Eplus Inc 10-Q for FY2022 Q2
Eplus Inc (PLUS)
10-Q
2021-11-09
For: 2021-09-30
View Original
Added on
April 12, 2026
About this 10-Q
Eplus Inc filed this 10-Q on November 9, 2021, covering the quarter ended September 30, 2021 (FY2022 Q2).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $458.02M
- up 5.8% from $433.08M a year earlier
- Net income
- $31.41M
- up 58.3% from net income of $19.85M a year earlier
- Diluted EPS
- $2.34
- up 58.1% from $1.48 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 (Check one):
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 November 5, 2021, was 13,508,469 .
ePlus inc. AND SUBSIDIARIES
Part I. Financial Information: |
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Item 1. |
Financial Statements |
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5 |
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6 |
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7 |
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8 |
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10 |
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11 |
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Item 2. |
25 |
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Item 3. |
41 |
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Item 4. |
42 |
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Part II. Other Information: |
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Item 1. |
43 |
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Item 1A. |
43 |
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Item 2. |
43 |
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Item 3. |
43 |
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Item 4. |
43 |
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Item 5. |
43 |
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Item 6. |
44 |
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45 |
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CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions, or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:
| • | the duration and ongoing impact of the novel coronavirus (“COVID-19”) pandemic, which could materially adversely affect our financial condition and results of operations and has resulted in governmental authorities imposing numerous unprecedented measures to try to contain the virus that has impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners; |
| • | national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and pressure on prices; |
| • | significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers, or vendors; |
| • | the creditworthiness of our customers and our ability to reserve adequately for credit losses; |
| • | loss of our credit facility or credit lines with our vendors may restrict our current and future operations; |
| • | uncertainty regarding the phase out of LIBOR may negatively affect our operating results; |
| • | a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us; |
| • | our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common stock price; |
| • | reliance on third parties to perform some of our service obligations to our customers; |
| • | changes in the Information Technology (“IT”) industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), software as a service (“SaaS”) and platform as a service (“PaaS”); |
| • | our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them; |
| • | availability of products from our vendors; |
| • | significant and rapid inflation may cause price and wage increases, as well as increases in operating costs which may impact the arrangements that have pricing commitments over the term of the agreement. |
| • | future growth rates in our core businesses; |
| • | reduction of vendor incentives provided to us; |
| • | rising interest rates or the loss of key lenders or the constricting of credit markets; |
| • | the possibility of goodwill impairment charges in the future; |
| • | maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications; |
| • | adapting to meet changes in markets and competitive developments; |
| • | increasing the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers; |
| • | our ability to secure our own and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack; |
| • | managing a diverse product set of solutions in highly competitive markets with a number of key vendors; |
| • | increasing the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace; |
| • | performing professional and managed services competently; |
| • | our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies; |
| • | changes to or loss of members of our senior management team and/or failure to successfully implement succession plans; |
| • | exposure to changes in, interpretations of, or enforcement trends in legislation and regulatory matters; |
| • | domestic and international economic regulations uncertainty (e.g., tariffs, and trade agreements); |
| • | our contracts may not be adequate to protect us, and we are subject to audit which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim; |
| • | failure to comply with public sector contracts, or applicable laws or regulations; |
| • | our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel; |
| • | maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace; |
| • | disruptions or a security breach in our or our vendors’ IT systems and data and audio communication networks; |
| • | our ability to realize our investment in leased equipment; |
| • | our ability to successfully perform due diligence and integrate acquired businesses; |
| • | our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, license required technology. |
We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks, and uncertainties. For a further list and description of various risks, relevant factors, and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see Item 1A, “Risk Factors” and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
ePlus inc. AND SUBSIDIARIES
(in thousands, except per share amounts)
September 30, 2021 |
March 31, 2021 |
|||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
$ |
||||||
Accounts receivable—trade, net |
||||||||
Accounts receivable—other, net |
||||||||
Inventories |
||||||||
Financing receivables—net, current |
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Deferred costs |
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Other current assets |
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Total current assets |
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Financing receivables and operating leases—net |
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Deferred tax asset—net |
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Property, equipment and other assets |
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Goodwill |
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Other intangible assets—net |
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TOTAL ASSETS |
$ |
$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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LIABILITIES |
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Current liabilities: |
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Accounts payable |
$ |
$ |
||||||
Accounts payable—floor plan |
||||||||
Salaries and commissions payable |
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Deferred revenue |
||||||||
Recourse notes payable—current |
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Non-recourse notes payable—current |
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Other current liabilities |
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Total current liabilities |
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Recourse notes payable - long-term |
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Non-recourse notes payable - long-term |
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Other liabilities |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (Note 9) |
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STOCKHOLDERS’ EQUITY |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost, |
( |
) |
( |
) |
||||
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 September 30, |
Six Months Ended September 30, |
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2021 |
2020 |
2021 |
2020 |
|||||||||||||
Net sales |
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Product |
$ |
$ |
$ |
$ |
||||||||||||
Services |
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Total |
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Cost of sales |
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Product |
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Services |
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Total |
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Gross profit |
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Selling, general, and administrative |
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Depreciation and amortization |
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Interest and financing costs |
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Operating expenses |
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Operating income |
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Other income (expense) |
( |
) |
( |
) |
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Earnings before tax |
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Provision for income taxes |
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Net earnings |
$ |
$ |
$ |
$ |
||||||||||||
Net earnings per common share—basic |
$ |
$ |
$ |
$ |
||||||||||||
Net earnings per common share—diluted |
$ |
$ |
$ |
$ |
||||||||||||
Weighted average common shares outstanding—basic |
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Weighted average common shares outstanding—diluted |
||||||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
Three Months Ended September 30, |
Six Months Ended September 30, |
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2021 |
2020 |
2021 |
2020 |
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NET EARNINGS |
$ |
$ |
$ |
$ |
||||||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAX: |
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Foreign currency translation adjustments |
( |
) |
( |
) |
||||||||||||
Other comprehensive income |
( |
) |
( |
) |
||||||||||||
TOTAL COMPREHENSIVE INCOME |
$ |
$ |
$ |
$ |
||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
Six Months Ended September 30, |
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2021 |
2020 |
|||||||
Cash flows from operating activities: |
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Net earnings |
$ |
$ |
||||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
||||||||
Provision for credit losses |
||||||||
Share-based compensation expense |
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Deferred taxes |
( |
) |
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Payments from lessees directly to lenders—operating leases |
( |
) |
( |
) |
||||
Gain on disposal of property, equipment, and operaing lease equipment |
( |
) |
( |
) |
||||
Changes in: |
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Accounts receivable |
( |
) |
||||||
Inventories-net |
( |
) |
( |
) |
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Financing receivables—net |
( |
) |
( |
) |
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Deferred costs and other assets |
( |
) |
( |
) |
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Accounts payable-trade |
( |
) |
||||||
Salaries and commissions payable, deferred revenue, and other liabilities |
||||||||
Net cash provided by (used in) operating activities |
( |
) |
||||||
Cash flows from investing activities: |
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Proceeds from sale of property, equipment, and operating lease equipment |
||||||||
Purchases of property, equipment and operating lease equipment |
( |
) |
( |
) |
||||
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 |
( |
) |
( |
) |
||||
Repurchase of common stock |
( |
) |
( |
) |
||||
Repayments of financing of acquisitions |
( |
) |
||||||
Net borrowings (repayments) on floor plan facility |
||||||||
Net cash provided by financing activities |
||||||||
Effect of exchange rate changes on cash |
( |
) |
||||||
Net increase (decrease) in cash and cash equivalents |
( |
) |
||||||
Cash and cash equivalents, beginning of period |
||||||||
Cash and cash equivalents, end of period |
$ |
$ |
||||||
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(in thousands)
Six Months Ended September 30, |
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2021 |
2020 |
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Supplemental disclosures of cash flow information: |
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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: |
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Proceeds from sale of property, equipment, and leased equipment |
$ |
$ |
||||||
Purchases of property, equipment, and operating lease equipment |
$ |
( |
) |
$ |
( |
) |
||
Borrowing of non-recourse and recourse notes payable |
$ |
$ |
||||||
Repayments of non-recourse and recourse notes payable |
$ |
( |
) |
$ |
( |
) |
||
Vesting of share-based compensation |
$ |
$ |
||||||
New operating lease assets obtained in exchange for lease obligations |
$ |
$ |
||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
(in thousands)
Six Months Ended September 30, 2021 |
||||||||||||||||||||||||||||
Common Stock |
Additional Paid-In |
Treasury |
Retained |
Accumulated Other Comprehensive |
||||||||||||||||||||||||
Shares |
Par Value |
Capital |
Stock |
Earnings |
Income |
Total |
||||||||||||||||||||||
Balance, March 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
$ |
||||||||||||||||||||
Issuance of restricted stock awards |
||||||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||
Repurchase of common stock |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Net earnings |
- |
|||||||||||||||||||||||||||
Foreign currency translation adjustment |
- |
|||||||||||||||||||||||||||
Balance, June 30, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
$ |
||||||||||||||||||||
Issuance of restricted stock awards |
||||||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||
Repurchase of common stock |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Net earnings |
- |
|||||||||||||||||||||||||||
Foreign currency translation adjustment |
- |
( |
) |
( |
) |
|||||||||||||||||||||||
Balance, September 30, 2021 |
$ |
$ |
$ |
( |
) |
$ |
$ |
$ |
||||||||||||||||||||
Six Months Ended September 30, 2020 |
||||||||||||||||||||||||||||
Common Stock |
Additional Paid-In |
Treasury |
Retained |
Accumulated Other Comprehensive |
||||||||||||||||||||||||
Shares |
Par Value |
Capital |
Stock |
Earnings |
Income |
Total |
||||||||||||||||||||||
Balance, March 31, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
||||||||||||||||||
Issuance of restricted stock awards |
||||||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||
Repurchase of common stock |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Net earnings |
- |
|||||||||||||||||||||||||||
Foreign currency translation adjustment |
- |
|||||||||||||||||||||||||||
Balance, June 30, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
||||||||||||||||||
Issuance of restricted stock awards |
||||||||||||||||||||||||||||
Share-based compensation |
||||||||||||||||||||||||||||
Repurchase of common stock |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Net earnings |
- |
|||||||||||||||||||||||||||
Foreign currency translation adjustment |
- |
|||||||||||||||||||||||||||
Balance, September 30, 2020 |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
$ |
||||||||||||||||||
See Notes to Unaudited Consolidated Financial Statements.
ePlus inc. AND SUBSIDIARIES
| 1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” or “ePlus.” ePlus inc. is a holding company that through its subsidiaries provides information technology solutions that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, professional and managed services and complete lifecycle management services including flexible financing solutions. We focus on selling to medium and large enterprises in North America, the United Kingdom (“UK”), and other European countries.
BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of ePlus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited consolidated financial statements from the dates of acquisition.
INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the six months ended September 30, 2021, and 2020, were prepared by us and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the six months ended September 30, 2021, and 2020 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2022, 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, 2021 (“2021 Annual Report”), which should be read in conjunction with these interim consolidated financial statements.
USE OF ESTIMATES — The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, lease classification, goodwill and intangible assets, allowance for credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 40 % and 41 % of our technology segment’s net sales for the three months ended September 30, 2021, and 2020, respectively, and 41 % and 40 % of our technology segment’s net sales for the six months ended September 30, 2021, and 2020, 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, 2021.
| 2. | REVENUES |
CONTRACT BALANCES
Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $53.8 million and $54.6 million of receivables from contracts with customers included within financing receivables as of September 30, 2021, and March 31, 2021, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):
September 30, 2021 |
March 31, 2021 |
|||||||
Current (included in deferred revenue) |
$ |
$ |
||||||
Non-current (included in other liabilities) |
$ |
$ |
||||||
Revenue recognized from the beginning contract liability balance was $14.6 million and $36.1 million for the three and six months ended September 30, 2021, respectively, and $11.3 million and $26.9 million for the three and six months ended September 30, 2020, respectively.
PERFORMANCE OBLIGATIONS
The following table includes revenue expected to be recognized in the future related to performance obligations, primarily non-cancelable contracts for ePlus managed services, that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):
$ |
||||
Total remaining performance obligations |
$ |
The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed.
| 3. | FINANCING RECEIVABLES AND OPERATING LEASES |
Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option.
The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and six months ended September 30, 2021, and 2020 (in thousands):
Three months ended September 30, |
Six months ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Net sales |
$ |
$ |
$ |
$ |
||||||||||||
Cost of sales |
||||||||||||||||
Gross profit |
$ |
$ |
$ |
$ |
||||||||||||
The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and six months ended September 30, 2021, and 2020 (in thousands):
Three months ended September 30, |
Six months ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Interest income on sales-type leases |
$ |
$ |
$ |
$ |
||||||||||||
Lease income on operating leases |
$ |
$ |
$ |
$ |
||||||||||||
FINANCING RECEIVABLES—NET
The following tables provide a disaggregation of our financing receivables – net (in thousands):
September 30, 2021 |
Notes Receivable |
Lease Receivables |
Financing Receivables |
|||||||||
Gross receivables |
$ |
$ |
$ |
|||||||||
Unguaranteed residual value (1) |
||||||||||||
Initial direct costs, net of amortization |
||||||||||||
Unearned income |
( |
) |
( |
) |
||||||||
Allowance for credit losses (2) |
( |
) |
( |
) |
( |
) |
||||||
Total, net |
$ |
$ |
$ |
|||||||||
Reported as: |
||||||||||||
Current |
$ |
$ |
$ |
|||||||||
Long-term |
||||||||||||
Total, net |
$ |
$ |
$ |
|||||||||
| (1) |
| (2) |
March 31, 2021 |
Notes Receivable |
Lease Receivables |
Financing Receivables |
|||||||||
Gross receivables |
$ |
$ |
$ |
|||||||||
Unguaranteed residual value (1) |
||||||||||||
Initial direct costs, net of amortization |
||||||||||||
Unearned income |
( |
) |
( |
) |
||||||||
Allowance for credit losses (2) |
( |
) |
( |
) |
( |
) |
||||||
Total, net |
$ |
$ |
$ |
|||||||||
Reported as: |
||||||||||||
Current |
$ |
$ |
$ |
|||||||||
Long-term |
||||||||||||
Total, net |
$ |
$ |
$ |
|||||||||
| (1) |
| (2) |
OPERATING LEASES—NET
Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands):
September 30, 2021 |
March 31, 2021 |
|||||||
Cost of equipment under operating leases |
$ |
$ |
||||||
Accumulated depreciation |
( |
) |
( |
) |
||||
Investment in operating lease equipment—net (1) |
$ |
$ |
||||||
| (1) |
TRANSFERS OF FINANCIAL ASSETS
We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings.
For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of September 30, 2021, and March 31, 2021, we had financing receivables of $22.6 million and $60.5 million, respectively, and operating leases of $8.1 million and $3.3 million, respectively, which were collateral for non-recourse notes payable. See Note 8, ‘'Credit Facility and Notes Payable.'’
For transfers accounted for as sales, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended September 30, 2021, and 2020, we recognized net gains of $10.1 million and $4.5 million, respectively, and total proceeds from these sales were $615.0 million and $118.5 million, respectively. For the year to date periods ended September 30, 2021, and 2020, we recognized net gains of $13.3 million and $7.0 million, respectively, and total proceeds from these sales were $690.3 million and $191.7 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 September 30, 2021, and March 31, 2021, we had deferred revenue of $0.5 million and $0.3 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 September 30, 2021, the total potential payments that could result from these indemnities is immaterial.
| 4. | LESSEE ACCOUNTING |
We lease office space for periods up to six years . We recognize our right-of-use assets as part of property, equipment, and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent expense of $1.3 million as part of selling, general and administrative expenses for the three months ended September 30, 2021, and $1.5 million for the three months ending September 30, 2020, and $2.6 million and $3.1 million for the six months ended September 30, 2021, and 2020, respectively.
| 5. | GOODWILL AND OTHER INTANGIBLE ASSETS |
GOODWILL
The following table summarizes the changes in the carrying amount of goodwill for the six months ended September 30, 2021 (in thousands):
Six months ended September 30, 2021 |
||||||||||||
Goodwill |
Accumulated Impairment Loss |
Net Carrying Amount |
||||||||||
Beginning balance |
$ |
$ |
( |
) |
$ |
|||||||
Foreign currency translations |
( |
) |
- |
( |
) |
|||||||
Ending balance |
$ |
$ |
( |
) |
$ |
|||||||
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. Our entire balance as of September 30, 2021, relates to our technology segment, which we also determined to be one reporting unit. The change in our goodwill balance during the six months ended September 30, 2021, is due solely to foreign currency translation.
We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our annual test as of October 1, 2020, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the fair value of our technology reporting unit continued to substantially exceed its carrying value.
OTHER INTANGIBLE ASSETS
Our other intangible assets consist of the following on September 30, 2021, and March 31, 2021 (in thousands):
September 30, 2021 |
March 31, 2021 |
|||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||||||||
Customer relationships & other intangibles |
$ |
$ |
( |
) |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||
Capitalized software development |
( |
) |
( |
) |
||||||||||||||||||||
Total |
$ |
$ |
( |
) |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||
Customer relationships and other intangibles are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years.
Total amortization expense for customer relationships and other intangible assets was $3.0 million and $2.5 million for the three months ended September 30, 2021, and September 30, 2020, respectively, and $6.0 million and $5.0 million for the six months ended September 30, 2021, and 2020, respectively.
| 6. | ALLOWANCE FOR CREDIT LOSSES |
The following table provides the activity in our allowance for credit losses for the six months ended September 30, 2021, and 2020 (in thousands):
Accounts Receivable |
Notes Receivable |
Lease Receivables |
Total |
|||||||||||||
Balance April 1, 2021 |
$ |
$ |
$ |
$ |
||||||||||||
Provision for credit losses |
( |
) |
||||||||||||||
Write-offs and other |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Balance September 30, 2021 |
$ |
$ |
$ |
$ |
||||||||||||
Accounts Receivable |
Notes Receivable |
Lease Receivables |
Total |
|||||||||||||
Balance April 1, 2020 |
$ |
$ |
$ |
$ |
||||||||||||
Provision for credit losses |
||||||||||||||||
Write-offs and other |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Balance September 30, 2020 |
$ |
$ |
$ |
$ |
||||||||||||
The following table provides the amortized cost basis of our financing receivables by credit quality rating “CQR” and by credit origination year as of September 30, 2021 (in thousands):
Amortized cost basis by origination year ending March 31, |
||||||||||||||||||||||||||||||||||||
2022 |
2021 |
2020 |
2019 |
2018 |
2017 |
Total |
Transfers (2) |
Net credit exposure |
||||||||||||||||||||||||||||
Notes receivable: |
||||||||||||||||||||||||||||||||||||
High CQR |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||||||
Average CQR |
( |
) |
||||||||||||||||||||||||||||||||||
Low CQR |
||||||||||||||||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||||||
Lease receivables: |
||||||||||||||||||||||||||||||||||||
High CQR |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||||||
Average CQR |
( |
) |
||||||||||||||||||||||||||||||||||
Low CQR |
||||||||||||||||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||||||
Total amortized cost (1) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||||||
| (1) |
| (2) |
We evaluate our customers using an internally assigned CQR:
• |
High CQR: This rating includes accounts with excellent to good business credit, asset quality and capacity to meet financial obligations. Loss rates in this category are generally less than |
• |
Average CQR: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. Loss rates in this category are generally in the range of |
• |
Low CQR: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. The loss rates in this category in the normal course are generally in the range of |
The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2021 (in thousands):
Amortized cost basis by origination year ending March 31, |
||||||||||||||||||||||||||||||||
2021 |
2020 |
2019 |
2018 |
2017 |
Total |
Transfers (2) |
Net credit exposure |
|||||||||||||||||||||||||
Notes receivable: |
||||||||||||||||||||||||||||||||
High CQR |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||
Average CQR |
( |
) |
||||||||||||||||||||||||||||||
Low CQR |
||||||||||||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||
Lease receivables: |
||||||||||||||||||||||||||||||||
High CQR |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||
Average CQR |
( |
) |
||||||||||||||||||||||||||||||
Low CQR |
||||||||||||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||
Total amortized cost (1) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
) |
$ |
||||||||||||||||||||||
| (1) |
| (2) |
The following table provides an aging analysis of our financing receivables as of September 30, 2021 (in thousands):
31-60 Days Past Due |
61-90 Days Past Due |
> 90 Days Past Due |
Total Past Due |
Current |
Total Billed |
Unbilled |
Amortized Cost |
|||||||||||||||||||||||||
Notes receivable |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Lease receivables |
||||||||||||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
The following table provides an aging analysis of our financing receivables as of March 31, 2021 (in thousands):
31-60 Days Past Due |
61-90 Days Past Due |
> 90 Days Past Due |
Total Past Due |
Current |
Total Billed |
Unbilled |
Amortized Cost |
|||||||||||||||||||||||||
Notes receivable |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Lease receivables |
||||||||||||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
Our financial assets on nonaccrual status were not significant as of September 30, 2021, and March 31, 2021.
| 7. | PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES |
Our property, equipment, other assets and liabilities consist of the following (in thousands):
September 30, 2021 |
March 31, 2021 |
|||||||
Other current assets: |
||||||||
Deposits & funds held in escrow |
$ |
$ |
||||||
Prepaid assets |
||||||||
Other |
||||||||
Total |
$ |
$ |
||||||
Property and equipment, net |
$ |
$ |
||||||
Deferred costs - non-current |
||||||||
Right-of-use assets |
||||||||
Other |
||||||||
Total |
$ |
$ |
||||||
: |
||||||||
Accrued expenses |
$ |
$ |
||||||
Accrued income taxes payable |
||||||||
Short-term lease liability |
||||||||
Other |
||||||||
Total |
$ |
$ |
||||||
: |
||||||||
Deferred revenue - non-current |
$ |
$ |
||||||
Long-term lease liability |
||||||||
Other |
||||||||
Total |
$ |
$ |
||||||
In the above table, deposits and funds held in escrow relate to financial assets that were sold to third-party banks. In conjunction with those sales, a portion of the proceeds was placed in escrow and will be released to us upon payment of outstanding invoices related to the underlying financing arrangements that were sold.
| 8. | CREDIT FACILITY AND NOTES PAYABLE |
CREDIT FACILITY
Throughout the current fiscal year and until October 12, 2021, ePlus Technology, inc. and certain of its subsidiaries (the “Borrowers”), which are part of our technology segment, financed their operations, in addition to funds generated from operations, with a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). This facility provided short-term capital for our technology segment. There were two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component.
Under the WFCDF credit facility, there was an aggregate limit for the two components, except during a temporary uplift, of $275 million. We could elect to temporarily increase the aggregate limit to $350 million for a period of not less than 30 days, provided that all such periods not exceed 150 days in the aggregate in any calendar year. Additionally, the WFCDF credit facility had a limit on the accounts receivable component of $100 million. WFCDF charged us an interest rate equal to two percent (2.00 %) plus the greater of one month LIBOR or seventy-five hundredths of one percent (0.75 %).
As of September 30, 2021, the limit of the two components of the credit facility was $350 million as result of our election to temporarily uplift the aggregate limit.
Our borrowing availability under the credit facility varied, based upon the value of the receivables and inventory of the Borrowers. We had outstanding balances of $145.9 million and $98.7 million under the floor plan component as of September 30, 2021, and March 31, 2021, respectively. This component is presented as part of as accounts payable – floorplan. Under the accounts receivable component, we had $29 million as of September 30, 2021 and no outstanding balance as of March 31, 2021. This component is presented as part of recourse notes payable – current. The fair value of the outstanding balances under the WFCDF credit facility were approximately equal to their carrying value as of September 30, 2021, and March 31, 2021.
The WFCDF credit facility was secured by the assets of the Borrowers. Additionally, the credit facility required a guaranty of $10.5 million by ePlus inc.
The WFCDF credit facility restricted the ability of the Borrowers to pay dividends to ePlus inc. unless their available borrowing met certain thresholds. As of September 30, 2021, and March 31, 2021, their available borrowing met the threshold such that there were no restricted net assets of ePlus Technology, inc.
The credit facility required that financial statements of the Borrowers be provided within 45 days of each quarter and 90 days of each fiscal year end and required that other operational reports be provided on a regular basis. Either party could terminate with 90 days’ written notice.
On October 13, 2021, we entered into a First Amended and Restated Credit Agreement by and among the Borrowers, WFCDF, as administrative agent thereunder, various banks and other financial institutions (including WFCDF) who are parties thereto as lenders (collectively, the “Lenders”) and others, pursuant to which, among other things, the Lenders established for the benefit of the Borrowers a discretionary senior secured floorplan facility in the aggregate principal amount of up to $375 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).
The loss of the 2021 Credit Facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process.
RECOURSE NOTES PAYABLE
Recourse notes payable consist of borrowings that, in the event of default, the lender has recourse against us. As of September 30, 2021, we had $44.9 million in recourse borrowings which includes $29.0 million outstanding under our revolving credit facility with WFCDF, and $15.9 million arising from one installment payment arrangement. Our payments under this installment agreement are due quarterly in amounts that are correlated to the payments due to us from a customer under a related notes receivable. We discounted our payments to calculate our payable balance using an interest rate of 3.50
NON-RECOURSE NOTES PAYABLE
Non-recourse notes payable consists of borrowings that, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us. As of September 30, 2021, and March 31, 2021, we had $25.4 million and $56.1 million, respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due monthly in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 3.59 % and 3.35 %, as of September 30, 2021, and March 31, 2021, 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 is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, we accrue our best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against us in a reporting period for amounts above management’s expectations, our financial condition and operating results for that period could be adversely affected. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the us in the future, and these matters could relate to prior, current or future transactions or events.
| 10. | EARNINGS PER SHARE |
Basic earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding plus common stock equivalents during each period.
The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations for the three and six months ended September 30, 2021, and 2020, respectively (in thousands, except per share data).
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Net earnings attributable to common shareholders - basic and diluted |
$ |
$ |
$ |
$ |
||||||||||||
Basic and diluted common shares outstanding: |
||||||||||||||||
Weighted average common shares outstanding — basic |
||||||||||||||||
Effect of dilutive shares |
||||||||||||||||
Weighted average shares common outstanding — diluted |
||||||||||||||||
Earnings per common share - basic |
$ |
$ |
$ |
$ |
||||||||||||
Earnings per common share - diluted |
$ |
$ |
$ |
$ |
||||||||||||
STOCK SPLIT
On November 9, 2021, our Board of Directors declared a two -for-one stock split effected in the form of a stock dividend. The stock split will be in the form of a 100 percent stock dividend payable on December 13, 2021 , to shareholders of record at the close of business on November 29, 2021 . We expect that our common stock will begin trading at the split-adjusted price on December 14, 2021.
All references made to share or per share amounts in the accompanying unaudited consolidated financial statements and applicable disclosures herein, other than the table immediately below, are presented on a pre-split basis. The following table provides pro forma earnings per share, giving retroactive effect to the stock split (in thousands, except per share data):
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Earnings per common share: |
||||||||||||||||
Basic - pro forma |
||||||||||||||||
Diluted - pro forma |
||||||||||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic - pro forma |
||||||||||||||||
Diluted - pro forma |
||||||||||||||||
As a result of the stock split, all historical per share data and number of shares outstanding presented in future financial statements will be retroactively adjusted.
| 11. | STOCKHOLDERS’ EQUITY |
SHARE REPURCHASE PLAN
On March 18, 2021, our board of directors authorized the repurchase of up to 500,000 shares of our outstanding common stock over a 12-month period beginning May 28, 2021, and ending on May 27, 2022. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.
On May 20, 2020, our board of directors authorized the repurchase of up to 500,000 shares of our outstanding common stock over a 12-month period beginning May 28, 2020, and ending on May 27, 2021. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.
During the six months ended September 30, 2021, we purchased 49,028 shares of our outstanding common stock at a value of $4.3 million under the share repurchase plan; we also purchased 27,715 shares of common stock at a value of $2.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.
During the six months ended September 30, 2020, we purchased 24,318 shares of our outstanding common stock at a value of $1.8 million under the share repurchase plan; we also purchased 37,640 shares of common stock at a value of $2.7 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.
| 12. | SHARE-BASED COMPENSATION |
SHARE-BASED PLANS
ePlus’ 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”) was approved by our shareholders on September 16, 2021. The 2021 Employee LTIP is effective October 1, 2021 and replaces the ePlus inc. 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”), as approved by our stockholders on September 13, 2012. Beginning October 1, 2021, no further shares will be granted under the 2012 Employee LTIP.
As of September 30, 2021, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), and (2) 2012 Employee LTIP.
These share-based plans define fair market value as the closing sales price of a share of common stock as quoted on any established stock exchange for such date or the most recent trading day preceding such date if there were no trades on such date.
RESTRICTED STOCK ACTIVITY
For the six months ended September 30, 2021, we granted 6,393 shares under the 2017 Director LTIP, and 77,861 restricted shares under the 2012 Employee LTIP. For the six months ended September 30, 2020, we granted 9,309 shares under the 2017 Director LTIP, and 89,873 restricted shares under the 2012 Employee LTIP. A summary of the grants is as follows:
Number of Shares |
Weighted Average Grant-date Fair Value |
|||||||
Nonvested April 1, 2021 |
$ |
|||||||
Granted |
$ |
|||||||
Vested |
( |
) |
$ |
|||||
Nonvested September 30, 2021 |
$ |
|||||||
Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we purchased enough shares due to participants to satisfy the minimum tax withholding requirements on employee stock awards. For the six months ended September 30, 2021, we withheld 27,715 shares of common stock at a value of $2.6 million, which was included in treasury stock.
COMPENSATION EXPENSE
We recognize compensation cost for awards of restricted stock with graded vesting on a straight-line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. Share-based compensation expense for both the three and six months ended September 30, 2021, and 2020, were $1.8 3.6 12.4 million as of September 30, 2021, which will be fully recognized over the next 33 months.
We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are always fully vested. Our estimated contribution expense for the plan for the three months ended September 30, 2021, and 2020, was $1.0 million and $0.7 million, respectively. For the six months ended September 30, 2021, and 2020, our estimated contribution expense for the plan was $1.8 million and $1.4 million, respectively.
| 13. | INCOME TAXES |
We account for our tax positions in accordance with Codification Topic 740, Income Taxes. Under the guidance, we evaluate uncertain tax positions based on the two-step approach. The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. For tax positions that are not likely of being sustained upon audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.
Our total gross unrecognized tax benefits recorded for uncertain income tax, and interest and penalties thereon, were negligible as of September 30, 2021, and September 30, 2020. We had no additions or reductions to our gross unrecognized tax benefits during the six months ended September 30, 2021. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.
| 14. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
We account for the fair values of our assets and liabilities in accordance with Codification Topic 820, Fair Value Measurement and Disclosure. The following table summarizes the fair value hierarchy of our financial instruments as of September 30, 2021, and March 31, 2021 (in thousands):
Fair Value Measurement Using |
||||||||||||||||
Recorded Amount |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
September 30, 2021 |
||||||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ |
$ |
$ |
$ |
||||||||||||
March 31, 2021 |
||||||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ |
$ |
$ |
$ |
||||||||||||
| 15. | BUSINESS COMBINATIONS |
SYSTEMS MANAGEMENT PLANNING, INC. (SMP)
On December 31, 2020, our subsidiary, ePlus Technology, inc., acquired certain assets and liabilities of SMP, an established provider of technology solutions and services in upstate New York and the Northeast. The acquisition enhances ePlus’ footprint across the region, broadens our technology solution offerings especially in the areas of collaboration and supporting virtual employees, and adds to ePlus’ set of commercial, enterprise and state, local, and education customers.
Our sum of consideration transferred was $27.0 million consisting of $29.0 million paid in cash at closing less $2.0 million that was paid back to us in our quarter ended March 31, 2021, related to a working capital adjustment. 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 assets |
||||
Accounts payable and other current liabilities |
( |
) |
||
Performance obligations |
( |
) |
||
Total identifiable net assets |
||||
Goodwill |
||||
Total purchase consideration |
$ |
|||
The identified intangible assets of $14.3 million consists of customer relationships with an estimated useful life of seven years . The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.
We recognized goodwill related to this transaction of $8.3 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2020, is not material.
| 16. | SEGMENT REPORTING |
Our operations are conducted through two operating segments that are also both reportable segments. Our technology segment includes sales of IT products, third-party software, third-party maintenance, advanced professional and managed services, and our proprietary software to commercial enterprises, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software, and related services to commercial enterprises, state and local governments, and government contractors. We measure the performance of the segments based on operating income.
Our reportable segment information for the three-and six-month periods ended September 30, 2021, and 2020 are summarized in the following table (in thousands):
Three Months Ended |
||||||||||||||||||||||||
September 30, 2021 |
September 30, 2020 |
|||||||||||||||||||||||
Technology |
Financing |
Total |
Technology |
Financing |
Total |
|||||||||||||||||||
Sales |
||||||||||||||||||||||||
Product |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Service |
||||||||||||||||||||||||
Net sales |
||||||||||||||||||||||||
Cost of Sales |
||||||||||||||||||||||||
Product |
||||||||||||||||||||||||
Service |
||||||||||||||||||||||||
Total cost of sales |
||||||||||||||||||||||||
Gross Profit |
||||||||||||||||||||||||
Selling, general, and administrative |
||||||||||||||||||||||||
Depreciation and amortization |
||||||||||||||||||||||||
Interest and financing costs |
||||||||||||||||||||||||
Operating expenses |
||||||||||||||||||||||||
Operating income |
||||||||||||||||||||||||
Other income (expense) |
( |
) |
||||||||||||||||||||||
Earnings before tax |
$ |
$ |
||||||||||||||||||||||
Net Sales |
||||||||||||||||||||||||
Contracts with customers |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Financing and other |
||||||||||||||||||||||||
Net Sales |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Selected Financial Data - Statement of Cash Flow |
||||||||||||||||||||||||
Depreciation and amortization |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Purchases of property, equipment and operating lease equipment |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Selected Financial Data - Balance Sheet |
||||||||||||||||||||||||
Total assets |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Six Months Ended |
||||||||||||||||||||||||
September 30, 2021 |
September 30, 2020 |
|||||||||||||||||||||||
Technology |
Financing |
Total |
Technology |
Financing |
Total |
|||||||||||||||||||
Sales |
||||||||||||||||||||||||
Product |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Service |
||||||||||||||||||||||||
Net sales |
||||||||||||||||||||||||
Cost of Sales |
||||||||||||||||||||||||
Product |
||||||||||||||||||||||||
Service |
||||||||||||||||||||||||
Total cost of sales |
||||||||||||||||||||||||
Gross Profit |
||||||||||||||||||||||||
Selling, general, and administrative |
||||||||||||||||||||||||
Depreciation and amortization |
||||||||||||||||||||||||
Interest and financing costs |
||||||||||||||||||||||||
Operating expenses |
||||||||||||||||||||||||
Operating income |
||||||||||||||||||||||||
Other income (expense) |
( |
) |
||||||||||||||||||||||
Earnings before tax |
$ |
$ |
||||||||||||||||||||||
Net Sales |
||||||||||||||||||||||||
Contracts with customers |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Financing and other |
||||||||||||||||||||||||
Net Sales |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Selected Financial Data - Statement of Cash Flow |
||||||||||||||||||||||||
Depreciation and amortization |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Purchases of property, equipment and operating lease equipment |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Selected Financial Data - Balance Sheet |
||||||||||||||||||||||||
Total assets |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
TECHNOLOGY SEGMENT DISAGGREGATION OF REVENUE
We analyze net sales for our technology segment by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized for the three and six month periods ended September 30, 2021, and 2020 in the tables below (in thousands):
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Customer end market: |
||||||||||||||||
Telecom, Media & Entertainment |
$ |
$ |
$ |
$ |
||||||||||||
Technology |
||||||||||||||||
State and local government and educational institutions |
||||||||||||||||
Healthcare |
||||||||||||||||
Financial Services |
||||||||||||||||
All others |
||||||||||||||||
Net sales |
||||||||||||||||
Less: Revenue from financing and other |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Revenue from contracts with customers |
$ |
$ |
$ |
$ |
||||||||||||
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Vendor |
||||||||||||||||
Cisco Systems |
$ |
$ |
$ |
$ |
||||||||||||
Dell / EMC |
||||||||||||||||
Juniper Networks |
||||||||||||||||
HP Inc. & HPE |
||||||||||||||||
Arista Networks |
||||||||||||||||
NetApp |
||||||||||||||||
All others |
||||||||||||||||
Net sales |
||||||||||||||||
Less: Revenue from financing and other |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Revenue from contracts with customers |
$ |
$ |
$ |
$ |
||||||||||||
FINANCING SEGMENT DISAGGREGATION OF REVENUE
We analyze our revenues within our financing segment based on the nature of the arrangement. Our revenues from contracts with customers within our financing segment consist entirely of proceeds from the sale of off-lease equipment.
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS |
This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our 2021 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 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.
EXECUTIVE OVERVIEW
BUSINESS DESCRIPTION
We are a leading solutions provider that delivers actionable outcomes for organizations by using IT and consulting solutions to drive business agility and innovation. Leveraging our engineering talent, we assess, plan, deliver, and secure solutions comprised of leading technologies and consumption models aligned with our customers’ needs. Our expertise and experience enable us to craft optimized solutions that take advantage of the cost, scale and efficiency of private, public and hybrid cloud in an evolving market. We also provide consulting, staffing, professional, managed, IT staff augmentation, and complete lifecycle management services including flexible financing and solutions in the areas of security, cloud, networking, data center, collaboration and emerging technologies. We have been in the business of selling, leasing, financing, and managing IT and other assets for more than 30 years.
Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-premise and in the cloud. Our approach is to lead with advisory consulting to understand our customers’ needs, and then design, deploy and manage solutions aligned to their objectives. Underpinning the broader areas of Cloud, Security, Networking, Data Center and Collaboration are specific skills in orchestration and automation, application modernization, DevOps, data management, data visualization, analytics, network modernization, edge compute and other advanced and emerging technologies. These solutions are comprised of class-leading technologies from partners such as Amazon Web Services, Arista Networks, Check Point, Cisco Systems, Citrix, Commvault, Dell EMC, F5 Networks, Fortinet, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Pure Storage, Rubrik, Splunk, Varonis, and VMware, among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized for each of our customers’ specific requirements. Our hosted, proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their owned, leased, and consumption-based assets.
Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay on the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled ePlus to remain a trusted advisor for our customers. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We believe our lifecycle approach offering of integrated solutions, services and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a unique customer experience that spans the continuum from fast delivery of competitively priced products, services, subsequent management and upkeep, through to end-of-life disposal services. This approach permits ePlus to deploy sophisticated solutions enabling our customers’ business outcomes.
Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local government and educational institutions (“SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which accounts for most of our sales, and to customers in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, and Singapore. Our technology segment accounts for 96% of our net sales, and 72% of our operating income, while our financing segment accounts for 4% of our net sales, and 28% of our operating income, for the six months ended September 30, 2021.
BUSINESS TRENDS
COVID-19 pandemic update: The novel coronavirus (“COVID-19”) pandemic continues to have widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and local governments and public health authorities have required and may in the future require measures to contain the virus, including vaccine mandates, social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, safety-related modifications to workplaces, supply chain logistical changes, and closure of non-essential businesses.
As COVID-19 impacts continue across the country and globe, we have been adjusting our business activities for the safety of our employees and to best serve our customers in this rapidly evolving environment. Most of our offices are open, with required health and safety protocols in place. However, we have implemented a flexible work from home strategy applicable to all offices and operational continuity plans to provide sufficient resources to continue supporting our customers, and we will continue to evaluate returning to the office on an ongoing basis. Our configuration centers have remained open with our employees working in them following required health and safety protocols. In addition, we also have a procedure to review our employees’ business-related travel in accordance with health regulations and guidance. Our managed service teams are distributed across the US with the ability to leverage technology to provide coverage while working from home. While we and many of our customers and vendor partners have restricted travel, we are leveraging video and other collaborative tools to continue to be responsive.
Our account relationship teams are actively engaging with our customers, to ensure they have the support needed in adjusting to changes in the business environment and government directives. Also, we are working closely with our vendor partners to address varying impacts on their supply chains, which have been impacted by materials shortages.
We continue to execute against and adjust our business continuity plans to maximize our ability to support our employees and customers in concert with our vendor partners. We have an internal resource page to support specific customer inquiries from security to collaboration to financing options. We remain committed to driving positive business outcomes.
The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic including the impact of variants; governmental, business, and individuals’ actions in response to the pandemic; the efficacy of vaccines and boosters, the duration of the vaccination distribution, the willingness of people to be inoculated, and potential vaccine mandates; and the impact on economic activity including the possibility of recession, inflation, or financial market instability. These factors may adversely impact business and government spending on technology as well as our customers’ ability to pay for our products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions. Refer to Part I, Item 1A, “Risk Factors,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.
Supply constraints: A worldwide shortage of certain IT products is resulting from, among other things, shortages in semiconductors and other components of those products. Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, the costs of products, vendor return and cancellation policies, and our ability to meet customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters.
KEY BUSINESS METRICS
Our management monitors several financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, net earnings per common share, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross billings, and Non-GAAP Net earnings per share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets.
These key indicators include financial information that is prepared in accordance with US GAAP and presented in our unaudited consolidated financial statements, as well as Non-GAAP performance measurement tools. Generally, a Non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
Our key business metrics for the three- and six-month periods ended September 30, 2021, and 2020 are summarized in the following tables (dollars in thousands):
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
Consolidated |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Net sales |
$ |
458,017 |
$ |
433,081 |
$ |
874,666 |
$ |
788,112 |
||||||||
Gross profit |
$ |
123,002 |
$ |
98,962 |
$ |
228,514 |
$ |
197,519 |
||||||||
Gross margin |
26.9 |
% |
22.9 |
% |
26.1 |
% |
25.1 |
% |
||||||||
Operating income margin |
9.7 |
% |
6.6 |
% |
8.8 |
% |
6.8 |
% |
||||||||
Net earnings |
$ |
31,413 |
$ |
19,846 |
$ |
54,931 |
$ |
37,206 |
||||||||
Net earnings margin |
6.9 |
% |
4.6 |
% |
6.3 |
% |
4.7 |
% |
||||||||
Net earnings per common share - diluted |
$ |
2.34 |
$ |
1.48 |
$ |
4.09 |
$ |
2.78 |
||||||||
Non-GAAP: Net earnings (1) |
$ |
34,806 |
$ |
22,470 |
$ |
61,159 |
$ |
42,677 |
||||||||
Non-GAAP: Net earnings per common share - diluted (1) |
$ |
2.59 |
$ |
1.68 |
$ |
4.55 |
$ |
3.19 |
||||||||
Adjusted EBITDA (2) |
$ |
50,195 |
$ |
33,561 |
$ |
88,467 |
$ |
64,275 |
||||||||
Adjusted EBITDA margin |
11.0 |
% |
7.7 |
% |
10.1 |
% |
8.2 |
% |
||||||||
Purchases of property and equipment used internally |
$ |
948 |
$ |
990 |
$ |
2,255 |
$ |
3,101 |
||||||||
Purchases of equipment under operating leases |
8,301 |
- |
13,988 |
166 |
||||||||||||
Total capital expenditures |
$ |
9,249 |
$ |
990 |
$ |
16,243 |
$ |
3,267 |
||||||||
Technology Segment |
||||||||||||||||
Net sales |
$ |
436,301 |
$ |
419,359 |
$ |
836,659 |
$ |
760,583 |
||||||||
Adjusted gross billings (3) |
$ |
664,124 |
$ |
601,064 |
$ |
1,297,131 |
$ |
1,147,458 |
||||||||
Gross profit |
$ |
105,078 |
$ |
87,197 |
$ |
200,511 |
$ |
174,038 |
||||||||
Gross margin |
24.1 |
% |
20.8 |
% |
24.0 |
% |
22.9 |
% |
||||||||
Operating income |
$ |
30,251 |
$ |
21,297 |
$ |
55,474 |
$ |
38,829 |
||||||||
Adjusted EBITDA (2) |
$ |
36,059 |
$ |
26,275 |
$ |
67,017 |
$ |
49,436 |
||||||||
Financing Segment |
||||||||||||||||
Net sales |
$ |
21,716 |
$ |
13,722 |
$ |
38,007 |
$ |
27,529 |
||||||||
Gross profit |
$ |
17,924 |
$ |
11,765 |
$ |
28,003 |
$ |
23,481 |
||||||||
Operating income |
$ |
14,052 |
$ |
7,188 |
$ |
21,281 |
$ |
14,653 |
||||||||
Adjusted EBITDA (2) |
$ |
14,136 |
$ |
7,286 |
$ |
21,450 |
$ |
14,839 |
||||||||
| (1) | Non-GAAP Net earnings and Non-GAAP Net earnings per common share – diluted is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share-based compensation, and acquisition and integration expenses, and the related tax effects. |
We use Non-GAAP Net earnings per common share as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP Net earnings per common share provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAP Net earnings per common share provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate similar Non-GAAP Net earnings and Non-GAAP Net earnings per common share or similarly titled measures differently, which may reduce their usefulness as comparative measures.
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
GAAP: Earnings before tax |
$ |
43,978 |
$ |
28,669 |
$ |
76,553 |
$ |
53,764 |
||||||||
Share based compensation |
1,840 |
1,764 |
3,575 |
3,671 |
||||||||||||
Acquisition and integration expense |
- |
(30 |
) |
- |
(1 |
) |
||||||||||
Acquisition related amortization expense |
2,661 |
2,172 |
5,357 |
4,400 |
||||||||||||
Other (income) expense |
325 |
(184 |
) |
202 |
(282 |
) |
||||||||||
Non-GAAP: Earnings before provision for income taxes |
48,804 |
32,391 |
85,687 |
61,552 |
||||||||||||
GAAP: Provision for income taxes |
12,565 |
8,823 |
21,622 |
16,558 |
||||||||||||
Share based compensation |
528 |
541 |
1,024 |
1,128 |
||||||||||||
Acquisition and integration expense |
- |
(9 |
) |
- |
- |
|||||||||||
Acquisition related amortization expense |
750 |
648 |
1,507 |
1,315 |
||||||||||||
Other (income) expense |
93 |
(56 |
) |
58 |
(86 |
) |
||||||||||
Tax benefit (expense) on restricted stock |
62 |
(26 |
) |
317 |
(40 |
) |
||||||||||
Non-GAAP: Provision for income taxes |
13,998 |
9,921 |
24,528 |
18,875 |
||||||||||||
Non-GAAP: Net earnings |
$ |
34,806 |
$ |
22,470 |
$ |
61,159 |
$ |
42,677 |
||||||||
GAAP: Net earnings per common share - diluted |
$ |
2.34 |
$ |
1.48 |
$ |
4.09 |
$ |
2.78 |
||||||||
Non-GAAP: Net earnings per common share - diluted |
$ |
2.59 |
$ |
1.68 |
$ |
4.55 |
$ |
3.19 |
||||||||
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
GAAP: Net earnings per common share - diluted |
$ |
2.34 |
$ |
1.48 |
$ |
4.09 |
$ |
2.78 |
||||||||
Share based compensation |
0.09 |
0.09 |
0.18 |
0.19 |
||||||||||||
Acquisition related amortization expense |
0.14 |
0.11 |
0.29 |
0.23 |
||||||||||||
Other (income) expense |
0.02 |
- |
0.01 |
(0.01 |
) |
|||||||||||
Tax benefit (expense) on restricted stock |
- |
- |
(0.02 |
) |
- |
|||||||||||
Total non-GAAP adjustments - net of tax |
0.25 |
0.20 |
0.46 |
0.41 |
||||||||||||
Non-GAAP: Net earnings per common share - diluted |
$ |
2.59 |
$ |
1.68 |
$ |
4.55 |
$ |
3.19 |
||||||||
| (2) | We define Adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for income taxes, and other income. Segment Adjusted EBITDA is defined as operating income calculated in accordance with GAAP, adjusted for interest expense, share-based compensation, acquisition and integration expenses, and depreciation and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. We provide below a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial measure to this Non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales. The presentation of Adjusted EBITDA has been changed from prior period presentations to include adjustments for expenses related to acquisitions such as legal, accounting, tax, and adjustments to the fair value of contingent purchase price consideration as well as stock compensation. |
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
Consolidated |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Net earnings |
$ |
31,413 |
$ |
19,846 |
$ |
54,931 |
$ |
37,206 |
||||||||
Provision for income taxes |
12,565 |
8,823 |
21,622 |
16,558 |
||||||||||||
Share based compensation |
1,840 |
1,764 |
3,575 |
3,671 |
||||||||||||
Interest and financing costs |
199 |
1 |
358 |
266 |
||||||||||||
Acquisition and integration expense |
- |
(30 |
) |
- |
(1 |
) |
||||||||||
Depreciation and amortization |
3,853 |
3,341 |
7,779 |
6,857 |
||||||||||||
Other income (expense) |
325 |
(184 |
) |
202 |
(282 |
) |
||||||||||
Adjusted EBITDA |
$ |
50,195 |
$ |
33,561 |
$ |
88,467 |
$ |
64,275 |
||||||||
Technology Segment |
||||||||||||||||
Operating income |
$ |
30,251 |
$ |
21,297 |
$ |
55,474 |
$ |
38,829 |
||||||||
Depreciation and amortization |
3,825 |
3,313 |
7,723 |
6,801 |
||||||||||||
Share based compensation |
1,784 |
1,694 |
3,462 |
3,541 |
||||||||||||
Interest and financing costs |
199 |
1 |
358 |
266 |
||||||||||||
Acquisition and integration expense |
- |
(30 |
) |
- |
(1 |
) |
||||||||||
Adjusted EBITDA |
$ |
36,059 |
$ |
26,275 |
$ |
67,017 |
$ |
49,436 |
||||||||
Financing Segment |
||||||||||||||||
Operating income |
$ |
14,052 |
$ |
7,188 |
$ |
21,281 |
$ |
14,653 |
||||||||
Depreciation and amortization |
28 |
28 |
56 |
56 |
||||||||||||
Share based compensation |
56 |
70 |
113 |
130 |
||||||||||||
Adjusted EBITDA |
$ |
14,136 |
$ |
7,286 |
$ |
21,450 |
$ |
14,839 |
||||||||
| (3) | We define Adjusted gross billings as our technology segment net sales calculated in accordance with US GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services. We have provided below a reconciliation of Adjusted gross billings to technology segment net sales, which is the most directly comparable financial measure to this Non-GAAP financial measure. |
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Technology segment net sales |
$ |
436,301 |
$ |
419,359 |
$ |
836,659 |
$ |
760,583 |
||||||||
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services |
227,823 |
181,705 |
460,472 |
$ |
386,875 |
|||||||||||
Adjusted gross billings |
$ |
664,124 |
$ |
601,064 |
$ |
1,297,131 |
$ |
1,147,458 |
||||||||
We use Adjusted gross billings as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment, and to analyze the changes to our accounts receivable and accounts payable. Our use of Adjusted gross billings as an analytical tool has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted gross billings or a similarly titled measure differently, which may reduce its usefulness as a comparative measure.
CONSOLIDATED RESULTS OF OPERATIONS
During the three months ended September 30, 2021, net sales increased 5.8%, or $24.9 million, to $458.0 million, as compared to $433.1 million for the same period in the prior year. Product sales for the three months ended September 30, 2021, increased 3.5% to $397.2 million, an increase of $13.5 million from $383.7 million for the same period in the prior year, due to increased demand from our technology segment customers as well as higher financing revenue. Service sales during the three months ended September 30, 2021, increased 23.1% to $60.9 million, an increase of $11.4 million over prior year services sales of $49.4 million due to increases in both managed services and professional services. In the technology segment, we saw increases in net sales from customers in the healthcare, telecom, media and entertainment, and smaller other categories of customers, which was partially offset by decreases in net sales from customers in technology, financial services and SLED, during the three months ended September 30, 2021, compared to the same period in the prior year.
For the six months ended September 30, 2021, net sales increased 11.0%, or $86.6 million, to $874.7 million, compared to $788.1 million in the same period in the prior year. Product sales for the six months ended September 30, 2021, increased 9.7%, or $67.3 million, to $758.2 million, compared to $690.9 million in the same period in the prior year. Services sales during the six months ended September 30, 2021, increased 19.8%, or $19.2 million, to $116.4 million compared to prior year services sales of $97.2 million. The increase in net sales was due to increased demand from our customers in telecom, media and entertainment, healthcare and manufacturing markets, which were partially offset by decreases in demand from our customers in technology, financial services, SLED, and all other category of customers, during the six months ended September 30, 2021, compared to the prior year.
Adjusted gross billings increased 10.5%, or $63.1 million, to $664.1 million for the three months ended September 30, 2021, from $601.1 million for the same period in the prior year. There was an increase in adjusted gross billings from our customers in telecom, media and entertainment, healthcare, and financial services industries, which was partially offset by decreases in demand from our customers in SLED and technology. For the six months ended September 30, 2021, adjusted gross billings increased 13.0%, or $149.7 million, to $1,297.1 million, from $1,147.5 million for the same period in the prior year. The increase in adjusted gross billings is due, in part, to the Systems Management Planning, Inc. (“SMP”) acquisition as well as higher demand from our customers in telecom, media and entertainment, and healthcare, which was partially offset by decreases in demand from our customers in technology and SLED.
Consolidated gross profit for the three months ended September 30, 2021, increased $24.0 million, or 24.3%, to $123.0 million, compared with $99.0 million for the same period in the prior year. Consolidated gross margins were 26.9% for the three months ended September 30, 2021, which is an increase of 400 basis points compared to 22.9% for the same period in the prior year. The increase in margins was primarily due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which was recognized on a net basis, as well as higher service revenue and service margin, and higher gross profit from our financing segment.
For the six months ended September 30, 2021, consolidated gross profit increased $31.0 million, or 15.7%, to $228.5 million, compared with $197.5 million for the same period in the prior year. Consolidated gross margins were 26.1% for the six months ended September 30, 2021, an increase of 100 basis points compared to 25.1% for the same period in the prior year. The increase in gross margin for the six-month period was due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which is recognized on a net basis, as well as higher service revenue and service margins, and higher gross profit from our financing segment.
Our operating expenses for the three months ended September 30, 2021, increased $8.2 million, or 11.7%, to $78.7 million, as compared to $70.5 million for the prior year period. This increase is primarily due to an increase in variable compensation, salaries and benefits driven by increased headcount and higher general and administrative expense due to higher professional fees, software license and maintenance, and travel and entertainment expenses, as travel restrictions from COVID-19 have started to ease. As of September 30, 2021, we had 1,554 employees, an increase of 57 from 1,497 as of September 30, 2020. Our headcount is higher primarily due to the addition of 102 employees joining ePlus from our December 31, 2020, acquisition of SMP.
For the six months ended September 30, 2021, operating expenses increased $7.7 million, or 5.4%, to $151.8 million, as compared to $144.0 million in the same period in the prior year. The increase in operating expenses for the six months ended September 30, 2021, is due to an increase in variable compensation, salaries and benefits driven by increased headcount and higher general and administrative expense due to higher professional fees, software license and maintenance, and travel and entertainment expenses, as travel restrictions from COVID-19 have started to ease. These increases are partially offset by a decrease in our provision for credit losses.
Depreciation and amortization expense increased $0.5 million and $0.9 million for three and six months ended September 30, 2021, respectively, primarily due to our December 31, 2020, acquisition of SMP. Interest and financing costs increased $0.1 million for the three months ended September 30, 2021 and decreased $0.1 million for the six months ended September 30, 2021, primarily driven by the timing of borrowings from our credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”) offset by a decrease in interest and financing costs in our financing segment.
As a result, operating income for the three months ended September 30, 2021, increased $15.8 million, or 55.5%, to $44.3 million as compared to $28.5 million for the same period in the prior year. For the six months ended September 30, 2021, operating income increased $23.3 million, or 43.5%, to $76.8 million, as compared to $53.5 million for the same period in the prior year.
Consolidated net earnings for the three months ended September 30, 2021, were $31.4 million, an increase of 58.3%, or $11.6 million, over the prior year’s results, due to the increase in gross profit and offset by increased operating expenses and the provision for income taxes. For the six months ended September 30, 2021, the consolidated net earnings were $54.9 million, an increase of 47.6%, or $17.7 million, compared to the prior year’s results, due to the increase in revenues and gross profit mostly offset by an increase in operating expenses and the provision for income taxes.
Our effective tax rate for the three and six months ended September 30, 2021, was 28.6% and 28.2% respectively, compared with 30.8% for the same periods in the prior year. The change in our effective income tax rate was primarily due to an adjustment to the federal benefit from state taxes in the prior year period.
Adjusted EBITDA increased $16.6 million, or 49.6%, to $50.2 million and Adjusted EBITDA margin increased 330 basis points to 11.0% for the three months ended September 30, 2021, as compared to the prior year period of 7.7%. For the six months ended September 30, 2021, adjusted EBITDA increased $24.2 million, or 37.6%, to $88.5 million and the adjusted EBITDA margin increased 190 basis points to 10.1% as compared to the prior year period of 8.2%.
Diluted earnings per share increased 58.1%, or $0.86, to $2.34 per share for the three months ended September 30, 2021, as compared to $1.48 per share for the three months ended September 30, 2020. Non-GAAP diluted earnings per share increased 54.2%, or $0.91, to $2.59 for the three months ended September 30, 2021, as compared to $1.68 for the three months ended September 30, 2020. For the six months ended September 30, 2021, diluted earnings per share increased 47.1%, or $1.31, to $4.09 per share, as compared to $2.78 per share in the prior year period. Non-GAAP diluted earnings per share increased 42.6%, or $1.36, to $4.55 for the six months ended September 30, 2021, as compared to $3.19 for the six months ended September 30, 2020.
Cash and cash equivalents decreased by 56.0% to $57.0 million as of September 30, 2021, as compared to $129.6 million as of March 31, 2021, primarily due to increases in our accounts receivable and inventory and a decrease in accounts payable—trade, partially offset by net borrowings on the floor plan component of our credit facility. Additional uses of cash during the three months ended September 30, 2021, included cash paid of $6.9 million to repurchase outstanding shares of our common stock. Our cash on hand, funds generated from operations, amounts available under our credit facility, and the ability to monetize our investment portfolio have provided sufficient liquidity for our business.
SEGMENT OVERVIEW
Our operations are conducted through two segments: technology and financing.
TECHNOLOGY SEGMENT
The technology segment derives revenue from sales of product, project-related advanced professional services, managed services and staff augmentation. The technology segment sells primarily to corporate customers, state and local governments, and higher education institutions on a nationwide basis, with geographic concentrations relating to our physical locations. The technology segment also provides Internet-based business-to-business supply chain management solutions for information technology products.
Customers who purchase IT equipment and services from us may have a customer master agreement (“CMA”) with our company, which stipulates the terms and conditions of the 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 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 and, therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs.
FINANCING SEGMENT
Our financing segment offers financing solutions to corporations, governmental entities, and educational institutions nationwide and in Canada, the UK, and several other European countries. The financing segment derives revenue from leasing IT and medical equipment and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing 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; and |
| • | Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and the sale of off-lease (used) equipment. |
We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.
FLUCTUATIONS IN OPERATING RESULTS
Our results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, customer demand for our products and services, supplier costs, product availability, changes in vendor incentive programs, interest rate fluctuations, decision to sell financial assets, general economic conditions, and differences between estimated residual values and actual amounts realized related to the equipment we lease. Operating results could also fluctuate as a result of a sale prior to the expiration of the lease term to the lessee or to a third-party or from other post-term events.
We expect to continue to expand by opening new offices and warehouses and by hiring additional staff for specific targeted market areas whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may reduce our results from operations. COVID-19 may negatively affect market demand, which will likely lower our financial results, and may adversely impact our ability to expand. We are uncertain as to the extent and duration of COVID-19’s impact to demand in the IT market for our products and services.
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates have not changed from those reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report.
SEGMENT RESULTS OF OPERATIONS
The three and six months ended September 30, 2021, compared to the three and six months ended September 30, 2020
TECHNOLOGY SEGMENT
The results of operations for our technology segment were as follows (dollars in thousands):
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Net sales |
||||||||||||||||
Product |
$ |
375,444 |
$ |
369,934 |
$ |
720,210 |
$ |
663,367 |
||||||||
Services |
60,857 |
49,425 |
116,449 |
97,216 |
||||||||||||
Total |
436,301 |
419,359 |
836,659 |
760,583 |
||||||||||||
Cost of sales |
||||||||||||||||
Product |
293,837 |
301,006 |
564,852 |
525,549 |
||||||||||||
Services |
37,386 |
31,156 |
71,296 |
60,996 |
||||||||||||
Total |
331,223 |
332,162 |
636,148 |
586,545 |
||||||||||||
Gross profit |
105,078 |
87,197 |
200,511 |
174,038 |
||||||||||||
Selling, general, and administrative |
70,803 |
62,586 |
136,956 |
128,142 |
||||||||||||
Depreciation and amortization |
3,825 |
3,313 |
7,723 |
6,801 |
||||||||||||
Interest and financing costs |
199 |
1 |
358 |
266 |
||||||||||||
Operating expenses |
74,827 |
65,900 |
145,037 |
135,209 |
||||||||||||
Operating income |
$ |
30,251 |
$ |
21,297 |
$ |
55,474 |
$ |
38,829 |
||||||||
Adjusted gross billings |
$ |
664,124 |
$ |
601,064 |
$ |
1,297,131 |
$ |
1,147,458 |
||||||||
Adjusted EBITDA |
$ |
36,059 |
$ |
26,275 |
$ |
67,017 |
$ |
49,436 |
||||||||
Net sales: Net sales for the three months ended September 30, 2021, were $436.3 million compared to $419.4 million for the same period in the prior year, an increase of 4.0% or $16.9 million, due to increases in net sales from customers in the healthcare, telecom, media and entertainment, and smaller other categories of customers, which was partially offset by decreases in net sales from customers in technology, financial services and SLED. Product sales increased 1.5%, or $5.5 million, to $375.4 million. Services revenues increased 23.1%, or $11.4 million compared to the same period in the prior year to $60.9 million due to increase in managed and professional services for the three months ended September 30, 2021.
For the six months ended September 30, 2021, net sales increased 10.0%, or $76.1 million to $836.7 million compared to $760.6 million during the same period in the prior year. Product sales for the six months ended September 30, 2021, increased 8.6%, or $56.8 million to $720.2 million, and service revenue increased by 19.8%, or $19.2 million, to $116.4 million compared to $97.2 million during the same period in the prior year.
Adjusted gross billings increased 10.5%, or $63.1 million, to $664.1 million for the three months ended September 30, 2021, from $601.1 million for the same period in the prior year. The increase in adjusted gross billings was due, in part, to the SMP acquisition as well as higher demand from our current customers. For the six months ended September 30, 2021, adjusted gross billings increased 13.0%, or $149.7 million, to $1,297.1 million, from $1,147.5 million for the same period in the prior year. The increase in adjusted gross billings is due to higher demand from the same customer end markets that were previously identified for the increase in net sales.
We rely on our vendors to fulfill a large majority of shipments to our customers. As of September 30, 2021, we had open orders of $707.1 million and deferred revenue of $110.0 million. As of September 30, 2020, we had open orders of $389.7 million and deferred revenue of $77.1 million.
We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. The percentage of net sales by industry and vendor for the twelve-month periods ended September 30, 2021, and 2020 are summarized below:
Twelve Months Ended September 30, |
||||||||||||
2021 |
2020 |
Change |
||||||||||
Revenue by customer end market: |
||||||||||||
Telecom, Media & Entertainment |
28 |
% |
20 |
% |
8 |
% |
||||||
SLED |
15 |
% |
16 |
% |
(1 |
%) |
||||||
Healthcare |
15 |
% |
15 |
% |
0 |
% |
||||||
Technology |
14 |
% |
19 |
% |
(5 |
%) |
||||||
Financial Services |
11 |
% |
13 |
% |
(2 |
%) |
||||||
All others |
17 |
% |
17 |
% |
0 |
% |
||||||
Total |
100 |
% |
100 |
% |
||||||||
Twelve Months Ended September 30, |
||||||||||||
2021 |
2020 |
Change |
||||||||||
Revenue by vendor: |
||||||||||||
Cisco Systems |
36 |
% |
39 |
% |
(3 |
%) |
||||||
Dell / EMC |
8 |
% |
7 |
% |
1 |
% |
||||||
Juniper Networks |
6 |
% |
5 |
% |
1 |
% |
||||||
NetApp |
5 |
% |
4 |
% |
1 |
% |
||||||
HP Inc. & HPE |
4 |
% |
4 |
% |
0 |
% |
||||||
Arista Networks |
3 |
% |
3 |
% |
0 |
% |
||||||
All others |
38 |
% |
38 |
% |
0 |
% |
||||||
Total |
100 |
% |
100 |
% |
||||||||
Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve-month period ended September 30, 2021, we had an increase in the percentage of total revenues from customers in the telecom, media and entertainment industry, and decreases in the percentage of total revenues in the technology, financial services, and SLED markets. These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.
Most of our revenues by vendor are derived from our top six suppliers, which, when combined, accounted for over 60% of total revenues for the twelve-month periods ended September 30, 2021, and 2020. None of the vendors included within the “other” category exceeded 5% of total revenues.
Cost of sales: Cost of sales for the three months ended September 30, 2021, decreased 0.3% or $1.0 million to $331.2 million compared to $332.2 million for the same period in the prior year. Our gross margin increased 330 basis points to 24.1% for the three months ended September 30, 2021, compared to 20.8% for the same period in the prior year. The increase in gross margin was driven by higher product margin, where a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services are recognized on a net basis, and higher service margin. Cost of sales for the six months ended September 30, 2021, increased 8.5% or $49.6 million which is in-line with the increase in net sales. For the six months ended September 30, 2021, gross margin increased by 110 basis points to 24.0%, as compared to 22.9% for the prior year period, primarily due to higher service margin, and a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, which are recognized on a net basis.
Selling, general, and administrative: Selling, general, and administrative expenses of $70.8 million for the three months ended September 30, 2021, increased by $8.2 million, or 13.1% from $62.6 million for the same period in the prior year. Salaries and benefits increased $7.1 million, or 13.1% to $60.8 million, compared to $53.8 million during the prior year mainly due to an increase in the number of employees. Our technology segment had 1,522 employees as of September 30, 2021, an increase of 62 from 1,460 as of September 30, 2020. Our headcount as of September 30, 2021 incorporates the addition of 102 employees from the December 31, 2020, acquisition of SMP. For the six months ended September 30, 2021, selling, general, and administrative expenses increased by $8.8 million, or 6.9%, to $137.0 million compared to $128.1 million for the same period in the prior year. Salaries and benefits increased $7.9 million, or 7.2% to $119.0 million, compared to $110.8 million during the same period in the prior year.
General and administrative expenses increased $1.3 million, or 14.6%, to $9.9 million during the three months ended September 30, 2021, compared to the same period in the prior year, due to higher professional fees, software license and maintenance, and travel and entertainment expenses, as travel restrictions from COVID-19 have started to ease. For the six months ended September 30, 2021, general and administrative expenses increased $1.4 million, or 8.2%, to $18.1 million. The increase in selling, general and administrative expenses was primarily due to an increase in travel and entertainment expenses, legal and professional fees and software license and maintenance. The provision for credit losses was $0.5 million lower than for the same period in the prior year.
Depreciation and amortization: Depreciation and amortization increased $0.5 million, or 15.5%, to $3.8 million during the three months ended September 30, 2021, as compared to $3.3 million in the prior year period primarily due to the amortization of the intangible assets acquired in our acquisition of SMP. For the six months ended September 30, 2021, depreciation and amortization increased $0.9 million, or 13.6%, to $7.7 million as compared to $6.8 million for the same period in the prior year.
Interest and financing costs: Interest and financing costs were $0.2 million, and $0.4 million for the three and six months ended September 30, 2021, an increase of $0.2 million and $0.1 million, respectively, as compared to the same periods in the prior year. The increase is primarily due to timing of our borrowings from our WFCDF credit facility and borrowings on an installment payment arrangement, for which there were no comparable borrowing as of September 30, 2020.
Segment operating income: As a result of the foregoing, operating income was $30.3 million, an increase of $9.0 million, or 42.0%, for the three months ended September 30, 2021, as compared to $21.3 million for the same period in the prior year. For the six months ended September 30, 2021, operating income was $55.5 million, compared to $38.8 million for the same period in the prior year, an increase of $16.6 million, or 42.9%.
For the three months ended September 30, 2021, Adjusted EBITDA was $36.1 million, an increase of $9.8 million, or 37.2%, compared to $26.3 million for the same period in the prior year. Adjusted EBITDA was $67.0 million, an increase of $17.6 million, or 35.6%, for the six months ended September 30, 2021, compared to $49.4 million for the same period in the prior year.
FINANCING SEGEMENT
The results of operations for our financing segment were as follows (dollars in thousands):
Three Months Ended September 30, |
Six Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Net sales |
$ |
21,716 |
$ |
13,722 |
$ |
38,007 |
$ |
27,529 |
||||||||
Cost of sales |
3,792 |
1,957 |
10,004 |
4,048 |
||||||||||||
Gross profit |
17,924 |
11,765 |
28,003 |
23,481 |
||||||||||||
Selling, general, and administrative |
3,701 |
4,303 |
6,323 |
8,214 |
||||||||||||
Depreciation and amortization |
28 |
28 |
56 |
56 |
||||||||||||
Interest and financing costs |
143 |
246 |
343 |
558 |
||||||||||||
Operating expenses |
3,872 |
4,577 |
6,722 |
8,828 |
||||||||||||
Operating income |
$ |
14,052 |
$ |
7,188 |
$ |
21,281 |
$ |
14,653 |
||||||||
Adjusted EBITDA |
$ |
14,136 |
$ |
7,286 |
$ |
21,450 |
$ |
14,839 |
||||||||
Net sales: Net sales increased by $8.0 million, or 58.3%, to $21.7 million for the three months ended September 30, 2021, as compared to prior year results due to higher post contract earnings and higher transactional gains. During the quarter ended September 30, 2021, we recognized net gains on sales of financial assets of $10.1 million, which included several large transactions that closed in July 2021, and the proceeds received from these sales were $615.0 million. Net gains on the sale of financial assets for the quarter ended September 30, 2020, was $4.5 million and the proceeds from these sales were $118.5 million.
For the six months ended September 30, 2021, net sales increased to $38.0 million, an increase of $10.5 million, or 38.1% as compared to the same period in the prior year of $27.5 million due to higher post contract earnings and higher transactional gains, which were partially offset by lower other financing revenues. During the six months ended September 30, 2021, we recognized net gains on sales of financial assets of $13.3 million, which included several large transactions that closed in July 2021, and the proceeds received from these sales were $690.3 million. For the six months ended September 30, 2020, we recognized net gains on sales of financial assets of $7.0 million, and the proceeds from these sales were $191.7 million.
At September 30, 2021, we had $166.9 million in financing receivables and operating leases, compared to $180.7 million as of September 30, 2020, a decrease of $13.8 million, or 7.6%.
Cost of sales: Cost of sales increased $1.8 million and $6.0 million for the three and six months ended September 30, 2021, respectively, compared to the prior year results due to higher cost of sales on off-lease equipment and higher depreciation expense from operating leases. Gross profit increased by 52.4% to $17.9 million for the three months ended September 30, 2021, and increased by 19.3% to $28.0 million, for the six months ended September 30, 2021, as compared to the prior year periods.
Selling, general and administrative: For the three and six months ended September 30, 2021, selling, general and administrative expenses decreased $0.6 million and $1.9 million, respectively, compared to the prior year periods, primarily due to decrease in the provision for credit losses and decrease in variable compensation.
Interest and financing costs: Interest and financing costs decreased by 41.9% to $0.1 million for the three months ended September 30, 2021, and decreased by 38.5% to $0.3 million for the six months ended September 30, 2021, compared to the prior year, due to a decrease in the average balance on total notes payable outstanding. Total notes payable for the financing segment was $25.4 million as of September 30, 2021, a decrease of $14.9 million, or 37.0%, as compared to $40.3 million as of September 30, 2020. Our weighted average interest rate for non-recourse notes payable was 3.59% and 3.15%, as of September 30, 2021, and 2020, respectively. Our weighted average interest rate for recourse notes payable was 2.55% as of September 30, 2020. We did not have any recourse debt as of September 30, 2021.
Segment operating income: As a result of the foregoing, both operating income and Adjusted EBITDA increased $6.9 million to $14.1 million, for the three months ended September 30, 2021, as compared to the prior year period. For the six months ended September 30, 2021, both operating income and Adjusted EBITDA increased by $6.6 million to $21.3 million and $21.5 million, respectively, as compared to the same period in the prior year.
CONSOLIDATED
Other income: Other income and expense for both the three and six months ended September 30, 2021, was an expense of $0.3 million and $0.2 million, respectively, due to unfavorable foreign exchange rates, compared to an income of $0.2 million and $0.3 million in the three and six month periods in the prior year, respectively.
Income taxes: Our provision for income tax expense was $12.6 million and $21.6 million for the three and six months ended September 30, 2021, as compared to $8.8 million and $16.6 million for the same periods in the prior year. Our effective income tax rates for the three and six months ended September 30, 2021, were 28.6% and 28.2%, compared to 30.8% for the three and six months ended September 30, 2020, respectively. The change in our effective income tax rate was primarily due to an adjustment to the federal benefit from state taxes in the prior year period.
Net earnings: The foregoing resulted in net earnings of $31.4 million for the three months ended September 30, 2021, an increase of $11.6 million, or 58.3%, as compared to $19.8 million during the three months ended September 30, 2020. For the six months ended September 30, 2021, net earnings were $54.9 million, an increase of $17.7 million, or 47.6%, as compared to $37.2 million for the same period in the prior year.
Basic and fully diluted earnings per common share was $2.36 and $2.34, respectively, for the three months ended September 30, 2021, an increase of 59.5% and 58.1% as compared to $1.48 for both basic and fully diluted earnings per common share, for the three months ended September 30, 2020. For the six months ended September 30, 2021, basic and fully diluted earnings per common share were $4.12 and $4.09, an increase of 47.7% and 47.1%, as compared to $2.79 and $2.78, respectively, for the same period in the prior year.
Non-GAAP diluted earnings per share increased 54.2% to $2.59 for the three months ended September 30, 2021, as compared to $1.68 for the three months ended September 30, 2020. Non-GAAP diluted earnings per share increased 42.6% to $4.55 for the six months ended September 30, 2021, as compared to $3.19 for the six months ended September 30, 2020.
Weighted average common shares outstanding was 13.3 million in the calculation of basic earnings per common share for both the three- and six-months ending September 30, 2021 and 13.4 million in the calculation of diluted earnings per common share for both the three- and six-months ending September 30, 2021. Weighted average common shares outstanding was 13.4 million and 13.3 in the calculation of basic earnings per common share for the three- and six-months ending September 30, 2020, respectively, and 13.4 million in the calculation of diluted earnings per common share for both the three- and six-months ending September 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY OVERVIEW
Our primary source of funding is cash from operations and borrowings which are accounted for as non-recourse and recourse notes payable. 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.
Throughout the current fiscal year and until October 12, 2021, ePlus Technology, inc. and certain of its subsidiaries (the “Borrowers”), which are part of our technology segment, financed their operations, in addition to funds generated from operations, with a credit facility with WFCDF. This facility provided short-term capital for our technology segment. There were two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component.
On October 13, 2021, we entered into a First Amended and Restated Credit Agreement by and among the Borrowers, WFCDF, as administrative agent thereunder, various banks and other financial institutions (including WFCDF) who are parties thereto as lenders (collectively, the “Lenders”) and others, pursuant to which, among other things, the Lenders established for the benefit of the Borrowers a discretionary senior secured floorplan facility in the aggregate principal amount of up to $375 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).
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.
The extent of the impact of COVID-19 is uncertain and may impact our liquidity position over the longer term. Credit markets may tighten as a result of COVID-19 and we may have difficulty funding our financing transactions with lenders, which may result in the use of our cash or a decrease in financing originations.
CASH FLOWS
The following table summarizes our sources and uses of cash over the periods indicated (in thousands):
Six Months Ended September 30, |
||||||||
2021 |
2020 |
|||||||
Net cash provided by (used in) operating activities |
$ |
(135,004 |
) |
$ |
8,408 |
|||
Net cash used in investing activities |
(13,690 |
) |
(2,811 |
) |
||||
Net cash provided by financing activities |
75,782 |
69,730 |
||||||
Effect of exchange rate changes on cash |
300 |
(477 |
) |
|||||
Net increase (decrease) in cash and cash equivalents |
$ |
(72,612 |
) |
$ |
74,850 |
|||
Cash flows from operating activities: We used $135.0 million in operating activities during the six months ended September 30, 2021, compared to $8.4 million provided by operating activities for the six months ended September 30, 2020. See below for a breakdown of operating cash flows by segment (in thousands):
Six Months Ended September 30, |
||||||||
2021 |
2020 |
|||||||
Technology segment |
$ |
(127,361 |
) |
$ |
44,367 |
|||
Financing segment |
(7,643 |
) |
(35,959 |
) |
||||
Net cash provided by (used in) operating activities |
$ |
(135,004 |
) |
$ |
8,408 |
|||
Technology segment: In the six months ended September 30, 2021, our technology segment used $127.4 million from operating activities primarily due to increases in our accounts receivable and inventories and a decrease in accounts payable-trade. Offsetting this, we had net borrowing on the floor plan component of our credit facility of $47.2 million. We use this facility to manage working capital needs. We present changes in this balance as financing activity in our consolidated statement of cash flows.
In the six months ended September 30, 2020, our technology segment provided $44.4 million from operating activities primarily due to cash generated from earnings. Additionally, we had net borrowing on the floor plan component of our credit facility of $91.6 million which was partially offset by repayment of $35.0 million in borrowings under the accounts receivable component of our technology segment credit facility. The net borrowing is primarily the result of extended payment terms from certain vendor partners that deferred $76.3 million in payments for an additional 30 days. The majority of these programs relate to COVID-19 and ended in October 2020. We use this facility to manage working capital needs. We present changes in this balance as financing activity in our consolidated statement of cash flows.
To manage our working capital, we monitor our cash conversion cycle for our technology segment, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases outstanding in accounts payable (“DPO”).
The following table presents the components of the cash conversion cycle for our technology segment:
As of September 30, |
||||||||
2021 |
2020 |
|||||||
(DSO) Days sales outstanding (1) |
64 |
61 |
||||||
(DIO) Days inventory outstanding (2) |
18 |
14 |
||||||
(DPO) Days payable outstanding (3) |
(47 |
) |
(54 |
) |
||||
Cash conversion cycle |
35 |
21 |
||||||
| (1) | Represents the rolling three month average of the balance of trade accounts receivable-trade, net for our technology segment at the end of the period divided by adjusted gross billings for the same three month period. |
| (2) | Represents the rolling three month average of the balance of inventory, net for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three month period. |
| (3) | Represents the rolling three month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three month period. |
Our cash conversion cycle increased to 35 days at September 30, 2021, compared to 21 days at September 30, 2020. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended payment terms. Our DPO decreased 7 days. Invoices processed through our credit facility, or the A/P-floor plan balance, are typically paid within 45-60 days from the invoice date, while A/P trade invoices are typically paid within 30 days from the invoice date. Our DSO increased to 64 days, which reflects higher sales to customers with terms greater than or equal to net 60 days for the period ended September 30, 2021, including sales to one of our larger customers related to ongoing projects, as compared to the same period in the prior year. Our DIO increased to 18 days due to higher inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 92.3% to $134.5 million as of September 30, 2021, from $70.0 million as of March 31, 2021, partially due to ongoing projects with the same large customer.
Financing segment: In the six months ended September 30, 2021, our financing segment used $7.6 million from operating activities, primarily due to increases in accounts receivable of $9.8 million and financing receivables-net of $19.3 million, offset by net earnings. In the six months ended September 30, 2020, our financing segment used $36.0 million from operating activities, primarily due to changes in financing receivables- net of $54.4 million, partially offset by earnings and an increase in accounts payable trade of $13.0 million.
Cash flows related to investing activities: In the six months ended September 30, 2021, we used $13.7 million from investing activities, consisting of $16.2 million for purchases of property, equipment and operating lease equipment offset by $2.6 million of proceeds from the sale of property, equipment, and operating lease equipment. In the six months ended September 30, 2020, we used $2.8 million from investing activities, consisting of $3.3 million for purchases of property, equipment and operating lease equipment offset by $0.5 million of proceeds from the sale of property, equipment, and operating lease equipment.
Cash flows from financing activities: In the six months ended September 30, 2021, cash provided by financing activities was $75.8 million, consisting of net borrowings on the floor plan component of our credit facility of $47.2 million and net repayments of non-recourse and recourse notes payable of $35.4 million, partially offset by $6.9 million in cash used to repurchase outstanding shares of our common stock. In the six months ended September 30, 2020, cash provided by financing activities was $69.7 million consisting of net borrowings on floor plan facility of $91.6 million, net borrowings of non-recourse and recourse notes payable of $18.1 million, which was partially offset by repayment of $35.0 million in borrowings under the accounts receivable component of our Technology segment credit facility and $4.5 million in repurchase of common stock.
Our borrowing of non-recourse and recourse notes payable primarily arises from our financing segment when we transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. When the transfers do not meet the requirements for a sale, the proceeds paid to us represent borrowings of non-recourse or recourse notes payable.
Non-cash activities: We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. As a condition of these agreements, certain financial institutions may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, the customer will make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender. However, when our customer makes payments through a trust, such payments represent non-cash transactions. Also, in certain assignment agreements, we may direct the third-party financial institution to pay some of the proceeds from the assignment directly to the vendor or vendors that have supplied the assets being leased and or financed. In these situations, the portion of the proceeds paid directly to our vendors are non-cash transactions.
SECURED BORROWINGS – FINANCING SEGMENT
We may finance all or most of the cost of the assets that we finance for customers by transferring all or part of the contractual payments due to us to third-party financing institutions. When we account for the transfer as a secured borrowing, we recognize the proceeds as either recourse or non-recourse notes payable. Our customers are responsible for repaying the debt from a secured borrowing. The lender typically secures a lien on the financed assets at the time the financial assets are transferred and releases it upon collecting all the transferred payments. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The lender assumes the credit risk and their only recourse, upon default by the customer, is against the customer and the specific equipment under lease. While we expect that the credit quality of our financing arrangements and our residual return history will continue to allow us to obtain such financing, such financing may not be available on acceptable terms, or at all.
CREDIT FACILITY – TECHNOLOGY SEGMENT
Throughout the current fiscal year and until October 12, 2021, our technology segment financed its operations, in addition to funds generated from operations, with a credit facility with WFCDF. This facility provided short-term capital for our technology segment. There were two components of the WFCDF credit facility: (1) a floor plan component and (2) an accounts receivable component.
Under the WFCDF credit facility, there was an aggregate limit for the two components, except during a temporary uplift, of $275 million. We could elect to temporarily increase the aggregate limit to $350 million for a period of not less than 30 days, provided that all such periods not exceed 150 days in the aggregate in any calendar year. Additionally, the WFCDF credit facility had a limit on the accounts receivable component of $100 million. WFCDF charged us an interest rate equal to two percent (2.00%) plus the greater of one month LIBOR or seventy-five hundredths of one percent (0.75%).
As of September 30, 2021, the limit of the two components of the credit facility was $350 million as result of our election to temporarily uplift the aggregate limit.
The WFCDF credit facility was secured by the assets of the Borrowers. Additionally, the credit facility required a guaranty of $10.5 million by ePlus inc.
The WFCDF credit facility restricted the ability of the Borrowers to pay dividends to ePlus inc. unless their available borrowing met certain thresholds. As of September 30, 2021, and March 31, 2021, their available borrowing met the threshold such that there were no restricted net assets of ePlus Technology, inc.
The credit facility required that financial statements of the Borrowers be provided within 45 days of each quarter and 90 days of each fiscal year end and required that other operational reports be provided on a regular basis. Either party could terminate with 90 days’ advance written notice.
On October 13, 2021, we entered the 2021 Credit Facility by and among the Borrowers, WFCDF, as administrative agent thereunder, and the Lenders. The Lenders under this facility established for the benefit of the Borrowers a discretionary senior secured floorplan facility in the aggregate principal amount of up to $375 million, together with a sublimit for a revolving credit facility for up to $100 million. Loans under this credit agreement will accrue interest at a rate per annum equal to LIBOR plus 1.75%. This new credit agreement replaced the existing credit facility effective October 13, 2021.
The loss of the 2021 Credit Facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process.
Floor plan component: After a customer places a purchase order with us and after we have completed our credit review of the customer, we place an order for the equipment with one of our vendors. Generally, most purchase orders from us to our vendors are first financed under the floor plan component and reflected in “accounts payable—floor plan” in our consolidated balance sheets. Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date. Most customer payments in our technology segment are remitted to our lockboxes. Once payments are cleared, the monies in the lockbox accounts are automatically and daily transferred to our operating account. On the due dates of the floor plan component, we make cash payments to WFCDF. 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.
The respective floor plan component credit limits and actual outstanding balance payables for the dates indicated were as follows (in thousands):
Maximum Credit Limit at September 30, 2021 |
Balance as of September 30, 2021 |
Maximum Credit Limit at March 31, 2021 |
Balance as of March 31, 2021 |
|||||||||||
$ |
350,000 |
$ |
145,880 |
$ |
275,000 |
$ |
98,653 |
|||||||
Accounts receivable component: We have an accounts receivable component included within the WFCDF credit facility, which has a revolving line of credit. The outstanding balance under the accounts receivable component is presented as part of as recourse notes payable- current on our consolidated balance sheets. Our borrowings and repayments under the accounts receivable component are included in “borrowings of non-recourse and recourse notes payable” and “repayments of non-recourse and recourse notes payable,” respectively, within cash flows from the financing activities in our consolidated statements of cash flows.
As of September 30, 2021, there was an outstanding balance for the accounts receivable component of $29.0 million. We did not have any outstanding balance under the accounts receivable component of the WFCDF credit facility as of either the period ended March 31, 2021, or September 30, 2020. The maximum credit limit under this facility was $100.0 million.
PERFORMANCE GUARANTEES
In the normal course of business, we may provide certain customers with performance guarantees, which are generally backed by surety bonds. In general, we would only be liable for these guarantees in the event of default in the performance of our obligations. We are in compliance with material performance obligations under all service contracts for which there is a performance guarantee, and we believe that any liability incurred in connection with these guarantees would not have a material adverse effect on our consolidated statements of operations.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K, or other contractually narrow or limited purposes. As of September 30, 2021, we were not involved in any unconsolidated special purpose entity transactions.
ADEQUACY OF CAPITAL RESOURCES
The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also open offices in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance the platform of bundled solutions to provide additional functionality and value-added services. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivables due from our customers. These actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include additional debt and equity financing. The impacts of COVID-19 may limit or eliminate our access to capital. While the future is uncertain, we do not believe our credit facility will be terminated by WFCDF or us. Additionally, while our lending partners in our financing segment have become more discerning in their approval processes, we currently have funding resources available for our transactions.
INFLATION
For the periods presented herein, inflation has not had a material effect on our results of operations. In the most recent quarter, we have experienced some increases in prices from our suppliers as well as rising wages. We generally have been able to pass along these price increases to our customers. There can be no assurances, however, that inflation would not have a material impact on our sales or operating costs in the future.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our future quarterly operating results and the market price of our common stock may fluctuate. In the event our revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing and financing companies, IT resellers, software competitors, or our major customers or vendors.
Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to the worldwide impacts from COVID-19, currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk Factors,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.
We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance.
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our cash flow may be adversely affected by the risks related to the COVID-19 pandemic, which may result in delays in the collections of our accounts receivables or non-payment.
Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize lines of credit and other financing facilities that are subject to fluctuations in short-term interest rates. Our non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Financing transactions funded with our cash flows, not debt, and may be subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds. Borrowings under the WFCDF credit facility bear interest at a market-based variable rate. As of September 30, 2021, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.
We have transactions in foreign currencies, primarily in British Pounds, Euros, and Indian Rupees. There is a potential for exposure to fluctuations in foreign currency rates resulting primarily from the translation exposure associated with the preparation of our consolidated financial statements. In addition, we have foreign currency exposure when transactions are not denominated in our subsidiary’s functional currency. To date, our foreign operations are insignificant in relation to total consolidated operations, and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.
We evaluate developments related to the UK leaving the European Union on a regular basis to determine if such developments will have a material impact on our results on operations and financial position. Our assessment is that foreign currency exposure for our UK operations is insignificant in relation to total consolidated operations, and we believe those potential fluctuations in currency exchange rates and other economic and operational risks will not have a material effect on our results of operations and financial position.
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. As our foreign operations have been smaller compared to our domestic operations, we believe that potential fluctuations in currency exchange rates will not have a material effect on our 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 September 30, 2021.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in our internal control over financial reporting during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
LIMITATIONS AND EFFECTIVENESS OF CONTROLS
Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process; therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
PART II. OTHER INFORMATION
| Item 1. | LEGAL PROCEEDINGS |
Please refer to Note 9, “Commitment and Contingencies” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements”.
| Item 1A. | RISK FACTORS |
There has not been any material change in the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as supplemented in Part II, Item 1A of our Quarterly Report for the period ended June 30, 2021.
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table provides information regarding our total purchases of 76,743 shares of ePlus inc. common stock during the six months ended September 30, 2021, including a total of 49,028 shares purchased as part of the publicly announced share repurchase plans or programs.
Period |
Total number of shares purchased (1) |
Average price paid per share |
Total number of shares purchased as part of publicly announced plans or programs |
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
||||||||||||||||
April 1, 2021 through April 30, 2021 |
- |
$ |
- |
- |
440,899 |
(2 |
) |
|||||||||||||
May 1, 2021 through May 27, 2021 |
999 |
$ |
100.80 |
- |
440,899 |
(3 |
) |
|||||||||||||
May 28, 2021 through May 31, 2021 |
- |
$ |
- |
- |
500,000 |
(4 |
) |
|||||||||||||
June 1, 2021 through June 30, 2021 |
44,345 |
$ |
90.42 |
17,629 |
482,371 |
(5 |
) |
|||||||||||||
July 1, 2021 through July 31, 2021 |
31,399 |
$ |
87.99 |
31,399 |
450,972 |
(6 |
) |
|||||||||||||
August 1, 2021 through August 31, 2021 |
- |
$ |
- |
- |
450,972 |
(7 |
) |
|||||||||||||
September 1, 2021 through September 30, 2021 |
- |
$ |
- |
- |
450,972 |
(8 |
) |
|||||||||||||
| (1) | All shares acquired were in open-market purchases, except for 27,715 shares, out of which 999 were repurchased in May 2021 and 26,716 in June 2021 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock. |
| (2) | The share purchase authorization in place for the month ended April 30, 2021, had purchase limitations on the number of shares of up to 500,000 shares. As of April 30, 2021, the remaining authorized shares to be purchased were 440,899. |
| (3) | As of May 27, 2021, the authorization under the then-existing share repurchase plan expired. |
| (4) | On March 18, 2021, the board of directors authorized the company to repurchase up to 500,000 shares of our outstanding common stock commencing on May 28, 2021, and continuing to May 27, 2022. As of May 31, 2021, the remaining authorized shares to be purchased were 500,000. |
| (5) | The share purchase authorization in place for the month ended June 30, 2021, had purchase limitations on the number of shares of up to 500,000 shares. As of June 30, 2021, the remaining authorized shares to be purchased were 482,371. |
| (6) | The share purchase authorization in place for the month ended July 31, 2021, had purchase limitations on the number of shares of up to 500,000 shares. As of July 31, 2021, the remaining authorized shares to be purchased were 450,972. |
| (7) | The share purchase authorization in place for the month ended August 31, 2021, had purchase limitations on the number of shares of up to 500,000 shares. As of August 31, 2021, the remaining authorized shares to be purchased were 450,972. |
| (8) | The share purchase authorization in place for the month ended September 30, 2021, had purchase limitations on the number of shares of up to 500,000 shares. As of September 30, 2021, the remaining authorized shares to be purchased were 450,972. |
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.
| Item 3. | DEFAULTS UPON SENIOR SECURITIES |
Not Applicable.
| Item 4. | MINE SAFETY DISCLOSURES |
Not Applicable.
| Item 5. | OTHER INFORMATION |
None.
| Item 6. | EXHIBITS |
Exhibit Number |
Exhibit Description |
|
ePlus inc. Amended and Restated Certificate of Incorporation as amended September 15, 2008 (Incorporated herein by reference as Exhibit 3.1 to our Current Report on Form 8-K filed on September 19, 2008). |
||
Amended and Restated Bylaws of ePlus inc., as of September 1, 2021. |
||
ePlus 2021 Employee Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 23, 2021). |
||
First Amended and Restated Credit Agreement, dated as of October 13, 2021, by and among ePlus Technology, inc., ePlus Technology Services, inc., SLAIT Consulting, LLC, certain of ePlus inc. subsidiaries as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent and the Lenders party thereto (Incorporated herein by reference to Exhibit 10.1 to our Current Report in Form 8-K filed on October 19, 2021). |
||
Guaranty and Security Agreement, dated as of October 13, 2021, by and among ePlus Technology, inc., ePlus Technology Services, inc., SLAIT Consulting, LLC, certain future subsidiaries of ePlus inc., as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on October 19, 2021). |
||
First Amended and Restated Collateralized Guaranty, dated as of October 13, 2021, by and among ePlus Group, inc. and Wells Fargo Commercial Distribution Finance, LLC as agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on October 19, 2021). |
||
First Amended and Restated Limited Guaranty, dated as of October 13, 2021, by and between ePlus inc. and Wells Fargo Commercial Distribution Finance, LLC as agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on October 19, 2021). |
||
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 |
XBRL Instance Document |
|
101.SCH |
XBRL Taxonomy Extension Schema Document |
|
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
|
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ePlus inc. |
||
Date: November 9, 2021 |
/s/ MARK P. MARRON |
|
By: Mark P. Marron |
||
Chief Executive Officer and President |
||
(Principal Executive Officer) |
||
Date: November 9, 2021 |
/s/ ELAINE D. MARION |
|
By: Elaine D. Marion |
||
Chief Financial Officer |
||
(Principal Financial Officer) |
||
45
Exhibit 3.2
EPLUS INC.
A DELAWARE CORPORATION
AMENDED AND RESTATED BYLAWS
(Amended and restated on September 1, 2021)
ARTICLE I: OFFICES
SECTION 1.1 Registered Office. The Corporation shall maintain a registered office and agent in the State of Delaware if and as
required by law.
SECTION 1.2 Principal Office. The principal office for the transaction of the business of the Corporation shall be at such place as the
Board of Directors of the Corporation (the “Board”) may determine. The Board is hereby granted full power and authority to change said principal office from one location to another.
SECTION 1.3 Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the
State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require.
ARTICLE II: MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All annual meetings of stockholders and all other meetings of stockholders shall be held either at the
principal office of the Corporation or at any other place within or without the State of Delaware that may be designated by the Board pursuant to authority hereinafter granted to the Board.
SECTION 2.2 Annual Meetings. Annual meetings of stockholders of the Corporation for the purpose of electing directors and for the
transaction of such other proper business as may come before such meetings may be held at such time and place and on such date as the Board shall determine by resolution, or in such other manner as the directors may direct.
SECTION 2.3 Special Meetings.
(A) A special meeting of the stockholders for the transaction of any proper business may be called at any time by the Board, the Chairman
of the Board, the President or the Executive Vice President.
(B) A special meeting of the stockholders shall be called by the Board upon the written request, submitted to the Secretary of the
Corporation, of stockholders collectively holding twenty-five percent 25% or more of the then outstanding shares of the Corporation’s common stock. A request to the Secretary of the Corporation shall be signed by each stockholder, or a duly
authorized agent of such stockholder, requesting the special meeting and shall set forth the information required to be included in a notice to the Corporation pursuant to Section 2.8(A) or 2.8(B) of these Bylaws, as applicable. A special meeting
requested by stockholders shall be held at such date, time and place within or without the state of Delaware as may be fixed by the Board; provided, however, that the date of any such special meeting shall be not more than 90 days after the request
to call the special meeting is received by the Secretary of the Corporation. Notwithstanding the foregoing, a special meeting requested by stockholders shall not be held if the Board has called or calls for an annual meeting of stockholders to be
held within 90 days after the Secretary of the Corporation receives the request for the special meeting and the Board determines in good faith that the business of such annual meeting includes (among any other matters properly brought before the
annual meeting) the business specified in the request. A stockholder may revoke a request for a special meeting at any time by written revocation delivered to the Secretary of the Corporation, and if, following such revocation, there are un-revoked
requests from stockholders holding in the aggregate less than the requisite number of shares entitling the stockholders to request the calling of a special meeting, the Board, in its discretion, may cancel the special meeting.
(C) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to
the Corporation’s notice of meeting.
SECTION 2.4 Notice of Meetings. Notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 days nor
more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting and in compliance with the provisions of Delaware law. Except as otherwise expressly required by law, no publication of any notice of a
meeting of stockholders shall be required. Every notice of a meeting of stockholders shall state the place, date and hour of the meeting and, in the case of a special meeting shall also state the purpose for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any stockholder to whom notice may be omitted pursuant to applicable Delaware law or who shall have waived such notice, and such notice shall be deemed waived by any stockholder who shall
attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise expressly required by law, notice of any adjourned meeting of stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken.
SECTION 2.5 Quorum. Except as otherwise required by law, the holders of record of a majority in voting interest of the shares of stock of
the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of stockholders of the Corporation or any adjournment thereof. Subject to the requirement of a
larger percentage vote, if any, contained in the Certificate of Incorporation, these Bylaws or by statute, the stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment,
notwithstanding any withdrawal of stockholders that may leave less than a quorum remaining, if any action taken (other than adjournment) is approved by the vote of at least a majority in voting interest of the shares required to constitute a quorum.
In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer
entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 2.6 Voting.
(A) Each stockholder shall, at each meeting of stockholders, be entitled to vote in person or by proxy each share of the stock of the
Corporation that has voting rights on the matter in question and that shall have been held by such stockholder and registered in such stockholder’s name on the books of the Corporation:
(i) on the date fixed pursuant to Section 6.5 of these Bylaws as the record date for the determination of stockholders entitled to notice
of and to vote at such meeting; or
(ii) if no such record date shall have been so fixed, than (a) at the close of business on the day next preceding the day upon which notice
of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day upon which the meeting shall be held.
(B) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be
entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation the pledgor shall have expressly empowered the pledgee to vote thereon, in which case only
the pledgee, or the pledgee’s proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (the “Delaware General Corporation Law”).
(C) Subject to the provisions of the Corporation’s Certificate of Incorporation, any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder’s proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholder’s attorney thereunto authorized and delivered to the secretary of the meeting. The attendance at
any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless such stockholder shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of
stockholders at which a quorum is present, all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person
or by proxy and entitled to vote thereat and thereon. The vote at any meeting of stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by such stockholder’s proxy, if there be such proxy, and it shall state the number of shares voted.
SECTION 2.7 Judges. Prior to each meeting of stockholders, the Chairman of such meeting shall appoint a judge or judges to act with respect
to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of such judge’s ability. Such judges shall decide upon the
qualification of the voters and shall certify and report the number of shares represented at the meeting and entitled to vote on such question, determine the number of votes entitled to be cast by each share, shall conduct and accept the votes, when
the voting is completed, ascertain and report the number of shares voted respectively for and against the question, and determine, and retain for a reasonable period a record of the disposition of any challenge made to any determination made by such
judges. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other
than a vote for or against a proposal in which such officer shall have a material interest. The judges may appoint or retain other persons or entities to assist the judges in the performance of the duties of the judges.
SECTION 2.8 Advance Notice of Stockholder Proposals and Stockholder Nominations.
(A) At any annual meeting of the stockholders nominations of persons for election to the Board of Directors and the proposal of other
business to be considered by the stockholders may be made (i) by or at the direction of the Board or (ii) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 2.8. For any nominations or other
business to be properly brought before any annual meeting of the stockholders by a stockholder, the stockholder must have given notice thereof in writing to the Secretary of the Corporation: (1) not later than 60 days in advance of the first
anniversary of the previous year’s annual meeting if such meeting is to be held on a day which is within 30 days of the anniversary of the previous year’s annual meeting; and (2) with respect to any other annual meeting of stockholders, not later
than the close of business on the seventh day following the date of public announcement of such meeting. For business proposals other than nominations, for which a notice must comply with requirements of Section 2.8(B), a stockholder’s notice to the
Secretary shall set forth (1) as to each matter the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (2) the
name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (3) the class and number of shares of the Corporation that are beneficially owned by the stockholder, and (4) whether and the extent to which any
hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock) has been made, the
effect or intent of which is to mitigate loss to or manage risk of stock price changes for, or to increase the voting power of, such stockholder or any of its affiliates with respect to any share of stock of the Corporation, (5) as to each matter the
stockholder proposes to bring before the meeting, any material interest of the stockholder in such business. In addition, the stockholder making such proposal shall promptly provide any other information reasonably requested by the Corporation.
Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.8. The Chairman of any such meeting shall direct that any
business not properly brought before the meeting shall not be considered. Notwithstanding the foregoing provisions of this Section 2.8, a stockholder seeking to include a proposal in a proxy statement that has been prepared by the Corporation to
solicit proxies shall comply with the requirements in the proxy rules of the United States Securities and Exchange Commission with respect to such proposal.
(B) A stockholder may nominate a person for election as a director at a special meeting only if the nominee is named in the special meeting
request delivered pursuant to Section 2.3(B) of these Bylaws. For nominations of any person to be elected as a director, a stockholder’s notice to the Secretary shall set forth: (i) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and
nominate the person or persons specified in the notice; (iii) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding
(including any short position or any borrowing or lending of shares of stock) has been made, the effect or intent of which is to mitigate loss to or manage risk of stock price changes for, or to increase the voting power of, such stockholder or any
of its affiliates with respect to any share of stock of the Corporation (iv) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder; (v) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the
United States Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board; and (vi) the consent of each nominee to serve as a director of the Corporation if so elected. In addition, the stockholder
making such nomination shall promptly provide any other information reasonably requested by the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in
this Section 2.8. The chairman of any meeting of stockholders shall direct that any nomination not made in accordance with these procedures be disregarded.
(C) For purposes of this Section 2.8, a “public announcement” shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission.
SECTION 2.9 Action Without Meeting. Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such stockholders, may, if such action has been approved by the Board of Directors, be taken without a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
ARTICLE III: BOARD OF DIRECTORS
SECTION 3.1 General Powers. Subject to any requirements in the Certificate of Incorporation, these Bylaws, and of the Delaware General
Corporation Law as to action which must be authorized or approved by the stockholders, any and all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be under the direction of, the
Board to the fullest extent permitted by law. Without limiting the generality of the foregoing, it is hereby expressly declared that the Board shall have the following powers, to wit:
(A) To select and remove all the officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the Certificate of Incorporation or these Bylaws, fix their compensation, and require from them security for faithful service;
(B) To conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefore not
inconsistent with law, the Certificate of Incorporation or these Bylaws, as it may deem best;
(C) To change the principal office and the principal office for the transaction of the business of the Corporation from one location to
another as provided in Section 1.2 hereof; to fix and locate from time to time one or more subsidiary offices of the Corporation within or without the State of Delaware as provided in Section 1.3 hereof; to designate any place within or without the
State of Delaware for the holding of any meeting or meetings of stockholders; and to adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to
time, and in its judgment as it may deem best, provided such seal and such certificate shall at all times comply with the provisions of law;
(D) To authorize the issuance of shares of stock of the Corporation from time to time, upon such terms and for such considerations as may
be lawful;
(E) To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust and securities therefor;
(F) To fill vacancies on the Board as provided in Section 3.5 hereof; and
(G) By resolution adopted by a majority of the whole Board to designate an executive and other committees of the Board, each consisting of
one or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committee or committees shall be conducted.
SECTION 3.2 Number and Term of Office
(A) The number of directors of the Corporation shall be fixed from time to time by resolution adopted by affirmative vote of a majority of
such directors then in office. Each of the directors of the corporation shall hold office until his successor shall have been duly elected and
shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided.
(B) All directors shall serve for a term ending at the annual meeting following the annual meeting at which the director was elected, and
until his or her successor is elected and qualified.
SECTION 3.3 Election of Directors. The directors shall be elected by the stockholders of the Corporation, and at each election, the persons
receiving the greater number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provision contained in the Certificate of Incorporation relating thereto,
including any provision regarding the rights of holders of preferred stock to elect directors.
SECTION 3.4 Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary
of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon receipt; and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 3.5 Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, removal, or any other cause, shall be filled by vote of the majority of the remaining directors, although less than a quorum. No reduction of the authorized number of
directors shall have the effect of removing any director prior to the expiration of such director’s term of office.
SECTION 3.6 Place of Meeting. The Board or any committee thereof may hold any of its meetings at such place or places within or without the
State of Delaware as the Board or such committee may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may
participate in any regular or special meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board or such committee can
hear each other, and such participation shall constitute presence in person at such meeting.
SECTION 3.7 Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
SECTION 3.8 Special Meetings. Special meetings of the Board for any purpose or purposes shall be called at any time by the Chairman of the
Board or, if the Chairman of the Board is absent or unable or refuses to act, by the Chief Executive Officer, the President or the Executive Vice President, and may also be called by any two members of the Board. Except as otherwise provided by law
or by these Bylaws, written notice of the time and place of special meetings shall be delivered personally, by email or by facsimile to each director, or sent to each director by mail or by other form of written communication, charges prepaid,
addressed to such director at such director’s address as it is shown upon the records of the Corporation, or, if it is not so shown on such records and is not readily ascertainable, at the place in which the meetings of the directors are regularly
held. In case such notice is mailed, it shall be deposited in the United States mail in the county in which the principal office for the transaction of the business of the Corporation is located at least 48 hours prior to the time of the holding of
the meeting. In case such notice is delivered personally, by email or by facsimile as above provided, it shall be delivered at least 24 hours prior to the time of the holding of the meeting. Such mailing, delivery, email or facsimile transmission as
above provided shall be due, legal and personal notice to such director. Except where otherwise required by law or by these Bylaws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required
to be given to any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 3.9 Quorum and Manner of Acting. Except as otherwise provided in these Bylaws, the Certificate of Incorporation or by applicable
law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present,
by the affirmative votes of a majority of the directors present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided any action taken is approved by at least a
majority of the required quorum for such meeting. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given.
The directors shall act only as a Board, and the individual directors shall have no power as such. Notwithstanding the foregoing to the contrary, in the event of the existence of two or more vacancies of the Board of Directors, a minimum of two (2)
directors shall constitute a quorum to transact any business of the Board.
Notwithstanding the provisions set forth above, without the prior consent of the Board, the Corporation shall not, and shall not cause any
of its subsidiaries to:
(A) [RESERVED]
(B) [RESERVED]
(C) except in the Ordinary Course of Business, sell, lease or otherwise dispose of or permit any subsidiary to sell, lease or otherwise
dispose of, more than 20% of the consolidated assets of the Corporation and its subsidiaries (computed on the basis of book value, determined in accordance with generally accepted accounting principles consistently applied, or fair market value,
determined by the Board in its reasonable good faith judgment) in any transaction or series of related transactions.
SECTION 3.10 Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be
taken without a meeting if consent in writing is given thereto by all members of the Board or of such committee, as the case may be, and such consent is filed with the minutes of proceedings of the Board or of such committee.
SECTION 3.11 Compensation. Directors, whether or not employees of the Corporation or any of its subsidiaries, may receive an annual fee for
their services as directors in an amount fixed by resolution of the Board plus other compensation, including options to acquire capital stock of the Corporation, in an amount and of a type fixed by resolution of the Board, and, in addition, a fixed
fee, with or without expenses of attendance, may be allowed by resolution of the Board for attendance at each meeting, including each meeting of a committee of the Board. Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor.
SECTION 3.12 Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, including,
without limitation, an audit committee, a nominating and corporate governance committee, and a compensation committee. Each committee is to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the
resolution of the Board and subject to any restrictions or limitation on the delegation of power and authority imposed by applicable law, shall have and may exercise all the powers and authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of
the Board. Unless the Board or these Bylaws shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by the chairman of the committee or
by any two members thereof; otherwise, the provisions of these Bylaws with respect to notice and conduct of meetings of the Board shall govern.
SECTION 3.13 Affiliated Transactions. Notwithstanding any other provisions of these Bylaws, each transaction, or, if an individual
transaction constitutes a part of a series of transactions, each series of transactions, proposed to be entered into between the Corporation, on the one hand, or any person affiliated with the Corporation, on the other hand, must be approved by a
majority of the independent directors.
SECTION 3.14 Chairman of the Board. The chairman of the Board shall preside at all meetings of stockholders and at all meetings of the
Board. The Chairman shall exercise and perform such powers and duties with respect to the business and affairs of the Corporation as may be assigned to the Chairman by the Board or such other powers and duties as may be prescribed by the Board or
these Bylaws.
ARTICLE IV: OFFICERS
SECTION 4.1 Officers. The officers of the Corporation shall be a Chief Executive Officer, a President, one or more Vice Presidents (the
number thereof and their respective titles to be determined by the Board), a Secretary, and such other officers as may be appointed at the discretion of the Board in accordance with the provisions of Section 4.3 hereof. Any two or more offices may be
held by the same person, except the offices of President and Secretary.
SECTION 4.2 Election. The officers of the Corporation, except such officers as may be appointed or elected in accordance with the
provisions of Sections 4.3 or 4.5 hereof, shall be chosen annually by the Board at the first meeting thereof after the annual meeting of stockholders, and each officer shall hold office until such officer shall resign or shall be removed or otherwise
disqualified to serve, or until such officer’s successor shall be elected and qualified.
SECTION 4.3 Other Officers. In addition to the officers chosen annually by the Board at its first meeting, the Board also may appoint or
elect such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board may from time to time specify, and shall hold office until such
officer shall resign or shall be removed or otherwise disqualified to serve, or until such officer’s successor shall be elected and qualified.
SECTION 4.4 Removal and Resignation. Any officer may be removed, either with or without cause, by resolution of the Board, at any regular
or special meeting of the Board, or except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer or assistant may resign at any time by giving written notice of his
resignation to the Board or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, upon receipt thereof by the board or the Secretary, as the case may be; and, unless
otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.5 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to such office.
SECTION 4.6 [RESERVED]
SECTION 4.7 Chief Executive Officer. The Chief Executive officer shall exercise and perform such powers and duties with respect to the
administration of the business and affairs of the Corporation as may from time to time be assigned to the Chief Executive Officer by the Board, or as may be prescribed by these Bylaws.
SECTION 4.8 President. The President shall exercise and perform such powers and duties with respect to the administration of the business
and affairs of the Corporation as may from time to time be assigned to the President by the Board, or as may be prescribed by these Bylaws. In the absence or disability of the Chief Executive Officer, or in the event and during the period of a
vacancy in the office of Chief Executive Officer, the President shall perform all the duties of the Chief Executive Officer, and when so acting shall have all of the powers of, and be subject to all the restrictions upon, the Chief Executive Officer.
SECTION 4.9 Vice Presidents. The Vice Presidents shall have such powers and perform such duties with respect to the administration of the
business and affairs of the Corporation as may from time to time be assigned to such Vice President by the Board, or the President or as may be prescribed by these Bylaws.
SECTION 4.10 Secretary.
(A) The Secretary shall keep, or cause to be kept, at the principal office of the Corporation or such other place as the Board may order, a
book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at meetings of directors, the
number of shares present or represented at meetings of stockholders, and the proceedings thereof.
(B) The Secretary shall keep, or cause to be kept, at the principal office of the Corporation’s transfer agent, a share register, or a
duplicate share register, showing the name of each stockholder, the number of shares of each class held by such stockholder, the number and date of certificates issued for such shares, and the number and date of cancellation of every certificate
surrendered for cancellation.
ARTICLE V: CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.1 Execution of
Contracts. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or in any amount.
SECTION 5.2 Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued
in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give
such bond, if any, as the Board may require.
SECTION 5.3 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chairman of the Board, the Chief Executive Officer, the President, an Executive Vice President (or any other
officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation.
SECTION 5.4 General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special
bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power
shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI: SHARES AND THEIR TRANSFER
SECTION 6.1 Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be
in such form as the Board shall prescribe, including without limitation a book entry system, certifying the number and class or series of shares of the stock of the Corporation owned by such owner. The certificates representing shares of such stock
shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the Chief Executive Officer, the President or an Executive Vice President, and by the Secretary or Assistant
Secretary. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such an officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class or
series of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be
cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 6.4 hereof.
SECTION 6.2 Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by such holder’s attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.3 hereof, and upon surrender
of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation to do so.
SECTION 6.3 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or signatures of any of them.
SECTION 6.4 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate
of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do.
SECTION 6.5 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change,
conversion or exchange of stock or for the purpose of any other lawful action other than to consent to corporate action in writing without a meeting, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any such other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders the Board shall not fix such
a record date, then the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII: INDEMNIFICATION
SECTION 7.1 Indemnification of Directors and Officers. The Corporation shall indemnify, in the manner and to the fullest extent permitted
by the Delaware General Corporation Law (and in the case of any amendment thereto, to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), any person (or the estate of any
person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise. The Corporation may, to the fullest extent permitted by the Delaware General Corporation Law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person. The
Corporation may create a trust fund, grant a security interest or use other means (including without limitation a letter of credit) to ensure the payment of such sums as may become necessary to effect the indemnification as provided herein. To the
fullest extent permitted by the Delaware General Corporation Law, the indemnification provided herein shall include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and any such expenses shall be paid by the
Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the indemnitee to repay such amounts if it is ultimately determined that he or she is not entitled to be indemnified.
The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent permitted by the Delaware General Corporation Law, nor shall it be deemed
exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Corporation’s Certificate of Incorporation, vote of stockholders or disinterested directors, or otherwise, both as
to action in such person’s official capacity and as to action in other capacity while holding such office.
SECTION 7.2 Indemnification of Employees and Agents. The Corporation may, but only to the extent that the Board of Directors may (but shall
not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VII as they apply to the
indemnification and advancement of expenses of directors and officers of the Corporation.
SECTION 7.3 Enforcement of Indemnification. This right to indemnification and the advancement of expenses conferred above shall be contract
rights. If a claim under this ARTICLE VII is not paid in full by the Corporation within 60 days after written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable
period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expenses of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking
the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware Law. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or
to such advancement of expenses, under this Article VII or otherwise shall be on the Corporation.
ARTICLE VIII: MISCELLANEOUS
SECTION 8.1 Seal. The Board shall adopt a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation
and words showing that the Corporation was incorporated in the State of Delaware.
SECTION 8.2 Waiver of Notices. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the
person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.3 Amendments. Except as otherwise provided herein or in the Certificate of Incorporation, these Bylaws or any of them may be
altered, amended, repealed or rescinded and new Bylaws may be adopted by affirmative vote of a majority of the Board or by affirmative vote of a majority of the outstanding shares of the corporation’s voting stock at any annual or special meeting of
stockholders, provided that notice of such proposed alteration, amendment, repeal, recession or adoption is given in the notice of such meeting.
SECTION 8.4 Representation of Other Corporations. The Chairman of the Board, the Chief Executive Officer, the President, an Executive Vice
President or the Secretary or any Vice President of the Corporation is authorized to vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of
the Corporation, other than a corporation of which the Corporation owns twenty percent (20%) or more of its capital stock, in which case such officers shall not be so authorized under these Bylaws without the authorization of the Board. The authority
herein granted to said officers to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to
do by proxy or power of attorney duly executed by such officers.
SECTION 8.05 Exclusive Forum for Certain Disputes: Unless the Corporation consents in writing to the selection of an alternative forum,
subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another state court or federal court
located within the state of Delaware), shall be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Corporation, (2) any action asserting a claim of breach of a fiduciary duty owed by any director,
officer or other employee of the corporation to the corporation or the Corporation’s shareholders, (3) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, or the Corporation’s
certificate of incorporation or bylaws (as either may be amended from time to time), and (4) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding any interest in
shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 8.05.
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: November 9, 2021
|
/s/ MARK P. MARRON
|
|
|
Mark P. Marron
|
|
|
Chief Executive Officer and President
|
|
|
(Principal Executive Officer)
|
Exhibit 31.2
CERTIFICATION
I, Elaine D. Marion, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of ePlus
inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant's other certifying 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: November 9, 2021
|
/s/ ELAINE D. MARION
|
|
|
Elaine D. Marion
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
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 September 30, 2021, 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: November 9, 2021
|
/s/ MARK P. MARRON
|
|
|
Mark P. Marron, Chief Executive Officer
|
|
|
and President
|
|
|
(Principal Executive Officer)
|
|
|
/s/ ELAINE D. MARION
|
|
|
Elaine D. Marion, Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
A signed original of this written statement required by Section 906 has been provided to ePlus and will be retained by us and furnished to the Securities and Exchange Commission or its staff upon request.