FINANCING RECEIVABLES AND OPERATING LEASES

3 Months Ended

Jun. 30, 2023

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. Occasionally, 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 months ended June 30, 2023, and 2022 (in thousands):

	Three months Ended June 30,
	2023		2022
Net sales	$	7,623	$	4,983
Cost of sales		7,391		4,067
Gross profit	$	232	$	916

The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three  months ended June 30, 2023, and 2022 (in thousands):

	Three months Ended June 30,
	2023		2022
Interest income on sales-type leases	$	1,362	$	861
Lease income on operating leases	$	2,808	$	4,582

FINANCING RECEIVABLES—NET

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

	Notes			Lease			Financing
June 30, 2023	Receivable			Receivables			Receivables
Gross receivables	$	151,336		$	60,660		$	211,996
Unguaranteed residual value (1)		-			8,348			8,348
Unearned income		(14,278	)		(7,925	)		(22,203	)
Allowance for credit losses (2)		(696	)		(936	)		(1,632	)
Total, net	$	136,362		$	60,147		$	196,509
Reported as:
Current	$	49,674		$	31,437		$	81,111
Long-term		86,688			28,710			115,398
Total, net	$	136,362		$	60,147		$	196,509

(1) Includes unguaranteed residual values of $4,488 thousand 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, 2023	Receivable			Receivables			Receivables
Gross receivables	$	117,008		$	60,157		$	177,165
Unguaranteed residual value (1)		-			8,161			8,161
Unearned income		(5,950	)		(8,050	)		(14,000	)
Allowance for credit losses (2)		(801	)		(981	)		(1,782	)
Total, net	$	110,257		$	59,287		$	169,544
Reported as:
Current	$	65,738		$	24,091		$	89,829
Long-term		44,519			35,196			79,715
Total, net	$	110,257		$	59,287		$	169,544

(1) Includes unguaranteed residual values of $4,222 thousand 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):

	June 30,			March 31,
	2023			2023
Cost of equipment under operating leases	$	16,091		$	15,301
Accumulated depreciation		(10,825	)		(10,599	)
Investment in operating lease equipment—net (1)	$	5,266		$	4,702

(1) Amounts include estimated unguaranteed residual values of $1,873 thousand and $1,717 thousand as of June 30, 2023, and March 31, 2023, respectively.

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 June 30, 2023, and March 31, 2023, we had financing receivables of $22.0 million and $35.7 million, respectively, and operating leases of $2.1 million and $2.5 million, respectively, which were collateral for non-recourse notes payable. See Note 8, “Notes Payable and Credit Facility.”

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 June 30, 2023, and 2022, we recognized net gains of $1.3 million and $1.8 million, respectively, and total proceeds from these sales were $61.4 million and $52.5 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 June 30, 2023, and March 31, 2023, we had deferred revenue of $0.4 million and $0.5 million, respectively, for servicing obligations.

In a limited number of transfers accounted for as sales, we indemnified the assignee in the event that the lessee elects to early terminate the lease. As of June 30, 2023, and March 31, 2023, our total potential liability that could result from these indemnities is immaterial.