Note 3 - Revenue

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE 3. REVENUE

Revenue recognition

Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances and customer discounts. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.

The majority of our revenue is derived from the transfer of goods produced under contract manufacturing agreements which have no alternative use and we have an enforceable right to payment for our performance completed to date. Our performance obligations within our contract manufacturing agreements are generally satisfied over time as the goods are produced based on customer specifications and we have an enforceable right to payment for the goods produced. Revenues under these agreements are generally recognized over time using an input measure based upon the proportion of actual costs incurred. If these requirements are not met, the revenue is recognized at a point in time, generally upon shipment. Revenue under contract manufacturing agreements that was recognized over time accounted for approximately 74% of net sales for both the three and nine months ended September 30, 2023, and both the three and nine months ended September 30, 2022.

Accounting for contract manufacturing agreements involves the use of various techniques to estimate total revenue and costs. We estimate profit on these agreements as the difference between total estimated revenue and expected costs to complete the performance obligation within the terms of the agreement and recognize the respective profit as the goods are produced. The estimates to determine the profit earned on the performance obligation are based on anticipated selling prices and historical cost of goods sold and represent our best judgement at the time. Changes in judgements on these above estimates could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated profit.

On occasion our customers provide materials to be used in the manufacturing process and the fair value of the materials is included in revenue as noncash consideration at the point in time when the manufacturing process commences along with the same corresponding amount recorded as cost of goods sold. The inclusion of noncash consideration has no impact on overall profitability.

Contract Assets

Contract assets, recorded as such in the Consolidated Balance Sheet, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the nine months ended September 30, 2023 was as follows (in thousands):

Balance outstanding at December 31, 2022	$	9,982
Increase (decrease) attributed to:
Amounts transferred over time to contract assets		76,225
Allowance for current expected credit losses		(22	)
Amounts invoiced during the period		(74,439	)
Balance outstanding at September 30, 2023	$	11,746

We expect substantially all of the remaining performance obligations for the contract assets recorded as of September 30, 2023, to be transferred to receivables within 90 days, with any remaining amounts to be transferred within 180 days. We bill our customers upon shipment with payment terms of up to 120 days.

The following tables summarize our net sales by market for the three months ended September 30, 2023 and 2022, respectively:

	Three Months Ended September 30, 2023
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration		Total Net Sales by Market
Medical	$	12,029	$	5,185	$	621	$	17,835
Industrial		8,195		1,999		241		10,435
Aerospace and Defense		4,609		450		40		5,099
Total net sales	$	24,833	$	7,634	$	902	$	33,369

	Three Months Ended September 30, 2022
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration		Total Net Sales by Market
Medical	$	14,753	$	5,366	$	420	$	20,539
Industrial		8,104		2,314		420		10,838
Aerospace and Defense		3,202		493		204		3,899
Total net sales	$	26,059	$	8,173	$	1,044	$	35,276

The following tables summarize our net sales by market for the nine months ended September 30, 2023 and 2022, respectively:

	Nine Months Ended September 30, 2023
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration		Total Net Sales by Market
Medical	$	42,324	$	15,564	$	1,926	$	59,814
Industrial		21,378		6,532		1,056		28,966
Aerospace and Defense		12,523		1,674		301		14,498
Total net sales	$	76,225	$	23,770	$	3,283	$	103,278

	Nine Months Ended September 30, 2022
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration		Total Net Sales by Market
Medical	$	37,725	$	15,044	$	1,574	$	54,343
Industrial		21,563		6,301		1,095		28,959
Aerospace and Defense		13,248		1,254		701		15,203
Total net sales	$	72,536	$	22,599	$	3,370	$	98,505