3. Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three months ended March 31, 2018 and April 1, 2017 along with the reportable segment for each category. As noted above the prior period amounts have not been adjusted under the modified retrospective method.

Major Products and Service Lines


TFE	Three Months Ended March 31, 2018										Three Months Ended April 1, 2017
	(In thousands)
	HDD		DCP		PV		Total		HDD		DCP		PV		Total
Systems, upgrades and spare parts	$	10,393	$	1	$	2	$	10,396	$	7,281	$	12,787	$	—	$	20,068
Field service		2,355		—		38		2,393		1,408		—		8		1,416

Total TFE net revenues	$	12,748	$	1	$	40	$	12,789	$	8,689	$	12,787	$	8	$	21,484


	Three Months Ended
Photonics	March 31,2018		April 1,2017
	(In thousands)
Products:
Military products	$	2,254	$	6,705
Commercial products		—		46
Repair and other services		429		188

Total Photonics product net revenues		2,683		6,939
Technology development:
FFP		692		1,084
CPFF		1,790		881
Time and materials		20		—

Total technology development net revenues		2,502		1,965

Total Photonics net revenues	$	5,185	$	8,904

Primary Geographical Markets


	Three Months Ended						Three Months Ended
	March 31, 2018						April 1, 2017
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
United States	$	1,911	$	4,762	$	6,673	$	613	$	8,589	$	9,202
Asia		10,878		—		10,878		20,871		—		20,871
Europe		—		293		293		—		315		315
Rest of World		—		130		130		—		—		—

Total net revenues	$	12,789	$	5,185	$	17,974	$	21,484	$	8,904	$	30,388

Timing of Revenue Recognition


	Three Months Ended
	March 31, 2018
	TFE		Photonics		Total
	(In thousands)
Products transferred at a point in time	$	12,789	$	429	$	13,218
Products and services transferred over time		—		4,756		4,756

	$	12,789	$	5,185	$	17,974

The following table reflects the changes in our contract assets, which we classify as accounts receivable, unbilled or retainage and our contract liabilities which we classify as deferred revenue and customer advances for the three months ended March 31, 2018:


	March 31, 2018		December 30, 2017		Three Months Change
	(In thousands)
TFE:
Contract assets:
Accounts receivable, unbilled	$	854	$	1,368	$	(514	)

Contract liabilities:
Deferred revenue	$	5,319	$	5,190	$	129
Customer advances		11,092		10,204		888

	$	16,411	$	15,394	$	1,017

Photonics:
Contract assets:
Accounts receivable, unbilled	$	1,692	$	1,346	$	346
Retainage		288		281		7

	$	1,980	$	1,627	$	353

Contract liabilities:
Deferred revenue	$	1,602	$	97	$	1,505
Customer advances		616		822		(206	)

	$	2,218	$	919	$	1,299

Accounts receivable, unbilled in our TFE segment represents a contract asset for revenue that has been recognized in advance of billing the customer. For our system and certain upgrade sales, our TFE customers generally pay in three installments, with a portion of the system price billed upon receipt of an order, a portion of the price billed upon shipment, and the balance of the price due upon completion of installation and acceptance of the system at the customer’s factory. Accounts receivable, unbilled in our TFE segment generally represents the balance of the system price that is due upon completion of installation and acceptance less the amount that has been deferred as revenue for the performance of the installation tasks. During the three months ended March 31, 2018 contract assets in our TFE segment decreased by $514,000 primarily due to the final billing on two systems that completed installation and were accepted by the customer, offset by the accrual of revenue for an additional system delivered in the quarter that was pending acceptance as of March 31, 2018.

Customer advances in our TFE segment generally represent amounts billed to the customer prior to transferring goods which represents a contract liability. The Company has elected to use the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. These contract advances are liquidated when revenue is recognized. Deferred revenue in our TFE segment generally represents amounts billed to a customer for completed systems at the customer site that are undergoing installation and acceptance testing where transfer of control has not yet occurred as Intevac does not yet have a demonstrated history of meeting the acceptance criteria upon the customer’s receipt of product and represents a contract liability. During the three months ended March 31, 2018 we recognized revenue in our TFE segment of $2.1 million and $39,000 that was included in customer advances and deferred revenue, respectively, at the beginning of the period.

Accounts receivable, unbilled in our Photonics segment represents a contract asset for revenue that has been recognized in advance of billing the customer, which is common for contracts in the defense industry. In our Photonics segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contracts with the U.S. government may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the U.S. government as a form of security until satisfactory completion of the contract. The retainage is billable upon completion of the contract performance and approval of final indirect expense rates by the government. During the three months ended March 31, 2018 contract assets in our TFE segment increased by $353,000 primarily due to the accrual of revenue for incurred costs under CPFF contracts.

Customer advances in our Photonics segment generally represent deposits from customers upon contract execution and upon achievement of contractual milestones which represents a contract liability. These deposits are liquidated when revenue is recognized. Deferred revenue in our Photonics segment includes $1.6 million deferred for the impact of the allocation and the timing of the recognition of revenues for a military product agreement with a tiered pricing structure. Deferred revenue in our Photonics segment also includes incurred costs under CPFF contracts pending approval of final indirect expense rates by the government and represents a contract liability. During the three months ended March 31, 2018 we recognized revenue in our Photonics segment of $206,000 and $129,000 that was included in customer advances and deferred revenue, respectively, at the beginning of the period.

On March 31, 2018 we had $66.9 million of remaining performance obligations, which we also refer to as total backlog. Backlog at March 31, 2018 consisted of $55.6 million of TFE backlog and $11.3 million of Photonics backlog. We expect to recognize approximately 78% of our remaining performance obligations as revenue in 2018, and the balance in 2019.