Eplus Inc 10-Q for FY2023 Q2
Eplus Inc (PLUS)
10-Q
2022-11-03
For: 2022-09-30
View Original
Added on
April 12, 2026
About this 10-Q
Eplus Inc filed this 10-Q on November 3, 2022, covering the quarter ended September 30, 2022 (FY2023 Q2).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $493.71M
- up 7.8% from $458.02M a year earlier
- Net income
- $28.47M
- down 9.4% from net income of $31.41M a year earlier
- Diluted EPS
- $1.07
- down 8.5% from $1.17 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 September 30, 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: 1-34167
(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 November 1, 2022, was 26,906,709 .
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TABLE OF CONTENTS
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ePlus inc. AND SUBSIDIARIES
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Part I. Financial Information:
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Item 1.
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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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43
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Item 4.
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43
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Part II. Other Information:
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Item 1.
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44
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Item 1A.
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44
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Item 2.
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44
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Item 3.
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45
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Item 4.
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45
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Item 5.
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45
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Item 6.
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46
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47
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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:
| • |
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 which 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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supply chain issues, including a shortage of 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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the duration and ongoing impact of the novel coronavirus (“COVID-19”) pandemic, including but not limited to the impact and severity of new variants, vaccine efficacy, and
immunization rates, the closure of non-essential businesses and other associated governmental containment actions, and the increase in cyber-security 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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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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the creditworthiness of our customers and our ability to reserve adequately for credit losses;
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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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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 Information Technology (“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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adapting to meet changes in markets and competitive developments;
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increasing the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
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managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
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increasing 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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performing 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, and 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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maintaining our proprietary software and updating 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;
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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, license 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”).
(in thousands, except per share amounts)
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September 30, 2022
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March 31, 2022
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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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Accounts receivable—trade, net
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Accounts receivable—other, net
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Inventories
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Financing receivables—net, current
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Deferred costs
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Other current assets
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Total current assets
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Financing receivables and operating leases—net
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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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Other intangible assets—net
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TOTAL ASSETS
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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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Current liabilities:
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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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COMMITMENTS AND CONTINGENCIES (Note 9)
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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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Retained earnings
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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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)
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Total Stockholders’ Equity
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||||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$
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$
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||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands, except per share amounts)
|
Three Months Ended
September 30,
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Six Months Ended
September 30,
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|||||||||||||||
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2022
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2021
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2022
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2021
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|||||||||||||
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Net sales
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||||||||||||||||
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Product
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$
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$
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$
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$
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||||||||
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Services
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||||||||||||
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Total
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Cost of sales
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Product
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Services
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Total
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||||||||||||
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Gross profit
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Selling, general, and administrative
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Depreciation and amortization
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Interest and financing costs
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Operating expenses
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Operating income
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||||||||||||
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Other income (expense)
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
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Earnings before tax
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|
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||||||||||||
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Provision for income taxes
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|
||||||||||||
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Net earnings
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
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Net earnings per common share—basic
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$
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$
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$
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$
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||||||||
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Net earnings per common share—diluted
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$
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$
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$
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$
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||||||||
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Weighted average common shares outstanding—basic
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||||||||||||
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Weighted average common shares outstanding—diluted
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|
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|
||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
|
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
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NET EARNINGS
|
$
|
|
$
|
|
$
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|
$
|
|
||||||||
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OTHER COMPREHENSIVE INCOME, NET OF TAX:
|
||||||||||||||||
|
Foreign currency translation adjustments
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(
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)
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(
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)
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(
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)
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(
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)
|
||||||||
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Other comprehensive income (loss)
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(
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)
|
(
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)
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(
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)
|
(
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)
|
||||||||
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TOTAL COMPREHENSIVE INCOME
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
|
Six Months Ended September 30,
|
||||||||
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2022
|
2021
|
|||||||
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Cash flows from operating activities:
|
||||||||
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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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|
||||||
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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
|
( |
) | ||||||
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Payments from lessees directly to lenders—operating leases
|
|
(
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)
|
|||||
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Gain on disposal of property, equipment, and operaing lease equipment
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(
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)
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(
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)
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||||
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Changes in:
|
||||||||
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Accounts receivable
|
(
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)
|
(
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)
|
||||
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Inventories-net
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(
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)
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(
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)
|
||||
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Financing receivables—net
|
(
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)
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(
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)
|
||||
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Deferred costs and other assets
|
(
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)
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(
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)
|
||||
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Accounts payable-trade
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(
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)
|
|||||
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Salaries and commissions payable, deferred revenue, and other liabilities
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|
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||||||
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Net cash used in operating activities
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(
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)
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(
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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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)
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(
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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
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(
|
)
|
(
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)
|
||||
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Cash flows from financing activities:
|
||||||||
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Borrowings of non-recourse and recourse notes payable
|
|
|
||||||
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Repayments of non-recourse and recourse notes payable
|
(
|
)
|
(
|
)
|
||||
|
Repurchase of common stock
|
(
|
)
|
(
|
)
|
||||
|
Net borrowings (repayments) 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)
|
Six Months Ended September 30,
|
||||||||
|
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
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Consideration for acquisitions
|
$ |
( |
) | $ |
||||
|
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)
|
Six Months Ended September 30, 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
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net earnings
|
-
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Balance, September 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
|
Six Months Ended September 30, 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
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
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 six months ended September 30, 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
six months ended September 30, 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 40 % of our technology segment’s net sales for the three
months ended September 30, 2022, and 2021, respectively, and 37 % and 41 % of our technology segment’s net sales for the six months ended September 30, 2022, and 2021, respectively.
STOCK
SPLIT — On December 13, 2021, we completed a two -for-one stock split in the form of a stock dividend. References made to outstanding
shares or per share amounts in the accompanying financial statements and disclosures have been retroactively adjusted for this stock split.
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 2021-08, Business combinations (Topic 805): Accounting for contract assets and contract liabilities from contracts with customers (“ASU
2021-08”) that requires companies to apply Accounting Standards Codification Topic 606, Contracts with customers (“ASC Topic 606”) to recognize and measure contract assets and contract liabilities from
contracts with customers acquired in a business combination. We early adopted this accounting standard update beginning in the second quarter of our fiscal year 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.
| 3. |
REVENUES
|
CONTRACT BALANCES
Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we
had $62.3 million and $47.5 million of receivables from contracts with customers included within financing
receivables as of September 30, 2022, and March 31, 2022, respectively. The following table provides the
balance of contract liabilities from contracts with customers (in thousands):
|
September 30, 2022
|
March 31, 2022
|
|||||||
|
Current (included in deferred revenue)
|
$
|
|
$
|
|
||||
|
Non-current (included in other liabilities)
|
$
|
|
$
|
|
||||
Revenue recognized from the beginning contract liability balance was $17.5
million and $42.4 million for the three and six months ended September 30, 2022, respectively, and $14.6 million and $36.1 million for the
three and six months ended September 30, 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 six months ended September 30, 2022, and 2021 (in thousands):
|
Three months ended September 30,
|
Six months ended September 30,
|
|||||||||||||||
|
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 six months ended September
30, 2022, and 2021 (in thousands):
|
Three months ended September 30,
|
Six months ended September 30,
|
|||||||||||||||
|
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 | ||||||||||
|
September 30,
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):
| September 30, | March 31, | |||||||
|
2022
|
2022
|
|||||||
|
Cost of equipment under operating leases
|
$
|
|
$
|
|
||||
|
Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Investment in operating lease equipment—net (1)
|
$
|
|
$
|
|
||||
| (1) |
|
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 September 30, 2022, and
March 31, 2022, we had financing receivables of $20.2 million and $21.1 million, respectively, and operating leases of $1.7
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 September 30, 2022, and 2021, we recognized net gains of $8.1 million and $10.1 million, respectively, and total proceeds from these sales were $376.4 million and $615.0 million,
respectively. For the year to date periods ended September 30, 2022, and 2021, we recognized net gains of $9.9 million and $13.3 million, respectively, and total proceeds from these sales were $428.9 million and $690.3 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 September 30, 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 September 30, 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 $1.2 million as part of selling, general and administrative expenses for the three months ended September 30, 2022, and $1.3 million for the three months ending September 30, 2021, and $2.5 million and $2.6 million for the six months ended September 30, 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 six months ended
September 30, 2022 (in thousands):
|
Six months ended September 30, 2022
|
||||||||||||
|
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 September 30, 2022, relates to our technology segment, which we also determined to be one reporting unit. The carrying value of goodwill was $135.9 and $126.5 million as of September
30, 2022, and March 31, 2022, respectively. Our goodwill balance increased by $9.4 million over the six months ended September 30, 2022,
due to $9.7 million in goodwill additions from our acquisition of Future Com, Ltd., offset by foreign currency translation of $0.3 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 prior year annual test as of October 1, 2021, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the
fair value of our technology reporting unit continued to substantially exceed its carrying value.
OTHER INTANGIBLE ASSETS
Our other intangible assets consist of the following on September
30, 2022, and March 31, 2022 (in thousands):
|
September 30, 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 intangibles, are generally amortized
between 5 to 10 years. Capitalized software development is generally amortized over 5 years.
Total amortization expense for purchased intangibles was $2.5
million for the three months ended September 30, 2022, and $2.7 million for the three months ended September 30, 2021, and $4.7 million and $5.4 million for the six
months ended September 30, 2022, and 2021, respectively.
| 7. |
ALLOWANCE FOR CREDIT LOSSES
|
The following table provides the activity in our allowance for credit losses for the six months ended September 30, 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 September 30,
2022
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Accounts
Receivable
|
Notes
Receivable
|
Lease
Receivables
|
Total
|
|||||||||||||
|
Balance April 1, 2021
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for credit losses
|
|
|
(
|
)
|
|
|||||||||||
|
Write-offs and other
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Balance September 30,
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 less than
|
|
•
|
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 in the range of
|
The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of September 30, 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 September 30, 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 September 30, 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. Under this agreement, 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 $136.2
million and $145.3 million as of September 30, 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 $85.0
million outstanding as of September 30, 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 September 30, 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 LIBOR plus 1.75 %. The LIBOR rate is based upon one-month, three-month, six-month, and 12-month LIBOR periods, as selected by the Borrowers, and subject to a floor of 0.00 %.
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 September 30, 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 by
providing a written termination notice to the other party no less than 90 days prior to such termination.
On October 31, 2022, the Borrowers executed an amendment to the WFCDF Credit Facility that increased the limit on the aggregate principal amount to $425.0 million and increased the sublimit on the revolving credit facility up to $150.0 million. Additionally, this amendment converted all of the Borrower’s loans from a LIBOR rate to a Term SOFR rate.
RECOURSE NOTES PAYABLE
Recourse notes payable consist of borrowings that the lender has recourse against us. As of September 30, 2022, we had $94.7 million in recourse notes payable consisting of $85.0 million outstanding under the revolving
credit facility component of our WFCDF Credit Facility, and $9.7 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
consists 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 September 30, 2022, and March 31, 2022, we had $20.8 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 4.09 %
and 3.59 %, as of September 30, 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 September 30, 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 the 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 six months ended September 30, 2022, and 2021, respectively (in thousands, except per share data).
|
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
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 six months ended September 30, 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 six months ended September 30, 2021,
we purchased 98,056 shares of our outstanding common stock at a value of $4.3 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 September 30, 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 issuing 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 six months ended September 30, 2022, we granted 15,954 shares of our stock under the 2017
Director LTIP, and 138,643 restricted shares of our stock under the 2021 Employee LTIP. For the six months ended September 30, 2021, we
granted 12,786 shares of our stock under the 2017 Director LTIP, and 155,722 restricted shares of our stock under the 2012 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 September 30,
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 discounted purchase price of up to 85 % of the
lesser of the closing price on the offering date or closing price on the purchase date. As of September 30, 2022, we have not had any offerings 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 September 30, 2022, and 2021, we recognized $2.0 million and $1.8 million of total share-based compensation expense, respectively. During the six months ended September 30, 2022, and 2021, we recognized $3.7 million and $3.6 million of total
share-based compensation expense, respectively. Unrecognized compensation expense related to unvested restricted stock was $13.5 million
as of September 30, 2022, which will be fully recognized over the next 33 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. Our estimated contribution expense to the plan was $1.0 2.0 million and $1.8 million, respectively.
| 13. |
INCOME TAXES
|
Our provision for income tax expense was $11.8 million and $20.5 million for the three and six months ended September 30, 2022, as compared to $12.6 million and $21.6 for the same period in the prior year. Our effective
tax rate for the three and six months ended September 30, 2022, was 29.3 % and 28.7 % respectively, compared with 28.6 % and 28.2 %, respectively, for the same periods in the prior year. The effective tax rate for the three and six months ended September 30, 2022, and
September 30, 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 September 30, 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)
|
|||||||||||||
|
September 30, 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 preliminary sum for consideration transferred is $
|
Acquisition Date
Amount
|
||||
|
Accounts receivable
|
$
|
|
||
|
Other assets
|
|
|||
|
Identified intangible assets
|
|
|||
|
Accounts payable and other current 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.
As of our filing date, our accounting for this business combination is
incomplete in respect to determining the final consideration transferred and the fair value of assets acquired, and liabilities assumed.
| 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 six-month periods ended September 30, 2022, and 2021 are summarized in the following table (in thousands):
|
Three Months Ended
|
||||||||||||||||||||||||
|
September 30, 2022
|
September 30, 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)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Six Months Ended
|
||||||||||||||||||||||||
|
September 30, 2022
|
September 30, 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)
|
(
|
)
|
(
|
)
|
||||||||||||||||||||
|
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 six-month periods ended September 30, 2022, and 2021 in the tables below (in thousands):
|
Three Months Ended September 30,
|
Six Months Ended September 30,
|
|||||||||||||||
|
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 September 30,
|
Six Months Ended September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Vendor:
|
||||||||||||||||
|
Cisco systems
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Juniper networks
|
|
|
|
|
||||||||||||
|
HPE
|
|
|
|
|
||||||||||||
|
NetApp
|
|
|
|
|
||||||||||||
|
Dell EMC
|
||||||||||||||||
|
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 financial statements included in this
quarterly report on Form 10-Q and 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.
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 on 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 ePlus 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 ePlus to deploy sophisticated solutions enabling 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 accounts 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 79% of our operating income, while our financing segment accounted
for 3% of our net sales and 21% of our operating income, for the six months ended September 30, 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, COVID variants, 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 services 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. There can be no assurances that inflation will not 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.
|
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, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross billings, and Non-GAAP Net earnings per 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. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
Our key business metrics for the three- and six-month periods ended September 30, 2022, and 2021 are summarized in the following tables (dollars in thousands):
|
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
Consolidated
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Net sales
|
$
|
493,706
|
$
|
458,017
|
$
|
952,065
|
$
|
874,666
|
||||||||
|
|
||||||||||||||||
|
Gross profit
|
$
|
133,304
|
$
|
123,002
|
$
|
246,827
|
$
|
228,514
|
||||||||
|
Gross margin
|
27.0
|
%
|
26.9
|
%
|
25.9
|
%
|
26.1
|
%
|
||||||||
|
Operating income margin
|
8.9
|
%
|
9.7
|
%
|
8.1
|
%
|
8.8
|
%
|
||||||||
|
|
||||||||||||||||
|
Net earnings
|
$
|
28,469
|
$
|
31,413
|
$
|
50,808
|
$
|
54,931
|
||||||||
|
Net earnings margin
|
5.8
|
%
|
6.9
|
%
|
5.3
|
%
|
6.3
|
%
|
||||||||
|
Net earnings per common share - diluted
|
$
|
1.07
|
$
|
1.17
|
$
|
1.91
|
$
|
2.04
|
||||||||
|
|
||||||||||||||||
|
Non-GAAP: Net earnings (1)
|
$
|
34,396
|
$
|
34,806
|
$
|
60,909
|
$
|
61,159
|
||||||||
|
Non-GAAP: Net earnings per common share - diluted (1)
|
$
|
1.29
|
$
|
1.30
|
$
|
2.28
|
$
|
2.28
|
||||||||
|
|
||||||||||||||||
|
Adjusted EBITDA (2)
|
$
|
50,304
|
$
|
50,195
|
$
|
88,608
|
$
|
88,467
|
||||||||
|
Adjusted EBITDA margin
|
10.2
|
%
|
11.0
|
%
|
9.3
|
%
|
10.1
|
%
|
||||||||
|
Technology Segment
|
||||||||||||||||
|
Net sales
|
$
|
471,478
|
$
|
436,301
|
$
|
920,263
|
$
|
836,659
|
||||||||
|
Adjusted gross billings (3)
|
$
|
765,762
|
$
|
664,124
|
$
|
1,467,705
|
$
|
1,297,131
|
||||||||
|
|
||||||||||||||||
|
Gross profit
|
$
|
116,275
|
$
|
105,078
|
$
|
221,926
|
$
|
200,511
|
||||||||
|
Gross margin
|
24.7
|
%
|
24.1
|
%
|
24.1
|
%
|
24.0
|
%
|
||||||||
|
|
||||||||||||||||
|
Operating income
|
$
|
31,903
|
$
|
30,251
|
$
|
61,122
|
$
|
55,474
|
||||||||
|
Adjusted EBITDA (2)
|
$
|
38,012
|
$
|
36,059
|
$
|
72,266
|
$
|
67,017
|
||||||||
|
Financing Segment
|
||||||||||||||||
|
Net sales
|
$
|
22,228
|
$
|
21,716
|
$
|
31,802
|
$
|
38,007
|
||||||||
|
|
||||||||||||||||
|
Gross profit
|
$
|
17,029
|
$
|
17,924
|
$
|
24,901
|
$
|
28,003
|
||||||||
|
|
||||||||||||||||
|
Operating income
|
$
|
12,204
|
$
|
14,052
|
$
|
16,168
|
$
|
21,281
|
||||||||
|
Adjusted EBITDA (2)
|
$
|
12,292
|
$
|
14,136
|
$
|
16,342
|
$
|
21,450
|
||||||||
| (1) |
Non-GAAP Net earnings and Non-GAAP Net earnings per common share – diluted is based on net earnings calculated in accordance with 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 per common share 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 and
acquisition-related amortization expense in calculating Non-GAAP Net earnings per common share 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 per common share 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 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
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
GAAP: Earnings before tax
|
$
|
40,241
|
$
|
43,978
|
$
|
71,271
|
$
|
76,553
|
||||||||
|
Share based compensation
|
1,958
|
1,840
|
3,731
|
3,575
|
||||||||||||
|
Acquisition related amortization expense
|
2,494
|
2,661
|
4,677
|
5,357
|
||||||||||||
|
Other expense
|
3,866
|
325
|
6,019
|
202
|
||||||||||||
|
Non-GAAP: Earnings before provision for income taxes
|
48,559
|
48,804
|
85,698
|
85,687
|
||||||||||||
|
GAAP: Provision for income taxes
|
11,772
|
12,565
|
20,463
|
21,622
|
||||||||||||
|
Share based compensation
|
572
|
528
|
1,080
|
1,024
|
||||||||||||
|
Acquisition related amortization expense
|
720
|
750
|
1,337
|
1,507
|
||||||||||||
|
Other expense
|
1,128
|
93
|
1,744
|
58
|
||||||||||||
|
Tax benefit (expense) on restricted stock
|
(29
|
)
|
62
|
165
|
317
|
|||||||||||
|
Non-GAAP: Provision for income taxes
|
14,163
|
13,998
|
24,789
|
24,528
|
||||||||||||
|
Non-GAAP: Net earnings
|
$
|
34,396
|
$
|
34,806
|
$
|
60,909
|
$
|
61,159
|
||||||||
|
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
GAAP: Net earnings per common share - diluted
|
$
|
1.07
|
$
|
1.17
|
$
|
1.91
|
$
|
2.04
|
||||||||
|
Share based compensation
|
0.05
|
0.05
|
0.09
|
0.10
|
||||||||||||
|
Acquisition related amortization expense
|
0.07
|
0.07
|
0.13
|
0.14
|
||||||||||||
|
Other expense
|
0.10
|
0.01
|
0.16
|
0.01
|
||||||||||||
|
Tax expense on restricted stock
|
-
|
-
|
(0.01
|
)
|
(0.01
|
)
|
||||||||||
|
Total non-GAAP adjustments - net of tax
|
0.22
|
0.13
|
0.37
|
0.24
|
||||||||||||
|
Non-GAAP: Net earnings per common share - diluted
|
$
|
1.29
|
$
|
1.30
|
$
|
2.28
|
$
|
2.28
|
||||||||
| (2) |
We define Adjusted EBITDA as net earnings calculated in accordance with 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 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. We provide below 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. The presentation of Adjusted EBITDA has been changed from prior period presentations to include adjustments for expenses related
to acquisitions such as legal, accounting, tax, and adjustments to the fair value of contingent purchase price consideration as well as stock compensation.
|
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 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
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
Consolidated
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Net earnings
|
$
|
28,469
|
$
|
31,413
|
$
|
50,808
|
$
|
54,931
|
||||||||
|
Provision for income taxes
|
11,772
|
12,565
|
20,463
|
21,622
|
||||||||||||
|
Share based compensation
|
1,958
|
1,840
|
3,731
|
3,575
|
||||||||||||
|
Interest and financing costs
|
671
|
199
|
809
|
358
|
||||||||||||
|
Depreciation and amortization
|
3,568
|
3,853
|
6,778
|
7,779
|
||||||||||||
|
Other income
|
3,866
|
325
|
6,019
|
202
|
||||||||||||
|
Adjusted EBITDA
|
$
|
50,304
|
$
|
50,195
|
$
|
88,608
|
$
|
88,467
|
||||||||
|
Technology Segment
|
||||||||||||||||
|
Operating income
|
$
|
31,903
|
$
|
30,251
|
$
|
61,122
|
$
|
55,474
|
||||||||
|
Depreciation and amortization
|
3,540
|
3,825
|
6,722
|
7,723
|
||||||||||||
|
Share based compensation
|
1,898
|
1,784
|
3,613
|
3,462
|
||||||||||||
|
Interest and financing costs
|
671
|
199
|
809
|
358
|
||||||||||||
|
Adjusted EBITDA
|
$
|
38,012
|
$
|
36,059
|
$
|
72,266
|
$
|
67,017
|
||||||||
|
Financing Segment
|
||||||||||||||||
|
Operating income
|
$
|
12,204
|
$
|
14,052
|
$
|
16,168
|
$
|
21,281
|
||||||||
|
Depreciation and amortization
|
28
|
28
|
56
|
56
|
||||||||||||
|
Share based compensation
|
60
|
56
|
118
|
113
|
||||||||||||
|
Adjusted EBITDA
|
$
|
12,292
|
$
|
14,136
|
$
|
16,342
|
$
|
21,450
|
||||||||
| (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
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Technology segment net sales
|
$
|
471,478
|
$
|
436,301
|
$
|
920,263
|
$
|
836,659
|
||||||||
|
Costs incurred related to sales of third party maintenance, software assurance and subscription/SaaS licenses, and services
|
294,284
|
227,823
|
547,442
|
$
|
460,472
|
|||||||||||
|
Adjusted gross billings
|
$
|
765,762
|
$
|
664,124
|
$
|
1,467,705
|
$
|
1,297,131
|
||||||||
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 for the three months ended September 30, 2022, increased $35.7 million, or
7.8%, to $493.7 million, as compared to $458.0 million for the same period in the prior year. Product sales for the three months ended September 30, 2022, increased
$31.4 million, or 7.9% to $428.6 million, as compared to $397.2 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 September 30, 2022, increased $4.3 million, or 7.1%, to $65.2 million, as compared
to $60.9 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, 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 healthcare
due to the timing of fulfilling orders from existing customers during the three months ended September 30, 2022, compared to the same period in the prior year.
Net sales for the six months ended September 30, 2022, increased $77.4 million, or
8.8%, to $952.1 million, as compared to $874.7 million for the same period in the prior year. Product sales for the six months ended September 30, 2022, increased
$65.6 million, or 8.6%, to $823.8 million, as compared to $758.2 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 six months ended September 30, 2022, increased $11.9 million, or 10.2%, to $128.3 million, as
compared to $116.4 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, and professional services 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 healthcare and manufacturing due to the timing of fulfilling orders from existing customers during the six months ended September 30, 2022, compared to the same
period in the prior year.
Adjusted gross billings for the three months ended September 30, 2022, increased $101.7 million, or 15.3%, to $765.8 million, as compared to $664.1 million for the same period in the prior year. We had increases in
adjusted gross billings to customers in technology, telecom, media and entertainment, financial services, and SLED, which were partially offset by decreases in adjusted gross billings to customers in the healthcare market.
Adjusted gross billings for the six months ended September 30, 2022, increased $170.6 million, or 13.2%, to $1,467.7 million, as compared to $1,297.1 million for the same period in the prior year. We had increases in
adjusted gross billings to customers in technology, telecom, media and entertainment, financial services, and SLED, which were partially offset by decreases in adjusted gross billings to customers in the healthcare market.
Consolidated gross profit for the three months ended September 30, 2022, increased $10.3 million, or 8.4%, to $133.3 million, as compared to $123.0
million for the same period in the prior year. Our increase in gross margins was due to an increase in product margins, due to a higher volume of sales of third-party maintenance, software assurance and subscription/SaaS licenses, and services,
offset by lower service margins due to increases in third-party costs. Consolidated gross margins for the three months ended September 30, 2022, increased 10 basis points to 27.0%, as compared to 26.9% for the same period in the prior year. Our
increase in gross margins was primarily due to an increase in product margins, partially offset by a decrease in service margins.
Consolidated gross profit for the six months ended September 30, 2022, increased $18.3 million, or 8.0%, to $246.8 million, as compared to $228.5 million
for the same period in the prior year. Our increase in gross margins was due to an increase in product margins, due to a higher volume of sales of third-party maintenance, software assurance and subscription/SaaS licenses, and services, offset by
lower service margins due to increases in third party costs. Consolidated gross margins for the six months ended September 30, 2022, decreased 20 basis points to 25.9%, as compared to the same period in the prior year. Our decrease in gross margins
was primarily due to a decrease in service margins.
Operating expenses for the three months ended September 30, 2022, increased $10.5 million, or 13.3%, to $89.2 million, as compared to $78.7 million for the same period in the prior year. Our increase in operating expenses was primarily due to
$5.8 million in higher salaries and benefits, $3.7 million in higher general and administrative expenses including higher advertising and marketing fees and higher travel and entertainment costs, $0.7 million in a higher provision for credit losses
caused by an increase in our receivables over this period compared to a decrease in our receivables over the same period in the prior year, $0.6 million in higher interest and financing costs, and partially offset by a $0.3 million decrease in
depreciation and amortization. As of September 30, 2022, we had 1,729 employees, an increase of 175 from 1,554 as of September 30, 2021.
Operating expenses for the six months ended September 30, 2022, increased $17.8 million, or 11.7%, to $169.6 million, as compared to $151.8 million for the same period in the prior year. Our increase in operating expenses was primarily due to
$9.8 million in salaries and benefits, $6.8 million in higher general and administrative expenses including higher advertising and marketing fees and higher travel and entertainment costs, $1.6 million in a higher provision for credit losses caused
by an increase in our receivables over this period compared to a decrease in our receivables over the same period in the prior year, $0.6 million in higher interest and financing costs, and partially offset by a $1.0 million decrease in
depreciation and amortization.
As a result of the foregoing, operating income for the three months ended September 30, 2022, decreased $0.2 million, or 0.4%, to $44.1 million, as compared to $44.3
million for the same period in the prior year. Operating income for the six months ended September 30, 2022, increased $0.5 million, or 0.7%, to $77.3 million, as compared
to $76.8 million for the same period in the prior year.
Our effective tax rate for the three and six months ended September 30, 2022, was 29.3% and 28.7% respectively, compared with 28.6% and 28.2%,
respectively, for the same periods in the prior year. The change in our effective income tax rate for the three and six months ended September 30, 2022, compared to the same periods in the prior year was primarily due to foreign currency losses
incurred in lower tax jurisdictions.
Consolidated net earnings for the three months ended September 30, 2022, decreased $2.9 million, or 9.4%, to $28.5 million, as compared to $31.4 million for the same period in the prior year, due to the increase in operating expenses and foreign exchange losses, partially offset by an increase in gross profit. Consolidated net earnings
for the six months ended September 30, 2022, decreased $4.1 million, or 7.5%, to $50.8 million, as compared to $54.9 million for the
same period in the prior year, due to the increase in operating expenses and foreign exchange losses, partially offset by an increase in gross profit.
Adjusted EBITDA for the three months ended September 30, 2022, increased $0.1 million, or 0.2%, to $50.3 million, as compared to $50.2 million for the same period in the prior year. Adjusted EBITDA margin for the
three months ended September 30, 2022, decreased 80 basis points to 10.2%, as compared to the prior year period of 11.0%.
Adjusted EBITDA for the six months ended September 30, 2022, increased $0.1 million, or 0.2%, to $88.6 million, as compared to $88.5 million for the same period in the prior year. Adjusted EBITDA margin for the six
months ended September 30, 2022, decreased 80 basis points to 9.3%, as compared to the prior year period of 10.1%.
Diluted earnings per share for the three months ended September 30, 2022, decreased $0.10, or 8.5%, to $1.07 per share, as compared to $1.17 per share for same period in the prior year. Non-GAAP diluted earnings per share for the three months
ended September 30, 2022, decreased $0.01, or 0.8%, to $1.29, as compared to $1.30 for the same period in the prior year.
Diluted earnings per share for the six months ended September 30, 2022, decreased $0.13, or 6.4%, to $1.91 per share, as compared to $2.04 per share for same period in the prior year. Non-GAAP diluted earnings per share for the six months ended
September 30, 2022, remained flat at $2.28, as compared to the same period in the prior year.
Cash and cash equivalents decreased $55.8 million, or 35.9%, to $99.5 million as of September 30, 2022, as compared to $155.4 million as of March 31, 2022. Our decrease in cash and cash equivalents was due
to increases in our accounts receivable and inventory, and $13.0 million paid for the acquisition of Future Com, Ltd, partially offset by borrowings on our revolving credit facility. Additional uses of cash
during the six months ended September 30, 2022, included cash paid of $7.2 million to repurchase outstanding shares of our common stock as part of our share repurchase plan and to
satisfy the minimum tax withholding requirements on employee stock awards.
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
|
| • |
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 whenever we can find both experienced personnel and desirable geographic areas over the longer term and opening new facilities, which may impact our operating results.
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.
SEGMENT RESULTS OF OPERATIONS
The three and six months ended September 30, 2022, compared to the three and six months ended September 30, 2021
TECHNOLOGY SEGMENT
The results of operations for our technology segment were as follows (dollars in thousands):
|
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net sales
|
||||||||||||||||
|
Product
|
$
|
406,317
|
$
|
375,444
|
$
|
791,993
|
$
|
720,210
|
||||||||
|
Services
|
65,161
|
60,857
|
128,270
|
116,449
|
||||||||||||
|
Total
|
471,478
|
436,301
|
920,263
|
836,659
|
||||||||||||
|
Cost of sales
|
||||||||||||||||
|
Product
|
311,928
|
293,837
|
614,436
|
564,852
|
||||||||||||
|
Services
|
43,275
|
37,386
|
83,901
|
71,296
|
||||||||||||
|
Total
|
355,203
|
331,223
|
698,337
|
636,148
|
||||||||||||
|
Gross profit
|
116,275
|
105,078
|
221,926
|
200,511
|
||||||||||||
|
Selling, general, and administrative
|
80,161
|
70,803
|
153,273
|
136,956
|
||||||||||||
|
Depreciation and amortization
|
3,540
|
3,825
|
6,722
|
7,723
|
||||||||||||
|
Interest and financing costs
|
671
|
199
|
809
|
358
|
||||||||||||
|
Operating expenses
|
84,372
|
74,827
|
160,804
|
145,037
|
||||||||||||
|
Operating income
|
$
|
31,903
|
$
|
30,251
|
$
|
61,122
|
$
|
55,474
|
||||||||
|
Adjusted gross billings
|
$
|
765,762
|
$
|
664,124
|
$
|
1,467,705
|
$
|
1,297,131
|
||||||||
|
Adjusted EBITDA
|
$
|
38,012
|
$
|
36,059
|
$
|
72,266
|
$
|
67,017
|
||||||||
Net sales: Net sales for the three months ended September 30, 2022, increased $35.2 million, or 8.1%, to $471.5 million, as compared to $436.3 million for the same period
in the prior year, due to increases in net sales from customers in technology, telecom, media, and entertainment, and SLED, which were partially offset by decreases in net sales to customers in healthcare. Product sales for the three months ended
September 30, 2022, increased $30.9 million, or 8.2%, to $406.3 million. Service sales for the three months ended September 30, 2022, increased $4.3 million, or 7.1%, to $65.2 million, as compared to $60.9 million for the same period in the prior year, due to an increase in managed services.
Net sales for the six months ended September 30, 2022, increased $83.6 million, or 10.0%, to $920.3 million, as compared to $836.7 million for the same period in the prior year.
Product sales for the six months ended September 30, 2022, increased 10.0%, or $71.8 million to $792.0 million, as compared to $720.2 million for the same period in the prior year, and service revenue increased by 10.2%, or $11.9 million, to
$128.3 million, as compared to $116.4 million during the same period in the prior year.
Adjusted gross billings for the three months ended September 30, 2022, increased $101.7 million, or 15.3%, to $765.8 million, as compared to $664.1 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 six months ended September 30, 2022, increased $170.6 million, or 13.2%, to $1,467.7 million, as compared to $1,297.1 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 September 30, 2022, we had open orders of $1.0 billion and deferred revenue of $148.5 million. As of September 30, 2021, we had
open orders of $707.1 million and deferred revenue of $110.0 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 September 30,
2022, and 2021 are summarized below:
|
Twelve Months Ended
September 30,
|
||||||||||||
|
Net sales by customer end market:
|
2022
|
2021
|
Change
|
|||||||||
|
Telecom, Media & Entertainment
|
29
|
%
|
28
|
%
|
1
|
%
|
||||||
|
Technology
|
16
|
%
|
14
|
%
|
2
|
%
|
||||||
|
Healthcare
|
14
|
%
|
15
|
%
|
(1
|
%)
|
||||||
|
SLED
|
13
|
%
|
15
|
%
|
(2
|
%)
|
||||||
|
Financial Services
|
9
|
%
|
11
|
%
|
(2
|
%)
|
||||||
|
All others
|
19
|
%
|
17
|
%
|
2
|
%
|
||||||
|
Total
|
100
|
%
|
100
|
%
|
||||||||
|
Twelve Months Ended
September 30,
|
||||||||||||
|
Net sales by vendor:
|
2022
|
2021
|
Change
|
|||||||||
|
Cisco Systems
|
37
|
%
|
36
|
%
|
1
|
%
|
||||||
|
Dell EMC
|
9
|
%
|
8
|
%
|
1
|
%
|
||||||
|
Juniper Networks
|
6
|
%
|
6
|
%
|
0
|
%
|
||||||
|
NetApp
|
5
|
%
|
5
|
%
|
0
|
%
|
||||||
|
HPE
|
3
|
%
|
2
|
%
|
1
|
%
|
||||||
|
Arista Networks
|
2
|
%
|
3
|
%
|
(1
|
%)
|
||||||
|
All others
|
38
|
%
|
40
|
%
|
(2
|
%)
|
||||||
|
Total
|
100
|
%
|
100
|
%
|
||||||||
Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve month period ended September 30, 2022, we had an increase in the percentage of total revenues from customers in the telecom, media and entertainment, and technology industry, and decreases in the percentage of total revenues in healthcare,
SLED, and the financial services industry. 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 exceeded 5% of total revenues.
Cost of sales: Cost of sales for the three months ended September 30, 2022, increased $24.0 million, or 7.2%, to $355.2 million, as compared to $331.2 million for the same period in the prior year. Our gross
margin increased 60 basis points to 24.7% for the three months ended September 30, 2022, compared to
24.1% for the same period in the prior year. Our increase in gross margins was primarily due to higher product gross margin primarily from a higher proportion
of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services which are recognized on a net basis, partially offset by lower service gross margin from higher third-party costs.
Cost of sales for the six months ended September 30, 2022, increased 9.8% or $62.2 million
which is in-line with the increase in net sales. Our gross margin increased 10 basis
points to 24.1% for the six months ended September 30, 2022, compared to 24.0% for the same period in the prior year, primarily due to higher product margin
primarily from a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services which are recognized on a net basis, partially offset by lower service margin driven by higher third-party costs.
Selling, general, and administrative: Selling, general, and administrative expenses for the three months ended September 30, 2022, increased $9.4 million, or 13.2%, to $80.2 million, as compared to
$70.8 million for the same period in the prior year. Salaries and benefits for the three months ended September 30, 2022, increased $5.5 million,
or 9.0% to $66.3 million, as compared to $60.8 million for the same period in the prior year, mainly due to an increase in salaries and variable compensation that was
driven by increases in headcount. Our technology segment had 1,693 employees as of September 30, 2022, an increase of 171 from 1,522 as of September 30, 2021, driven by increased demand for our services and the acquisition of Future Com, Ltd. We added 145 additional customer facing employees, of which 100 were professional services and technical support personnel.
General and administrative expenses for the three months ended September 30, 2022, increased $3.3 million, or 33.2%, to $13.2 million, as compared to $9.9 million for the same period in the prior year, due to higher advertising and marketing fees, professional service fees, and higher travel and entertainment costs.
Selling, general, and administrative expenses for the six months ended September 30, 2022, increased by $16.3 million, or 11.9%, to $153.3 million, as compared to $137.0 million for the same period in the prior year. Salaries and benefits for the six months ended September 30, 2022, increased $9.2 million, or 7.8% to $128.0 million, compared to $118.8 million during the same period in the prior year, mainly due to an
increase in salaries and variable compensation that was driven by increases in headcount. General and administrative expenses for the six months ended September 30, 2022, increased $6.2 million, or
33.8%, to $24.3 million, as compared to $18.1 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 September 30, 2022, decreased $0.3 million, or 7.5%, to $3.5 million, as compared
to $3.8 million for the same period in the prior year, primarily due to less amortization from intangible assets acquired in past acquisitions as the rate of amortization declines each year. Depreciation and
amortization for the six months ended September 30, 2022, decreased $1.0 million, or 13.0%, to $6.7 million, as compared to $7.7 million for the same period in the prior year.
Interest and financing costs: Interest and financing costs for the three and six months ended September 30, 2022, were $0.7 million and $0.8 million, respectively, an
increase of $0.5 million and $0.4 million, respectively, as compared to $0.2 million and $0.4 million, respectively, for the same periods in the prior year. The increase in interest expense is primarily due to an increase in borrowings from our
revolving credit facility, partially offset by a decrease in borrowings on an installment payment arrangement. We had $94.7 million of recourse debt in our technology segment as of September 30, 2022, compared to $44.9 million as of September 30,
2021.
Segment operating income: As a result of the foregoing, operating income for the three months ended September 30, 2022, increased $1.6 million, or 5.5%, to $31.9 million, as compared to $30.3 million for the same period in the prior year. Operating income for the six months ended
September 30, 2022, increased $5.6 million, or 10.2%, to $61.1 million, as compared to $55.5 million for the same period in the prior year.
Adjusted EBITDA for the three months ended September 30, 2022, increased $1.9 million, or 5.4%, to $38.0 million, as compared to $36.1 million for the same period in the prior year. Adjusted EBITDA for the six months ended September 30, 2022, increased $5.3 million, or 7.8%, to $72.3 million, as compared to $67.0 million for the same period in the prior year.
FINANCING SEGEMENT
The results of operations for our financing segment were as follows (dollars in thousands):
|
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net sales
|
$
|
22,228
|
$
|
21,716
|
$
|
31,802
|
$
|
38,007
|
||||||||
|
Cost of sales
|
5,199
|
3,792
|
6,901
|
10,004
|
||||||||||||
|
Gross profit
|
17,029
|
17,924
|
24,901
|
28,003
|
||||||||||||
|
Selling, general, and administrative
|
4,543
|
3,701
|
8,198
|
6,323
|
||||||||||||
|
Depreciation and amortization
|
28
|
28
|
56
|
56
|
||||||||||||
|
Interest and financing costs
|
254
|
143
|
479
|
343
|
||||||||||||
|
Operating expenses
|
4,825
|
3,872
|
8,733
|
6,722
|
||||||||||||
|
Operating income
|
$
|
12,204
|
$
|
14,052
|
$
|
16,168
|
$
|
21,281
|
||||||||
|
Adjusted EBITDA
|
$
|
12,292
|
$
|
14,136
|
$
|
16,342
|
$
|
21,450
|
||||||||
Net sales: Net sales for the three months ended September 30, 2022, increased $0.5 million, or 2.4%, to $22.2 million, as compared to
$21.7 million for the same period in the prior year. The increase in net sales was due to higher post contract earnings partially offset by lower portfolio earnings and transactional gains. For the three months ended September 30, 2022, we
recognized net gains on sales of financial assets of $8.1 million and proceeds from these sales were $376.4 million. For the three months ended September 30, 2021, net gains on the sale of financial assets were
$10.1 million and the proceeds from these sales were $615.0 million.
Net sales for the six months ended September 30, 2022, decreased $6.2 million, or 16.3%, to $31.8 million, as compared to $38.0 million for
the same period in the prior year. The decrease in net sales was due to lower portfolio earnings and transactional gains. For the six months ended September 30, 2022, we recognized net gains on sales of financial assets of $9.9 million and proceeds from these sales were $428.9 million. For the six months ended September 30, 2021, net gains on the sale of financial assets were $13.3 million and the proceeds from these sales were $690.3
million.
As of September 30, 2022, our financing segment had $128.1 million in financing receivables and operating leases, compared to $166.9 million as of September 30, 2021, a decrease of $38.8 million, or 23.2%.
Cost of sales: Cost of sales for the three months ended September 30, 2022, increased $1.4 million, or 37.1%, to $5.2 million, as compared to $3.8 million for the same period in the prior year, due to higher
cost of sales on off-lease equipment offset by lower depreciation expense from operating leases. Gross profit for the three months ended September 30, 2022, decreased by 5.0% to $17.0 million, as compared to the same period in the prior year.
Cost of sales for the six months ended September 30, 2022, decreased $3.1 million, or 31.0%, to $6.9 million, as compared to $10.0 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 six months ended September 30, 2022, decreased by 11.1% to $24.9 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 September 30, 2022, increased $0.8
million, or 22.8%, to $4.5 million, as compared to $3.7 million for the same period in the prior year, due to higher salaries and benefits consisting mostly of higher variable compensation, and higher general and
administrative expenses consisting mostly of higher software, license and maintenance fees driven by the deployment of newly hosted software in August 2022.
Selling, general, and administrative expenses for the six months ended September 30, 2022, increased $1.9 million, or 29.7%, to $8.2 million, as compared to $6.3 million for the same period in the prior year, due
to higher salaries and benefits consisting mostly of higher variable compensation, higher general and administrative expenses consisting mostly of higher software, license and maintenance fees driven by the deployment of newly hosted software in
August 2022, and a higher provision 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 September 30, 2022, increased by 77.6% to $0.3 million, and increased by 39.7% to $0.5 million for the six months ended
September 30, 2022, compared to the prior year. As of September 30, 2022, our notes payable was $20.8 million, a decrease of $4.6 million, or 18.1% compared to notes payable of $25.4 million as of September 30, 2021. As of September 30, 2022, and
2021, our notes payable consisted entirely of non-recourse notes payable. Our weighted average interest rate for non-recourse notes payable was 4.09% and 3.59%, as of September 30, 2022, and 2021,
respectively.
Segment operating income: As a result of the foregoing, both operating income and Adjusted EBITDA decreased $1.8 million to $12.2 million and $12.3 million, respectively, for the three months ended September 30, 2022, as compared to the prior year period. Operating income and Adjusted EBITDA for the six months ended September 30, 2022, decreased by $5.1 million to $16.2 million
and $16.3 million, respectively, as compared to the same period in the prior year.
CONSOLIDATED
Other income: Other income and expense increased for both the three and six months ended September 30, 2022 to $3.9 million and $6.0 million, respectively, due to
foreign exchange losses, compared to expense of $0.3 million and $0.2 million, respectively, in the prior year.
Income taxes: Our provision for income tax expense was $11.8 million and $20.5 million for the three and six months ended September 30, 2022, as compared to $12.6 million and $21.6 million for the same periods in the prior year. Our
effective income tax rates for the three and six months ended September 30, 2022, were 29.3% and 28.7%, compared to 28.6% and 28.2% for the three and six months ended September 30, 2021, respectively. The change in our effective income tax rate
was primarily due to foreign currency losses incurred in lower tax jurisdictions.
Net earnings: As a result of the foregoing, our net earnings for the three months ended September 30, 2022, decreased $2.9 million, or 9.4%, to $28.5 million, as compared to $31.4 million
during the same period in the prior year. Net earnings for the six months ended September 30, 2022, decreased $4.1 million, or 7.5%, to $50.8 million, as compared to $54.9 million during the same period in the prior year.
Basic and fully diluted earnings per common share were both $1.07 for the three months ended September 30, 2022, a decrease of 9.3% and 8.5%, respectively, as compared to $1.18 and $1.17, respectively, for the three
months ended September 30, 2021. Basic and fully diluted earnings per common share were both $1.91 for the six months ended September 30, 2022, a decrease of 7.3% and 6.4%, respectively, as compared to $2.06 and $2.04, respectively, for the six
months ended September 30, 2021.
Non-GAAP diluted earnings per share for the three months ended September 30, 2022, decreased $0.01, or 0.8%, to $1.29, as compared to $1.30 for the three months ended September 30, 2021. Non-GAAP diluted earnings per
share for the six months ended September 30, 2022, remained flat at $2.28, as compared to the six months ended September 30, 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 September 30, 2022. Weighted
average common shares outstanding was 26.5 million in the calculation of basic earnings per common share for the six-months ending September 30, 2022, and 26.7 million in the calculation of diluted earnings per common share for the six-months
ending September 30, 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 six-months ending September 30, 2021, and 26.9 million in the calculation of
diluted earnings per common share for both the three- and six-months ending September 30, 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):
|
Six Months Ended September 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Net cash used in operating activities
|
$
|
(119,671
|
)
|
$
|
(135,004
|
)
|
||
|
Net cash used in investing activities
|
(12,294
|
)
|
(13,690
|
)
|
||||
|
Net cash provided by financing activities
|
71,342
|
75,782
|
||||||
|
Effect of exchange rate changes on cash
|
4,776
|
300
|
||||||
|
Net decrease in cash and cash equivalents
|
$
|
(55,847
|
)
|
$
|
(72,612
|
)
|
||
Cash flows from operating activities: We used $119.7 million in operating activities during the six months ended September 30, 2022, compared to $135.0 million used by operating activities for the six months
ended September 30, 2021. See below for a breakdown of operating cash flows by segment (in thousands):
|
Six Months Ended September 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Technology segment
|
$
|
(120,746
|
)
|
$
|
(127,361
|
)
|
||
|
Financing segment
|
1,075
|
(7,643
|
)
|
|||||
|
Net cash provided by (used in) operating activities
|
$
|
(119,671
|
)
|
$
|
(135,004
|
)
|
||
Technology segment: For the six months ended September 30, 2022, our technology segment used $120.7 million from operating activities primarily due to increases in
our accounts receivable and inventories, partially offset by net earnings.
In the six months ended September 30, 2021, our technology segment used $127.4 million from operating activities primarily due to increases in our accounts receivable and inventories, partially offset by net earnings and a decrease in accounts
payable-trade.
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 Sepember 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
(DSO) Days sales outstanding (1)
|
65
|
64
|
||||||
|
(DIO) Days inventory outstanding (2)
|
36
|
18
|
||||||
|
(DPO) Days payable outstanding (3)
|
(47
|
)
|
(47
|
)
|
||||
|
Cash conversion cycle
|
54
|
35
|
||||||
| (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 54 days as of September 30, 2022, as compared to 35 days as of September 30, 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 47 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 increased by 1 day to 65 days. The DSO for both September 30, 2022, and 2021, reflects higher sales to customers with terms greater than or equal to net 60 days. Our DIO increased to 36 days due to
higher inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 77.3% to $274.9 million as of September 30, 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 six months ended September 30, 2022, our financing segment provided $1.1 million from operating activities, primarily due to net earnings, decreases in accounts receivable, and
increases in accounts payable-trade offset by increases in financing receivables.
In the six months ended September 30, 2021, our financing segment used $7.6 million from operating activities, primarily due to increases in accounts receivable and financing receivables, offset by net earnings.
Cash flows related to investing activities: For the six months ended September 30, 2022, we used $12.3 million from investing activities, consisting of $13.0 million in
cash used in acquiring Future Com, Ltd and $2.4 million for purchases of property, equipment, and operating lease equipment, and partially offset by $3.1 million of proceeds from the sale of property,
equipment, and operating lease equipment.
In the six months ended September 30, 2021, we used $13.7 million from investing activities, consisting of $16.2 million for purchases of property, equipment and operating lease equipment offset by $2.6 million of
proceeds from the sale of property, equipment, and operating lease equipment.
Cash flows from financing activities: For the six months ended September 30, 2022, cash provided by financing activities was $71.3 million, consisting of net borrowings of non-recourse and recourse notes
payable of $87.7 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $9.1 million in net repayments on the accounts payable floor plan facility.
For the six months ended September 30, 2021, cash provided by financing activities was $75.8 million, consisting of net borrowings on the accounts payable floor plan facility of $47.2 million and net repayments of
non-recourse and recourse notes payable of $35.4 million, partially offset by $6.9 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. As a condition of these agreements, certain financial institutions
may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, the customer will make payments to us, and we will remit the payment to the financial
institution. The economic impact to us under either structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender. However, when our customer makes payments through a trust, such payments
represent non-cash transactions. Also, 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 September 30, 2022, and March 31, 2022, we had a maximum credit limit of $375.0 million, and an outstanding balance on the floor plan facility of $136.2 million and $145.3 million, respectively. 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 September 30, 2022, the outstanding balance under the revolving credit facility was $85.0 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 $100.0 million as of both September 30, 2022, and 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 September 30, 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. The impacts of COVID-19 may limit or eliminate our access to capital. 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 the worldwide impacts from COVID-19, 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.
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.
Our cash flow may be adversely affected by the risks related to the COVID-19 pandemic, which may result in delays in the collections of our accounts receivables or non-payment.
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 September 30, 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 September 30, 2022.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarter, 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 September 30, 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”.
| 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 six months ended September 30, 2022,
including a total of 70,473 shares purchased as part of the publicly announced share repurchase plans or programs.
|
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
|
)
|
||||||||||
| (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.
|
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.
Because this Quarterly Report on Form 10-Q is being filed within four business days from the date of the reportable event, we have elected to make the
following disclosure in this Quarterly Report on Form 10-Q instead of in a Current Report on Form 8-K under Items 1.01 and 2.03.
Entry into a Material Definitive Agreement
ePlus Technology, inc., ePlus Technology Services, inc. and SLAIT Consulting, LLC (collectively, the “Borrowers”) are parties to that certain First
Amended and Restated Credit Agreement, dated as of October 13, 2021 (the “Credit Agreement”) by and among the Borrowers, the various lenders who are parties thereto (collectively, the “Lenders”) and Wells Fargo Commercial Distribution Finance,
LLC, acting as Administrative Agent thereunder (in such capacity, “Administrative Agent”), pursuant to which, among other things, the Lenders severally established in favor of the Borrowers a discretionary senior secured floorplan facility in the
original aggregate principal amount of up to $375,000,000 (the “Floorplan Facility"), together with a submit thereunder for a discretionary senior secured revolving credit facility in the original aggregate principal amount of up to $100,000,000
(the “Revolving Facility”).
On October 31, 2022, the Borrowers entered into a certain First Amendment to Credit Agreement by and among the Borrowers, the Lenders who are parties
thereto and the Administrative Agent (the “First Amendment to Credit Agreement”) (all capitalized terms not defined in this paragraph but defined in the First Amendment to Credit Agreement shall have the meanings given to such terms in the First
Amendment to Credit Agreement) which amended the Credit Agreement to (a) increase the maximum aggregate amount of principal available under the Floorplan Facility from $375,000,000 to $425,000,000, (b) increase the maximum aggregate amount of
principal available under the Revolving Facility from $100,000,000 to $150,000,000, (c) increase the maximum aggregate amount of principal available under the Swingline Loans from $25,000,000 to $35,000,000, and (d) change the interest rate on
any Loans accruing interest at a rate per annum equal to the LIBOR Rate plus an Applicable Margin of 1.75%, with a rate per annum equal to the Term SOFR Rate plus a Term SOFR Adjustment of 0.10% plus an Applicable Margin of 1.75%.
The Administrative Agent, certain of the Lenders and their respective affiliates, have performed, and may in the future perform, various commercial
banking, investment banking, brokerage, and other financial advisory services for ePlus and its subsidiaries for which they have received, and will receive, customary fees and expenses.
The foregoing description of the Amendment is a summary and is qualified in its entirety by reference to such agreement, a copy of which is filed as
Exhibit 10.2 to this Quarterly Report on Form 10-Q, and incorporated herein by reference.
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
The information described above under “Entry into a Material Definitive Agreement" is incorporated herein by reference.
|
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).
|
|
|
|
|
|
|
ePlus inc. 2022 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 10.1 to our Current Report in Form 8-K filed on September 20, 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.*
|
||
|
|
|
|
|
Certification of the Chief Executive Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
|
||
|
|
|
|
|
Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
|
||
|
|
|
|
|
Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350.
|
||
|
|
|
|
| 99.1 |
Press Release dated November 1, 2022, issued by ePlus inc.
|
|
|
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.
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: November 3, 2022
|
/s/ MARK P. MARRON
|
|
|
By: Mark P. Marron
|
||
|
Chief Executive Officer and
President
|
||
|
(Principal Executive Officer)
|
||
|
Date: November 3, 2022
|
/s/ ELAINE D. MARION
|
|
|
By: Elaine D. Marion
|
||
|
Chief Financial Officer
|
||
|
(Principal Financial Officer)
|
||
47
FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
This First Amendment to First Amended and Restated Credit Agreement (this “Amendment”), dated as of October 31, 2022, is by and among, ePlus Technology, inc., a Virginia corporation (“Technology”) (as Borrower Representative), ePlus Technology Services,
inc., a Virginia corporation (“Services”), SLAIT Consulting, LLC, a Virginia limited liability company (“SLAIT”), and those additional entities that hereafter become parties to the Credit Agreement as Borrowers in accordance with the terms thereof (together with Technology, Services, and SLAIT, each, a “Borrower,” and individually and collectively, jointly and severally, the “Borrowers”), the Lenders (as defined in the Credit
Agreement (defined below)) party hereto, and Wells Fargo Commercial Distribution Finance, LLC, a Delaware limited liability company, in its capacity as Agent for the Lenders (as defined in the Credit
Agreement) (together with its successors and assigns, “Agent”).
RECITALS
A. Borrowers are parties to that certain First Amended and Restated Credit Agreement dated as of October 13, 2021 (the “Credit Agreement”)
by and among Borrowers, the Lenders, and Agent. Capitalized terms used herein but not otherwise defined herein (including in the preamble and recitals hereof) shall have the respective meanings ascribed to such terms in the Credit Agreement.
B. Borrowers, the undersigned Lenders and Agent desire to amend the Credit Agreement to make such changes to the Credit Agreement and other Loan Documents as provided in, and subject to
the terms and conditions of, this Amendment.
C. The undersigned Lenders constitute the Required Lenders for purposes of Section 10.1 of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements contained herein, and for other good and valuable consideration, the receipt, adequacy
and sufficiency of which are hereby acknowledged, the parties hereto (intending to be legally bound) hereby agree as follows:
1. Amendments to Credit Agreement. Subject to the terms and conditions contained herein, Borrowers, Agent and Lenders hereby amend the Credit Agreement as follows:
(a) The following defined terms are hereby deleted from Section 1.1 of the Credit Agreement: “Early-Opt-in Election”; “LIBOR Rate”; “LIBOR Administrator”; “USD LIBOR” and each reference to
such terms set forth in the Credit Agreement are deleted in their entirety.
(b) Section 1.1 of the Credit Agreement (Definitions) is amended by amending and restating or adding in appropriate alphabetical order, as applicable, the following defined terms, each of
which shall read as follows:
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment; provided that if
Adjusted Term SOFR as so determined shall ever be less than the Floor, then Adjusted Term SOFR shall be deemed to be the Floor. Adjusted Term SOFR will change and take effect for purposes of this Agreement (y) with respect to any Revolving Loan or
Swingline Loan, on the date when such Loan is made and each day Adjusted Term SOFR changes and (z) with respect to any Floorplan Loan, on the first Business Day of each month.
1
“Aggregate Floorplan Loan Allocation” means the combined Floorplan Loan Allocations of the Lenders, which shall be in the amount of Four Hundred Twenty-Five Million Dollars
($425,000,000.00), as such amount may be reduced from time to time pursuant to this Agreement.
“Aggregate Revolving Loan Allocation” means the combined Revolving Loan Allocations of the Lenders, which shall initially be in the amount of One Hundred Fifty Million Dollars
($150,000,000.00), as such amount may be reduced from time to time pursuant to this Agreement.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (a) if such Benchmark is a term rate, any tenor for such
Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement or (b) otherwise, any payment period for interest calculated with reference to such Benchmark (or component
thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark pursuant to this Agreement, in each case, as of such date.
“Base Rate” means, on any day, the greatest of (a) the Floor, (b) the Federal Funds Rate in effect on such day plus ½%, (c) Adjusted Term SOFR for a
one month tenor in effect on such day, plus 1%, provided that this clause (c) shall not be applicable during any period in which Term SOFR is unavailable or unascertainable, and (d) the highest “prime rate” in effect on such day as
published in the “Money Rates” column of The Wall Street Journal or in such other publication or electronic source as Agent, in its sole discretion, may select; provided, however, if for any reason such rate is no longer published in The Wall
Street Journal, Agent shall select such replacement index as Agent, in its sole discretion, determines most closely approximates such rate (and if such published rate is less than zero, then the rate determined pursuant to this clause (d)
shall be zero). The “Base Rate” will change and take effect for purposes of this Agreement (y) with respect to any Revolving Loan or Swingline Loan, on the day the Base Rate changes and (z) with respect to any Floorplan Loan,
on the first Business Day of each month.
“Benchmark” means, initially, the Term SOFR Reference Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Reference Rate or the
then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 2.3(f)(iii).
“Benchmark Administrator” means, initially, the Term SOFR Administrator, or any successor administrator of the then-current Benchmark or any insolvency or resolution official
with authority over such administrator.
“Benchmark Replacement” means, with respect to any Benchmark Transition Event, the sum of: (a) the alternate benchmark rate that has been selected by Agent and Borrower
Representative giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention
for determining a benchmark rate as a replacement for the then-current Benchmark for Dollar-denominated syndicated credit facilities and (b) the related Benchmark Replacement Adjustment; provided that if such Benchmark Replacement as so determined
would be less than the Floor, such Benchmark Replacement shall be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
2
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Available
Tenor, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by Agent and Borrower Representative giving due consideration to (a) any
selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b)
any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for
Dollar-denominated syndicated credit facilities.
“Benchmark Replacement Date” means the earlier to occur of the following events with respect to the then-current Benchmark:
| (a) |
in the case of clause (a) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the Benchmark Administrator
permanently or indefinitely ceases to provide such Benchmark; or
|
| (b) |
in the case of clause (b) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark has been determined and announced by or on behalf of the Benchmark Administrator or the regulatory supervisor for the
Benchmark Administrator to be non-representative or non-compliant with or non-aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks; provided that such
non-representativeness, non-compliance or non-alignment will be determined by reference to the most recent statement or publication referenced in such clause (b).
|
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark: a public statement or publication of
information by or on behalf of the Benchmark Administrator or a regulatory supervisor for the Benchmark Administrator announcing that (a) the Benchmark Administrator has ceased or will cease to provide the Benchmark permanently or indefinitely or
(b) the Benchmark is not, or as of a specified future date will not be, representative or in compliance with or aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks.
“Benchmark Unavailability Period” means the period (if any) (a) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement
has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.3(f)(iii) and (b) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all
purposes hereunder and under any Loan Document in accordance with Section 2.3(f)(iii).
“Change in Law” means the occurrence after the date of this Agreement of: (a) the adoption or effectiveness of any law, rule, regulation, judicial ruling, judgment or treaty,
(b) any change in any law, rule, regulation, judicial ruling, judgment or treaty or in the administration, interpretation, implementation or application by any Governmental Authority of any law, rule, regulation, guideline or treaty, or (c) any
new, or adjustment to, requirements prescribed by the Federal Reserve Board for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board), requirements imposed by the Federal Deposit Insurance Corporation, or similar
requirements imposed by any domestic or foreign governmental authority or resulting from compliance by Agent or any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority
and related in any manner to SOFR, the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, or (d) the making or issuance by any Governmental Authority of any request, rule, guideline or directive, whether or not having the force of law; provided,
that notwithstanding anything in this Agreement to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith, and (ii) all
requests, rules, guidelines or directives concerning capital adequacy promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign
regulatory authorities shall, in each case, be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.
3
“Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any
technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period” or any similar
or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the
applicability and length of lookback periods, the applicability of breakage provisions (or the addition of breakage provisions) and other technical, administrative or operational matters) that Agent decides may be appropriate to reflect the
adoption and implementation of any such rate or to permit the use and administration thereof by Agent in a manner substantially consistent with market practice (or, if Agent decides that adoption of any portion of such market practice is not
administratively feasible or if Agent determines that no market practice for the administration of any such rate exists, in such other manner of administration as Agent decides is reasonably necessary in connection with the administration of this
Agreement and the other Loan Documents).
“Floor” means 0% per annum.
“Maximum Floorplan Amount” means Four Hundred Twenty-Five Million Dollars ($425,000,000.00).
“Maximum Revolving Loan Availability” means, as of any date of determination, the lesser of either (a) One Hundred Fifty Million Dollars ($150,000,000.00), or (b) the Excess
Borrowing Base Availability as of such date.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Loan” means each portion of a Loan that bears interest at a rate determined by reference to Adjusted Term SOFR (other than pursuant to clause (c) of the definition of “Base Rate”).
“Swingline Allocation” means the amount of Thirty Five Million Dollars ($35,000,000.00). The Swingline Allocation is a suballocation of,
and not in addition to, the Revolving Loan Allocation.
“Term SOFR” means,
4
(a) for any calculation with respect to a SOFR Loan, the Term SOFR Reference Rate for a tenor of one month on the day (such day, the “Periodic Term SOFR Determination Day”)
that is two (2) U.S. Government Securities Business Days prior to the first day of the applicable Interest Period, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any
Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then
Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the
Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day, and
(b) for any calculation with respect to a Base Rate Loan on any day, the Term SOFR Reference Rate for a tenor of one month on the day (such day, the “Base Rate Term SOFR
Determination Day”) that is two (2) U.S. Government Securities Business Days prior to such day, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any Base Rate Term
SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will
be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR
Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Base Rate Term SOFR Determination Day.
“Term SOFR Adjustment” means, with respect to a Base Rate Loan determined with reference to Adjusted Term SOFR or a SOFR Loan, a percentage per annum equal to 0.10%.
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by Agent in its reasonable
discretion).
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
(c) The following Sections 1.4 and 1.5 are hereby added to the Credit Agreement:
1.4 Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different
jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the
subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its Stock at such time. Any reference in any Loan Document to a merger,
transfer, consolidation, assignment, sale, disposition or transfer, or similar term, shall be deemed to apply to a division of or by a limited liability company, or an allocation of assets to a series of a limited liability company (or the
unwinding of such a division or allocation), as if it were a merger, transfer, consolidation, assignment, sale, disposition or transfer, or similar term, as applicable, to, of or with a separate Person.
5
1.5 Rates. Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, (a) the continuation of, administration of,
submission of, calculation of or any other matter related to the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR or any other Benchmark, any component definition thereof or rates referred to in the definition thereof, or with respect to any
alternative, successor or replacement rate thereto (including any then-current Benchmark or any Benchmark Replacement), including whether the composition or characteristics of any such alternative, successor or replacement rate (including any
Benchmark Replacement), as it may or may not be adjusted pursuant to Section 2.3(f)(iii), will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, the Term SOFR Reference Rate, Adjusted Term
SOFR, Term SOFR or any other Benchmark, prior to its discontinuance or unavailability, or (b) the effect, implementation or composition of any Conforming Changes. Agent and its affiliates or other related entities may engage in transactions that
affect the calculation of the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR, any alternative, successor or replacement rate (including any Benchmark Replacement) or any relevant adjustments thereto and such transactions may be adverse to
a Borrower. Agent may select information sources or services in its reasonable discretion to ascertain the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, or any other Benchmark, any component definition thereof or rates referred to in
the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to any Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental
or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
(d) Section 2.1(b)(ii) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
(ii) Agent may, in the sole and absolute discretion of Agent, elect to make, or permit to remain outstanding, Revolving Loans in excess of the Maximum Revolving Loan
Availability (any such excess Revolving Loan is herein referred to as a “Protective Overadvance”) to (A) preserve or protect the Collateral, or any portion thereof, (B) enhance the
likelihood of, or maximize the amount of, repayment of the Loan and other Obligations, or (C) to pay any other amount chargeable to or required to be paid by the Borrowers pursuant to the terms of this Agreement, including payments of reimbursable
expenses and other sums payable under the Loan Documents; provided, however, that (A) Agent may not cause Lenders to make, or permit to remain outstanding, a Protective Overadvance in an aggregate amount in excess of
ten percent (10%) of the Aggregate Revolving Loan Allocation and (B) no Lender will be required to fund Protective Overadvances if such funding would cause the aggregate amount of Revolving Loans funded by such Lender to exceed such Lender’s
Revolving Loan Allocation. If a Protective Overadvance is made, or permitted to remain outstanding, pursuant to the preceding sentence, then all Lenders shall be bound to make, or permit to remain outstanding, such Protective Overadvance based upon
their Allocation Percentage of the Aggregate Revolving Loan Allocation in accordance with the terms of this Agreement, regardless of whether the conditions to lending set forth in Section 3.2 have been met. All Protective Overadvances
shall bear interest at Adjusted Term SOFR plus the Applicable Margin for Revolving Loans and the default rate under Section 2.3(d).
6
(e) Section 2.3(a) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
(a) Subject to Sections 2.3(d) and 2.3(e), (a) each Revolving Loan and Swingline Loan shall bear interest on the outstanding principal amount thereof from the date when made
at a rate per annum equal to Adjusted Term SOFR plus the Applicable Margin and (b) each Floorplan Loan shall bear interest on the outstanding principal amount thereof from the Floorplan Funding Date with respect to such Floorplan Loan at a
rate per annum equal to Adjusted Term SOFR plus the Applicable Margin. Each determination of an interest rate by Agent shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. All computations of
fees and interest payable under this Agreement shall be made on the basis of a 360-day year and actual days elapsed. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to
the last day thereof. In connection with the use or administration of Term SOFR, Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any
amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document. Agent will promptly notify the Borrower Representative and Lenders of the
effectiveness of any Conforming Changes in connection with the use or administration of Term SOFR.
(f) Section 2.3(d) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
(d) At the election of Agent or the Required Lenders while any Event of Default exists (or automatically while any Event of Default under Section 8.1(f) or 8.1(g) exists),
the Borrowers shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the Loans under the Loan Documents from and after the date of occurrence of such Event of Default, at a rate per annum which is
determined by adding two percent (2.0%) per annum to the Applicable Margin then in effect for such Loans (plus Adjusted Term SOFR). All such interest shall be payable on demand of Agent or the Required Lenders.
(g) Section 2.3(f) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
(f) Special Provisions Applicable to Term SOFR.
(i) Adjusted Term SOFR may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs (other than
Taxes which shall be governed by Section 11.2), in each case, due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, or pursuant to any Change in Law or change in the reserve
requirements imposed by the Federal Reserve Board, which additional or increased costs would increase the cost of funding or maintaining loans bearing interest at Adjusted Term SOFR. In any such event, the affected Lender shall give Borrower
Representative and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Borrower Representative may, by notice to such
affected Lender (A) require such Lender to furnish to Borrower Representative a statement setting forth in reasonable detail the basis for adjusting Adjusted Term SOFR and the method for determining the amount of such adjustment, or (B) repay the
Loans determined with reference to Adjusted Term SOFR, in each case, of such Lender with respect to which such adjustment is made.
7
(ii) Subject to the provisions set forth in Section 2.3(f)(iii) below, in the event that any change in market conditions or any Change in Law shall at any time
after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain SOFR Loans (or Base Rate Loans determined with reference to Adjusted Term SOFR) or to continue such funding or
maintaining, or to determine or charge interest rates at the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR or SOFR, such Lender shall give notice of such changed circumstances to Agent and Borrower Representative and Agent promptly shall
transmit the notice to each other Lender and (y)(i) in the case of any SOFR Loans of such Lender that are outstanding, such SOFR Loans of such Lender will be deemed to have been converted Base Rate Loans on the last day of the Interest Period of
such SOFR Loans, if such Lender may lawfully continue to maintain such SOFR Loans, or immediately, if such Lender may not lawfully continue to maintain such SOFR Loans, and thereafter interest upon the SOFR Loans of such Lender thereafter shall
accrue interest at the rate then applicable to Base Rate Loans (and if applicable, without reference to the Adjusted Term SOFR component thereof) and (ii) in the case of any such Base Rate Loans of such Lender that are outstanding and that are
determined with reference to Adjusted Term SOFR, interest upon the Base Rate Loans of such Lender after the date specified in such Lender’s notice shall accrue interest at the rate then applicable to Base Rate Loans without reference to the
Adjusted Term SOFR component thereof and (z) Borrowers shall not be entitled to elect the SOFR Option and Base Rate Loans shall not be determined with reference to the Adjusted Term SOFR component thereof, in each case, until such Lender determines
that it would no longer be unlawful or impractical to do so.
(iii) Benchmark Replacement Setting.
(A) Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document, upon the occurrence of a Benchmark Transition Event,
Agent and Borrower Representative may amend this Agreement to replace the then-current Benchmark with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. on the fifth (5th)
Business Day after Agent has posted such proposed amendment to all affected Lenders and Borrower Representative so long as Agent has not received, by such time, written notice of objection to such amendment from Lenders comprising the Required
Lenders. No Secured Rate Contract shall be deemed to be a “Loan Document” for purposes of this Section 2.3(f)(iii).
(B) Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, Agent will have
the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or
consent of any other party to this Agreement or any other Loan Document.
(C) Notices; Standards for Decisions and Determinations. Agent will promptly notify Borrower Representative and the Lenders of (1) the implementation of any
Benchmark Replacement and (2) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. Agent will promptly notify Borrower Representative of the removal or
reinstatement of any tenor of a Benchmark pursuant to Section 2.3(f)(iii)(D). Any determination, decision or election that may be made by Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 2.3(f)(iii),
including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and
binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section
2.3(f)(iii).
8
(D) Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection
with the implementation of a Benchmark Replacement), (1) if the then-current Benchmark is a term rate (including the Term SOFR Reference Rate) and either (I) any tenor for such Benchmark is not displayed on a screen or other information service
that publishes such rate from time to time as selected by Agent in its reasonable discretion or (II) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any
tenor for such Benchmark is not or will not be representative, then Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or
non-representative tenor and (2) if a tenor that was removed pursuant to clause (1) above either (I) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (II) is not, or is no longer,
subject to an announcement that it is not or will not be representative for a Benchmark (including a Benchmark Replacement), then Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark
settings at or after such time to reinstate such previously removed tenor.
(E) Benchmark Unavailability Period. Upon Borrower Representative’s receipt of notice of the commencement of a Benchmark Unavailability Period, Agent may (a)
declare that SOFR Loans will not thereafter be made, such that any request for a SOFR Loan shall be deemed to be a request for a Base Rate Loan and (b) require that all outstanding SOFR Loans be converted to Base Rate Loans immediately, in which
event all outstanding SOFR Loans shall be so converted and shall bear interest at the Base Rate in effect from time to time. The Base Rate in effect from time to time shall replace the then-current Benchmark for any determination of interest
hereunder or under any other Loan Document during a Benchmark Unavailability Period.
(h) Section 2.8(b)(i)(A) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
(A) the then outstanding principal balance of Revolving Loans and Swingline Loans exceed the lesser of either (1) One Hundred Fifty Million Dollars ($150,000,000.00), or
(2) the Maximum Floorplan Amount minus the Aggregate Floorplan Outstandings,
(i) Section 3.2(c) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
(c) after giving effect to any Loan (or the Issuance of any Letter of Credit), the aggregate outstanding amount of the Revolving Loans and Swingline Loans would exceed
the lesser of either (1) One Hundred Fifty Million Dollars ($150,000,000.00), or (2) the Maximum Floorplan Amount minus the Aggregate Floorplan Outstandings.
(j) Section 10.1(g) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
9
Anything in this Section 10.1 to the contrary notwithstanding, (i) any amendment, modification, elimination, waiver, consent, termination, or release of, or with respect to, any provision
of this Agreement or any other Loan Document that relates only to the relationship of the Lenders among themselves, and that does not affect the rights or obligations of any Credit Party or Guarantor, shall not require consent by or the agreement
of any Credit Party or Guarantor, (ii) any amendment, waiver, modification, elimination, or consent of or with respect to any provision of this Agreement or any other Loan Document may be entered into without the consent of, or over the objection
of, any Non-Funding Lender, and (iii) any amendment contemplated by Section 2.3(f)(iii) of this Agreement titled “Benchmark Replacement Setting” in connection with replacing the then current Benchmark shall be effective as contemplated by Section
2.3(f)(iii) of this Agreement titled “Benchmark Replacement Setting.”
(k) Schedule 2.1(a) – Floorplan Loan Allocations and Schedule 2.1(b) – Revolving Loan Allocations of the Credit Agreement are hereby amended by deleting such Schedules in their entirety and
replacing them with Schedule 2.1(a) and Schedule 2.1(b) attached hereto.
(l) Notwithstanding anything in this Amendment to the contrary, the provisions of this Amendment related to the deletion of the LIBOR Rate and the application
of Term SOFR to any Loans shall not be effective until the first day of the calendar month immediately following the date of this Amendment.
2. Conditions Precedent. The amendments contained in Section 1 above are subject to, and contingent upon, Agent receiving each of the following items, each in form and
substance acceptable to Agent, unless waived in writing by Agent in its sole and absolute determination:
(a) A duly executed counterpart of this Amendment signed by each of the parties hereto;
(b) Guarantors shall have executed and delivered the Acknowledgement and Agreement of Guarantors;
(c) Resolutions of the board of directors or board of managers, as applicable, of each Borrower and Guarantor, dated as of the date hereof, which authorize, direct, and empower the
authorized officers to make, execute, and deliver this Amendment;
(d) A certificate of secretary for each Credit Party and Guarantor, certifying as to the authority, incumbency and signature of the officers of such Credit Party executing this Amendment and
all other documents, agreements and certificates in connection with this Amendment;
(e) Agent shall have received satisfactory evidence that all corporate and other proceedings that are necessary in connection with this Amendment have been taken to the Agent’s satisfaction;
(f) Certificates of good standing for each Credit Party issued by the state of incorporation or organization of such Credit Party, all as of a recent date; and
(g) Such other matters as Agent may require.
3. Costs, Expenses and Taxes. Without limiting the obligation of the Credit Parties to reimburse Agent for all reasonable costs, fees, disbursements and expenses incurred by Agent
as specified in the Credit Agreement, as amended by this Amendment, the Credit Parties agree to pay on demand all reasonable costs, fees, disbursements and expenses of Agent in connection with the preparation, execution and delivery of this
Amendment and the other agreements, modifications, instruments and documents contemplated hereby (collectively, the “Transaction Documents”), including, without limitation, reasonable
attorneys’ fees and expenses.
10
4. Representations, Warranties and Covenants of the Credit Parties. Each Credit Party jointly and severally hereby represents and warrants to Agent and Lender, which
representations and warranties shall survive the execution and delivery hereof, that on and as of the date hereof and after giving effect to this Amendment:
(a) Each Credit Party has the corporate or limited liability company (as applicable) power and authority to execute and deliver this Amendment and the Transaction
Documents to which it is a party (and perform its respective obligations hereunder and thereunder). This Amendment and the Transaction Documents to which such Credit Party is a party have been duly authorized by such Credit Party. This Amendment,
the Transaction Documents to which such Credit Party is a party, and the Credit Agreement (as amended by this Amendment) each constitute the legal, valid and binding obligation of such Credit Party, enforceable against such Credit Party in
accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar law affecting creditor’s rights generally and general principles of equity;
(b) The execution, delivery and performance by Credit Parties of this Amendment and the Transaction Documents have been duly
authorized by all necessary corporate or limited liability company action and do not (i) require any authorization, consent or approval by any Governmental Authorities, (ii) violate any Requirement of Law, or (iii) result in a breach of or
constitute a default under any indenture or loan or loan agreement or any other agreement, lease or instrument to which any Credit Party is a party or by which they or their properties may be bound or affected.
(c) Each Credit Party’s representations and warranties set forth in the Credit Agreement and in the other Loan Documents are true, correct and complete in all material
respects (or, if any such representation or warranty is by its terms qualified by concepts of materiality, such representation or warranty is true and correct in all respects) on and as of the date hereof except to the extent that such
representations and warranties expressly related solely to an earlier date, in which case such representations were true, correct and complete in all material respects (or, if any such representation or warranty is by its terms qualified by
concepts of materiality, such representation or warranty is true and correct in all respects) (on and as of such earlier date;
(d) No Default or Event of Default has occurred or is continuing as of the date hereof or shall occur immediately after giving effect to this Amendment;
(e) Each Credit Party’s Organization Documents continue in full force and effect and have not been amended or otherwise modified since October 13, 2021;
(f) All Obligations now due or payable by Borrowers to Lenders or Agent are unconditionally owing by Borrowers to Lenders and Agent, without offset, defense or
counterclaim of any kind, nature or description whatsoever; and
(g) Since March 31, 2022, there has not occurred any Material Adverse Effect.
Each Credit Party acknowledges that Agent and Lenders are specifically relying upon the representations, warranties and agreements contained in this Amendment and that such representations,
warranties and agreements constitute a material inducement to Agent and Lenders in entering into this Amendment.
5. Release by Credit Parties.
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(a) In further consideration of the execution of this Amendment by Agent and Lenders, each Credit Party (on behalf of itself and its shareholders, directors, members, managers, partners,
officers, affiliates, successors and assigns) hereby unconditionally, absolutely and irrevocably forever remises, releases, acquits, satisfies and forever discharges Agent and Lenders and their respective successors, assigns, affiliates, parent
entities, officers, employees, directors, shareholders, agents and attorneys (collectively, the “Releasees”) from any and all claims, demands, liabilities, disputes, damages, suits,
controversies, penalties, fees, costs, expenses, actions and causes of action (whether at law or in equity) and obligations of every nature whatsoever, whether liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent
(all of the foregoing, “Claims”), that such Credit Party (or any of its respective shareholders, directors, members, managers, partners, officers, affiliates, successors or assigns)
occurring on or before the date hereof, from any or all of the Releasees, which arise from or relate to any actions, omissions, conditions, events, or any other circumstances whatsoever on or prior to the date hereof, including, without limitation,
with respect to the Obligations, any Collateral, the Credit Agreement, the transactions relating thereto or hereto, and any other Loan Document, other than for the gross negligence or willful misconduct of Agent as finally determined in a
non-appealable order of a court of competent jurisdiction.
(b) Each Credit Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction
against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. Each Credit Party agrees that no fact, event, circumstance, evidence or transaction that could now be
asserted or that may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.
(c) Each Credit Party hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that such Credit Party will not sue (at law, in equity, in
any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by such Credit Party pursuant to the foregoing in this Section 5.
6. Reference to Credit Agreement; No Waiver.
(a) References. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import shall
mean and be a reference to the Credit Agreement, as amended hereby. The term “Loan Documents” as defined in Section 1.1 of the Credit Agreement shall include (in addition to the Loan Documents described in the Credit Agreement) this
Amendment and the other Transaction Documents.
(b) No Waiver. The failure of Agent (or, as applicable, Lenders), at any time or times hereafter, to require strict performance by Credit Parties of any provision or term of the
Credit Agreement, this Amendment or the other Loan Documents shall not waive, affect or diminish any right of Agent (or, as applicable, Lenders) hereafter to demand strict compliance and performance herewith or therewith. Any suspension or waiver
by Agent or Lenders of a breach of this Amendment or any Event of Default under the Credit Agreement shall not, except as expressly set forth in a writing signed by Agent, suspend, waive or affect any other breach of this Amendment or any Event of
Default under the Credit Agreement, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. None of the undertakings, agreements, warranties, covenants and representations of the Credit Parties
contained in this Amendment, shall be deemed to have been suspended or waived by Agent or Lenders unless such suspension or waiver is (i) in writing and signed by Agent and (ii) delivered to the Credit Parties. In no event shall Agent’s and
Lenders’ execution and delivery of this Amendment establish a course of dealing among Agent, Lenders, Credit Parties or any other obligor, or in any other way obligate Agent or Lenders to hereafter provide any amendments or waivers with respect to
the Credit Agreement. The terms and provisions of this Amendment shall be limited precisely as written and shall not be deemed (x) to be a consent to any amendment or modification of any other term or condition of the Credit Agreement or of any of
the Loan Documents (except as expressly provided herein); or (y) to prejudice any right or remedy which Agent or Lender may now have under or in connection with the Credit Agreement or any of the Loan Documents.
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7. Full Force and Effect. The Credit Agreement and all Loan Documents, in each case as amended hereby, shall remain in full force and effect and are hereby ratified and
confirmed.
8. Reaffirmation of Security Interest. Each Borrower hereby ratifies and reaffirms any and all grants of Liens to Agent in, to and on the Collateral as security for the
Obligations, and each Borrower acknowledges and confirms that the grants of the Liens to Agent for the benefit of itself and Lenders in, to and on the Collateral: (i) represent continuing Liens on all of the Collateral, (ii) secure the
indefeasible payment in full in cash all of the Obligations when due or declared due in accordance with the terms of the Credit Agreement, and (iii) represent valid and first priority perfected Liens on all of the Collateral except solely to the
extent, if any, of any Permitted Liens.
9. Miscellaneous. Titles and headings herein are solely for the convenience of the parties and are without substantive legal meaning. This Amendment may only be amended or
modified by a writing signed by Agent, Required Lenders and the Credit Parties. Neither this Amendment nor any uncertainty or ambiguity herein shall be construed or resolved against Agent or Lenders, whether under any rule of construction or
otherwise.
10. Incorporation by Reference. Sections 10.5 (Costs and Expenses), 10.13 (Severability), 10.8 (Successors and Assigns), 10.9 (Assignments and Participations; Binding Effect), 10.18 (Governing Law and Jurisdiction), 10.19 (Waiver of Jury Trial), and 9.21 (General Waivers by Credit Parties) of the Credit Agreement are incorporated by reference herein, mutatis
mutandis, and the parties hereto agree to such terms and agree that such provision apply with equal force to this Amendment.
11. Counterparts; Facsimile Signature. This Amendment may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart. Execution
of any such counterpart may be by means of (a) an electronic signature that complies with the federal Electronic Signatures in Global and National Commerce Act, state enactments of the Uniform Electronic Transactions Act, or any other relevant and
applicable electronic signatures law; (b) an original manual signature; or (c) a faxed, scanned, or photocopied manual signature. Each electronic signature or faxed, scanned, or photocopied manual signature shall for all purposes have the same
validity, legal effect, and admissibility in evidence as an original manual signature. Agent reserves the right, in its discretion, to accept, deny, or condition acceptance of any electronic signature on this Amendment. Any party delivering an
executed counterpart of this Agreement by faxed, scanned or photocopied manual signature shall also deliver an original manually executed counterpart, but the failure to deliver an original manually executed counterpart shall not affect the
validity, enforceability and binding effect of this Amendment. The foregoing shall apply to each other Loan Document, and any notice delivered hereunder or thereunder, mutatis mutandis.
[Signature Pages Follow]
13
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers as of the day and year first above written.
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BORROWERS:
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EPLUS TECHNOLOGY, INC.
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By:
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/s/ Elaine D. Marion
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| Name: |
Elaine D. Marion
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| Title: |
Chief Financial Officer
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EPLUS TECHNOLOGY SERVICES, INC.
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By:
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/s/ Elaine D. Marion
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Name:
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Elaine D. Marion
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Title:
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Chief Financial Officer
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SLAIT CONSULTING, LLC
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By:
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/s/ Elaine D. Marion
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Name:
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Elaine D. Marion
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Title:
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Chief Financial Officer
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14
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers as of the day and year first above
written.
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WELLS FARGO COMMERCIAL DISTRIBUTION
FINANCE, LLC, as Agent, Swingline Lender and as a
Lender
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By:
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/s/ Jack F. Morrone
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Name:
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Jack F. Morrone
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| Title: |
Its Duly Authorized Signatory
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15
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers as of the day and year first above written.
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REGIONS BANK, as a Lender
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By:
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/s/ Alberto Casasus
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| Name: |
Alberto Casasus
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| Title: | Director |
16
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers as of the day and year first above written.
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TRUIST BANK, as a Lender
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By:
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/s/ Cathleen Marston
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| Name: | Cathleen Marston | |
| Title: |
Vice President
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17
ACKNOWLEDGEMENT AND AGREEMENT OF GUARANTORS
The undersigned, each a guarantor of the indebtedness of ePlus Technology, inc., a Virginia corporation (“Technology”), ePlus Technology Services, inc., a Virginia corporation (“Services”), SLAIT Consulting, LLC, a Virginia limited liability company (“SLAIT”), and those additional entities that hereafter become parties to the Credit
Agreement (as defined in the Amendment (defined below)) as Borrowers in accordance with the terms thereof (together with Technology, Services, and SLAIT, each, a “Borrower,” and
individually and collectively, jointly and severally, the “Borrowers”) to the Lenders and Agent (each as defined in the Amendment) pursuant to (i) that certain First Amended and Restated
Limited Guaranty dated October 13, 2021, from ePlus Inc. in favor of Agent, for the benefit of the Lenders (the “Limited Guaranty – Holdings”) and (ii) that certain First Amended and Restated Collateralized Guaranty dated October 13, 2021, from
ePlus Group, Inc. in favor of Agent, for the benefit of the Lenders (the “Collateralized Guaranty – Group”), hereby (A) acknowledges receipt of the foregoing First Amendment to First Amended and Restated Credit
Agreement (the “Amendment”); (ii) consents to the terms and execution thereof; (iii) reaffirms all of its obligations to Agent
pursuant to the terms of the Limited Guaranty – Holdings and Collateralized Guaranty – Group, as applicable; and (iv) acknowledges that Agent and Lenders may amend, restate, extend, renew or otherwise modify the Credit Agreement (as defined in
the Amendment) and any indebtedness or agreement of Borrowers, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of
the undersigned under the Limited Guaranty – Holdings or Collateralized Guaranty – Group, as applicable, for Borrowers’ present and future indebtedness
to Agent and Lenders.
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EPLUS GROUP INC.
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By:
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/s/ Elaine D. Marion
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| Name: | Elaine D. Marion | |
| Title: | Chief Financial Officer |
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EPLUS, INC.
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By:
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/s/ Elaine D. Marion
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| Name: | Elaine D. Marion | |
| Title: | Chief Financial Officer |
18
CERTIFICATION
I, Mark P. Marron, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of ePlus inc.;
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| 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;
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| 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 officers 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;
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| 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
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| 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(s) 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):
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| 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
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| 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.
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Date: November 3, 2022
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/s/ MARK P. MARRON
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Mark P. Marron
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Chief Executive Officer and President
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(Principal Executive Officer)
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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 officers 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(s) 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
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| 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.
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Date: November 3, 2022
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/s/ ELAINE D. MARION
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Elaine D. Marion
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Chief Financial Officer
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(Principal Financial Officer)
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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 September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to 18 USC. section 1350, as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002, that to the undersigned's best knowledge and belief:
| 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
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| b) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ePlus inc.
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Date: November 3, 2022
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/s/ MARK P. MARRON
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Mark P. Marron, Chief Executive Officer
and President
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(Principal Executive Officer)
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/s/ ELAINE D. MARION
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Elaine D. Marion, Chief Financial Officer
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(Principal Financial Officer)
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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.
Exhibit 99.1
ePlus Expands Credit Facility
Increase to $425 Million Enhances ePlus’ Working Capital Financing Capacity
HERNDON, VA – November 1, 2022 – ePlus inc. (NASDAQ NGS: PLUS – news) a leading provider of technology and financing solutions, today announced that its
wholly-owned subsidiaries ePlus Technology, inc., ePlus Technology Services, inc. and SLAIT Consulting, LLC (collectively, the “Borrowers”) recently entered into an amendment to their credit agreement with their lenders (the “Lenders”) for which
Wells Fargo Commercial Distribution Finance Corporation (“WFCDF”) acts as administrative agent. The credit facility, as modified by the amendment, consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the
aggregate principal amount of up to $425 million, an increase from $375 million, together with a sublimit for a discretionary senior secured revolving credit facility for up to $150 million, an increase from $100 million. In addition, the amendment
converted all of the Borrower’s loans from the Lenders based on a LIBOR rate to a Term SOFR rate.
“We are pleased with the continued support by WFCDF and our Lenders. The increase and adjustments to our credit facility will allow us to continue to facilitate our
customers’ digital transformation with our leading security, cloud, data center, networking, collaboration solutions and services,” said Elaine Marion, chief financial officer.
About ePlus inc.
ePlus has an unwavering and relentless focus on leveraging technology to create inspired and transformative business outcomes for its customers. Offering a robust
portfolio of solutions, as well as a full set of consultative and managed services across the technology spectrum, ePlus has proudly achieved more than 30 years of success, carrying customers forward through adversity, rapidly changing environments,
and other obstacles. ePlus is a trusted advisor, bringing expertise, credentials, talent and a thorough understanding of innovative technologies, spanning security, cloud, data center, networking, collaboration and emerging solutions, to
organizations across all industry segments. With complete lifecycle management services and flexible payment solutions, ePlus’ associates are focused on cultivating positive customer experiences and are dedicated to their craft, harnessing new
knowledge while applying decades of proven experience. ePlus is headquartered in Virginia, with offices in the United States, UK, Europe, and Asia‐Pacific. For more information, visit www.eplus.com, call 888-482-1122, or email info@eplus.com. Connect
with ePlus on LinkedIn, Twitter, Facebook, and Instagram.
ePlus, Where Technology Means More®.
ePlus®, Where Technology Means More®, and ePlus products referenced herein are either registered trademarks or trademarks of ePlus inc. in the
United States and/or other countries. The names of other companies, products, and services mentioned herein may be the trademarks of their respective owners.
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Forward-looking statements
Statements in this press release that are not historical facts may be deemed to be
“forward-looking statements.” Actual and anticipated future results may vary materially due to certain risks and uncertainties, including, without limitation, the duration and impact of the COVID-19 pandemic including but not limited to the impact
and severity of new variants, vaccine efficacy and immunization rates, the closure of non-essential businesses and other associated governmental containment actions, and the increase in cyber-security attacks that have occurred while employees work
remotely; national and international political instability fostering uncertainty and volatility in the global economy; exposure to fluctuation in foreign currency rates, interest rates, and inflation; increases in our costs which may result in
adverse changes in our gross profit and/or price increases to our customers; reduction of vendor incentives provided to us; significant and rapid inflation may cause price, wage, and interest rate increases, as well as increases in operating costs
which may impact the arrangements that have pricing commitments over the term of the agreement; our ability to successfully perform due diligence and integrate acquired businesses; disruptions or a security breach in our or our vendors’ IT systems
and data and audio communication networks; supply chain issues, including a shortage of 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; the possibility of goodwill impairment charges in the future; significant adverse
changes in, reductions in, or losses of relationships with one or more of our larger volume customers or vendors; a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us; our ability to raise capital,
maintain or increase as needed our lines of credit with vendors or floor planning facility, or obtain debt for our financing transactions or the effect of those changes on our common stock price; the demand for and acceptance of, our products and
services; our ability to adapt our services to meet changes in market developments; our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key
strategies; the creditworthiness of our customers and our ability to reserve adequately for credit losses; our ability to secure our own and our customers’ electronic and other confidential information and remain secure during a cyber-security
attack; future growth rates in our core businesses; the impact of competition in our markets; domestic and international economic regulations uncertainty (e.g., tariffs, sanctions, and trade agreements); our 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; the
possibility of defects in our products or catalog content data; our ability to adapt to changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service, software as a
service and platform as a service; our ability to realize our investment in leased equipment; maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel and vendor certifications; and
other risks or uncertainties detailed in our reports filed with the Securities and Exchange Commission. All information set forth in this press release is current as of the date of this release and ePlus undertakes no duty or obligation to update this information.
Contact:
Kleyton Parkhurst, SVP
ePlus inc.
kparkhurst@eplus.com
703-984-8150
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