Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.19.3
Revenue Recognition
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition

NOTE 5 - REVENUE RECOGNITION

 

Our revenue is derived from: (i) sales of our wireless asset management systems and spare parts; (ii) remotely hosted SaaS agreements and post-contract maintenance and support agreements; (iii) services, which includes training and technical support; and (iv) periodically, leasing arrangements. Amounts invoiced to customers which are not recognized as revenue are classified as deferred revenue and classified as short-term or long-term based upon the terms of future services to be delivered.

 

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our wireless asset management systems, spare parts, or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold (see Note 15). We recognize revenue for remotely hosted SaaS agreements and post-contract maintenance and support agreements beyond our standard warranties over the life of the contract.

 

The following table sets forth our revenues by product line for the three- and nine-month periods ended September 30, 2019 and 2018:

 

    Three Months Ended September 30, 2019  
    Product     Service     Total  
                   
Industrial truck management   $ 5,743,000     $ 2,007,000     $ 7,750,000  
Connected vehicles     2,985,000       1,518,000       4,503,000  
Logistics visibility     2,334,000       2,297,000       4,631,000  
Total Revenue   $ 11,062,000     $ 5,822,000     $ 16,884,000  

 

    Three Months Ended September 30, 2018  
    Product     Service     Total  
                   
Industrial truck management   $ 6,172,000     $ 2,027,000     $ 8,199,000  
Connected vehicles     1,462,000       399,000       1,861,000  
Logistics visibility     1,410,000       1,915,000       3,325,000  
Total Revenue   $ 9,044,000     $ 4,341,000     $ 13,385,000  

 

    Nine Months Ended September 30, 2019  
    Product     Service     Total  
                   
Industrial truck management   $ 16,751,000     $ 5,671,000     $ 22,422,000  
Connected vehicles     6,106,000       5,415,000       11,521,000  
Logistics visibility     6,097,000       6,729,000       12,826,000  
Total Revenue   $ 28,954,000     $ 17,815,000     $ 46,769,000  

 

 

    Nine Months Ended September 30, 2018  
    Product     Service     Total  
                   
Industrial truck management   $ 16,866,000     $ 5,333,000     $ 22,199,000  
Connected vehicles     8,491,000       616,000       9,107,000  
Logistics visibility     4,369,000       5,898,000       10,267,000  
Total Revenue   $ 29,726,000     $ 11,847,000     $ 41,573,000  

 

Our wireless asset management systems consist of on-asset hardware, communication infrastructure, SaaS, and hosting infrastructure. I.D. Systems’ system is typically implemented by the customer or a third party and, as a result, revenue related to the on-asset hardware is recognized when control of the hardware is transferred to the customer, which usually is upon delivery of the system and contractual obligations have been satisfied. For systems which do not have stand-alone value to the customer separate from the SaaS services provided, I.D. Systems considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of I.D. Systems’ billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service.

 

Revenue related to the SaaS and hosting infrastructure performance obligation is recognized over time as access to the SaaS and hosting infrastructure is provided to the customer. In some instances, we are also responsible for providing installation services, training and technical support services which are short-term in nature and revenue for these services are recognized at the time of performance or right to invoice.

 

I.D. Systems also enters into post-contract maintenance and support agreements for its wireless asset management systems. Revenue is recognized ratably over the service periods and the cost of providing these services is expensed as incurred. Deferred revenue includes prepayment of extended maintenance, SaaS, hosting and support contracts.

 

I.D. Systems also derives revenue under leasing arrangements. Such arrangements provide for monthly payments covering the system sale, maintenance, support and interest. These arrangements meet the criteria to be accounted for as sales-type leases. Accordingly, an asset is established for the “sales-type lease receivable” at the present value of the expected lease payments and revenue is deferred and recognized over the service contract, as described above. Maintenance revenues and interest income are recognized monthly over the lease term.

 

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the Condensed Consolidated Statements of Operations.

 

The balances of contract assets, and contract liabilities from contracts with customers are as follows as of December 31, 2018 and September 30, 2019:

 

    December 31, 2018     September 30, 2019  
              (Unaudited)  
Current assets:                
Deferred sales commissions to employees   $ 585,000     $ 748,000  
Deferred costs   $ 9,069,000     $ 9,335,000  
                 
Current liabilities:                
Deferred revenue -other (1)   $ 305,000     $ 272,000  
Deferred maintenance and SaaS revenue (1)     4,607,000       4,815,000  
Deferred logistics visibility solutions product revenue (1)     12,176,000       12,027,000  
                 
      17,088,000       17,114,000  
Less: Current portion     7,902,000       8,095,000  
                 
Deferred revenue - less current portion   $ 9,186,000     $ 9,019,000  

 

(1) We record deferred revenues when cash payments are received or due in advance of our performance. For the three- and nine-month periods ended September 30, 2018 and 2019, we recognized revenue of $2,434,000 and $9,325,000, respectively, and $3,306,000 and $9,544,000, respectively, that was included in the deferred revenue balance at the beginning of each reporting period. We expect to recognize deferred revenue as revenue before year 2024, when we transfer those goods and services and, therefore, satisfies our performance obligation to the customers. We do not separately account for activation fees since no good or service is transferred to the customer. Therefore, the activation fee is included in the transaction price and allocated to the performance obligations in the contract and deferred/amortized over the life of the contract.

  

Arrangements with multiple performance obligations

 

Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors.

 

Practical expedients and exemptions

 

We recognize an asset for the incremental costs of obtaining the contract arising from the sales commissions to employees because we expect to recover those costs through future fees from the customers. We amortize the asset over three to five years because the asset relates to the services transferred to the customer during the contract term of three to five years.

 

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

 

Development projects with Avis Budget Car Rental, LLC

 

On December 3, 2018 (the “SOW#5 Effective Date”), I.D. Systems entered into a statement of work (the “SOW#5”) with Avis Budget Car Rental, LLC (“ABCR”), a subsidiary of Avis Budget Group, Inc. (“Avis”), for 75,000 units of I.D. Systems’ cellular-enabled rental fleet car management system (the “System”) and maintenance and support of the System (“Maintenance Services”) for sixty months from installation of the equipment and the non-recurring engineering (“NRE”) services for development of additional features and functionality for the consideration of approximately $33,000,000. ABCR has an option to purchase additional units and has the option to renew the Maintenance Services period for an additional twelve months upon its expiry, and then after such 12-month period, ABCR can purchase additional Maintenance Services on a month-to-month basis (during which ABCR can terminate the Maintenance Services) for up to forty-eight additional months.

 

I.D. Systems recognizes revenue on the non-recurring engineering services over time, on an input-cost method performance basis, as determined by the relationship of actual labor and material costs incurred to date compared to the estimated total project costs. Estimates of total project costs are reviewed and revised during the term of the project. Revisions to project costs estimates, where applicable, are recorded in the period in which the facts that give rise to such changes become known. For the three- and nine-month periods ended September 30, 2019, I.D. Systems recognized SOW#5 NRE revenue of $841,000 and $3,687,000, respectively.

 

The SOW#5 may be terminated by ABCR for cause (which is generally I.D. Systems’ material breach of its obligations under the SOW#5), for convenience (subject to a termination fee), upon a material adverse change to I.D. Systems, or for intellectual property infringement. I.D. Systems does not have the right to unilaterally terminate the SOW#5. In the event that ABCR terminates the SOW#4, then ABCR would be liable to I.D. Systems for the net present value of all future remaining charges under the SOW#5 at a negotiated discount rate per annum, with the payment due on the effective date of termination.

 

The SOW#5 provides for a period of exclusivity commencing on the SOW#5 Effective Date and ending twelve months after the SOW#5 Effective Date, which may be extended in six-month increments by Avis under certain conditions.

 

Approximately $188,000 of the SOW#5 NRE transaction price that has not yet been recognized as revenue as of September 30, 2019 is expected to be recognized in 2019.

 

Part of the performance credit earnbacks and incentive payments (“performance bonus”) have been excluded from the disclosure table above because it was not included in the transaction price. That part of the performance bonus was excluded from the transaction price in accordance with the accounting guidance in Topic 606 on constraining estimates of variable consideration, including the following factors:

 

the susceptibility of the consideration amount to factors outside I.D. Systems’ influence, including weather conditions and the risk of obsolescence of the promised goods and services;
   
whether the uncertainty about the consideration amount is not expected to be resolved for a long period of time;
   
I.D. Systems’ experience with similar types of contracts;
   
whether I.D. Systems expects to offer price concessions or change the payment terms; and
   
the range of possible consideration amounts.