3. Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three and nine months ended September 29, 2018 and September 30, 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 September 29, 2018								Three Months Ended September 30, 2017
	(In thousands)
	HDD		DCP		PV		Total		HDD		DCP		PV		Total
Systems, upgrades and spare parts	$	9,476	$	—	$	51	$	9,527	$	15,620	$	—	$	275	$	15,895
Field service		2,581		—		—		2,581		1,282		—		—		1,282

Total TFE net revenues	$	12,057	$	—	$	51	$	12,108	$	16,902	$	—	$	275	$	17,177


	Nine Months Ended September 29, 2018								Nine Months Ended September 30, 2017
	(In thousands)
	HDD		DCP		PV		Total		HDD		DCP		PV		Total
Systems, upgrades and spare parts	$	39,090	$	1	$	54	$	39,145	$	34,875	$	13,138	$	9,271	$	57,284
Field service		6,561		—		39		6,600		3,803		—		—		3,803

Total TFE net revenues	$	45,651	$	1	$	93	$	45,745	$	38,678	$	13,138	$	9,271	$	61,087


	Three Months Ended				Nine Months Ended
Photonics	September 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
	(In thousands)
Products:
Military products	$	4,202	$	6,989	$	8,601	$	20,908
Commercial products		84		38		138		100
Repair and other services		746		333		1,463		727

Total Photonics product net revenues		5,032		7,360		10,202		21,735
Technology development:
CPFF		1,819		1,446		5,829		2,516
FFP		494		728		1,726		2,724
Time and materials		13		15		36		15

Total technology development net revenues		2,326		2,189		7,591		5,255

Total Photonics net revenues	$	7,358	$	9,549	$	17,793	$	26,990

Primary Geographical Markets


	Three Months Ended						Three Months Ended
	September 29, 2018						September 30, 2017
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
United States	$	287	$	6,868	$	7,155	$	1,370	$	8,924	$	10,294
Asia		11,821		—		11,821		15,807		—		15,807
Europe		—		457		457		—		94		94
Rest of World		—		33		33		—		531		531

Total net revenues	$	12,108	$	7,358	$	19,466	$	17,177	$	9,549	$	26,726


	Nine Months Ended						Nine Months Ended
	September 29, 2018						September 30, 2017
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
United States	$	3,549	$	16,628	$	20,177	$	4,033	$	25,846	$	29,879
Asia		42,196		31		42,227		57,054		8		57,062
Europe		—		937		937		—		605		605
Rest of World		—		197		197		—		531		531

Total net revenues	$	45,745	$	17,793	$	63,538	$	61,087	$	26,990	$	88,077

Timing of Revenue Recognition


	Three Months Ended						Nine Months Ended
	September 29, 2018						September 29, 2018
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
Products transferred at a point in time	$	12,108	$	746	$	12,854	$	45,745	$	1,463	$	47,208
Products and services transferred over time		—		6,612		6,612		—		16,330		16,330

	$	12,108	$	7,358	$	19,466	$	45,745	$	17,793	$	63,538

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 nine months ended September 29, 2018:


	September 29, 2018		December 30, 2017		Nine Months Change
	(In thousands)
TFE:
Contract assets:
Accounts receivable, unbilled	$	517	$	1,368	$	(851	)

Contract liabilities:
Deferred revenue	$	6,200	$	5,190	$	1,010
Customer advances		11,066		10,204		862

	$	17,266	$	15,394	$	1,872

Photonics:
Contract assets:
Accounts receivable, unbilled	$	1,476	$	1,346	$	130
Retainage		145		281		(136	)

	$	1,621	$	1,627	$	(6	)

Contract liabilities:
Deferred revenue	$	1,317	$	97	$	1,220
Customer advances		550		822		(272	)

	$	1,867	$	919	$	948

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 nine months ended September 29, 2018, contract assets in our TFE segment decreased by $851,000 primarily due to the final billing on four systems that were pending acceptance as of December 30, 2017 that completed installation and were accepted by the customer, offset by the accrual of revenue for an additional two systems delivered during the first nine months of fiscal 2018 that were pending acceptance as of September 29, 2018.

Customer advances in our TFE segment generally represent amounts billed to the customer prior to transferring goods which represents a contract liability. We have 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 we do 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 nine months ended September 29, 2018, we recognized revenue in our TFE segment of $6.6 million and $69,000 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 nine months ended September 29, 2018, contract assets in our Photonics segment decreased by $6,000 primarily due to the final settlement of retainage amounts on certain CPFF contracts, offset in part by 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 $1.3 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 nine months ended September 29, 2018, we recognized revenue in our Photonics segment of $536,000 and $324,000 that was included in customer advances and deferred revenue, respectively, at the beginning of the period.

On September 29, 2018 we had $72.2 million of remaining performance obligations, which we also refer to as total backlog. Backlog at September 29, 2018 consisted of $63.6 million of TFE backlog and $8.6 million of Photonics backlog. We expect to recognize approximately 44% of our remaining performance obligations as revenue in 2018, 52% in 2019 and 4% in 2020.