Overview
We are a leading global developer and manufacturer of high precision 3D sensors
and system products for inspection and metrology. We also develop and
manufacture our WaferSense® products, which is a family of wireless,
wafer-shaped sensors that provide measurements of critical factors in the
semiconductor fabrication process. We intend to leverage our sensor technologies
in the surface mount technology (SMT) and semiconductor industries to deliver
profitable growth. A key element of our strategy is the continued development
and sale of high precision 3D sensors and system products based on our
proprietary Multi-Reflection Suppression™ (MRS™) technology. We believe that our
MRS technology is a breakthrough 3D optical technology for high-end inspection
and metrology with the potential to significantly expand our markets. Another
key element in our strategy is the continued development and introduction of new
sensor applications for our WaferSense family of products.
We believe that conditions in the SMT and semiconductor capital equipment
markets are favorable, and we believe this market strength will continue in
2022. Over the longer-term (i.e., the next several years), we expect a growing
number of opportunities in the markets for SMT and semiconductor inspection and
metrology. We believe that our 3D MRS sensor and system products and
our WaferSense family of products have the potential to expand our presence in
the markets for SMT and semiconductor capital equipment.
Manufacturing yield challenges as electronics and semiconductors become more
complex are driving the need for more precise inspection and metrology. We
believe 3D inspection and metrology represent high-growth segments in both the
SMT and semiconductor capital equipment markets. We believe our 3D MRS
technology platform is well suited for many applications in these markets,
particularly with respect to complex circuit boards, semiconductor component
package inspection and semiconductor wafer and advanced packaging inspection and
metrology applications. We are taking advantage of current market trends by
deploying our 3D MRS sensor technology in the following products:
· Our SQ3000™ and SQ3000™+ Multi-Function systems for Automated Optical
Inspection (AOI), Solder Paste Inspection (SPI) and coordinate
measurement (CMM) applications, which are designed to expand our
presence in markets requiring high precision inspection and metrology.
In these markets, identifying defects has become highly challenging
and critical due to smaller semiconductor and electronics packaging
and increasing component density on circuit boards. The SQ3000+
Multi-Function system with its higher resolution MRS sensor that
inhibits reflection-based distortions caused by shiny components and
surfaces is capable of measuring feature sizes down to 50 microns and
is specifically designed for high-end inspection and metrology
applications including advanced packaging, mini-LED and advanced SMT
for high-end electronics. We believe our 3D MRS sensor technology is
uniquely suited for many of these applications because of its ability
to offer microscopic image quality and superior measurement
performance at production line speeds.
· Our next generation ultra-high resolution three micron pixel
3D NanoResolution MRS™ sensor, which is capable of measuring feature
sizes down to 25 microns accurately and at high speeds, and is
suitable for many semiconductor wafer and advanced packaging
inspection and metrology applications. We have adapted
the software used in our SQ3000 Multi-Function systems to work with
wafer handling equipment to facilitate sales of our
3DNanoResolution MRS sensor to OEM's and system integrators.
· Our next generation MX3000™ AOI system for 3D inspection of memory
modules following the singulation step of the manufacturing
process. We recognized our first revenue from the sale of the MX3000
in the first quarter of 2020, and two of the world's three largest
memory manufacturers and their subcontractors have now purchased our
MX3000 system. Additional orders for memory module inspection are
expected in future periods, and we believe the potential market
opportunity for our MX3000 system and 3D MRS sensors for memory module
inspection is significant.
· Our WX3000™ metrology and inspection system for semiconductor wafer
and advanced packaging applications, which incorporates our next
generation ultra-high resolution 3D NanoResolution MRS sensor,
performs 100% 3D and 2D inspection and metrology simultaneously at
high speeds and delivers throughput of more than 25 wafers per hour.
We believe the WX3000 performs two to three times faster than
alternate technologies at data processing speeds in excess of 75
million 3D data points per second. The WX3000 is suitable for many
high volume semiconductor wafer and advanced packaging inspection and
metrology applications for feature sizes down to 25 microns. We
recently received our first purchase order for the WX3000, with
delivery of the system and recognition of the revenue expected in the
first half of 2022. We anticipate that sales of sensors and systems
based on our 3D MRS technology for semiconductor wafer and advanced
packaging inspection and metrology will provide us with long-term
growth opportunities. 21
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Revenue from MRS based products, including 3D AOI systems and high precision 3D
MRS sensors, increased by
sales of products based on our MRS technology in the SMT and semiconductor
capital equipment markets. In particular, we believe inspection and metrology
for mini and micro-LED, memory modules and semiconductor wafer and advanced
packaging applications represent significant long-term growth opportunities. We
anticipate increasing sales of MRS-based products by selling them to new OEM
customers and system integrators, and by expanding direct sales of inspection
and metrology system products to end-user customers.
We have continued to invest in our WaferSense family of products, because
fabricators of semiconductors and other customers view these products as
valuable tools for improving yields and productivity. We have recently
introduced several new WaferSense products to further increase our revenue
growth, including the WaferSense 300mm Auto Resistance Sensor (ARS) that enables
real-time resistance measurements of plating cell contacts in semiconductor ECD
applications. Additional WaferSense applications are under development,
including Automatic Teaching Sensors (ATS) in both wafer and reticle formats,
products for wafer edge detection and products that measure temperature during
semiconductor fabrication. Over the long-term, strong future sales growth is
anticipated for our WaferSense family of products.
Our backlog was
million
forecasting sales of
significant increase from revenue of
We believe that conditions in the SMT and semiconductor capital equipment
markets are favorable, and we believe this market strength will continue in
2022.However, an increase in the severity of the current Covid-19 pandemic, an
escalation in the
depression, could cause a slow-down in demand for SMT and semiconductor capital
equipment. Over the long term, we believe anticipated sales growth of our
products based on 3D MRS technology and WaferSense sensors should increase
revenues and net income. We believe that we have the resources required to
attain our growth objectives, given our available cash and marketable securities
balances totaling
Impact from Covid-19
Effect of Covid-19 Outbreak on Business Operations
Covid-19 was first identified in
Health Organization
affecting our customers, suppliers, service providers and employees to varying
degrees, and the ultimate impacts of Covid-19, including the potential impact of
known and future variants, on our business, results of operations, liquidity and
prospects are not fully known at this time. Overall, the Covid-19 outbreak has
had a relatively minimal impact on our business to date. Our revenues increased
by 32% to
strong revenue growth on a year-over-year basis in the first quarter of 2022.
Our forecast for the first quarter of 2022 could change if the Covid-19 pandemic
worsens, or if unforeseen events related to the pandemic occur. The most
significant impacts on our business from the Covid-19 pandemic include the
following:
· Our key factories are located in
locations have been subject to government mandated shelter-in-place orders. Because our operations have been deemed essential, we were able to keep our factories up and running while the shelter-in-place mandates were in effect. If the pandemic worsens, it is possible that our operations may not be deemed essential under future government mandated shelter-in-place orders, and we may be required to shut-down factory operations. We have periodically implemented split-shifts for our factory operations to minimize the number of employees in our facilities at any given time, but these measures have not affected our production capacity. Since the start of the pandemic, many of our non-factory employees have spent the majority of their time working remotely. To date, the shelter-in-place mandates and remote work arrangements have had a minimal impact on operations, but that could change if the pandemic worsens and is more than temporary.
· Sales of some products, mainly our SQ3000 Multi-Function systems and MX
memory module inspection products, require customer acceptance due to performance or other criteria that is considered more than a formality. Most of our customer's factories have remained open during the Covid-19 pandemic because they are deemed to be essential under government shelter-in-place mandates. However, global travel restrictions and quarantine measures have hindered our ability to obtain some customer acceptances for certain of our products at various times during the Covid-19 pandemic. Continuing or new global travel restrictions and quarantine measures could hinder our ability to obtain customer acceptances in a timely manner in the future, and therefore impact the timing of revenue recognition.
· Certain operating expenses were reduced in 2021 and 2020 due to the Covid-19
pandemic. Travel, trade show expenses and other costs were reduced due to changes in employee travel patterns and trade show cancellations. Travel, trade show and other costs may increase in the future once the Covid-19 pandemic starts to ease. 22
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· The Covid-19 pandemic has caused disruptions in the global supply chain,
including shortages of raw materials, parts and labor, and shipping and logistics issues, including delays in ocean freight and port congestion. Key supply chain disruptions impacting our business have been resolved to date. On-hand inventories have been sufficient to enable us to mitigate any supply disruptions with minimal impact on our sales or ability to service customers. Cost increases related to these issues have not had a significant impact on our results of operations. However, it has become increasingly difficult to obtain adequate supplies of certain key components and labor for product assembly. Port congestion and tight bookings for global sea freight have caused delays in product deliveries. Continued increases in the cost of components, labor and freight could negatively impact our profitability in the future if we are unable to recover these costs by charging more for the products we sell. The inability to obtain adequate supplies of components or labor could result in the inability to meet customer demands and deliver one or more of our products for a period of several months or longer, negatively impacting our revenue and profitability. Supply chain disruptions are expected to continue for the foreseeable future and may increase if the pandemic worsens or continues for an extended period of time.
We currently do not anticipate any significant credit losses or asset
impairments resulting from the Covid-19 pandemic. As of
available balances of cash and marketable securities totaled
believe that we have the resources required to attain our growth objectives and
to meet any unforeseen difficulties resulting from the Covid-19 pandemic. We
will continue to closely monitor the Covid-19 pandemic and its impact on our
business in the coming months.
Singapore Jobs Support Program
The Singapore Government implemented a jobs support program in 2020 that was
intended to support businesses and encourage retention of employees during the
period of economic uncertainty caused by the Covid-19 pandemic. Under the jobs
support program, the Singapore Government co-funded a portion of the gross
monthly wages paid to local employees, which reduced our operating expense by
jobs support program in 2021, nor do we expect to receive any material benefits
in future periods.
Our ability to implement our strategy effectively is subject to numerous
uncertainties and risks, including the risks identified in Item 1A of this
Annual Report on Form 10-K.
Revenues
Our revenues increased by 32% to
2020, and increased by 18% to
2019. The following table sets forth, for the years indicated, revenues by
product line:
(In thousands) 2021 2020 2019
High precision 3D and 2D sensors
Inspection and metrology systems 42,958 37,547 32,713
Semiconductor sensors
23,875 15,048 13,971 Total$ 92,774 $ 70,117 $ 59,263
Revenues from sales of high precision 3D and 2D sensors increased by
million
increased by
2019. The revenue increases were due to higher sales of 3D MRS sensors and
legacy 2D sensors resulting from improving conditions in the global
semiconductor and SMT capital equipment markets and higher adoption rates for 3D
MRS sensors by existing OEM customers. Sales of 3D MRS sensors increased by
million
increased by
Sales of high precision 3D and 2D sensors are dependent on the success of our
OEM customers and system integrators selling products that incorporate our
sensors. We believe sales of our 3D MRS sensors, including our next generation
ultra-high resolution three micron pixel 3D NanoResolution MRS sensor, will
represent an increasing percentage of our total high precision 3D and 2D sensor
sales in the future. Sales of high precision 3D and 2D sensors, including 3D MRS
sensors, are prone to significant quarterly fluctuations due to variations in
market demand and customer inventory levels.
Revenues from sales of inspection and metrology systems increased by
million
increased by
2019. The revenue increases in both periods were mainly due to higher sales of
SQ3000 Multi-Function systems and MX memory module inspection systems resulting
from improving market conditions, and increasing sales for more complex
applications such as inspection and metrology for mini-LED and memory modules.
Sales of SQ3000 Multi-Function systems increased by
million
to
memory module inspection systems totaled
million
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In addition to improving market conditions, the increase in sales of SQ3000
Multi-Function systems was due to the competitive advantages offered by our 3D
MRS sensor technology and many companies transitioning from 2D to 3D AOI systems
to meet the increasingly demanding product inspection and metrology requirements
in the SMT and semiconductor markets. The market transition away from 2D AOI
systems is expected to result in an industry-wide compound annual rate of growth
in global sales of 3D AOI systems of almost 20% through 2028. In addition, we
believe the performance advantages of our SQ3000 Multi-Function systems have
allowed us to attain a leading position in the high growth mini-LED inspection
and metrology market. Sales of SQ3000 Multi-Function systems for mini-LED
inspection and metrology applications totaled
because of the competitive advantages of our 3D MRS sensor technology, we
anticipate sales of SQ3000 Multi-Function systems will represent an increasing
percentage of our total inspection and metrology system sales in the future.
We believe memory manufacturers have determined that post singulation automated
optical inspection of memory modules is an important step in their manufacturing
process to improve yields and product quality. We recognized our first revenue
from the sale of the 3D MX3000™ memory module inspection system in the first
quarter of 2020, and two of the world’s three largest memory manufacturers and
their subcontractors have now purchased the MX3000 system. At
our backlog of orders for memory module inspection totaled
expect to recognize these orders as revenue primarily in the first half of 2022.
Additional orders for memory module inspection are expected in future periods,
and we believe the potential market opportunity for our MX3000 system and 3D MRS
sensors for memory module inspection is significant.
Revenues from sales of semiconductor sensors, principally our WaferSense line of
products, increased by
million
from
new semiconductor fabs, favorable market conditions for semiconductor capital
equipment spending, and growing acceptance of our WaferSense products as
important productivity enhancements tools by semiconductor manufacturers and
capital equipment suppliers. Over the longer-term, we anticipate that the
benefits from growing market awareness of our WaferSense products, improved
account penetration at major semiconductor manufacturers and capital equipment
suppliers and new product introductions will lead to additional
WaferSense product sales.
Export revenues totaled
to
total revenues in 2019. Export revenues as a percentage of total revenues
increased in 2021 and 2020 due to higher sales of 3D and 2D high precision
sensors, semiconductor sensors, SQ3000 Multi-Function systems for mini-LED
inspection and metrology and MX3000™ memory module inspection systems. A higher
proportion of these products are generally sold outside
compared to our other products.
Cost of Revenues and Gross Margin
Cost of revenues increased by
increased by
2019. Increases in cost of revenues in 2021 and 2020 were primarily due to the
corresponding increases in revenue levels. Total revenues increased by 32% in
2021 and increased by 18% in 2020. Items included in cost of revenues that
fluctuate with the level of sales include raw materials, direct labor and
factory overhead costs. Revenue mix also contributed to the changes in cost of
revenues.
Total gross margin as a percentage of revenue was 46.5% in 2021, 44.5% in 2020,
and 44.4% in 2019. Our gross margin percentage in 2021 was favorably impacted by
proportionately higher sales of semiconductor sensors which generate a higher
gross margin percentage than our other products, offset in part by sales of
lower gross margin MX3000 systems. There was no significant change in our total
gross margin as a percentage of revenue in 2020, when compared to 2019.
Our markets are highly price competitive, particularly in the electronics
assembly and SMT markets. As a result, we have experienced continual pressure on
our gross margins. We compensate for the pressure to reduce the price of our
products by introducing new products with more features and improved performance
and through manufacturing cost reduction programs. Sales of many products that
we have recently introduced or are about to introduce, including our SQ3000+
Multi-Function system, WX3000 system for semiconductor wafer and advanced
packaging inspection and metrology, next generation 3D MRS sensors and
semiconductor sensors, (consisting primarily of our WaferSense line of products)
have, or are expected to have, more favorable gross margins than many of our
existing products. Our next generation 3D MRS sensor and system products are
being designed for more complex and demanding inspection and metrology
applications in the SMT and semiconductor markets. Sales prices and gross profit
margins for these applications tend to be higher than margins for products sold
in the general purpose SMT market. However, the gross margin percentage for our
3D MX3000 system for inspection of memory modules is lower than our current
total gross margin percentage due to the significant costs for material handling
and automation required for this product. Our total gross margin percentage
would most likely be negatively impacted in the future if sales of our 3D MX3000
become a larger share of our total revenue mix.
The Covid-19 pandemic has caused disruptions in the global supply chain,
including shortages of raw materials, parts and labor, and shipping and
logistics issues, including delays in ocean freight and port congestion. Cost
increases related to these issues have not had a significant impact on our
results of operations. However, continued increases in the cost of components,
labor and freight could negatively impact our gross margins in the future if we
are unable to recover these costs by charging more for the products we sell.
Supply chain disruptions are expected to continue for the foreseeable future and
may increase if the Covid-19 pandemic worsens or continues for an extended
period of time.
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Table of Contents Operating Expenses
Research and development (R&D) expenses were
2021,
revenues in 2019. The increase in R&D expenses in 2021 was due to higher
compensation costs for new and existing R&D employees, including incentive
compensation, engineering prototypes and consulting services. In 2020, higher
compensation costs for new and existing R&D employees, including higher
incentive compensation accruals, were mostly offset by the
impact from the Singapore Government’s jobs support program on wage costs
discussed above. Current R&D expenditures are primarily focused on development
of 3D MRS sensor and system products, including enhancements to existing
products and development of next generation products, and continued R&D work on
new and next generation WaferSense products.
Selling, general and administrative (“S,G&A”) expenses were
of revenues in 2021,
or 27% of revenues in 2019. The increase in S,G&A expenses in 2021 was due to
higher third party channel commissions resulting from the 32% increase in our
revenues and higher compensation costs for new and existing S,G&A employees,
including incentive compensation due to our improved financial performance. An
increase in our allowance for doubtful accounts and bad debt expense also
contributed to the increase. The decrease in S,G&A expenses in 2020 was due to
lower costs for travel and trade shows resulting from the Covid-19 pandemic,
lower costs for professional fees and a
Government’s jobs support program, offset in part by higher compensation costs,
including higher incentive compensation accruals due to our improved financial
performance.
We anticipate that operating expenses will increase modestly in 2022 when
compared to 2021. We have added incrementally to both R&D and sales employees
throughout 2021, which will increase our costs in 2022. We also expect travel
and trade show costs to increase once the Covid-19 pandemic begins to ease.
These anticipated cost increases in 2022 may be partially offset by lower
incentive compensation due to significant bonus over-achievement in 2021 and the
higher levels of revenue and profitability required to earn a bonus in 2022.
Interest Income and Other
Interest income and other includes interest earned on investments and gains and
losses associated with foreign currency transactions, primarily intercompany
financing transactions associated with our subsidiaries in the
of
2020.
Provision for Income Taxes
We recorded income tax expense of
expense of
mainly due to higher levels of income. Our income tax expense reflected an
effective income tax rate of approximately 12% in 2021 and 10% in 2020. Our
effective tax rate in 2021 was favorably impacted by Global Intangible Low-Taxed
Income (GILTI), Foreign Derived Intangible Income (FDII),
benefits from employee share-based compensation and favorable benefits from
federal R&D tax credits and foreign tax credits. Our effective tax rate in 2020
was favorably impacted by
share-based compensation and favorable benefits from
credits and foreign tax credits, offset in part by a negative impact from GILTI.
All of our remaining federal net operating loss carry forwards were fully
utilized in 2020. Credits and excess tax benefits have a reduced effect on our
effective tax rate as income levels increase.
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Liquidity and Capital Resources
Our cash and cash equivalents increased by
by operating activities of
maturities and sales of marketable securities were partially offset by purchases
of marketable securities totaling
and payment of capitalized patent costs totaling
stock option exercises and share purchases under our Employee Stock Purchase
Plan totaling
employee withholding tax payments for shares withheld related to stock option
exercises and vesting of restricted stock units. Our cash and cash equivalents
fluctuate in part because of sales and maturities of marketable securities and
investment of cash balances in marketable securities, and from other sources of
cash. Accordingly, we believe the combined balances of cash and marketable
securities provide a more reliable indication of our available liquidity than
cash balances alone. Combined balances of cash and marketable securities
increased by
million
Our cash flow from operating activities increased to
in part by use of cash for working capital, including inventory and receivables,
reflecting the 32% increase in our sales and anticipated customer demands in the
future.
Operating activities provided
provided by operations was favorably impacted by our net income of
million
depreciation and amortization, non-cash operating lease expense, provision for
doubtful accounts, deferred taxes, non-cash gains from foreign currency
transactions, share-based compensation costs and an unrealized gain on our
available-for-sale equity security. Changes in operating assets and liabilities
providing cash included an increase in accounts payable of
increase in accrued expenses of
liabilities using cash included an increase in accounts and trade notes
receivable of
decrease in advance customer payments and other of
operating lease liabilities of
inventories at
to meet anticipated customer demand. The increase in accrued expenses was mainly
due to higher accruals for wages and benefits, including incentive compensation,
warranty and income taxes, mainly due to higher sales and our improved financial
performance. Accounts and trades notes receivable increased due to higher sales
in the fourth quarter of 2021 compared to the fourth quarter of 2020. Advance
customer payments and other was down due to a decrease in deposits for equipment
prior to transfer of control. The decrease in operating lease liabilities was
due to monthly rental payments for our facility leases.
Operating activities provided
provided by operations was favorably impacted by our net income of
Net income was affected by non-cash expenses totaling
depreciation and amortization, non-cash operating lease expense, provision for
doubtful accounts, deferred taxes, non-cash gains from foreign currency
transactions, share-based compensation costs and an unrealized loss on our
available-for-sale equity security. Changes in operating assets and liabilities
providing cash included a decrease in accounts and trade notes receivable of
advance customer payments of
liabilities using cash included an increase in inventories of
decrease in accounts payable of
liabilities of
improvement in the rate of collections. Sales of sensor products, which
typically have shorter collection cycles than sales of our inspection and
metrology system products, were higher in the fourth quarter of 2020, when
compared to the fourth quarter of 2019. The increase in accrued expenses was
mainly due to bonus accruals resulting from our improved financial performance.
Advance customer payments were up due to an increase in deposits for equipment
prior to transfer of control. The increase in inventories was due to planned
purchases of raw materials in the third quarter of 2020 to meet anticipated
customer demand for SQ3000 Multi-Function systems. The decrease in accounts
payable was due to the timing of raw material purchases, with lower purchases of
raw materials in the fourth quarter of 2020, when compared to the fourth quarter
of 2019. Operating lease liabilities decreased due to monthly rental payments
under our facility leases.
Investing activities used
in 2020. Changes in the level of investment in marketable securities, resulting
from the purchases, sales and maturities of those securities used
of cash in 2021 and
in 2021 and
capitalized patent costs.
Financing activities used
Proceeds from the exercise of stock options and share purchases under our
employee stock purchase plan provided
cash in 2020. Tax payments for shares withheld related to stock option exercises
and vesting of restricted stock units used
of cash in 2020. In
share repurchase program which expired on
repurchased under this program in 2020 prior to its expiration.
At
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities. These entities are established
by some companies for the purpose of establishing off-balance sheet arrangements
or for other contractually narrow or limited purposes.
In
mixed office and warehouse facility in
development and final assembly and integration facility for our inspection and
metrology system products. The new lease does not contain any incentives or
renewal options and runs through
costs under the new lease remain unchanged when compared to the old lease that
expired in
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Except for obligations under facility leases and purchase contracts, we had no
material commitments for expenditures as of
commitments for raw materials and other inventory can vary based on the volume
of revenue and resulting inventory requirements.
Our cash, cash equivalents and marketable securities totaled
securities, coupled with anticipated future cash flow from operations, will be
adequate to fund our cash flow needs for the foreseeable future, including the
contractual obligations mentioned above.
Inflation and Foreign Currency Transactions
Changes in our revenues have resulted primarily because of changes in the level
of unit shipments due to competitive factors and the relative strength or
weakness of the worldwide SMT and semiconductor capital equipment markets. We do
not believe that inflationary pressures and cost increases had a significant
effect on our operations in 2021. Cost increases for material components,
freight and employee wages could have an impact on our operations in future
periods if inflationary pressures continue for an extended period of time and if
we are unable to recover these costs by charging more for the products we sell.
Most of our international export sales are negotiated, invoiced and paid in
dollars. We manufacture our inspection and metrology system products in
sales offices located in other parts of the world. Although currency
fluctuations do not significantly affect our revenue, they can impact our costs
and influence the price competitiveness of our products and the willingness of
existing and potential customers to purchase our products.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate these estimates,
including estimates related to revenue recognition, bad debts, warranty
obligations, inventory valuation, intangible assets, and income taxes. We base
these estimates on historical experience and on various other assumptions that
we believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Our actual results may differ
from these estimates under different assumptions or conditions. The estimates
and judgments that we believe have the most effect on our reported financial
position and results of operations are as follows:
Revenue Recognition.
Revenue is measured based on the consideration specified in a contract with a
customer. A performance obligation is a promise in a contract to transfer a
distinct good or service to the customer and is the unit of account for purposes
of revenue recognition. Revenue from all customers, including distributors, is
recognized when a performance obligation is satisfied by transferring control of
a product or service to a customer. Amounts billed to customers for shipping and
handling are included in revenue. Taxes collected from customers and remitted to
governmental authorities are excluded from revenue on the net basis of
accounting. Accounts receivable are due under normal trade terms, generally 150
days or less.
Sales involving multiple performance obligations typically include the sale of
an inspection or metrology systems product, installation and training, and in
some cases, an extended warranty. When a sale involves multiple performance
obligations, we account for individual products and services separately if the
customer can benefit from the product or service on its own or with other
resources that are readily available to the customer and the product or service
are separately identifiable from other promises in the arrangement. The
consideration is allocated between separate performance obligations in
proportion to their estimated stand-alone selling price. If the stand-alone
selling price is not directly observable, we use the cost plus margin approach
to estimate stand-alone selling price. Costs related to products delivered are
recognized in the period revenue is recognized, including product warranties for
periods ranging from 1 to 3 years.
Our performance obligations are satisfied at a point in time or over time as
work progresses. Revenue from products and services transferred to customers at
a point in time totaled
and
contracts is recognized when obligations under the terms of the contract with
our customers are satisfied, which is generally with the transfer of control
upon shipment. Sales of some products may require customer acceptance due to
performance or other acceptance criteria that is considered more than a
formality. For these product sales, revenue is recognized upon notification of
customer acceptance.
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Revenue from products and services transferred to customers over time totaled
our total revenue in 2020. Periodically, sensor product arrangements with our
OEMs will create an asset with no alternative use and include an enforceable
right to payment. For these arrangements, control is transferred over the
manufacturing process; therefore, revenue is recognized over time utilizing an
input method based on actual costs incurred in the manufacturing process to date
relative to total expected production costs. For certain longer duration 3D
scanning service projects, we progress bill as the services are performed. These
arrangements create an asset with no alternative use and include an enforceable
right to payment. For these arrangements, control is transferred over the hours
incurred to complete the scanning project; therefore, revenue is recognized over
time utilizing an input method based on actual hours incurred relative to total
projected project hours. For maintenance and extended warranty contracts,
revenue is recognized over time on a straight-line basis over the term of the
contract as the customer simultaneously receives and consumes the benefits of
the coverage.
Allowance for Doubtful Accounts and Trade Notes.
We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. In making the
determination of the appropriate allowance for doubtful accounts, we consider
specific accounts, historical write-offs, changes in customer relationships and
credit worthiness and concentrations of credit risk. Specific accounts and trade
notes receivable are written-off once a determination is made that the account
is uncollectible. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. If our accounts and trade notes
receivable were to increase by
doubtful accounts would increase by
and trade notes was
2020
Allowance for Warranty Expenses.
We provide for the estimated cost of product warranties at the time revenue is
recognized. While we engage in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of components provided
by suppliers, warranty obligations do arise. These obligations are affected by
product failure rates, the costs of materials used and service delivery expenses
incurred in correcting a product failure. If actual product failure rates and
material or service delivery costs differ from our estimates, revisions to the
estimated warranty liability are required and could be material. If our sales
were to increase by
expenses would increase by
at
Inventory Write Downs.
We write down inventory for estimated obsolescence or lack of marketability
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. We
formulate our assumptions regarding future demand and market conditions based on
order trends and input from customers regarding their future requirements. If
actual market conditions are less favorable than those projected, or if in the
future we decide to discontinue sales and marketing of any of our products,
additional inventory write-downs may be required. For some products, we
typically carry on-hand inventories of
were to become obsolete or otherwise non-saleable, we could be required to write
down the value of the inventory by
of inventory being carried. Excess and obsolete inventories were written down by
Valuation of Intangible and Long-Lived Assets.
We evaluate the carrying value of goodwill annually on
frequently if management believes indicators of impairment exist. We assess the
impairment of identifiable intangible assets, long lived assets and related
goodwill whenever events or changes in circumstances indicate the carrying value
may not be recoverable. Factors we consider important, which could trigger an
impairment review and that we consider when performing our annual goodwill
impairment assessment, include the following:
• Significant under-performance relative to expected historical or projected
future operating results.
• Significant changes in the manner of our use of the acquired assets or the
strategy for our overall business.
• Significant negative industry or economic trends.
• Significant decline in the price of our common stock for a sustained period,
and the size of our market capitalization relative to our net book value.
• For intangible and long-lived assets, if the carrying value exceeds the
undiscounted cash flows from such asset.
When we determine that the carrying value of intangibles, long-lived assets and
related goodwill may not be recoverable based upon the existence of one or more
of the above indicators of impairment, we measure any potential impairment based
on a projected discounted cash flow method using a discount rate that we believe
is commensurate with the risk inherent in our current business model. We utilize
the income approach to estimate our fair value. The income approach is a
valuation technique under which we estimate future cash flows using financial
forecasts. Future estimated cash flows are discounted to their present value to
calculate fair value. When determining fair value, we also give consideration to
the control premium in excess of our current market capitalization that might be
obtained from a third party acquirer. These assumptions require significant
judgment and actual results may differ from assumed or estimated amounts.
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At
performed as of
However, our conclusion could change in the future, if our assumptions about
future economic conditions, revenue growth or profitability change. Any
resulting impairment charge could have a material effect on our financial
position and results of operations in the future.
Income Taxes.
Significant judgment is required in determining worldwide income tax expense
based upon tax laws in the various jurisdictions in which we operate. We have
established reserves for uncertain tax positions by applying the “more likely
than not” threshold (i.e., a likelihood of occurrence greater than fifty
percent). The recognition threshold is met when an entity concludes that a tax
position, based solely on its technical merits, is more likely than not to be
sustained upon examination by the relevant taxing authority. Those tax positions
failing to qualify for initial recognition are recognized in the first interim
period in which they meet the more likely than not standard, or are resolved
through negotiation or litigation with the taxing authority, or upon expiration
of the statute of limitations. De-recognition of a tax position that was
previously recognized occurs when an entity subsequently determines that a tax
position no longer meets the more likely than not threshold of being sustained.
All tax positions are analyzed periodically and adjustments are made as events
warrant modification, such as the completion of audits or the expiration of
statutes of limitations, which may result in future charges or credits to income
tax expense.
As part of the process of preparing our consolidated financial statements,
management is required to estimate income taxes in each of the jurisdictions in
which we operate. This process involves estimating the current tax liability, as
well as assessing temporary differences arising from the different treatment of
items for financial statement and tax purposes. These differences result in
deferred tax assets and liabilities, which are recorded on our consolidated
balance sheet.
We have significant deferred tax assets as a result of temporary differences
between the taxable income on our tax returns and
credit carry forwards and state net operating loss carry forwards. A deferred
tax asset generally represents future tax benefits to be received when temporary
differences previously reported in our consolidated financial statements become
deductible for income tax purposes, when net operating loss carry forwards could
be applied against future taxable income, or when tax credit carry forwards are
utilized on our tax returns. We assess the realizability of our deferred tax
assets and the need for a valuation allowance based on the guidance provided in
current financial accounting standards.
At
million
and net operating loss carry forwards. Significant judgment is required in
determining the realizability of our deferred tax assets. The assessment of
whether valuation allowances are required considers, among other matters, the
nature, frequency and severity of any current and cumulative losses, forecasts
of future profitability, the duration of statutory carry forward periods, our
experience with credit and loss carry forwards not expiring unused and tax
planning alternatives. In analyzing the need for valuation allowances, we first
considered our history of cumulative operating results for income tax purposes
over the past three years in each of the tax jurisdictions in which we operate,
our financial performance in recent quarters, statutory carry forward periods
and tax planning alternatives. In addition, we considered both our near-term and
long-term financial outlook. After considering all available evidence (both
positive and negative), we concluded that recognition of valuation allowances
for substantially all of our
not required at
could change in the future, if our actual results or assumptions about future
economic conditions, revenue growth or profitability deteriorate. Any resulting
valuation allowance could have a material negative effect on our financial
position and results of operations in the future. For example, if we were to
experience losses over a period of several years, we could be required to record
valuation allowances for most of our remaining net deferred tax assets, which
totaled
We file income tax returns in
jurisdictions. Our federal income tax returns for years after 2017 are still
subject to examination by the Internal Revenue Service. We are no longer subject
to state and local income tax examinations for years prior to 2017. The
Revenue Authority of Singapore
2018 income tax return. We presently anticipate that the outcome of this audit
will not have a significant impact on our financial position or results of
operations.
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