2. Revenue Recognition

Effective February 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts which were not completed as of February 1, 2018. Results for reporting periods beginning after February 1, 2018 are presented under ASC 606. Prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605. The Company recognizes revenue when control of its goods and services is transferred to its customers. The Company considers product control to be transferred at a point in time upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risk and rewards of ownership of the asset. The majority of the Company’s product revenue is derived from sales through its distributors. As a result, sales of products are recognized upon shipment and transfer of control to distributors (known as “sell-in” revenue recognition) rather than shipment to the end customers (known as “sell-through” revenue recognition).

The cumulative effects of adjustments on the condensed consolidated balance sheet on February 1, 2018 upon the adoption of ASC 606 were as follows:

	Balance as of					Opening Balance as of
	January 31, 2018		Adjustment			February 1, 2018
	(in thousands)
Deferred revenue, current	$	307	$	(43	)	$	264
Retained earnings	$	261,265	$	43		$	261,308

The following table summarizes the impacts of adopting the new revenue standard on our condensed consolidated balance sheets, statements of operations and statements of cash flows as of and for the three and six months ended July 31, 2018:

	July 31, 2018
	As Reported		Impact of Adoption			Amounts under ASC 605
	(in thousands)
Condensed Consolidated Balance Sheets
Assets:
Prepaid expenses and other current assets	$	2,686	$	(207	)	$	2,479

Liabilities:
Accounts payable		23,381		(200	)		23,181
Accrued and other current liabilities		23,090		(9	)		23,081
Income taxes payable		524		57			581
Deferred revenue, current		583		5,789			6,372
Other long-term liabilities		10,252		3			10,255

Equity:
Retained earnings	$	244,425		(5,847	)	$	238,578

	Three Months Ended July 31, 2018
	As Reported			Impact of Adoption			Amounts under ASC 605
	(in thousands, except per share data)
Condensed Consolidated Statements of Operations
Revenue	$	62,474		$	(3,395	)	$	59,079
Cost of revenue		24,461			(1,171	)		23,290
Gross profit		38,013			(2,224	)		35,789
Loss from operations		(6,682	)		(2,224	)		(8,906	)
Loss before income taxes		(5,950	)		(2,224	)		(8,174	)
Provision for income taxes		927			68			995
Net loss	$	(6,877	)	$	(2,292	)	$	(9,169	)

Net loss per share:
Basic	$	(0.21	)	$	(0.07	)	$	(0.28	)
Diluted	$	(0.21	)	$	(0.07	)	$	(0.28	)

	Six Months Ended July 31, 2018
	As Reported			Impact of Adoption			Amounts under ASC 605
	(in thousands, except per share data)
Condensed Consolidated Statements of Operations
Revenue	$	119,412		$	(8,310	)	$	111,102
Cost of revenue		46,507			(2,771	)		43,736
Gross profit		72,905			(5,539	)		67,366
Loss from operations		(16,632	)		(5,539	)		(22,171	)
Loss before income taxes		(15,108	)		(5,539	)		(20,647	)
Provision for income taxes		1,775			265			2,040
Net loss	$	(16,883	)	$	(5,804	)	$	(22,687	)

Net loss per share:
Basic	$	(0.51	)	$	(0.17	)	$	(0.68	)
Diluted	$	(0.51	)	$	(0.17	)	$	(0.68	)

The impact of adoption on the comprehensive loss is the same as the impact on net loss.

	Six Months Ended July 31, 2018
	As Reported			Impact of Adoption			Amounts under ASC 605
	(in thousands)
Condensed Consolidated Statements of Cash Flows
Cash flow from operating activities:
Net loss	$	(16,883	)	$	(5,804	)	$	(22,687	)
Prepaid expenses and other current assets		1,318			207			1,525
Accounts payable		3,566			(200	)		3,366
Accrued liabilities		(9,054	)		(9	)		(9,063	)
Income taxes payable		(412	)		57			(355	)
Deferred revenue		318			5,746			6,064
Other long-term liabilities	$	654		$	3		$	657

The impacts of adoption of the new revenue standard were primarily attributable to distributor revenues recognized using the sell-through method under ASC 605, while such revenues are recognized using the sell-in method under ASC 606.

Practical Expedients

•

The Company elects not to disclose the value of unsatisfied or partially unsatisfied performance obligations due to original expected contract duration of one year or less.

•

For contracts that were modified before the adoption date, the Company elects to reflect the aggregate effect of all modifications that occur before the adoption date when identifying performance obligations, determining the transaction price, and allocating the transaction price to performance obligations.

•

The Company also elects to exclude amounts collected from customers for all sales taxes from the transaction price.

Contract Assets

Timing of revenue recognition may differ from the timing of invoicing to the Company's customers. The Company records contract assets when revenue is recognized prior to invoicing. The contract assets are primarily related to the Company’s engineering service agreements and rights to consideration for performance obligations delivered but not billed at the reporting date. The contract assets are transferred to receivables when the billing occurs. As of February 1, 2018, the contract assets were not material. All of the contract assets were either transferred to receivables or recognized as cash receipts as of July 31, 2018.

Contract Liabilities (Deferred Revenues)

Contract liabilities are primarily related to the portion of transaction price that exceeds the weighted average selling price for products sold to date under tiered-pricing contracts which contain material rights. These contract liabilities are expected to be recognized over the course of the contract when products are delivered for future pricing below the weighted average selling price of the contract. The timing of recognition of these contract liabilities is dependent on the timing and size of future orders under the contract. For the three and six months ended July 31, 2018, the Company did not recognize any material revenue adjustment related to performance obligations satisfied in prior periods released from these contract liabilities.

Contract liabilities are also recorded when cash payments are received in advance of performance for engineering service agreements. The contract liabilities related to these agreements are expected to be recognized when the performance is delivered. For the three and six months ended July 31, 2018, the Company did not recognize any material revenue released from these contract liabilities as a result of performance obligations satisfied in the current period.

As of July 31, 2018 and February 1, 2018, the contract liabilities were not material. Additionally, the transaction price allocated to unsatisfied, or partially unsatisfied, POs for contracts that are greater than a year was not material as of July 31, 2018 and February 1, 2018.