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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, 2023

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

ePlus inc.

(Exact name of registrant as specified in its charter)

Delaware
  
54-1817218
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)

13595 Dulles Technology Drive, Herndon, VA 20171-3413
(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
Common Stock, $.01 par value
PLUS
NASDAQ Global Select Market

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.
Yes ☒   No ☐

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).
Yes ☒   No ☐

 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:

Large accelerated filer ☒
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 3, 2023, was 26,932,046.



TABLE OF CONTENTS
ePlus inc. AND SUBSIDIARIES

Part I. Financial Information:
  
       
Item 1.
  
Financial Statements
  
       
   
5
       
   
6
       
   
7
       
   
8
       
   
  10
       
   
11
       
Item 2.
  
29
       
Item 3.
  
48
       
Item 4.
  
48
       
Part II. Other Information:
  
       
Item 1.
  
49
       
Item 1A.
  
49
       
Item 2.
  
49
       
Item 3.
  
49
       
Item 4.
  
50
       
Item 5.
  
50
       
Item 6.
  
50
       
51

2
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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:


 •
significant adverse changes in, reductions in, or loss of one or more of our larger volume customers or vendors;

•
supply chain issues, including a shortage of Information Technology (“IT”) products, may increase our costs or cause a delay in fulfilling customer orders, or increase our need for working capital, or delay completing professional services, or purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;

•
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;

•
maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;

•
our ability to secure our own and our customers’ electronic and other confidential information, while maintaining compliance with evolving data privacy and regulatory laws and regulations;

•
ongoing remote work trends, and the increase in cybersecurity attacks that have occurred while employees work remotely;

•
loss of our credit facility or credit lines with our vendors may restrict our current and future operations;

•
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;

•
rising interest rates or the loss of key lenders or the constricting of credit markets;

•
our ability to manage a diverse product set of solutions in highly competitive markets with a number of key vendors;

•
reliance on third-parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements, guaranteed price agreements, or assurance of stock availability;

•
the possibility of a reduction of vendor incentives provided to us;

•
our dependency on continued innovations in hardware, software, and service offerings by our vendors and our ability to partner with them;

•
our ability to remain secure during a cybersecurity attack, including both disruptions in our or our vendors’ IT systems and data and audio communication networks;

•
our ability to identify acquisition candidates, or perform sufficient due diligence prior to completing an acquisition, or failure to integrate a completed acquisition may affect our earnings;

•
national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and inflation, including increases in our costs and our ability to increase prices to our customers, which may result in adverse changes in our gross profit;

•
significant and rapid inflation may cause price, wage, and interest rate increases, as well as increases in operating costs that may impact the arrangements that have pricing commitments over the term of the agreement;

•
a natural disaster or other adverse event at one of our primary configuration centers, data centers, or a third-party provider location could negatively impact our business;

•
a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;

3
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 •
changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), software as a service (“SaaS”) and platform as a service (“PaaS”);

•
our ability to increase the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;

•
our ability to increase the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;

•
our ability to perform 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;

•
exposure to changes in, interpretations of, or enforcement trends in, and customer and vendor actions in anticipation of or response to, legislation and regulatory matters;

•
domestic and international economic regulations uncertainty (e.g., tariffs, sanctions, and trade agreements);

•
our contracts may not be adequate to protect us, we are subject to audit which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;

•
failure to comply with public sector contracts, or applicable laws or regulations;

•
our ability to maintain our proprietary software and update our technology infrastructure to remain competitive in the marketplace;

•
fluctuations in foreign currency exchange rates may impact our results of operation and financial position; and

•
our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, the costs associated with licensing required technology.

We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks, and uncertainties. For a further list and description of various risks, relevant factors, and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see Part II, Item 1A, “Risk Factors” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).

4
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PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

e Plus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

 
September 30, 2023
    
March 31, 2023
  
ASSETS
            
             
Current assets:
            
Cash and cash equivalents
  
$
82,498
    
$
103,093
  
Accounts receivable—trade, net
    
650,017
      
504,122
  
Accounts receivable—other, net
    
73,264
      
55,508
  
Inventories
    
222,122
      
243,286
  
Financing receivables—net, current
    
136,294
      
89,829
  
Deferred costs
    
44,258
      
44,191
  
Other current assets
    
60,775
      
55,101
  
Total current assets
    
1,269,228
      
1,095,130
  
                 
Financing receivables and operating leases—net
    
68,582
      
84,417
  
Deferred tax asset
    
3,682
      
3,682
  
Property, equipment, and other assets
    
72,153
      
70,447
  
Goodwill
    
158,199
      
136,105
  
Other intangible assets—net
    
46,942
      
25,045
  
TOTAL ASSETS
  
$
1,618,786
    
$
1,414,826
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                 
LIABILITIES
                
                 
Current liabilities:
                
Accounts payable
  
$
295,855
    
$
220,159
  
Accounts payable—floor plan
    
168,601
      
134,615
  
Salaries and commissions payable
    
38,607
      
37,336
  
Deferred revenue
    
118,910
      
114,028
  
Recourse notes payable—current
    
2,016
      
5,997
  
Non-recourse notes payable—current
    
41,824
      
24,819
  
Other current liabilities
    
34,555
      
24,372
  
Total current liabilities
    
700,368
      
561,326
  
                 
Non-recourse notes payable - long-term
    
9,717
      
9,522
  
Deferred tax liability
    721       715  
Other liabilities
    
62,284
      
60,998
  
TOTAL LIABILITIES
    
773,090
      
632,561
  
                 
COMMITMENTS AND CONTINGENCIES (Note 9)
                
             
STOCKHOLDERS’ EQUITY
                
                 
Preferred stock, $0.01 per share par value; 2,000 shares authorized; none outstanding
    
-
      
-
  
Common stock, $0.01 per share par value; 50,000 shares authorized; 26,942 outstanding at September 30, 2023 and 26,905 outstanding at March 31, 2023
    
274
      
272
  
Additional paid-in capital
    
173,318
      
167,303
  
Treasury stock, at cost, 424 shares at September 30, 2023 and 261 shares at March 31, 2023
    
(22,375
)
    
(14,080
)
Retained earnings
    
693,713
      
627,202
  
Accumulated other comprehensive income—foreign currency translation adjustment
    
766
      
1,568
  
Total Stockholders’ Equity
    
845,696
      
782,265
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
1,618,786
    
$
1,414,826
  

See Notes to Unaudited Consolidated Financial Statements.

5
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ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
                         
Net sales
                        
Product
  
$
516,609
    
$
428,545
    
$
1,023,265
    
$
823,795
  
Services
    
71,002
      
65,161
      
138,521
      
128,270
  
Total
    
587,611
      
493,706
      
1,161,786
      
952,065
  
Cost of sales
                                
Product
    
398,234
      
317,127
      
787,138
      
621,337
  
Services
    
45,012
      
43,275
      
88,010
      
83,901
  
Total
    
443,246
      
360,402
      
875,148
      
705,238
  
                                 
Gross profit
    
144,365
      
133,304
      
286,638
      
246,827
  
                                 
Selling, general, and administrative
    
92,652
      
84,704
      
182,950
      
161,471
  
Depreciation and amortization
    
5,630
      
3,568
      
10,422
      
6,778
  
Interest and financing costs
    
1,220
      
925
      
2,071
      
1,288
  
Operating expenses
    
99,502
      
89,197
      
195,443
      
169,537
  
                                 
Operating income
    
44,863
      
44,107
      
91,195
      
77,290
  
                                 
Other income (expense), net
    
117
      
(3,866
)
    
307
      
(6,019
)
                                 
Earnings before tax
    
44,980
      
40,241
      
91,502
      
71,271
  
                                 
Provision for income taxes
    
12,316
      
11,772
      
24,991
      
20,463
  
                                 
Net earnings
  
$
32,664
    
$
28,469
    
$
66,511
    
$
50,808
  
Net earnings per common share—basic
  
$
1.23
    
$
1.07
    
$
2.50
    
$
1.91
  
Net earnings per common share—diluted
  
$
1.22
    
$
1.07
    
$
2.49
    
$
1.91
  
                                 
Weighted average common shares outstanding—basic
    
26,624
      
26,578
      
26,588
      
26,546
  
Weighted average common shares outstanding—diluted
    
26,679
      
26,623
      
26,659
      
26,671
  

See Notes to Unaudited Consolidated Financial Statements.

6
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ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
                         
NET EARNINGS
  
$
32,664
    
$
28,469
    
$
66,511
    
$
50,808
  
                                 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                                
                                 
Foreign currency translation adjustments
    
(1,749
)
    
(1,071
)
    
(802
)
    
(2,410
)
                                 
Other comprehensive loss
    
(1,749
)
    
(1,071
)
    
(802
)
    
(2,410
)
                                 
TOTAL COMPREHENSIVE INCOME
  
$
30,915
    
$
27,398
    
$
65,709
    
$
48,398
  

See Notes to Unaudited Consolidated Financial Statements.

7
Table of Contents
ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
Six Months Ended September 30,
  
   
2023
    
2022
  
Cash flows from operating activities:
            
Net earnings
  
$
66,511
    
$
50,808
  
                 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
                
Depreciation and amortization
    
12,285
      
9,539
  
Provision for credit losses
    
1,079
      
1,739
  
Share-based compensation expense
    
4,619
      
3,731
  
Gain on disposal of property, equipment, and operating lease equipment
    
(293
)
    
(3,052
)
Changes in:
                
Accounts receivable
    
(145,632
)
    
(93,103
)
Inventories—net
    
21,739
      
(122,182
)
Financing receivables—net
    
(29,018
)
    
(23,164
)
Deferred costs and other assets
    
(5,436
)
    
(24,711
)
Accounts payable—trade
    
69,537
      
49,626
  
Salaries and commissions payable, deferred revenue, and other liabilities
    
14,945
      
31,098
  
Net cash provided by (used in) operating activities
    
10,336
      
(119,671
)
                 
Cash flows from investing activities:
                
Proceeds from sale of property, equipment, and operating lease equipment
    
377
      
3,114
  
Purchases of property, equipment and operating lease equipment
    
(5,608
)
    
(2,410
)
   Cash used in acquisitions, net of cash acquired
     (48,603 )     (12,998 )
Net cash used in investing activities
    
(53,834
)
    
(12,294
)
                 
Cash flows from financing activities:
                
Borrowings of non-recourse and recourse notes payable
    
191,639
      
142,271
  
Repayments of non-recourse and recourse notes payable
    
(180,103
)
    
(54,597
)
Proceeds from issuance of common stock
     1,398       -  
Repurchase of common stock
    
(8,352
)
    
(7,224
)
Net borrowings (repayments) on floor plan facility
    
18,032
      
(9,108
)
Net cash provided by financing activities
    
22,614
      
71,342
  
                 
Effect of exchange rate changes on cash
    
289
      
4,776
  
                 
Net decrease in cash and cash equivalents
    
(20,595
)
    
(55,847
)
                 
Cash and cash equivalents, beginning of period
    
103,093
      
155,378
  
                 
Cash and cash equivalents, end of period
  
$
82,498
    
$
99,531
  

8
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(in thousands)

 
Six Months Ended September 30,
  
   
2023
    
2022
  
Supplemental disclosures of cash flow information:
            
Cash paid for interest
  
$
1,875
    
$
1,111
  
Cash paid for income taxes
  
$
22,657
    
$
28,878
  
Cash paid for amounts included in the measurement of lease liabilities
  
$
2,543
    
$
2,300
  
                 
Schedule of non-cash investing and financing activities:
                
Proceeds from sale of property, equipment, and leased equipment
  
$
25
    
$
35
  
Purchases of property, equipment, and operating lease equipment
  
$
(282
)
  
$
(720
)
Consideration for acquisitions
   $
 -     $
 (290 )
Borrowing of non-recourse and recourse notes payable
  
$
21,387
    
$
15,532
  
Vesting of share-based compensation
  
$
9,328
    
$
9,811
  
Repurchase of common stock
   $ (65 )   $ -  
New operating lease assets obtained in exchange for lease obligations
  
$
3,122
    
$
2,353
  

See Notes to Unaudited Consolidated Financial Statements.

9
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ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

 
Six Months Ended September 30, 2023
  
                            Accumulated        
          Additional                 Other        
   
Common Stock
    
Paid-In
    
Treasury
    
Retained
    
Comprehensive
        
   
Shares
    
Par Value
    
Capital
    
Stock
    
Earnings
    
Income
    
Total
  
Balance, March 31, 2023
    
26,905
    
$
272
    
$
167,303
    
$
(14,080
)
  
$
627,202
    
$
1,568
    
$
782,265
  
Issuance of restricted stock awards
    
153
      
2
      
(2
)
    
-
      
-
      
-
      
-
  
Issuance of common stock
    36       -       1,398       -       -       -       1,398  
Share-based compensation
    
-
      
-
      
2,205
      
-
      
-
      
-
      
2,205
  
Repurchase of common stock
    
(147
)
    
-
      
-
      
(7,371
)
    
-
      
-
      
(7,371
)
Net earnings
    
-
      
-
      
-
      
-
      
33,847
      
-
      
33,847
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
947
      
947
  
                                                         
Balance, June 30, 2023
    
26,947
    
$
274
    
$
170,904
    
$
(21,451
)
  
$
661,049
    
$
2,515
    
$
813,291
  
                                                         
Issuance of restricted stock awards
    
10
      
-
      
-
      
-
      
-
      
-
      
-
  
Share-based compensation
    
-
      
-
      
2,414
      
-
      
-
      
-
      
2,414
  
Repurchase of common stock
     (15 )     -       -       (924 )     -       -       (924 )
Net earnings
    
-
      
-
      
-
      
-
      
32,664
      
-
      
32,664
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
(1,749
)
    
(1,749
)
                                                         
Balance, September 30, 2023
    
26,942
    
$
274
    
$
173,318
    
$
(22,375
)
  
$
693,713
    
$
766
    
$
845,696
  

 
  
Six Months Ended September 30, 2022
  
                            Accumulated        
          Additional                 Other        
   
Common Stock
    
Paid-In
    
Treasury
    
Retained
    
Comprehensive
        
 
  
Shares
   
Par Value
   
Capital
   
Stock
   
Earnings
   
Income
   
Total
 
Balance, March 31, 2022
    
26,886
    
$
270
    
$
159,480
    
$
(6,734
)
  
$
507,846
    
$
(124
)
  
$
660,738
  
Issuance of restricted stock awards
    
135
      
1
      
-
      
-
      
-
      
-
      
1
  
Share-based compensation
    
-
      
-
      
1,773
      
-
      
-
      
-
      
1,773
  
Repurchase of common stock
    
(128
)
    
-
      
-
      
(7,224
)
    
-
      
-
      
(7,224
)
Net earnings
    
-
      
-
      
-
      
-
      
22,339
      
-
      
22,339
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
(1,339
)
    
(1,339
)
 
                                                        
Balance, June 30, 2022
    
26,893
    
$
271
    
$
161,253
    
$
(13,958
)
  
$
530,185
    
$
(1,463
)
  
$
676,288
  
                                                         
Issuance of restricted stock awards
    
13
      
1
      
-
      
-
      
-
      
-
      
1
  
Share-based compensation
    
-
      
-
      
1,958
      
-
      
-
      
-
      
1,958
  
Net earnings
    
-
      
-
      
-
      
-
      
28,469
      
-
      
28,469
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
(1,071
)
    
(1,071
)
                                                         
Balance, September 30, 2022
    
26,906
    
$
272
    
$
163,211
    
$
(13,958
)
  
$
558,654
    
$
(2,534
)
  
$
705,645
  

See Notes to Unaudited Consolidated Financial Statements.

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ePlus inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” or “ePlus.” ePlus inc. is a holding company that through its subsidiaries provides IT solutions that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, professional services, managed services, and complete lifecycle management services including flexible financing solutions. We focus on selling to medium and large enterprises, with customers in the United States (“US”) and in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, Singapore, and Israel.

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. During the quarter ended June 30, 2023, we split our technology segment into new segments—product, professional services, and managed services—to provide our management the ability to better manage and allocate resources among the separate components of our technology business. Our professional services and managed services are a significant component of our growth and long-term strategic initiatives. Subsequently, we manage and report our operating results through four operating segments: product, professional services, managed services, and financing. For additional information, see Note 16, “Segment Reporting”.

INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the six months ended September 30, 2023, and 2022, 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, 2023, and 2022, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2024, 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. These financial statements should be read in conjunction with the information contained in our annual report on Form 10-K for the year ended March 31, 2023 (“2023 Annual Report”), and our Form 8-K that we filed with the SEC on October 6, 2023, which recasts the disclosures in certain portions of our 2023 Annual Report to reflect changes in our reportable segments.

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 53% and 39% of our technology business net sales for the three months ended September 30, 2023, and 2022, respectively, and 49% and 37% of our technology business net sales for the six months ended September 30, 2023, and 2022, 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, 2023, except for the changes provided in Note 2, “Recent Accounting Pronouncements.”

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2.
RECENT ACCOUNTING PRONOUNCEMENTS



RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS— In September 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This update requires buyers in a supplier finance program to disclose certain qualitative and quantitative information about the program. It is intended to provide information about an entity’s use of supplier finance programs and their effect on the entity’s working capital, liquidity, and cash flows. This update is effective for us beginning in the first quarter of our fiscal year ending March 31, 2024, except for a requirement to provide a roll forward of our obligations during the annual period, which is effective for us beginning in the first quarter of our fiscal year ending March 31, 2025. We adopted the standard during the first quarter of fiscal year ending March 31, 2024, except for the roll forward requirement, which will be adopted during the first quarter of fiscal year ending March 31, 2025. The adoption of the standard resulted in new disclosures only for amounts presented within Accounts payable – floor plan. For additional information on the new disclosures, see Note 8, “Notes Payable and Credit Facility”.

3.
REVENUES

CONTRACT BALANCES

Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $59.4 million and $70.4 million of receivables from contracts with customers included within financing receivables as of September 30, 2023, and March 31, 2023, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):

 
September 30, 2023
    
March 31, 2023
  
Current (included in deferred revenue)
  
$
118,410
    
$
113,713
  
Non-current (included in other liabilities)
  
$
48,331
    
$
47,217
  

Revenue recognized from the beginning contract liability balance was $23.4 million and $54.3 million for the three and six months ended September 30, 2023, respectively, and $17.5 million and $42.4 million for the three and six months ended September 30, 2022, 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):

Remainder of the year ending March 31, 2024
  
$
40,911
  
Year ending March 31, 2025
    
41,630
  
Year ending March 31, 2026
    
20,151
  
Year ending March 31, 2027
    
7,167
  
Year ending March 31, 2028 and thereafter
    
3,797
  
Total remaining performance obligations
  
$
113,656
  

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.

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4.
FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option.

The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and six months ended September 30, 2023, and 2022 (in thousands):

   
Three months Ended September 30,
    
Six months Ended September 30,
  
 
2023
    
2022
    
2023
    
2022
  
Net sales
  
$
4,872
    
$
4,506
    
$
12,495
    
$
9,489
  
Cost of sales
    
4,132
      
3,769
      
11,523
      
7,836
  
Gross profit
  
$
740
    
$
737
    
$
972
    
$
1,653
  

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, 2023, and 2022 (in thousands):

   
Three months Ended September 30,
    
Six months Ended September 30,
  
 
2023
    
2022
    
2023
    
2022
  
Interest income on sales-type leases
  
$
1,624
    
$
819
    
$
2,986
    
$
1,680
  
Lease income on operating leases
  
$
2,801
    
$
4,659
    
$
5,609
    
$
9,241
  

FINANCING RECEIVABLES—NET

The following tables provide a disaggregation of our financing receivables – net (in thousands):

    Notes     Lease     Financing  
September 30, 2023
  
Receivable
    
Receivables
    
Receivables
  
Gross receivables
  
$
141,236
    
$
71,058
    
$
212,294
  
Unguaranteed residual value (1)
    
-
      
8,794
      
8,794
  
Unearned income
    
(4,147
)
    
(14,387
)
    
(18,534
)
Allowance for credit losses (2)
    
(921
)
    
(1,428
)
    
(2,349
)
Total, net
  
$
136,168
    
$
64,037
    
$
200,205
  
Reported as:
                        
Current
  
$
102,917
    
$
33,377
    
$
136,294
  
Long-term
    
33,251
      
30,660
      
63,911
  
Total, net
  
$
136,168
    
$
64,037
    
$
200,205
  

(1)
Includes unguaranteed residual values of $4,027 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 7, “Allowance for Credit Losses” for details.
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    Notes     Lease     Financing  
March 31, 2023
  
Receivable
    
Receivables
    
Receivables
  
Gross receivables
  
$
117,008
    
$
60,157
    
$
177,165
  
Unguaranteed residual value (1)
    
-
      
8,161
      
8,161
  
Unearned income
    
(5,950
)
    
(8,050
)
    
(14,000
)
Allowance for credit losses (2)
    
(801
)
    
(981
)
    
(1,782
)
Total, net
  
$
110,257
    
$
59,287
    
$
169,544
  
Reported as:
                        
Current
  
$
65,738
    
$
24,091
    
$
89,829
  
Long-term
    
44,519
      
35,196
      
79,715
  
Total, net
  
$
110,257
    
$
59,287
    
$
169,544
  

(1)
Includes unguaranteed residual values of $4,222 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 7, “Allowance for Credit Losses” for details.

OPERATING LEASES—NET

Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands):

     September 30,      March 31,  
 
2023
    
2023
  
Cost of equipment under operating leases
  
$
14,653
    
$
15,301
  
Accumulated depreciation
    
(9,982
)
    
(10,599
)
Investment in operating lease equipment—net (1)
  
$
4,671
    
$
4,702
  

(1)
Amounts include estimated unguaranteed residual values of $1,643 thousand and $1,717 thousand as of September 30, 2023, and March 31, 2023, respectively

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, 2023, and March 31, 2023, we had financing receivables of $67.9 million and $35.7 million, respectively, and operating leases of $2.8 million and $2.5 million, respectively, which were collateral for non-recourse notes payable. See Note 8, ‘‘Notes Payable and Credit Facility.’’


For transfers accounted for as a sale, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended September 30, 2023, and 2022, we recognized net gains of $6.9 million and $8.1 million, respectively, and total proceeds from these sales were $220.8 million and $376.4 million, respectively. For the six months ended September 30, 2023, and 2022, we recognized net gains of $8.2 million and $9.9 million, respectively, and total proceeds from these sales were $282.2 million and $428.9 million, respectively.



When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform the services. As of September 30, 2023, and March 31, 2023, we had deferred revenue of $0.4 million and $0.5 million, respectively, for servicing obligations.

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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, 2023, and March 31, 2023, the total potential payments that could result from these indemnities was immaterial.

5.
LESSEE ACCOUNTING

We lease office space for periods up to six years and lease warehouse space for periods of up to ten years, and we have some lease options that can be exercised to extend beyond those lease term limits. We recognize our right-of-use assets as part of property, equipment, and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent expense as part of selling, general and administrative expenses. We recognized rent expense of $1.5 million and $1.2 million for the three months ended September 30, 2023, and September 30, 2022, respectively, and $3.0 million and $2.5 million for the six months ended September 30, 2023, and 2022, respectively.

6.
GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

The following table summarizes the changes in the carrying amount of goodwill for the six months ended September 30, 2023 (in thousands):

         
Professional
    
Managed
        
   
Product
    
Services
    
Services
    
Total
  
Balance March 31, 2023 (1)
  
$
106,497
    
$
19,712
    
$
9,896
    
$
136,105
  
Acquisitions
    
19,672
      
2,456
      
-
      
22,128
  
Foreign currency translations
    
(27
)
    
(5
)
    
(2
)
    
(34
)
Balance September 30, 2023 (1)
  
$
126,142
    
$
22,163
    
$
9,894
    
$
158,199
  

(1)
Balance is net of $8,673 thousand in accumulated impairments that were recorded in segments that proceed our current segment organization.

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 goodwill balance increased by $22.1 million over the six months ended September 30, 2023, due to $22.1 million in goodwill additions from our acquisition of Network Solutions Group (“NSG”). Please refer to  Note 15, “Business Combinations” for details of our acquisition.


We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our annual test as of October 1, 2022, we performed a quantitative assessment of goodwill and concluded that the fair value of our technology reporting unit exceeded its carrying value. Our conclusions would not be impacted by a ten percent change in our estimate of the fair value of the reporting unit.


During the first quarter ended June 30, 2023, we separated our technology segment into three new segments: product, professional services, and managed services. We concluded that each segment was one reporting unit. At that time, we allocated our goodwill to the reporting units affected using a relative fair value approach. We concluded that the fair value of each new reporting unit exceeded its carrying value. Our conclusions would not be impacted by a ten percent change in our estimate of the fair value of the reporting unit.

OTHER INTANGIBLE ASSETS

Our other intangible assets consist of the following on September 30, 2023, and March 31, 2023 (in thousands):
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September 30, 2023
  
March 31, 2023
  
 
Gross
          
Gross
          
 
Carrying
  
Accumulated
  
Net Carrying
  
Carrying
  
Accumulated
  
Net Carrying
  
 
Amount
  
Amortization
  
Amount
  
Amount
  
Amortization
  
Amount
  
Purchased intangibles
  
$
115,372
    
$
(68,832
)
  
$
46,540
    
$
85,449
    
$
(61,376
)
  
$
24,073
  
Capitalized software development
    
10,516
      
(10,114
)
    
402
      
10,516
      
(9,544
)
    
972
  
Total
  
$
125,888
    
$
(78,946
)
  
$
46,942
    
$
95,965
    
$
(70,920
)
  
$
25,045
  

Purchased intangibles, consisting mainly of customer relationships, 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 $4.0 million for the three months ended September 30, 2023, and $2.5 million for the three months ended September 30, 2022, and $7.5 million and $4.7 million for the six months ended September 30, 2023, and 2022, respectively.

7.
ALLOWANCE FOR CREDIT LOSSES

The following table provides the activity in our allowance for credit losses for the six months ended September 30, 2023, and 2022 (in thousands):

   
Accounts Receivable
    
Notes
Receivable
    
Lease
Receivables
    
Total
  
Balance April 1, 2023
  
$
2,572
    
$
801
    
$
981
    
$
4,354
  
Provision for credit losses
    
508
      
122
      
449
      
1,079
  
Write-offs and other
    
(26
)
    
(2
)
    
(2
)
    
(30
)
Balance September 30, 2023
  
$
3,054
    
$
921
    
$
1,428
    
$
5,403
  

   
Accounts
Receivable
    
Notes
Receivable
    
Lease
Receivables
    
Total
  
Balance April 1, 2022
  
$
2,411
    
$
708
    
$
681
    
$
3,800
  
Provision for credit losses
    
943
      
269
      
527
   
1,739
  
Write-offs and other
    
(71
)
    
(1
)
    
(1
)
    
(73
)
Balance September 30, 2022
  
$
3,283
    
$
976
    
$
1,207
    
$
5,466
  

We evaluate our customers using an internally assigned credit quality rating “CQR”. The CQR categories of our financing receivables are:

•
High CQR: This rating includes accounts with excellent to good business credit, asset quality and capacity to meet financial obligations. Loss rates in this category are generally less than 1%.

•
Average CQR: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. Loss rates in this category are in the range of 1% to 8%.

•
Low CQR: This rating includes accounts that 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 greater than 8% and up to 100%.
 
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The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of September 30, 2023 (in thousands):

   
Amortized cost basis by origination year ending March 31,
                    
 
2024
    
2023
    
2022
    
2021
    
2020
    
2019 and
prior
    
Total
    
Transfers
(2)
    
Net credit
exposure
  
                                                       
Notes receivable:
                                                      
High CQR
  
$
79,740
    
$
22,969
    
$
6,850
    
$
7,515
    
$
80
    
$
-
    
$
117,154
    
$
(36,784
)
  
$
80,370
  
Average CQR
    
12,731
      
5,500
      
1,614
      
85
      
-
      
5
      
19,935
      
(6,943
)
    
12,992
  
Total
  
$
92,471
    
$
28,469
    
$
8,464
    
$
7,600
    
$
80
    
$
5
    
$
137,089
    
$
(43,727
)
  
$
93,362
  
                                                                         
Lease receivables:
                                                                        
High CQR
  
$
16,364
    
$
10,424
    
$
2,543
    
$
1,408
    
$
287
    
$
23
    
$
31,049
    
$
(4,524
)
  
$
26,525
  
Average CQR
    
13,926
      
12,574
      
3,345
      
518
      
26
      
-
      
30,389
      
(2,995
)
    
27,394
  
Total
  
$
30,290
    
$
22,998
    
$
5,888
    
$
1,926
    
$
313
    
$
23
    
$
61,438
    
$
(7,519
)
  
$
53,919
  
                                                                         
Total amortized cost (1)
  
$
122,761
    
$
51,467
    
$
14,352
    
$
9,526
    
$
393
    
$
28
    
$
198,527
    
$
(51,246
)
  
$
147,281
  

(1)
Excludes unguaranteed residual values of $4,027 thousand that we retained after selling the related lease receivable.
(2)
Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis.

The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2023 (in thousands):

   
Amortized cost basis by origination year ending March 31,
                    

 
2023
    
2022
    
2021
    
2020
    
2019
    
2018 and
prior
    
Total
   
Transfers
(2)
   
Net credit
exposure
  
                                                       
Notes receivable:
                                                      
High CQR
  
$
72,155
    
$
11,378
    
$
11,267
    
$
370
    
$
30
    
$
-
    
$
95,200
    
$
(28,115
)
   $
67,085  
Average CQR
    
12,793
      
2,675
      
213
      
115
      
61
      
1
      
15,858
      
(1,432
)
     14,426  
Total
  
$
84,948
    
$
14,053
    
$
11,480
    
$
485
    
$
91
    
$
1
    
$
111,058
    
$
(29,547
)
   $
81,511  
                                                                         
Lease receivables:
                                                                        
High CQR
  
$
21,629
    
$
3,842
    
$
1,916
    
$
565
    
$
51
    
$
9
    
$
28,012
    
$
(1,437
)
   $
26,575  
Average CQR
    
23,796
      
3,430
      
770
      
35
      
3
      
-
      
28,034
      
(1,594
)
     26,440  
Total
  
$
45,425
    
$
7,272
    
$
2,686
    
$
600
    
$
54
    
$
9
    
$
56,046
    
$
(3,031
)
   $
53,015  
                                                                         
Total amortized cost (1)
  
$
130,373
    
$
21,325
    
$
14,166
    
$
1,085
    
$
145
    
$
10
    
$
167,104
    
$
(32,578
)
   $
134,526  

(1)
Excludes unguaranteed residual values of $4,222 thousand that we retained after selling the related lease receivable.
 
(2)
Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis and receivables that are in the process of being transferred to third-party financial institutions.

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The following table provides an aging analysis of our financing receivables as of September 30, 2023 (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
  
$
1,904
    
$
992
    
$
597
    
$
3,493
    
$
15,218
    
$
18,711
    
$
118,378
    
$
137,089
  
Lease receivables
    
790
      
336
      
603
      
1,729
      
4,222
      
5,951
      
55,487
      
61,438
  
Total
  
$
2,694
    
$
1,328
    
$
1,200
    
$
5,222
    
$
19,440
    
$
24,662
    
$
173,865
    
$
198,527
  

The following table provides an aging analysis of our financing receivables as of March 31, 2023 (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
  
$
1,020
    
$
862
    
$
473
    
$
2,355
    
$
7,703
    
$
10,058
    
$
101,000
    
$
111,058
  
Lease receivables
    
1,068
      
463
      
864
      
2,395
      
5,413
      
7,808
      
48,238
      
56,046
  
Total
  
$
2,088
    
$
1,325
    
$
1,337
    
$
4,750
    
$
13,116
    
$
17,866
    
$
149,238
    
$
167,104
  

Our financial assets on nonaccrual status were not significant as of September 30, 2023, and March 31, 2023.

8.
NOTES PAYABLE AND CREDIT FACILITY

CREDIT FACILITY

We finance the operations of our subsidiaries ePlus Technology, inc., ePlus Technology Services, inc., and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology business through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). The WFCDF credit facility (the “WFCDF Credit Facility”) has a floor plan facility and a revolving credit facility.


On October 13, 2021, the Borrowers amended, restated, and replaced in entirety their then-existing credit agreements with WFCDF. On October 31, 2022, the Borrowers entered into the First Amendment to the credit agreement. Under this agreement and its amendment, the credit facility is provided by a syndicate of banks (collectively, the “Lenders”) for which WFCDF acts as administrative agent and consists of a discretionary senior secured floor plan facility in favor of the Borrowers.



On March 10, 2023, the Borrowers entered into a Second Amendment to the credit agreement that amended the credit agreement to increase the maximum aggregate amount of principal available under the floor plan facility to $500.0 million and increase the maximum aggregate amount of principal available under the Revolving Facility to $200.0 million.

Under the accounts payable floor plan facility, we had an outstanding balance of $168.6 million and $134.6 million as of September 30, 2023, and March 31, 2023, respectively. On our balance sheet, our liability under the accounts payable floor plan facility is presented as accounts payable – floor plan.



We use the floor plan to facilitate the purchase of inventory from designated suppliers. The Lenders pay our suppliers and provide us extended payment terms. We pay down the floor plan facility on three specified dates each month, generally 30-60 days from the invoice date. We do not incur any interest or other incremental expenses for the floor plan facility. We are not involved in establishing the terms or conditions of the arrangements between our suppliers and the Lenders.



Under the revolving credit facility, we had no balance outstanding as of September 30, 2023, and March 31, 2023. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current.

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The fair value of the outstanding balances under the WFCDF Credit Facility were approximately equal to their carrying value as of September 30, 2023, and March 31, 2023.

The amount of principal available is subject to a borrowing base determined by, among other things, the Borrowers’ accounts receivable and inventory, each pursuant to a formula and subject to certain reserves. Loans accrue interest at a rate per annum equal to Term SOFR Rate plus a Term SOFR Adjustment of 0.10% plus an Applicable Margin of 1.75%.

Our borrowings under the WFCDF Credit Facility are secured by the assets of the Borrowers. Additionally, the WFCDF Credit Facility requires a guaranty of $10.5 million by ePlus inc.

Under the WFCDF Credit Facility, the Borrowers are restricted in their ability to pay dividends to ePlus inc. unless their available borrowing meets or met certain thresholds. As of September 30, 2023, and March 31, 2023, their available borrowing met the thresholds such that there were no restrictions on their ability to pay dividends.

The WFCDF Credit Facility has an initial one-year term, which automatically renews for successive one-year terms thereafter. However, either the Borrowers or WFCDF may terminate the WFCDF Credit Facility at any time by providing a written termination notice to the other party no less than 90 days prior to such termination.

The loss of the WFCDF Credit Facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology business and as an operational function of our accounts payable process.

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, 2023, and March 31, 2023, we had $2.0 million and $6.0 million, respectively, arising from one installment payment arrangement within our technology business. Our payments under this installment agreement are due quarterly in amounts that are correlated to the payments due to us from a customer under a related notes receivable. We discounted our payments due under this installment agreement to calculate our payable balance using an interest rate of 3.50% as of both September 30, 2023, and March 31, 2023.

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, 2023, and March 31, 2023, we had $51.5 million and $34.3 million, respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due periodically in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 5.84% and 5.01%, as of September 30, 2023, and March 31, 2023, respectively.

9.
COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

We are subject to various legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business and have not been fully resolved. The ultimate outcome of any litigation or other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, we accrue our best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against us in a reporting period for amounts above our expectations, our financial condition and operating results for that period may be adversely affected. As of September 30, 2023, we do not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current, or future transactions or events.

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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, 2023, and 2022, respectively (in thousands, except per share data).
 
   
 Three Months Ended
September 30,
    
 Six Months Ended
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
                         
Net earnings attributable to common shareholders - basic and diluted
  
$
32,664
    
$
28,469
    
$
66,511
    
$
50,808
  
                                 
Basic and diluted common shares outstanding:
                                
Weighted average common shares outstanding — basic
    
26,624
      
26,578
      
26,588
      
26,546
  
Effect of dilutive shares
    
55
      
45
      
71
      
125
  
Weighted average shares common outstanding — diluted
    
26,679
      
26,623
      
26,659
      
26,671
  
                                 
Earnings per common share - basic
  
$
1.23
    
$
1.07
    
$
2.50
    
$
1.91
  
                                 
Earnings per common share - diluted
  
$
1.22
    
$
1.07
    
$
2.49
    
$
1.91
  

11.
STOCKHOLDERS’ EQUITY
 
SHARE REPURCHASE PLAN

On March 22, 2023, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2023. On March 24, 2022, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2022. Under both authorized programs, purchases may be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.

During the six months ended September 30, 2023, we purchased 109,122 shares of our outstanding common stock at a value of $5.3 million under the share repurchase plan; we also purchased 53,945 shares of common stock at a value of $3.0 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the six months ended September 30, 2022, we purchased 70,473 shares of our outstanding common stock at a value of $3.9 million under the share repurchase plan; we also purchased 58,080 shares of common stock at a value of $3.3 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

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12.
SHARE-BASED COMPENSATION

SHARE-BASED PLANS

As of September 30, 2023, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), (2) the 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”), and (3) the 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”).

The 2021 Employee LTIP was approved by our shareholders on September 16, 2021, and became effective October 1, 2021. The 2021 Employee LTIP replaced the 2012 Employee LTIP that had previously been approved by our stockholders on September 13, 2012. Beginning September 16, 2021, we permanently ceased issuing any additional shares under the 2012 Employee LTIP.

These share-based plans define fair market value as the closing sales price of a share of common stock as quoted on any established stock exchange for such date or the most recent trading day preceding such date if there were no trades on such date.

RESTRICTED STOCK ACTIVITY

For the six months ended September 30, 2023, we granted 12,454 restricted shares of our stock under the 2017 Director LTIP, and 152,865 restricted shares of our stock under the 2021 Employee LTIP. For the six months ended September 30, 2022, we granted 15,954 shares of our stock under the 2017 Director LTIP, and 138,643 restricted shares of our stock under the 2021 Employee LTIP. A summary of our restricted stock activity, is as follows:

 
Number of
Shares
    
Weighted Average
Grant-date Fair Value
  
             
Nonvested April 1, 2023
    
314,860
    
$
49.57
  
Granted
    
165,319
    
$
56.39
  
Vested
    
(165,943
)
  
$
46.12
  
Forfeited
     (2,456 )   $ 55.59  
Nonvested September 30, 2023
    
311,780
    
$
54.98
  


EMPLOYEE STOCK PURCHASE PLAN



On September 15, 2022, our stockholders approved the 2022 Employee Stock Purchase Plan (“ESPP”) through which eligible employees may purchase up to an aggregate of 2.50 million shares of our stock at 6-month intervals at a discount off the lesser of the closing market price on the first or the last trading day of each offering period. During the six months ended September 30, 2023, we issued 36,697 shares at a price of $38.10 per share under the ESPP. As of September 30, 2023, there were 2.46 million shares remaining under the ESPP.

COMPENSATION EXPENSE

The following table provides a summary of our total share-based compensation expense, including for restricted stock awards and our ESPP, and the related income tax benefit for the three and six months ended September 30, 2023, and 2022, respectively (in thousands):

   
Three Months Ended
    
Six Months Ended
  
   
September 30,
    
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
Equity-based compensation expense
  
$
2,414
    
$
1,958
    
$
4,619
    
$
3,731
  
Income tax benefit
    
(661
)
    
(574
)
    
(1,261
)
    
(1,071
)


We recognized the income tax benefit as a reduction to our provision for income taxes. As of September 30, 2023, the total unrecognized compensation expense related to non-vested restricted stock was $14.7 million, which is expected to be recognized over a weighted-average period of 33 months.


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We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are always fully vested. Our estimated contribution expense to the plan for the three months ended September 30, 2023, and 2022, was $1.2 and $1.0 million, respectively. For the six months ended September 30, 2023, and 2022, our estimated contribution expense for the plan was $2.6 million and  $2.0 million, respectively.

13.
INCOME TAXES

Our provision for income tax expense was $12.3 million and $25.0 million for the three and six months ended September 30, 2023, as compared to $11.8 million and $20.5 million for the same periods in the prior year. Our effective tax rate for the three and six months ended September 30, 2023, was 27.4% and 27.3% respectively, compared with 29.3% and 28.7%, respectively, for the same periods in the prior year.  Our effective income tax rate for the three and six months ended September 30, 2023, was lower compared to the same periods in the prior year primarily due to lower state effective tax rates and less non-deductible executive compensation in the current period. The effective tax rate for the three and six months ended September 30, 2023, and September 30, 2022, differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes.

14.
FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table summarizes the fair value hierarchy of our financial instruments as of September 30, 2023, and March 31, 2023 (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, 2023
                        
Assets:
                        
Money market funds
  
$
14,570
    
$
14,570
    
$
-
    
$
-
  
                                 
March 31, 2023
                                
Assets:
                                
Money market funds
  
$
8,880
    
$
8,880
    
$
-
    
$
-
  

15.
BUSINESS COMBINATIONS


NETWORK SOLUTIONS GROUP (NSG)



On April 30, 2023, our subsidiary, ePlus Technology, inc., acquired certain assets and liabilities of NSG, formerly a business unit of CCI Systems, Inc., a Michigan-based provider of networking services and solutions. This acquisition is helping to drive additional growth for us in the service provider end-markets with enhanced engineering, sales, and services delivery capabilities specific to the industry.

Our preliminary sum for consideration transferred is $48.6 million consisting of $59.6 million paid in cash at closing minus $11.0 million that was paid back to us during the quarter ended September 30, 2023, by the sellers based on adjustments to a determination of the total net assets delivered. Our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

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Acquisition Date
Amount
  
Accounts receivable
  
$
20,419
  
Other assets
    
1,940
  
Identified intangible assets
    
29,960
  
Accounts payable and other liabilities
    
(24,758
)
Contract liabilities
    
(1,086
)
Total identifiable net assets
    
26,475
  
Goodwill
    
22,128
  
Total purchase consideration
  
$
48,603
  



The identified intangible assets of $30.0 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 $22.1 million, of which $19.7 million and $2.4 million were assigned to our product and professional services reporting units, respectively. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes.



The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2023, is not material.


FUTURE COM

On July 15, 2022, our subsidiary, ePlus Technology, inc., acquired certain assets and liabilities of Future Com, Ltd., a Texas-based provider of cybersecurity solutions, cloud security and security consulting services throughout the US. Our acquisition provides access to enhanced engineering, sales, and services delivery capabilities in the South-Central region of the United States, as well as bolstering the skills and expertise surrounding ePlus’ growing cybersecurity practice.

Our sum for consideration transferred is $13.3 million consisting of $13.0 million paid in cash at closing plus an additional $0.3 million that was subsequently paid to the sellers based on adjustments to our determination of the total net assets delivered. Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

   
Acquisition Date
Amount
  
Accounts receivable
  
$
4,033
  
Other assets
    
129
  
Identified intangible assets
    
8,360
  
Accounts payable and other liabilities
    
(8,714
)
Contract liabilities
    
(214
)
Total identifiable net assets
    
3,594
  
Goodwill
    
9,694
  
Total purchase consideration
  
$
13,288
  

The identified intangible assets of $8.4 million consists of customer relationships with an estimated useful life of seven years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.

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We recognized goodwill related to this transaction of $9.7 million, which was originally assigned to our technology segment reporting unit. As a result of changes in our reporting units, we subsequently reassigned the goodwill to our product, professional services, and managed services segments. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2022, is not material.

16.
SEGMENT REPORTING

We manage and report our operating results through four operating segments: product, professional services, managed services, and financing. Our product segment includes sales of IT products, third-party software, and third-party maintenance, software assurance, and other third-party services. Our professional services segment includes our advanced professional services, staff augmentation, project management services, cloud consulting services and security services. Our managed services segment includes our advanced managed services, service desk, storage-as-a-service, cloud hosted services, cloud managed services and managed security services. We refer to the product segment, professional services segment, and managed services segment collectively as our technology business. Our financing business 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 within our technology business based on gross profit, while we measure our financing business segment based on operating income. We do not present asset information for our reportable segments as we do not provide asset information to our chief operating decision maker.

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The following table provides reportable segment information (in thousands):

   
Three Months Ended
   
Six Months Ended
 
    September 30,     September 30,    
 
   
2023
    
2022
     2023
    2022
 
                         
Net sales
                        
Product
  
$
500,937
    
$
406,317
     $ 999,103     $ 791,993  
Professional services
    
38,270
      
38,050
       73,826       75,218  
Managed services
    
32,732
      
27,111
       64,695       53,052  
Financing
    
15,672
      
22,228
       24,162       31,802  
Total
    
587,611
      
493,706
       1,161,786       952,065  
                                 
Gross profit
                                
Product
    
104,749
      
94,389
       216,140       177,557  
Professional services
    
15,796
      
14,697
       30,520       29,752  
Managed services
    
10,194
      
7,189
       19,991       14,617  
Financing
    
13,626
      
17,029
       19,987       24,901  
Total
    
144,365
      
133,304
       286,638       246,827  
                                 
Operating expenses
                                
Technology business
    
94,856
      
84,372
       187,270       160,804  
Financing
    
4,646
      
4,825
       8,173       8,733  
Total
    
99,502
      
89,197
       195,443       169,537  
                                 
Operating income                                
Technology business
     35,883       31,903       79,381       61,122  
Financing
     8,980       12,204       11,814       16,168  
Total
  
44,863    
44,107    
91,195    
77,290  
                                 
Other income (expense), net
    
117
      
(3,866
)
     307       (6,019 )
                                 
Earnings before tax
  
$
44,980
    
$
40,241
     $ 91,502     $ 71,271  
                                 
Depreciation and amortization
                                
Technology business
  
$
5,602
    
$
3,540
     $
 10,366     $ 6,722  
Financing
    
28
      
28
       56       56  
Total
  
$
5,630
    
$
3,568
     $
10,422     $ 6,778  
                                 
Interest and financing costs
                                
Technology business
  
$
661
    
$
671
     $ 1,211     $ 809  
Financing
    
559
      
254
       860       479  
Total
  
$
1,220
    
$
925
     $ 2,071     $ 1,288  
                                 
Selected Financial Data - Statement of Cash Flow
                                
                                 
Purchases of property, equipment, and operating lease equipment                                
Technology business
  
$
1,904
    
$
611
     $ 4,689     $ 1,897  
Financing
    
6
      
22
       919       513  
Total
  
$
1,910
    
$
633
     $ 5,608     $ 2,410  

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The following tables provide a disaggregation of net sales by source and further disaggregate our revenue recognized from contracts with customers by timing and our position as principal or agent (in thousands):


   
Three months ended September 30, 2023
  
   
Product
    
Professional
Services
    
Managed Services
    
Financing
    
Total
  
                               
Net Sales
                              
Contracts with customers
  
$
496,065
    
$
38,270
    
$
32,732
    
$
2,835
    
$
569,902
  
Financing and other
    
4,872
      
-
      
-
      
12,837
      
17,709
  
Total
  
$
500,937
    
$
38,270
    
$
32,732
    
$
15,672
    
$
587,611
  
                                         
Timing and position as principal or agent
                                        
Transferred at a point in time as principal
  
$
442,278
    
$
-
    
$
-
    
$
2,835
    
$
445,113
  
Transferred at a point in time as agent
    
53,787
      
-
      
-
      
-
      
53,787
  
Transferred over time as principal
    
-
      
38,270
      
32,732
      
-
      
71,002
  
Total revenue from contracts with customers
  
$
496,065
    
$
38,270
    
$
32,732
    
$
2,835
    
$
569,902
  


   
Six months ended September 30, 2023
  
   
Product
    
Professional
Services
    
Managed Services
    
Financing
    
Total
  
                               
Net Sales
                              
Contracts with customers
  
$
986,608
    
$
73,826
    
$
64,695
    
$
4,125
    
$
1,129,254
  
Financing and other
    
12,495
      
-
      
-
      
20,037
      
32,532
  
Total
  
$
999,103
    
$
73,826
    
$
64,695
    
$
24,162
    
$
1,161,786
  
                                         
Timing and position as principal or agent
                                        
Transferred at a point in time as principal
  
$
894,660
    
$
-
    
$
-
    
$
4,125
    
$
898,785
  
Transferred at a point in time as agent
    
91,948
      
-
      
-
      
-
      
91,948
  
Transferred over time as principal
    
-
      
73,826
      
64,695
      
-
      
138,521
  
Total revenue from contracts with customers
  
$
986,608
    
$
73,826
    
$
64,695
    
$
4,125
    
$
1,129,254
  


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Table of Contents
   
Three months ended September 30, 2022
  
   
Product
    
Professional
Services
    
Managed Services
    
Financing
    
Total
  
                               
Net Sales
                              
Contracts with customers
  
$
401,811
    
$
38,050
    
$
27,111
    
$
6,923
    
$
473,895
  
Financing and other
    
4,506
      
-
      
-
      
15,305
      
19,811
  
Total
  
$
406,317
    
$
38,050
    
$
27,111
    
$
22,228
    
$
493,706
  
                                         
Timing and position as principal or agent
                                        
Transferred at a point in time as principal
  
$
356,846
    
$
-
    
$
-
    
$
6,923
    
$
363,769
  
Transferred at a point in time as agent
    
44,965
      
-
      
-
      
-
      
44,965
  
Transferred over time as principal
    
-
      
38,050
      
27,111
      
-
      
65,161
  
Total revenue from contracts with customers
  
$
401,811
    
$
38,050
    
$
27,111
    
$
6,923
    
$
473,895
  


   
Six months ended September 30, 2022
  
   
Product
    
Professional
Services
    
Managed Services
    
Financing
    
Total
  
                               
Net Sales
                              
Contracts with customers
  
$
782,503
    
$
75,218
    
$
53,052
    
$
7,868
    
$
918,641
  
Financing and other
    
9,490
      
-
      
-
      
23,934
      
33,424
  
Total
  
$
791,993
    
$
75,218
    
$
53,052
    
$
31,802
    
$
952,065
  
                                         
Timing and position as principal or agent
                                        
Transferred at a point in time as principal
  
$
692,559
    
$
-
    
$
-
    
$
7,868
    
$
700,427
  
Transferred at a point in time as agent
    
89,944
      
-
      
-
      
-
      
89,944
  
Transferred over time as principal
    
-
      
75,218
      
53,052
      
-
      
128,270
  
Total revenue from contracts with customers
  
$
782,503
    
$
75,218
    
$
53,052
    
$
7,868
    
$
918,641
  

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TECHNOLOGY BUSINESS DISAGGREGATION OF REVENUE

The following table provides a disaggregation of our revenue from contracts with customers for our technology business by customer end market and by type (in thousands):
 
   
Three Months Ended September 30,
    
Six Months Ended September 30
 
   
2023
    
2022
     2023
    2022
 
Customer end market:
                        
Telecom, Media & Entertainment
  
$
124,306
    
$
118,454
     $ 265,641     $ 246,731  
Technology
    
110,948
      
96,160
       184,351       166,021  
State and local government and educational institutions
    
94,906
      
70,491
       204,311       135,092  
Healthcare
    
72,022
      
66,959
       158,678       135,471  
Financial Services
    
69,885
      
37,611
       135,575       70,910  
All others
    
99,872
      
81,803
       189,068       166,038  
Net sales
    
571,939
      
471,478
       1,137,624       920,263  
Less: Revenue from financing and other
    
(4,872
)
    
(4,506
)
     (12,495 )     (9,490 )
Revenue from contracts with customers
  
$
567,067
    
$
466,972
     $
 1,125,129     $
910,773  
                                 
Type:
                                
Product
                                
Networking
  
$
268,636
    
$
165,896
     $
513,824     $
 308,537  
Cloud
    
135,068
      
148,992
       307,112       313,725  
Security
    
51,886
      
48,517
       97,682       96,512  
Collaboration
    
27,083
      
19,187
       40,039       32,167  
Other
    
18,264
      
23,725
       40,446       41,052  
Total product
    
500,937
      
406,317
       999,103       791,993  
                                 
Professional services
    
38,270
      
38,050
       73,826       75,218  
Managed services
    
32,732
      
27,111
       64,695       53,052  
Net sales
    
571,939
      
471,478
       1,137,624       920,263  
Less: Revenue from financing and other
    
(4,872
)
    
(4,506
)
     (12,495 )     (9,490 )
Revenue from contracts with customers
  
$
567,067
    
$
466,972
     $
 1,125,129     $
910,773  
 
We do not disaggregate sales by customer end market beyond the technology business.

FINANCING BUSINESS SEGMENT DISAGGREGATION OF REVENUE

We analyze our revenues within our financing business segment based on the nature of the arrangement. Our financing revenue generally consists of portfolio income, transactional gains, and post-contract earnings including month-to-month rents and the sales of off-lease equipment. All our revenues from contracts with customers within our financing business segment is from the sales of off-lease equipment.
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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements included in our annual report on Form 10-K for the year ended March 31, 2023 (“2023 Annual Report”), and our Form 8-K that we filed with the SEC on October 6, 2023, which recasts the disclosures in certain portions of our 2023 Annual Report to reflect changes in our reportable segments. 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 2023 Annual Report, as updated by our Form 8-K that we filed with the SEC on October 6, 2023, as well as in our other filings with the SEC.

EXECUTIVE OVERVIEW

BUSINESS DESCRIPTION

We are a leading solutions provider in the areas of security, cloud, networking, collaboration, artificial intelligence, and emerging technologies to domestic and foreign organizations across all industry segments. We deliver actionable outcomes for organizations by using information technology (“IT”) and consulting solutions to drive business agility and innovation. Leveraging our engineering talent, we assess, plan, deliver, and secure solutions comprised of leading technologies and consumption models aligned with our customers’ needs. Our expertise and experience enable us to craft optimized solutions that take advantage of the cost, scale, and efficiency of private, public and hybrid cloud in an evolving market. As part of our solutions, we provide consulting, professional services, managed services, IT staff augmentation, and complete lifecycle management services in the areas of security, cloud, networking, collaboration, and emerging technologies. Additionally, we offer flexible financing for purchases from us and from third parties. We have been in the business of selling, leasing, financing, and managing IT and other assets for more than 30 years.

Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-premises and in the cloud. Our approach is to lead with advisory consulting to understand our customers’ needs, and then design, deploy, and manage solutions aligned to their objectives. Underpinning the broader areas of cloud, security, networking, and collaboration are specific skills in orchestration and automation, application modernization, DevSecOps, zero-trust architectures, data management, data visualization, analytics, network modernization, edge 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, Crowdstrike, Deepwatch, Dell EMC, F5 Networks, Foresite, Fortinet, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Proficio, Pure Storage, Rubrik, Splunk, Varonis, and VMware, among many others. We are an authorized reseller of over 1,500 vendors, which enable us to provide our customers with new and evolving IT solutions. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized for each of our customers’ specific requirements. Our hosted, proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their owned, leased, and consumption-based assets.

Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay at the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled us to remain a trusted advisor for our customers. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We believe our lifecycle approach offering of integrated solutions, services and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a customized customer experience that spans the continuum from fast delivery of competitively priced products and services to subsequent management and maintenance, and through to end-of-life disposal services. This approach permits us to deploy sophisticated solutions to enable our customers’ business outcomes.

Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local government and educational institutions (“SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which account for most of our sales, and to customers in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, Singapore, and Israel. Our technology business segments accounted for 98% of our net sales and 87% of our operating income, while our financing segment accounted for 2% of our net sales and 13% of our operating income, for the six months ended September 30, 2023.

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Table of Contents
BUSINESS TRENDS

We believe the following key factors are impacting our business performance and our ability to achieve business results:


 •
General economic concerns including inflation, rising interest rates, staffing shortages, remote work trends, and global unrest may impact our customers’ willingness to spend on technology and services.


•
Like others in the industry, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, our having to carry more inventory for longer periods, the cost of products, vendor return and cancellation policies, and our ability to meet customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters.


•
We are experiencing increases in prices from our suppliers, as well as rising wages and interest rates. We generally have been able to pass price increases to our customers. Our labor costs related to services we perform will take longer to pass to customers that have service engagements where prices may be set. Accordingly, inflation could have a material impact on our sales, gross profit, or operating costs in the future. Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds and lock in our profit on the transaction. Also, we are experiencing constriction of funds available and more stringent assessment for our financing arrangements from our lender partners.


•
Customers’ top focus areas include security, cloud solutions, hybrid work environments (work from home, work from anywhere, and return to office), as well as digital transformation and modernization. We have developed advisory services, solutions, and professional and managed services to meet these priorities and help our customers attain and maintain their desired outcome.


•
Modernizing legacy applications, data modernization, reducing operational complexity, securing workloads, the cost and performance of IT operations, and agility are changing the way companies are purchasing and consuming technology. These are fueling deployments of solutions on cloud, managed services and hybrid platforms and licensing models, which may include invoicing over the term of the agreement.


•
Rapid cloud adoption has led to customer challenges around increasing costs, security concerns, and skillset gaps. These challenges are consistent across all industries and sizes. We have developed a Cloud Managed Services portfolio to address these needs, allowing our clients to focus on driving business outcomes via optimized and secure cloud platforms.

KEY BUSINESS METRICS

Our management monitors several financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, and net earnings per common share, in each case based on information prepared in accordance with US GAAP, as well as the non-GAAP financial measures and ratios, including Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share. 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. We use Gross billings as an operational metric to assess the volume of transactions within our technology business segments—product, professional services, and managed services—as well as to understand changes in our accounts receivable. We believe Gross billings will aid investors in the same manner.

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These key indicators include financial information that is prepared in accordance with US GAAP and presented in our consolidated financial statements, as well as non-GAAP and operational performance measurement tools. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are correspondingly not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP. Our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results reported under GAAP, as these measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

Set forth in footnotes (1) and (2) of the tables that immediately follow the next paragraph, we set forth our reasons for using and presenting Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share-diluted in the tables and discussion that follow.

The following tables provide our key business metrics on a consolidated basis as well as our combined technology business segments and our financing business segment (in thousands, except per share amounts):

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Table of Contents

  
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
Consolidated
  
2023
    
2022
    
2023
    
2022
  

                       
Financial metrics
                        
Net sales
  
$
587,611
    
$
493,706
    
$
1,161,786
    
$
952,065
  
                                 
Gross profit
  
$
144,365
    
$
133,304
    
$
286,638
    
$
246,827
  
Gross margin
    
24.6
%
    
27.0
%
    
24.7
%
    
25.9
%
Operating income margin
    
7.6
%
    
8.9
%
    
7.8
%
    
8.1
%
 
                                
Net earnings
  
$
32,664
    
$
28,469
    
$
66,511
    
$
50,808
  
Net earnings margin
    
5.6
%
    
5.8
%
    
5.7
%
    
5.3
%
Net earnings per common share - diluted
  
$
1.22
    
$
1.07
    
$
2.49
    
$
1.91
  
 
                                
Non-GAAP financial metrics
                                
Non-GAAP: Net earnings (1)
  
$
37,166
    
$
34,396
    
$
74,853
    
$
60,909
  
Non-GAAP: Net earnings per common share - diluted (1)
  
$
1.40
    
$
1.29
    
$
2.81
    
$
2.28
  
 
                                
Adjusted EBITDA (2)
  
$
53,568
    
$
50,304
    
$
107,447
    
$
88,608
  
Adjusted EBITDA margin
    
9.1
%
    
10.2
%
    
9.2
%
    
9.3
%
                                 
Technology business segments
                                
                                 
Financial Metrics
                                
Net sales
                                
Product
  
$
500,937
    
$
406,317
    
$
999,103
    
$
791,993
  
Professional services
    
38,270
      
38,050
      
73,826
      
75,218
  
Managed services
    
32,732
      
27,111
      
64,695
      
53,052
  
Total
  
$
571,939
    
$
471,478
    
$
1,137,624
    
$
920,263
  
 
                                
Gross profit
                                
Product
  
$
104,749
    
$
94,389
    
$
216,140
    
$
177,557
  
Professional services
    
15,796
      
14,697
      
30,520
      
29,752
  
Managed services
    
10,194
      
7,189
      
19,991
      
14,617
  
Total
  
$
130,739
    
$
116,275
    
$
266,651
    
$
221,926
  
 
                                
Gross margin
                                
Product
    
20.9
%
    
23.2
%
    
21.6
%
    
22.4
%
Professional services
    
41.3
%
    
38.6
%
    
41.3
%
    
39.6
%
Managed services
    
31.1
%
    
26.5
%
    
30.9
%
    
27.6
%
Total
    
22.9
%
    
24.7
%
    
23.4
%
    
24.1
%
 
                                
Operating income
  
$
35,883
    
$
31,903
    
$
79,381
    
$
61,122
  
 
                                
Non-GAAP financial metric
                                
Adjusted EBITDA (2)
  
$
44,496
    
$
38,012
    
$
95,445
    
$
72,266
  
 
                                
Operational metric
                                
Gross billings (3)
                                
Networking
  
$
311,671
    
$
196,426
    
$
588,316
    
$
362,052
  
Cloud
    
200,637
      
220,279
      
459,561
      
473,616
  
Security
    
143,340
      
170,026
      
290,683
      
315,375
  
Collaboration
    
51,770
      
38,099
      
73,931
      
72,874
  
Other
    
78,571
      
95,791
      
148,332
      
144,800
  
Product gross billings
    
785,989
      
720,621
      
1,560,823
      
1,368,717
  
Service gross billings
    
70,506
      
77,076
      
137,642
      
145,243
  
Total gross billings
  
$
856,495
    
$
797,697
    
$
1,698,465
    
$
1,513,960
  
                                 
Financing business segment
                                
                                 
Financial metrics
                                
Net sales
  
$
15,672
    
$
22,228
    
$
24,162
    
$
31,802
  
Gross profit
  
$
13,626
    
$
17,029
    
$
19,987
    
$
24,901
  
Operating income
  
$
8,980
    
$
12,204
    
$
11,814
    
$
16,168
  
                                 
Non-GAAP financial metric
                                
Adjusted EBITDA (2)
  
$
9,072
    
$
12,292
    
$
12,002
    
$
16,342
  

(1)
Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted are based on net earnings calculated in accordance with US GAAP, adjusted to exclude other (income) expense, share-based compensation, and acquisition and integration expenses, and the related tax effects.

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We use Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted as supplemental measures of our performance to gain insight into our operating performance and performance trends. We believe that the exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted provide useful information to investors and others in understanding and evaluating our operating results. However, our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate similar Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted or similarly titled measures differently, which may reduce their usefulness as comparative measures.

The following table provides our calculation of Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted (in thousands, except per share amounts):

   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
GAAP: Earnings before tax
  
$
44,980
    
$
40,241
    
$
91,502
    
$
71,271
  
Share-based compensation
    
2,414
      
1,958
      
4,619
      
3,731
  
Acquisition related amortization expense
    
4,023
      
2,494
      
7,492
      
4,677
  
Other (income) expense
    
(117
)
    
3,866
      
(307
)
    
6,019
  
Non-GAAP: Earnings before provision for income taxes
    
51,300
      
48,559
      
103,306
      
85,698
  
                                 
GAAP: Provision for income taxes
    
12,316
      
11,772
      
24,991
      
20,463
  
Share-based compensation
    
665
      
572
      
1,272
      
1,080
  
Acquisition related amortization expense
    
1,106
      
720
      
2,058
      
1,337
  
Other (income) expense
    
(32
)
    
1,128
      
(84
)
    
1,744
  
Tax benefit (expense) on restricted stock
    
79
      
(29
)
    
216
      
165
  
Non-GAAP: Provision for income taxes
    
14,134
      
14,163
      
28,453
      
24,789
  
                                 
Non-GAAP: Net earnings
  
$
37,166
    
$
34,396
    
$
74,853
    
$
60,909
  

   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
GAAP: Net earnings per common share - diluted
  
$
1.22
    
$
1.07
    
$
2.49
    
$
1.91
  
                                 
Share-based compensation
    
0.07
      
0.05
      
0.13
      
0.09
  
Acquisition related amortization expense
    
0.11
      
0.07
      
0.20
      
0.13
  
Other (income) expense
    
-
      
0.10
      
-
      
0.16
  
Tax benefit (expense) on restricted stock
    
-
      
-
      
(0.01
)
    
(0.01
)
Total non-GAAP adjustments - net of tax
    
0.18
      
0.22
      
0.32
      
0.37
  
                                 
Non-GAAP: Net earnings per common share - diluted
  
$
1.40
    
$
1.29
    
$
2.81
    
$
2.28
  

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(2)
We define Adjusted EBITDA as net earnings calculated in accordance with US GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for income taxes, and other income. Adjusted EBITDA presented for the technology business segments and the financing business segment is defined as operating income calculated in accordance with US GAAP, adjusted for interest expense, share-based compensation, acquisition and integration expenses, and depreciation and amortization. We consider the interest on notes payable from our financing business segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. In the table below, we provide a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial measure to this non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales.

We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance and performance trends. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.

The following table provides our calculations of Adjusted EBITDA (in thousands):

   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
Consolidated
  
2023
    
2022
    
2023
    
2022
  
Net earnings
  
$
32,664
    
$
28,469
    
$
66,511
    
$
50,808
  
Provision for income taxes
    
12,316
      
11,772
      
24,991
      
20,463
  
Share-based compensation
    
2,414
      
1,958
      
4,619
      
3,731
  
Interest and financing costs
    
661
      
671
      
1,211
      
809
  
Depreciation and amortization
    
5,630
      
3,568
      
10,422
      
6,778
  
Other income (expense)
    
(117
)
    
3,866
      
(307
)
    
6,019
  
Adjusted EBITDA
  
$
53,568
    
$
50,304
    
$
107,447
    
$
88,608
  
                                 
Technology business segments
                                
Operating income
  
$
35,883
    
$
31,903
    
$
79,381
    
$
61,122
  
Depreciation and amortization
    
5,602
      
3,540
      
10,366
      
6,722
  
Share based compensation
    
2,350
      
1,898
      
4,487
      
3,613
  
Interest and financing costs
    
661
      
671
      
1,211
      
809
  
Adjusted EBITDA
  
$
44,496
    
$
38,012
    
$
95,445
    
$
72,266
  
                                 
Financing business segment
                                
Operating income
  
$
8,980
    
$
12,204
    
$
11,814
    
$
16,168
  
Depreciation and amortization
    
28
      
28
      
56
      
56
  
Share-based compensation
    
64
      
60
      
132
      
118
  
Adjusted EBITDA
  
$
9,072
    
$
12,292
    
$
12,002
    
$
16,342
  

(3)
Gross billings are the total dollar value of customer purchases of goods and services including shipping charges during the period, net of customer returns and credit memos, sales, or other taxes. Gross billings includes the transaction values for certain sales transactions that are recognized on a net basis, and, therefore, includes amounts that will not be recognized as revenue.

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CONSOLIDATED RESULTS OF OPERATIONS

Net sales: Net sales for the three months ended September 30, 2023, increased 19.0% to $587.6 million, or an increase of $93.9 million compared to $493.7 million in the same three-month period in the prior year. The increase in net sales was driven by higher net sales from our technology business segments, offset by lower revenues from our financing business segment. The increase in sales from the technology business segments was primarily due to increases in both product and managed services sales, driven by increased demand from our customers, including customers from the Network Solutions Group (“NSG”) acquisition. These increases for the three months ended September 30, 2023, were offset by lower sales in our financing business segment due to lower transactional gains from the sale of financial assets, lower proceeds from the sales of equipment and lower month-to-month rents.

Net sales for the six months ended September 30, 2023, increased 22.0% to $1,161.8 million, or an increase of $209.7 million compared to $952.1 million in the same six-month period in the prior year. The increase in net sales was driven by higher revenues from our technology business segments, offset by lower revenues from our financing business segment. The increase in sales from the technology business segments was due to increases in both product and managed services sales, driven by increased demand from our customers, including customers from the NSG and Future Com, Ltd. (“Future Com”) acquisitions. These increases were offset by lower professional service sales due to lower staff augmentation revenues due to softer demand by our customers. The decline in revenues from our financing business segment was due to lower transactional gains from the sale of financial assets, lower proceeds from the sales of equipment and lower month-to-month rents.

Gross billings from our technology business segments for the three months ended September 30, 2023, increased by 7.4%, or $58.8 million, to $856.5 million compared to $797.7 million in the same three-month period in the prior year. Gross billings increased due to both organic customer demand and from the acquisition of NSG.

Gross billings from our technology business segments for the six months ended September 30, 2023, increased by 12.2%, or $184.5 million, to $1,698.5 million compared to $1,514.0 million in the same six-month period in the prior year. Gross billings increased due to both organic customer demand and from the acquisitions of NSG and Future Com.

Gross profit: Gross profit for the three months ended September 30, 2023, increased 8.3%, to $144.4 million, compared to $133.3 million in the same three-month period in the prior year due to increased net sales volume. Overall, gross margin decreased 240 basis points to 24.6%, as compared to the same period in the prior year. The decrease in gross margin was primarily due to a decrease in product margin within our technology business segments offset by higher gross margin in our financing business segment.

Gross profit for the six months ended September 30, 2023, increased 16.1%, to $286.6 million, compared to $246.8 million in the same six-month period in the prior year due to increased net sales volume. Overall, gross margin for the six months ended September 30, 2023, decreased 120 basis points to 24.7%, as compared to the same period in the prior year. The decrease in gross margin was primarily due to a decrease in product margin within our technology business segments offset by higher margin in our financing business segment.

Operating expenses: Operating expenses for the three months ended September 30, 2023, increased $10.3 million, or 11.6%, to $99.5 million, as compared to $89.2 million for the same three-month period in the prior year. The increase in operating expenses was primarily due to an increase of $6.6 million in salaries and benefits, mainly driven by an increase in headcount. As of September 30, 2023, we had 1,877 employees, an increase of 8.6% from 1,729 as of September 30, 2022.

General and administrative expenses also increased $1.3 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, as we had higher travel and entertainment costs due to the return of in-person business meetings and events, advertising and marketing fees, and facility rent due to the opening of a new customer and logistics facility, known as our Customer Innovation Center.

Depreciation and amortization increased $2.1 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to increased amortization of intangible assets from the acquisition of NSG. Interest and financing costs increased $0.3 million for the three months ended September 30, 2023, compared to the same three-month period in the prior year due to higher outstanding borrowings. Offsetting these increases was a decrease of $0.4 million in provision for credit losses.

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Operating expenses for the six months ended September 30, 2023, increased $25.9 million, or 15.3%, to $195.4 million, as compared to $169.5 million for the same six-month period in the prior year. Our increase in operating expenses was primarily due to an increase of $19.2 million in salaries and benefits, mainly driven by an increase in headcount as well as higher variable compensation corresponding to the increase in gross profit.

General and administrative expenses also increased $3.0 million for the six months ended September 30, 2023, compared to the six months ended September 30, 2022, as we had higher travel and entertainment costs due to the return of in-person business meetings and events, advertising and marketing fees, and facility rent due to the opening of our new Customer Innovation Center. In addition, we had higher legal and other professional fees.

Depreciation and amortization increased $3.6 million for the six months ended September 30, 2023, compared to the six months ended September 30, 2022, due to increased amortization of intangible assets from the acquisition of NSG. Interest and financing costs increased $0.8 million for the six months ended September 30, 2023, compared to the same six-month period in the prior year due to higher outstanding borrowings. Offsetting these increases was a decrease of $0.7 million in provision for credit losses.

Operating income: As a result of the foregoing, operating income for the three months ended September 30, 2023, increased $0.8 million, or 1.7%, to $44.9 million, as compared to $44.1 million for the three months ended September 30, 2022, and operating margin decreased by 130 basis points to 7.6%. The increase in operating income was due to increases from our technology business segments, which was offset by lower operating income from our financing business segment.

Operating income for the six months ended September 30, 2023, increased $13.9 million, or 18.0%, to $91.2 million, as compared to $77.3 million for the six months ended September 30, 2022, and operating margin decreased by 30 basis points to 7.8%. The increase in operating income was due to increases from our technology business segments, which was offset by lower operating income from our financing business segment.

Adjusted EBITDA for the three months ended September 30, 2023, was $53.6 million, an increase of $3.3 million, or 6.5%, as compared to $50.3 million for the same three-month period in the prior year. Adjusted EBITDA margin for the three months ended September 30, 2023, decreased 110 basis points to 9.1%, as compared to the three months ended September 30, 2022, of 10.2%. The increase in Adjusted EBITDA was due to increases from our technology business segments, which was offset by lower Adjusted EBITDA from our financing business segment.

Adjusted EBITDA for the six months ended September 30, 2023, was $107.4 million, an increase of $18.8 million, or 21.3%, as compared to $88.6 million for the same six-month period in the prior year. Adjusted EBITDA margin for the six months ended September 30, 2023, decreased 10 basis points to 9.2%, as compared to the six months ended September 30, 2022, of 9.3%. The increase in Adjusted EBITDA was due to increases from our technology business segments, which was offset by lower Adjusted EBITDA from our financing business segment.

Net earnings per common share diluted for the three months ended September 30, 2023, increased $0.15, or 14.0%, to $1.22 per share, as compared to $1.07 per share in the same three-month period in the prior year. Non-GAAP: Net earnings per common share diluted for the three months ended September 30, 2023, increased $0.11, or 8.5%, to $1.40 per share, as compared to $1.29 per share for the three months ended September 30, 2022.

Net earnings per common share diluted for the six months ended September 30, 2023, increased $0.58, or 30.4%, to $2.49 per share, as compared to $1.91 per share in the same six-month period in the prior year. Non-GAAP: Net earnings per common share diluted for the six months ended September 30, 2023, increased $0.53, or 23.2%, to $2.81 per share, as compared to $2.28 per share for the six months ended September 30, 2022.

SEGMENT OVERVIEW

Technology business segments

Our technology business includes three segments: product, professional services and managed services as further discussed below.


 •
Product segment: Our product segment consists of the sale of third-party hardware, third-party perpetual and subscription software, and third-party maintenance, software assurance, and other third-party services. The product segment also includes internet-based business-to-business supply chain management solutions for IT products.

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 •
Professional services segment: Our professional services segment includes our advanced professional services to our customers that are performed under time and materials, fixed fee, or milestone contracts. Professional services include cloud consulting, staff augmentation services, and project management services.


•
Managed services segment: Our managed services segment includes our advanced managed services that include managing various aspects of our customers’ environments and are billed in regular intervals over a contract term, usually between three to five years. Managed services also include security solutions, storage-as-a-service, cloud hosted services, cloud managed services, and service desk.

The quarter ended June 30, 2023, was the first quarterly period in which we reported these three separate segments within our technology business as we previously consolidated this information within a single technology segment. Based upon our current business and operations, we intend to continue reporting these three segments that will comprise our technology business. We recast prior periods to conform with our current segment organization.

Our technology business segments sell primarily to corporations, state and local governments, and higher education institutions. Customers of our technology business may have a customer master agreement (“CMA”) with our company, which stipulates the terms and conditions of the commercial relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers place orders using purchase orders without a CMA in place or with other documentation customary for the business. Often, our work with state and local governments is based on public bids and our written bid responses. Our service engagements are generally governed by statements of work and are primarily fixed price (with allowance for changes); however, some service agreements are based on time and materials.

We endeavor to minimize the cost of sales in our product segment through incentive programs provided by vendors and distributors. The programs we qualify for are generally set by our reseller authorization level with the vendor. The authorization level we achieve and maintain governs the types of products we can resell as well as such items as variable discounts applied against the list price, funds provided for the marketing of these products and other special promotions. These authorization levels are achieved by us through purchase volume, certifications held by sales executives or engineers and/or contractual commitments by us. The authorization levels are costly to maintain, and these programs continually change; therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs.

Financing business segment

Our financing business segment offers financing solutions to corporations, government contractors, state and local governments, and educational institutions in the US, which accounts for most of our transactions, and to corporations in select international markets including Canada, the UK, and the EU. The financing business segment derives revenue from leasing IT equipment, medical equipment, and other equipment, and the disposition of that equipment at the end of the lease. The financing business 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.


•
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and the sale of off-lease (used) equipment.

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Fluctuations in operating results

Our operating results may fluctuate due to customer demand for our products and services, supplier costs, product availability, changes in vendor incentive programs, interest rate fluctuations, currency fluctuations, the timing of sales of financial assets, general economic conditions, and differences between estimated residual values and actual amounts realized for leased equipment. We expect to continue to expand by hiring additional staff for specific targeted market areas and roles whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may impact our operating results.

SEGMENT RESULTS OF OPERATIONS

The three and six months ended September 30, 2023, compared to the three and six months ended September 30, 2022

TECHNOLOGY BUSINESS SEGMENTS

The results of operations for our technology business segments were as follows (in thousands):

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Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
Financial Metrics
                        
Net sales
                        
Product
  
$
500,937
    
$
406,317
    
$
999,103
    
$
791,993
  
Professional services
    
38,270
    
$
38,050
      
73,826
      
75,218
  
Managed services
    
32,732
    
$
27,111
      
64,695
      
53,052
  
Total
  
$
571,939
    
$
471,478
    
$
1,137,624
    
$
920,263
  
                                 
Gross Profit
                                
Product
    
104,749
      
94,389
      
216,140
      
177,557
  
Professional services
    
15,796
      
14,697
      
30,520
      
29,752
  
Managed services
    
10,194
      
7,189
      
19,991
      
14,617
  
Total
    
130,739
      
116,275
      
266,651
      
221,926
  
                                 
Selling, general, and administrative
    
88,593
      
80,161
      
175,693
      
153,273
  
Depreciation and amortization
    
5,602
      
3,540
      
10,366
      
6,722
  
Interest and financing costs
    
661
      
671
      
1,211
      
809
  
Operating expenses
    
94,856
      
84,372
      
187,270
      
160,804
  
 
                                
Operating income
  
$
35,883
    
$
31,903
    
$
79,381
    
$
61,122
  
                                 
Key Metrics & Other Information
                                
Gross billings
  
$
856,495
    
$
797,697
    
$
1,698,465
    
$
1,513,960
  
                                 
Adjusted EBITDA
  
$
44,496
    
$
38,012
    
$
95,445
    
$
72,266
  
 
                                
Product margin
    
20.9
%
    
23.2
%
    
21.6
%
    
22.4
%
Professional service margin
    
41.3
%
    
38.6
%
    
41.3
%
    
39.6
%
Managed service margin
    
31.1
%
    
26.5
%
    
30.9
%
    
27.6
%
                                 
Net sales by customer end market:
                                
Telecom, media & entertainment
  
$
124,306
    
$
118,454
    
$
265,641
    
$
246,731
  
Technology
    
110,948
      
96,160
      
184,351
      
166,021
  
SLED
    
94,906
      
70,491
      
204,311
      
135,092
  
Healthcare
    
72,022
      
66,959
      
158,678
      
135,471
  
Financial services
    
69,885
      
37,611
      
135,575
      
70,910
  
All others
    
99,872
      
81,803
      
189,068
      
166,038
  
Total
  
$
571,939
    
$
471,478
    
$
1,137,624
    
$
920,263
  
                                 
Net sales by type:
                                
Networking
    
268,636
      
165,896
      
513,824
      
308,537
  
Cloud
    
135,068
      
148,992
      
307,112
      
313,725
  
Security
    
51,886
      
48,517
      
97,682
      
96,512
  
Collaboration
    
27,083
      
19,187
      
40,039
      
32,167
  
Other
    
18,264
      
23,725
      
40,446
      
41,052
  
Total products
  
$
500,937
    
$
406,317
    
$
999,103
    
$
791,993
  
 
                                
Professional services
    
38,270
      
38,050
      
73,826
      
75,218
  
Managed services
    
32,732
      
27,111
      
64,695
      
53,052
  
Total
  
$
571,939
    
$
471,478
    
$
1,137,624
    
$
920,263
  

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Net sales: Net sales of the combined technology business segments for the three months ended September 30, 2023, increased compared to the three months ended September 30, 2022, driven by demand from customers in telecom, media, and entertainment, technology, SLED, healthcare, and financial service industries.

Net sales of the combined technology business segments for the six months ended September 30, 2023, increased compared to the six months ended September 30, 2022, driven by demand from customers in telecom, media, and entertainment, technology, SLED, financial services, and healthcare industries.

Product segment net sales for the three months ended September 30, 2023, increased compared to the same three-month period in the prior year due to higher sales of networking equipment and security, offset by a decline in sales of cloud and collaboration products. These changes were driven by the timing of purchases by existing customers, which are determined by their buying cycles, and the timing of specific IT related initiatives. In addition, the increase in net product sales during this three-month period was due to demand from customers from the NSG acquisition, which contributed $25.0 million to the increase in product net sales. Lastly, contributing to the increase in product sales for the three-month period ended September 30, 2023, were improvements in the supply chain, particularly networking products.

Product segment net sales for the six months ended September 30, 2023, increased compared to the same six-month period in the prior year due to higher sales of networking equipment and security products, offset by a decline in sales of cloud and collaboration products. These changes were driven by the timing of purchases by existing customers, which are determined by their buying cycles, and the timing of specific IT related initiatives. In addition, the increase in product sales during this six-month period was due to demand from customers from the NSG acquisition, which contributed $59.5 million to the increase in product net sales. Lastly, contributing to the increase in product sales for the six-month period ended September 30, 2023, were improvements in the supply chain, particularly networking products.

Professional services segment sales for the three months ended September 30, 2023, increased compared to the three months ended September 30, 2022, due to higher project related services of $2.6 million, offset by a decrease in staff augmentation revenues of $2.4 million, respectively, primarily related to softer demand from customers.

Professional services segment sales for the six months ended September 30, 2023, decreased compared to the six months ended September 30, 2022, due to a decrease in staff augmentation of $4.4 million, primarily related to softer demand from customers. Offsetting this decline was higher project related services of $3.0 million.

Managed services segment sales for the three months ended September 30, 2023, increased compared to the three months ended September 30, 2022, due to ongoing expansion of these service offerings primarily related to ongoing growth in Enhanced Maintenance Support (“EMS”), managed security services, and service desk revenue.

Managed services segment sales for the six months ended September 30, 2023, increased compared to the six months ended September 30, 2022, due to ongoing expansion of these service offerings primarily related to ongoing growth in EMS, managed security services, and service desk revenue.

Gross profit: Gross profit of the combined technology business segments for the three months ended September 30, 2023, increased compared to the three months ended September 30, 2022, due to the increase in product, professional services, and managed service sales. Gross profit margin decreased by 180 basis points to 22.9% during this three-month period due to lower product margin.

Gross profit of the combined technology business segments for the six months ended September 30, 2023, increased compared to the six months ended September 30, 2022, due to the increase in product and managed service sales. Gross profit margin decreased by 70 basis points to 23.4% during this six-month period due to lower product margin offset by higher professional service and managed service margin.

Product segment margin for the three months ended September 30, 2023, decreased by 230 basis points from the same three-month period in the prior year due to a shift in product mix as we sold more networking hardware and proportionally less products recognized on a net basis.

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Product segment margin for the six months ended September 30, 2023, decreased by 80 basis points from the same six-month period in the prior year due to a shift in product mix as we sold more networking hardware and proportionally less products recognized on a net basis offset by improvements from up front margin.

Professional services segment margin for the three and six months ended September 30, 2023, increased by 270 and 170 basis points, respectively, from the same three- and six-month period in the prior year primarily due to a shift in mix toward higher margin project-based services.

Managed services segment margin for the three and six months ended September 30, 2023, increased by 460 and 330 basis points, respectively, from the same three- and six-month period in the prior year primarily due to improved margin within our service desk line of business.

Selling, general, and administrative: Selling, general, and administrative expenses for the three and six months ended September 30, 2023, for the three technology business segments, increased compared to the three and six months ended September 30, 2022, mainly due to increases in salaries and benefits.

Salaries and benefits for the three months ended September 30, 2023, increased $7.7 million, or 11.5% to $74.0 million, as compared to $66.3 million for the same three-month period in the prior year, due to an increase of $6.5 million in salaries and benefits, mainly driven by increased headcount, and an increase of $1.2 million in variable compensation because of the increase in gross profit. Our three technology business segments had an aggregate of 1,842 employees as of September 30, 2023, an increase of 149 from 1,693 as of September 30, 2022. We added 83 employees in our acquisition of NSG. In total, we added 119 additional customer-facing employees for the three months ended September 30, 2023, compared to the same three-month period in the prior year, of which 53 were professional services and technical support personnel due to demand for our services.

Salaries and benefits for the six months ended September 30, 2023, increased $20.1 million, or 15.7% to $148.1 million, as compared to $128.0 million for the same six-month period in the prior year, due to an increase of $14.5 million in salaries and benefits, mainly driven by increased headcount, and an increase of $5.6 million in variable compensation because of the increase in gross profit.

General and administrative expenses for the three technology business segments for the three months ended September 30, 2023, increased $1.5 million, or 11.6%, to $14.7 million, as compared to $13.2 million for the same three-month period in the prior year, driven by higher travel and entertainment costs of $0.7 million due to the return of in-person business meetings and events, higher advertising and marketing fees of $0.5 million and higher facility rent of $0.3 million due to the opening of our new Customer Innovation Center.

General and administrative expenses for the three technology business segments for the six months ended September 30, 2023, increased $2.9 million, or 12.0%, to $27.2 million, as compared to $24.3 million for the same six-month period in the prior year. General and administrative expenses were higher due to additional legal and consulting fees of $0.9 million. In addition, we incurred higher travel and entertainment costs of $0.9 million due to the return of in-person business meetings and events, higher advertising and marketing fees of $0.7 million, and higher facility rent of $0.5 million due to the opening of our new Customer Innovation Center.

Provision for credit losses for the three technology business segments for the three months ended September 30, 2023, was a benefit of $0.1 million, as compared to an expense of $0.7 million for the same three-month period in the prior year. Our lower provision for credit losses for the three months ended September 30, 2023, was due to changes in our net credit exposure.

Provision for credit losses for the three technology business segments for the six months ended September 30, 2023, was $0.4 million, as compared to $1.0 million for the same six-month period in the prior year. Our lower provision for credit losses for the six months ended September 30, 2023, was due to changes in our net credit exposure.

Depreciation and amortization: Depreciation and amortization of the three technology business segments for the three and six months ended September 30, 2023, increased compared to the three and six months ended September 30, 2022, primarily due to more amortization from intangible assets acquired in the NSG acquisition.

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Interest and financing costs: Interest and financing costs of the three technology business segments for the three months ended September 30, 2023, remained flat, compared to the three months ended September 30, 2022. Interest and financing costs of the three technology business segments for the six months ended September 30, 2023, increased $49.6% to $1.2 million compared to $0.8 million for the six months ended September 30, 2022, due to higher average borrowings outstanding and higher interest rates under our WFCDF Credit Facility.

FINANCING BUSINESS SEGEMENT

The results of operations for our financing business segment were as follows (in thousands):

   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2023
    
2022
    
2023
    
2022
  
Financial metrics
  
   
   
   
 
Portfolio earnings
  
$
3,339
    
$
2,888
    
$
6,412
    
$
5,561
  
Transactional gains
    
6,949
      
8,109
      
8,228
      
9,944
  
Post-contract earnings
    
5,038
      
10,519
      
8,672
      
15,245
  
Other
    
346
      
712
      
850
      
1,052
  
Net sales
  
$
15,672
    
$
22,228
    
$
24,162
    
$
31,802
  
                                 
Gross profit
    
13,626
      
17,029
      
19,987
      
24,901
  
                                 
Selling, general, and adminstrative
    
4,059
      
4,543
      
7,257
      
8,198
  
Depreciation and amortization
    
28
      
28
      
56
      
56
  
Interest and financing costs
    
559
      
254
      
860
      
479
  
Operating expenses
    
4,646
      
4,825
      
8,173
      
8,733
  
                                 
Operating income
  
$
8,980
    
$
12,204
    
$
11,814
    
$
16,168
  
                                 
Key metrics & other information
                                
Adjusted EBITDA
  
$
9,072
    
$
12,292
    
$
12,002
    
$
16,342
  
 
Net sales: Net sales for the three months ended September 30, 2023, decreased due to lower post-contract earnings and transactional gains. Post-contract earnings decreased due to lower proceeds from sales of off-lease equipment, and lower month-to-month rents. Transactional gains decreased compared to the same period in the prior year due to a lower volume of financial assets sold during the quarter, partially offset by higher margin. Total proceeds from sales of financing receivables were $220.8 million and $376.4 million for the three months ended September 30, 2023, and 2022, respectively. Our proceeds from sales of financing receivables for the three months ended September 30, 2023, are lower than the same period in the prior year due in part to a few large transactions in the prior year period.

Net sales for the six months ended September 30, 2023, decreased due to lower post-contract earnings and transactional gains. Post-contract earnings decreased due to lower proceeds from sales of off-lease equipment, and lower month-to-month rents. Transactional gains decreased compared to the same period in the prior year due to lower volume of financial assets sold during the quarter, partially offset by higher margin. Total proceeds from sales of financing receivables were $282.2 million and $428.9 million for the six months ended September 30, 2023, and 2022, respectively. Our proceeds from sales of financing receivables for the six months ended September 30, 2023, are lower than the same period in the prior year due in part to a few large transactions in the prior year period.

Gross Profit: Gross profit for the three and six months ended September 30, 2023, decreased compared to the three and six months ended September 30, 2022, due to the decline in revenue in both periods.

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Selling, general and administrative: Selling, general, and administrative expenses for the three and six months ended September 30, 2023, decreased compared to the three and six months ended September 30, 2022, due to a decrease in salaries and benefits in both periods mainly driven by a decrease in variable compensation due to the decline in gross profit.

Interest and financing costs: Interest and financing costs for the three and six months ended September 30, 2023, increased slightly compared to the three and six months ended September 30, 2022, due to higher outstanding borrowings and higher interest rates in both periods. As of September 30, 2023, our non-recourse notes payable increased to $51.5 million from $20.8 million as of September 30, 2022. Our weighted average interest rate for non-recourse notes payable was 5.84% and 4.09% as of September 30, 2023, and 2022, respectively.

CONSOLIDATED

Other income, net: Other income, net, for both the three and six months ended September 30, 2023, was a benefit of $0.1 million and $0.3 million, respectively, compared to a net expense of $3.9 million and $6.0 million, respectively, for the three and six months ended September 30, 2022. The higher net expense in the prior year periods was due to foreign exchange loss.

Provision for income taxes: Our provision for income tax expense for the three and six months ended September 30, 2023, was $12.3 million and $25.0 million, respectively, as compared to $11.8 million and $20.5 million for the same three-and six-month periods in the prior year, respectively. Our effective income tax rates for the three and six months ended September 30, 2023, were 27.4% and 27.3%, respectively, compared to 29.3% and 28.7% for the three and six months ended September 30, 2022, respectively. Our effective tax rate was lower for the three and six months ended September 30, 2023, as compared to the same three- and six-month periods in the prior year, primarily due to lower state effective tax rates and less non-deductible executive compensation in the current period.

Net earnings: Net earnings for the three months ended September 30, 2023, were $32.7 million, an increase of 14.7% or $4.2 million, as compared to $28.5 million in the same three-month period in the prior year, mainly due to an increase in other income, net driven by decreased foreign exchange losses. Net earnings for the six months ended September 30, 2023, were $66.5 million, an increase of 30.9% or $15.7 million, as compared to $50.8 million in the same six-month period in the prior year, mainly due to the increase in operating profits from our technology business segments, and an increase in other income, net driven by less foreign exchange losses. These increases were offset by higher income taxes.

Basic and fully diluted earnings per common share were $1.23 and $1.22, respectively, for the three months ended September 30, 2023, an increase of 15.0% and 14.0%, respectively, as compared to $1.07 for both the three and six months ended September 30, 2022. Basic and fully diluted earnings per common share were $2.50 and $2.49, respectively, for the six months ended September 30, 2023, an increase of 30.9% and 30.4%, respectively, as compared to $1.91 for both the three and six months ended September 30, 2022.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were 26.6 million and 26.7 million, respectively, for the three months ended September 30, 2023. Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were both 26.6 million for the three months ended September 30, 2022. Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were 26.6 million and 26.7 million for the six months ended September 30, 2023, respectively. Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were 26.5 million and 26.7 million, respectively, for the six months ended September 30, 2022.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY OVERVIEW

We finance our operations through funds generated from operations and through borrowings. We use those funds to meet our capital requirements, which have historically consisted primarily of working capital for operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock.

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Our borrowings in our technology business segments are through our WFCDF Credit Facility. Our borrowings in our financing business segment are primarily through secured borrowings that involve transferring all or part of the contractual payments due to us to third-party financing institutions.

We believe that cash on hand and funds generated from operations, together with available credit under our credit facility, will be enough to finance our working capital, capital expenditures, and other requirements for at least the next year.

Our ability to continue to expand, both organically and through acquisitions, is dependent upon our ability to generate enough cash flow from operations or from borrowing or other sources of financing as may be required. While at this time we do not anticipate requiring any additional sources of financing to fund operations, if demand for IT products declines, or if our supply of products is delayed or interrupted, our cash flows from operations may be substantially affected.

CASH FLOWS

The following table summarizes our sources and uses of cash for the six months ended September 30, 2023, and 2022 (in thousands):

   
Six Months Ended September 30,
  
   
2023
    
2022
  
Net cash provided by (used in) operating activities
  
$
10,336
    
$
(119,671
)
Net cash used in investing activities
    
(53,834
)
    
(12,294
)
Net cash provided by financing activities
    
22,614
      
71,342
  
Effect of exchange rate changes on cash
    
289
      
4,776
  
Net decrease in cash and cash equivalents
  
$
(20,595
)
  
$
(55,847
)

Cash flows from operating activities: We had cash provided by operating activities of $10.3 million during the six months ended September 30, 2023, compared to cash used in operating activities of $119.7 million for the six months ended September 30, 2022. See below for a breakdown of operating cash flows by business (in thousands):


  
Six Months Ended September 30,
  

 
2023
    
2022
  
Technology business segments
  
$
15,754
    
$
(120,746
)
Financing business segment
    
(5,418
)
    
1,075
  
Net cash provided by (used in) operating activities
  
$
10,336
    
$
(119,671
)

Technology business: For the six months ended September 30, 2023, our combined technology business segments had cash provided by operating activities of $15.8 million primarily due to net earnings and increases in accounts payable – trade and salaries and commissions payable, offset by increases in our accounts receivable.

In the six months ended September 30, 2022, our technology business segments used $120.7 million from operating activities primarily due to increases in our accounts receivable and inventories, partially offset by net earnings.

To manage our working capital, we monitor our cash conversion cycle for our technology business segments, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases outstanding in accounts payable (“DPO”).

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The following table presents the components of the cash conversion cycle for our technology business segments:

   
As of September 30,
  
   
2023
    
2022
  
(DSO) Days sales outstanding (1)
    
69
      
63
  
(DIO) Days inventory outstanding (2)
    
29
      
36
  
(DPO) Days payable outstanding (3)
    
(47
)
    
(47
)
Cash conversion cycle
    
51
      
52
  

(1)
Represents the rolling three-month average of the balance of trade accounts receivable-trade, net for our technology business segments at the end of the period divided by Gross billings for the same three-month period.

(2)
Represents the rolling three-month average of the balance of inventory, net for our technology business segments at the end of the period divided by the direct cost of products and services billed to our customers for the same three-month period.

(3)
Represents the rolling three-month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our technology business segments at the end of the period divided by the direct cost of products and services billed to our customers for the same three-month period.

Our cash conversion cycle decreased to 51 days as of September 30, 2023, as compared to 52 days as of September 30, 2022. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended payment terms. Our DSO increased 6 days to 69 days as of September 30, 2023, compared to 63 days as of September 30, 2022, reflecting higher sales to customers with terms greater than or equal to net 60 days. Our DIO decreased to 29 days as of September 30, 2023, compared to 36 days as of September 30, 2022. Our DPO remained the same at 47 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 30-60 days from the invoice date.

Financing business segment: For the six months ended September 30, 2023, our financing business segment used $5.4 million from operating activities, primarily due to changes in financing receivables and accounts receivable, offset by net earnings. For the six months ended September 30, 2022, our financing business segment provided $1.1 million from operating activities, primarily due to net earnings, decreases in accounts receivable, and increases in accounts payable-trade offset by increases in financing receivables.

Cash flows related to investing activities: For the six months ended September 30, 2023, we used $53.8 million in investing activities, consisting of $48.6 million for the acquisition of NSG, and $5.6 million for purchases of property, equipment and operating lease equipment offset by $0.4 million of proceeds from the sale of property, equipment, and operating lease equipment. For the six months ended September 30, 2022, we used $12.3 million in investing activities, consisting of $13.0 million in cash used in acquiring Future Com and $2.4 million for purchases of property, equipment, and operating lease equipment, partially offset by $3.1 million of proceeds from the sale of property, equipment, and operating lease equipment.
 
Cash flows from financing activities: For the six months ended September 30, 2023, cash provided by financing activities was $22.6 million, consisting of net borrowings of non-recourse and recourse notes payable of $11.5 million, net borrowings on the floor plan component of our credit facility of $18.0 million, and proceeds of issuance of common stock to employees under an employee stock purchase plan of $1.4 million, partially offset by $8.4 million in cash used to repurchase outstanding shares of our common stock. For the six months ended September 30, 2022, cash provided by financing activities was $71.3 million, consisting of net borrowings of non-recourse and recourse notes payable of $87.7 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $9.1 million in net repayments on the accounts payable floor plan facility.

Other than recourse borrowings under our WFCDF Credit Facility, our borrowing of recourse and non-recourse notes payable primarily arises from our financing business segment when we transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. When the transfers do not meet the requirements for a sale, the proceeds paid to us represent borrowings of recourse or non-recourse notes payable.

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Non-cash activities: We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. In certain assignment agreements, we may direct the third-party financial institution to pay some of the proceeds from the assignment directly to the vendor or vendors that have supplied the assets being leased or financed. In these situations, the portion of the proceeds paid directly to our vendors are non-cash transactions.

SECURED BORROWINGS

We may finance all or most of the cost of the assets that we finance for customers by transferring all or part of the contractual payments due to us to third-party financing institutions. When we account for the transfer as a secured borrowing, we recognize the proceeds as either recourse or non-recourse notes payable. Our customers are responsible for repaying the debt from a secured borrowing. The lender typically secures a lien on the financed assets at the time the financial assets are transferred and releases it upon collecting all the transferred payments. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The lender assumes the credit risk and 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. Interest rates have been rising and may continue to rise. To preserve our expected internal rate of return, we generally quote rates that are indexed. Some of our lenders will not commit to rates for a length of time, resulting in exposure to us if the rates rise and we cannot pass such exposure to the customer.

CREDIT FACILITY

We finance the operations of our subsidiaries ePlus Technology, inc., ePlus Technology Services, inc. and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology business segments through a credit facility with WFCDF. The WFCDF Credit Facility has a floor plan facility and a revolving credit facility.

Please refer to Note 8 “Notes Payable and Credit Facility” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements” for additional information concerning our WFCDF Credit Facility.

Floor plan facility: We finance most purchases of products for sale to our customers through the floor plan facility. Once our customer places a purchase order with us and we have approved their credit, we place an order for the desired products with one of our vendors. Our vendors are generally paid by the floor plan facility and our liability is reflected in “accounts payable—floor plan” in our consolidated balance sheets.

Most customer payments to us are remitted to our lockbox accounts. Once payments are cleared, the monies in the lockbox accounts are automatically and daily transferred to our operating account. We pay down the floor plan facility on three specified dates each month, generally 30-60 days from the invoice date. Our borrowings and repayments under the floor plan component are included in “net borrowings (repayments) on floor plan facility” within cash flows from the financing activities in our consolidated statements of cash flows.

As of September 30, 2023, and March 31, 2023, we had a maximum credit limit, including the revolving credit facility, of $500.0 million, and an outstanding balance on the floor plan facility of $168.6 million and $134.6 million, respectively. On our balance sheet, our liability under the floor plan facility is presented as part of accounts payable – floor plan.

Revolving credit facility: The outstanding balance under the revolving credit facility is presented as part of recourse notes payable- current on our consolidated balance sheets. Our borrowings and repayments under the revolving credit facility are included in “borrowings of non-recourse and recourse notes payable” and “repayments of non-recourse and recourse notes payable,” respectively, within cash flows from the financing activities in our consolidated statements of cash flows.

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As of September 30, 2023, and March 31, 2023, we did not have any outstanding balance under the revolving credit facility. The maximum credit limit under this facility was $200.0 million as of both September 30, 2023, and March 31, 2023, and is a sublimit of the $500.0 million facility.

PERFORMANCE GUARANTEES

In the normal course of business, we may provide certain customers with performance guarantees, which are generally backed by surety bonds. In general, we would only be liable for these guarantees in the event of default in the performance of our obligations. We are in compliance with the performance obligations under all service contracts for which there is a performance guarantee, and we believe that any liability incurred in connection with these guarantees would not have a material adverse effect on our consolidated statements of operations.

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or other contractually narrow or limited purposes. As of September 30, 2023, we were not involved in any unconsolidated special purpose entity transactions.

ADEQUACY OF CAPITAL RESOURCES

The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also open facilities in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance our geographic footprint, or the platform of bundled solutions to provide additional functionality and value-added services. We may require additional capital due to increases in inventory to accommodate our customers’ IT installation schedules. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivable due from our customers. These actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include additional debt and equity financing. While the future is uncertain, we do not believe our WFCDF Credit Facility will be terminated by WFCDF or us. Additionally, while our lending partners in our financing segment have become more discerning in their approval processes, we currently have funding resources available for our transactions.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

Our future quarterly operating results and the market price of our common stock may fluctuate. In the event our revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing and financing companies, IT resellers, software competitors, or our major customers or vendors of ours.

Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk Factors,” in our 2023 Annual Report, as supplemented in subsequently filed reports, including the Form 8-K that we filed with the SEC on October 6, 2023, 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.

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CRITICAL ACCOUNTING ESTIMATES

As disclosed in Note 2, “Recent Accounting Pronouncements,” we adopted a new standard on accounting for contract assets and contract liabilities from contracts with customers in a business combination in the second quarter of our fiscal year 2023. Under this new standard, we apply Accounting Standards Codification Topic 606, Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers. Other than this change, our critical accounting estimates have not changed from those reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report.

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize lines of credit and other financing facilities that are subject to fluctuations in short-term interest rates. Our non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds. Borrowings under the WFCDF Credit Facility bear interest at a market-based variable rate. As of September 30, 2023, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.

We have foreign currency exposure when transactions are not denominated in our subsidiaries’ functional currency, which include purchases and sales of the products and services we provide, as well as loans with other ePlus entities. Additionally, we lease assets in foreign countries, including Canada, the UK, and several other European countries. As a lessor, we lease assets for amounts denominated in British Pounds, Euros, and Canadian dollars. To date, foreign currency exposure associated with purchases and sales of the products and services we provide has not been significant. We have incurred foreign currency transaction gains and losses in certain foreign subsidiaries on US dollar denominated loans. Fluctuations in currency exchange rates may impact our results of operations and financial position.

Item 4.
CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.

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, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

48
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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, 2023, as updated in our Current Report on Form 8-K filed with the SEC on October 6, 2023.

Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information regarding our purchases of common stock during the three months ended September 30, 2023.

Period
  
Total
number of shares purchased (1)
    
Average
price paid per share
    
Total number of
shares purchased
as part of publicly
announced plans or
programs
    
Maximum number
of shares that may
yet be purchased
under the plans or
programs (2)
  
July 1, 2023 through July 31, 2023
    
8,599
    
$
57.62
      
8,599
      
985,725
  
Aug 1, 2023 through Aug 31, 2023
    
2,500
    
$
58.05
      
2,500
      
983,225
  
Sep 1, 2023 through Sep 30, 2023
    
4,482
    
$
63.31
      
4,482
      
978,743
  
Total
    
15,581
              
15,581
          
 

 (1)
All shares were acquired in open-market purchases.

(2)
The amounts presented in this column are the remaining number of shares that may be repurchased after repurchases during the month. As of May 27, 2023, the authorization under the then-existing share repurchase plan expired. On March 22, 2023, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2023.
 
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.

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Item 4.
MINE SAFETY DISCLOSURES

Not Applicable.

Item 5.
OTHER INFORMATION

Insider Trading Arrangements and Policies

During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 105b-1 trading arrangement” (as those terms are defined in Item 408 of Regulation S-K), except the following Rule 10b5-1 trading arrangements adopted that are intended to satisfy the affirmative defense of Rule 10b5-1(c):

Name
Title
Adoption date
Duration (a)
Aggregate number of shares to be sold
Darren Raiguel
Chief Operating Officer and President of ePlus Technology, inc.
August 22, 2023
 August 22, 2023-November 19, 2024
20,000
Elaine Marion
Chief Financial Officer
September 14, 2023
 September 14, 2023 - December 15, 2024
20,000


a)
Subject to compliance with Rule 10b5-1, duration could cease earlier than the final date shown above to the extent that the aggregate number of shares to be sold under the trading arrangement have been sold and trading may not begin on the first date of the duration.

Additionally, certain of our executive officers may participate in employee stock purchase plans that have been designed to comply with Rule 10b5-1(c) under the Exchange Act.

Item 6.
EXHIBITS

Exhibit
Number
  
Exhibit Description
     
 
ePlus inc. Amended and Restated Certificate of Incorporation, as last amended September 18, 2023
     
 
Amended and Restated Bylaws of ePlus inc., as of March 2, 2022. (Incorporated herein by reference to Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2022).
     
 
Certification of the Chief Executive Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
     
 
Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
     
 
Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350.
     
101.INS
  
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
     
101.SCH
  
Inline XBRL Taxonomy Extension Schema Document
     
101.CAL
  
Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF
  
Inline XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB
  
Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE
  
Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104
  
Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document)

50
Table of Contents
SIGNATURES

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 7, 2023
/s/ MARK P. MARRON
  
 
By: Mark P. Marron
 
Chief Executive Officer and President
  
 
(Principal Executive Officer)
  
     
Date:  November 7, 2023
/s/ ELAINE D. MARION
  
 
By: Elaine D. Marion
  
 
Chief Financial Officer
  
 
(Principal Financial Officer)


51
EX-3.1 2 ef20012430_ex3-1.htm EXHIBIT 3.1
Exhibit 3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
EPLUS INC.

The present name of the corporation is ePlus inc. (the “Corporation”).  The Corporation was incorporated under the name “MLC Holdings, Inc.” by filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on August 27, 1996.  This Amended and Restated Certificate of Incorporation of the Corporation, which restates and integrates and also further amends the provisions of the Corporation’s Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code, as amended, and referred to as the “Delaware General Corporation Law”).  The Certificate of Incorporation of the Corporation is hereby amended, integrated and restated to read in its entirety as follows:

FIRST

The name of the Corporation is ePlus inc.

SECOND

The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, 19801, and the name of the Corporation’s registered agent in the State of Delaware is The Corporation Trust Company.

THIRD

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.

FOURTH

The total number of shares of all classes of stock which the Corporation shall have authority to issue is fifty-two million (52,000,000) shares consisting of fifty 50 million (50,000,000) shares of common stock having a par value of $.01 per share (the “Common Stock”) and two million (2,000,000) shares of preferred stock having a par value of $.01 per share (the “Preferred Stock”).


The Board of Directors of the Corporation is authorized, subject to limitations prescribed by law, to provide by resolution or resolutions for the issuance of shares of the Preferred Stock as a class or in series, and, by filing a certificate of designations, pursuant to the Delaware General Corporation Law, setting forth a copy of such resolution or resolutions to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of the class or of each such series and the qualifications, limitations, and restrictions thereof. The authority of the Board of Directors with respect to the class or each series shall include, but not be limited to, determination of the following:

a)         the number of shares constituting any series and the distinctive designation of that series;
 
b)         the dividend rate of the shares of the class or of any series, whether dividends shall be cumulative, and if so, from which date or dates, and the relative rights of priority, if any of payment of dividends on shares of the class or of that series;
 
c)         whether the class or any series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights;
 
d)         whether the class or any series shall have conversion privileges and, if so, the terms and conditions of conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
 
e)         whether or not the shares of the class or of any series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates;
 
f)         whether the class or any series shall have a sinking fund for the redemption or purchase of shares of the class or of that series, and if so, the terms and amount of such sinking fund;
 
g)         the rights of the shares of the class or of any series in the event of voluntary or involuntary dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of the class or of that series; and
 
h)         any other powers, preferences, rights, qualifications, limitations and restrictions of the class or of that series.

All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein or in any certificate of designation shall be vested exclusively in the Common Stock.

FIFTH

The Corporation is to have perpetual existence.


SIXTH

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, alter, or repeal the Bylaws of the Corporation.

SEVENTH

No director or officer of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, as applicable; provided, however, that the foregoing shall not eliminate or limit the liability of a director or officer (i) for any breach of the director’s or officer’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for any transaction from which the director or officer derived an improper personal benefit, or (iv) as applicable solely to directors, for any payment of a dividend or approval of a stock repurchase that is illegal under Section 174 of the Delaware General Corporation Law. No amendment (including any amendment effected by operation of law, by merger, consolidation or otherwise) to or repeal of this paragraph shall apply to or have any effect on the liability or alleged liability of any director or officer of the Corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal.


EIGHTH

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, including service with respect to an employee benefit plan.  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.  To the fullest extent permitted by the Delaware General Corporation Law, the indemnification provided herein may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and any such expenses may 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 person seeking indemnification 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 Bylaws, vote of stockholders or disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.  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 Eighth as they apply to the indemnification and advancement of expenses of directors and officers of the Corporation.

NINTH

From time to time any of the provisions of this Certificate of Incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this Article Ninth.


EX-31.1 3 ef20012430_ex31-1.htm EXHIBIT 31.1
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 7, 2023


/s/ MARK P. MARRON
Mark P. Marron
Chief Executive Officer and President
(Principal Executive Officer)


EX-31.2 4 ef20012430_ex31-2.htm EXHIBIT 31.2
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 7, 2023


/s/ ELAINE D. MARION
Elaine D. Marion
Chief Financial Officer
(Principal Financial Officer)


EX-32 5 ef20012430_ex32.htm EXHIBIT 32
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, 2023, 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 7, 2023


/s/ MARK P. MARRON
Mark P. Marron, Chief Executive Officer
and President
(Principal Executive Officer)
  

 
/s/ ELAINE D. MARION
  
Elaine D. Marion, Chief Financial Officer
  
(Principal Financial Officer)
  
 
A signed original of this written statement required by Section 906 has been provided to ePlus and will be retained by us and furnished to the Securities and Exchange Commission or its staff upon request.