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Financing receivables, net

6 Months Ended

Mar. 31, 2024

Financing receivables, net

Financing receivables, net

5. Financing receivables, net

In the TS US division financing of goods and services is offered to certain customers. This involves amounts due reflecting sales whose payment terms exceed one year. This financing is separate from agreements with a leasing component, see Note 7 Leases for financing through leases. Determining whether to offer financing involves looking at the customer’s payment history, economic conditions, and capacity to pay.

The Company assigns an internal risk rating to each customer at inception, which groups customers into a portfolio based off this risk rating. A risk rating is assigned by analyzing a customer’s financial statements and the latest Fitch rating if publicly available as well as recent payment activity. The credit quality of customers is continually monitored by these items. Accounts rated low risk have the equivalent of a Fitch rating of BBB– or higher, while accounts rated moderate risk have the equivalent of BB. The Company does not offer financing for customers where the risk is classified as higher, which would be lower than the equivalent of a BB Fitch rating.

Financing receivables, net carry an average weighted interest rate of 7.1%, which reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement.

The amount of interest income earned from sales whose payment terms exceed one year for the three months ended March 31, 2024 and 2023 was $158 thousand and $189 thousand, respectively. The amount of interest income earned from sales whose payment terms exceed one year for the six months ended March 31, 2024 and 2023 was $351 thousand and $371 thousand, respectively. Interest income from these agreements is recorded in Other income (expense), net on the Condensed Consolidated Statements of Operations.

Amounts disclosed below as of March 31, 2024 reflect adoption of the new CECL standard and the amounts disclosed as of September 30, 2023 reflect superseded guidance.

The following table presents the components of the Company’s Financing receivables, net segregated by portfolio (risk rating) for the periods indicated:


		As of March 31, 2024									As of September 30, 2023
		Risk Rating									Risk Rating
			Low			Moderate			Total			Low			Moderate			Total

		(Amounts in thousands)									(Amounts in thousands)
Financing receivables, net:
Financing receivables, gross		$	7,235		$	3,247		$	10,482		$	8,893		$	3,361		$	12,254
Unearned interest income			(210)			(399)			(609)			(325)			(534)			(859)
Allowance for credit losses			(16)			(54)			(70)			-			-			-
Financing receivables, net		$	7,009		$	2,794		$	9,803		$	8,568		$	2,827		$	11,395
Short-term		$	6,701		$	924		$	7,625		$	6,281		$	890		$	7,171
Long-term		$	308		$	1,870		$	2,178		$	2,287		$	1,937		$	4,224

Amounts disclosed below for the three and six months ended March 31, 2024 reflect adoption of the new CECL standard and the amounts disclosed for the three and six months ended March 31, 2023 reflect superseded guidance.

The following table presents the changes in Allowance for credit losses for Financing receivables, net for the periods indicated:


		Three months ended
		March 31, 2024									March 31, 2023
		Risk Rating									Risk Rating
		Low			Moderate			Total			Low			Moderate			Total

		(Amounts in thousands)									(Amounts in thousands)
Allowance for credit losses for financing receivables:
Balances at beginning of the period		$	16		$	61		$	77		$	-		$	-		$	-
Charge-offs			-			-			-			-			-			-
Recoveries
Provision charged to Consolidated Statements of Operations			-			(7)			(7)			-			-			-
Balances at end of the period		$	16		$	54		$	70		$	-		$	-		$	-


		Six months ended
		March 31, 2024									March 31, 2023
		Risk Rating									Risk Rating
		Low			Moderate			Total			Low			Moderate			Total

		(Amounts in thousands)									(Amounts in thousands)
Allowance for credit losses for financing receivables:
Balances at beginning of the period		$	-		$	-		$	-		$	-		$	-		$	-
Adjustment for adoption of new CECL standard			27			55			82			-			-			-
Charge-offs			-			-			-			-			-			-
Provision charged to Consolidated Statements of Operations			(11)			(1)			(12)			-			-			-
Balances at end of the period		$	16		$	54		$	70		$	-		$	-		$	-

Upon adoption of the new CECL standard as described in Note 1 Basis of Presentation and New Significant Accounting Policy, the Company recognizes an allowance for credit losses for financing receivables in an amount equal to the probable losses net of recoveries. A probability method for calculating credit losses is used based on historical data of defaults of Fitch ratings and length of time. Various factors are also assessed in the allowance for credit losses including

internal historical data as well as macroeconomic forecast assumptions and management judgments applicable to and through the expected life of the portfolios. Macroeconomic conditions include the level of gross domestic product (“GDP”) growth and unemployment rates, which directly correlate with our historical credit losses. The expense associated with the allowance for expected credit losses is recognized in Selling, general, and administrative expenses in the Consolidated Statements of Operations.

Financing receivables whose payment terms exceed one year are placed on non-accrual status, meaning interest income stops being recorded, when the customer has a past due amount in excess of 30 days or reasonable doubt exists in collecting all interest and principal. A payment due in excess of 30 days is considered delinquent. If a payment is received for a receivable on non-accrual status the payment is first applied to interest and then principal. Recording interest income resumes once no reasonable doubt exists regarding collecting all interest and principal. There were no financing receivables placed on non-accrual status as of March 31, 2024 or September 30, 2023.

The following table presents Financing receivables, gross, including accrued interest, by credit quality indicator segregated by risk rating and year of origination as of March 31, 2024:


		March 31, 2024
		Fiscal year of origination
Risk Rating		2024			2023			2022			2021			Total

Moderate		$	—		$	2,969		$	278		$	—		$	3,247
Low			655			753			4,267			1,560			7,235
Total		$	655		$	3,722		$	4,545		$	1,560		$	10,482

Contractual maturities of outstanding financing receivables are as follows:


Fiscal year ending September 30:		(Amounts in thousands)
2024		$	5,288
2025			3,497
2026			1,069
2027			628
Total payments		$	10,482
Less: unearned interest income			(609)
Less: allowance for credit losses			(70)
Total, net of unearned interest income and allowance for credit losses		$	9,803