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Significant Risk Concentrations
9 Months Ended
Sep. 30, 2019
Risks And Uncertainties [Abstract]  
Significant Risk Concentrations

10. Significant Risk Concentrations

Significant Customer

No customers accounted for 10% or more of total revenue for each of the three and nine months ended September 30, 2019 and 2018. Honeywell International, Inc. and affiliated entities (“Honeywell”)

Honeywell International, Inc. and affiliated entities (“Honeywell”) had accounts receivable balances of $1.4 million or approximately 16% of total accounts receivable at September 30, 2019 and $2.8 million or approximately 24% of total accounts receivable at December 31, 2018. No other customer accounted for 10% or more of total accounts receivable at September 30, 2019 or December 31, 2018.

Significant Supplier

Effective March 1, 2019, pursuant to a new Global Partnership Agreement with Microsoft Corporation (“Microsoft”), we are authorized to sell Windows Embedded operating systems in Canada, the United States, Argentina, Brazil, Chile, Mexico, Peru, Venezuela, Puerto Rico, Cuba, Haiti, Dominican Republic, Jamaica, Trinidad and Tobago, Guadeloupe, Martinique, Bahamas, Barbados, Saint Lucia, Curacao, Aruba, Saint Vincent and the Grenadines, U.S. Virgin Islands, Grenada, Dominica, Cayman Islands, Saint Kitts and Nevis, Sint Maarten, Turks and Caicos Islands, Saint Martin, British Virgin Islands, Sint Eustatius, Saba, Anguilla, Montserrat, Colombia, Saint Barthelemy, Antigua and Barbuda. Our distribution agreement for sales of Windows Embedded operating systems in the E.U., the European Free Trade Association, Turkey and Africa, from which we generated approximately 3.7% of our third-party software sales in 2018, expired on June 30, 2019 and was not renewed. We have also entered into OEM Distribution Agreements (“ODAs”) with Microsoft pursuant to which we are licensed to sell Microsoft Windows Mobile operating systems to customers in North America, South America, Central America (excluding Cuba), Japan, Taiwan, Europe, the Middle East, and Africa. The ODAs to sell Windows Mobile operating systems are effective through April 30, 2022.

Software sales under these agreements constitute a significant portion of our software revenue and total revenue. There is no automatic renewal provision in any of these agreements, and 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:

 

For the three and nine months ended September 30, 2019, we allocated 20% of rebates to reduce cost of sales, with the remaining 80% potentially available to offset qualified marketing expenses related to Microsoft Azure products in the period that expenditures are claimed and approved.

 

For the three and nine months ended September 30, 2018, we allocated 30% of rebates to reduce cost of sales, with the remaining 70% available to offset qualified marketing expenses in the period the expenditures are claimed and approved.

Under this rebate program, we recorded rebate credits as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Reductions to cost of revenue

 

$

87

 

 

$

159

 

 

$

240

 

 

$

577

 

Reductions to marketing expense

 

$

597

 

 

$

294

 

 

$

1,027

 

 

$

673

 

 

There was a balance of approximately $821,000 in qualified outstanding rebate credits at September 30, 2019, which will be accounted for as a reduction in marketing expense in the period in which qualified program expenditures are made.