Eplus Inc 10-Q for FY2023 Q1
Eplus Inc (PLUS)
10-Q
2022-08-04
For: 2022-06-30
View Original
Added on
April 12, 2026
About this 10-Q
Eplus Inc filed this 10-Q on August 4, 2022, covering the quarter ended June 30, 2022 (FY2023 Q1).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $458.36M
- up 10.0% from $416.65M a year earlier
- Net income
- $22.34M
- down 5.0% from net income of $23.52M a year earlier
- Diluted EPS
- $0.84
- down 3.4% from $0.87 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 June 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 August 1, 2022, was 26,891,568 .
ePlus inc. AND SUBSIDIARIES
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Part I. Financial Information:
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Item 1.
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Financial Statements
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| 6 | |||
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Item 2.
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24 |
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Item 3.
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39 |
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Item 4.
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39 |
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Part II. Other Information:
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Item 1.
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40 |
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Item 1A.
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40 |
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Item 2.
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40 |
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Item 3.
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40 |
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Item 4.
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Item 5.
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41 |
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Item 6.
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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:
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•
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national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and inflation, including
increases in our costs and price increases to our customers which may result in adverse changes in our gross profit;
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•
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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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•
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significant adverse changes in, reductions in, or loss of one or more of our larger volume customers or vendors;
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•
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supply chain issues, including a shortage of IT products, may increase our costs or cause a delay in fulfilling customer orders, or increase our need for working capital, or completing professional services, or
purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;
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•
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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 business and other associated governmental containment actions, and the increase in cyber-security attacks that have occurred while employees work remotely;
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•
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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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•
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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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•
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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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•
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Our ability to remain secure during a cybersecurity attack, including both disruptions in our or our vendors’ IT systems and data and audio communication networks;
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•
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reliance on third-parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements,
guaranteed price agreements, or assurance of stock availability;
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•
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the creditworthiness of our customers and our ability to reserve adequately for credit losses;
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•
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loss of our credit facility or credit lines with our vendors may restrict our current and future operations;
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•
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a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
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our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common
stock price;
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reduction of vendor incentives provided to us;
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changes in the 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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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”).
UNAUDITED CONSOLIDATED
BALANCE SHEETS
(in thousands, except per share amounts)
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June 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 8)
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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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||||||
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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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||||
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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.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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Three Months Ended June 30,
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||||||||
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2022
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2021
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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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Services
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Total
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||||||
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Cost of sales
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||||||||
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Product
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||||||
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Services
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Total
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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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Other income (expense)
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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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Provision for income taxes
|
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||||||
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Net earnings
|
$
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|
$
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|
||||
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Net earnings per common share—basic
|
$
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$
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|
||||
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Net earnings per common share—diluted
|
$
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|
$
|
|
||||
|
Weighted average common shares outstanding—basic
|
|
|
||||||
|
Weighted average common shares outstanding—diluted
|
|
|
||||||
See Notes to Unaudited Consolidated Financial Statements.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
Three Months Ended June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
NET EARNINGS
|
$
|
|
$
|
|
||||
|
OTHER COMPREHENSIVE INCOME, NET OF TAX:
|
||||||||
|
Foreign currency translation adjustments
|
(
|
)
|
|
|||||
|
Other comprehensive income (loss)
|
(
|
)
|
|
|||||
|
TOTAL COMPREHENSIVE INCOME
|
$
|
|
$
|
|
||||
See Notes to Unaudited Consolidated Financial Statements.
UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
|
Three Months Ended June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net earnings
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net earnings to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Provision for credit losses
|
|
(
|
)
|
|||||
|
Share-based compensation expense
|
|
|
||||||
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Payments from lessees directly to lenders—operating leases
|
|
(
|
)
|
|||||
|
Gain on disposal of property, equipment, and operaing lease equipment
|
(
|
)
|
(
|
)
|
||||
|
Changes in:
|
||||||||
|
Accounts receivable
|
(
|
)
|
(
|
)
|
||||
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Inventories-net
|
(
|
)
|
(
|
)
|
||||
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Financing receivables—net
|
(
|
)
|
|
|||||
|
Deferred costs and other assets
|
(
|
)
|
|
|||||
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Accounts payable-trade
|
|
(
|
)
|
|||||
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Salaries and commissions payable, deferred revenue, and other liabilities
|
|
(
|
)
|
|||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from investing activities:
|
||||||||
|
Proceeds from sale of property, equipment, and operating lease equipment
|
|
|
||||||
|
Purchases of property, equipment and operating lease equipment
|
(
|
)
|
(
|
)
|
||||
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Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
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Cash flows from financing activities:
|
||||||||
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Borrowings of non-recourse and recourse notes payable
|
|
|
||||||
|
Repayments of non-recourse and recourse notes payable
|
(
|
)
|
(
|
)
|
||||
|
Repurchase of common stock
|
(
|
)
|
(
|
)
|
||||
|
Net borrowings (repayments) on floor plan facility
|
(
|
)
|
|
|||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Effect of exchange rate changes on cash
|
|
|
||||||
|
Net increase 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)
|
Three Months Ended June 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
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Borrowing of non-recourse and recourse notes payable
|
$
|
|
$
|
|
||||
|
Repayments of non-recourse and recourse notes payable
|
$
|
|
$
|
(
|
)
|
|||
|
Vesting of share-based compensation
|
$
|
|
$
|
|
||||
|
Repurchase of common stock
|
$ | $ | ( |
) | ||||
|
New operating lease assets obtained in exchange for lease obligations
|
$
|
|
$
|
|
||||
See Notes to Unaudited Consolidated Financial Statements.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
|
Three Months Ended June 30,
2022
|
||||||||||||||||||||||||||||
|
Common Stock
|
Additional
Paid-In
|
Treasury
|
Retained
|
Accumulated
Other
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
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Three Months Ended June 30,
2021
|
||||||||||||||||||||||||||||
|
Common Stock
|
Additional
Paid-In
|
Treasury
|
Retained
|
Accumulated
Other
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
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
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 three months ended June 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
three months ended June 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 35 % of our technology segment’s net sales for the three months ended June 30, 2022, and 42 %
for the three months ended June 30, 2021.
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.
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.
| 2. |
REVENUES
|
CONTRACT BALANCES
Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we
had $57.1 million and $47.5 million of receivables from contracts with customers included within financing
receivables as of June 30, 2022, and March 31, 2022, respectively. The following table provides the balance
of contract liabilities from contracts with customers (in thousands):
|
June 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 $24.9
million and $21.5 million for the three months ended June 30, 2022, and 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.
| 3. |
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 months ended June 30, 2022, and 2021 (in thousands):
|
Three months ended June 30,
|
||||||||
|
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 months ended June 30, 2022, and 2021 (in thousands):
|
Three months ended June 30,
|
||||||||
|
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):
|
June 30,
2022
|
Notes
Receivable
|
Lease
Receivables
|
Financing
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) |
|
|
March 31,
2022
|
Notes
Receivable
|
Lease
Receivables
|
Financing
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):
|
June 30,
2022
|
March 31,
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 June 30, 2022, and
March 31, 2022, we had financing receivables of $29.0 million and $21.1 million, respectively, and operating leases of $1.8 million
and $2.0 million, respectively, which were collateral for non-recourse notes payable. See Note 7, “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 June 30, 2022, and 2021, we recognized net gains of $1.8 million and $3.2 million, respectively, and total proceeds from these sales were $52.5 million and $75.3 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 June 30, 2022, and March 31, 2022, we had deferred revenue of $0.4 million and $0.5 million, respectively, for servicing obligations.
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 June 30, 2022, and March 31, 2022, the total potential payments that could result from these indemnities is immaterial.
| 4. |
LESSEE ACCOUNTING
|
We lease office space for periods up to six years . We
recognize our right-of-use assets as part of property, equipment, and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent
expense as part of selling, general and administrative expenses. We recognized rent expense of $1.3
| 5. |
GOODWILL AND OTHER INTANGIBLE ASSETS
|
GOODWILL
The following table summarizes the changes in the carrying amount of goodwill for
the three months ended June 30, 2022 (in thousands):
|
Three months ended June 30, 2022
|
||||||||||||
|
Goodwill
|
Accumulated
Impairment
Loss
|
Net
Carrying
Amount
|
||||||||||
|
Beginning balance
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
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 June 30, 2022, relates to our technology segment, which we also determined to be one reporting unit. The change in our goodwill balance during the three
months ended June 30, 2022, is due solely to foreign currency translation.
We test goodwill for impairment on an annual basis, as of the first day of our
third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our annual test as of October 1, 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 June 30, 2022, and March
31, 2022 (in thousands):
|
June 30, 2022
|
March 31, 2022
|
|||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||||||||||||
|
Customer relationships & other intangibles
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
|
Capitalized software development
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||
|
Total
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
Customer relationships and other intangibles are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years.
Total amortization expense for customer relationships and other intangible
assets was $2.2 million and $2.7 million for the three months ended June 30, 2022, and June 30, 2021,
respectively.
| 6. |
ALLOWANCE FOR CREDIT LOSSES
|
The following table provides the activity in our allowance for credit losses for the three months ended June 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 June 30,
2022
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Accounts
Receivable
|
Notes
Receivable
|
Lease
Receivables
|
Total
|
|||||||||||||
|
Balance April 1, 2021
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Provision for credit losses
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Write-offs and other
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balance June 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 June 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 June 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 June 30, 2022, and March 31, 2022.
| 7. |
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 a floor plan facility and a revolving credit facility.
Under the floor plan facility, we had an outstanding balance of $138.0 million and $145.3 million as of June 30, 2022, and March 31, 2022, respectively. On our balance sheet, our liability under the floor plan facility is presented as
accounts payable – floor plan.
Under the revolving credit facility, we had $40.0
million outstanding as of June 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 June 30, 2022, and March 31, 2022.
On
October 13, 2021, the Borrowers amended, restated, and replaced in entirety their then-existing credit agreements with WFCDF. The new credit facility is established 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 $375 million,
an increase from $275 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).
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 2021 Credit Facility are secured by the assets of the Borrowers. Additionally, the 2021 Credit Facility requires a guaranty
of $10.5 million by ePlus inc.
Under the 2021 Credit Facility, and under the predecessor 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 June 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 2021 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.
RECOURSE NOTES PAYABLE
Recourse notes payable consist of borrowings that, in the event of default, the lender has recourse against us. As of June 30, 2022, we had $51.4 million in recourse borrowings consisting of $40.0 million outstanding under
our revolving WFCDF credit facility, and $11.4 million arising 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 June 30, 2022, and March 31, 2022, we had $26.4 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 3.78 % and 3.59 %, as of June 30, 2022, and March 31, 2022, respectively.
| 8. |
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 June 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.
| 9. |
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 months ended June 30, 2022, and 2021, respectively (in thousands, except per share data).
|
Three Months Ended June 30,
|
||||||||
|
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
|
$
|
|
$
|
|
||||
| 10. |
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 three months ended June 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 three months ended June 30, 2021, we
purchased 35,258 shares of our outstanding common stock at a value of $1.6 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.
| 11. |
SHARE-BASED COMPENSATION
|
SHARE-BASED PLANS
As
of June 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 three months ended June 30, 2022, we granted 774 shares under the 2017 Director LTIP, and 138,643 restricted shares under the 2021 Employee LTIP. For the three months ended June 30, 2021, we granted 828 shares under the 2017 Director LTIP, and 155,722 restricted
shares 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 June 30,
2022
|
|
$
|
|
|||||
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 June 30, 2022, and 2021, we recognized $1.8 million and $1.7 million of total share-based compensation expense, respectively. Unrecognized compensation expense related to unvested restricted stock was $14.9 million as of June 30, 2022, which will be fully recognized over the next 36
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 for the three months ended June 30, 2022, and 2021, was $1.1 million and $0.8 million, respectively.
| 12. |
INCOME TAXES
|
Our provision for income tax expense was $8.7 million for the three months ended June 30, 2022,
as compared to $9.1 million for the same period in the prior year. Our effective income tax rate for the three months ended June 30,
2022, was 28.0 %, comparable to 27.8 %
for the same period in the prior year. The effective tax rate for the three months ended June 30, 2022, and June 30, 2021, differed from the US federal statutory rate of 21.0
| 13. |
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The following table summarizes the fair value hierarchy of our financial instruments as of June 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)
|
|||||||||||||
|
June 30, 2022
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Money market funds
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
March 31, 2022
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Money market funds
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
14.
|
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 cyber security 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 US region, as well as bolstering the skills and expertise surrounding ePlus’ growing cyber security practice. Our preliminary total consideration
transferred was $13.0 million, which was paid in cash at closing. As of our filing date, our initial accounting for the business
combination is incomplete.
| 15. |
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 month periods ended June 30, 2022, and 2021 are summarized in the following table (in thousands):
|
Three Months Ended
|
||||||||||||||||||||||||
|
June 30, 2022
|
June 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 below (in thousands):
|
Three Months Ended June 30,
|
||||||||
|
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 June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Vendor:
|
||||||||
|
Cisco Systems
|
$
|
|
$
|
|
||||
|
Dell EMC
|
|
|
||||||
|
Juniper Networks
|
|
|
||||||
|
NetApp
|
|
|
||||||
|
Arista Networks
|
|
|
||||||
|
All others
|
|
|
||||||
|
Net sales
|
|
|
||||||
|
Less: Revenue from financing and other
|
(
|
)
|
(
|
)
|
||||
|
Revenue from contracts with customers
|
$
|
|
$
|
|
||||
FINANCING SEGMENT DISAGGREGATION OF REVENUE
We analyze our revenues within our financing segment based on the nature of the arrangement. Our financing revenue generally consists of portfolio income, transactional gains, and post-contract earnings including
month-to-month rents and the sales of off-lease equipment. All of our revenues from contracts with customers within our financing segment is from the sales of off-lease equipment.
| Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
|
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, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this 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 98% of our net sales and 88% of our operating income, while our financing segment accounted
for 2% of our net sales and 12% of our operating income, for the three months ended June 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, 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 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 month periods ended June 30, 2022, and 2021 are summarized in the following tables (dollars in thousands):
|
Three Months Ended June 30,
|
||||||||
|
Consolidated
|
2022
|
2021
|
||||||
|
Net sales
|
$
|
458,359
|
$
|
416,649
|
||||
|
|
||||||||
|
Gross profit
|
$
|
113,523
|
$
|
105,512
|
||||
|
Gross margin
|
24.8
|
%
|
25.3
|
%
|
||||
|
Operating income margin
|
7.2
|
%
|
7.8
|
%
|
||||
|
|
||||||||
|
Net earnings
|
$
|
22,339
|
$
|
23,518
|
||||
|
Net earnings margin
|
4.9
|
%
|
5.6
|
%
|
||||
|
Net earnings per common share - diluted
|
$
|
0.84
|
$
|
0.87
|
||||
|
|
||||||||
|
Non-GAAP: Net earnings (1)
|
$
|
26,513
|
$
|
26,353
|
||||
|
Non-GAAP: Net earnings per common share - diluted (1)
|
$
|
0.99
|
$
|
0.98
|
||||
|
|
||||||||
|
Adjusted EBITDA (2)
|
$
|
38,304
|
$
|
38,272
|
||||
|
Adjusted EBITDA margin
|
8.4
|
%
|
9.2
|
%
|
||||
|
Technology Segment
|
||||||||
|
Net sales
|
$
|
448,785
|
$
|
400,358
|
||||
|
Adjusted gross billings (3)
|
$
|
701,943
|
$
|
633,007
|
||||
|
|
||||||||
|
Gross profit
|
$
|
105,651
|
$
|
95,433
|
||||
|
Gross margin
|
23.5
|
%
|
23.8
|
%
|
||||
|
|
||||||||
|
Operating income
|
$
|
29,219
|
$
|
25,223
|
||||
|
Adjusted EBITDA (2)
|
$
|
34,254
|
$
|
30,958
|
||||
|
|
||||||||
|
Financing Segment
|
||||||||
|
Net sales
|
$
|
9,574
|
$
|
16,291
|
||||
|
|
||||||||
|
Gross profit
|
$
|
7,872
|
$
|
10,079
|
||||
|
Operating income
|
$
|
3,964
|
$
|
7,229
|
||||
|
Adjusted EBITDA (2)
|
$
|
4,050
|
$
|
7,314
|
||||
| (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. 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 June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
GAAP: Earnings before tax
|
$
|
31,030
|
$
|
32,575
|
||||
|
Share based compensation
|
1,773
|
1,735
|
||||||
|
Acquisition related amortization expense
|
2,183
|
2,696
|
||||||
|
Other (income) expense
|
2,153
|
(123
|
)
|
|||||
|
Non-GAAP: Earnings before provision for income taxes
|
37,139
|
36,883
|
||||||
|
GAAP: Provision for income taxes
|
8,691
|
9,057
|
||||||
|
Share based compensation
|
508
|
496
|
||||||
|
Acquisition related amortization expense
|
617
|
757
|
||||||
|
Other (income) expense
|
616
|
(35
|
)
|
|||||
|
Tax benefit on restricted stock
|
194
|
255
|
||||||
|
Non-GAAP: Provision for income taxes
|
10,626
|
10,530
|
||||||
|
Non-GAAP: Net earnings
|
$
|
26,513
|
$
|
26,353
|
||||
|
Three Months Ended June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
GAAP: Net earnings per common share - diluted
|
$
|
0.84
|
$
|
0.87
|
||||
|
Share based compensation
|
0.04
|
0.05
|
||||||
|
Acquisition related amortization expense
|
0.06
|
0.07
|
||||||
|
Other (income) expense
|
0.06
|
-
|
||||||
|
Tax benefit on restricted stock
|
(0.01
|
)
|
(0.01
|
)
|
||||
|
Total non-GAAP adjustments - net of tax
|
0.15
|
0.11
|
||||||
|
Non-GAAP: Net earnings per common share - diluted
|
$
|
0.99
|
$
|
0.98
|
||||
| (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. 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 June 30,
|
||||||||
|
Consolidated
|
2022
|
2021
|
||||||
|
Net earnings
|
$
|
22,339
|
$
|
23,518
|
||||
|
Provision for income taxes
|
8,691
|
9,057
|
||||||
|
Share based compensation
|
1,773
|
1,735
|
||||||
|
Interest and financing costs
|
138
|
159
|
||||||
|
Depreciation and amortization
|
3,210
|
3,926
|
||||||
|
Other income (expense)
|
2,153
|
(123
|
)
|
|||||
|
Adjusted EBITDA
|
$
|
38,304
|
$
|
38,272
|
||||
|
Technology Segment
|
||||||||
|
Operating income
|
$
|
29,219
|
$
|
25,223
|
||||
|
Depreciation and amortization
|
3,182
|
3,898
|
||||||
|
Share based compensation
|
1,715
|
1,678
|
||||||
|
Interest and financing costs
|
138
|
159
|
||||||
|
Adjusted EBITDA
|
$
|
34,254
|
$
|
30,958
|
||||
|
Financing Segment
|
||||||||
|
Operating income
|
$
|
3,964
|
$
|
7,229
|
||||
|
Depreciation and amortization
|
28
|
28
|
||||||
|
Share based compensation
|
58
|
57
|
||||||
|
Adjusted EBITDA
|
$
|
4,050
|
$
|
7,314
|
||||
| (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 June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Technology segment net sales
|
$
|
448,785
|
$
|
400,358
|
||||
|
Costs incurred related to sales of third party maintenance, software assurance and subscription/SaaS licenses, and services
|
253,158
|
232,649
|
||||||
|
Adjusted gross billings
|
$
|
701,943
|
$
|
633,007
|
||||
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 June 30, 2022, increased $41.7 million, or 10.0%, to $458.4 million, as compared to $416.6 million for the same period in the prior
year. Product sales for the three months ended June 30, 2022, increased $34.2 million, or 9.5%, to $395.3 million, as compared to $361.1 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 June 30, 2022, increased $7.5 million, or 13.5%, to $63.1 million, as compared to
$55.6 million for the same period in the prior year, due to increases in both managed services and professional services. In the technology segment, we had increases in net sales to customers in telecom, media,
and entertainment, healthcare, and professional services, which were partially offset by decreases in net sales to customers in manufacturing during the three months ended June 30, 2022, compared to the same period in the prior year.
Adjusted gross billings for the three months ended June 30, 2022, increased $68.9 million, or 10.9%, to $701.9 million, as compared to $633.0 million for the same period in the prior year. We had increases in
adjusted gross billings to customers in telecom, media and entertainment, healthcare, financial services, professional services, and SLED, which were partially offset by decreases in adjusted gross billings to customers in the manufacturing market.
Consolidated gross profit for the three months ended June 30, 2022, increased $8.0 million, or 7.6%, to $113.5 million, as compared to $105.5 million for the same period in the prior year. Our increase in gross
profit was due to higher net sales, offset by lower gross margin. Consolidated gross margins for the three months ended June 30, 2022, decreased 50 basis points to 24.8%, as compared to 25.3% for the same period in the prior year. Our decrease in
gross margins was primarily due to a decrease in service margins, and a reduction in gross profit from our financing segment.
Operating expenses for the three months ended June 30, 2022, increased $7.3 million, or 10.0%, to $80.3 million, as compared to $73.1 million for the same period in the prior year. Our increase in operating expenses was primarily due to $4.0
million in higher salaries and benefits, $3.1 million in higher general and administrative expenses including higher software license and maintenance fees and higher travel and entertainment costs, $1.0 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, and offset by a $0.7 million decrease in depreciation and amortization. As of June 30, 2022, we had
1,637 employees, an increase of 90 from 1,547 as of June 30, 2021.
As a result of the foregoing, operating income for the three months ended June 30, 2022, increased $0.7 million, or 2.3%, to $33.2 million, as compared to $32.5
million for the same period in the prior year.
Consolidated net earnings for the three months ended June 30, 2022, decreased $1.2 million, or 5.0%, to $22.3 million, as compared to $23.5 million for the same period in the prior year, due to the increase in operating expenses and foreign exchange losses, offset by an increase in gross profit. Our effective tax rate for the
three months ended June 30, 2022, was 28.0%, which is comparable to 27.8% in the prior year quarter.
Adjusted EBITDA for both the three months ended June 30, 2022, and 2021 was $38.3 million. Adjusted EBITDA margin for the three months ended June 30, 2022, decreased 80 basis points to 8.4%, as compared to the prior year period of 9.2%.
Diluted earnings per share for the three months ended June 30, 2022, decreased $0.03, or 3.4%, to $0.84 per share, as compared to $0.87 per share for same period in the prior year. Non-GAAP diluted earnings per share for the three months ended
June 30, 2022, increased $0.01, or 1.0%, to $0.99, as compared to $0.98 for the same period in the prior year.
Cash and cash equivalents decreased $71.9 million, or 46.3%, to $83.5 million as of June 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, partially offset by borrowings on our revolving credit facility. Additional uses of cash during the three months ended June 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:
Financing revenue generally falls into the following three categories:
| • |
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, 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 opening new offices and warehouses and by hiring additional staff
for specific targeted market areas whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may impact our operating results.
CRITICAL ACCOUNTING ESTIMATES
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 months ended June 30, 2022, compared to the three months ended June 30, 2021
TECHNOLOGY SEGMENT
The results of operations for our technology segment were as follows (dollars in thousands):
|
Three Months Ended June 30,
|
Change
|
|||||||||||||||
|
2022
|
2021
|
|||||||||||||||
|
Net sales
|
||||||||||||||||
|
Product
|
$
|
385,676
|
$
|
344,766
|
$
|
40,910
|
11.9
|
%
|
||||||||
|
Services
|
63,109
|
55,592
|
7,517
|
13.5
|
%
|
|||||||||||
|
Total
|
448,785
|
400,358
|
48,427
|
12.1
|
%
|
|||||||||||
|
Cost of sales
|
||||||||||||||||
|
Product
|
302,508
|
271,015
|
31,493
|
11.6
|
%
|
|||||||||||
|
Services
|
40,626
|
33,910
|
6,716
|
19.8
|
%
|
|||||||||||
|
Total
|
343,134
|
304,925
|
38,209
|
12.5
|
%
|
|||||||||||
|
Gross profit
|
105,651
|
95,433
|
10,218
|
10.7
|
%
|
|||||||||||
|
Selling, general, and administrative
|
73,112
|
66,153
|
6,959
|
10.5
|
%
|
|||||||||||
|
Depreciation and amortization
|
3,182
|
3,898
|
(716
|
)
|
(18.4
|
%)
|
||||||||||
|
Interest and financing costs
|
138
|
159
|
(21
|
)
|
(13.2
|
%)
|
||||||||||
|
Operating expenses
|
76,432
|
70,210
|
6,222
|
8.9
|
%
|
|||||||||||
|
Operating income
|
$
|
29,219
|
$
|
25,223
|
$
|
3,996
|
15.8
|
%
|
||||||||
|
Adjusted gross billings
|
$
|
701,943
|
$
|
633,007
|
$
|
68,936
|
10.9
|
%
|
||||||||
|
Adjusted EBITDA
|
$
|
34,254
|
$
|
30,958
|
$
|
3,296
|
10.6
|
%
|
||||||||
Net sales: Net sales for the three months ended June 30, 2022, increased $48.4 million, or 12.1%, to $448.8 million, as compared to $400.4 million for the same
period in the prior year, due to increases in net sales from customers in telecom, media, and entertainment, healthcare, and professional services, which were partially offset by decreases in net sales to customers in manufacturing. Product sales
for the three months ended June 30, 2022, increased $40.9 million, or 11.9%, to $385.7 million. Service sales for the three months ended June 30, 2022, increased $7.5 million, or 13.5%, to $63.1 million, as compared to $55.6 million for the same period in the prior year, due to increases in both managed services and professional services.
Adjusted gross billings for the three months ended June 30, 2022, increased $68.9 million, or 10.9%, to $701.9 million, as compared to $633.0 million for the same period in the prior year. Our increase in adjusted gross billings was due to higher demand from our current customers and higher prices for some products.
We rely on our vendors to fulfill a large majority of shipments to our customers. As of June 30, 2022, we had open orders of $1.0 billion and deferred revenue of $130.7 million. As of June 30, 2021, we had open
orders of $565.8 million and deferred revenue of $100.3 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 June 30,
2022, and 2021 are summarized below:
|
Twelve Months Ended June 30,
|
Change
|
|||||||||||
|
Net sales by customer end market:
|
2022
|
2021
|
||||||||||
|
Telecom, Media & Entertainment
|
29
|
%
|
27
|
%
|
2
|
%
|
||||||
|
Healthcare
|
16
|
%
|
13
|
%
|
3
|
%
|
||||||
|
Technology
|
14
|
%
|
16
|
%
|
(2
|
%)
|
||||||
|
SLED
|
14
|
%
|
15
|
%
|
(1
|
%)
|
||||||
|
Financial Services
|
9
|
%
|
12
|
%
|
(3
|
%)
|
||||||
|
All others
|
18
|
%
|
17
|
%
|
1
|
%
|
||||||
|
Total
|
100
|
%
|
100
|
%
|
||||||||
|
Twelve Months Ended June 30,
|
Change
|
|||||||||||
|
Net sales by vendor:
|
2022
|
2021
|
||||||||||
|
Cisco Systems
|
37
|
%
|
37
|
%
|
0
|
%
|
||||||
|
Dell EMC
|
10
|
%
|
7
|
%
|
3
|
%
|
||||||
|
Juniper Networks
|
5
|
%
|
7
|
%
|
(2
|
%)
|
||||||
|
NetApp
|
5
|
%
|
3
|
%
|
2
|
%
|
||||||
|
Arista Networks
|
2
|
%
|
4
|
%
|
(2
|
%)
|
||||||
|
All others
|
41
|
%
|
42
|
%
|
(1
|
%)
|
||||||
|
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 June 30, 2022, we had an increase in the percentage of total revenues from customers in the telecom, media and entertainment and healthcare industry, and decreases in the percentage of total revenues in the financial
services, technology, and SLED markets. 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 June 30, 2022, increased $38.2 million, or 12.5%, to
$343.1 million, as compared to $304.9 million for the same period in the prior year. Our gross margin decreased 30 basis points to 23.5% for the three months
ended June 30, 2022, compared to 23.8% for the same period in the prior year. Our decrease in gross margins was primarily due to higher third-party costs incurred in
providing our professional services.
Selling, general, and administrative: Selling, general, and administrative expenses for the three months ended June 30, 2022, increased $7.0 million, or 10.5%, to $73.1 million, as compared to
$66.2 million for the same period in the prior year. Salaries and benefits increased $3.7 million, or 6.4% to $61.6 million, as compared to $57.9 million for the same period in the prior year, mainly due to an increase in variable compensation. Our technology segment had 1,602
employees as of June 30, 2022, an increase of 88 from 1,514 as of June 30, 2021. We added 77 additional customer
facing employees, of which 59 were professional services and technical support personnel due to demand for our services.
General and administrative expenses for the three months ended June 30, 2022, increased $2.9 million, or 34.6%, to $11.1 million, as compared to $8.3 million for the same period in the prior year, due
to higher software license and maintenance fees and higher travel and entertainment costs.
Our provision for credit losses for the three months ended June 30, 2022 was $0.3 million, as compared to negligible expense for the same period in the prior year. Our higher provision for credit losses for the three months ended June 30, 2022
was due to changes in our net credit exposure.
Depreciation and amortization: Depreciation and amortization for the three months ended June 30, 2022, decreased $0.7 million, or 18.4%, to $3.2 million, as compared
to $3.9 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.
Interest and financing costs: Interest and financing costs of $0.1 million were incurred in the three months ended June 30, 2022, as compared to $0.2 million for the same period in the prior year.
Segment operating income: As a result of the foregoing, operating income for the three
months ended June 30, 2022, increased $4.0 million, or 15.8%, to $29.2 million, as compared to $25.2 million for the same period in the prior year.
Adjusted EBITDA for the three months ended June 30, 2022, increased $3.3 million, or 10.6%, to $34.3 million, as compared to $31.0 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 June 30,
|
Change
|
|||||||||||||||
|
2022
|
2021
|
|||||||||||||||
|
Net sales
|
$
|
9,574
|
$
|
16,291
|
$
|
(6,717
|
)
|
(41.2
|
%)
|
|||||||
|
Cost of sales
|
1,702
|
6,212
|
(4,510
|
)
|
(72.6
|
%)
|
||||||||||
|
Gross profit
|
7,872
|
10,079
|
(2,207
|
)
|
(21.9
|
%)
|
||||||||||
|
Selling, general, and administrative
|
3,655
|
2,622
|
1,033
|
39.4
|
%
|
|||||||||||
|
Depreciation and amortization
|
28
|
28
|
-
|
0.0
|
%
|
|||||||||||
|
Interest and financing costs
|
225
|
200
|
25
|
12.5
|
%
|
|||||||||||
|
Operating expenses
|
3,908
|
2,850
|
1,058
|
37.1
|
%
|
|||||||||||
|
Operating income
|
$
|
3,964
|
$
|
7,229
|
$
|
(3,265
|
)
|
(45.2
|
%)
|
|||||||
|
Adjusted EBITDA
|
$
|
4,050
|
$
|
7,314
|
$
|
(3,264
|
)
|
(44.6
|
%)
|
|||||||
Net sales: Net sales for the three months ended June 30, 2022, decreased $6.7 million, or 41.2%, to $9.6 million, as
compared to $16.3 million for the same period in the prior year. The decrease in net sales was due to lower post contract earnings and transactional gains. For the three months ended June 30, 2022, we recognized net gains on sales of financial
assets of $1.8 million and proceeds from these sales were $52.5 million. For the three months ended June 30, 2021, net gains on the sale of financial assets were $3.2 million and the proceeds from
these sales were $75.3 million. As of June 30, 2022, our financing segment had $130.0 million in financing receivables and operating leases, compared to $141.7 million as of June 30, 2021, a decrease of $11.7
million, or 8.3%.
Cost of sales: Cost of sales for the three months ended June 30, 2022, decreased $4.5 million, or 72.6%, to $1.7 million, as compared to $6.2 million for the
same period in the prior year, due to lower cost of sales on off-lease equipment and lower depreciation expense from operating leases. Gross profit decreased $2.2 million, or 21.9%, to $7.9
million for the three months ended June 30, 2022, as compared to $10.1 million in the prior year.
Selling, general and administrative: Selling, general, and administrative expenses for the three months ended June 30, 2022, increased
$1.0 million, or 39.4%, to $3.7 million, as compared to $2.6 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 business taxes, and a higher provision for credit losses caused by changes in our net credit exposure. Beginning in the second quarter of our fiscal year 2023, we anticipate completing our
deployment of a new hosted software to manage our financing portfolio. Once we begin using the hosted software, 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 both the three months ended June 30, 2022, and 2021, were $0.2 million. As of June 30, 2022, our notes payable was $26.4 million, an
increase of $11.2 million, or 73.0% compared to notes payable of $15.3 million as of June 30, 2021. As of June 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 3.78% and 3.66%, as of June 30, 2022, and 2021, respectively.
Segment operating income: As a result of the foregoing, both operating income and Adjusted EBITDA decreased $3.3 million to $4.0 million and $4.1
million, respectively, for the three months ended June 30, 2022, as compared to the prior year period.
CONSOLIDATED
Other income: Other income and expense for the three months ended June 30, 2022, was an expense of $2.2 million, due to foreign exchange losses, compared to
income of $0.1 million in the prior year.
Income taxes: Our provision for income tax expense was $8.7 million for the three months ended June 30, 2022, as compared to $9.1 million for the same period in the
prior year. Our effective income tax rate for the three months ended June 30, 2022, was 28.0%, which is comparable to 27.8% for the same period in the prior year.
Net earnings: As a result of the foregoing, our net earnings for the three months ended June 30, 2022, decreased $1.2 million, or 5.0%, to $22.3 million, as compared to $23.5 million during the
same period in the prior year.
Basic and diluted earnings per common share were both $0.84 for the three months ended June 30, 2022, a decrease of $0.04 and $0.03, respectively, as compared to $0.88 and $0.87, respectively, for the same period in the
prior year.
Non-GAAP diluted earnings per share for the three months ended June 30, 2022, increased $0.01, or 1.0%, to $0.99, as compared to $0.98 for the three months ended June 30, 2021.
Weighted average common shares outstanding was 26.5 million in the calculation of basic earnings per common share for the three months ended June 30, 2022, and
26.7 million in the calculation of diluted earnings per common share for the three months ended June 30, 2022. Weighted average common shares outstanding used in the calculation of basic earnings per
common share, was 26.7 million for the three months ended June 30, 2021, and 26.9 million in the calculation of diluted earnings per common share for the three months ended June 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 our WFCDF credit facility. 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 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):
|
Three Months Ended June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Net cash used in operating activities
|
$
|
(102,943
|
)
|
$
|
(65,136
|
)
|
||
|
Net cash used in investing activities
|
(1,692
|
)
|
(6,151
|
)
|
||||
|
Net cash provided by financing activities
|
31,111
|
35,494
|
||||||
|
Effect of exchange rate changes on cash
|
1,634
|
71
|
||||||
|
Net decrease in cash and cash equivalents
|
$
|
(71,890
|
)
|
$
|
(35,722
|
)
|
||
Cash flows from operating activities: We used $102.9 million in operating activities during the three months ended June 30, 2022, compared to $65.1 million provided by operating activities for the three months
ended June 30, 2021. See below for a breakdown of operating cash flows by segment (in thousands):
|
Three Months Ended June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Technology segment
|
$
|
(104,645
|
)
|
$
|
(65,980
|
)
|
||
|
Financing segment
|
1,702
|
844
|
||||||
|
Net cash provided by (used in) operating activities
|
$
|
(102,943
|
)
|
$
|
(65,136
|
)
|
||
Technology segment: For the three months ended June 30, 2022, our technology segment used $104.6 million from operating activities primarily due to increases in
our accounts receivable of $59.1 million and inventories of $92.7 million, offset by net earnings. Further, we had net repayments on the floor plan component of our credit facility of $7.3 million. We use this facility to manage working capital
needs, however, we present changes in this balance as financing activity in our consolidated statement of cash flows.
In the three months ended June 30, 2021, our technology segment used $66.0 million from operating activities primarily due to increases in our accounts receivable and inventories and a decrease in accounts
payable-trade. Offsetting this, we had net borrowing on the floor plan component of our credit facility of $40.9 million.
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 June 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
(DSO) Days sales outstanding (1)
|
61
|
61
|
||||||
|
(DIO) Days inventory outstanding (2)
|
30
|
13
|
||||||
|
(DPO) Days payable outstanding (3)
|
(45
|
)
|
(42
|
)
|
||||
|
Cash conversion cycle
|
46
|
32
|
||||||
| (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 46 days as of June 30, 2022, as compared to 32 days as of June 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 increased 3 days. Invoices processed through our credit facility, or the A/P-floor plan balance, are typically paid within 45-60 days from the invoice date, while A/P trade invoices are typically paid within 30 days from the invoice
date. Our DSO remained the same at 61 days. The DSO for both June 30, 2022, and 2021, reflects higher sales to customers with terms greater than or equal to net 60 days. Our DIO increased to 30 days due to higher inventory balance. Inventory, which
represents equipment ordered by customers but not yet delivered, increased 59.2% to $246.9 million as of June 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 three months ended June 30, 2022, our financing segment provided $1.7 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-net. In the three months ended June 30, 2021, our financing segment provided $0.8 million from operating activities, primarily due
to earnings offset by decreases in accounts payable-trade.
Cash flows related to investing activities: For the three months ended June 30, 2022, we used $1.7 million from investing activities, consisting of $1.8 million
for purchases of property, equipment and operating lease equipment offset by $0.1 million of proceeds from the sale of property, equipment, and operating lease equipment. In the three months ended June 30, 2021, we used $6.2 million from
investing activities, consisting of $7.0 million for purchases of property, equipment and operating lease equipment offset by $0.8 million of proceeds from the sale of property, equipment, and operating lease equipment.
Cash flows from financing activities: For the three months ended June 30, 2022, cash provided by financing activities was $31.1 million, consisting of net borrowings of non-recourse and recourse notes
payable of $45.6 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $7.3 million in net repayments on the floor plan component of our credit facility. In the three months ended June 30, 2021, cash provided by financing activities was $35.5 million consisting of net borrowings on the floor plan component of our credit facility of $40.9 million partially offset by net repayments of
non-recourse and recourse notes payable of $1.6 million, and $3.8 million in cash used to repurchase outstanding shares of our common stock.
Our borrowing of non-recourse and 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 a credit facility with WFCDF. The WFCDF credit facility has a floor plan facility and a revolving credit facility.
On October 13, 2021, the Borrowers amended, restated, and replaced in their entirety their then-existing credit agreements with WFCDF. The new credit facility is established 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 $375 million, together with a sublimit for a revolving credit facility for up to
$100 million (collectively, the “2021 Credit Facility”).
Please refer to Note 7 “Credit Facility and Notes Payable” to the accompanying Consolidated Financial Statements included in "Part I,
Item 1. Financial Statements" for additional information concerning our 2021 Credit Facility.
The loss of the 2021 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.
Floor plan facility: We finance most purchases of products for sale to our customers through the 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 June 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 $138.0 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 June 30, 2022, the outstanding balance under the revolving credit facility was $40.0 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 June 30, 2022, and March 31, 2022.
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 June 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 offices 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 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, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this 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.
| Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
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, and may be 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 June 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.
| Item 4. |
CONTROLS AND PROCEDURES
|
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 June 30, 2022.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in our internal control over financial reporting during the quarter ended June 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 8, “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 three months ended June 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
|
)
|
||||||||||||
| (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.
|
The timing and expiration date of the current stock repurchase authorizations are included in Note 10, “Stockholders’ Equity” to our unaudited consolidated financial
statements included elsewhere in this report.
| Item 3. |
DEFAULTS UPON SENIOR SECURITIES
|
Not Applicable.
Not Applicable.
| Item 5. |
OTHER INFORMATION
|
None.
| Item 6. |
EXHIBITS
|
|
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)
|
||
|
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.
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101.INS
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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)
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101.SCH
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Inline XBRL Taxonomy Extension Schema Document
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101.CAL
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Inline XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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Inline XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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Inline XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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Inline XBRL Taxonomy Extension Presentation Linkbase Document
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104
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Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document)
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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.
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ePlus inc.
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Date: August 3, 2022
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/s/ MARK P. MARRON
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By: Mark P. Marron
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Chief Executive Officer and President
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(Principal Executive Officer)
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Date: August 3, 2022
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/s/ ELAINE D. MARION
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By: Elaine D. Marion
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Chief Financial Officer
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(Principal Financial Officer)
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Exhibit 31.1
CERTIFICATION
I, Mark P. Marron, certify that:
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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;
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| 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:
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| 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;
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| 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
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| 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: August 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:
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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;
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| 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:
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| 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;
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| 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
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| 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: August 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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Exhibit 32
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 June 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: August 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.