Equipment Financing Receivables and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2024

Equipment Financing Receivables and Allowance for Credit Losses

Equipment Financing Receivables and Allowance for Credit Losses

5. Equipment Financing Receivables and Allowance for Credit Losses

Our equipment financing receivables balance consists of sales-type leases arising from lease financing of cloud telecommunication equipment (IP or cloud telephone desktop devices) bundled and sold with our cloud telecommunications services. The majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. These receivables are typically collateralized by a security interest in the underlying equipment. Equipment financing receivables were as follows (in thousands):

	December 31,
	2024			2023
Gross equipment financing receivables	$	5,164		$	3,888
Less: unearned income		(1,492	)		(1,093	)
Less: allowance for credit losses		(226	)		(171	)
Equipment financing receivables, net	$	3,446		$	2,624
Current equipment financing receivables, net	$	1,049		$	856
Long-term equipment financing  receivables, net		2,397			1,768
Equipment financing receivables, net	$	3,446		$	2,624

A summary of our gross equipment financing receivables’ future contractual maturities, is as follows (in thousands):

Year ending December 31,
2025	$	1,777
2026		1,422
2027		1,069
2028		657
2029 and thereafter		239
Total	$	5,164

Allowance for Credit Losses

The allowance for credit losses was as follows (in thousands):

Balance at December 31, 2023	$	171
Provision		22
Write-offs		(13	)
Recoveries and other		-
Balance at March 31, 2024	$	180
Provision		23
Write-offs		(9	)
Recoveries and other		-
Balance at June 30, 2024	$	194
Provision		27
Write-offs		(6	)
Recoveries and other		-
Balance at September 30, 2024	$	215
Provision		22
Write-offs		(8	)
Recoveries and other		(3	)
Balance at December 31, 2024	$	226

Aging of Receivables

The aging of gross equipment financing receivables was as follows (in thousands):

	December 31,
	2024		2023
Past due amounts 0 - 90 days	$	3,444	$	2,623
Past due amounts > 90 days		2		1
Total	$	3,446	$	2,624

Our equipment financing receivable portfolio is primarily in the United States. The allowance for credit losses is determined principally based on an assessment of origination year and past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends. Based on that assessment, the allowance for credit losses was 6.1% of gross equipment financing receivables (net of unearned income) at December 31, 2024 and December 31, 2023.

The allowance for credit losses represents an estimate of the losses expected to be incurred from the Company's equipment financing receivable portfolio. The projected loss rates are primarily based upon historical loss experience adjusted for judgments about the probable effects of relevant observable data including current and future economic conditions as well as delinquency trends, resolution rates, and the aging of receivables. The allowance for credit losses for equipment finance receivables is inherently more difficult to estimate than the allowance for trade receivables because the underlying lease portfolio has an average maturity, at any time, of approximately three to five years and contains unbilled amounts. We consider all available information in our quarterly assessments of the adequacy of the allowance for credit losses. We believe our estimates, including any qualitative adjustments, are reasonable and have considered all reasonably available information about past events, current conditions, and reasonable and supportable forecasts of future events and economic conditions. The identification of account-specific exposure is not a significant factor in establishing the allowance for credit losses for equipment finance receivables. We continue to monitor developments in future economic conditions and trends, and as a result, our reserve may need to be updated in future periods.

The table below shows gross equipment financing receivables and current period gross write offs by year of origination (in thousands):

	December 31, 2024														December 31, 2023
	2024		2023		2022		2021		2020		Prior		Total Equipment Financing Receivables		Total Equipment Financing Receivables
United States	$	1,849		1,167		497		94		65		-	$	3,672	$	2,795
Current period gross write offs	$	5		18		7		6		-		-	$	36	$	33