☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Commission file number: 1-34167

 

 

 

(Exact name of registrant as specified in its charter)

 

 

(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:

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

 

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 4, 2025, was 26,438,876.

 

TABLE OF CONTENTS

 

 

 

 

This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we later become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions, or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:

 

 

 

 

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”).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of ePlus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited consolidated financial statements from the dates of acquisition.

 

SALE OF OUR FINANCING BUSINESS — On June 30, 2025, we completed the sale of Expo Holdings, LLC (“HoldCo”), which was a wholly-owned subsidiary of ePlus, to Marlin Leasing Corporation (d/b/a PEAC Solutions), thereby selling our domestic subsidiaries comprising the majority of our financing business segment. This divestiture positions us going forward as a pure-play technology solutions provider and represents a strategic shift in our operations. Consequently, for all periods presented in these financial statements, we are retrospectively presenting the results of our domestic financing business as discontinued operations. In our unaudited consolidated balance sheets, we present the assets and liabilities of our domestic financing business as assets and liabilities of discontinued operations in all periods presented. In our unaudited consolidated statements of operations, we present the operating results of our domestic financing business in earnings from discontinued operations. Please see Note 4, “Discontinued Operations” for additional information on the transaction and its effect on our financial statements. After the sale, our remaining three reportable segments are Product, Professional Services, and Managed Services, which we formerly referred to collectively as our technology business.

 

INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the three and six months ended September 30, 2025, and 2024, were prepared by us and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the three and six months ended September 30, 2025, and 2024, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2026, or any other future period. These unaudited consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 2025 (“2025 Annual Report”), which should be read in conjunction with these interim consolidated financial statements.

 

USE OF ESTIMATES — The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, goodwill and intangible assets, allowance for credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

 

CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which represented approximately 31% and 37% of our net sales for the three months ended September 30, 2025, and 2024, respectively, and 27% and 37% of our net sales for the six months ended September 30, 2025, and 2024, 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, 2025, except for the changes provided in Note 2, “Recent Accounting Pronouncements.”

 

 

 

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This update is effective for annual periods beginning in our fiscal year ending March 31, 2026. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures.

 

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The standard requires public business entities to disclose detailed information about specific types of expenses that are relevant to certain line items on the income statement. This update is effective for annual periods beginning in our fiscal year ending March 31, 2028, and interim periods beginning in the first quarter of our fiscal year ending March 31, 2029. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures.

 

In September 2025, the FASB issued ASU No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This standard is intended to improve the operability and application of guidance related to capitalized software development costs. This update is effective for us beginning in the first quarter of our fiscal year ending March 31, 2029. Early adoption is permitted. We may adopt the guidance using prospective application, retrospective application, or a modified transition approach. We are currently evaluating the impact that this update will have on our consolidated financial statements upon adoption.

 

 

 

Our balance in accounts receivable—trade, net includes our accounts receivable recognized from contracts with customers and contract assets. Contract assets represent our right to consideration in exchange for goods or services that we transferred to a customer when that right is conditioned on something other than the passage of time.

 

The following table provides a disaggregation of our balance in accounts receivable—trade, net (in thousands):

 

 

As of September 30, 2025, our accounts receivable includes $16.2 million that is due from a financing partner in payment for our sale of customer receivables to them. Additionally, within other current assets in our consolidated balance sheet, we have $5.9 million in receivables recognized from contracts with customers that we intend to sell to this financing partner.

 

 

Contract liabilities represent our obligation to transfer goods or services to a customer for which we have received consideration, or the amount is due from the customer. Our contract liabilities consist of our deferred revenue and deferred revenue—long-term in our consolidated balance sheets. Revenues recognized from the beginning contract liability balance were $33.5 million and $76.3 million for the three and six months ended September 30, 2025, respectively, and $32.0 million and $72.5 million for the three and six months ended September 30, 2024, respectively.

 

 

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):

 

 

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.

 

 

On June 30, 2025, we completed the sale of HoldCo to Marlin Leasing Corporation pursuant to the Membership Interest Purchase Agreement dated June 20, 2025, thereby selling our domestic financing business. In the transaction, we received net cash proceeds of $156.7 million, consisting of cash proceeds of $180.1 million less cash transferred of $23.4 million, recognized a receivable of $7.8 million related to a post-closing adjustment process based on the book value of the assets associated with HoldCo and other adjustments, and recognized a contingent consideration asset of $13.5 million. See Note 13, “Fair Value of Financial Instruments” for a discussion of our contingent consideration asset. We incurred approximately $4.0 million in transaction costs during our quarter ended June 30, 2025, which are netted against the gain on sale of HoldCo before income taxes. In connection with the sale, we entered into a transition services agreement, pursuant to which ePlus and Marlin Leasing Corporation will provide certain transition services to each other after the sale. In our quarter ended September 30, 2025, we recognized a contingent liability related to a legal matter of our discontinued operations of $4.6 million for which we remain responsible under the terms of the HoldCo sale.

 

The sale of our domestic financing business positions us going forward as a pure-play technology solutions provider and represents a strategic shift in our operations. Consequently, for all periods presented in these financial statements, we are retrospectively presenting the results of our domestic financing business as discontinued operations.

 

The following table provides our operating results of discontinued operations for the three and six months ended September 30, 2025, and 2024 (in thousands):

 

 

 

The following table provides the major classes of assets and liabilities that are classified as discontinued operations as of March 31, 2025 (in thousands):

 

 

5. GOODWILL AND OTHER INTANGIBLE ASSETS

 

 

The following table summarizes the changes in the carrying amount of goodwill for the six months ended September 30, 2025 (in thousands):

 

 

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.

 

The only activity in our goodwill balance over the six months ended September 30, 2025 was foreign currency translation adjustments.

 

We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value.

 

In our annual test as of October 1, 2024, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the fair value of our product, professional services, and managed services reporting units continued to exceed their carrying value.

 

 

Our other intangible assets consist of purchased intangible assets and capitalized software development.

 

The following table provides the composition of our purchased intangible assets as of September 30, 2025, and March 31, 2025 (in thousands):

 

 

 

Our customer relationships, trade names, and other purchased intangibles are generally amortized between 5 to 10 years.

 

Total amortization expense for other intangible assets was $5.3 million and $4.4 million for the three months ended September 30, 2025, and 2024, respectively, and $10.9 million and $8.2 million for the six months ended September 30, 2025, and 2024, respectively.

 

6. ALLOWANCE FOR CREDIT LOSSES

 

The following table provides the activity in our allowance for credit losses within accounts receivable—trade for the six months ended September 30, 2025, and 2024 (in thousands):

 

 

7. CREDIT FACILITY

 

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

 

Our credit facility is provided by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floor plan facility in favor of the Borrowers in the aggregate principal amount of up to $500.0 million, together with a sublimit for a revolving credit facility for up to $200.0 million. On June 20, 2025, the WFCDF Credit Facility was amended in anticipation of the sale of the financing business. The substantive terms of the WFCDF Credit Facility were not materially changed by such amendment.

 

Under the accounts payable floor plan facility, we had an outstanding balance of $98.5 million and $89.5 million as of September 30, 2025, and March 31, 2025, respectively. On our balance sheet, our liability under the accounts payable floor plan facility is presented as accounts payable – floor plan.

 

We use the floor plan to facilitate the purchase of inventory from designated suppliers. WFCDF pays our suppliers and provides us with extended payment terms. We pay down the floor plan facility on three specified dates each month, generally 45 to 60 days from the invoice date. Other than unused line fees, if applicable, we do not incur any interest or other incremental expenses for the floor plan facility. We are not involved in establishing the terms or conditions of the arrangements between our suppliers and WFCDF.

 

We may use the revolving credit facility for our borrowing needs. We did not have any outstanding balances under the revolving credit facility as of September 30, 2025, and March 31, 2025.

 

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 certain thresholds. As of September 30, 2025, and March 31, 2025, 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 business and as an operational function of our accounts payable process.

 

8. COMMITMENTS AND CONTINGENCIES

 

 

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, 2025, 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.

 

9. EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding plus common stock equivalents during each period.

 

The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations for the three and six months ended September 30, 2025, and 2024, respectively (in thousands, except per share data).

 

 

10. STOCKHOLDERS’ EQUITY

 

 

On August 7, 2025, our board of directors authorized the repurchase of up to 1,500,000 shares of our outstanding common stock, over a 12-month period beginning August 11, 2025. On May 18, 2024, our board of directors authorized the repurchase of up to 1,250,000 shares of our outstanding common stock over a 12-month period that began on May 28, 2024 and terminated on May 27, 2025. Under each authorized share repurchase program, when such program is in place, we may make purchases from time to time in the open market, or in privately negotiated transactions, subject to availability and the plan terms. Any repurchased shares have the status of treasury shares and may be used, when needed, for general corporate purposes.

 

During the six months ended September 30, 2025, we purchased 60,000 shares of our outstanding common stock at a value of $4.4 million under the share repurchase plan; we also purchased 47,488 shares of common stock at a value of $3.3 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

 

During the six months ended September 30, 2024, we purchased 250,234 shares of our outstanding common stock at a value of $19.8 million under the share repurchase plan; we also purchased 52,450 shares of common stock at a value of $3.8 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

 

11. SHARE-BASED COMPENSATION

 

SHARE-BASED PLANS

 

During the six months ended September 30, 2025, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), (2) the 2024 Non-Employee Director Long-Term Incentive Plan (“2024 Director LTIP”) and (3) the 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”).

 

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.

 

 

For the six months ended September 30, 2025, we granted 652 restricted shares under the 2024 Director LTIP and 121,844 restricted shares under the 2021 Employee LTIP. For the six months ended September 30, 2024, we granted 729 restricted shares of our stock under the 2017 Director LTIP, and 121,097 restricted shares of our stock under the 2021 Employee LTIP. A summary of our restricted stock activity is as follows:

 

 

 

Beginning with the fiscal year ended March 31, 2024, we granted Performance Stock Units (“PSUs”) to our executive officers under our 2021 Employee LTIP. The PSUs will vest based on the achievement of certain performance goals at the end of a three-year performance period. The PSUs represent the right to receive shares of our common stock at the time of vesting. The total number of PSUs that vest range from 0% to 200% of the target number of PSUs based on our achievement of certain performance targets

 

The following table provides a summary of the nonvested PSUs for the six months ended September 30, 2025:

 

 

 

We provide eligible employees the opportunity to purchase shares of our stock through the 2022 Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible employees may purchase up to an aggregate of 2.50 million shares of our stock. Employees in this plan contribute part of their earnings over a six-month offering period. At the end of each offering period, employees purchase our shares using their contributions at a discount off the lesser of the closing market price on the first or the last trading day of each offering period. During the six months ended September 30, 2025, and September 30, 2024, we issued 28,665 shares at a price of $61.29 per share and 28,915 shares at a price of $62.63 per share, respectively, under the ESPP. As of September 30, 2025, there were 2.34 million shares remaining under the ESPP.

 

 

The following table provides a summary of our total share-based compensation expense for continuing operations, including for restricted stock awards, PSUs, our ESPP, and the related income tax benefit for the three and six months ended September 30, 2025, and 2024, respectively (in thousands):

 

 

We recognized the income tax benefit as a reduction to our provision for income taxes. As of September 30, 2025, the total unrecognized compensation expense related to non-vested restricted stock was $14.6 million, which is expected to be recognized over a weighted-average period of 33 months.

 

We also provide our employees with a contributory 401(k) profit sharing plan (the “401(k) plan”), to which we may contribute from time to time at our sole discretion. Employer contributions to the 401(k) plan are always fully vested. Our estimated contribution expense to the 401(k) plan for the three months ended September 30, 2025, and 2024, were $1.5 million and $1.3 million, respectively. For the six months ended September 30, 2025, and 2024, our estimated contribution expense for the plan was $3.0 million and $2.7 million, respectively.

 

12. INCOME TAXES

 

Our provision for income tax expense was $15.8 million and $25.5 million for the three and six months ended September 30, 2025, as compared to $7.5 million and $16.5 million for the same three-and six-month periods in the prior year. Our effective tax rate for the three and six months ended September 30, 2025, was 29.3% and 28.1% respectively, compared with 27.5% and 27.3%, respectively, for the same three- and six-month periods in the prior year. Our effective income tax rate for the three and six months ended September 30, 2025, was higher compared to the same three- and six-month periods in the prior year primarily due to a higher tax benefit from restricted stock in the prior year. The effective tax rate for the three and six months ended September 30, 2025, and September 30, 2024, differed from the US federal statutory rate of 21.0% primarily due to state and local income taxes.

 

On July 4, 2025, the One Big Beautiful Bill Act (the "OBBBA") was enacted into law, resulting in significant changes to the US tax code. OBBBA permanently extends many of the tax provisions of the Tax Cuts and Jobs Act of 2017, which were scheduled to expire on December 31, 2025. OBBBA introduces modifications to various US corporate tax provisions, with staggered effective dates ranging from 2025 to 2027. We recognized the impact of the OBBBA in our consolidated financial statements as of and for the periods ended September 30, 2025. The OBBBA did not have a material impact on our income statement or effective tax rate. We are continuing to assess the impact of the OBBBA on our consolidated financial statements, which will depend on our facts in each year and anticipated guidance.

 

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following table summarizes the fair value hierarchy of our financial instruments as of September 30, 2025, and March 31, 2025 (in thousands):

 

 

Through the agreement for the sale of HoldCo, we may earn and receive Holdback Premium (as defined below) payments and two different types of Earn-Outs (as defined below, and together with the Holdback Premium the “Contingent Consideration”) based on the post-Closing performance of the HoldCo Group (as defined below), as operated by PEAC Solutions. We estimated the fair value of each element of the Contingent Consideration using a Monte Carlo simulation model. We include the Contingent Consideration as part of property, equipment, and other assets—net in our consolidated balance sheet.

 

We may receive aggregate post-Closing cash payments of up to $3.0 million (the “Holdback Premium”) based on the achievement of customer lease receivable originations targets by HoldCo (i) from the Closing Date to the 18-month anniversary of the Closing Date and (ii) from the 18-month anniversary of the Closing Date to the 30-month anniversary of the Closing Date.

 

The two types of earn-out payments that are potentially payable to us are based on (i) the volume of originations of certain types of lease receivables (the “Lease Originations Earn-Out”) and (ii) the profitability of certain lease receivables originated either to US federal governmental entities or for which a prime contractor acting on behalf of a government entity is the obligor (the “Transaction Gains Earn-Out,” and together with the Lease Originations Earn-Out, the “Earn-Outs”). Each of the Earn-Outs will be measured for each of the first three consecutive twelve-month periods following the Closing. The Lease Originations Earn-Out is capped at $10.0 million in aggregate for all three post-Closing years. The Transaction Gains Earn-Out does not have a maximum cap.

 

14. BUSINESS COMBINATIONS

 

 

On August 19, 2024, our subsidiary, ePlus Technology, inc., acquired 100% of the membership interests of Bailiwick Services, LLC (“Bailiwick”). Based near Minneapolis, Minnesota, Bailiwick is a provider of professional and managed services with nearly 30 years in the business. Bailiwick specializes in serving enterprise customers that operate large store, branch, and campus footprints predominantly in the retail, financial services, restaurant, and hospitality markets.

 

Our sum for consideration transferred is $124.9 million, which consists of $126.2 million paid in cash at closing, less $1.5 million cash acquired, plus $0.2 million paid in December 2024 to the sellers based on adjustments to a determination of the total net assets delivered. Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

 

 

The identified intangible assets of $58.0 million consists of customer relationships of $49.3 million with an estimated useful life of ten years and trade name of $8.7 million with a useful life of seven years.

 

We recognized goodwill related to this transaction of $41.3 million, which was assigned to our professional services and product segments. The goodwill recognized in the Bailiwick acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill expected to be deductible for tax purposes is $44.4 million.

 

The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2024, is not material.

 

15. SEGMENT REPORTING

 

We manage and report our operating results through three operating segments: product, professional services, and managed services. Our organizational structure is based on how our chief operating decision maker (“CODM”) allocates resources, manages operations, and evaluates performance. Our CODM is our Chief Executive Officer.

 

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. Our other category consists of the international entities of our financing business that we retained after selling our domestic financing business.

 

Our CODM measures the performance of the segments based on gross profit. We do not present asset information for our reportable segments as we do not provide asset information to our CODM. Our CODM reviews financial results and forecasts quarterly to manage operations and evaluate performance. Our CODM also uses our financial results and forecasts to make investment decisions as part of our annual budgeting process.

 

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

 

 

 

We recognize revenue in our product, professional services, and managed services segments from contracts with customers. We recognize revenue in the other category under guidance for financing and leases.

 

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

 

 

 

 

 

The following table provides a disaggregation of our revenue from contracts with customers by customer end market and by type (in thousands):