Significant Risk Concentrations

3 Months Ended

Mar. 31, 2017

Risks And Uncertainties [Abstract]

Significant Risk Concentrations

10. Significant Risk Concentrations

Significant Customer

Honeywell International, Inc. and affiliated entities (“Honeywell”) accounted for $3.3 million, or 15% of total revenue for the three months ended March 31, 2017 and for $4.2 million, or 16% total revenue, for the three months ended March 31, 2016. PACCAR Inc. and affiliated entities accounted for $3.0 million, or 13% of total revenue for the three months ended March 31, 2017. No other customers accounted for 10% or more of our total revenue for the periods noted above.

At March 31, 2017, Honeywell had total accounts receivable balance of $8.2 million, or approximately 52% of total accounts receivable, and had $7.1 million, or approximately 33% of total accounts receivable at December 31, 2016. No other customer accounted for 10% or more of the total accounts receivable at March 31, 2017 or December 31, 2016.

Significant Supplier

We have two OEM Distribution Agreements (“ODAs”) with Microsoft Corporation (“Microsoft”) which enable us to sell Microsoft Windows Embedded operating systems on a non-exclusive basis to our customers in the United States, Canada, Argentina, Brazil, Chile, Columbia, Mexico, Peru, Puerto Rico, the Caribbean (excluding Cuba), the European Union, the European Free Trade Association, Turkey and Africa, which expire on June 30, 2018. We also have four ODAs with Microsoft, which allow us to sell Microsoft Windows Mobile operating systems in the Americas (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa, which also expire on June 30, 2018.

Software sales under these agreements constitute a significant portion of our software revenue and total revenue. These agreements are typically renewed bi-annually, annually or semi-annually; however, there is no automatic renewal provision in any of these agreements. Further, these agreements can be terminated unilaterally by Microsoft at any time. Microsoft currently offers a rebate program to sell Microsoft Windows Embedded operating systems pursuant to which we earn money for achieving certain predefined objectives. In accordance with Microsoft rebate program rules, we allocate 30% of rebate values to reduce cost of sales, with the remaining 70% to offset qualified marketing expenses in the period the expenditures are incurred.

Under this rebate program, we recognized $110,000 of rebate credits during the three months ended March 31, 2017, compared to $86,000 during the three months ended March 31, 2016, which were accounted for as reductions in cost of sales. Additionally, during the three months ended March 31, 2017, we received $155,000 in rebates, compared to $201,000 during the three months ended March 31, 2016, which were accounted for as reductions in marketing expenses. There was a balance of approximately $256,000 in outstanding rebate credits for which we qualified at March 31, 2017, which will be accounted for as reductions in marketing expense in the period in which qualified program expenditures are made.

Microsoft implemented significant pricing changes for its embedded products, including ending its design registration pricing discounts, terminating its OVRP and changing the aggregate volume price structure and product royalties for existing embedded Windows products effective January 1, 2016. In December 2015, Microsoft granted extensions for certain of the OVRPs through December 31, 2016, at which time the program ended.