Revenue

3 Months Ended

Mar. 30, 2019

3. Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three months ended March 30, 2019 and March 31, 2018 along with the reportable segment for each category.

Major Products and Service Lines

TFE	Three Months Ended March 30, 2019								Three Months Ended March 31, 2018
	(In thousands)
	HDD		DCP		PV		Total		HDD		DCP		PV		Total
Systems, upgrades and spare parts	$	11,050	$	—	$	6,373	$	17,423	$	10,393	$	1	$	2	$	10,396
Field service		1,522		—		—		1,522		2,355		—		38		2,393
Total TFE net revenues	$	12,572	$	—	$	6,373	$	18,945	$	12,748	$	1	$	40	$	12,789

	Three Months Ended
Photonics	March 30, 2019		March 31, 2018
	(In thousands)
Products:
Military products	$	1,813	$	2,254
Commercial products		318		—
Repair and other services		561		429
Total Photonics product net revenues		2,692		2,683
Technology development:
Firm Fixed Price (“FFP”)		1,692		692
Cost Plus Fixed Fee (“CPFF”)		1,496		1,790
Time and materials		2		20
Total technology development net revenues		3,190		2,502
Total Photonics net revenues	$	5,882	$	5,185

Primary Geographical Markets

	Three Months Ended
	March 30, 2019						March 31, 2018
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
United States	$	161	$	5,716	$	5,877	$	1,911	$	4,762	$	6,673
Asia		18,784		—		18,784		10,878		—		10,878
Europe		—		166		166		—		293		293
Rest of World		—		—		—		—		130		130
Total net revenues	$	18,945	$	5,882	$	24,827	$	12,789	$	5,185	$	17,974

Timing of Revenue Recognition

	Three Months Ended
	March 30, 2019						March 31, 2018
	(In thousands)
	TFE		Photonics		Total		TFE		Photonics		Total
Products transferred at a point in time	$	18,945	$	561	$	19,506	$	12,789	$	429	$	13,218
Products and services transferred over time		—		5,321		5,321		—		4,756		4,756
	$	18,945	$	5,882	$	24,827	$	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 30 2019.

	March 30, 2019		December 29, 2018		Three Months Change
	(In thousands)
TFE:
Contract assets:
Accounts receivable, unbilled	$	897	$	514	$	383
Contract liabilities:
Deferred revenue	$	713	$	633	$	80
Customer advances		10,335		14,314		(3,979	)
	$	11,048	$	14,947	$	(3,899	)
Photonics:
Contract assets:
Accounts receivable, unbilled	$	2,561	$	1,493	$	1,068
Retainage		131		157		(26	)
	$	2,692	$	1,650	$	1,042
Contract liabilities:
Deferred revenue	$	784	$	1,101	$	(317	)

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 30, 2019, contract assets in our TFE segment increased by $383,000 primarily due to the accrual of revenue for four systems delivered in the quarter that were pending acceptance as of March 30, 2019.

Customer advances in our TFE segment generally represent a contract liability for amounts billed to the customer prior to transferring goods. 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 a contract liability for 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. During the three months ended March 30, 2019, we recognized revenue in our TFE segment of $6.5 million and $209,000 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 30, 2019, contract assets in our Photonics segment increased by $1.0 million primarily due to the accrual of revenue for incurred costs under FFP and CPFF contracts.

Deferred revenue in our Photonics segment includes $784,000 deferred for the impact of the allocation and the timing of the recognition of revenue for a military product agreement with a tiered pricing structure. During the three months ended March 30, 2019, we recognized revenue in our Photonics segment of $317,000 that was included in deferred revenue at the beginning of the period.

On March 30, 2019 we had $102.6 million of remaining performance obligations, which we also refer to as total backlog. Backlog at March 30, 2019 consisted of $59.3 million of TFE backlog and $43.3 million of Photonics backlog. We expect to recognize approximately 69% of our remaining performance obligations as revenue in 2019, and the balance in 2020.