company’s revenue fully reflected end-customer end-customers.
The Company evaluated revenue arrangements with potential
multi-element deliverables to determine if there were more than one
unit of accounting. A deliverable constituted a separate unit of
accounting when it had standalone value and there were no
customer-negotiated refund or return rights for the undelivered
elements. The Company entered into arrangements containing multiple
elements that could include a combination of non-recurring
License fees were recognized as earned. The Company recognized
revenue on such arrangements only when the contract was signed, the
license term had begun, all obligations had been delivered to the
customer, and collection was probable.
Subsequent to January 1, 2018
Revenue is recognized when control of the promised goods or
services is transferred to a customer, in an amount that reflects
the consideration the Company expects to be entitled to in exchange
for those goods or services. Sales, value add, and other taxes
collected concurrent with revenue-producing activities are excluded
from revenue. The expected costs associated with product warranties
continue to be recognized at the time product revenue is
recognized. Shipping and handling costs associated with outbound
freight after control over a product has transferred to a customer
are accounted for as a fulfillment cost and are included in cost of
revenues.
The Company’s primary source of net revenue comes from the
sale of products, which are modular power components and power
systems for converting, regulating and controlling electric
current. The principal customers for the Company’s power
converters and systems are large original equipment manufacturers
and the original design manufacturers and contract manufacturers
serving them, and smaller, lower volume users, which are broadly
distributed across several major market areas. The Company
recognizes revenue for product sales at a point in time following
the transfer of control of such products to the customer, which
typically occurs upon shipment or delivery, depending on the terms
of the underlying contract. As noted above, the Company previously
deferred revenue and the related cost of revenues on shipments to
stocking distributors until the distributors resold the products to
their customers. The Company now records revenue for such
transactions at the time of sale to the stocking distributor. The
Company establishes sales allowances for estimated future product
returns including distributor returns and price adjustment
credits, primarily based upon historical and anticipated rates
of product returns and allowances.
Certain contracts with customers contain multiple performance
obligations, which typically may include a combination of NRE,
prototype units, and production units. For these contracts, the
individual performance obligations are accounted for separately if
they are distinct. Generally, the Company has determined the NRE
and prototype units represent one distinct performance obligation
and the production units represent a separate distinct performance
obligation. For such arrangements, revenue is allocated to each
performance obligation based on its relative standalone selling
price, based on prices charged to customers or using the expected
cost plus a margin approach. The Company defers revenue recognition
for NRE and prototype units until the point in time at which the
final milestone under the NRE arrangement is completed and control
is transferred to the customer, which is generally the delivery of
the prototype. Revenue for production units is recognized upon
shipment or delivery, consistent with product revenue summarized
above.
The Company licenses its intellectual property under right to use
licenses, in which royalties due to the Company are based upon a
percentage of the licensee’s sales. The Company utilizes the
exception under the revenue recognition guidance for the
recognition of sales- or usage-based royalties, in which the
royalties are not recognized until the later of when 1) the
customer’s subsequent sales or usages occur, or 2) the
performance obligation to which some or all of the sales- or
usage-based royalty has been allocated is satisfied or partially
satisfied.
The Company’s payment terms vary by the type and location of
its customers and the products or services offered, although terms
generally include a requirement of payment within 30 to 60 days.
There are circumstances in which the Company has required cash in
advance (i.e., a partial down-payment) to facilitate orders in
excess of a customer’s established credit
limit.
The Company records deferred revenue, which represents a contract
liability, when cash payments are received or due in advance of
performance under a contract with a customer. During the three
months ended March 31, 2018 under Topic 606, the Company
recognized revenue of approximately $205,000 that was included in
deferred revenue at the beginning of the period.
The Company applies the practical expedient allowed under the new
guidance for the incremental costs of obtaining a contract for
sales commissions, which are expensed when incurred because the
amortization period is generally less than one year. These costs
are included in selling, general and administrative expenses.
The Company also applies another practical expedient allowed under
the new guidance and does not disclose the value of unsatisfied
performance obligations for contracts with an original expected
length of one year or less.
The following table presents the Company’s net revenues
disaggregated by geography based on the location of the customer,
by reportable segment, for the three months ended March 31,
2018 (in thousands):
Primary geographic markets BBU VI Chip Picor Total
United States $ 16,991 $ 7,999 $ 633 $ 25,623
Europe 4,725 573 75 5,373
Asia Pacific 18,211 11,387 3,758 33,356
All other 710 180 27 917
$ 40,637 $ 20,139 $ 4,493 $ 65,269
The following table presents the Company’s net revenues
disaggregated by the category of revenue, by reportable segment,
for the three months ended March 31, 2018 (in thousands):
Category of revenue BBU VI Chip Picor Total
Direct customers, contract manufacturers and non-stocking $ 35,474 $ 17,306 $ 3,980 $ 56,760
Stocking distributors, net of sales allowances 4,963 2,554 389 7,906
Non-recurring 175 245 90 510
Royalties 25 25 25 75
Other
— 9 9 18
$ 40,637 $ 20,139 $ 4,493 $ 65,269
The following table presents the changes in certain contract assets
and liabilities (in thousands):
March 31, December 31, Increase
Accounts receivable $ 41,634 $ 34,487 $ 7,147
Deferred revenue (1,419 ) (5,015 ) (3,596 )
Deferred expenses 624 377 247
Customer prepayments (1,350 ) (776 ) 574
Sales allowances (384 )
— 384
The increase in accounts receivable was primarily due to an
increase in net revenues of approximately $6,498,000 in the first
quarter of 2018 compared to the fourth quarter of 2017. The
decrease in deferred revenue was primarily due to the adoption of
the new revenue recognition guidance, as the balances related to
stocking distributors were reversed as part of the transition
adjustment recorded as of January 1, 2018 (see Note 2 to the
Condensed Consolidated Financial Statements). The increase in
deferred expenses is primarily due to additional work incurred on
certain NRE projects during the first quarter of 2018 for which the
associated revenue is being deferred. The increase in sales
allowances was primarily due to the establishment of new
allowances, in connection with the new revenue recognition
guidance, for potential returns and price adjustment credits on
sales to stocking distributors.
Deferred expenses are included in Other current assets, and
customer prepayments are included in Deferred revenue, in the
accompanying Condensed Consolidated Balance Sheets,
respectively. |
