Eplus Inc 10-Q for FY2023 Q3
Eplus Inc (PLUS)
10-Q
2023-02-07
For: 2022-12-31
View Original
Added on
April 12, 2026
About this 10-Q
Eplus Inc filed this 10-Q on February 7, 2023, covering the quarter ended December 31, 2022 (FY2023 Q3).
Headline figures
Quarter ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $623.48M
- up 26.0% from $494.83M a year earlier
- Net income
- $35.69M
- up 35.1% from net income of $26.42M a year earlier
- Diluted EPS
- $1.34
- up 36.7% from $0.98 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from____ to ____.
Commission file number: 001-34167
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address, including zip code, of principal executive offices)
Registrant’s telephone number, including area code: (703 ) 984-8400
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
The number of shares of common stock outstanding as of February 3, 2023, was 26,908,101 .
ePlus inc. AND SUBSIDIARIES
| Part I. Financial Information: | |||
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Item 1.
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Financial Statements
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5
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6
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7
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8
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10
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11
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Item 2.
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26
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Item 3.
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44
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Item 4.
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44
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| Part II. Other Information | |||
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Item 1.
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45
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Item 1A.
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45
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Item 2.
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45
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Item 3.
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46
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Item 4.
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46
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Item 5.
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46
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Item 6.
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47
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| Signatures | 48 | ||
CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains
certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,”
and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact but are based upon numerous assumptions about future conditions that may not occur. Forward-looking
statements are generally identifiable by use of forward-looking words such as “may,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “project,” and
similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current
expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any
forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions, or results
described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:
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•
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national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and inflation, including increases in our costs
and our ability to increase prices to our customers which may result in adverse changes in our gross profit;
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significant and rapid inflation may cause price, wage, and interest rate increases, as well as increases in operating costs that may impact the arrangements that have pricing commitments over the term of the agreement;
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significant adverse changes in, reductions in, or loss of one or more of our larger volume customers or vendors;
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•
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supply chain issues, including a shortage of Information Technology (“IT”) products, may increase our costs or cause a delay in fulfilling customer orders, or increase our need for working capital, or completing professional services,
or purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;
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•
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ongoing remote work trends, and the increase in cybersecurity attacks that have occurred while employees work remotely;
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maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
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our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
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our ability to secure our own and our customers’ electronic and other confidential information, while maintaining compliance with evolving data privacy and regulatory laws and regulations;
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our ability to remain secure during a cybersecurity attack, including both disruptions in our or our vendors’ IT systems and data and audio communication networks;
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•
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reliance on third-parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements, guaranteed price
agreements, or assurance of stock availability;
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•
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the creditworthiness of our customers and our ability to reserve adequately for credit losses;
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•
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loss of our credit facility or credit lines with our vendors may restrict our current and future operations;
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•
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a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
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our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on
our common stock price;
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reduction of vendor incentives provided to us;
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changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), software as a service (“SaaS”) and platform as a service (“PaaS”);
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our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;
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future growth rates in our core businesses;
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rising interest rates or the loss of key lenders or the constricting of credit markets;
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the possibility of goodwill impairment charges in the future;
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our ability to adapt to meet changes in markets and competitive developments;
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our ability to increase the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
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our ability to manage a diverse product set of solutions in highly competitive markets with a number of key vendors;
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our ability to increase the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
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our ability to perform professional and managed services competently;
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our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;
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exposure to changes in, interpretations of, or enforcement trends in, and customer and vendor actions in anticipation of or response to, legislation and regulatory matters;
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domestic and international economic regulations uncertainty (e.g., tariffs, sanctions, and trade agreements);
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our contracts may not be adequate to protect us, we are subject to audit which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
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failure to comply with public sector contracts, or applicable laws or regulations;
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our ability to maintain our proprietary software and update our technology infrastructure to remain competitive in the marketplace;
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our ability to realize our investment in leased equipment;
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our ability to successfully perform due diligence and integrate acquired businesses; and
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our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the
costs associated with those actions, and, when appropriate, the costs associated with licensing required technology.
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We cannot be certain that our business strategy
will be successful or that we will successfully address these and other challenges, risks, and uncertainties. For a further list and description of various risks, relevant factors, and uncertainties that could cause future results or events to
differ materially from those expressed or implied in our forward-looking statements, see Item 1A, “Risk Factors” and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in
this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).
PART I. FINANCIAL INFORMATION
| Item 1. |
Financial Statements
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e
Plus inc. AND SUBSIDIARIES
(in thousands, except per share amounts)
|
December 31, 2022
|
March 31, 2022
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|||||||
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ASSETS
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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$
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||||
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Accounts receivable—trade, net
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||||||
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Accounts receivable—other, net
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||||||
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Inventories
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||||||
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Financing receivables—net, current
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||||||
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Deferred costs
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Other current assets
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||||||
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Total current assets
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||||||
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Financing receivables and operating leases—net
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||||||
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Deferred tax asset—net
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Property, equipment, and other assets
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Goodwill
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||||||
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Other intangible assets—net
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||||||
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TOTAL ASSETS
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$
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$
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||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
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LIABILITIES
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$
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$
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Accounts payable—floor plan
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Salaries and commissions payable
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Deferred revenue
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Recourse notes payable—current
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Non-recourse notes payable—current
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Other current liabilities
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Total current liabilities
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Recourse notes payable - long-term
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Non-recourse notes payable - long-term
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Other liabilities
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TOTAL LIABILITIES
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||||||
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COMMITMENTS AND CONTINGENCIES (Note 9)
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||||||||
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STOCKHOLDERS’ EQUITY
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Preferred stock, $
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Common stock, $
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Additional paid-in capital
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Treasury stock, at cost,
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(
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)
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(
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)
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||||
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Retained earnings
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||||||
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Accumulated other comprehensive income—foreign currency translation adjustment
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(
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)
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|||||
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Total Stockholders’ Equity
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||||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
|
$
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|
||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands, except per share amounts)
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
|
|||||||||||||||
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2022
|
2021
|
2022
|
2021
|
|||||||||||||
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Net sales
|
||||||||||||||||
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Product
|
$
|
|
$
|
|
$
|
|
$
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|
||||||||
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Services
|
|
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|
||||||||||||
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Total
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||||||||||||
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Cost of sales
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||||||||||||||||
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Product
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||||||||||||
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Services
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||||||||||||
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Total
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||||||||||||
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Gross profit
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||||||||||||
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Selling, general, and administrative
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||||||||||||
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Depreciation and amortization
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|
||||||||||||
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Interest and financing costs
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||||||||||||
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Operating expenses
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||||||||||||
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Operating income
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|
||||||||||||
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Other income (expense), net
|
|
(
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)
|
(
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)
|
(
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)
|
|||||||||
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Earnings before tax
|
|
|
|
|
||||||||||||
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Provision for income taxes
|
|
|
|
|
||||||||||||
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Net earnings
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Net earnings per common share—basic
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Net earnings per common share—diluted
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Weighted average common shares outstanding—basic
|
|
|
|
|
||||||||||||
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Weighted average common shares outstanding—diluted
|
|
|
|
|
||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
NET EARNINGS
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
OTHER COMPREHENSIVE INCOME, NET OF TAX:
|
||||||||||||||||
|
Foreign currency translation adjustments
|
|
|
|
(
|
)
|
|||||||||||
|
Other comprehensive income (loss)
|
|
|
|
(
|
)
|
|||||||||||
|
TOTAL COMPREHENSIVE INCOME
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
|
Nine Months Ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net earnings
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net earnings to net cash used in operating activities:
|
||||||||
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Depreciation and amortization
|
|
|
||||||
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Provision for credit losses
|
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|
||||||
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Share-based compensation expense
|
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|
||||||
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Deferred taxes
|
( |
) | ||||||
|
Payments from lessees directly to lenders—operating leases
|
|
(
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)
|
|||||
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Gain on disposal of property, equipment, and operating lease equipment
|
(
|
)
|
(
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)
|
||||
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Changes in:
|
||||||||
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Accounts receivable
|
(
|
)
|
(
|
)
|
||||
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Inventories-net
|
(
|
)
|
(
|
)
|
||||
|
Financing receivables—net
|
(
|
)
|
(
|
)
|
||||
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Deferred costs and other assets
|
(
|
)
|
(
|
)
|
||||
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Accounts payable-trade
|
|
|
||||||
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Salaries and commissions payable, deferred revenue, and other liabilities
|
|
|
||||||
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Net cash used in operating activities
|
(
|
)
|
(
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)
|
||||
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Cash flows from investing activities:
|
||||||||
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Proceeds from sale of property, equipment, and operating lease equipment
|
|
|
||||||
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Purchases of property, equipment and operating lease equipment
|
(
|
)
|
(
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)
|
||||
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Cash used in acquisitions, net of cash acquired
|
( |
) | ||||||
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Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
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Borrowings of non-recourse and recourse notes payable
|
|
|
||||||
|
Repayments of non-recourse and recourse notes payable
|
(
|
)
|
(
|
)
|
||||
|
Repurchase of common stock
|
(
|
)
|
(
|
)
|
||||
|
Net borrowings on floor plan facility
|
|
|
||||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Effect of exchange rate changes on cash
|
|
(
|
)
|
|||||
|
Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents, beginning of period
|
|
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
|
$
|
|
||||
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(in thousands)
|
Nine Months Ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Supplemental disclosures of cash flow
information:
|
||||||||
|
Cash paid for interest
|
$
|
|
$
|
|
||||
|
Cash paid for income taxes
|
$
|
|
$
|
|
||||
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
|
$
|
|
||||
|
Schedule of non-cash investing and
financing activities:
|
||||||||
|
Proceeds from sale of property, equipment, and leased equipment
|
$
|
|
$
|
|
||||
|
Purchases of property, equipment, and operating lease equipment
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Borrowing of non-recourse and recourse notes payable
|
$
|
|
$
|
|
||||
|
Repayments of non-recourse and recourse notes payable
|
$
|
|
$
|
(
|
)
|
|||
|
Vesting of share-based compensation
|
$
|
|
$
|
|
||||
|
New operating lease assets obtained in exchange for lease obligations
|
$
|
|
$
|
|
||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
|
Nine Months Ended December 31, 2022
|
||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Treasury
|
Retained
|
Comprehensive
|
||||||||||||||||||||||||
|
Shares
|
Par Value
|
Capital
|
Stock
|
Earnings
|
Income
|
Total
|
||||||||||||||||||||||
|
Balance, March 31, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Issuance of restricted stock awards
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||
|
Net earnings
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Balance, June 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Issuance of restricted stock awards
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net earnings
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Balance, September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
| Issuance of restricted stock awards | ||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||
| Net earnings | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
|
|
Nine Months Ended December 31, 2021
|
|||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Treasury
|
Retained
|
Comprehensive
|
||||||||||||||||||||||||
|
|
Shares
|
Par Value
|
Capital
|
Stock
|
Earnings
|
Income
|
Total
|
|||||||||||||||||||||
|
Balance, March 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Issuance of restricted stock awards
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||
|
Net earnings
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balance, June 30, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Issuance of restricted stock awards
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Repurchase of common stock
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||
|
Net earnings
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Balance, September 30, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|
$
|
|
|||||||||||||
| Issuance of restricted stock awards | ( |
) | ||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||
| Repurchase of common stock | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock split effected in the form of a dividend |
- | ( |
) | |||||||||||||||||||||||||
| Retirement of treasury stock |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Net earnings | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
|
1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” or “ePlus.” ePlus inc. is a holding company that through its subsidiaries provides information technology solutions
that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, professional, and managed services and complete lifecycle management services including flexible financing solutions. We focus on
selling to medium and large enterprises in North America, the United Kingdom (“UK”), and other European countries.
BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of ePlus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses
acquired are included in the unaudited consolidated financial statements from the dates of acquisition.
INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the nine months ended December 31, 2022, and 2021, were prepared by us and include all
normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the
nine months ended December 31, 2022, and 2021, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ended March 31, 2023, or any other future period. These unaudited consolidated
financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual
report on Form 10-K for the year ended March 31, 2022 (“2022 Annual Report”), which should be read in conjunction with these interim consolidated financial statements.
USE OF ESTIMATES — The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, lease classification, goodwill and intangible assets, allowance for
credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ from these estimates.
CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 39 % and 38 % of our technology segment’s net sales for the three months ended
December 31, 2022, and 2021, respectively, and 38 % and 40 % of our technology segment’s net sales for the nine months ended December 31, 2022, and 2021, respectively.
SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these
Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2022, except for the changes provided in Note 2, “Recent Accounting
Pronouncements.”
|
2.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS — In October 2021, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, that
requires companies to apply Accounting Standards Codification Topic 606, Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in
a business combination. We early adopted this update beginning in the second quarter of our fiscal year ending March 31, 2023, and it did not have a material impact on our Consolidated Financial Statements. The ongoing impact of this standard will
be fact dependent on the transactions within its scope.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED — In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This update requires buyers in a supplier finance program
to disclose certain qualitative and quantitative information about the program. This update is effective for us beginning in our fiscal year ending March 31, 2024, including interim periods within that fiscal year, except for a requirement to
provide a roll forward of our obligations during the annual period, which is effective for us beginning in our fiscal year ending March 31, 2025. We are currently evaluating the impact this update will have on our disclosures.
| 3. |
REVENUES
|
CONTRACT BALANCES
Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we
had $62.1 million and $47.5 million of receivables from contracts with customers included within financing
receivables as of December 31, 2022, and March 31, 2022, respectively. The following table provides the
balance of contract liabilities from contracts with customers (in thousands):
|
December 31, 2022
|
March 31, 2022
|
|||||||
|
Current (included in deferred revenue)
|
$
|
|
$
|
|
||||
|
Non-current (included in other liabilities)
|
$
|
|
$
|
|
||||
Revenue recognized from the beginning contract liability balance was $15.0
million and $57.4 million for the three and nine months ended December 31, 2022, respectively, and $11.7 million and $47.9 million for the
three and nine months ended December 31, 2021, respectively.
PERFORMANCE OBLIGATIONS
The following table includes revenue expected to be recognized in the future related to performance
obligations, primarily non-cancelable contracts for ePlus managed services, that are
unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):
|
|
$
|
|
||
|
|
|
|||
|
|
|
|||
|
|
|
|||
|
|
|
|||
|
Total remaining performance obligations
|
$
|
|
The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts where
we recognize revenue at the amount that we have the right to invoice for services performed.
| 4. |
FINANCING RECEIVABLES AND OPERATING LEASES
|
Our financing receivables and operating leases consist primarily of leases of IT and communication
equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to
purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option.
The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that
are recognized on a net basis, for the three and nine months ended December 31, 2022, and 2021 (in thousands):
|
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net sales
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Cost of sales
|
|
|
|
|
||||||||||||
|
Gross profit
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and nine months ended December
31, 2022, and 2021 (in thousands):
|
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Interest income on sales-type leases
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Lease income on operating leases
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
FINANCING RECEIVABLES—NET
The following tables provide a disaggregation of our financing receivables – net (in thousands):
| Notes | Lease | Financing | ||||||||||
|
December 31,
2022
|
Receivable
|
Receivables
|
Receivables
|
|||||||||
|
Gross receivables
|
$
|
|
$
|
|
$
|
|
||||||
|
Unguaranteed residual value (1)
|
|
|
|
|||||||||
|
Unearned income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Allowance for credit losses (2)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Total, net
|
$
|
|
$
|
|
$
|
|
||||||
|
Reported as:
|
||||||||||||
|
Current
|
$
|
|
$
|
|
$
|
|
||||||
|
Long-term
|
|
|
|
|||||||||
|
Total, net
|
$
|
|
$
|
|
$
|
|
||||||
| (1) |
|
| (2) |
|
| Notes | Lease | Financing | ||||||||||
|
March 31, 2022
|
Receivable
|
Receivables
|
Receivables
|
|||||||||
|
Gross receivables
|
$
|
|
$
|
|
$
|
|
||||||
|
Unguaranteed residual value (1)
|
|
|
|
|||||||||
|
Unearned income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Allowance for credit losses (2)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Total, net
|
$
|
|
$
|
|
$
|
|
||||||
|
Reported as:
|
||||||||||||
|
Current
|
$
|
|
$
|
|
$
|
|
||||||
|
Long-term
|
|
|
|
|||||||||
|
Total, net
|
$
|
|
$
|
|
$
|
|
||||||
| (1) |
|
| (2) |
|
OPERATING LEASES—NET
Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands):
| December 31, | March 31, | |||||||
|
2022
|
2022
|
|||||||
|
Cost of equipment under operating leases
|
$
|
|
$
|
|
||||
|
Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Operating lease equipment—net
|
$
|
|
$
|
|
||||
TRANSFERS OF FINANCIAL ASSETS
We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or
secured borrowings.
For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of December 31, 2022, and March
31, 2022, we had financing receivables of $58.1 million and $21.1 million, respectively, and operating leases of $1.4
million and $2.0 million, respectively, which were collateral for non-recourse notes payable. See Note 8, ‘‘Credit Facility and Notes
Payable.’’
For transfers accounted for as a sale, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which
are presented within net sales in the consolidated statement of operations. During the three months ended December 31, 2022, and 2021, we recognized net gains of $5.2 million and $2.3 million, respectively, and total proceeds from these sales were $157.2 million and $63.5 million,
respectively. For the year to date periods ended December 31, 2022, and 2021, we recognized net gains of $15.1 million and $15.6 million, respectively, and total proceeds from these sales were $586.1 million and $753.9 million, respectively.
When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform
the services. As of both December 31, 2022, and March 31, 2022, we had deferred revenue of $0.5
In a limited number of transfers accounted for as sales, we indemnified the assignee if the lessee elects
to early terminate the lease. As of December 31, 2022, and March 31, 2022, the total potential payments that could result from these indemnities is immaterial.
| 5. |
LESSEE ACCOUNTING
|
We lease office and warehouse space for periods generally between
to five years and, in some instances, for longer periods up to ten years . We recognize our right-of-use assets as part of property, equipment, and other assets. We recognize the current and long-term portions of our lease liability as part
of other current liabilities and other liabilities, respectively. We recognized rent expense as part of selling, general and administrative expenses. We recognized rent expense of $1.3 million as part of selling, general and administrative expenses for the three months ended December 31, 2022, and $1.4 million for the three months ending December 31, 2021, and $3.8 million and $4.0 million for the nine months ended December 31, 2022, and 2021, respectively.
| 6. |
GOODWILL AND OTHER INTANGIBLE ASSETS
|
GOODWILL
The following table summarizes the changes in the carrying amount of goodwill for the nine months ended
December 31, 2022 (in thousands):
|
Nine Months Ended December 31,
|
||||||||||||
|
Goodwill
|
Accumulated Impairment
Loss
|
Net Carrying
Amount
|
||||||||||
|
Beginning balance
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Acquisitions
|
- | |||||||||||
|
Foreign currency translations
|
(
|
)
|
-
|
(
|
)
|
|||||||
|
Ending balance
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are
individually identified and separately recognized in business combinations. Our entire balance as of December 31, 2022, relates to our technology segment, which we also determined to be one reporting unit. The carrying value of goodwill was $136.1 million and $126.5 million as of
December 31, 2022, and March 31, 2022, respectively. Our goodwill balance increased by $9.5 million over the nine months ended December
31, 2022, due to $9.7 million in goodwill additions from our acquisition of Future Com, Ltd., offset by foreign currency translation of $0.2 million. Please refer to Note 15, “Business Combinations” for details of our acquisition.
We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change,
that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our annual test as of October 1, 2022, we performed a quantitative assessment of goodwill
and concluded that the fair value of our technology reporting unit exceeded its carrying value. Our conclusions would not be impacted by a ten percent
change in our estimate of the fair value of the reporting unit.
OTHER INTANGIBLE ASSETS
Our other intangible assets consisted of the following on
December 31, 2022, and March 31, 2022 (in thousands):
|
December 31, 2022
|
March 31, 2022
|
|||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
|||||||||||||||||||
|
Purchased intangibles
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Capitalized software development
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||
|
Total
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
Purchased intangibles, consisting mainly of customer relationships, are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over years.
Total amortization expense for purchased intangibles was $2.5 7.2 million and $7.9 million for the nine months ended December 31, 2022, and December 31, 2021, respectively.
| 7. |
ALLOWANCE FOR CREDIT LOSSES
|
The following table provides the activity in our allowance for credit losses for the nine months ended December 31, 2022, and 2021 (in thousands):
|
Accounts Receivable
|
Notes
Receivable
|
Lease
Receivables
|
Total
|
|||||||||||||
|
Balance April 1, 2022
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for credit losses
|
|
|
|
|
||||||||||||
|
Write-offs and other
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
|
Balance December 31,
2022
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Accounts
Receivable
|
Notes
Receivable
|
Lease
Receivables
|
Total
|
|||||||||||||
|
Balance April 1, 2021
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for credit losses
|
|
|
(
|
)
|
|
|||||||||||
|
Write-offs and other
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Balance December 31,
2021
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
We evaluate our customers using an
internally assigned credit quality rating “CQR”. The CQR categories of our financing receivables are:
|
•
|
High CQR: This rating includes accounts with excellent to good business credit, asset quality and
capacity to meet financial obligations. Loss rates in this category are generally up to
|
|
•
|
Average CQR: This rating includes accounts with average credit risk that are more susceptible to
loss in the event of adverse business or economic conditions. Loss rates in this category are generally in the range of
|
|
•
|
Low CQR: This rating includes accounts that have marginal credit risk such that the customer’s
ability to make repayment is impaired or may likely become impaired. The loss rates in this category in the normal course are generally greater than
|
The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of December 31, 2022 (in thousands):
|
Amortized cost basis by origination year ending March 31,
|
||||||||||||||||||||||||||||||||||||
|
2023
|
2022
|
2021
|
2020
|
2019
|
2018
|
Total
|
Non-recourse
debt (2)
|
Net credit
exposure
|
||||||||||||||||||||||||||||
|
Notes receivable:
|
||||||||||||||||||||||||||||||||||||
|
High CQR
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||
|
Average CQR
|
|
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||||||||
|
Low CQR
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||||
|
Lease receivables:
|
||||||||||||||||||||||||||||||||||||
|
High CQR
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||||||||||||
|
Average CQR
|
|
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||||||||
|
Low CQR
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||||
|
Total amortized cost (1)
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||||
| (1) |
|
|
(2)
|
|
The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2022 (in thousands):
|
Amortized cost basis by origination year ending March 31,
|
||||||||||||||||||||||||||||||||||||
|
2022
|
2021
|
2020
|
2019
|
2018
|
2017
|
Total
|
Transfers
(2)
|
Net credit
exposure
|
||||||||||||||||||||||||||||
|
Notes receivable:
|
||||||||||||||||||||||||||||||||||||
|
High CQR
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
||||||||||||||||||
|
Average CQR
|
|
|
|
|
|
|
|
(
|
)
|
|||||||||||||||||||||||||||
|
Low CQR
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
||||||||||||||||||
|
Lease receivables:
|
||||||||||||||||||||||||||||||||||||
|
High CQR
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
||||||||||||||||||
|
Average CQR
|
|
|
|
|
|
|
|
(
|
)
|
|||||||||||||||||||||||||||
|
Low CQR
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
||||||||||||||||||
|
Total amortized cost (1)
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
||||||||||||||||||
| (1) |
|
|
(2)
|
|
The following table provides an aging analysis of our financing receivables as of December 31, 2022 (in thousands):
|
31-60
Days Past
Due |
61-90
Days Past
Due |
> 90
Days Past
Due
|
Total
Past Due
|
Current
|
Total
Billed
|
Unbilled
|
Amortized
Cost |
|||||||||||||||||||||||||
|
Notes receivable
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Lease receivables
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
The following table provides an aging analysis of our financing receivables as of March 31, 2022 (in thousands):
|
31-60
Days Past
Due |
61-90
Days Past
Due |
> 90
Days Past
Due
|
Total
Past Due
|
Current
|
Total
Billed
|
Unbilled
|
Amortized
Cost
|
|||||||||||||||||||||||||
|
Notes receivable
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Lease receivables
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
Our financial assets on nonaccrual status were not significant as of December 31, 2022, and March 31, 2022.
| 8. |
CREDIT FACILITY AND NOTES PAYABLE
|
CREDIT FACILITY
We finance the operations of our subsidiaries
ePlus Technology, inc., ePlus Technology Services, inc., and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology segment through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). The WFCDF credit
facility has an accounts payable floor plan facility component and a revolving credit facility component.
On October 13, 2021, the Borrowers amended, restated, and replaced in entirety their then-existing credit agreements with WFCDF. On October 31, 2022, the Borrowers entered into the First Amendment to the Credit Agreement. Under this agreement and its amendment (collectively, the “WFCDF Credit Facility”), the credit facility is provided by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the aggregate principal amount of up to $
Under the accounts payable floor plan facility, we had an outstanding balance of $154.5
million and $145.3 million as of December 31, 2022, and March 31, 2022, respectively. On our balance sheet, our liability under the
accounts payable floor plan facility is presented as accounts payable – floor plan.
Under the revolving credit facility, we had $95.0
million outstanding as of December 31,
2022, and no balance outstanding as of March 31, 2022. On our balance sheet, our liability under the revolving credit facility is
presented as part of recourse notes payable – current.
The
fair value of the outstanding balances under the WFCDF Credit Facility were approximately equal to their carrying value as of December 31, 2022, and March 31, 2022.
The amount of
principal available is subject to a borrowing base determined by, among other things, the Borrowers’ accounts receivable and inventory, each pursuant to a formula and subject to certain reserves. Loans accrue interest at a rate per annum equal
to Term SOFR Rate plus a Term SOFR Adjustment of 0.10 % plus an Applicable Margin of 1.75 %.
Our borrowings under the WFCDF Credit Facility are secured by the assets of the Borrowers. Additionally, the WFCDF Credit Facility requires a
guaranty of $10.5 million by ePlus inc.
Under the WFCDF Credit Facility, the Borrowers are restricted in their ability to pay dividends to ePlus inc. unless their available borrowing meets or met certain thresholds. As of December 31, 2022, and March 31, 2022, their available borrowing met the thresholds such that there were no restrictions on their ability to pay
dividends.
The WFCDF Credit Facility has an initial one-year
term, which automatically renews for successive one-year terms thereafter. However, either the Borrowers or WFCDF may terminate the WFCDF Credit Facility at any time by providing a written termination notice to the other party no less than 90 days prior to such termination.
RECOURSE NOTES PAYABLE
Recourse notes payable consisted of borrowings for which the lender has recourse against us. As of December 31, 2022, we had $103.0
million in recourse notes payable consisting of $95.0 million outstanding under the revolving credit facility component of our WFCDF
Credit Facility, and $8.0 million arising from one installment payment arrangement within our technology segment. As of March 31, 2022,
we had $13.1 million in recourse notes payable arising entirely from one installment payment arrangement within our technology segment.
Our payments under this installment agreement are due quarterly in amounts that are correlated to the payments due to us from a customer under a related notes receivable. We discounted our payments due under this installment agreement to calculate
our payable balance using an interest rate of 3.50
NON-RECOURSE NOTES PAYABLE
Non-recourse notes payable
consist of borrowings that, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us. As of December 31, 2022, and March 31, 2022, we had $48.5 million and $21.2 million,
respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due in amounts that are approximately equal to the total payments due from the customer under the
leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 5.05 %
and 3.59 %, as of December 31, 2022, and March 31, 2022, respectively.
| 9. |
COMMITMENTS AND CONTINGENCIES
|
LEGAL PROCEEDINGS
We are subject to various legal proceedings, as well as demands, claims and threatened litigation, that
arise in the normal course of our business and have not been fully resolved. The ultimate outcome of any litigation or any other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable,
we accrue our best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against us in a reporting period for amounts above management’s expectations, our financial condition and operating results for that
period could be adversely affected. As of December 31, 2022, we do not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred.
Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure that
additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current, or future transactions or events.
| 10. |
EARNINGS PER SHARE
|
Basic earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding
during each period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding plus common stock equivalents during each period.
The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per
common share as disclosed on our unaudited consolidated statements of operations for the three and nine months ended December 31, 2022, and 2021, respectively (in thousands, except per share data).
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net earnings attributable to common shareholders - basic and diluted
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Basic and diluted common shares outstanding:
|
||||||||||||||||
|
Weighted average common shares outstanding — basic
|
|
|
|
|
||||||||||||
|
Effect of dilutive shares
|
|
|
|
|
||||||||||||
|
Weighted average shares common outstanding — diluted
|
|
|
|
|
||||||||||||
|
Earnings per common share - basic
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Earnings per common share - diluted
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| 11. |
STOCKHOLDERS’ EQUITY
|
SHARE REPURCHASE PLAN
On March 24, 2022, our board of directors authorized the repurchase of up to 1,000,000 shares of our
outstanding common stock, over a 12-month period beginning May 28, 2022. On March 18, 2021, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2021. Under both authorized programs, purchases may be made from time to time in the open market, or in privately
negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.
During the nine months ended December 31, 2022,
we purchased 70,473 shares of our outstanding common stock at a value of $3.9 million under the share repurchase plan; we also purchased 58,080
shares of common stock at a value of $3.3 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted
stock.
During the nine months ended December 31, 2021,
we purchased 147,999 shares of our outstanding common stock at a value of $6.9 million under the share repurchase plan; we also purchased 55,430
shares of common stock at a value of $2.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted
stock.
| 12. |
SHARE-BASED COMPENSATION
|
SHARE-BASED PLANS
As
of December 31, 2022, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), (2) the 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”), and
(3) the 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”).
The
2021 Employee LTIP was approved by our shareholders on September 16, 2021, and became effective October 1, 2021. The 2021 Employee LTIP replaced the 2012 Employee LTIP that had previously been approved by our stockholders on September 13, 2012.
Beginning September 16, 2021, we permanently ceased granting any additional shares under the 2012 Employee LTIP.
These share-based plans define fair market value as the closing sales price of a share of common stock as quoted on any established stock exchange for such date or the most
recent trading day preceding such date if there were no trades on such date.
RESTRICTED STOCK ACTIVITY
For the nine months ended December 31, 2022, we granted 18,842 shares of our stock under the 2017
Director LTIP, and 138,643 restricted shares of our stock under the 2021 Employee LTIP. For the nine months ended December 31, 2021, we
granted 13,562 shares of our stock under the 2017 Director LTIP, and 155,722 restricted shares of our stock under the 2012 Employee LTIP, and no
shares under the 2021 Employee LTIP. A summary of our restricted stock activity, is as follows:
|
Number of
Shares
|
Weighted Average
Grant-date Fair Value
|
|||||||
|
Nonvested April 1, 2022
|
|
$
|
|
|||||
|
Granted
|
|
$
|
|
|||||
|
Vested
|
(
|
)
|
$
|
|
||||
|
Forfeited
|
( |
) | $ | |||||
|
Nonvested December 31,
2022
|
|
$
|
|
|||||
EMPLOYEE STOCK PURCHASE PLAN
On September 15, 2022, our shareholders approved the 2022 Employee Stock Purchase Plan
(“2022 ESPP”) through which eligible employees may purchase shares of our stock at a purchase price of the lesser of the closing price on the offering date or purchase date, discounted by up to 15 %. As of December 31, 2022, we had not yet issued any shares under the 2022 ESPP.
COMPENSATION EXPENSE
We recognize compensation cost for awards of restricted stock with graded vesting on a straight-line basis over the requisite service period. There are no additional
conditions for vesting other than service conditions. During the three
months ended December 31, 2022, and 2021, we recognized $2.0 million and $1.8 million of total share-based compensation expense, respectively. During the nine months ended December 31, 2022, and 2021, we recognized $5.7 million and $5.4 million of total share-based compensation
expense, respectively. Unrecognized compensation expense related to unvested restricted stock was $11.6 million as of December 31, 2022,
which will be fully recognized over the next 30 months.
We also provide our employees with a contributory 401(k) profit sharing plan, to which we may
contribute from time to time at our sole discretion. Employer contributions to the plan are always fully vested. For the three months ended December 31, 2022, our estimated contribution expense to the plan was $1.1 million, as compared to $0.8 million
for the same period in the prior year. For the nine months ended December 31, 2022, our estimated contribution expense to the plan was $3.2
million, as compared to $2.6 million for the same period in the prior year.
| 13. |
INCOME TAXES
|
Our provision for income tax expense was $13.7
million and $34.1 million for the three and nine months ended December 31, 2022, as compared to $9.5 million and $31.1 million for the same period in the prior
year. Our effective tax rate for the three and nine months ended December 31, 2022, was 27.7 % and 28.3 % respectively, compared with 26.4 %
and 27.7 %, respectively, for the same periods in the prior year. Our effective tax rate for the three and nine months ended December 31,
2022, and December 31, 2021, differed from the US federal statutory rate of 21.0
| 14. |
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The following table summarizes the fair value hierarchy of our financial instruments as of December 31, 2022, and March 31, 2022 (in thousands):
|
Fair Value Measurement Using
|
||||||||||||||||
|
Recorded
Amount
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant Other
Observable Inputs
(Level 2) |
Significant
Unobservable
Inputs(Level 3)
|
|||||||||||||
|
December 31, 2022
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Money market funds
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
March 31, 2022
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Money market funds
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
15.
|
BUSINESS COMBINATIONS
|
FUTURE COM
On July 15, 2022, our subsidiary,
ePlus Technology, inc., acquired certain assets and liabilities of Future Com, Ltd., a Texas-based provider of cybersecurity solutions, cloud security and security consulting services throughout the US. Our acquisition provides access to
enhanced engineering, sales, and services delivery capabilities in the South-Central region of the United States, as well as bolstering the skills and expertise surrounding ePlus’ growing cybersecurity practice.
Our sum for consideration transferred is $
|
Acquisition Date
Amount
|
||||
|
Accounts receivable
|
$
|
|
||
|
Other assets
|
|
|||
|
Identified intangible assets
|
|
|||
|
Accounts payable and other liabilities
|
(
|
)
|
||
|
Contract liabilities
|
(
|
)
|
||
|
Total identifiable net assets
|
|
|||
|
Goodwill
|
|
|||
|
Total purchase consideration
|
$
|
|
||
The identified intangible assets of $8.4 million consists of customer relationships with an estimated useful life of seven years . The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.
We recognized goodwill related to this transaction of $9.7 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired
assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree
since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2022, is not material.
| 16. |
SEGMENT REPORTING
|
Our operations are conducted through two operating segments
that are also both reportable segments. Our technology segment includes sales of IT products, third-party software, third-party maintenance, advanced professional and managed services, and our proprietary software to commercial enterprises, state and
local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software, and related services to commercial enterprises, state and local governments, and government contractors. We measure the
performance of the segments based on operating income.
Our reportable segment information for the three-and nine-month periods ended December 31, 2022, and 2021 are summarized in the following table (in thousands):
|
Three Months Ended
|
||||||||||||||||||||||||
|
December 31, 2022
|
December 31, 2021
|
|||||||||||||||||||||||
|
Technology
|
Financing
|
Total
|
Technology
|
Financing
|
Total
|
|||||||||||||||||||
|
Net Sales
|
||||||||||||||||||||||||
|
Product
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Service
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
|
|
|
|
|
|
||||||||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Product
|
|
|
|
|
|
|
||||||||||||||||||
|
Service
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
|
|
|
|
|
|
||||||||||||||||||
|
Gross Profit
|
|
|
|
|
|
|
||||||||||||||||||
|
Selling, general, and administrative
|
|
|
|
|
|
|
||||||||||||||||||
|
Depreciation and amortization
|
|
|
|
|
|
|
||||||||||||||||||
|
Interest and financing costs
|
|
|
|
|
|
|
||||||||||||||||||
|
Operating expenses
|
|
|
|
|
|
|
||||||||||||||||||
|
Operating income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other income (expense), net
|
|
(
|
)
|
|||||||||||||||||||||
|
Earnings before tax
|
$
|
|
$
|
|
||||||||||||||||||||
|
Net Sales
|
||||||||||||||||||||||||
|
Contracts with customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Financing and other
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Selected Financial Data - Statement of Cash Flow
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Purchases of property, equipment and operating lease equipment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Selected Financial Data - Balance Sheet
|
||||||||||||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Nine Months Ended
|
||||||||||||||||||||||||
|
December 31, 2022
|
December 31, 2021
|
|||||||||||||||||||||||
|
Technology
|
Financing
|
Total
|
Technology
|
Financing
|
Total
|
|||||||||||||||||||
|
Net Sales
|
||||||||||||||||||||||||
|
Product
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Service
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
|
|
|
|
|
|
||||||||||||||||||
|
Cost of Sales
|
||||||||||||||||||||||||
|
Product
|
|
|
|
|
|
|
||||||||||||||||||
|
Service
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
|
|
|
|
|
|
||||||||||||||||||
|
Gross Profit
|
|
|
|
|
|
|
||||||||||||||||||
|
Selling, general, and administrative
|
|
|
|
|
|
|
||||||||||||||||||
|
Depreciation and amortization
|
|
|
|
|
|
|
||||||||||||||||||
|
Interest and financing costs
|
|
|
|
|
|
|
||||||||||||||||||
|
Operating expenses
|
|
|
|
|
|
|
||||||||||||||||||
|
Operating income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other income (expense), net
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
Earnings before tax
|
$
|
|
$
|
|
||||||||||||||||||||
|
Net Sales
|
||||||||||||||||||||||||
|
Contracts with customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Financing and other
|
|
|
|
|
|
|
||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Selected Financial Data - Statement of Cash Flow
|
||||||||||||||||||||||||
|
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Purchases of property, equipment and operating lease equipment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Selected Financial Data - Balance Sheet
|
||||||||||||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
TECHNOLOGY SEGMENT DISAGGREGATION OF REVENUE
We analyze net sales for our technology segment by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized for the
three- and nine-month periods ended December 31, 2022, and 2021 in the tables below (in thousands):
|
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Customer end market:
|
||||||||||||||||
|
Telecom, media & entertainment
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Technology
|
|
|
|
|
||||||||||||
|
Healthcare
|
|
|
|
|
||||||||||||
|
State and local government and educational institutions
|
|
|
|
|
||||||||||||
|
Financial services
|
|
|
|
|
||||||||||||
|
All others
|
|
|
|
|
||||||||||||
|
Net sales
|
|
|
|
|
||||||||||||
|
Less: Revenue from financing and other
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Revenue from contracts with customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three Months Ended December 31,
|
Nine Months Ended December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Vendor:
|
||||||||||||||||
|
Cisco systems
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Juniper networks
|
|
|
|
|
||||||||||||
|
Dell EMC
|
|
|
|
|
||||||||||||
|
HPE
|
|
|
|
|
||||||||||||
|
NetApp
|
||||||||||||||||
|
Arista networks
|
|
|
|
|
||||||||||||
|
All others
|
|
|
|
|
||||||||||||
|
Net sales
|
|
|
|
|
||||||||||||
|
Less: Revenue from financing and other
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Revenue from contracts with customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
FINANCING SEGMENT DISAGGREGATION OF REVENUE
We analyze our revenues
within our financing segment based on the nature of the arrangement. Our financing revenue generally consists of portfolio income, transactional gains, and post-contract earnings including month-to-month rents and the sales of off-lease
equipment. All of our revenues from contracts with customers within our financing segment is from the sales of off-lease equipment.
This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the unaudited consolidated financial
statements included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements included in our 2022 Annual Report. These historical financial statements may not be indicative of our future performance. This
Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in
Part I, Item 1A, “Risk Factors,” in our 2022 Annual Report, as well as in our other filings with the SEC.
EXECUTIVE OVERVIEW
BUSINESS DESCRIPTION
We are a leading solutions provider in the areas of security, cloud, networking, data center, collaboration, and emerging technologies. We deliver actionable outcomes for organizations by using information technology (“IT”) and consulting
solutions to drive business agility and innovation. Leveraging our engineering talent, we assess, plan, deliver, and secure solutions comprised of leading technologies and consumption models aligned with our customers’ needs. Our expertise and
experience enable us to craft optimized solutions that take advantage of the cost, scale, and efficiency of private, public and hybrid cloud in an evolving market. As part of our solutions, we provide consulting, professional services, managed
services, IT staff augmentation, and complete lifecycle management. Additionally, we offer flexible financing for purchases from us and from third-parties. We have been in the business of selling, leasing, financing, and managing IT and other
assets for more than 30 years.
Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-premise and in the cloud. Our approach is to lead with advisory consulting to understand our
customers’ needs, and then design, deploy, and manage solutions aligned to their objectives. Underpinning the broader areas of Cloud, Security, Networking, Data Center, and Collaboration are specific skills in orchestration and automation,
application modernization, DevOps, data management, data visualization, analytics, network modernization, edge compute and other advanced and emerging technologies. These solutions are comprised of class-leading technologies from partners such as Amazon Web Services, Arista Networks, Check Point, Cisco Systems, Citrix, Commvault, Dell EMC, F5 Networks, Fortinet, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto
Networks, Pure Storage, Rubrik, Splunk, Varonis, and VMware, among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized
for each of our customers’ specific requirements. Our hosted, proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their owned,
leased, and consumption-based assets.
Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay at the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of
consulting, professional, and managed services, has enabled us to remain a trusted advisor for our customers. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We
believe our lifecycle approach offering of integrated solutions, services and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a customized customer
experience that spans the continuum from fast delivery of competitively priced products and services to subsequent management and maintenance, and through to end-of-life disposal services. This approach permits us to deploy sophisticated solutions
to enable our customers’ business outcomes.
Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local
government and educational institutions (“SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which account for most of our sales, and to customers in select
international markets including the United Kingdom (“UK”), the European Union (“EU”), India, and Singapore. Our technology segment accounted for 97% of our net sales and 83% of our operating income, while our financing segment accounted
for 3% of our net sales and 17% of our operating income, for the nine months ended December 31, 2022.
BUSINESS TRENDS
We believe the following key factors are impacting our business performance and our ability to achieve business results:
| • |
General economic concerns including inflation, rising interest rates, staffing shortages, remote work trends, and global unrest may impact our customers’ willingness to spend on technology and services.
|
| • |
A worldwide shortage of certain IT products is resulting from, among other things, shortages in semiconductors and other product components. Like others, we are experiencing ongoing supply constraints that
have affected, and could continue to further affect, lead times for delivery of products, our having to carry more inventory for longer periods, the costs of products, vendor return and cancellation policies, and our ability to meet
customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters.
|
| • |
We are experiencing increases in prices from our suppliers, as well as rising wages and interest rates. We generally have been able to pass price increases to our customers. Our labor costs related to
services we perform will take longer to pass to customers that have service engagements where prices may be set. Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding.
Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds and lock in our profit
on the transaction. Accordingly, inflation could have a material impact on our sales, gross profit, or operating costs in the future.
|
| • |
Customers’ top focus areas include security, cloud solutions, hybrid work environments (work from home and return to office), as well as digital transformation and modernization. We have developed advisory
services, solutions, and professional and managed services to meet these priorities and help our customers attain and maintain their desired state.
|
| • |
Modernizing legacy applications, data modernization, reducing operational complexity, securing workloads, the cost and performance of IT operations, and agility are changing the way companies are purchasing
and consuming technology. These are fueling deployments of solutions on cloud, managed services and hybrid platforms and licensing models, which may include invoicing over the term of the agreement.
|
KEY BUSINESS METRICS
Our management monitors several financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating
income margin, net earnings, net earnings per common share, in each case based on information prepared in accordance with US GAAP, as well as the non-GAAP financial measures and ratios, including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted
gross billings, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions,
and prepare and approve annual budgets.
These key indicators include financial information that is prepared in accordance with US GAAP and presented in our unaudited consolidated financial statements, as well as non-GAAP performance measurement tools.
Generally, a non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated
and presented in accordance with US GAAP. Our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results reported under non-GAAP, as these
measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
Set forth in footnotes (1), (2) and (3) of the tables that immediately follow this paragraph, we set forth our reasons for using and presenting Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross
billings, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share-diluted in the tables and discussion that follow.
Our key business metrics for the three- and nine-month periods ended December 31, 2022, and 2021 are summarized in the following tables (dollars in thousands, except per share amounts):
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
|||||||||||||||
|
Consolidated
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Net sales
|
$
|
623,476
|
$
|
494,834
|
$
|
1,575,541
|
$
|
1,369,500
|
||||||||
|
|
||||||||||||||||
|
Gross profit
|
$
|
138,372
|
$
|
117,117
|
$
|
385,199
|
$
|
345,631
|
||||||||
|
Gross margin
|
22.2
|
%
|
23.7
|
%
|
24.4
|
%
|
25.2
|
%
|
||||||||
|
Operating income margin
|
7.5
|
%
|
7.3
|
%
|
7.9
|
%
|
8.2
|
%
|
||||||||
|
|
||||||||||||||||
|
Net earnings
|
$
|
35,694
|
$
|
26,424
|
$
|
86,502
|
$
|
81,355
|
||||||||
|
Net earnings margin
|
5.7
|
%
|
5.3
|
%
|
5.5
|
%
|
5.9
|
%
|
||||||||
|
Net earnings per common share - diluted
|
$
|
1.34
|
$
|
0.98
|
$
|
3.24
|
$
|
3.03
|
||||||||
|
|
||||||||||||||||
|
Non-GAAP: Net earnings (1)
|
$
|
36,714
|
$
|
29,711
|
$
|
97,623
|
$
|
90,870
|
||||||||
|
Non-GAAP: Net earnings per common share - diluted (1)
|
$
|
1.38
|
$
|
1.10
|
$
|
3.66
|
$
|
3.38
|
||||||||
|
|
||||||||||||||||
|
Adjusted EBITDA (2)
|
$
|
53,325
|
$
|
41,797
|
$
|
141,933
|
$
|
130,264
|
||||||||
|
Adjusted EBITDA margin
|
8.6
|
%
|
8.4
|
%
|
9.0
|
%
|
9.5
|
%
|
||||||||
|
Technology Segment
|
||||||||||||||||
|
Net sales
|
$
|
611,774
|
$
|
476,975
|
$
|
1,532,037
|
$
|
1,313,634
|
||||||||
|
Adjusted gross billings (3)
|
$
|
888,621
|
$
|
685,031
|
$
|
2,356,326
|
$
|
1,982,162
|
||||||||
|
|
||||||||||||||||
|
Gross profit
|
$
|
127,854
|
$
|
104,483
|
$
|
349,780
|
$
|
304,994
|
||||||||
|
Gross margin
|
20.9
|
%
|
21.9
|
%
|
22.8
|
%
|
23.2
|
%
|
||||||||
|
|
||||||||||||||||
|
Operating income
|
$
|
41,090
|
$
|
27,166
|
$
|
102,212
|
$
|
82,640
|
||||||||
|
Adjusted EBITDA (2)
|
$
|
47,869
|
$
|
32,794
|
$
|
120,135
|
$
|
99,811
|
||||||||
|
Financing Segment
|
||||||||||||||||
|
Net sales
|
$
|
11,702
|
$
|
17,859
|
$
|
43,504
|
$
|
55,866
|
||||||||
|
|
||||||||||||||||
|
Gross profit
|
$
|
10,518
|
$
|
12,634
|
$
|
35,419
|
$
|
40,637
|
||||||||
|
|
||||||||||||||||
|
Operating income
|
$
|
5,368
|
$
|
8,919
|
$
|
21,536
|
$
|
30,200
|
||||||||
|
Adjusted EBITDA (2)
|
$
|
5,456
|
$
|
9,003
|
$
|
21,798
|
$
|
30,453
|
||||||||
| (1) |
Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted are based on net earnings calculated in accordance with US GAAP, adjusted to exclude other income (expense), share-based compensation, and acquisition and
integration expenses, and the related tax effects.
|
We use Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share diluted as supplemental measures of our performance to gain insight into our operating performance and performance trends. We believe that the
exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share diluted provides management and investors a useful measure for period-to-period comparisons of
our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share diluted
provide useful information to investors and others in understanding and evaluating our operating results. However, our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes
for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate similar Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share or similarly titled
measures differently, which may reduce their usefulness as comparative measures.
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
GAAP: Earnings before tax
|
$
|
49,365
|
$
|
35,910
|
$
|
120,636
|
$
|
112,463
|
||||||||
|
Share based compensation
|
1,950
|
1,780
|
5,681
|
5,355
|
||||||||||||
|
Acquisition related amortization expense
|
2,505
|
2,497
|
7,182
|
7,854
|
||||||||||||
|
Other (income) expense
|
(2,907
|
)
|
175
|
3,112
|
377
|
|||||||||||
|
Non-GAAP: Earnings before provision for income taxes
|
50,913
|
40,362
|
136,611
|
126,049
|
||||||||||||
|
GAAP: Provision for income taxes
|
13,671
|
9,486
|
34,134
|
31,108
|
||||||||||||
|
Share based compensation
|
544
|
470
|
1,624
|
1,494
|
||||||||||||
|
Acquisition related amortization expense
|
693
|
649
|
2,030
|
2,156
|
||||||||||||
|
Other (income) expense
|
(811
|
)
|
46
|
933
|
104
|
|||||||||||
|
Tax benefit (expense) on restricted stock
|
102
|
-
|
267
|
317
|
||||||||||||
|
Non-GAAP: Provision for income taxes
|
14,199
|
10,651
|
38,988
|
35,179
|
||||||||||||
|
Non-GAAP: Net earnings
|
$
|
36,714
|
$
|
29,711
|
$
|
97,623
|
$
|
90,870
|
||||||||
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
GAAP: Net earnings per common share - diluted
|
$
|
1.34
|
$
|
0.98
|
$
|
3.24
|
$
|
3.03
|
||||||||
|
Share based compensation
|
0.05
|
0.05
|
0.15
|
0.14
|
||||||||||||
|
Acquisition related amortization expense
|
0.07
|
0.07
|
0.20
|
0.21
|
||||||||||||
|
Other (income) expense
|
(0.08
|
)
|
-
|
0.08
|
0.01
|
|||||||||||
|
Tax benefit (expense) on restricted stock
|
-
|
-
|
(0.01
|
)
|
(0.01
|
)
|
||||||||||
|
Total non-GAAP adjustments - net of tax
|
0.04
|
0.12
|
0.42
|
0.35
|
||||||||||||
|
Non-GAAP: Net earnings per common share - diluted
|
$
|
1.38
|
$
|
1.10
|
$
|
3.66
|
$
|
3.38
|
||||||||
| (2) |
We define Adjusted EBITDA as net earnings calculated in accordance with US GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for
income taxes, and other income. Segment Adjusted EBITDA is defined as operating income calculated in accordance with US GAAP, adjusted for interest expense, share-based compensation, acquisition and integration expenses, and depreciation
and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As
such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. In the table below, we provide a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial
measure to this non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales.
|
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance and performance trends. We believe that the exclusion of other income in calculating Adjusted EBITDA
and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating
performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA
margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might
calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
|||||||||||||||
|
Consolidated
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Net earnings
|
$
|
35,694
|
$
|
26,424
|
$
|
86,502
|
$
|
81,355
|
||||||||
|
Provision for income taxes
|
13,671
|
9,486
|
34,134
|
31,108
|
||||||||||||
|
Share based compensation
|
1,950
|
1,780
|
5,681
|
5,355
|
||||||||||||
|
Interest and financing costs
|
1,308
|
335
|
2,117
|
693
|
||||||||||||
|
Depreciation and amortization
|
3,609
|
3,597
|
10,387
|
11,376
|
||||||||||||
|
Other income (expense)
|
(2,907
|
)
|
175
|
3,112
|
377
|
|||||||||||
|
Adjusted EBITDA
|
$
|
53,325
|
$
|
41,797
|
$
|
141,933
|
$
|
130,264
|
||||||||
|
Technology Segment
|
||||||||||||||||
|
Operating income
|
$
|
41,090
|
$
|
27,166
|
$
|
102,212
|
$
|
82,640
|
||||||||
|
Depreciation and amortization
|
3,582
|
3,569
|
10,304
|
11,292
|
||||||||||||
|
Share based compensation
|
1,889
|
1,724
|
5,502
|
5,186
|
||||||||||||
|
Interest and financing costs
|
1,308
|
335
|
2,117
|
693
|
||||||||||||
|
Adjusted EBITDA
|
$
|
47,869
|
$
|
32,794
|
$
|
120,135
|
$
|
99,811
|
||||||||
|
Financing Segment
|
||||||||||||||||
|
Operating income
|
$
|
5,368
|
$
|
8,919
|
$
|
21,536
|
$
|
30,200
|
||||||||
|
Depreciation and amortization
|
27
|
28
|
83
|
84
|
||||||||||||
|
Share based compensation
|
61
|
56
|
179
|
169
|
||||||||||||
|
Adjusted EBITDA
|
$
|
5,456
|
$
|
9,003
|
$
|
21,798
|
$
|
30,453
|
||||||||
| (3) |
We define Adjusted gross billings as our technology segment net sales calculated in accordance with US GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance,
software assurance, subscription/SaaS licenses, and services. We have provided below a reconciliation of Adjusted gross billings to technology segment net sales, which is the most directly comparable financial measure to this non-GAAP
financial measure.
|
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Technology segment net sales
|
$
|
611,774
|
$
|
476,975
|
$
|
1,532,037
|
$
|
1,313,634
|
||||||||
|
Costs incurred related to sales of third party maintenance, software assurance and subscription/SaaS licenses, and services
|
276,847
|
208,056
|
824,289
|
$
|
668,528
|
|||||||||||
|
Adjusted gross billings
|
$
|
888,621
|
$
|
685,031
|
$
|
2,356,326
|
$
|
1,982,162
|
||||||||
We use Adjusted gross billings as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment, and to analyze the changes to our accounts receivable and
accounts payable. Our use of Adjusted gross billings as an analytical tool has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other
companies, including companies in our industry, might calculate Adjusted gross billings or a similarly titled measure differently, which may reduce its usefulness as a comparative measure.
CONSOLIDATED RESULTS OF OPERATIONS
Net sales: Net sales for the three months ended December 31, 2022, increased $128.7 million, or 26.0%, to $623.5 million, as compared to $494.8 million for the
same period in the prior year. Product sales for the three months ended December 31, 2022, increased $123.7 million, or 28.6% to $556.0 million, as compared to $432.3 million for the same period in the prior year, due to increased demand and higher prices for some products in our technology segment. Service sales for the three months ended December 31, 2022, increased $5.0 million, or 7.9%, to $67.5 million,
as compared to $62.5 million for the same period in the prior year, primarily due to growth in managed services volume. In the technology segment, we had increases in net sales to customers in technology,
telecom, media, and entertainment, professional services, financial services, SLED, and healthcare due to increases in demand from existing customers.
Net sales for the nine months ended December 31, 2022, increased $206.0 million, or 15.0%, to $1,575.5 million, as compared to $1,369.5 million for the same period in
the prior year. Product sales for the nine months ended December 31, 2022, increased $189.3 million, or 15.9%, to $1,379.8 million, as compared to $1,190.5 million for the same period in the prior year,
due to increased demand and higher prices for some products in our technology segment. Service sales for the nine months ended December 31, 2022, increased $16.7 million, or 9.4%, to $195.7 million, as
compared to $179.0 million for the same period in the prior year, primarily due to growth in managed services volume and increases in professional services volume and rates. In the technology segment, we
had increases in net sales to customers in technology, telecom, media, and entertainment, professional services, financial services, and SLED due to increases in demand and the timing of fulfilling orders from existing customers, which were
partially offset by decreases in net sales to customers in manufacturing due to the timing of fulfilling orders from existing customers during the nine months ended December 31, 2022, compared to the same period in the prior year.
Withing our technology segment, Adjusted gross billings for the three months for the three months ended December 31, 2022, increased $203.6 million, or 29.7%, to $888.6 million, as compared to $685.0 million for the
same period in the prior year. We had increases in adjusted gross billings to customers in technology, telecom, media, and entertainment, professional services, financial services, SLED, and healthcare.
Adjusted gross billings for the nine months ended December 31, 2022, increased $374.1 million, or 18.9%, to $2,356.3 million, as compared to $1,982.2 million for the same period in the prior year. We had increases in
adjusted gross billings to customers in technology, telecom, media and entertainment, professional services, financial services, SLED, and healthcare, which were partially offset by decreases in adjusted gross billings to customers in the
manufacturing market.
Gross profit: Consolidated gross profit for the three months ended December 31, 2022, increased $21.3 million, or 18.1%, to $138.4 million, as compared to $117.1 million for the same period in the prior year. While
gross profit increased during the three month period ended December 31, 2022, our overall gross margin decreased, primarily due to lower service margins. We also had a decrease in product margins during this period, driven by a lower volume of
sales of third party maintenance, software assurance and subscription/SaaS licenses, and services. Consolidated gross margins for the three months ended December 31, 2022, decreased 150 basis points to 22.2%, as compared to 23.7% for the same
period in the prior year.
Consolidated gross profit for the nine months ended December 31, 2022, increased $39.6 million, or 11.4%, to $385.2 million, as compared to $345.6 million for the same period in the prior year. While gross profit
increased during the nine month period ended December 31, 2022, our overall gross margin decreased, primarily due to lower service margins. We also had a decrease in product margins during this period, driven by a lower volume of sales of third
party maintenance, software assurance and subscription/SaaS licenses, and services. Consolidated gross margins for the nine months ended December 31, 2022, decreased 80 basis points to 24.4%, as compared to 25.2% for the same period in the prior
year.
Operating expenses: Operating expenses for the three months ended December 31, 2022, increased $10.9 million, or 13.4%, to $91.9 million, as compared to $81.0 million for the same period in the
prior year. Our increase in operating expenses was primarily due to an increase in salaries and benefits of $6.8 million, an increase in general and administrative expenses of $2.0 million including higher software, subscription, and maintenance
fees, professional service fees, and travel and entertainment costs, an increase in our provision for credit losses of $1.1 million caused by an increase in our receivables over this period compared to the same period in the prior year, and an
increase in interest and financing costs of $1.0 million. As of December 31, 2022, we had 1,745 employees, an increase of 191 from 1,554 as of December 31, 2021.
Operating expenses for the nine months ended December 31, 2022, increased $28.7 million, or 12.3%, to $261.5 million, as compared to $232.8 million for the same period in the prior year. Our increase in
operating expenses was primarily due to an increase of $16.5 million in salaries and benefits, an increase of $8.8 million in general and administrative expenses including higher advertising and marketing fees, software, subscription and
maintenance fees, professional service fees, and travel and entertainment costs, an increase of $2.8 million in our provision for credit losses caused by an increase in our receivables over this period compared to the same period in the prior year,
an increase of $1.6 million in interest and financing costs, and partially offset by a $1.0 million decrease in depreciation and amortization.
Operating income: As a result of the foregoing, operating income for the three months ended December 31, 2022, increased $10.4 million, or 28.7%, to $46.5
million, as compared to $36.1 million for the same period in the prior year. Operating income for the nine months ended December 31, 2022, increased $10.9 million, or 9.7%,
to $123.7 million, as compared to $112.8 million for the same period in the prior year.
Provision for income taxes: Our effective tax rate for the three and nine months ended December 31, 2022, was 27.7% and 28.3% respectively, compared with 26.4% and 27.7%, respectively, for
the same periods in the prior year. Our effective tax rate was higher for the three months ended December 31, 2022, than for the same period in the prior year due to a tax benefit from restricted stock in the prior year. Our effective tax rate was
higher for the nine months ended December 31, 2022, than for the same period in the prior year due to foreign currency transaction losses incurred in lower tax jurisdictions.
Net earnings: Consolidated net earnings for the three months ended December 31, 2022, increased $9.3 million, or 35.1%, to $35.7 million, as compared to $26.4 million for the same period in the prior year, due to an increase in gross profit and other income (expense), net. The increase in other income (expense),
net was driven by the receipt of $1.9 million related to our claim in a class action lawsuit, which was received in December 2022, and foreign exchange gains. These increases were partially offset by an increase in operating expenses.
Consolidated net earnings for the nine months ended December 31, 2022, increased $5.1 million, or 6.3%, to $86.5 million,
as compared to $81.4 million for the same period in the prior year, due to an increase in gross profit, offset by an increase in operating expenses and foreign exchange losses.
Adjusted EBITDA for the three months ended December 31, 2022, increased $11.5 million, or 27.6%, to $53.3 million, as compared to $41.8 million for the same period in the prior year. Adjusted EBITDA margin for
the three months ended December 31, 2022, increased 20 basis points to 8.6%, as compared to the prior year period of 8.4%.
Adjusted EBITDA for the nine months ended December 31, 2022, increased $11.7 million, or 9.0%, to $142.0 million, as compared to $130.3 million for the same period in the prior year. Adjusted EBITDA margin for
the nine months ended December 31, 2022, decreased 50 basis points to 9.0%, as compared to the prior year period of 9.5%.
Net earnings per common share diluted for the three months ended December 31, 2022, increased $0.36, or 36.7%, to $1.34 per share, as compared to $0.98 per share for the same period in the prior year.
Non-GAAP net earnings per common share diluted for the three months ended December 31, 2022, increased $0.28, or 25.5%, to $1.38, as compared to $1.10 for the same period in the prior year.
Net earnings per common share diluted for the nine months ended December 31, 2022, increased $0.21, or 6.9%, to $3.24 per share, as compared to $3.03 per share for the same period in the prior year.
Non-GAAP net earnings per common share diluted for the nine months ended December 31, 2022, increased $0.28, or 8.3%, to $3.66 per share, as compared to $3.38 per share for the same period in the prior
year.
SEGMENT OVERVIEW
Our operations are conducted through two segments: technology and financing.
TECHNOLOGY SEGMENT
Our technology segment earns revenues from sales of IT products, professional services, managed services, and staff augmentation. Our technology segment sells primarily to corporations, state and local governments, and
higher education institutions. We sell across the US, which accounts for most of our sales, and in select international markets. Our technology segment also provides business-to-business supply chain management solutions for IT products.
Our customers generally purchase IT products and services from us under the terms and conditions of a customer master agreement (“CMA”). Our customers generally place orders for IT products using purchase orders.
Customer orders from state and local governments may involve public bids and our written bid responses. Our customers generally purchase services from us under the terms of statements of work. Our charges for services may be fixed price or
determined on time and materials.
We purchase IT products for resale from vendors and distributors. Our relationships with vendors are generally governed by our reseller authorization level. We achieve these authorization levels through purchase
volume, certifications held by sales executives or engineers, and though contractual commitments. Our authorization level determines the types of products we can resell, variable discounts applied against the list price, funds provided for the
marketing, and other special promotions.
We endeavor to minimize our cost of sales through vendor incentive programs. Our benefit from these programs is also determined by our reseller authorization level. These authorization levels are costly to maintain
and vendors often change their incentive programs. As such, our ability to continue to reduce our costs of sales through participating in these programs is not guaranteed.
FINANCING SEGMENT
Our financing segment offers financing solutions to corporations, state and local governments, and higher education institutions. We provide financing across the US,
which accounts for most of our sales, and in select international markets. Our financing segment earns revenues from leasing IT equipment, from financing purchases of third-party software licenses, software assurance, maintenance, and
other services, and from selling IT equipment at the end of a lease.
Our financing revenue is generally earned from the following three sources:
| • |
Portfolio income: Interest income from financing receivables and rents due under operating leases
|
| • |
Transactional gains: Net gains on the sale of financial assets; and
|
| • |
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and sales of off-lease equipment
|
FLUCTUATIONS IN OPERATING RESULTS
Our operating results may fluctuate due to customer demand for our products and services, supplier costs, wage costs, product availability, changes in vendor incentive programs, interest rate fluctuations, the timing
of sales of financial assets, general economic conditions, and differences between estimated residual values and actual amounts realized for leased equipment. We expect to continue to expand by hiring additional staff for specific targeted market
areas and roles whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may impact our operating results.
SEGMENT RESULTS OF OPERATIONS
The three and nine months ended December 31, 2022, compared to the three and nine months ended December 31, 2021
TECHNOLOGY SEGMENT
The results of operations for our technology segment were as follows (dollars in thousands):
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net sales
|
||||||||||||||||
|
Product
|
$
|
544,316
|
$
|
414,448
|
$
|
1,336,309
|
$
|
1,134,658
|
||||||||
|
Services
|
67,458
|
62,527
|
195,728
|
178,976
|
||||||||||||
|
Total
|
611,774
|
476,975
|
1,532,037
|
1,313,634
|
||||||||||||
|
Cost of sales
|
||||||||||||||||
|
Product
|
439,831
|
334,585
|
1,054,267
|
899,437
|
||||||||||||
|
Services
|
44,089
|
37,907
|
127,990
|
109,203
|
||||||||||||
|
Total
|
483,920
|
372,492
|
1,182,257
|
1,008,640
|
||||||||||||
|
Gross profit
|
127,854
|
104,483
|
349,780
|
304,994
|
||||||||||||
|
Selling, general, and administrative
|
81,874
|
73,413
|
235,147
|
210,369
|
||||||||||||
|
Depreciation and amortization
|
3,582
|
3,569
|
10,304
|
11,292
|
||||||||||||
|
Interest and financing costs
|
1,308
|
335
|
2,117
|
693
|
||||||||||||
|
Operating expenses
|
86,764
|
77,317
|
247,568
|
222,354
|
||||||||||||
|
Operating income
|
$
|
41,090
|
$
|
27,166
|
$
|
102,212
|
$
|
82,640
|
||||||||
|
Adjusted gross billings
|
$
|
888,621
|
$
|
685,031
|
$
|
2,356,326
|
$
|
1,982,162
|
||||||||
|
Adjusted EBITDA
|
$
|
47,869
|
$
|
32,794
|
$
|
120,135
|
$
|
99,811
|
||||||||
Net sales: Net sales for the three months ended December 31, 2022, increased $134.8 million, or 28.3%, to $611.8 million, as compared to $477.0 million for the
same period in the prior year, due to increases in net sales from customers in technology, telecom, media, and entertainment, financial services, SLED, and healthcare. Product sales for the three months ended December 31, 2022, increased
$129.9 million, or 31.3%, to $544.3 million, as compared to $414.4 million for the same period in the prior year. Service sales for the three months ended December 31, 2022, increased $5.0 million, or 7.9%,
to $67.5 million, as compared to $62.5 million for the same period in the prior year, due to an increase in managed services.
Net sales for the nine months ended December 31, 2022, increased $218.4 million, or 16.6%, to $1,532.0 million, as compared to $1,313.6 million for the same period in
the prior year, due to increases in net sales from customers in technology, telecom, media, and entertainment, financial services, SLED, and healthcare. Product sales for the nine months ended December 31, 2022, increased 17.8%, or $201.7 million
to $1,336.3 million, as compared to $1,134.7 million for the same period in the prior year, and service revenue increased by 9.4%, or $16.7 million, to $195.7 million, as compared to $179.0 million during the same period in the prior year.
Adjusted gross billings for the three months ended December 31, 2022, increased $203.6 million, or 29.7%, to $888.6 million, as compared to $685.0 million for the same period in the prior year. Our increase in adjusted gross billings was due to higher demand from our current customers and higher prices for some products.
Adjusted gross billings for the nine months ended December 31, 2022, increased $374.2 million, or 18.9%, to $2,356.3 million, as compared to $1,982.2 million for the same period in the prior year. The increase in adjusted gross billings is due to higher demand from the same customer end markets that were previously identified for the increase in net sales.
We rely on our vendors to fulfill a large majority of shipments to our customers. As of December 31, 2022, we had open orders of $957.3 million and deferred revenue of $168.6 million. As of December 31, 2021,
we had open orders of $852.9 million and deferred revenue of $121.0 million.
We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. The percentage of net sales by industry and vendor for the twelve month periods ended December
31, 2022, and 2021 are summarized below:
|
Twelve Months Ended
December 31,
|
||||||||||||
|
Net sales by customer end market:
|
2022
|
2021
|
Change
|
|||||||||
|
Telecom, Media & Entertainment
|
28
|
%
|
29
|
%
|
(1
|
%)
|
||||||
|
Technology
|
18
|
%
|
15
|
%
|
3
|
%
|
||||||
|
Healthcare
|
14
|
%
|
16
|
%
|
(2
|
%)
|
||||||
|
SLED
|
13
|
%
|
15
|
%
|
(2
|
%)
|
||||||
|
Financial Services
|
9
|
%
|
9
|
%
|
0
|
%
|
||||||
|
All others
|
18
|
%
|
16
|
%
|
2
|
%
|
||||||
|
Total
|
100
|
%
|
100
|
%
|
||||||||
|
Twelve Months Ended
December 31,
|
||||||||||||
|
Net sales by vendor:
|
2022
|
2021
|
Change
|
|||||||||
|
Cisco Systems
|
37
|
%
|
38
|
%
|
(1
|
%)
|
||||||
|
Dell EMC
|
8
|
%
|
8
|
%
|
0
|
%
|
||||||
|
Juniper Networks
|
7
|
%
|
6
|
%
|
1
|
%
|
||||||
|
NetApp
|
4
|
%
|
5
|
%
|
(1
|
%)
|
||||||
|
HPE
|
4
|
%
|
2
|
%
|
2
|
%
|
||||||
|
Arista Networks
|
3
|
%
|
3
|
%
|
0
|
%
|
||||||
|
All others
|
37
|
%
|
38
|
%
|
(1
|
%)
|
||||||
|
Total
|
100
|
%
|
100
|
%
|
||||||||
Our revenues by customer end market have remained consistent over the twelve-month period, with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve month period ended
December 31, 2022, we had an increase in the percentage of total revenues from customers in the technology industry, and decreases in the percentage of total revenues in the telecom, media and
entertainment, healthcare, and SLED, industries. These changes were driven by changes in customer buying cycles and the timing of specific IT-related initiatives, rather than the acquisition or loss of a customer or set of customers.
The majority of our revenues by vendor is derived from our top six suppliers. None of the vendors included within the “All others” category individually exceeded 5% of total net sales.
Cost of sales: Cost of sales for the three months ended December 31, 2022, increased $111.4 million, or 29.9%, to $483.9 million, as compared to $372.5
million for the same period in the prior year. Our gross margin decreased 100 basis points to 20.9% for the three months ended December
31, 2022, compared to 21.9% for the same period in the prior year. Our decrease in gross margins was primarily due to lower service gross margin from a change in services mix. We also had a decrease in
product margins, of 10 basis points to 19.2%.
Cost of sales for the nine months ended December 31, 2022, increased $173.6 million, or 17.2%, to $1,182.3 million, as compared to $1,008.6 million, which is in-line with the increase in net sales that occurred
during the prior year period. Our gross margin decreased 40 basis points to 22.8% for the nine months ended December 31, 2022, compared to 23.2% for the same period in the prior year, primarily due to lower service margins offset by higher product margins.
Selling, general, and administrative: Selling, general, and administrative expenses for the three months ended December 31, 2022, increased $8.5 million,
or 11.5%, to $81.9 million, as compared to $73.4 million for the same period in the prior year. Salaries and benefits for the three months ended December 31, 2022, increased $7.2 million, or 11.4% to $70.5 million, as compared to $63.3 million for the same period in the prior
year, primarily due to an increase in salaries driven by increases in headcount and an increase in variable compensation driven by increases in gross profit. Our technology segment had 1,709 employees as of December 31, 2022, an increase of 188 from 1,521 as of December 31, 2021, driven by increased demand for our services and the acquisition of
Future Com, Ltd. We added 157 additional customer-facing employees, of which 101 were professional services and technical support personnel. General and administrative expenses for the three months ended December
31, 2022, increased $1.0 million, or 10.0%, to $11.0 million, as compared to $10.0 million for the same period in the prior year, due to higher professional service fees, and higher travel and
entertainment costs.
Selling, general, and administrative expenses for the nine months ended December 31, 2022, increased by $24.8 million, or 11.8%, to $235.1 million, as compared to $210.4 million for the same period in
the prior year. Salaries and benefits for the nine months ended December 31, 2022, increased $16.4 million, or 9.0% to $198.5 million, compared to $182.1 million during the same period in the prior year, mainly due to an increase in salaries driven by increases in headcount and an increase in variable compensation driven by increases in gross profit. General and administrative expenses for the nine months
ended December 31, 2022, increased $7.1 million, or 25.4%, to $35.3 million, as compared to $28.2 million for the same period in the prior year, due to higher
advertising and marketing fees, professional service fees, software license and maintenance fees, and higher travel and entertainment costs.
Depreciation and amortization: Depreciation and amortization for the three months ended December 31, 2022, remained flat at $3.6 million, as compared to
the same period in the prior year. Depreciation and amortization for the nine months ended December 31, 2022, decreased $1.0 million, or 8.7%, to $10.3 million, as compared
to $11.3 million for the same period in the prior year.
Interest and financing costs: Interest and financing costs for the three and nine months ended December 31, 2022, were $1.3 million and $2.1 million, respectively, an
increase of $1.0 million and $1.4 million, respectively, as compared to $0.3 million and $0.7 million, respectively, for the same periods in the prior year. The increase in interest expense for the three and nine month periods is primarily due to
an increase in borrowings from our revolving credit facility. We had $103.0 million of recourse debt in our technology segment as of December 31, 2022, compared to $58.8 million as of December 31, 2021.
Segment operating income: As a result of the foregoing, operating income for the three
months ended December 31, 2022, increased $13.9 million, or 51.3%, to $41.1 million, as compared to $27.2 million for the same period in the prior year. Operating income
for the nine months ended December 31, 2022, increased $19.6 million, or 23.7%, to $102.2 million, as compared to $82.6 million for the same period in the prior
year.
Adjusted EBITDA for the three months ended December 31, 2022, increased $15.1 million, or 46.0%, to $47.9 million, as compared to $32.8 million for the same period in the prior year. Adjusted EBITDA for the nine months ended December 31, 2022, increased $20.3 million, or 20.4%, to $120.1 million, as compared to $99.8 million for the same period in the prior year.
FINANCING SEGMENT
The results of operations for our financing segment were as follows (dollars in thousands):
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net sales
|
$
|
11,702
|
$
|
17,859
|
$
|
43,504
|
$
|
55,866
|
||||||||
|
Cost of sales
|
1,184
|
5,225
|
8,085
|
15,229
|
||||||||||||
|
Gross profit
|
10,518
|
12,634
|
35,419
|
40,637
|
||||||||||||
|
Selling, general, and administrative
|
4,856
|
3,461
|
13,054
|
9,784
|
||||||||||||
|
Depreciation and amortization
|
27
|
28
|
83
|
84
|
||||||||||||
|
Interest and financing costs
|
267
|
226
|
746
|
569
|
||||||||||||
|
Operating expenses
|
5,150
|
3,715
|
13,883
|
10,437
|
||||||||||||
|
Operating income
|
$
|
5,368
|
$
|
8,919
|
$
|
21,536
|
$
|
30,200
|
||||||||
|
Adjusted EBITDA
|
$
|
5,456
|
$
|
9,003
|
$
|
21,798
|
$
|
30,453
|
||||||||
Net sales: Net sales for the three months ended December 31, 2022, decreased $6.2 million, or 34.5%, to $11.7 million,
as compared to $17.9 million for the same period in the prior year. The decrease in net sales was due to lower post- contract and portfolio earnings, partially offset by higher transactional gains. For the three months ended December 31, 2022, we
recognized net gains on sales of financial assets of $5.2 million and proceeds from these sales were $157.2 million. For the three months ended December 31, 2021, net gains on the sale of financial assets
were $2.3 million and the proceeds from these sales were $63.5 million.
Net sales for the nine months ended December 31, 2022, decreased $12.4 million, or 22.1%, to $43.5 million, as compared to
$55.9 million for the same period in the prior year. The decrease in net sales was due to lower post-contract and portfolio earnings and transactional gains. For the nine months ended December 31, 2022, we recognized net gains on sales of
financial assets of $15.1 million and proceeds from these sales were $586.1 million. For the nine months ended December 31, 2021, net gains on the sale of financial assets were $15.6 million and
the proceeds from these sales were $753.9 million.
As of December 31, 2022, our financing segment had $174.4 million in financing receivables and operating leases, compared to $171.1 million as of December 31, 2021, an increase of $3.3 million, or 1.9%.
Cost of sales: Cost of sales for the three months ended December 31, 2022, decreased $4.0 million, or 77.3%, to $1.2 million, as compared to $5.2 million for the same period in the prior year, due to
lower cost of sales on off-lease equipment and depreciation expense from operating leases. Gross profit for the three months ended December 31, 2022, decreased by 16.8% to $10.5 million, as compared to the same period in the prior year.
Cost of sales for the nine months ended December 31, 2022, decreased $7.1 million, or 46.9%, to $8.1 million, as compared to $15.2 million for the same period in the prior year, due to lower cost of sales of off-lease
equipment and depreciation expense from operating leases. Gross profit for the nine months ended December 31, 2022, decreased by 12.8% to $35.4 million, as compared to the same period in the prior year.
Selling, general and administrative: Selling, general, and administrative expenses for the three months ended December 31, 2022, increased $1.4 million, or 40.3%, to $4.9 million, as compared to $3.5 million for the same period in the prior year, due to higher general and administrative expenses
consisting mostly of higher professional service fees, higher software, license and maintenance fees driven by the deployment of newly hosted software in August 2022, and a higher reserve for credit losses caused by changes in our net credit
exposure.
Selling, general, and administrative expenses for the nine months ended December 31, 2022, increased $3.3 million, or 33.4%, to $13.1 million, as compared to $9.8 million for the same period in the
prior year, due to higher general and administrative expenses consisting mostly of higher professional service fees, higher software, license and maintenance fees driven by the deployment of newly hosted software
in August 2022, and a higher reserve for credit losses caused by changes in our net credit exposure.
In August 2022, we completed the deployment of a new hosted software to manage our financing portfolio. As a result, we anticipate higher general and administrative costs of approximately $1.5 million per year
related to amortizing the cost to implement the hosted software and annual fees paid to license the hosted software.
Interest and financing costs: Interest and financing costs for the three months ended December 31, 2022, increased by 18.1% to $0.3 million, and increased by 31.1% to $0.7 million for the nine months
ended December 31, 2022, compared to the prior year. As of December 31, 2022, our notes payable was $48.5 million, an increase of $4.9 million, or 11.2% compared to notes payable of $43.6 million as of December 31, 2021. As of December 31, 2022,
and 2021, our notes payable consisted entirely of non-recourse notes payable. Our weighted average interest rate for non-recourse notes payable was 5.05% and 3.68%, as of December 31, 2022, and 2021,
respectively.
Segment operating income: As a result of the foregoing, operating income for the three months ended December 31, 2022, decreased by $3.6 million to $5.4 million and Adjusted EBITDA decreased by
$3.5 million to $5.5 million, as compared to the prior year period. Operating income and Adjusted EBITDA for the nine months ended December 31, 2022, decreased by $8.7 million to $21.5 million and $21.8 million,
respectively, as compared to the same period in the prior year.
CONSOLIDATED
Other income (expense), net: Other income (expense), net for the three and nine months ended December 31, 2022 was a net gain of $2.9 million and a net expense of $3.1 million, respectively,
compared to a net expense of $0.2 million and a net expense of $0.4 million, respectively, for the same periods in the prior year. Our higher net gain for the three months ended December 31, 2022, was due to higher net foreign exchange gains in the
current period and $1.9 million we received in December 2022 related to our claim in a class action lawsuit. Our higher net expense for the nine months ended December 31, 2022, was due to higher exchange losses that were only partially offset by
the gain related to our claim in a class action lawsuit.
Provision for income taxes: Our provision for income tax expense was $13.7 million and $34.1
million for the three and nine months ended December 31, 2022, as compared to $9.5 million and $31.1 million for the same periods in the prior year. Our effective tax rate for the three and nine months ended December 31, 2022, was 27.7% and 28.3%
respectively, compared with 26.4% and 27.7%, respectively, for the same periods in the prior year. Our effective tax rate was higher for the three months ended December 31, 2022, than for the same period in the prior year due to a tax
benefit from restricted stock in the prior year. Our effective tax rate was higher for the nine months ended December 31, 2022, than for the same period in the prior year due to foreign currency transaction losses incurred in lower tax
jurisdictions.
Net earnings: As a result of the foregoing, our net earnings for the three months ended December 31, 2022, increased $9.3 million, or 35.1%, to $35.7 million, as compared to $26.4 million during the same period in
the prior year. Net earnings for the nine months ended December 31, 2022, increased $5.1 million, or 6.3%, to $86.5 million, as compared to $81.4 million during the same period in the prior year.
Basic and fully diluted earnings per common share were both $1.34 for the three months ended December 31, 2022, an increase of 35.4% and 36.7%, respectively, as compared to $0.99 and $0.98, respectively, for the three
months ended December 31, 2021. Basic and fully diluted earnings per common share were $3.26 and $3.24, respectively, for the nine months ended December 31, 2022, an increase of 6.9%, as compared to $3.05 and $3.03, respectively, for the nine
months ended December 31, 2021.
Non-GAAP net earnings per common share diluted for the three months ended December 31, 2022, increased $0.28, or 25.5%, to $1.38, as compared to $1.10 for the three months ended December 31, 2021. Non-GAAP net earnings
per common share diluted for the nine months ended December 31, 2022, increased $0.28, or 8.3%, to $3.66, as compared to $3.38 for the nine months ended December 31, 2021.
Weighted average common shares outstanding was 26.6 million in the calculation of both basic earnings per common share and diluted earnings per common share for the three months ending December 31, 2022. Weighted
average common shares outstanding was 26.6 million in the calculation of basic earnings per common share for the nine months ending December 31, 2022, and 26.7 million in the calculation of diluted earnings per common share for the nine months
ending December 31, 2022. Weighted average common shares outstanding used in the calculation of basic earnings per common share, was 26.7 million for both the three and nine months ending December 31, 2021, and 26.9 million in the calculation of
diluted earnings per common share for both the three and nine months ending December 31, 2021.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY OVERVIEW
We finance our operations through funds generated from operations and through borrowings. We use those funds to meet our capital requirements, which have historically consisted primarily of working capital for
operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock.
Our borrowings in our technology segment are primarily through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (the “WFCDF Credit Facility”). The WFCDF Credit Facility has an accounts payable
floor plan facility component and a revolving credit facility component. Our borrowings in our financing segment are primarily through secured borrowings that involve transferring all or part of the contractual payments due to us to third-party
financing institutions.
We believe that cash on hand and funds generated from operations, together with available credit under our WFCDF Credit Facility, will be enough to finance our working capital, capital expenditures, and other
standard business requirements for at least the next year.
Our ability to continue to expand, both organically and through acquisitions, is dependent upon our ability to generate enough cash flow from operations or from borrowing or other sources of financing as may be
required.
CASH FLOWS
The following table summarizes our sources and uses of cash over the periods indicated (in thousands):
|
Nine Months Ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Net cash used in operating activities
|
$
|
(147,038
|
)
|
$
|
(121,542
|
)
|
||
|
Net cash used in investing activities
|
(15,624
|
)
|
(18,448
|
)
|
||||
|
Net cash provided by financing activities
|
103,555
|
115,996
|
||||||
|
Effect of exchange rate changes on cash
|
3,124
|
(2
|
)
|
|||||
|
Net decrease in cash and cash equivalents
|
$
|
(55,983
|
)
|
$
|
(23,996
|
)
|
||
Cash flows from operating activities: We used $147.0 million in operating activities during the nine months ended December 31, 2022, compared to $121.5 million used by operating activities for the nine months ended
December 31, 2021. See below for a breakdown of operating cash flows by segment (in thousands):
|
Nine Months Ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Technology segment
|
$
|
(115,811
|
)
|
$
|
(112,740
|
)
|
||
|
Financing segment
|
(31,227
|
)
|
(8,802
|
)
|
||||
|
Net cash used in operating activities
|
$
|
(147,038
|
)
|
$
|
(121,542
|
)
|
||
Technology segment: For the nine months ended December 31, 2022, our technology segment used $115.8 million from operating activities primarily due to increases
in our accounts receivable and inventories, partially offset by net earnings.
In the nine months ended December 31, 2021, our technology segment used $112.7 million from operating activities primarily due to increases in our accounts receivable of $123.4 million and inventories of $77.9
million, offset by net earnings. Additionally, we had net borrowing on the floor plan component of our credit facility of $59.0 million. We use this facility to manage working capital needs. We present changes in this balance as financing activity
in our consolidated statement of cash flows.
To manage our working capital, we monitor our cash conversion cycle for our technology segment, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases
outstanding in accounts payable (“DPO”).
The following table presents the components of the cash conversion cycle for our technology segment:
|
As of December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
(DSO) Days sales outstanding (1)
|
62
|
67
|
||||||
|
(DIO) Days inventory outstanding (2)
|
30
|
21
|
||||||
|
(DPO) Days payable outstanding (3)
|
(41
|
)
|
(41
|
)
|
||||
|
Cash conversion cycle
|
51
|
47
|
||||||
| (1) |
Represents the rolling three month average of the balance of trade accounts receivable-trade, net for our technology segment at the end of the period divided by adjusted gross billings for the same three month period.
|
| (2) |
Represents the rolling three month average of the balance of inventory, net for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three month period.
|
| (3) |
Represents the rolling three month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our technology segment at the end of the period divided by cost of adjusted gross billings for the same
three month period.
|
Our cash conversion cycle increased to 51 days as of December 31, 2022, as compared to 47 days as of December 31, 2021. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended
payment terms. Our DPO remained the same at 41 days. Invoices processed through the accounts payable floor plan facility are typically paid within 45-60 days from the invoice date, while accounts payable trade invoices are typically paid within 30
days from the invoice date. Our DSO decreased by 5 days to 62 days. The DSO for both December 31, 2022, and 2021, reflects higher sales to customers with terms greater than or equal to net 60 days. Our DIO increased to 30 days due to higher
inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 57.9% to $244.8 million as of December 31, 2022, up from $155.1 million as of March 31, 2022, due to ongoing projects with customers and
supply constraints that lengthen the time over which we receive all the parts in an order for a completed delivery to our customers.
Financing segment: For the nine months ended December 31, 2022, our financing segment used $31.2 million in operating activities, primarily due to increases in financing receivables-net, offset by net
earnings.
In the nine months ended December 31, 2021, our financing segment used $8.8 million from operating activities, primarily due to increases in accounts receivable of $8.8 million and financing receivables-net of $23.4
million, offset by net earnings.
Cash flows related to investing activities: For the nine months ended December 31, 2022, we used $15.6 million in investing activities, consisting of $13.3
million in cash used in acquiring Future Com, Ltd. and $5.7 million for purchases of property, equipment, and operating lease equipment, and partially offset by $3.3 million of proceeds from the sale of
property, equipment, and operating lease equipment.
In the nine months ended December 31, 2021, we used $18.4 million from investing activities, consisting of $21.4 million for purchases of property, equipment and operating lease equipment offset by $2.9 million of
proceeds from the sale of property, equipment, and operating lease equipment.
Cash flows from financing activities: For the nine months ended December 31, 2022, cash provided by financing activities was $103.6 million, consisting of net borrowings of non-recourse and recourse
notes payable of $101.6 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $9.2 million in net repayments on the accounts payable floor plan facility.
In the nine months ended December 31, 2021, cash provided by financing activities was $116.0 million, consisting of net borrowings on the floor plan component of our credit facility of $59.0 million and net
repayments of non-recourse and recourse notes payable of $66.4 million, partially offset by $9.5 million in cash used to repurchase outstanding shares of our common stock.
Our borrowing of non-recourse notes payable primarily arises from our financing segment when we transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. When
the transfers do not meet the requirements for a sale, the proceeds paid to us represent borrowings of non-recourse or recourse notes payable.
Non-cash activities: We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. In certain assignment agreements, we may direct the third-party financial
institution to pay some of the proceeds from the assignment directly to the vendor or vendors that have supplied the assets being leased and or financed. In these situations, the portion of the proceeds paid directly to our vendors are non-cash
transactions.
SECURED BORROWINGS – FINANCING SEGMENT
We may finance all or most of the cost of the assets that we finance for customers by transferring all or part of the contractual payments due to us to third-party financing institutions. When we account for the
transfer as a secured borrowing, we recognize the proceeds as either recourse or non-recourse notes payable. Our customers are responsible for repaying the debt from a secured borrowing. The lender typically secures a lien on the financed assets at
the time the financial assets are transferred and releases it upon collecting all the transferred payments. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The
lender assumes the credit risk and their only recourse, upon default by the customer, is against the customer and the specific equipment under lease. While we expect that the credit quality of our financing arrangements and our residual return
history will continue to allow us to obtain such financing, such financing may not be available on acceptable terms, or at all.
CREDIT FACILITY – TECHNOLOGY SEGMENT
We finance the operations of our subsidiaries ePlus Technology, inc., ePlus Technology Services, inc. and SLAIT Consulting, LLC
(collectively, the “Borrowers”) in our technology segment through the WFCDF Credit Facility. The WFCDF Credit Facility has an accounts payable floor plan facility component and a revolving credit facility component.
Please refer to Note 8, “Credit Facility and Notes Payable” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial
Statements” for additional information concerning our WFCDF Credit Facility.
Accounts payable floor plan facility: We finance most purchases of products for sale to our customers through the accounts payable floor plan facility. Once our
customer places a purchase order with us and we have approved their credit, we place an order for the desired products with one of our vendors. Our vendors are generally paid by the floor plan facility and our liability is reflected in “accounts
payable—floor plan” in our consolidated balance sheets.
Most customer payments to us are remitted to our lockbox accounts. Once payments are cleared, the monies in the lockbox accounts are automatically and daily transferred to our operating account. We pay down the
floor plan facility on three specified dates each month, generally 30-60 days from the invoice date. Our borrowings and repayments under the floor plan component are included in “net borrowings
(repayments) on floor plan facility” within cash flows from the financing activities in our consolidated statements of cash flows.
As of December 31, 2022, we had a maximum credit limit of $425.0 million, and an outstanding balance on the floor plan of $154.5 million. As of March 31, 2022, we had a maximum credit limit of $375.0 million, and the
outstanding balance on the floor plan facility was $145.3 million. On our balance sheet, our liability under the floor plan facility is presented as part of accounts payable – floor plan.
Revolving credit facility: The outstanding balance under the revolving credit facility is presented as part of recourse notes payable- current on our consolidated balance sheets. Our borrowings
and repayments under the revolving credit facility are included in “borrowings of non-recourse and recourse notes payable” and “repayments of non-recourse and recourse notes payable,” respectively, within cash flows from the financing activities in
our consolidated statements of cash flows.
As of December 31, 2022, the outstanding balance under the revolving credit facility was $95.0 million. As of March 31, 2022, we did not have any outstanding balance under the revolving credit facility. The maximum credit limit under this
facility was $150.0 million as of December 31, 2022, and $100.0 million as of March 31, 2022.
The loss of the WFCDF Credit Facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology
segment and as an operational function of our accounts payable process.
PERFORMANCE GUARANTEES
In the normal course of business, we may provide certain customers with performance guarantees, which are generally backed by surety bonds. In general, we would only be liable for these
guarantees in the event of default in the performance of our obligations. We are in compliance with material performance obligations under all service contracts for which there is a performance guarantee, and we believe that any liability incurred
in connection with these guarantees would not have a material adverse effect on our consolidated statements of operations.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or other contractually narrow or limited purposes. As of December 31, 2022, we were not involved in any unconsolidated
special purpose entity transactions.
ADEQUACY OF CAPITAL RESOURCES
The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive
customer relationships and skilled sales and/or engineering forces. We may also open facilities in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance the platform
of bundled solutions to provide additional functionality and value-added services. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivables due from our customers. These
actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include
additional debt and equity financing. While the future is uncertain, we do not believe our WFCDF Credit Facility will be terminated by WFCDF or us. Additionally, while our lending partners in our financing segment have become more discerning in
their approval processes, we currently have funding resources available for our transactions.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our future quarterly operating results and the market price of our common stock may fluctuate. In the event our revenues or earnings for any quarter are less than the level expected by
securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any
material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing and financing companies, IT resellers, software competitors, or our major customers or vendors.
Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to currency fluctuations, reduction in IT spending,
shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs,
and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of
financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent
quarters. See Part I, Item 1A, “Risk Factors,” in our 2022 Annual Report, as well as in our other filings with the SEC.
We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future
performance.
CRITICAL ACCOUNTING ESTIMATES
As disclosed in Note 2, “Recent Accounting Pronouncements,” we adopted a new standard on accounting for contract assets and contract liabilities from contracts with customers in a business combination
in the second quarter of our fiscal year 2023. Under this new standard, we apply Accounting Standards Codification Topic 606, Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers. Other than this change, our critical accounting estimates have not changed from those reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report.
Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize lines of credit and other financing facilities that are subject to fluctuations in short-term
interest rates. Our non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates
will not directly impact our cash flows. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return,
we may not fund the transaction to obtain the proceeds. Borrowings under the WFCDF Credit Facility bear interest at a market-based variable rate. As of December 31, 2022, the aggregate fair value of our recourse and non-recourse borrowings
approximated their carrying value.
We have foreign currency exposure when transactions are not denominated in our subsidiaries’ functional currency, which include purchases and sales of the products and services we provide, as well as loans with other
ePlus entities. Additionally, we lease assets in foreign countries, including Canada, the UK, and several other European countries. As a lessor, we lease assets for amounts denominated in British Pounds,
Euros, and Canadian dollars. To date, foreign currency exposure associated with purchases and sales of the products and services we provide has not been significant. We have incurred foreign currency transaction gains and losses in certain foreign
subsidiaries on US dollar denominated loans. Fluctuations in currency exchange rates may impact our results of operations and financial position.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief
Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed
to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms.
Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO
and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon
that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2022.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
In August 2022, we completed the implementation of a new ERP system within our Financing segment. As a result of this implementation, certain internal controls over financial reporting have been automated or modified to align with the new ERP
system. While we believe this new system will strengthen our internal controls, there are inherent risks in implementing any new system, and we will continue to evaluate these control changes as part of our assessment of internal control over
financial reporting throughout fiscal 2023.
There have not been any other changes in our internal control over financial reporting during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
LIMITATIONS AND EFFECTIVENESS OF CONTROLS
Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control
system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be
circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such
limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting
process; therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
PART II. OTHER INFORMATION
| Item 1. |
LEGAL PROCEEDINGS
|
Please refer to Note 9, “Commitment and Contingencies” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial
Statements.”
On February 25, 2022, a putative class action complaint was filed in the Delaware Court of Chancery by Michael Kent, a stockholder, against us and our then-current directors (the “Action”). The complaint sought a
declaration that Section 2.9 of our then-bylaws violated Section 228 of the Delaware General Corporation Law because, as alleged in the complaint, the bylaw provision restricted the ability of our stockholders to act by written consent unless the
Board of Directors provided prior approval for such stockholder action. While we disagreed with plaintiff’s allegations, we nevertheless amended our bylaws on March 2, 2022, to make clear that stockholders may act by written consent, subject to
certain procedures. On April 8, 2022, the Court of Chancery entered a stipulated order pursuant to which the plaintiff voluntarily dismissed the Action. The dismissal was without prejudice with regard to the anticipated application of plaintiff’s
counsel’s claim for attorneys’ fees and expenses. The Court of Chancery retained jurisdiction solely for the purpose of deciding the anticipated application of plaintiff’s counsel for an award of attorneys’ fees and reimbursement of expenses in
connection with the company’s bylaw amendment. We subsequently agreed to pay $150,000 to plaintiff’s counsel for attorneys’ fees and expenses in full satisfaction of the claim for attorneys’ fees and expenses in the Action. The Court of Chancery
has not been asked to review, and will pass no judgment on, the payment of the attorneys’ fees and expenses or their reasonableness, and the Action shall be dismissed with prejudice.
| Item 1A. |
RISK FACTORS
|
There has not been any material change in the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended
March 31, 2022.
The following table provides information regarding our total purchases of 128,553 shares of ePlus inc. common stock during the nine months ended December 31, 2022, including a
total of 70,473 shares purchased as part of the publicly announced share repurchase plans or programs. There were no share repurchases during the three months ended December 31, 2022.
|
Period
|
Total
number of
shares
purchased
(1)
|
Average
price
paid per
share
|
Total number of
shares purchased
as part of publicly
announced plans
or programs
|
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs
|
||||||||||||||||
|
April 1, 2022 through April 30, 2022
|
34,961
|
$
|
56.02
|
34,961
|
737,049
|
(2
|
)
|
|||||||||||||
|
May 1, 2022 through May 27, 2022
|
35,512
|
$
|
55.86
|
35,512
|
701,537
|
(3
|
)
|
|||||||||||||
|
May 28, 2022 through May 31, 2022
|
-
|
$
|
-
|
-
|
1,000,000
|
(4
|
)
|
|||||||||||||
|
June 1, 2022 through June 30, 2022
|
58,080
|
$
|
56.51
|
-
|
1,000,000
|
(5
|
)
|
|||||||||||||
|
July 1, 2022 through July 31, 2022
|
-
|
$
|
-
|
-
|
1,000,000
|
(6
|
)
|
|||||||||||||
|
August 1, 2022 through August 31, 2022
|
-
|
$
|
-
|
-
|
1,000,000
|
(7
|
)
|
|||||||||||||
|
September 1, 2022 through September 30, 2022
|
-
|
$
|
-
|
-
|
1,000,000
|
(8
|
)
|
|||||||||||||
|
October 1, 2022 through October 31, 2022
|
-
|
$
|
-
|
-
|
1,000,000
|
(9
|
)
|
|||||||||||||
|
November 1, 2022 through November 30, 2022
|
-
|
$
|
-
|
-
|
1,000,000
|
(10
|
)
|
|||||||||||||
|
December 1, 2022 through December 31, 2022
|
-
|
$
|
-
|
-
|
1,000,000
|
(11
|
)
|
|||||||||||||
| (1) |
All shares acquired were in open-market purchases, except for 58,080 shares, which were repurchased in June 2022 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted
stock.
|
| (2) |
The share purchase authorization in place for the month ended April 30, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of April 30, 2022, the remaining authorized shares to be purchased were 737,049.
|
| (3) |
As of May 27, 2022, the authorization under the then-existing share repurchase plan expired.
|
| (4) |
On March 24, 2022, the board of directors authorized the company to repurchase up to 1,000,000 shares of our outstanding common stock commencing on May 28, 2022, and continuing to May 27, 2023. As of May 31, 2022, the remaining
authorized shares to be purchased were 1,000,000.
|
| (5) |
The share purchase authorization in place for the month ended June 30, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of June 30, 2022, the remaining authorized shares to be purchased were 1,000,000.
|
| (6) |
The share purchase authorization in place for the month ended July 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of July 31, 2022, the remaining authorized shares to be purchased were 1,000,000.
|
| (7) |
The share purchase authorization in place for the month ended August 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of August 31, 2022, the remaining authorized shares to be purchased were
1,000,000.
|
| (8) |
The share purchase authorization in place for the month ended September 30, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of September 30, 2022, the remaining authorized shares to be purchased were
1,000,000.
|
| (9) |
The share purchase authorization in place for the month ended October 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of October 31, 2022, the remaining authorized shares to be purchased were
1,000,000.
|
| (10) |
The share purchase authorization in place for the month ended November 30, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of November 30, 2022, the remaining authorized shares to be purchased were
1,000,000.
|
| (11) |
The share purchase authorization in place for the month ended December 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of December 31, 2022, the remaining authorized shares to be purchased were
1,000,000.
|
The timing and expiration date of the current stock repurchase authorizations are included in Note 11, “Stockholders’ Equity” to
our unaudited consolidated financial statements included elsewhere in this report.
Not Applicable.
Not Applicable.
None.
|
Exhibit
Number
|
Exhibit Description
|
|
|
ePlus inc. Amended and Restated Certificate of Incorporation, as last amended November 9, 2021 (Incorporated herein by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the period
ended December 31, 2021).
|
||
|
Amended and Restated Bylaws of ePlus inc., as of March 2, 2022. (Incorporated herein by reference to Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2022).
|
||
|
First Amendment to First Amended and Restated Credit Agreement, dated as of October 31, 2022, by and among ePlus Technology, inc., ePlus
Technology Services inc., SLAIT Consulting, LLC, certain of ePlus inc. subsidiaries as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent and the Lenders party
thereto. (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on November 3, 2022).*
|
||
|
Certification of the Chief Executive Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) filed herewith.
|
||
|
Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) filed herewith.
|
||
|
Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350 furnished herewith.
|
||
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
104
|
Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document)
|
* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish a copy of any omitted schedule or exhibit to the
SEC upon request; provided, however, that the registrant may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
ePlus inc.
|
|||
|
Date: February 7, 2023
|
/s/ MARK P. MARRON
|
||
|
By:
|
Mark P. Marron
|
||
|
Chief Executive Officer and President
|
|||
|
(Principal Executive Officer)
|
|||
|
Date: February 7, 2023
|
/s/ ELAINE D. MARION
|
||
|
By:
|
Elaine D. Marion
|
||
|
Chief Financial Officer
|
|||
|
(Principal Financial Officer)
|
|||
48
Exhibit 31.1
CERTIFICATION
I, Mark P. Marron, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of ePlus inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:
|
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
|
| d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
|
| a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
|
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
| Date: February 7, 2023 | |
|
/s/ MARK P. MARRON
|
|
|
Mark P. Marron
|
|
|
Chief Executive Officer and President
|
|
|
(Principal Executive Officer)
|
Exhibit 31.2
CERTIFICATION
I, Elaine D. Marion, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of ePlus inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:
|
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
|
| d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
|
| a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
|
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
| Date: February 7, 2023 | |
|
/s/ ELAINE D. MARION
|
|
|
Elaine D. Marion
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 USC. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ePlus inc. on Form 10-Q for the quarter ended December 31, 2022, as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), Mark P. Marron, Chief Executive Officer and President and Elaine D. Marion Chief Financial Officer, each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to his or her best knowledge:
| a) |
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
| b) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ePlus inc.
|
Date: February 7, 2023
|
/s/ MARK P. MARRON
|
|
|
Mark P. Marron, Chief Executive Officer
and President
|
|
|
(Principal Executive Officer)
|
|
|
/s/ ELAINE D. MARION
|
|
|
Elaine D. Marion, Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
A signed original of this written statement required by Section 906 has been provided to ePlus and will be retained by us and furnished to the Securities and Exchange
Commission or its staff upon request.