Revenue

Adoption of ASC 606

The Company adopted ASC 606 “Revenue from Contracts with Customers” using the cumulative effect method with a date of initial application of January 1, 2019. Therefore, the comparative period information has not been adjusted and continues to be reported under ASC 605 “Revenue Recognition.” The impact of adoption was immaterial, and the Company expects the impact of the adoption of the new standard to be immaterial to the consolidated financial statements on an ongoing basis. A majority of the Company's revenue continues to be recognized at a point in time when control transfers based on the terms of the underlying contract.

Revenue Recognition

Revenue is recognized when transfer of control to the customer occurs in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve this core principle, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. As part of its consideration of the contract, the Company evaluates certain factors including the customer's ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, as the identified performance obligations. As the Company's standard payment terms are less than one year, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. Payment terms in excess of one year are evaluated as they occur.

The Company allocates 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. The Company does not bundle prices; however, it does negotiate with customers on pricing for the same products based on a variety of factors (e.g., level of contractual volume). The Company has concluded that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product.

Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company's performance obligation is satisfied), which typically occurs at shipment or delivery, depending on shipping terms.

The Company often receives orders with multiple delivery dates that may extend across several reporting periods. The Company allocates the transaction price of the contract to each delivery based on the product standalone selling price. The Company invoices for each scheduled delivery upon shipment or delivery and recognizes revenues for such delivery at that point, assuming transfer of control has occurred. As scheduled delivery dates are generally within one year, under the optional exemption provided by ASC 606-10-50-14 revenues allocated to future shipments of partially completed contracts are not disclosed.

Rights of return generally are not included in customer contracts. Accordingly, product revenue is recognized upon shipment or delivery, as applicable, and transfer of control. Rights of return are evaluated as they occur.

As part of its adoption of the new revenue standard, the Company has elected to account for shipping and handling as fulfillment activities and record them in cost of sales. The election of this practical expedient results in accounting treatment consistent with the Company’s historical accounting policies and therefore, this election does not impact the comparability of the financial statements.

Revenue Recognition at a Point in Time - Revenues recognized at a point in time consist of sales of semiconductor lasers, fiber lasers and other related products.

Revenue Recognition over Time - Revenues recognized over time generally consist of arrangements for goods and services that are structured based on the Company’s costs. Revenue for these arrangements is recognized as control transfers, which occurs as the work is performed. Billing under these arrangements generally occurs within one month after the work is completed.

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 September 30,
	2019		2019
Industrial	$	18,977	$	58,021
Microfabrication	13,280		45,907
Aerospace and Defense	11,557		29,795
	$	43,814	$	133,723

Sales by Geography



	Three Months Ended September 30,		Nine Months Ended September 30,
	2019		2019
North America	$	16,382	$	50,294
China	17,397		49,251
Rest of World	10,035		34,178
	$	43,814	$	133,723

Contract balances - The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for doubtful accounts. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of September 30, 2019 were less than $0.1 million and are reported on the consolidated balance sheets as a component of prepaid expenses and other current assets. Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the consolidated balance sheets at the end of each reporting period as a component of deferred revenue. Contract liabilities as of September 30, 2019 were $0.5 million.

During the three and nine months ended September 30, 2019, the Company recognized revenue of $0.5 million and $1.6 million, respectively, that was included in the customer advances and deferred revenue balances at the beginning of the periods as the performance obligations under the associated agreements were satisfied during the three and nine months ended September 30, 2019.