FINANCING RECEIVABLES AND OPERATING LEASES

9 Months Ended

Dec. 31, 2022

FINANCING RECEIVABLES AND OPERATING LEASES [Abstract]

FINANCING RECEIVABLES AND OPERATING LEASES

4. FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option.

The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and nine months ended December 31, 2022, and 2021 (in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Net sales	$	5,916	$	3,212	$	15,405	$	12,991
Cost of sales		4,949		2,645		12,785		10,936
Gross profit	$	967	$	567	$	2,620	$	2,055

The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and nine months ended December 31, 2022, and 2021 (in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Interest income on sales-type leases	$	996	$	786	$	2,677	$	3,076
Lease income on operating leases	$	4,030	$	7,356	$	13,271	$	19,200

FINANCING RECEIVABLES—NET

The following tables provide a disaggregation of our financing receivables – net (in thousands):

	Notes			Lease			Financing
December 31, 2022	Receivable			Receivables			Receivables
Gross receivables	$	136,293		$	55,413		$	191,706
Unguaranteed residual value (1)		-			7,969			7,969
Unearned income		(7,720	)		(7,815	)		(15,535	)
Allowance for credit losses (2)		(1,252	)		(1,397	)		(2,649	)
Total, net	$	127,321		$	54,170		$	181,491
Reported as:
Current	$	84,729		$	21,094		$	105,823
Long-term		42,592			33,076			75,668
Total, net	$	127,321		$	54,170		$	181,491

(1) Includes unguaranteed residual values of $4,130 that we retained after selling the related lease receivable.

(2) Refer to Note 7, “Allowance for Credit Losses” for details.

	Notes			Lease			Financing
March 31, 2022	Receivable			Receivables			Receivables
Gross receivables	$	80,517		$	38,788		$	119,305
Unguaranteed residual value (1)		-			9,141			9,141
Unearned income		(2,728	)		(3,604	)		(6,332	)
Allowance for credit losses (2)		(708	)		(681	)		(1,389	)
Total, net	$	77,081		$	43,644		$	120,725
Reported as:
Current	$	45,415		$	16,077		$	61,492
Long-term		31,666			27,567			59,233
Total, net	$	77,081		$	43,644		$	120,725

(1) Includes unguaranteed residual values of $6,424 that we retained after selling the related lease receivable.

(2)
Refer to Note 7, “Allowance for Credit Losses” for details.

OPERATING LEASES—NET

Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands):

	December 31,			March 31,
	2022			2022
Cost of equipment under operating leases	$	15,253		$	13,044
Accumulated depreciation		(10,342	)		(7,985	)
Operating lease equipment—net	$	4,911		$	5,059

TRANSFERS OF FINANCIAL ASSETS

We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings.

For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of December 31, 2022, and March 31, 2022, we had financing receivables of $58.1 million and $21.1 million, respectively, and operating leases of $1.4 million and $2.0 million, respectively, which were collateral for non-recourse notes payable. See Note 8, ‘‘Credit Facility and Notes Payable.’’

For transfers accounted for as a sale, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended December 31, 2022, and 2021, we recognized net gains of $5.2 million and $2.3 million, respectively, and total proceeds from these sales were $157.2 million and $63.5 million, respectively. For the year to date periods ended December 31, 2022, and 2021, we recognized net gains of $15.1 million and $15.6 million, respectively, and total proceeds from these sales were $586.1 million and $753.9 million, respectively.

When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform the services. As of both December 31, 2022, and March 31, 2022, we had deferred revenue of $0.5 million, for servicing obligations.

In a limited number of transfers accounted for as sales, we indemnified the assignee if the lessee elects to early terminate the lease. As of December 31, 2022, and March 31, 2022, the total potential payments that could result from these indemnities is immaterial.