Financing and Trade Receivables

6 Months Ended

Jun. 30, 2023

Credit Loss [Abstract]

Financing and Trade Receivables

FINANCING AND TRADE RECEIVABLES

The Company’s financing receivables are comprised of commercial purchase security agreements with the Company’s end customers (“PSAs”) and commercial loans to the Company’s franchisees (“Franchisee Notes”) in the Repair Solutions segment. Financing receivables are generally secured by the underlying tools and equipment financed.

Revenues associated with the Company’s interest income related to financing receivables are recognized to approximate a constant effective yield over the contract term. Accrued interest is included in Accounts receivable, less allowance for credit losses on the Consolidated Condensed Balance Sheets and was insignificant as of June 30, 2023 and December 31, 2022.

The components of financing receivables with payments due in less than twelve months that are presented in Accounts receivable, less allowance for credit losses on the Consolidated Condensed Balance Sheets were as follows:

($ in millions)	June 30, 2023		December 31, 2022
Gross current financing receivables:
PSAs	$	96.8	$	96.6
Franchisee Notes	20.9		18.4
Current financing receivables, gross	$	117.7	$	115.0
Allowance for credit losses:
PSAs	$	14.5	$	13.1
Franchisee Notes	5.5		6.5
Total allowance for credit losses	20.0		19.6
Net current financing receivables:
PSAs, net	$	82.3	$	83.5
Franchisee Notes, net	15.4		11.9
Total current financing receivables, net	$	97.7	$	95.4

The components of Long-term financing receivables, less allowance for credit losses, which consists of financing receivables with payments due beyond one year, were as follows:

($ in millions)	June 30, 2023		December 31, 2022
Gross long-term financing receivables:
PSAs	$	234.7	$	224.0
Franchisee Notes	63.6		63.5
Long-term financing receivables, gross	$	298.3	$	287.5
Allowance for credit losses:
PSAs	$	28.2	$	32.4
Franchisee Notes	5.1		5.3
Total allowance for credit losses	33.3		37.7
Net long-term financing receivables:
PSAs, net	$	206.5	$	191.6
Franchisee Notes, net	58.5		58.2
Total long-term financing receivables, net	$	265.0	$	249.8

As of June 30, 2023 and December 31, 2022, the net unamortized discount on our financing receivables was $17.7 million and $16.8 million, respectively.

Credit score and distributor tenure are the primary indicators of credit quality for the Company’s financing receivables. The amortized cost basis and current period gross write-offs of PSAs and Franchisee Notes by origination year as of and for the six months ended June 30, 2023, is as follows:

($ in millions)	2023		2022		2021		2020		2019		Prior		Total
PSAs
Credit Score:
Less than 400	$	10.6	$	10.2	$	5.4	$	2.6	$	1.4	$	0.1	$	30.3
400-599	16.0		17.3		8.8		4.7		2.1		0.6		49.5
600-799	34.4		34.3		18.9		9.6		3.6		1.1		101.9
800+	55.9		52.6		24.4		12.0		4.1		0.8		149.8
Total PSAs	$	116.9	$	114.4	$	57.5	$	28.9	$	11.2	$	2.6	$	331.5
Franchisee Notes
Active distributors	$	15.4	$	21.5	$	14.9	$	7.0	$	5.9	$	6.3	$	71.0
Separated distributors	—		0.8		2.8		2.6		2.5		4.8		13.5
Total Franchisee Notes	$	15.4	$	22.3	$	17.7	$	9.6	$	8.4	$	11.1	$	84.5
Current Period Gross Write-offs
PSAs	$	2.3	$	8.9	$	5.0	$	2.4	$	1.1	$	0.5	$	20.2
Franchisee Notes	—		0.1		0.1		0.1		0.5		0.6		1.4
Total current period gross write-offs	$	2.3	$	9.0	$	5.1	$	2.5	$	1.6	$	1.1	$	21.6

Past Due

PSAs are considered past due when a contractual payment has not been made. If a customer is making payments on its account, interest will continue to accrue. The table below sets forth the aging of the Company’s PSA balances as of:

($ in millions)	30-59 days past due		60-90 days past due		Greater than 90 days past due		Total past due		Total not considered past due		Total		Greater than 90 days past due and accruing interest
June 30, 2023	$	3.3	$	1.7	$	6.3	$	11.3	$	320.2	$	331.5	$	6.3
December 31, 2022	3.6		1.8		6.9		12.3		308.3		320.6		6.9

Franchisee Notes are considered past due when payments have not been made for 21 days after the due date. Past due Franchisee Notes (where the franchisee had not yet separated) were insignificant as of June 30, 2023 and December 31, 2022.

Uncollectable Status

PSAs are deemed uncollectable and written off when they are both contractually delinquent and no payment has been received for 180 days.

Franchisee Notes are deemed uncollectable and written off after a distributor separates and no payments have been received for one year.

The Company stops accruing interest and other fees associated with financing receivables when (i) a customer is placed in uncollectable status and repossession efforts have begun; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) other instances in which management concludes collectability is not reasonably assured.

Allowance for Credit Losses Related to Financing Receivables

The Company calculates the allowance for credit losses considering several factors, including the aging of its financing receivables, historical credit loss and portfolio delinquency experience and current economic conditions. The Company also evaluates financing receivables with identified exposures, such as customer defaults, bankruptcy or other events that make it unlikely it will recover the amounts owed to it. In calculating such reserves, the Company evaluates expected cash flows, including estimated proceeds from disposition of collateral, and calculates an estimate of the potential loss and the probability of loss. When a loss is considered probable on an individual financing receivable, a specific reserve is recorded.

The following is a rollforward of the PSAs and Franchisee Notes components of the Company’s allowance for credit losses related to financing receivables as of:

	June 30, 2023
($ in millions)	PSAs		Franchisee Notes		Total
Allowance for credit losses, beginning of year	$	45.5	$	11.8	$	57.3
Provision for credit losses	16.3		(0.1)		16.2
Write-offs	(20.2)		(1.4)		(21.6)
Recoveries of amounts previously charged off	1.1		0.3		1.4
Allowance for credit losses, end of period	$	42.7	$	10.6	$	53.3

Allowance for Credit Losses Related to Trade Accounts Receivables

The following is a rollforward of the allowance for credit losses related to the Company’s trade accounts receivables (excluding financing receivables) and the Company’s trade accounts receivable cost basis as of:

($ in millions)	June 30, 2023
Cost basis of trade accounts receivable	$	408.1
Allowance for credit losses balance, beginning of year	14.6
Provision for credit losses	3.0
Write-offs	(2.6)
Foreign currency and other	(0.1)
Allowance for credit losses balance, end of period	14.9
Net trade accounts receivable balance	$	393.2