Eplus Inc 10-Q for FY2025 Q3
Eplus Inc (PLUS)
10-Q
2025-02-06
For: 2024-12-31
View Original
Added on
April 12, 2026
About this 10-Q
Eplus Inc filed this 10-Q on February 6, 2025, covering the quarter ended December 31, 2024 (FY2025 Q3).
Headline figures
Quarter ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $510.97M
- up 0.4% from $509.06M a year earlier
- Net income
- $24.13M
- down 11.5% from net income of $27.28M a year earlier
- Diluted EPS
- $0.91
- down 10.8% from $1.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended December 31, 2024
OR
For the transition period from____ to ____.
Commission file number: 1-34167
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
(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:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
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:
| | Accelerated filer ☐ |
| Non-accelerated filer ☐ | Smaller reporting company ☐ Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of common stock outstanding as of February 2, 2025, was 26,616,420 .
TABLE OF CONTENTS
ePlus inc. AND SUBSIDIARIES
|
Part I. Financial Information:
|
|||
|
Item 1.
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|
5
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6
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7
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8
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10
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11
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Item 2.
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29
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Item 3.
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47
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Item 4.
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48
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Part II. Other Information:
|
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Item 1.
|
48
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Item 1A.
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48
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Item 2.
|
49
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Item 3.
|
49
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||
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Item 4.
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49
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Item 5.
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49
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Item 6.
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50
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51
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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 later 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:
•
exposure to fluctuation in foreign currency rates, interest rates, and inflation, including as a result of national and international political instability fostering uncertainty and volatility in the global economy, which may cause increases in our costs and wages and our ability to increase prices to our customers, negative impacts to the arrangements that have pricing commitments over the term of an agreement and/or the loss of key lenders or constricting credit markets as a result of changing interest rates, which may result in adverse changes in our results of operations and financial position;
•
significant adverse changes in our relationship with one or more of our larger customer accounts or vendors, including decreased account profitability, reductions in contracted services, or a loss of such relationships;
•
a material decrease in the credit quality of our customer base, or a material increase in our credit losses, including by the federal government’s actual or attempted termination for convenience, other contract termination or non-performance;
•
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;
•
our ability to remain secure during a cybersecurity attack or other information technology (“IT”) outage, including disruptions in our, our vendors or other third party’s IT systems and data and audio communication networks;
•
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 and appropriately providing required notice and disclosure of cybersecurity incidents when and if necessary;
•
ongoing remote work trends, and the increase in cybersecurity attacks that have occurred while employees work remotely and our ability to adequately train our personnel to prevent a cyber event;
•
the possibility of a reduction of vendor incentives provided to us;
•
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
•
risks relating to use or capabilities of artificial intelligence (“AI”) including social and ethical risks;
•
our ability to manage a diverse product set of solutions, including AI products and services, in highly competitive markets with a number of key vendors;
•
our ability to maintain our proprietary software and update our technology infrastructure to remain competitive in the marketplace and our dependence on continued innovations in hardware, software, and service offerings, including AI products and services, by our vendors and our ability to partner with them;
•
changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), software as a service (“SaaS”), platform as a service (“PaaS”), and AI;
•
our ability to increase the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
•
our ability to increase the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
•
loss of our credit facility or credit lines with our vendors may restrict our current and future operations;
•
domestic and international economic and other legal and regulatory changes, ambiguity and uncertainty (e.g., tariffs, sanctions, tax laws and trade agreements);
•
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 delay 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;
•
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;
•
our inability to identify acquisition candidates, perform sufficient due diligence prior to completing an acquisition, successfully integrate a completed acquisition, or identify an opportunity for or successfully completing a business disposition, may affect our earnings;
•
our service agreements may require external audits and deficiencies in any such reports could negatively affect our client engagements, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
•
a natural disaster or other adverse event at one of our primary configuration centers, data centers, or a third-party provider location could negatively impact our business;
•
failure to comply with public sector contracts, or applicable laws or regulations;
•
our ability to raise capital, maintain or increase as needed our lines of credit with vendors or our floor plan facility, obtain debt for our financing transactions, or the effect of those changes on our common stock price;
•
our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies; and
•
our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, the costs associated with licensing required technology.
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 Part II, Item 1A, “Risk Factors” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).
PART I. FINANCIAL INFORMATION
ePlus inc. AND SUBSIDIARIES
(in thousands, except per share amounts)
|
December 31, 2024
|
March 31, 2024
| |||||||
|
ASSETS
| ||||||||
|
Current assets:
| ||||||||
|
Cash and cash equivalents
|
$
| |
$
| | ||||
|
Accounts receivable—trade, net
| | | ||||||
|
Accounts receivable—other, net
| | | ||||||
|
Inventories
| | | ||||||
|
Financing receivables—net, current
| | | ||||||
|
Deferred costs
| | | ||||||
|
Other current assets
|
| |
| | ||||
|
Total current assets
| | | ||||||
|
Financing receivables and operating leases—net
| | | ||||||
|
Deferred tax asset
| | | ||||||
|
Property, equipment, and other assets—net
| | | ||||||
|
Goodwill
| | | ||||||
|
Other intangible assets—net
| | | ||||||
|
TOTAL ASSETS
|
$
| |
$
| | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
| ||||||||
|
LIABILITIES
| ||||||||
|
Current liabilities:
| ||||||||
|
Accounts payable
|
$
| |
$
| | ||||
|
Accounts payable—floor plan
| | | ||||||
|
Salaries and commissions payable
| | | ||||||
|
Deferred revenue
| | | ||||||
|
Non-recourse notes payable—current
| | | ||||||
|
Other current liabilities
| | | ||||||
|
Total current liabilities
| | | ||||||
|
Non-recourse notes payable—long-term
| | | ||||||
|
Other liabilities
| | | ||||||
|
TOTAL LIABILITIES
| | | ||||||
|
COMMITMENTS AND CONTINGENCIES (Note 10)
| ||||||||
|
STOCKHOLDERS' EQUITY
| ||||||||
| Preferred stock, $ | | | ||||||
| Common stock, $ | | | ||||||
|
Additional paid-in capital
| | | ||||||
| Treasury stock, at cost, | ( | ) | ( | ) | ||||
|
Retained earnings
| | | ||||||
|
Accumulated other comprehensive income—foreign currency translation adjustment
| | | ||||||
|
Total Stockholders' Equity
| | | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
| |
$
| | ||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands, except per share amounts)
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
Net sales
| ||||||||||||||||
|
Product
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Services
| | | | | ||||||||||||
|
Total
| | | | | ||||||||||||
|
Cost of sales
| ||||||||||||||||
|
Product
| | | | | ||||||||||||
|
Services
| | | | | ||||||||||||
|
Total
| | | | | ||||||||||||
|
Gross profit
| | | | | ||||||||||||
|
Selling, general, and administrative
| | | | | ||||||||||||
|
Depreciation and amortization
| | | | | ||||||||||||
|
Interest and financing costs
| | | | | ||||||||||||
|
Operating expenses
| | | | | ||||||||||||
|
Operating income
| | | | | ||||||||||||
|
Other income—net
| | | | | ||||||||||||
|
Earnings before tax
| | | | | ||||||||||||
|
Provision for income taxes
| | | | | ||||||||||||
|
Net earnings
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Net earnings per common share—basic
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Net earnings per common share—diluted
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Weighted average common shares outstanding—basic
| | | | | ||||||||||||
|
Weighted average common shares outstanding—diluted
| | | | | ||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
NET EARNINGS
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
OTHER COMPREHENSIVE INCOME, NET OF TAX:
| ||||||||||||||||
|
Foreign currency translation adjustments
| ( |
)
| | ( |
)
| | ||||||||||
|
Other comprehensive income (loss)
| ( |
)
| | ( |
)
| | ||||||||||
|
TOTAL COMPREHENSIVE INCOME
|
$
| |
$
| |
$
| |
$
| | ||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
| Nine Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
|
Cash flows from operating activities:
| ||||||||
|
Net earnings
|
$
| |
$
| | ||||
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating
activities:
| ||||||||
|
Depreciation and amortization
| | | ||||||
|
Provision for credit losses
| | | ||||||
|
Share-based compensation expense
| | | ||||||
|
Deferred taxes
| ( |
)
| ( |
)
| ||||
|
Loss (gain) on disposal of property, equipment, and operating lease equipment
| ( |
)
| ( |
)
| ||||
|
Changes in:
| ||||||||
|
Accounts receivable
| | ( |
)
| |||||
|
Inventories
| | | ||||||
|
Financing receivables—net
| ( |
)
| ( |
)
| ||||
|
Deferred costs and other assets
| ( |
)
| ( |
)
| ||||
|
Accounts payable—trade
| ( |
)
| | |||||
|
Salaries and commissions payable, deferred revenue, and other liabilities
| | | ||||||
|
Net cash provided by 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
| ( |
)
| ( |
)
| ||||
|
Cash used in acquisitions, net of cash acquired
| ( |
)
| ( |
)
| ||||
|
Net cash used in investing activities
| ( |
)
| ( |
)
| ||||
|
Cash flows from financing activities:
| ||||||||
|
Borrowings of non-recourse and recourse notes payable
| | | ||||||
|
Repayments of non-recourse and recourse notes payable
| ( |
)
| ( |
)
| ||||
|
Proceeds from issuance of common stock
| | | ||||||
|
Repurchase of common stock
| ( |
)
| ( |
)
| ||||
|
Payments to settle liabilities for acquisitions
| ( |
)
| | |||||
|
Net borrowings (repayments) on floor plan facility
| | ( |
)
| |||||
|
Net cash used in 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)
|
Nine Months Ended December 31,
| ||||||||
|
2024
|
2023
| |||||||
|
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
|
$
| |
$
| | ||||
|
Debt derecognized due to sales of financial assets
|
$
| ( |
)
|
$
| ( |
)
| ||
|
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)
|
Nine Months Ended December 31, 2024
| ||||||||||||||||||||||||||||
|
Accumulated
| ||||||||||||||||||||||||||||
|
Additional
|
Other
| |||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Treasury
|
Retained
|
Comprehensive
| ||||||||||||||||||||||||
|
Shares
|
Par Value
|
Capital
|
Stock
|
Earnings
|
Income
|
Total
| ||||||||||||||||||||||
|
Balance, March 31, 2024
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
|
Issuance of restricted stock awards
| | | ( |
)
| | | | | ||||||||||||||||||||
|
Issuance of common stock
| | | | | | | | |||||||||||||||||||||
|
Share-based compensation
| | | | | | | | |||||||||||||||||||||
|
Repurchase of common stock
| ( |
)
| | | ( |
)
| | | ( |
)
| ||||||||||||||||||
|
Net earnings
|
-
| | | | | | | |||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
| | | | | | | |||||||||||||||||||||
|
Balance, June 30, 2024
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
|
Issuance of restricted stock awards
| ( |
)
| | | | | | | ||||||||||||||||||||
|
Share-based compensation
| | | | | | | | |||||||||||||||||||||
|
Repurchase of common stock
| ( |
)
| | | ( |
)
| | | ( |
)
| ||||||||||||||||||
|
Net earnings
|
-
| | | | | | | |||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
| | | | | | | |||||||||||||||||||||
|
Balance, September 30, 2024
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
|
Issuance of restricted stock awards
| | | | | | | | |||||||||||||||||||||
|
Issuance of common stock
| | | | | | | | |||||||||||||||||||||
|
Share-based compensation
| | | | | | | | |||||||||||||||||||||
|
Repurchase of common stock
| ( |
)
| | | ( |
)
| | | ( |
)
| ||||||||||||||||||
|
Net earnings
|
-
| | | | | | | |||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
| | | | | ( |
)
| ( |
)
| |||||||||||||||||||
|
Balance, December 31, 2024
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
|
Nine Months Ended December 31, 2023
| ||||||||||||||||||||||||||||
|
Accumulated
| ||||||||||||||||||||||||||||
|
Additional
|
Other
| |||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Treasury
|
Retained
|
Comprehensive
| ||||||||||||||||||||||||
|
Shares
|
Par Value
|
Capital
|
Stock
|
Earnings
|
Income
|
Total
| ||||||||||||||||||||||
|
Balance, March 31, 2023
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
|
Issuance of restricted stock awards
| | | ( |
)
| | | | | ||||||||||||||||||||
|
Issuance of common stock
| | | | | | | | |||||||||||||||||||||
|
Share-based compensation
| | | | | | | | |||||||||||||||||||||
|
Repurchase of common stock
| ( |
)
| | | ( |
)
| | | ( |
)
| ||||||||||||||||||
|
Net earnings
|
-
| | | | | | | |||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
| | | | | | | |||||||||||||||||||||
|
Balance, June 30, 2023
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
|
Issuance of restricted stock awards
| | | | | | | | |||||||||||||||||||||
|
Share-based compensation
| | | | | | | | |||||||||||||||||||||
|
Repurchase of common stock
| ( |
)
| | | ( |
)
| | | ( |
)
| ||||||||||||||||||
|
Net earnings
|
-
| | | | | | | |||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
| | | | | ( |
)
| ( |
)
| |||||||||||||||||||
|
Balance, September 30, 2023
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
|
Issuance of restricted stock awards
| | | | | | | | |||||||||||||||||||||
|
Issuance of common stock
| | | | | | | | |||||||||||||||||||||
|
Share-based compensation
| | | | | | | | |||||||||||||||||||||
|
Repurchase of common stock
| ( |
)
| | | ( |
)
| | | ( |
)
| ||||||||||||||||||
|
Net earnings
|
-
| | | | | | | |||||||||||||||||||||
|
Foreign currency translation adjustment
|
-
| | | | | | | |||||||||||||||||||||
|
Balance, December 31, 2023
| |
$
| |
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| | ||||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
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 (“IT”) solutions which 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 and state and local government and educational institutions (“SLED”) in the United States (“US”) and select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, and Singapore.
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 and nine months ended December 31, 2024, and 2023, 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 and nine months ended December 31, 2024, and 2023, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ended March 31, 2025, 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, 2024 (“2024 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 represented approximately 27 % and 36 % of our technology business net sales for the three months ended December 31, 2024, and 2023, respectively, and 34 % and 45 % of our technology business net sales for the nine months ended December 31, 2024, and 2023, respectively.
SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2024, except for the changes provided in Note 2, “Recent Accounting Pronouncements.”
2.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. This update is effective for annual periods beginning in our fiscal year ending March 31, 2025, and interim periods beginning in the first quarter of our fiscal year ending March 31, 2026. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This update is effective for annual periods beginning in our fiscal year ending March 31, 2026. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures.
3.
REVENUES
ACCOUNTS RECEIVABLE AND CONTRACT ASSETS
Our balance in accounts receivable—trade, net includes our accounts receivable recognized from contracts with customers and contract assets. Contract assets represent our right to consideration in exchange for goods or services that we transferred to a customer when that right is conditioned on something other than the passage of time.
|
December 31, 2024
|
March 31, 2024
| |||||||
|
Accounts receivable
|
$
| |
$
| | ||||
|
Contract assets
| | | ||||||
|
Allowance for credit losses
| ( |
)
| ( |
)
| ||||
|
Total accounts receivable—trade, net
|
$
| |
$
| | ||||
In addition, we had $60.3 million and $44.6 million of receivables from contracts with customers included within financing receivables as of December 31, 2024, and March 31, 2024, respectively.
CONTRACT LIABILITIES
|
December 31, 2024
|
March 31, 2024
| |||||||
|
Current (included in deferred revenue)
|
$
| |
$
| | ||||
|
Non-current (included in other liabilities)
|
$
| |
$
| | ||||
Revenue recognized from the beginning contract liability balance was $24.8 million and $97.3 million for the three and nine months ended December 31, 2024, respectively, and $15.5 million and $70.1 million for the three and nine months ended December 31, 2023, respectively.
PERFORMANCE OBLIGATIONS
| | $ | | ||
| | | |||
| | | |||
| | | |||
| | | |||
| Total remaining performance obligations | $ | |
The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed.
4.
FINANCING RECEIVABLES AND OPERATING LEASES
Our financing receivables and operating leases consist of our financing receivables from notes receivable and sales-type leases and the carrying value of our assets that we are leasing to our customers on leases that are classified as operating leases. We generally lease IT, communication, and medical equipment. Our lease terms generally range from 2 to 6 years, with most terms ranging between 3 to 4 years. Our leases often provide the lessee the option to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option. We classify our leases as either sales-type leases or operating leases. Additionally, we finance purchases of third-party software and third-party services for our customers, which we classify as notes receivable.
|
Three months Ended December 31,
|
Nine months Ended December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
Net sales
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Cost of sales
| | | | | ||||||||||||
|
Gross profit
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Three months Ended December 31,
|
Nine months Ended December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
Interest income on sales-type leases
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Lease income on operating leases
|
$
| |
$
| |
$
| |
$
| | ||||||||
FINANCING RECEIVABLES—NET
|
Notes
|
Sales-Type Lease
|
Financing
| ||||||||||
|
December 31, 2024
|
Receivable
|
Receivables
|
Receivables
| |||||||||
|
Gross receivables
|
$
| |
$
| |
$
| | ||||||
|
Unguaranteed residual value (1)
| | | | |||||||||
|
Unearned income
| ( |
)
| ( |
)
| ( |
)
| ||||||
|
Allowance for credit losses (2)
| ( |
)
| ( |
)
| ( |
)
| ||||||
|
Total, net
|
$
| |
$
| |
$
| | ||||||
|
Reported as:
| ||||||||||||
|
Current
|
$
| |
$
| |
$
| | ||||||
|
Long-term
| | | | |||||||||
|
Total, net
|
$
| |
$
| |
$
| | ||||||
(1)
|
Notes
|
Sales-Type Lease
|
Financing
| ||||||||||
|
March 31, 2024
|
Receivable
|
Receivables
|
Receivables
| |||||||||
|
Gross receivables
|
$
| |
$
| |
$
| | ||||||
|
Unguaranteed residual value (1)
| | | | |||||||||
|
Unearned income
| ( |
)
| ( |
)
| ( |
)
| ||||||
|
Allowance for credit losses (2)
| ( |
)
| ( |
)
| ( |
)
| ||||||
|
Total, net
|
$
| |
$
| |
$
| | ||||||
|
Reported as:
| ||||||||||||
|
Current
|
$
| |
$
| |
$
| | ||||||
|
Long-term
| | | | |||||||||
|
Total, net
|
$
| |
$
| |
$
| | ||||||
(1)
Includes unguaranteed residual values of $3,718 thousand that we retained after selling the related lease receivable.
(2)
OPERATING LEASES—NET
|
December 31, 2024
|
March 31, 2024
| |||||||
|
Cost of equipment under operating leases
|
$
| |
$
| | ||||
|
Accumulated depreciation
| ( |
)
| ( |
)
| ||||
|
Operating leases—net (1)
|
$
| |
$
| | ||||
(1)
TRANSFERS OF FINANCIAL ASSETS
We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements.
For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of December 31, 2024, and March 31, 2024, we had financing receivables of $34.4 million and $45.8 million, respectively, and operating leases of $0.8 million and $2.8 million, respectively, which were collateral for non-recourse notes payable. See Note 8, “Notes Payable and Credit Facility.”
For transfers accounted for as a sale, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended December 31, 2024, and 2023, we recognized net gains of $8.5 million and $8.1 million, respectively, and total proceeds from these sales were $192.6 million and $422.1 million, respectively. For the nine months ended December 31, 2024, and 2023, we recognized net gains of $24.3 million and $16.3 million, respectively, and total proceeds from these sales were $517.6 million and $704.3 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 December 31, 2024, and March 31, 2024, we had deferred revenue of $0.3 million and $0.4 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 December 31, 2024, and March 31, 2024, the total potential payments that could result from these indemnities was immaterial.
5.
LESSEE ACCOUNTING
We lease office space for periods of up to six years ten years 1.8 million and $1.4 million for the three months ended December 31, 2024, and 2023, respectively, and $4.7 million and $4.4 million for the nine months ended December 31, 2024, and 2023, respectively.
6.
GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
|
Product
|
Professional
Services
|
Managed
Services
|
Total
| |||||||||||||
|
Balance, March 31, 2024 (1)
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Acquisitions
| | | | | ||||||||||||
|
Foreign currency translations
| ( |
)
| ( |
)
| ( |
)
| ( |
)
| ||||||||
|
Balance, December 31, 2024 (1)
|
$
| |
$
| |
$
| |
$
| | ||||||||
(1)
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.
We added $41.3 million in goodwill from our acquisition of Bailiwick Services, LLC (“Bailiwick”) that closed on August 19, 2024. Please refer to Note 15, “Business Combinations” for details of the Bailiwick acquisition.
We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value.
In our annual test as of October 1, 2024, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the fair value of our product, professional services, and managed services reporting units continued to exceed their carrying value.
OTHER INTANGIBLE ASSETS
|
December 31, 2024
|
March 31, 2024
| |||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
| |||||||||||||||||||
|
Customer relationships
|
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| ( |
)
|
$
| | ||||||||||
|
Trade names and other
| | ( |
)
| | | ( |
)
| | ||||||||||||||||
|
Total
|
$
| |
$
| ( |
)
|
$
| |
$
| |
$
| ( |
)
|
$
| | ||||||||||
Our customer relationships, trade names, and other purchased intangibles are generally amortized between 5 10
Total amortization expense for purchased intangibles was $6.0 million and $3.9 million for the three months ended December 31, 2024, and 2023, respectively, and $14.2 million and $11.3 million for the nine months ended December 31, 2024, and 2023, respectively.
Our capitalized software development had a carrying value of $0.1 million and $0.2 million on December 31, 2024, and March 31, 2024, respectively.
7.
ALLOWANCE FOR CREDIT LOSSES
|
Accounts
Receivable
|
Notes
Receivable
|
Lease
Receivables
|
Total
| |||||||||||||
|
Balance as of April 1, 2024
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Provision for credit losses
| | | | | ||||||||||||
|
Write-offs and other
| ( |
)
| | ( |
)
| ( |
)
| |||||||||
|
Balance as of December 31, 2024
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Accounts
Receivable
|
Notes
Receivable
|
Lease
Receivables
|
Total
| |||||||||||||
|
Balance as of April 1, 2023
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Provision for credit losses
| | | | | ||||||||||||
|
Write-offs and other
| ( |
)
| | ( |
)
| ( |
)
| |||||||||
|
Balance as of December 31, 2023
|
$
| |
$
| |
$
| |
$
| | ||||||||
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 1 %.
●
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 in the range of 1 % to 8 %.
●
Low CQR: This rating includes accounts that are impaired or may become impaired due to marginal credit and other events or risks that may impact collection. The loss rates in this category in the normal course are greater than 8 % and up to 100 %.
|
Amortized cost basis by origination year ending March 31,
| ||||||||||||||||||||||||||||||||||||
|
2025
|
2024
|
2023
|
2022
|
2021
|
2020 and
prior
|
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) Excludes unguaranteed residual values of $4,751 thousand that we retained after selling the related lease
receivable.
(2) Transfers consist of receivables that have
been transferred to third-party financial institutions on a non-recourse basis.
|
Amortized cost basis by origination year ending March 31,
| ||||||||||||||||||||||||||||||||||||
|
2024
|
2023
|
2022
|
2021
|
2020
|
2019 and
prior
|
Total
|
Transfers
(2)
|
Net credit
exposure
| ||||||||||||||||||||||||||||
|
Notes receivable:
| ||||||||||||||||||||||||||||||||||||
|
High CQR
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| ( |
)
|
$
| | |||||||||||||||||
|
Average CQR
| | | | | | | | ( |
)
| | ||||||||||||||||||||||||||
|
Low CQR
| | | | | | | | | | |||||||||||||||||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| ( |
)
|
$
| | |||||||||||||||||
|
Lease receivables:
| ||||||||||||||||||||||||||||||||||||
|
High CQR
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| ( |
)
|
$
| | |||||||||||||||||
|
Average CQR
| | | | | | | | ( |
)
| | ||||||||||||||||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| ( |
)
|
$
| | |||||||||||||||||
|
Total amortized cost (1)
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| ( |
)
|
$
| | |||||||||||||||||
(1) Excludes unguaranteed residual values of $3,718 thousand that we retained after selling the related lease
receivable.
(2) Transfers consist of receivables that have
been transferred to third-party financial institutions on a non-recourse basis.
|
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
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||||||||
|
31-60 Days
Past Due
|
61-90 Days
Past Due
|
> 90 Days
Past Due
|
Total Past
Due
|
Current
|
Total Billed
|
Unbilled
|
Amortized
Cost
| |||||||||||||||||||||||||
|
Notes receivable
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||||||||
|
Lease receivables
| | | | | | | | | ||||||||||||||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||||||||
Our financial assets on nonaccrual status were not significant as
of December 31, 2024, and March 31, 2024.
8. NOTES PAYABLE AND CREDIT FACILITY
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 business through a credit facility with Wells
Fargo Commercial Distribution Finance, LLC (“WFCDF”). The WFCDF
credit facility (the “WFCDF Credit Facility”) has a floor plan facility and a
revolving credit facility.
Our
credit facility is provided by a syndicate of banks for which WFCDF acts as
administrative agent and consists of a discretionary senior secured floor plan
facility in favor of the Borrowers in the aggregate principal amount of up to $500.0
million, together with a sublimit for a revolving credit facility for up to $200.0
million.
Under
the accounts payable floor plan facility, we had an outstanding balance of $115.7
million and $105.1 million as of December 31, 2024, and March 31, 2024,
respectively. On our balance sheet, our liability under the accounts payable
floor plan facility is presented as accounts payable – floor plan.
We use
the floor plan to facilitate the purchase of inventory from designated
suppliers. WFCDF pays our suppliers and provides us extended payment terms. We
pay down the floor plan facility on three specified dates each month, generally
45 to 60 days from the invoice date. We do not incur any interest or other
incremental expenses for the floor plan facility. We are not involved in
establishing the terms or conditions of the arrangements between our suppliers
and WFCDF.
Under
the revolving credit facility, we had no
The
fair value of the outstanding balances under the WFCDF Credit Facility were
approximately equal to their carrying value as of December 31, 2024, and March
31, 2024.
The
amount of principal available is subject to a borrowing base determined by,
among other things, the Borrowers’ accounts receivable and inventory, each
pursuant to a formula and subject to certain reserves. Loans accrue interest at
a rate per annum equal to Term SOFR Rate plus a Term Adjustment of 0.10 %
plus an Applicable Margin of 1.75 %.
Our
borrowings under the WFCDF Credit Facility are secured by the assets of the
Borrowers. Additionally, the WFCDF Credit Facility requires a guaranty of $10.5
million by ePlus inc.
Under
the WFCDF Credit Facility, the Borrowers are restricted in their ability to pay
dividends to ePlus inc. unless their available borrowing meets or met certain
thresholds. As of December 31, 2024, and March 31, 2024, their available
borrowing met the thresholds such that there were no restrictions on their
ability to pay dividends.
The
WFCDF Credit Facility has an initial one-year term, which automatically renews
for successive -year terms thereafter. However, either the Borrowers or
WFCDF may terminate the WFCDF Credit Facility at any time by providing a
written termination notice to the other party no less than 90 days prior to
such termination.
The
loss of the WFCDF Credit Facility could have a material adverse effect on our
future results as we currently rely on this facility and its components for
daily working capital and liquidity for our technology business and as an
operational function of our accounts payable process.
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 December 31, 2024, and
March 31, 2024, we had $33.8 million and $36.2 million, respectively, of
non-recourse borrowings that were collateralized by investments in notes and
leases. Principal and interest payments are generally due periodically 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
6.40 % and 6.49 %, as of December 31, 2024, and March 31, 2024, respectively.
9. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
We are subject to
various legal proceedings, as well as demands, claims and threatened
litigation, that arise in the normal course of our business and have not been
fully resolved. The ultimate outcome of any litigation or 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 our expectations, our financial
condition and operating results for that period may be adversely affected. As
of December 31, 2024, we do not believe that there is a reasonable possibility
that any material loss exceeding the amounts already recognized for these
proceedings and matters, if any, has been incurred. Any outcome, whether
favorable or unfavorable, may materially and adversely affect us due to legal
costs and expenses, diversion of management attention and other factors. We
expense legal costs in the period incurred. We cannot assure that additional
contingencies of a legal nature or contingencies having legal aspects will not
be asserted against us in the future, and these matters could relate to prior,
current, or future transactions or events.
10. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings
available to common shareholders by the basic weighted average number of shares
of common stock outstanding during each period. Diluted earnings per share is
calculated by dividing net earnings available to common shareholders by the
basic weighted average number of shares of common stock outstanding plus common
stock equivalents during each period.
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, | |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
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 common shares outstanding — diluted
| | | | | ||||||||||||
|
Earnings per common share — basic
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Earnings per common share — diluted
|
$
| |
$
| |
$
| |
$
| | ||||||||
11. STOCKHOLDERS’ EQUITY
SHARE
REPURCHASE PLAN
On May 18, 2024, our board of directors authorized the repurchase
of up to 1,250,000 shares of our outstanding common stock, over a 12-month
period beginning May 28, 2024. Previously, on March 22, 2023, our board of
directors had authorized the repurchase of up to 1,000,000 shares of our
outstanding common stock, over a 12-month period beginning May 28, 2023. Under
both authorized share repurchase programs, purchases may be made from time to
time in the open market, or in privately negotiated transactions, subject to availability
and the plan terms. Any repurchased shares will have the status of treasury
shares and may be used, when needed, for general corporate purposes.
During the nine months ended December 31, 2024, we purchased 380,522
shares of our outstanding common stock at a value of $30.0 million under the
share repurchase plan; we also purchased 52,450 shares of common stock at a
value of $3.8 million to satisfy tax withholding obligations relating to the
vesting of employees’ restricted stock.
During the nine months ended December 31, 2023, we purchased 131,263
shares of our outstanding common stock at a value of $6.7 million under the
share repurchase plan; we also purchased 53,945 shares of common stock at a
value of $3.0 million to satisfy tax withholding obligations relating to the
vesting of employees’ restricted stock.
12. SHARE-BASED
COMPENSATION
SHARE-BASED PLANS
As of December 31, 2024, 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
2024 Non-Employee Director Long-Term Incentive Plan (“2024 Director LTIP”) and
(3) the 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”).
On September 12, 2024, our
shareholders approved the 2024 Director LTIP. The 2024 Director LTIP replaces
the 2017 Director LTIP. Beginning September 12, 2024, we permanently ceased
issuing any additional shares under the 2017 Director LTIP. The maximum
aggregate number of shares that may be issued as restricted shares under the
2024 Director LTIP is 300,000 shares.
These share-based plans
define fair market value as the closing sales price of a share of common stock
as quoted on any established stock exchange for such date or the most recent
trading day preceding such date if there were no trades on such date.
RESTRICTED STOCK ACTIVITY
For
the nine months ended December 31, 2024, we granted 729 restricted shares of
our stock under the 2017 Director LTIP, 6,628 restricted shares of our stock
under the 2024 Director LTIP, and 121,097 restricted shares of our stock under
the 2021 Employee LTIP. For the nine months ended December 31, 2023, we granted 13,120
shares of our stock under the 2017 Director LTIP, and 152,865 restricted shares
of our stock under the 2021 Employee LTIP. A summary of our restricted stock activity is as follows:
|
Number of Shares
|
Weighted Average Grant-date Fair Value
| |||||||
|
Nonvested April 1, 2024
| |
$
| | |||||
|
Granted
| |
$
| | |||||
|
Vested
| ( |
)
|
$
| | ||||
|
Forfeited
| ( |
)
|
$
| | ||||
|
Nonvested December 31, 2024
| |
$
| | |||||
PERFORMANCE STOCK UNITS
Beginning with the fiscal year ended March 31, 2024, we granted
Performance Stock Units (“PSUs”) to our executive officers under our 2021
Employee LTIP. The PSUs will vest based on the achievement of certain
performance goals at the end of a -year performance period. The PSUs
represent the right to receive shares of our common stock at the time of
vesting. The total number of PSUs that vest range from 0 % to 200 % of the target
number of PSUs based on our achievement of certain performance targets.
|
Number of units
|
Weighted Average Grant-date Fair Value
| |||||||
|
Nonvested April 1, 2024
| |
$
| | |||||
|
Granted
| |
$
| | |||||
|
Vested
| |
$
| | |||||
|
Forfeited
| |
$
| | |||||
|
Nonvested December 31, 2024
| |
$
| | |||||
EMPLOYEE
STOCK PURCHASE PLAN
We provide
eligible employees the opportunity to purchase shares of our stock through the
2022 Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible employees
may purchase up to an aggregate of 2.50 million shares of our stock. Employees
in this plan contribute part of their earnings over a six -month offering period.
At the end of each offering period, employees purchase our shares using their
contributions at a discount off the lesser of the closing market price on the
first or the last trading day of each offering period. During the nine months
ended December 31, 2024, and December 31, 2023, we issued 58,064 shares at a weighted
average price of $62.61 per share and 70,715 shares at a weighted average price
of $42.69 per share, respectively, under the ESPP. As of December 31, 2024,
there were 2.37 million shares remaining under the ESPP.
COMPENSATION
EXPENSE
|
Three Months Ended December 31,
|
Nine Months Ended December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
Equity-based compensation expense
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Income tax benefit
| ( |
)
| ( |
)
| ( |
)
| ( |
)
| ||||||||
We recognized the income tax
benefit as a reduction to our provision for income taxes. As of December 31,
2024, the total unrecognized compensation expense related to non-vested
restricted stock was $13.0 million, which is expected to be recognized over a
weighted-average period of 30 months.
We
also provide our employees with a contributory 401(k) profit sharing plan (the
“401(k) plan”), to which we may contribute from time to time at our sole
discretion. Employer contributions to the 401(k) plan are always fully vested.
Our estimated contribution expense to the 401(k) plan for the three months
ended December 31, 2024, and 2023, were $1.5 million and $1.0 million,
respectively. For the nine months ended December 31, 2024, and 2023, our
estimated contribution expense for the plan was $4.2 million and $3.6 million,
respectively.
13. INCOME
TAXES
Our provision for income tax expense
was $8.0 million and $30.2 million for the three and nine months ended December
31, 2024, as compared to $11.1 million and $36.1 million for the same three-and
nine-month periods in the prior year. Our effective tax rate for the three and nine
months ended December 31, 2024, was 25.0 % and 26.7 % respectively, compared with
29.0 % and 27.8 %, respectively, for the same three- and nine-month periods in
the prior year. Our effective income tax rate for the three and nine months
ended December 31, 2024, was lower compared to the same three- and nine-month periods
in the prior year primarily due to lower state taxes. The effective tax rate
for the three and nine months ended December 31, 2024, and December 31, 2023,
differed from the US federal statutory rate of 21.0
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
|
Fair Value Measurement Using
| ||||||||||||||||
|
Recorded
Amount
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
| |||||||||||||
|
December 31, 2024
| ||||||||||||||||
|
Assets:
| ||||||||||||||||
|
Money market funds
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
March 31, 2024
| ||||||||||||||||
|
Assets:
| ||||||||||||||||
|
Money market funds
|
$
| |
$
| |
$
| |
$
| | ||||||||
15. BUSINESS COMBINATIONS
BAILIWICK SERVICES, LLC
On August 19, 2024, our
subsidiary, ePlus Technology, inc., acquired 100 % of the membership
interests of Bailiwick. Based near Minneapolis, Minnesota, Bailiwick is a
provider of professional and managed services with nearly 30 years in the
business. Bailiwick specializes in serving enterprise customers that operate
large store, branch, and campus footprints predominantly in the retail,
financial services, restaurant, and hospitality markets.
Our preliminary sum for
consideration transferred is $124.9 million, which consists of $126.2 million
paid in cash at closing, less $1.5 million cash acquired, plus $0.2 million
paid in December 2024 to the sellers based on adjustments to a determination of
the total net assets delivered. Our preliminary allocation of the purchase
consideration to the assets acquired and liabilities assumed is presented below
(in thousands):
|
Acquisition Date Amount
| ||||
|
Accounts receivable
|
$
| | ||
|
Contract assets
| | |||
|
Other assets
| | |||
|
Identified intangible assets
| | |||
|
Accounts payable and other liabilities
| ( |
)
| ||
|
Contract liabilities
| ( |
)
| ||
|
Total identifiable net assets
| | |||
|
Goodwill
| | |||
|
Total purchase consideration
|
$
| | ||
The identified
intangible assets of $58.0 million consists of customer relationships of $49.3
million with an estimated useful life of ten years and trade name of $8.7
million with a preliminary useful life of seven years .
We recognized goodwill
related to this transaction of $41.3 million, which was assigned to our
professional services and product segments. The goodwill recognized in the Bailiwick
acquisition is attributable to the acquired assembled workforce and expected
synergies, none of which qualify for recognition as a separate intangible
asset. The total amount of goodwill expected to be deductible for tax purposes is
$44.4 million.
The amount of revenues
and earnings of the acquiree since the acquisition date are not material.
Likewise, the impact to the revenue and earnings of the combined entity for the
current reporting period as though the acquisition date had been April 1, 2024,
is not material.
NETWORK SOLUTIONS GROUP (“NSG”)
On April 30, 2023, our
subsidiary, ePlus Technology, inc., acquired certain assets and
liabilities of NSG, formerly a business unit of CCI Systems, Inc., a
Michigan-based provider of networking services and solutions. This acquisition is
helping to drive additional growth for us in the service provider end-markets
with enhanced engineering, sales, and services delivery capabilities specific
to the industry.
Our sum for
consideration transferred was $48.6 million, which consists of $59.6 million
paid in cash at closing minus $11.0 million that was paid back to us during the
quarter ended September 30, 2023, by the sellers based on adjustments to a
determination of the total net assets delivered. Our allocation of the purchase
consideration to the assets acquired and liabilities assumed is presented below
(in thousands):
|
Acquisition Date Amount
| ||||
|
Accounts receivable
|
$
| | ||
|
Other assets
| | |||
|
Identified intangible asset
| | |||
|
Accounts payable and other liabilities
| ( |
)
| ||
|
Contract liabilities
| ( |
)
| ||
|
Total identifiable net assets
| | |||
|
Goodwill
| | |||
|
Total purchase consideration
|
$
| | ||
The identified
intangible asset of $30.0 million consists of customer relationships with an
estimated useful life of seven years . The fair value of acquired accounts receivable
equals the gross contractual amounts receivable. We expect to collect all
acquired accounts receivable.
We recognized goodwill
related to this transaction of $22.1 million, of which $19.7 million and $2.4
million were assigned to our product and professional services reporting
segments, respectively. The goodwill recognized in the acquisition is
attributable to the acquired assembled workforce and expected synergies, none
of which qualify for recognition as a separate intangible asset. The total
amount of goodwill is expected to be deductible for tax purposes.
The amount of revenues
and earnings of the acquiree since the acquisition date are not material.
Likewise, the impact to the revenue and earnings of the combined entity for the
current reporting period as though the acquisition date had been April 1, 2024,
is not material.
16. SEGMENT REPORTING
We manage and report our operating results through four operating segments: product, professional services, managed services, and financing.
We refer to the product segment, professional services segment,
and managed services segment collectively as our technology business. Our
product segment includes sales of IT products, third-party software, and
third-party maintenance, software assurance, and other third-party services. Our
professional services segment includes our advanced professional services,
staff augmentation, project management services, cloud consulting services and
security services. With our acquisition of Bailiwick, our professional services
segment also includes projects supporting digital
signage, electric vehicle (“EV”) charging solutions, loss prevention and
security, store openings, and store closings. Our managed services segment
includes our advanced managed services, service desk, storage-as-a-service,
cloud hosted services, cloud managed services and managed security services.
Our financing business segment
leases IT equipment, medical equipment, and other equipment, and sells the
off-lease equipment at the end of the lease. Additionally, our financing
business segment finances purchases of third-party software licenses, software
assurance, maintenance, and other services.
We measure the performance of the segments within our technology
business based on gross profit, while we measure our financing business segment
based on operating income. We do not present asset information for our
reportable segments as we do not provide asset information to our chief
operating decision maker.
|
Three Months Ended
|
Nine Months Ended
| |||||||||||||||
|
December 31,
|
December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
Net sales
| ||||||||||||||||
|
Product
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Professional services
| | | | | ||||||||||||
|
Managed services
| | | | | ||||||||||||
|
Financing
| | | | | ||||||||||||
|
Total
| | | | | ||||||||||||
|
Gross profit
| ||||||||||||||||
|
Product
| | | | | ||||||||||||
|
Professional services
| | | | | ||||||||||||
|
Managed services
| | | | | ||||||||||||
|
Financing
| | | | | ||||||||||||
|
Total
| | | | | ||||||||||||
|
Operating expenses
| ||||||||||||||||
|
Technology business
| | | | | ||||||||||||
|
Financing
| | | | | ||||||||||||
|
Total
| | | | | ||||||||||||
|
Operating income
| ||||||||||||||||
|
Technology business
| | | | | ||||||||||||
|
Financing
| | | | | ||||||||||||
|
Total
| | | | | ||||||||||||
|
Other income—net
| | | | | ||||||||||||
|
Earnings before tax
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Depreciation and amortization
| ||||||||||||||||
|
Technology business
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Financing
| | | | | ||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Interest and financing costs
| ||||||||||||||||
|
Technology business
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Financing
| | | | | ||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Selected Financial Data - Statement of Cash Flow
| ||||||||||||||||
|
Purchases of property, equipment, and operating lease equipment
| ||||||||||||||||
|
Technology business
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Financing
| | | | | ||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Three months ended December 31, 2024
| ||||||||||||||||||||
|
Product
|
Professional
Services
|
Managed
Services
|
Financing
|
Total
| ||||||||||||||||
|
Net Sales:
| ||||||||||||||||||||
|
Contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Financing and other
| | | | | | |||||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Timing and position as principal or agent:
| ||||||||||||||||||||
|
Transferred at a point in time as principal
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Transferred at a point in time as agent
| | | | | | |||||||||||||||
|
Transferred over time as principal
| | | | | | |||||||||||||||
|
Total revenue from contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Nine months ended December 31, 2024
| ||||||||||||||||||||
|
Product
|
Professional
Services
|
Managed
Services
|
Financing
|
Total
| ||||||||||||||||
|
Net Sales:
| ||||||||||||||||||||
|
Contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Financing and other
| | | | | | |||||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Timing and position as principal or agent:
| ||||||||||||||||||||
|
Transferred at a point in time as principal
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Transferred at a point in time as agent
| | | | | | |||||||||||||||
|
Transferred over time as principal
| | | | | | |||||||||||||||
|
Total revenue from contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Three months ended December 31, 2023
| ||||||||||||||||||||
|
Product
|
Professional
Services
|
Managed
Services
|
Financing
|
Total
| ||||||||||||||||
|
Net Sales:
| ||||||||||||||||||||
|
Contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Financing and other
| | | | | | |||||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Timing and position as principal or agent:
| ||||||||||||||||||||
|
Transferred at a point in time as principal
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Transferred at a point in time as agent
| | | | | | |||||||||||||||
|
Transferred over time as principal
| | | | | | |||||||||||||||
|
Total revenue from contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Nine months ended December 31, 2023
| ||||||||||||||||||||
|
Product
|
Professional
Services
|
Managed
Services
|
Financing
|
Total
| ||||||||||||||||
|
Net Sales:
| ||||||||||||||||||||
|
Contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Financing and other
| | | | | | |||||||||||||||
|
Total
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Timing and position as principal or agent:
| ||||||||||||||||||||
|
Transferred at a point in time as principal
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
|
Transferred at a point in time as agent
| | | | | | |||||||||||||||
|
Transferred over time as principal
| | | | | | |||||||||||||||
|
Total revenue from contracts with customers
|
$
| |
$
| |
$
| |
$
| |
$
| | ||||||||||
TECHNOLOGY BUSINESS DISAGGREGATION OF REVENUE
|
Three Months Ended December 31, |
Nine Months Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
|
Customer end market:
| ||||||||||||||||
|
Telecom, Media & Entertainment
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
State and local government and educational institutions
| | | | | ||||||||||||
|
Technology
| | | | | ||||||||||||
|
Healthcare
| | | | | ||||||||||||
|
Financial Services
| | | | | ||||||||||||
|
All others
| | | | | ||||||||||||
|
Net sales
| | | | | ||||||||||||
|
Less: Revenue from financing and other
| ( |
)
| ( |
)
| ( |
)
| ( |
)
| ||||||||
|
Revenue from contracts with customers
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Type:
| ||||||||||||||||
|
Networking
|
$
| |
$
| |
$
| |
$
| | ||||||||
|
Cloud
| | | | | ||||||||||||
|
Security
| | | | | ||||||||||||
|
Collaboration
| | | | | ||||||||||||
|
Other
| | | | | ||||||||||||
|
Total product
| | | | | ||||||||||||
|
Professional services
| | | | | ||||||||||||
|
Managed services
| | | | | ||||||||||||
|
Net sales
| | | | | ||||||||||||
|
Less: Revenue from financing and other
| ( |
)
| ( |
)
| ( |
)
| ( |
)
| ||||||||
|
Revenue from contracts with customers
|
$
| |
$
| |
$
| |
$
| | ||||||||
We
do not disaggregate sales by customer end market beyond the technology
business.
FINANCING
BUSINESS SEGMENT DISAGGREGATION OF REVENUE
We
analyze our revenues within our financing business 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 our revenues
from contracts with customers within our financing business segment are from
the sales of off-lease equipment.
The below is intended to further the reader’s understanding of our
consolidated financial condition and results of operations. It should be read
in conjunction with the unaudited consolidated financial statements included in
this Quarterly Report on Form 10-Q and the audited consolidated financial
statements included in our annual report on Form 10-K for the year ended March
31, 2024 (“2024 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 2024 Annual Report, as well as in our other filings
with the SEC.
EXECUTIVE OVERVIEW
BUSINESS DESCRIPTION
We
are a leading solutions provider in the areas of security, cloud, networking,
collaboration, artificial intelligence (“AI”), and emerging technologies to
domestic and foreign organizations across all industry segments. 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 services in an evolving market. As part of our
solutions, we provide consulting, professional services, managed services, IT
staff augmentation, and complete lifecycle management services in the areas of
security, cloud, networking, collaboration, and emerging technologies. With
our acquisition of Bailiwick Services, LLC (“Bailiwick”) on August 19, 2024,
our professional services segment also includes projects supporting digital
signage, EV charging solutions, loss prevention and security, store openings,
and store closings. 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-premises 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, and collaboration are specific skills in orchestration and
automation, application modernization, DevSecOps, zero-trust architectures,
data management, data visualization, analytics, network modernization, edge
computing 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,
Crowdstrike, Deepwatch, Dell EMC, F5 Networks, Foresite, Fortinet, Gigamon,
HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo
Alto Networks, Proficio, Pure Storage, Rubrik, Splunk, Varonis, and VMware by
Broadcom, among many others. We are an authorized reseller for thousands of
vendors, which enables us to provide our customers with new and evolving IT
solutions. Our employees possess top-level engineering certifications with a
broad range of leading IT vendors that enable us to offer multi-vendor IT
solutions that are optimized for each of our customers’ specific requirements.
Our hosted, proprietary software solutions are focused on giving our customers
more control over their IT supply chain, by automating and optimizing the
procurement and management of their owned, leased, and consumption-based
assets.
Our
scale and financial resources have enabled us to continue investing in
engineering and technology resources to stay at the forefront of technology
trends. Our expertise in core and emerging technologies, buttressed by our
robust portfolio of consulting, professional, and managed services, has enabled
us to remain a trusted advisor for our customers. With the addition of
Bailiwick, we can support large scale multi-site retailers with professional
and managed services relating to digital signage, EV charging
solutions, loss prevention and security, store openings, and store closings. In addition, we offer a wide range of consumption options
including leasing and financing for technology and other capital assets. We
believe our lifecycle approach offering of integrated solutions, services and
financing, asset management and our proprietary supply chain software, is
unique in the industry. This broad portfolio enables us to deliver a customized
customer experience that spans the continuum from fast delivery of
competitively priced products and services to subsequent management and
maintenance, and through to end-of-life disposal services. This approach
permits us to deploy sophisticated solutions to enable our customers’ business
outcomes.
Our
go-to-market strategy focuses primarily on diverse end-markets for middle
market to large enterprises. We serve customers in markets including telecom,
media and entertainment, technology, state and local government and educational
institutions (“SLED”), healthcare, retail, and financial services. We sell to
customers in the United States (“US”), which account for most of our sales, and
to customers in select international markets including the United Kingdom
(“UK”), the European Union (“EU”), India, and Singapore. Our technology
business segments accounted for 97% of our net sales and 71% of our operating
income, while our financing business segment accounted for 3% of our net sales
and 29% of our operating income, for the nine months ended December 31, 2024.
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, tariffs, sanctions, rising
interest rates, staffing shortages, remote work trends, and geopolitical
concerns may impact our customers’ willingness to spend on technology
and services. |
| • | We
are experiencing pricing pressure and project delays within our
enterprise accounts impacting our gross profit. Our financing quotes are
generally indexed to market rates 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. Also, we are experiencing constriction of funds available
for certain transactions and more stringent assessment of our financing
arrangements from our lenders. Additionally, there is uncertainty as to
how the change in the governmental administration will impact current
and future transactions involving the US federal government. |
| • | Our
customers’ top focus areas include AI, security, cloud solutions,
hybrid work environments (work from home, work from anywhere, and return
to office), as well as digital transformation and modernization. We
have developed advisory services, assessments, solutions, and
professional and managed services to meet these priorities and help our
customers attain and maintain their desired outcome. |
| • | Modernizing
legacy applications, data modernization, reducing operational
complexity, securing workloads, the cost and performance of IT
operations, and agility are changing the way companies are purchasing
and consuming technology. These are fueling deployments of solutions on
cloud, managed services and hybrid platforms and licensing models, which
may include invoicing over the term of the engagement. |
| • | Rapid
cloud adoption has led to customer challenges around increasing costs,
security concerns, and skillset gaps. These challenges are consistent
across all industries and business sizes. We have developed a Cloud
Managed Services portfolio to address these needs, allowing our clients
to focus on driving business outcomes via optimized and secure cloud
platforms. |
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 profit and margin, operating income margin,
net earnings, and net earnings per common share, in each case based on
information prepared in accordance with US GAAP, as well as the non-GAAP
financial measures and ratios, including Adjusted EBITDA, Adjusted EBITDA
margin, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share -
diluted.
We also 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. We use gross billings as an operational metric to assess the
volume of transactions or market share for our technology business
segments—product, professional services, and managed services—as well as to
understand changes in our accounts receivable and accounts payable balances and
our statement of cash flows. We believe our gross billings metrics will aid
investors in the same manner to evaluate our business.
These key indicators include
financial information that is prepared in accordance with US GAAP and presented
in our consolidated financial statements, as well as non-GAAP and operational
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 correspondingly not normally excluded or
included in the most directly comparable measure calculated and presented in
accordance with US GAAP. Our use of non-GAAP information as analytical tools
has limitations, and you should not consider them in isolation or as
substitutes for analysis of our financial results reported under GAAP, as these
measures used by management may differ from similar measures used by other
companies, even when similar terms are used to identify such measures.
In footnotes (1) and (2) of the
tables that immediately follow the next paragraph are our reasons for using and
presenting Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP: Net earnings and
Non-GAAP: Net earnings per common share-diluted.
The following tables provide our key business metrics for our consolidated entity, our technology business segments- consisting of our product, professional services, and managed services segments- and our financing business segment (in thousands, except per share amounts):
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
Consolidated | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Financial metrics | ||||||||||||||||
Net sales | $ | 510,965 | $ | 509,055 | $ | 1,570,675 | $ | 1,670,841 | ||||||||
Gross profit | $ | 140,885 | $ | 133,810 | $ | 423,357 | $ | 420,448 | ||||||||
Gross margin | 27.6 | % | 26.3 | % | 27.0 | % | 25.2 | % | ||||||||
Operating income margin | 5.6 | % | 7.5 | % | 6.8 | % | 7.7 | % | ||||||||
Net earnings | $ | 24,133 | $ | 27,282 | $ | 82,782 | $ | 93,793 | ||||||||
Net earnings margin | 4.7 | % | 5.4 | % | 5.3 | % | 5.6 | % | ||||||||
Net earnings per common share - diluted | $ | 0.91 | $ | 1.02 | $ | 3.10 | $ | 3.52 | ||||||||
Non-GAAP financial metrics | ||||||||||||||||
Non-GAAP: Net earnings (1) | $ | 28,084 | $ | 31,546 | $ | 94,909 | $ | 106,399 | ||||||||
Non-GAAP: Net earnings per common share - diluted (1) | $ | 1.06 | $ | 1.18 | $ | 3.56 | $ | 3.99 | ||||||||
Adjusted EBITDA (2) | $ | 39,149 | $ | 46,189 | $ | 134,415 | $ | 153,636 | ||||||||
Adjusted EBITDA margin (2) | 7.7 | % | 9.1 | % | 8.6 | % | 9.2 | % | ||||||||
Technology business segments | ||||||||||||||||
Financial metrics | ||||||||||||||||
Net sales | ||||||||||||||||
Product | $ | 379,472 | $ | 419,478 | $ | 1,226,397 | $ | 1,418,581 | ||||||||
Professional services | 69,497 | 40,044 | 168,676 | 113,870 | ||||||||||||
Managed services | 44,150 | 34,640 | 126,827 | 99,335 | ||||||||||||
Total | $ | 493,119 | $ | 494,162 | $ | 1,521,900 | $ | 1,631,786 | ||||||||
Gross profit | ||||||||||||||||
Product | $ | 84,046 | $ | 91,919 | $ | 271,910 | $ | 308,059 | ||||||||
Professional services | 27,841 | 17,332 | 68,879 | 47,852 | ||||||||||||
Managed services | 13,160 | 11,015 | 38,333 | 31,006 | ||||||||||||
Total | $ | 125,047 | $ | 120,266 | $ | 379,122 | $ | 386,917 | ||||||||
Gross margin | ||||||||||||||||
Product | 22.1 | % | 21.9 | % | 22.2 | % | 21.7 | % | ||||||||
Professional services | 40.1 | % | 43.3 | % | 40.8 | % | 42.0 | % | ||||||||
Managed services | 29.8 | % | 31.8 | % | 30.2 | % | 31.2 | % | ||||||||
Total | 25.4 | % | 24.3 | % | 24.9 | % | 23.7 | % | ||||||||
Operating income | $ | 16,930 | $ | 28,667 | $ | 76,287 | $ | 108,048 | ||||||||
Non-GAAP financial metric | ||||||||||||||||
Adjusted EBITDA (2) | $ | 27,498 | $ | 36,725 | $ | 103,803 | $ | 132,170 | ||||||||
Operational metrics | ||||||||||||||||
Gross billings (3) | ||||||||||||||||
Networking | $ | 214,762 | $ | 251,322 | $ | 716,087 | $ | 839,638 | ||||||||
Cloud | 207,762 | 181,559 | 644,888 | 641,120 | ||||||||||||
Security | 190,808 | 189,476 | 506,256 | 480,159 | ||||||||||||
Collaboration | 22,381 | 23,180 | 102,074 | 97,111 | ||||||||||||
Other | 76,513 | 55,473 | 193,650 | 203,805 | ||||||||||||
Product gross billings | 712,226 | 701,010 | 2,162,955 | 2,261,833 | ||||||||||||
Service gross billings | 137,320 | 95,976 | 328,527 | 233,618 | ||||||||||||
Total gross billings | $ | 849,546 | $ | 796,986 | $ | 2,491,482 | $ | 2,495,451 | ||||||||
Financing business segment | ||||||||||||||||
Financial metrics | ||||||||||||||||
Net sales | $ | 17,846 | $ | 14,893 | $ | 48,775 | $ | 39,055 | ||||||||
Gross profit | $ | 15,838 | $ | 13,544 | $ | 44,235 | $ | 33,531 | ||||||||
Operating income | $ | 11,581 | $ | 9,380 | $ | 30,411 | $ | 21,194 | ||||||||
Non-GAAP financial metric | ||||||||||||||||
Adjusted EBITDA (2) | $ | 11,651 | $ | 9,464 | $ | 30,612 | $ | 21,466 | ||||||||
(1) Non-GAAP:
Net earnings and Non-GAAP: Net earnings per common share – diluted are based on
net earnings calculated in accordance with US GAAP, adjusted to exclude other (income)
expense, share-based compensation, and acquisition and integration expenses,
and the related tax effects.
We use Non-GAAP: Net earnings and Non-GAAP: Net earnings per
common share – diluted as supplemental measures of our performance to gain
insight into our operating performance and performance trends. We believe that
the exclusion of other income and acquisition-related amortization expense in
calculating Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share
– diluted provides management and investors a useful measure for
period-to-period comparisons of our business and operating results by excluding
items that management believes are not reflective of our underlying operating
performance. Accordingly, we believe that Non-GAAP: Net earnings and Non-GAAP:
Net earnings per common share – diluted provide useful information to investors
and others in understanding and evaluating our operating results. However, our
use of non-GAAP information as analytical tools has limitations, and you should
not consider them in isolation or as substitutes for analysis of our financial
results as reported under US GAAP. In addition, other companies, including
companies in our industry, might calculate similar Non-GAAP: Net earnings and
Non-GAAP: Net earnings per common share – diluted or similarly titled measures
differently, which may reduce their usefulness as comparative measures. Our
acquisition related expenses for the three and nine months ended December 31,
2024 are related to our acquisition of Bailiwick.
The following table provides our calculation of Non-GAAP:
Net earnings and Non-GAAP: Net earnings per common share – diluted (in
thousands, except per share amounts):
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
GAAP: Earnings before tax
|
$
|
32,161
|
$
|
38,413
|
$
|
113,000
|
$
|
129,915
| ||||||||
|
Share-based compensation
|
2,933
|
2,526
|
8,385
|
7,145
| ||||||||||||
|
Acquisition related expenses
|
29
|
-
|
1,072
|
-
| ||||||||||||
|
Acquisition related amortization expense
|
5,983
|
3,856
|
14,180
|
11,348
| ||||||||||||
|
Other income—net
|
(3,650
|
)
|
(366
|
)
|
(6,302
|
)
|
(673
|
)
| ||||||||
|
Non-GAAP: Earnings before provision for income taxes
|
37,456
|
44,429
|
130,335
|
147,735
| ||||||||||||
|
GAAP: Provision for income taxes
|
8,028
|
11,131
|
30,218
|
36,122
| ||||||||||||
|
Share-based compensation
|
734
|
733
|
2,263
|
2,005
| ||||||||||||
|
Acquisition related expenses
|
7
|
-
|
300
|
-
| ||||||||||||
|
Acquisition related amortization expense
|
1,495
|
1,115
|
3,788
|
3,173
| ||||||||||||
|
Other income—net
|
(913
|
)
|
(106
|
)
|
(1,656
|
)
|
(190
|
)
| ||||||||
|
Tax benefit (expense) on restricted stock
|
21
|
10
|
513
|
226
| ||||||||||||
|
Non-GAAP: Provision for income taxes
|
9,372
|
12,883
|
35,426
|
41,336
| ||||||||||||
|
Non-GAAP: Net earnings
|
$
|
28,084
|
$
|
31,546
|
$
|
94,909
|
$
|
106,399
| ||||||||
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
GAAP: Net earnings per common share - diluted
|
$
|
0.91
|
$
|
1.02
|
$
|
3.10
|
$
|
3.52
| ||||||||
|
Share-based compensation
|
0.08
|
0.07
|
0.23
|
0.19
| ||||||||||||
|
Acquisition related expenses
|
-
|
-
|
0.03
|
-
| ||||||||||||
|
Acquisition related amortization expense
|
0.17
|
0.10
|
0.39
|
0.30
| ||||||||||||
|
Other income—net
|
(0.10
|
)
|
-
|
(0.17
|
)
|
(0.01
|
)
| |||||||||
|
Tax benefit (expense) on restricted stock
|
-
|
(0.01
|
)
|
(0.02
|
)
|
(0.01
|
)
| |||||||||
|
Total non-GAAP adjustments - net of tax
|
0.15
|
0.16
|
0.46
|
0.47
| ||||||||||||
|
Non-GAAP: Net earnings per common share - diluted
|
$
|
1.06
|
$
|
1.18
|
$
|
3.56
|
$
|
3.99
| ||||||||
(2 ) We define Adjusted EBITDA as net earnings calculated in
accordance with US GAAP, adjusted for the following: interest expense,
depreciation and amortization, share-based compensation,
acquisition and integration expenses, provision for income taxes, and other income. Adjusted
EBITDA presented for the technology business segments and the financing
business segment is defined as operating income calculated in accordance with US
GAAP, adjusted for interest expense, share-based compensation, acquisition and
integration expenses, and depreciation and amortization.
We consider the interest on notes
payable from our financing business segment and depreciation expense presented
within cost of sales, which includes depreciation on assets financed as
operating leases, to be operating expenses. As such, they are not included in
the amounts added back to net earnings in the Adjusted EBITDA calculation. In
the table below, we provide a reconciliation of Adjusted EBITDA to net
earnings, which is the most directly comparable financial measure to this
non-GAAP financial measure. Adjusted EBITDA margin is our calculation of
Adjusted EBITDA divided by net sales.
We use Adjusted EBITDA as a
supplemental measure of our performance to gain insight into our operating
performance and performance trends. We believe that the exclusion of other income
in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management
and investors a useful measure for period-to-period comparisons of our business
and operating results by excluding items that management believes are not
reflective of our underlying operating performance. Accordingly, we believe
that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to
investors and others in understanding and evaluating our operating results.
However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical
tools has limitations, and you should not consider them in isolation or as
substitutes for analysis of our financial results as reported under US GAAP. In
addition, other companies, including companies in our industry, might calculate
Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures
differently, which may reduce their usefulness as comparative measures.
The following table provides our calculations of
Adjusted EBITDA (in thousands):
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
| |||||||||||||||
|
Consolidated
|
2024
|
2023
|
2024
|
2023
| ||||||||||||
|
Net earnings
|
$
|
24,133
|
$
|
27,282
|
$
|
82,782
|
$
|
93,793
| ||||||||
|
Provision for income taxes
|
8,028
|
11,131
|
30,218
|
36,122
| ||||||||||||
|
Share-based compensation
|
2,933
|
2,526
|
8,385
|
7,145
| ||||||||||||
|
Depreciation and amortization
|
7,676
|
5,399
|
18,260
|
15,821
| ||||||||||||
|
Acquisition related expenses
|
29
|
-
|
1,072
|
-
| ||||||||||||
|
Interest and financing costs
|
-
|
217
|
-
|
1,428
| ||||||||||||
|
Other income—net
|
(3,650
|
)
|
(366
|
)
|
(6,302
|
)
|
(673
|
)
| ||||||||
|
Adjusted EBITDA
|
$
|
39,149
|
$
|
46,189
|
$
|
134,415
|
$
|
153,636
| ||||||||
|
Technology business segments
| ||||||||||||||||
|
Operating income
|
$
|
16,930
|
$
|
28,667
|
$
|
76,287
|
$
|
108,048
| ||||||||
|
Share-based compensation
|
2,863
|
2,460
|
8,184
|
6,947
| ||||||||||||
|
Depreciation and amortization
|
7,676
|
5,381
|
18,260
|
15,747
| ||||||||||||
|
Acquisition related expenses
|
29
|
-
|
1,072
|
-
| ||||||||||||
|
Interest and financing costs
|
-
|
217
|
-
|
1,428
| ||||||||||||
|
Adjusted EBITDA
|
$
|
27,498
|
$
|
36,725
|
$
|
103,803
|
$
|
132,170
| ||||||||
|
Financing business segment
| ||||||||||||||||
|
Operating income
|
$
|
11,581
|
$
|
9,380
|
$
|
30,411
|
$
|
21,194
| ||||||||
|
Share-based compensation
|
70
|
66
|
201
|
198
| ||||||||||||
|
Depreciation and amortization
|
-
|
18
|
-
|
74
| ||||||||||||
|
Adjusted EBITDA
|
$
|
11,651
|
$
|
9,464
|
$
|
30,612
|
$
|
21,466
| ||||||||
(3) Gross billings are
the total dollar value of customer purchases of goods and services including
shipping charges during the period, net of customer returns and credit memos,
sales, or other taxes. Gross billings includes the transaction values for
certain sales transactions that are recognized on a net basis, and, therefore,
includes amounts that will not be recognized as revenue.
CONSOLIDATED RESULTS OF
OPERATIONS
Net sales: Net sales for the three
months ended December 31, 2024, increased 0.4%, to $511.0 million, or an
increase of $1.9 million compared to $509.1 million in the same three-month
period in the prior year. The increase in net sales was driven by higher service
revenues from our technology business segments and higher revenue from our
financing business segment, offset by lower product revenue in our technology
business segments. For additional information, see the “Segment Results of
Operations” below.
Net sales for the nine months
ended December 31, 2024, decreased 6.0%, to $1,570.7 million, or a decrease of
$100.1 million compared to $1,670.8 million in the same nine-month period in
the prior year. The decrease in net sales was driven by lower
product revenues offset by higher managed services and professional services revenue
from our technology business segments, and higher revenues from our financing
business segment. For additional information, see the “Segment Results of
Operations” below.
Gross
profit: Gross
profit for the three months ended
December 31, 2024,
increased 5.3%, to $140.9 million, compared to $133.8 million in the same
three-month period in the prior year as increases in professional and managed
services were partially offset by declines in product sales. Overall,
gross margins were up by 130 basis points to 27.6%, primarily due to higher
product margins led by a shift in product mix towards sales of third-party
maintenance and subscriptions that are recognized on a net basis, partially
offset by lower services margins.
Gross
profit for the nine months ended December
31, 2024, increased
0.7%, to $423.4 million, compared to $420.4 million in the same nine-month
period in the prior year as increases in professional and managed services were
partially offset by declines in product sales. Overall,
gross margins were up by 180 basis points to 27.0% primarily due to higher
product margins led by a shift in product mix towards sales of third-party
maintenance and subscriptions that are recognized on a net basis, partially offset
by lower service margins.
Operating expenses: Operating expenses for the three months ended December 31, 2024, increased
$16.6 million, or 17.3%, to $112.4 million, as compared to $95.8 million for
the same three-month period in the prior year. Our
increase in operating expenses was primarily due to an increase in salaries and
benefits, general and administrative expenses, depreciation and amortization
expenses, and provision for credit losses, offset by a slight decrease in
interest and financing costs. Our increases in
these categories for the three-month period December 31, 2024, compared to the
same period in the prior year, were partially due to our acquisition of
Bailiwick in August 2024. As of December 31, 2024, we had 2,291 employees, an increase of 20.8%
from 1,897 as of December 31, 2023, largely due to our acquisition of Bailiwick in
August 2024. For additional information, see the “Segment
Results of Operations” below.
Operating expenses
for the nine months ended December 31, 2024, increased $25.5 million, or 8.7%, to $316.7 million,
as compared to $291.2 million for the same nine-month period in the prior year.
Our increase in operating expenses was primarily due to an
increase in salaries and benefits, general and administrative expenses,
acquisition related expenses, depreciation and amortization expenses, and
share-based compensation, partially offset by a decrease in interest and
financing costs. Our increases in
these categories for the nine-month period ended December 31, 2024, compared to
the same period in the prior year, were partially due to our acquisition of
Bailiwick in August 2024. For additional information, see the “Segment
Results of Operations” below.
Operating
income: As a
result of the foregoing, operating income for the three months ended December 31,
2024, decreased $9.5 million, or 25.1%, to $28.5 million, as compared to $38.0
million for the same three-month period in the prior year, and operating income
margin decreased by 190 basis points to 5.6%.
As a
result of the foregoing, operating income for the nine months ended December 31,
2024, decreased $22.5 million, or 17.4%, to $106.7 million, as compared to $129.2
million for the same nine-month period in the prior year, and operating income
margin decreased by 90 basis points to 6.8%.
Adjusted EBITDA for the three months ended December 31, 2024, was $39.1 million, a decrease of $7.1 million, or 15.2%,
compared to $46.2 million for the same three-month period in the prior year.
Adjusted EBITDA margin for the three months ended December 31, 2024, decreased 140 basis points to 7.7%, as compared to
9.1% for the three months ended December 31, 2023. The
decrease in Adjusted EBITDA margin was due to an increase in operating expenses,
offset by an increase in gross profit.
Adjusted EBITDA for the nine months ended December 31, 2024, was $134.4 million, a decrease of $19.2 million, or 12.5%,
compared to $153.6 million for the same nine-month period in the prior year.
Adjusted EBITDA margin for the nine months ended December 31, 2024, decreased 60 basis points to 8.6%, as compared to the
nine months ended December 31, 2023, of 9.2%. The
decrease in Adjusted EBITDA margin was due to an increase in operating
expenses, offset by an increase in gross profit.
Net earnings per
common share—diluted for the three months ended December 31, 2024, decreased
$0.11, or 10.8%, to $0.91 per share, as compared to $1.02 per share in the same
three-month period in the prior year. Non-GAAP: Net earnings per common
share—diluted for the three months ended December
31, 2024, decreased $0.12, or 10.2%,
to $1.06 per share, as compared to $1.18 per share for the three months ended December 31, 2023.
Net
earnings per common share—diluted for the nine months ended December 31, 2024, decreased
$0.42, or 11.9%, to $3.10 per share, as compared to $3.52 per share in the same
nine-month period in the prior year. Non-GAAP: Net earnings per common
share—diluted for the nine months ended December 31, 2024, decreased $0.43, or 10.8%, to $3.56
per share, as compared to $3.99 per share for the nine months ended December 31, 2023.
SEGMENT OVERVIEW
TECHNOLOGY BUSINESS SEGMENTS
Our technology business includes three segments:
product, professional services, and managed services as further discussed below.
● Product
segment: Our product segment consists of the sale of third-party hardware, third-party
perpetual and subscription software, and third-party maintenance, software
assurance, and other third-party services. The product segment also includes
internet-based business-to-business supply chain management solutions for IT
products.
● Professional
services segment: Our professional services segment includes our advanced
professional services to our customers that are performed under time and
materials, fixed fee, or milestone contracts. Professional services include
consulting, assessments, configuration, logistic services, training, staff
augmentation services, and project management services. With the acquisition of
Bailiwick, our professional services also include projects supporting digital
signage, EV charging solutions, loss prevention and security, store openings,
and store closings.
● Managed services segment: Our managed services segment includes
our advanced managed services that encompass managing various aspects of our
customers’ environments that are billed in regular intervals over a contract
term, usually between three to five years. Managed
services also include security solutions, storage-as-a-service, cloud hosted
services, cloud managed services, and service desk services.
We manage each technology
business segment based on gross profit and manage the operating expenses
associated with these segments in the aggregate as our technology business.
Our technology business segments sell primarily
to corporations and SLED institutions. Customers of our technology business may have a customer master
agreement (“CMA”) with our company, which stipulates the terms and conditions
of the commercial relationship. Some CMAs contain pricing arrangements, and
most contain mutual voluntary termination clauses. Our other customers place
orders using purchase orders without a CMA in place or with other documentation
customary for the business. Often, our work with state and local governments is
based on public bids and our written bid responses. Our service engagements are
generally governed by statements of work and are primarily fixed price (with
allowance for changes); however, some service agreements are based on time and
materials.
We endeavor to minimize
the cost of sales in our product segment through incentive programs provided by
vendors and distributors. The programs we qualify for are generally set by our
reseller authorization level with the vendor. The authorization level we
achieve and maintain governs the types of products we can resell as well as
such items as variable discounts applied against the list price, funds provided
for the marketing of these products and other special promotions. These
authorization levels are achieved by us through purchase volume, certifications
held by sales executives or engineers and/or contractual commitments by us. The
authorization levels are costly to maintain, and these programs continually
change; therefore, there is no guarantee of future reductions of cost of sales
provided by these vendor consideration programs.
FINANCING BUSINESS SEGMENT
Our financing business segment
offers financing solutions to corporations, government contractors in
arrangements where the federal government is the end user, and SLED
institutions in the US, which accounts for most of our transactions, and to
corporations in select international markets including Canada, the UK, and the
EU. Our financing business segment
leases IT equipment, medical equipment, and other equipment, and sells the
off-lease equipment at the end of the lease. Additionally, our financing
business segment finances purchases of third-party software licenses, software
assurance, maintenance, and other services.
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 or losses on the sale of financial assets.
● Post-contract
earnings: Month-to-month rents; early termination, prepayment, make-whole, or
buyout fees; and the sale of off-lease (used) equipment.
FLUCTUATIONS IN OPERATING RESULTS
Our operating results may fluctuate due to customer demand for our
products and services, competitive customer pricing, supplier costs (including
tariffs), product availability, changes in vendor incentive programs, interest
rate fluctuations, currency fluctuations, the timing of sales of financial
assets, general economic conditions, and differences between estimated residual
values and actual amounts realized for leased equipment. We expect to continue
to expand by hiring additional staff for specific targeted market areas and
roles whenever we can find both experienced personnel and desirable geographic
areas over the longer term, which may impact our operating results.
SEGMENT RESULTS OF OPERATIONS
TECHNOLOGY BUSINESS SEGMENTS
The results of operations for our technology business segments
were as follows (in thousands):
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, | |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
Financial metrics
| ||||||||||||||||
|
Net sales
| ||||||||||||||||
|
Product
|
$
|
379,472
|
$
|
419,478
|
$
|
1,226,397
|
$
|
1,418,581
| ||||||||
|
Professional services
|
69,497
|
40,044
|
168,676
|
113,870
| ||||||||||||
|
Managed services
|
44,150
|
34,640
|
126,827
|
99,335
| ||||||||||||
|
Total
|
$
|
493,119
|
$
|
494,162
|
$
|
1,521,900
|
$
|
1,631,786
| ||||||||
|
Gross Profit
| ||||||||||||||||
|
Product
|
84,046
|
91,919
|
271,910
|
308,059
| ||||||||||||
|
Professional services
|
27,841
|
17,332
|
68,879
|
47,852
| ||||||||||||
|
Managed services
|
13,160
|
11,015
|
38,333
|
31,006
| ||||||||||||
|
Total
|
125,047
|
120,266
|
379,122
|
386,917
| ||||||||||||
|
Selling, general, and administrative
|
100,441
|
86,001
|
284,575
|
261,694
| ||||||||||||
|
Depreciation and amortization
|
7,676
|
5,381
|
18,260
|
15,747
| ||||||||||||
|
Interest and financing costs
|
-
|
217
|
-
|
1,428
| ||||||||||||
|
Operating expenses
|
108,117
|
91,599
|
302,835
|
278,869
| ||||||||||||
|
Operating income
|
$
|
16,930
|
$
|
28,667
|
$
|
76,287
|
$
|
108,048
| ||||||||
|
Key metrics & other information
| ||||||||||||||||
|
Gross billings
|
$
|
849,546
|
$
|
796,986
|
$
|
2,491,482
|
$
|
2,495,451
| ||||||||
|
Adjusted EBITDA
|
$
|
27,498
|
$
|
36,725
|
$
|
103,803
|
$
|
132,170
| ||||||||
|
Product margin
|
22.1
|
%
|
21.9
|
%
|
22.2
|
%
|
21.7
|
%
| ||||||||
|
Professional services margin
|
40.1
|
%
|
43.3
|
%
|
40.8
|
%
|
42.0
|
%
| ||||||||
|
Managed services margin
|
29.8
|
%
|
31.8
|
%
|
30.2
|
%
|
31.2
|
%
| ||||||||
|
Net sales by customer end market:
| ||||||||||||||||
|
Telecom, media & entertainment
|
$
|
126,201
|
$
|
139,551
|
$
|
352,624
|
$
|
405,192
| ||||||||
|
SLED
|
71,412
|
60,108
|
261,195
|
264,419
| ||||||||||||
|
Technology
|
71,293
|
83,951
|
235,387
|
268,302
| ||||||||||||
|
Healthcare
|
58,670
|
55,504
|
212,185
|
214,182
| ||||||||||||
|
Financial services
|
46,217
|
38,816
|
130,701
|
174,391
| ||||||||||||
|
All others
|
119,326
|
116,232
|
329,808
|
305,300
| ||||||||||||
|
Total
|
$
|
493,119
|
$
|
494,162
|
$
|
1,521,900
|
$
|
1,631,786
| ||||||||
|
Net sales by type:
| ||||||||||||||||
|
Networking
|
181,367
|
209,936
|
602,883
|
723,760
| ||||||||||||
|
Cloud
|
116,864
|
120,253
|
375,431
|
427,365
| ||||||||||||
|
Security
|
53,919
|
58,822
|
143,133
|
156,504
| ||||||||||||
|
Collaboration
|
8,391
|
13,608
|
47,278
|
53,647
| ||||||||||||
|
Other
|
18,931
|
16,859
|
57,672
|
57,305
| ||||||||||||
|
Total product
|
$
|
379,472
|
$
|
419,478
|
$
|
1,226,397
|
$
|
1,418,581
| ||||||||
|
Professional services
|
69,497
|
40,044
|
168,676
|
113,870
| ||||||||||||
|
Managed services
|
44,150
|
34,640
|
126,827
|
99,335
| ||||||||||||
|
Total
|
$
|
493,119
|
$
|
494,162
|
$
|
1,521,900
|
$
|
1,631,786
| ||||||||
Net sales: Net sales of the combined technology
business segments for the three months ended December 31, 2024, decreased
compared to the three months ended December 31, 2023, driven
by decreased net sales to customers in telecom, media, and entertainment,
and technology industries, partially offset by increased net sales to customers
in SLED, healthcare, and financial service industries.
Net
sales of the combined technology business segments for the nine months ended
December 31, 2024, decreased compared to the nine months ended December 31,
2023, driven by decreased net sales to customers in telecom, media, and
entertainment, technology, SLED, healthcare, and financial service industries.
Product
segment sales for the three and nine months ended December 31, 2024, decreased
compared to the same three- and nine-month periods in the prior year, due to
lower sales of networking equipment, cloud, collaboration, and security
products. Our decrease in net sales for the three months ended December 31,
2024, compared to the same period in the prior year, was due to a shift
in product mix towards sales of third-party maintenance and subscriptions that
are recognized on a net basis, partially offset by higher demand. Our decrease in net sales for the nine
months ended December 31, 2024, compared to the same period in the prior year,
was due to decreases in demand and a shift in product mix
towards sales of third-party maintenance and subscriptions that are recognized
on a net basis. These
changes were driven by the timing of purchases by existing customers, which are
determined by their buying cycles, and the timing of specific IT-related
initiatives.
Professional
services segment sales for the three and nine months ended December 31, 2024,
increased compared to the same three- and nine-month periods in the prior year,
primarily due to increases in revenues from the acquisition of Bailiwick.
Managed
services segment sales for the three and nine months ended December 31, 2024, increased
compared to the same three- and nine-month periods in the prior year, due to
ongoing expansion of these service offerings, primarily related to ongoing
growth in enhanced maintenance support, cloud services, and service desk
services.
Gross profit: Gross profit of the combined
technology business segments for the three months ended December 31, 2024, increased
compared to the three months ended December 31, 2023, due to higher gross profits on professional and
managed services, partially offset by lower gross profits on products. Gross margin
increased for this period by 110 basis points to 25.4% due to higher gross
margins on products due to a shift in product mix
towards sales of third-party maintenance and subscriptions that are recognized
on a net basis offset by lower gross margins on services.
Gross profit of the combined technology business segments
for the nine months ended December
31,
2024, decreased compared to the nine months ended December 31, 2023, due
to a decrease in product sales, partially offset by an increase in professional
and managed services sales. Gross margin increased for this period by 120 basis
points to 24.9% due to higher product margins, partially offset by lower
managed services and professional services margin.
Product segment margin for the three and nine months ended December 31, 2024, increased
by 20 and 50 basis points, respectively, compared to the same three- and nine-month
period in the prior year due to a shift in product mix resulting in a higher
proportion of sales of third-party maintenance and subscriptions which are
recorded on a net basis partially offset by lower margins to certain enterprise customers.
Professional services segment margin for the three and nine
months ended December
31,
2024, decreased by 320 and 120 basis points, respectively, compared to the same
three- and nine-month period in the prior year due to the addition of
Bailiwick.
Managed services segment margin for the three and nine
months ended December
31,
2024, decreased by 200 and 100 basis points, respectively, from the same three-
and nine-month period in the prior year due to higher third-party costs
incurred for cloud services.
Selling, general, and administrative: Selling,
general, and administrative expenses for the technology business for the three
and nine months ended December
31,
2024, increased compared to the three and nine months ended December 31, 2023, mainly
due to increases in salaries and benefits.
Salaries and benefits for the three months ended December 31, 2024, increased
$9.6 million, or 13.0%, to $83.5 million, as compared to $73.9 million for the
same three-month period in the prior year, due to an increase of $8.2 million
in salaries and benefits, mainly driven by increased headcount, and an increase
of $1.0 million in variable compensation due to the increase in gross profit. Our
technology business had an aggregate of 2,258 employees as of December 31, 2024, an
increase of 395 from 1,863 employees as of December 31, 2023. We
added 441 employees from our acquisition of Bailiwick. In total, we added 356
additional customer-facing employees in the technology business for the three
months ended December
31,
2024, compared to the same three-month period in the prior year, of which 330
were professional services and technical support personnel.
Salaries and benefits for the nine months ended December 31, 2024, increased
$17.5 million, or 7.9%, to $239.4 million, as compared to $221.9 million for
the same nine-month period in the prior year, due to an increase of $16.8 million
in salaries and benefits, mainly driven by increased headcount, and an increase
of $1.2 million in share-based compensation, partially offset by a decrease of
$0.6 million in variable compensation because of the decrease in gross profit.
General and administrative expenses for our technology
business for the three months ended December 31, 2024, increased $3.6 million, or 29.7%, to $15.7 million,
as compared to $12.1 million for the same three-month period in the prior year,
driven by increases in software,
subscription and maintenance fees, advertising and marketing, travel and
entertainment, and consulting fees. Our increases in these categories for the three-month
period ended December 31, 2024, compared to the same period in the prior year,
were partially due to our acquisition of Bailiwick in August 2024.
General and administrative expenses for our technology
business for the nine months ended December 31, 2024, increased $4.5 million, or 11.3%, to $43.8 million,
as compared to $39.3 million for the same nine-month period in the prior year. General
and administrative expenses were higher mainly due to increases in software, subscription, and
maintenance fees, warehouse and logistic fees, and office rent. Our increases
in these categories for the nine-month period ended December 31, 2024, compared
to the same period in the prior year, were partially due to our acquisition of
Bailiwick in August 2024. Additionally, we incurred $1.1 million in acquisition
related expenses due to our acquisition of Bailiwick during the nine-month
period December 31, 2024, that represents an increase in general and
administrative expenses for our technology business for the nine months ended December 31, 2024,
compared to the same period in the prior year.
Provision for credit losses for our technology business for
the three months ended December
31,
2024, was $1.2 million. There was no provision for credit losses for the three
months ended December 31, 2023. Our higher provision for credit losses for the
three months ended December
31,
2024, was due to an increase in exposure to accounts with higher credit risk.
Provision for credit losses for our technology business for
the nine months ended December
31,
2024, was $1.5 million, as compared to $0.4 million for the same nine-month
period in the prior year. Our higher provision for credit losses for the nine months
ended December
31,
2024, was due to an increase in exposure to accounts with higher credit risk.
Depreciation and amortization: Depreciation and amortization for our
technology business for the three and nine months ended December 31, 2024, increased compared to the three and nine months ended December 31, 2023, primarily due to amortization from intangible assets acquired
in the Bailiwick acquisition during the current nine-month period.
Interest
and financing costs: Interest and financing costs for our technology
business for the three and nine months ended December 31, 2024, decreased compared to the three and nine
months ended December 31, 2023, as we had
no outstanding borrowings under our WFCDF Credit Facility as of December
31, 2024.
FINANCING BUSINESS SEGEMENT
The results of operations for our financing business segment were
as follows (in thousands):
|
Three Months Ended
December 31,
|
Nine Months Ended
December 31,
| |||||||||||||||
|
2024
|
2023
|
2024
|
2023
| |||||||||||||
|
Financial Metrics
| ||||||||||||||||
|
Portfolio earnings
|
$
|
4,466
|
$
|
3,701
|
$
|
13,491
|
$
|
10,113
| ||||||||
|
Transactional gains
|
8,477
|
8,107
|
24,272
|
16,335
| ||||||||||||
|
Post-contract earnings
|
4,743
|
2,685
|
10,163
|
11,357
| ||||||||||||
|
Other
|
160
|
400
|
849
|
1,250
| ||||||||||||
|
Net sales
|
$
|
17,846
|
$
|
14,893
|
$
|
48,775
|
$
|
39,055
| ||||||||
|
Gross profit
|
15,838
|
13,544
|
44,235
|
33,531
| ||||||||||||
|
Selling, general, and administrative
|
3,740
|
3,380
|
12,185
|
10,637
| ||||||||||||
|
Depreciation and amortization
|
-
|
18
|
-
|
74
| ||||||||||||
|
Interest and financing costs
|
517
|
766
|
1,639
|
1,626
| ||||||||||||
|
Operating expenses
|
4,257
|
4,164
|
13,824
|
12,337
| ||||||||||||
|
Operating income
|
$
|
11,581
|
$
|
9,380
|
$
|
30,411
|
$
|
21,194
| ||||||||
|
Key metrics & other information
| ||||||||||||||||
|
Adjusted EBITDA
|
$
|
11,651
|
$
|
9,464
|
$
|
30,612
|
$
|
21,466
| ||||||||
Net sales: Net sales for the three months ended December
31, 2024, increased compared to the three months ended December 31, 2023, due
to higher post-contract earnings, portfolio earnings, and transactional gains. Post-contract
earnings increased due to higher proceeds from sales of off-lease equipment, offset
by lower month-to-month rents. Portfolio earnings increased due to higher
average investments outstanding as well as a higher average earnings rate. Transactional
gains increased due to increased margins. Total proceeds from sales of
financing receivables were $192.6 million and $422.1 million for the three
months ended December 31, 2024, and 2023, respectively. Our proceeds from sales
of financing receivables for the three months ended December 31, 2024, are lower
than the same period in the prior year partially due to a few large
transactions in the prior year period.
Net
sales for the nine months ended December 31, 2024, increased compared to the
nine months ended December 31, 2023, due to higher portfolio earnings and transactional
gains, offset by lower post-contract earnings. Portfolio earnings increased due
to higher average investments outstanding as well as a higher average earnings
rate. Transactional gains increased due to increased margins. Total proceeds
from sales of financing receivables were $517.6 million and $704.3 million for
the nine months ended December 31, 2024, and 2023, respectively. Our proceeds
from sales of financing receivables for the nine months ended December 31, 2024,
are lower than the same period in the prior year partially due to a few large
transactions in the prior year period. Post-contract earnings decreased due to lower
month-to-month rents, partially offset by higher proceeds from sales of
off-lease equipment.
Gross Profit: Gross profit for the
three months ended December
31, 2024, increased compared to the three months
ended December 31, 2023, primarily due to
the net gain on sales of off-lease equipment.
Gross profit for the nine months ended December 31, 2024, increased compared to the nine months ended December 31, 2023, due to the increase in transactional gains.
Selling,
general and administrative: Selling,
general, and administrative expenses for the three months ended December 31, 2024,
increased compared to the three months ended December 31, 2023,
primarily due to an increase in provision for credit losses due to an increase
in our exposure to accounts with a higher credit risk.
Selling, general, and administrative expenses for the nine
months ended December
31,
2024, increased compared to the nine months ended December 31, 2023,
primarily due to an increase in variable compensation attributable to the increase
in gross profit, and an increase in provision for credit losses due to an
increase in our exposure to accounts with a higher credit risk.
Our
financing business segment employed 33 people as of December 31, 2024, compared
to 34 people as of December 31, 2023. Certain support functions for the
financing business segment are shared resources with the technology business and
expenses are allocated accordingly.
Interest and financing costs: Interest and financing
costs for the three months ended December
31, 2024, decreased compared to the three months
ended December 31, 2023, due to lower
average outstanding borrowings and lower interest rates. As of December
31, 2024, our non-recourse notes payable decreased
to $33.8 million from $48.4 million as of December 31, 2023. Our weighted average interest rate for
non-recourse notes payable was 6.40% and 6.64% as of December 31, 2024, and 2023, respectively.
Interest and financing costs for the nine months ended December 31,
2024, remained flat compared to the nine months ended December 31, 2023.
CONSOLIDATED
Other income-net: Other income for the three months ended December 31,
2024, was $3.7 million, compared to $0.4 million for the three months ended December
31, 2023. Higher other income was driven by
increased interest income and foreign exchange gains recognized in the
three-month period ended December 31, 2024, while foreign exchange losses were
recognized for the same three-month period in the prior year. We had $1.8 million
in interest income for the three months ended December 31, 2024, compared to $0.4
million for the three months ended December 31, 2023. We had foreign exchange gains of $1.9 million for the three months
ended December
31, 2024,
primarily from gains in US dollar denominated cash deposits and receivables held
by one of our entities in the UK, compared to foreign exchange losses of $0.1
million for the same three-month period in the prior year.
Other income for the nine months ended December 31,
2024, was $6.3 million, compared to $0.7 million for the nine months ended December
31, 2023. Higher other income was driven by
increased interest income and decreased foreign exchange losses. We had $6.7 million
in interest income for the nine months ended December 31, 2024, compared to $1.1
million for the nine months ended December
31, 2023.
We had foreign exchange losses of $0.4 million for the nine months ended
December 31, 2024, compared to losses
of $0.5 million for the same nine-month period in the prior year.
Provision for income taxes: Our
provision for income tax expense for the three and nine months ended December 31, 2024, was
$8.0 million and $30.2 million, respectively, as compared to $11.1 million and
$36.1 million for the same three-and nine-month periods in the prior year,
respectively. Our effective income tax rates for the three and nine months
ended December
31, 2024, were 25.0% and 26.7%, respectively, compared to 29.0%
and 27.8% for the three and nine months ended December 31, 2023, respectively.
Our effective tax rate was lower for the three and nine months ended December 31, 2024, as
compared to the same three- and nine-month periods in the prior year, primarily
due to lower state taxes.
Net earnings: Net earnings for the three months
ended December
31, 2024, were $24.1 million, a decrease of 11.5% or $3.2 million, as compared
to $27.3 million for the same three-month period in the prior year. The net
earnings decrease was due to a decrease in operating profits from our technology
business, partially offset by an increase in other income, driven by increased
interest income and foreign exchange gains, an increase in operating profits
from our financing business segment, and a decrease in provision for income
taxes. Net earnings for the nine months ended December 31, 2024, were $82.8 million, a decrease of 11.7% or $11.0
million, as compared to $93.8 million in the same nine-month period in the prior
year. The net earnings decrease was due to a decrease in operating profits from
our technology business, partially offset by an increase in other income,
driven by increased interest income and foreign exchange gains, an increase in
operating profits from our financing business segment, and a decrease in
provision for income taxes.
Basic earnings per common share and diluted earnings per
common share for the three months ended December 31, 2024, were both $0.91,
a decrease of 10.8%, as compared to $1.02 for both basic earnings per common
share and diluted earnings per common share, for the three months ended December
31, 2023. Basic earnings per common share and
diluted earnings per common share for the nine months ended December 31, 2024, were $3.12 and $3.10, respectively, a decrease
of 11.6% and 11.9%, respectively, as compared to $3.53 and $3.52 for our basic
earnings per common share and diluted earnings per common share, respectively,
for the nine months ended December 31,
2023.
Weighted average common shares outstanding used in the calculation
of basic and diluted earnings per common share were 26.5 million and 26.6
million, respectively, for the three months ended December 31, 2024. Weighted
average common shares outstanding used in the calculation of basic and diluted earnings
per common share were 26.6 million and 26.7 million, respectively, for the
three months ended December 31, 2023. Weighted average common shares
outstanding used in the calculation of basic and diluted earnings per common
share for the nine months ended December 31, 2024, and 2023, were both 26.6
million and 26.7 million, respectively.
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 business segments are through our WFCDF Credit Facility. Our
borrowings in our financing business 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 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. While at this time we do not
anticipate requiring any additional sources of financing to fund operations, if
demand for IT products declines, or if our supply of products is delayed or
interrupted, our cash flows from operations may be substantially affected.
CASH FLOWS
The
following table summarizes our sources and uses of cash for the nine months
ended December 31, 2024, and 2023 (in thousands):
|
Nine Months Ended
December 31, | ||||||||
|
2024
|
2023
| |||||||
|
Net cash provided by operating activities
|
$
|
141,198
|
$
|
143,492
| ||||
|
Net cash used in investing activities
|
(127,314
|
)
|
(55,838
|
)
| ||||
|
Net cash used in financing activities
|
(13,426
|
)
|
(48,651
|
)
| ||||
|
Effect of exchange rate changes on cash
|
(405
|
)
|
74
| |||||
|
Net increase in cash and cash equivalents
|
$
|
53
|
$
|
39,077
| ||||
Cash flows from operating
activities: We had cash provided by operating activities of $141.2 million
during the nine months ended December 31, 2024, compared to cash provided by
operating activities of $143.5 million for the nine months ended December 31,
2023. See below for a breakdown of operating cash flows by business (in
thousands):
|
Nine Months Ended
December 31, | ||||||||
|
2024
|
2023
| |||||||
|
Technology business segments
|
$
|
180,685
|
$
|
150,030
| ||||
|
Financing business segment
|
(39,487
|
)
|
(6,538
|
)
| ||||
|
Net cash provided by operating activities
|
$
|
141,198
|
$
|
143,492
| ||||
Technology business: For the nine
months ended December
31, 2024,
our combined technology business segments provided $180.7 million from operating
activities primarily due to net earnings, decreases
in accounts receivable and inventory, offset by decreases in accounts payable.
For the nine months ended December
31, 2023, our combined technology business segments
had cash provided by operating activities of $150.0 million primarily due to
net earnings and increases in accounts payable – trade and salaries and
commissions payable, offset by increases in our accounts receivable.
To manage our
working capital, we monitor our cash conversion cycle for our technology business
segments, 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 business
segments:
|
As of December 31,
| ||||||||
|
2024
|
2023
| |||||||
|
(DSO) Days sales outstanding (1)
|
62
|
71
| ||||||
|
(DIO) Days inventory outstanding (2)
|
13
|
27
| ||||||
|
(DPO) Days payable outstanding (3)
|
(43
|
)
|
(44
|
)
| ||||
|
Cash conversion cycle
|
32
|
54
| ||||||
(1) Represents the
rolling three-month average of the balance of trade accounts receivable-trade,
net for our technology business segments at the end of the period divided by gross
billings for the same three-month period.
(2) Represents the rolling three-month average of
the balance of inventory, net for our technology business segments at the end
of the period divided by the direct cost of products and services billed to our
customers 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 business segments at the end
of the period divided by the direct cost of products and services billed to our
customers for the same three-month period.
Our cash conversion cycle decreased
to 32 days as of December 31, 2024, as compared to 54 days as of December 31,
2023. Our standard payment term for customers is between 30-60 days; however,
certain customer orders may be approved for extended payment terms. Our DSO
decreased 9 days to 62 days as of December 31, 2024, compared to 71 days as of December
31, 2023, reflecting lower sales to customers with terms greater than or equal
to net 60 days. Our DIO decreased to 13 days as of December 31, 2024, compared
to 27 days as of December 31, 2023 due to lower inventory balances. Our DPO
decreased by 1 day as of December 31, 2024. 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 around
30 days from the invoice date.
Financing business segment: For the nine months ended December 31, 2024, our financing business segment used $39.5 million from operating
activities, primarily due to changes in financing receivables, offset by net
earnings and increases in accounts payable. For the nine months ended December
31, 2023, our financing
business segment used $6.5 million from operating activities, primarily due to
an increase in financing receivables, offset by net earnings and an increase in
accounts payable-trade.
Cash
flows related to investing activities: For the nine months ended December 31, 2024, we used $127.3 million in investing
activities, consisting of $124.9 million for the acquisition of Bailiwick, and
$4.7 million for purchases of property, equipment and operating lease equipment
offset by $2.3 million of proceeds from the sale of property, equipment, and
operating lease equipment. For the nine months ended December 31, 2023, we used $55.8 million in
investing activities, consisting of $48.6 million for the acquisition of NSG,
and $7.7 million for purchases of property, equipment and operating lease
equipment, partially offset by $0.5 million of proceeds from the sale of
property, equipment, and operating lease equipment.
Cash flows from financing activities: For
the nine months ended December 31, 2024, we used $13.4 million in financing
activities, consisting of cash used to repurchase outstanding shares of our
common stock of $33.5 million and $2.3 million paid to the sellers of Peak
Resources, Inc. (“Peak”) based on adjustments to a final determination of total
net assets delivered in our January 2024 acquisition of Peak, partially offset
by net borrowings of non-recourse and recourse notes payable of $8.1 million, net borrowings on the floor plan component of our credit
facility of $10.6 million, and proceeds of issuances of common stock to
employees under an employee stock purchase plan of $3.6 million. For
the nine months ended December 31, 2023, we used $48.7 million in financing
activities, consisting of $58.1 million in net repayments on the floor plan component of our WFCDF
Credit Facility and $9.8 million to repurchase
outstanding shares of our common stock, partially offset by $16.2 million in net
borrowings of non-recourse and recourse notes payable, and $3.0 million in proceeds of issuances
of common stock to employees under an employee stock purchase plan.
Other than recourse borrowings under our WFCDF Credit Facility, our
borrowing of recourse and non-recourse notes payable primarily arises from our
financing business 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 recourse or non-recourse notes payable.
Non-cash activities: We transfer contractual payments due to us under lease and financing
agreements to third-party financial institutions. In certain assignment
agreements, we may direct the third-party financial institution to pay some of
the proceeds from the assignment directly to the vendor or vendors that have
supplied the assets being leased or financed. In these situations, the portion
of the proceeds paid directly to our vendors are non-cash transactions.
SECURED BORROWINGS
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 its 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. Interest
rates have been rising and may continue to rise. To preserve our expected
internal rate of return, we generally quote rates that are indexed. Some of our
lenders will not commit to rates for a length of time, resulting in exposure to
us if the rates rise and we cannot pass such exposure to the customer.
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 business segments through
a credit facility with WFCDF. The WFCDF Credit Facility
has a floor plan facility and a revolving credit facility.
Please refer to Note 8, “Notes
Payable and Credit Facility” to the accompanying Consolidated Financial
Statements included in “Part I, Item 1. Financial Statements” for additional
information concerning our WFCDF Credit Facility.
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 45-60
days from the invoice date. Our borrowings and repayments under the floor plan
component are included in “net borrowings (repayments) on floor plan facility”
within cash flows from the financing activities in our consolidated statements
of cash flows.
As of December 31, 2024, and March
31, 2024, we had a maximum credit limit, including the revolving credit
facility, of $500.0 million, and an outstanding balance on the floor plan
facility of $115.7 million and $105.1 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: Our
borrowings and repayments under the revolving credit facility are included in
“borrowings of non-recourse and recourse notes payable” and “repayments of
non-recourse and recourse notes payable,” respectively, within cash flows from
the financing activities in our consolidated statements of cash flows.
As of December 31, 2024, and March 31, 2024, we did not have any outstanding
balance under the revolving credit facility. The maximum credit limit under
this facility was $200.0 million as of both December 31, 2024, and March 31, 2024.
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 the
performance obligations under all service contracts for which there is a
performance guarantee, and we believe that any liability incurred in connection
with these guarantees would not have a material adverse effect on our
consolidated statements of operations.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in
transactions that generate relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements, or other contractually
narrow or limited purposes. As of December 31, 2024, we were not involved in
any unconsolidated special purpose entity transactions.
ADEQUACY
OF CAPITAL RESOURCES
The
continued implementation of our business strategy will require a significant
investment in both resources and managerial focus. In addition, we may selectively
acquire other companies that have attractive customer relationships and skilled
sales and/or engineering forces. We may also open facilities in new geographic
areas, which may require a significant investment of cash. We may also acquire
technology companies to expand and enhance our geographic footprint, or the
platform of bundled solutions to provide additional functionality and
value-added services. We may require additional capital due to increases in
inventory to accommodate our customers’ IT installation schedules. We may
continue to use our internally generated funds to finance investments in leased
assets or investments in notes receivable due from our customers. These actions
may result in increased working capital needs as the business expands. As a
result, we may require additional financing to fund our strategy,
implementation, potential future acquisitions, and working capital needs, which
may include additional debt and equity financing. While the future is
uncertain, we do not believe our WFCDF Credit Facility will be terminated by
WFCDF or us. Additionally, while our lending partners in our financing business
segment continue to be 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, major customers, or vendors of ours.
Our quarterly results of operations are susceptible to
fluctuations for a number of reasons, including, but not limited to currency
fluctuations, reduction in IT spending, shortages of product from our vendors
due to material shortages, any reduction of expected residual values related to
the equipment under our leases, the timing and mix of specific transactions,
the reduction of manufacturer incentive programs, and other factors. Quarterly
operating results could also fluctuate as a result of our sale of equipment in
our lease portfolio to a lessee or third-party at the expiration of a lease
term or prior to such expiration, and the transfer of financial assets. Sales
of equipment and transfers of financial assets may have the effect of
increasing revenues and net income during the quarter in which the sale occurs
and reducing revenues and net income otherwise expected in subsequent quarters.
See Part I, Item 1A, “Risk
Factors,” in our 2024 Annual Report, as supplemented
in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Quarterly 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.
CRITICAL ACCOUNTING ESTIMATES
As
disclosed in Note 2, “Recent Accounting
Pronouncements,” we adopted a new standard on accounting for contract assets
and contract liabilities from contracts with customers in a business
combination in the second quarter of our fiscal year 2023. Under this new
standard, we apply Accounting Standards Codification Topic 606, Contracts with
Customers, to recognize and measure contract assets and contract liabilities
from contracts with customers. Other than this change, our critical accounting
estimates have not changed from those reported in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in
our 2024 Annual Report.
Although a substantial portion of our liabilities are
non-recourse, fixed-interest-rate instruments, we utilize lines of credit and
other financing facilities that are subject to fluctuations in short-term
interest rates. Our non-recourse instruments, which are denominated in US
dollars, were entered for other than trading purposes and bear interest at a
fixed rate. Because the interest rate on these instruments is fixed, changes in
interest rates will not directly impact our cash flows. Financing transactions
funded with our cash flows, not debt, are subject to interest rate risk. If the
market interest rate exceeds our internal rate of return, we may not fund the
transaction to obtain the proceeds. Borrowings under the WFCDF Credit Facility
bear interest at a market-based variable rate. As of December 31, 2024, 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 December 31, 2024.
CHANGES IN INTERNAL CONTROL
OVER FINANCIAL REPORTING
On August 19, 2024, our
subsidiary, ePlus Technology, inc., acquired 100% of the membership
interests of Bailiwick. We excluded Bailiwick from our
evaluation of the effectiveness of our internal control over financial
reporting for the quarter ended December 31, 2024. We
are in the process of integrating Bailiwick into our system of internal control
over financial reporting. Other than the foregoing, there have not been any changes in our internal control over
financial reporting during the quarter ended December 31, 2024, 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
Please refer to Note 9, “Commitment and
Contingencies” to the accompanying Consolidated Financial Statements included
in “Part I, Item 1. Financial Statements.”
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, 2024.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES,
USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The following
table provides information regarding our purchases of common stock during the three
months ended December 31, 2024.
|
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
of shares that may
yet be purchased
under the plans or
programs (2)
| ||||||||||||
|
October 1 through October 31, 2024
|
2,000
|
$
|
95.69
|
2,000
|
997,766
| |||||||||||
|
November 1 through November 30, 2024
|
34,116
|
$
|
80.40
|
34,116
|
963,650
| |||||||||||
|
December 1 through December 31, 2024
|
94,172
|
$
|
76.93
|
94,172
|
869,478
| |||||||||||
|
Total
|
130,288
|
130,288
| ||||||||||||||
(1) All shares
were acquired in open-market purchases.
(2) The
amounts presented in this column are the remaining number of shares that may be
repurchased after repurchases during the month. On May 18, 2024, our board of
directors authorized the repurchase of up to 1,250,000 shares of our
outstanding common stock, over a 12-month period beginning May 28, 2024.
The
timing and expiration date of the current stock repurchase authorizations are
included in Note 11, “Stockholders’
Equity” to our unaudited consolidated financial statements included elsewhere
in this report.
Not Applicable.
Not Applicable.
Insider Trading Arrangements and Policies
During
the three months ended December 31, 2024, no director or officer of ePlus
inc. adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule
10b5-1 trading arrangement ,” as each term is defined in Item 408(a) of
Regulation S-K. Certain of our executive officers may participate in employee
stock purchase plans that have been designed to comply with Rule 10b5-1(c)
under the Exchange Act.
Exhibit Number | Exhibit Description | |
ePlus
inc. Amended and Restated Certificate of Incorporation, as last amended
September 18, 2023. (Incorporated herein by reference to Exhibit 3.1 to
our Quarterly Report on Form 10-Q for the period ended September 30,
2023). | ||
Amended and Restated Bylaws of ePlus
inc., as of March 26, 2024. (Incorporated herein by reference to
Exhibit 3.1 to our Current Report on Form 8-K filed on March 28, 2024). | ||
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. | ||
101.INS | Inline
XBRL Instance Document (the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the
Inline XBRL document) | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document) |
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: February 5, 2025
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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: February 5, 2025
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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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51
Exhibit 31.1
CERTIFICATION
I, Mark P. Marron, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of ePlus inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 5, 2025
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/s/ MARK P. MARRON
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Mark P. Marron
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Chief Executive Officer and President
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(Principal Executive Officer)
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Exhibit 31.2
CERTIFICATION
I, Elaine D. Marion, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of ePlus inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 5, 2025
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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 December 31, 2024, 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
b)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ePlus inc.
Date: February 5, 2025
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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.