ITEM
2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The preparation of the financial information contained in this Form 10-Q 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 those 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. These critical accounting policies are discussed in more detail in the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
FORWARD LOOKING STATEMENTS:
The following management’s discussion and analysis contains a number of estimates and predictions that are forward looking rather than based on historical fact. Among other matters, we discuss (i) our level of anticipated revenues, gross margins, and expenses; (ii) the timing of orders and shipments of our existing products, particularly the SQ3000, our 3D automated optical inspection (AOI) system; (iii) the timing of initial revenue and margin improvements from new products that we have under development, that have been recently introduced or that we anticipate introducing in the future; (iv) the amount of anticipated revenue and potential revenue opportunity from recently introduced new products or potential new products we may launch in the future; (v) our beliefs regarding trends in the general economy and its impact on markets for our products and (vi) the impact of currency fluctuations on our operations. Although we have made these statements based on our experience and best estimate of future events, there may be events or factors that we have not anticipated, and the accuracy of our statements and estimates are subject to a number of risks, including those identified in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
RESULTS OF OPERATIONS
General
Our products are sold primarily into the electronics assembly, DRAM and flash memory, and semiconductor fabrication capital equipment markets. We sell products in these markets both to original equipment manufacturers (OEMs) of production equipment and to end-user customers that assemble circuit boards and semiconductor wafers and devices. Our wholly owned subsidiary, Laser Design, Inc. (LDI), sells
3
D scanners and provides scanning services to the global
3
D scanner and services metrology markets.
Our recent and planned product introductions are designed to strengthen our competitive position in our current markets and expand into adjacent markets. We believe
3
D inspection represents a high-growth segment of both the electronic assembly market and the semiconductor market. For this reason, we are working to strategically reposition our company as a developer, manufacturer and global leader of high-precision
3
D sensors. A key element in our strategic re-positioning is the development of new high precision
3
D sensors based on our proprietary Multi-Reflection Suppression (MRS) technology. MRS technology inhibits reflections that can result in measurement inaccuracies, which is particularly critical for inspecting shiny objects.
We believe that MRS is a break-through optical technology for high-end inspection applications, with the potential to expand our markets in the future. In the existing markets for our surface mount technology (SMT), semiconductor inspection and general purpose
3
D scanning products, we are seeing a growing number of opportunities because of our
3
D MRS technology platform, and we are introducing new products based on MRS technology that we believe present a significant opportunity for increased revenues.
We have entered into a mutually exclusive agreement to supply KLA-Tencor with high-precision
3
D sensor subsystems for its back-end semiconductor packaging inspection systems. We also have entered into an agreement to supply Nordson-YESTECH with high precision
3
D sensor subsystems for the SMT market. The sensor subsystems are based on the MRS technology that we have been developing for the past several years. We intend to expand sales of products based on MRS technology into both the SMT market and adjacent markets that require high precision
3
D optical inspection. Previously, we disclosed that we have been working with a major new customer for MRS sensors on a general purpose metrology application related to the inspection of finished goods. Although we continue to work with this customer, we do not know whether or not any new orders from this customer will be forthcoming. For this reason, we have not factored any orders from this customer into our third quarter or full year
2017
forecasts.
We have significantly advanced our MRS-enabled 3D sensor technology as part of a research and development initiative aimed at applying our MRS technology to mid-end and front-end semiconductor inspection. As previously reported, features of
50
microns, including devices with mirror-like finishes, are being measured consistently in our research lab, and further progress has been made toward measuring sub-
50
micron features. Our MRS technology is now able to inspect cracks and other defects down to 30 microns in wafer dies. This mid-end inspection capability is currently being demonstrated to semiconductor manufacturers, and we believe that significant orders for products based on this technology are possible in 2018. We anticipate that MRS sensor technology will be applicable to front-end semiconductor inspection within
the next several
years. If this initiative proves to be commercially viable, the available market for our MRS-enabled sensors and products for mid-end and front-end semiconductor inspection could be significant.
Our
3
D MRS technology has also been deployed in our
3
D AOI system, the SQ
3000
, which is designed to expand our presence in markets requiring high precision inspection. In these markets, identifying defects has become highly challenging and critical due to smaller electronics packaging and increasing component density on circuit boards. We believe the combination of our MRS technology and sophisticated
3
D fusing algorithms allows the SQ3000 to provide microscopic image quality at production speeds. We are particularly encouraged by our growing pipeline of sales opportunities for large projects involving multiple SQ
3000
systems. These sales opportunities are being driven by the competitive advantages offered by our
3
D MRS technology platform, which is enabling us to capitalize upon the growing demand for high-precision inspection. For this reason, we believe we can continue to expand our share of the rapidly growing worldwide
3
D AOI market, and believe that the future sales potential of the SQ
3000
is significant.
We have incorporated our MRS technology into a new
3
D scanning system, CyberGage®
360
, which we believe will serve a wide range of inspection applications in the general purpose
3
D metrology market. We believe that the unique performance characteristics of our MRS technology, which inhibit reflections and enable very accurate measurements at fast speeds, combined with ease of use, will give CyberGage
360
a competitive advantage in the marketplace for
3
D scanning systems. The sales cycle for the CyberGage360 remains lengthy as many potential customers are taking longer than originally anticipated to evaluate the potential impact of this disruptive new inspection technology on their product workflows. Consistent with our forecasts, only one CyberGage360 was sold in the second quarter of 2017. However, sales activity is picking up as an order for two systems was received in July 2017, and we anticipate receiving several more orders as the third quarter of 2017 progresses. Later in 2017, a second CyberGage360 system will be introduced that offers greater resolution within a smaller working envelope. The current version of CyberGage360 will continue to be marketed for larger parts. Based upon positive feedback from customer demonstrations and evaluations, we believe CyberGage360 will become an important contributor to our long-term sales growth.
Although we are optimistic about future sales of CyberGage
360
, there can be no assurance that CyberGage
360
will achieve widespread market acceptance.
We have continued to invest in our WaferSense/ReticleSense products. In response to ongoing input from semiconductor manufacturers, we are developing additional product offerings for new applications in semiconductor fabs and flat panel display manufacturing. Strong future sales growth is anticipated for the WaferSense/ReticleSense product line.
As stated previously, our quarterly results will continue to fluctuate on a sequential and year-over-year basis, reflecting the pace of new orders and customer acceptances for our 3D products. We ended the
second
quarter of
2017
with a backlog of $
7.3
million, down from $
14.7
million at June 30, 2016 and $
10.9
million at March 31, 2017. For the third quarter of 2017, we are forecasting revenue of $13.0 million to $15.0 million. Our revenue forecast has been impacted by delayed receipt of pending orders, primarily for SQ3000 systems, totaling approximately $3.0 million. Although it is possible that revenue from these orders could be recognized in the third quarter, given implementation schedules and the time required to obtain customer acceptances, revenue from these pending orders will most likely be recognized in the fourth quarter of 2017. Our ability to post improved year-over-year sales growth is dependent upon timely receipt of customer orders and acceptances for SQ3000 systems. Despite this near-term sales timing issue, we remain very optimistic about CyberOptics future, given the growing acceptance of our suite of MRS-enabled and WaferSense/ReticleSense products, the outlook for mid-end semiconductor inspection, and for gradually growing CyberGage sales.
We believe that we have the resources required to attain our growth objectives, given our available cash and marketable securities balances totaling $
22.7
million at
June 30, 2017
.
Revenues
Our revenues
decreased
by
12
% to $
16.4
million in the
three months ended June 30, 2017
, from $
18.6
million in the
three months ended June 30, 2016
.
Revenues
decreased
by
25
% to $
28.3
million in the
six months ended June 30, 2017
, from $
37.7
million in the
six months ended June 30, 2016
.
The following table sets forth revenues by product line for the
three and six
months ended
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
SMT and High Precision
3
D Sensors
|
|
$
|
5,635
|
|
|
$
|
6,396
|
|
|
$
|
9,539
|
|
|
$
|
12,604
|
|
Semiconductor Sensors
|
|
3,153
|
|
|
3,147
|
|
|
5,470
|
|
|
5,264
|
|
SMT Inspection Systems
|
|
5,848
|
|
|
5,238
|
|
|
10,537
|
|
|
13,990
|
|
3
D Scanners and Services
|
|
1,773
|
|
|
3,850
|
|
|
2,783
|
|
|
5,887
|
|
Total
|
|
$
|
16,409
|
|
|
$
|
18,631
|
|
|
$
|
28,329
|
|
|
$
|
37,745
|
|
Revenue from sales of SMT and high precision
3
D sensors
decreased
by $761,000 or
12
% to $
5.6
million in the
three months ended June 30, 2017
, from $
6.4
million in the
three months ended June 30, 2016
. Revenue from sales of this product line
decreased
by $
3.1
million or
24
% to $
9.5
million in the
six months ended June 30, 2017
, from $
12.6
million in the
six months ended June 30, 2016
. The revenue decreases resulted from reduced sales of legacy
2
D LaserAlign sensors, offset in part by higher sales of 3D MRS-enabled sensors. Sales of
2
D LaserAlign sensors in the three and six months ended June 30, 2016 were driven by
one
longstanding OEM customer who experienced a significant increase in sales of its products that incorporate our sensors during those periods. Sales of SMT and high precision
3
D sensors are dependent on the success of our OEM partners selling products that incorporate our sensors. Quarterly sales of SMT and high precision
3
D MRS enabled sensors are prone to significant fluctuations, both sequentially and on a year-over-year basis.
Sales to KLA-Tencor are expected to continue to increase as our MRS enabled sensors are now becoming standard on KLA-Tencor's back-end semiconductor inspection systems that utilize
3
D optical inspection. Nordson-YESTECH introduced its
3
D MRS-equipped AOI system at the IPC APEX Expo trade show in March 2016 to a very favorable reception. As a result, we believe that sales of sensors under our supply agreement with Nordson-YESTECH should be a positive contributor to our future sales growth.
Revenue from sales of semiconductor sensors, principally our WaferSense® and ReticleSense® product line totaled $
3.2
million in the
three months ended June 30, 2017
, approximately the same as the
three months ended June 30, 2016
. Revenue from sales of semiconductor sensors
increased
by $
206,000
or
4
% to $
5.5
million in the
six months ended June 30, 2017
, from $
5.3
million in the
six months ended June 30, 2016
. The sales increases were due to increased customer awareness and improved account penetration at major semiconductor manufacturers and capital equipment suppliers. We anticipate that the benefits from growing market awareness and new product introductions will lead to additional WaferSense® and ReticleSense® sales in future periods.
Revenue from sales of SMT inspection systems
increased
by $610,000 or
12
% to $
5.8
million in the
three months ended June 30, 2017
, from $
5.2
million in the
three months ended June 30, 2016
. Revenue from sales of SMT inspection systems
decreased
by $
3.5
million or
25
% to $
10.5
million in the
six months ended June 30, 2017
, from $
14.0
million in the
six months ended June 30, 2016
. The revenue increase in the three months ended June 30, 2017 was due to higher sales of SQ3000 3D AOI systems. The steadily growing acceptance of the SQ3000 is being generated by the competitive advantages of our 3D MRS technology platform, which is enabling us to capitalize upon strong worldwide demand for high-precision inspection. The revenue decrease in the six months ended June 30, 2017 resulted from the lack of sales of MX600 memory module inspection systems. There were no sales of the MX600 in the six months ended June 30, 2017, compared to MX600 sales of $2.9 million
in the
six months ended June 30, 2016
.
We believe a growing number of companies are transitioning from
2
D AOI to
3
D AOI systems to meet the increasingly demanding inspection requirements of the electronics and industrial markets. We believe sales of our new
3
D MRS enabled AOI products will represent an increasing percentage of our total AOI and solder paste inspection (SPI) product sales in the future. We expect that the competitive advantages of our unique
3
D MRS technology will provide us with an opportunity to capture significant market share in the
3
D AOI systems market.
Revenue from sales of
3
D scanners and services
decreased
by $
2.1
million or
54
% to $
1.8
million in the
three months ended June 30, 2017
, from $
3.9
million in the
three months ended June 30, 2016
. Revenue from sales of 3D scanners and services
decreased
by $
3.1
million or
53
% to $
2.8
million in the
six months ended June 30, 2017
, from $
5.9
million in the
six months ended June 30, 2016
. The revenue decreases were due to reduced sales of computed tomography or X-ray scanning (CT) systems. In the three and six months ended June 30, 2016, approximately $2.5 million of X-ray scanning systems were sold as a result of a single large order from one customer. We believe our future revenue growth from sales of
3
D scanners and services will be determined in large part by market acceptance of our new CyberGage®
360
3
D scanning system.
Export revenue totaled $
12.1
million or
74
% of total revenue in the
three months ended June 30, 2017
, compared to $
15.1
million or
81
% of total revenue in the
three months ended June 30, 2016
. Export revenue totaled $
21.5
million or
76
% of total revenue in the
six months ended June 30, 2017
, compared to $
31.3
million or
83
% of total revenue in the
six months ended June 30, 2016
. Most of the large transactions that drove our strong revenue in the three and
six months ended June 30, 2016
were export sales. As result, export revenue as a percentage of total revenue was lower in the three and
six months ended June 30, 2017
, when compared to the three and
six months ended June 30, 2016
.
Cost of Revenues and Gross Margin
Cost of revenues
decreased
by $
1.8
millio
n or
17
% to $
8.7
million in the
three months ended June 30, 2017
, from $
10.5
million in the
three months ended June 30, 2016
. Cost of revenues
decreased
by $
6.5
million or
30
% to $
15.2
million in the
six months ended June 30, 2017
, from $
21.7
million in the
six months ended June 30, 2016
. The
decrease
in cost of revenues
was mainly due to the corresponding revenue decreases
in the three and six months ended June 30, 2017.
Our sales mix was also more favorable in the three and six months ended June 30, 2017, with higher margin products constituting a greater portion of our total revenue. Items included in cost of revenues that fluctuate with the level of sales include raw materials, direct labor and factory overhead costs.
Total gross margin as a percentage of revenue was
47
% in the
three months ended June 30, 2017
, compared to
44
% in the
three months ended June 30, 2016
. Total gross margin as a percentage of revenue was
46
% in the
six months ended June 30, 2017
, compared to
43
% in the
six months ended June 30, 2016
. The improvement in gross margin percentage was mainly due to a change in product mix. Sales of our new 3D MRS sensors, SQ
3000
3
D AOI products and WaferSense/ReticleSense products, which have higher gross margins than some of our older products, constituted a larger portion of our total revenue in the three and six months ended June 30, 2017, when compared to the three and six months ended June 30, 2016. The X-ray scanning systems sold in larger quantities in the three and six months ended June 30, 2016 also generated a lower gross margin percentage than some of our other products.
Our markets are highly price competitive, particularly the electronic assembly market, resulting in continual pressure on our gross margins. We compensate for pricing pressure 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 CyberGage®
360
3
D scanning system, SQ
3000
3
D AOI products, 3D MRS sensors and WaferSense/ReticleSense sensor products have, or are expected to have, more favorable gross margins than many of our existing products.
We anticipate that our total gross margin percentage in the third quarter of
2017
will be comparable to the second quarter of
2017
.
Operating Expenses
Research and development expenses were $
2.0
million or
12
% of revenue in the
three months ended June 30, 2017
, compared to $
2.1
million or
11
% of revenue in the
three months ended June 30, 2016
. Research and development expenses were $
3.9
million or
14
% of revenue in the
six months ended June 30, 2017
, compared to $
4.1
million or
11
% of revenue in the
six months ended June 30, 2016
. The reduction in research and development expenses was due to lower bonus accruals and lower expenditures for engineering proto-types. Current research and development expenditures are primarily focused on continued development of our MRS technology and related products, including
3
D sensor subsystems, enhancements to the SQ
3000
3
D AOI system and the CyberGage®
360
3
D scanning system. In addition, research and development remains underway to determine the applicability of our MRS sensor technology to mid-end and front-end semiconductor inspection.
Selling, general and administrative expenses were $
4.1
million or
25
% of revenue in the
three months ended June 30, 2017
, compared to $
4.0
million or
22
% of revenue in the
three months ended June 30, 2016
. Selling, general and administrative expenses were $
8.0
million or
28
% of revenue in the
six months ended June 30, 2017
, compared to $
7.5
million or
20
% of revenue in the
six months ended June 30, 2016
. The increase in selling, general and administrative expenses was due to additional investment in marketing programs, and for additional sales and marketing personnel to support anticipated future sales growth. These cost increases were offset in part by lower incentive compensation expenses
due to reduced levels of revenue and profitability. Stock compensation expense was also lower in the three and six months ended June 30, 2017, compared to the three and six months ended June 30, 2016.
We anticipate that total operating expenses in the third quarter of
2017
will be comparable to the second quarter of
2017
.
Interest Income and Other
Interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions, including intercompany financing transactions associated with our subsidiaries in the United Kingdom, Singapore and China. Because we maintain our investments in instruments designed to avoid risk of loss of principal, we have generated very little interest income in the current interest rate environment. We recognized losses from foreign currency transactions, primarily intercompany financing transactions, of $
50,000
in the
three months ended June 30, 2017
compared to a gain of $
97,000
in the
three months ended June 30, 2016
. We recognized losses from foreign currency transactions, primarily intercompany financing transactions, of $
155,000
in the
six months ended June 30, 2017
compared to a gain of $
3,000
in the
six months ended June 30, 2016
.
Income Taxes
We recorded income tax expense of
$
539,000
in the
three months ended June 30, 2017
, compared to
$
44,000
in the
three months ended June 30, 2016
. We recorded income tax expense of $
126,000
in the
six months ended June 30, 2017
, compared to $
87,000
in the
six months ended June 30, 2016
. During the fourth quarter of
2016
, we substantially reduced the valuation allowances recorded against our United States and Singapore based deferred tax assets, primarily due to significant improvement in our operating results and financial outlook. In the six
months ended
June 30, 2017
, our income tax provision primarily reflects a
32.5
% effective income tax rate and excess tax benefits from employee share-based payments. Effective January 1, 2017, we adopted Accounting Standards Update No.
2016
-
09
,
Improvements to Employee Share-Based Payment Accounting,
which requires recognition of excess tax benefits or tax deficiencies from employee share-based payments in income tax expense or benefit as a discrete item in the reporting period in which they occur. In the three months
ended
June 30, 2017
, the recognized excess tax benefit from employee share-based payments was inconsequential. In the six months ended June 30, 2017, we recognized a $208,000 excess tax benefit from employee-share based payments.
In
come tax expense in the
three and six
months ended
June 30, 2016
,
included U.S. federal alternative minimum taxes, minimal state income tax expense and foreign income tax expense incurred by our subsidiaries in the United Kingdom and China.
We have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and federal, state and foreign 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 are 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.
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 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 where we operate, our financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. Finally, 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 United States and Singapore based deferred tax assets was not required at
June 30, 2017
.
We do not expect to make significant income tax payments for the foreseeable future due to our available federal net operating loss carryforwards and federal research and development tax credit carryforwards.
Backlog
Backlog totaled $
7.3
million at
June 30, 2017
, $
10.2
million at
December 31, 2016
and $
14.7
million at
June 30, 2016
. Our products are typically shipped
two
weeks to
two
months after receipt of an order. However, in some instances, our OEM customers may place orders for shipment of products covering periods of
six
months or longer. Sales of some SMT inspection system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these SMT product sales, revenue is recognized at the time of customer acceptance. Our backlog at any time may vary significantly based on the timing of orders from OEM customers. Accordingly, backlog may not be an accurate indicator of performance in the future.
Liquidity and Capital Resources
Our cash and cash equivalents
decreased
by $
3.4
million in the
six months ended June 30, 2017
, principally resulting from $
3.0
million of cash used in operating activities, purchases of fixed assets and capitalized patent costs totaling $
595,000
and purchases of marketable securities totaling $
3.7
million. Cash used for these activities was offset in part by sales and maturities of marketable securities totaling $
3.5
million and proceeds of $
321,000
from stock option exercises. 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
decreased
by $
3.2
million to $
22.7
million as of
June 30, 2017
from $
25.9
million as of
December 31, 2016
.
Operating activities used $
3.0
million of cash in the
six months ended June 30, 2017
. Cash used in operations included our net income of $881,000. Included in net income are non-cash expenses totaling $
1.8
million for depreciation and amortization, provision for doubtful accounts, deferred income taxes, non-cash losses from foreign currency transactions and share-based compensation costs. Changes in operating assets and liabilities using cash in the six months ended June 30, 2017 included
an increase
in accounts receivable of $
2.9
million,
an increase
in inventories of $
4.8
million,
an increase
in other assets of $
56,000
and
a decrease
in accrued expenses of $
1.4
million. Changes in operating assets and liabilities providing cash in the six months ended June 30, 2017 included
an increase
in accounts payable of $
3.2
million and
an increase
in advance customer payments of $
240,000
. Accounts receivable increased due to significantly higher sales in the second quarter of 2017, compared to the fourth quarter of 2016. Inventory increased due to additional raw material purchases needed to support anticipated future product sales. Other assets were up slightly due to additional payments for recoverable goods and services taxes and facility lease deposits. Accrued expenses decreased due to payment of accrued 2016 incentive compensation and bonuses. Accruals for incentive compensation and bonuses in 2017 have been considerably lower than accruals in the 2016 periods due to lower levels of revenue and profitability. Accounts payable were up due to the additional inventory purchases. Advance customer payments were up due to an increase in deferred warranty revenue and customer deposits.
Investing activities used $
810,000
of cash in the
six months ended June 30, 2017
. Changes in the level of investment in marketable securities, resulting from the purchases, sales and maturities of those securities used $
215,000
of cash in the
six months ended June 30, 2017
. We used $
595,000
of cash in the
six months ended June 30, 2017
for the purchase of fixed assets and capitalized patent costs.
Financing activities provided $
321,000
of cash in the
six months ended June 30, 2017
from the exercise of stock options.
At
June 30, 2017
, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established by some companies for the purpose of establishing off-balance sheet arrangements or for other contractually narrow or limited purposes.
The following summarizes our contractual obligations at
December 31, 2016
, and the effect such obligations are expected to have on our liquidity and cash in future periods.
December 31, 2016
(in thousands)
|
|
Total
|
|
Less Than
1
Year
|
|
1
–
4
Years
|
|
After
4
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable operating lease obligations
|
|
$
|
3,350
|
|
|
$
|
1,357
|
|
|
$
|
1,993
|
|
|
$
|
—
|
|
Purchase obligations
|
|
|
11,095
|
|
|
|
11,095
|
|
|
|
—
|
|
|
|
—
|
|
Reserve for income taxes
|
|
|
131
|
|
|
|
—
|
|
|
|
131
|
|
|
|
—
|
|
Total contractual cash obligations
|
|
$
|
14,576
|
|
|
$
|
12,452
|
|
|
$
|
2,124
|
|
|
$
|
—
|
|
There have been no significant changes to our contractual commitments in the six
months ended
June 30, 2017
or other material commitments for capital expenditures. Purchase commitments for inventory can vary based on the volume of product sales and resulting inventory requirements.
We lease a
50,724
square foot mixed office and warehouse facility built to our specifications in Golden Valley, Minnesota, which functions as our corporate headquarters and primary manufacturing facility. The lease for this space is set to expire in December 2018. We lease a
19,805
square foot mixed office and warehouse facility in Singapore. The lease for our Singapore facility expires in July 2020.
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding. Included in the purchase obligations category in the table above are purchase orders for inventory purchases under our standard terms and conditions and under negotiated agreements with vendors and utilities. We expect to receive consideration (products or services) for purchase obligations. The purchase obligation amounts do not represent all anticipated purchases in the future, but instead represent only those items for which we are contractually obligated. The majority of our products and services are purchased as needed, with no contractual commitment. Consequently, the amounts in the purchase obligations category of the table above do not provide a reliable indicator of our expected future cash outflows.
Our cash, cash equivalents and marketable securities totaled $
22.7
million at
June 30, 2017
. We believe that on-hand cash, cash equivalents and marketable securities, coupled with anticipated cash flow from operations, will be adequate to fund our cash flow needs for the foreseeable future, including the contractual obligations set forth in the table above.