Note C - Revenue Recognition

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE C—REVENUE RECOGNITION

Revenue from Contracts with Customers 

The Company derives revenue from the manufacture and sale of fiber optic networking products. Revenue is recognized when obligations under the terms of a contract with its customer are satisfied; generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Certain customers may receive cash and/or non-cash incentives, which are accounted for as variable consideration. To achieve this core principle, the Company applies the following five steps:

1. Identify the contract with a customer 

A contract with a customer exists when (i) the Company enters into an agreement with a customer that defines each party's rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. The Company applies judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's payment history or, in the case of a new customer, published credit and financial information pertaining to the customer.

2. Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised products or services are accounted for as a combined performance obligation. The Company has elected to account for shipping and handling activities as a fulfillment cost as permitted by the standard.

3. Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. To the extent the transaction price is variable, revenue is recognized at an amount equal to the consideration to which the Company expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and estimated using either the expected value method or the most likely amount method, depending on the nature of the program. The Company will adjust its consideration for any rebates if it is more likely than not that the rebate conditions will be met.

4. Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price for each performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately.

In cases where there is no directly observable stand alone selling price, allowable estimation methods are used. For example for contracts involving non-recurring engineering, an expected cost plus margin approach has typically been adopted to estimate the standalone selling price.

5. Recognize revenue when or as the Company satisfies a performance obligation 

For product sales, the Company generally satisfies performance obligations at a point in time, most often upon shipment of a product to the customer or delivery of the product to the customer.  In the case of such point in time satisfaction of a performance obligation, revenue is recognized based on the transaction price at the time the related performance obligation is satisfied.

For service obligations, the Company generally recognizes revenue over time. The most common type of service obligation encountered by the Company is an arrangement involving non-recurring engineering in which service revenue is typically recognized over time under either the time and material practical expedient, as the Company has a right to consideration from a customer, in an amount that corresponds directly with the value to the customer of the Company's performance completed to date, or under the output method, for example using contract-specific milestones or other objective measures of progress.

Unearned Revenue

Unearned Revenue results from cash received or amounts billed to customers in advance of revenue recognized upon the satisfaction of performance obligations. As of December 31, 2023, and 2022, the Company had Unearned Revenue of $1.8 million and $3 million, respectively. The following table reflects the changes in Unearned Revenue in our consolidated financial statements for the periods indicated (in thousands). The remaining $1.8 million will be expected to be recognized as revenue gradually in 2024, depending on the customer's request. 

	December 31, 2023		December 31, 2022
Unearned Revenue, beginning of period	$	3,000	$	—
Additional Unearned Revenue		12,608		3,000
Revenue recognized		13,805		—
Unearned Revenue, end of period	$	1,803	$	3,000

Disaggregation of Revenue 

Revenue is classified based on the location of where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note R, "Segments and Geographic Information.”

Revenue is also classified by major product category and is presented below (in thousands):

	Years ended December 31,
			% of					% of					% of
	2023		Revenue			2022		Revenue			2021		Revenue
CATV	$	59,942		27.5	%	$	118,169		53.0	%	$	94,266		44.6	%
Data Center		141,213		64.9	%		77,094		34.6	%		97,461		46.1	%
Telecom		13,831		6.4	%		24,727		11.1	%		16,247		7.7	%
FTTH		56		0.0	%		129		0.1	%		957		0.5	%
Other		2,604		1.2	%		2,699		1.2	%		2,634		1.2	%
Total Revenue	$	217,646		100.0	%	$	222,818		100.0	%	$	211,565		100.0	%