UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, ~~D.C. 20549~~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,~~December 31, 2018

☐	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

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, ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted and posted 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 and post 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 (Check one):

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 5, 2018~~February 4, 2019 was ~~13,704,734.~~13,611,225.

TABLE OF CONTENTS

ePlus inc. AND SUBSIDIARIES

Part I. Financial Information:

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of ~~September 30,~~December 31, 2018 and March 31, 2018	5

	Unaudited Condensed Consolidated Statements of Operations for the Three Months and ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2018 and 2017	6

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months and ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2018 and 2017	7

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2018 and 2017	8

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2018	10

	Notes to Unaudited Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27 29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43 45

Item 4.	Controls and Procedures	43 45

Part II. Other Information:

Item 1.	Legal Proceedings	44 46

Item 1A.	Risk Factors	44 46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

~~Item 3.~~	~~Defaults Upon Senior Securities~~ 47	46

~~Item 4.~~	~~Mine Safety Disclosures~~	46

~~Item 5.~~	~~Other Information~~	46

~~Item 6.~~	~~Exhibits~~	46

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

Signatures & Certifications		47 49

Table of Contents

CAUTIONARY STATEMENT CONCERNING 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:

national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and downward pressure on prices;

domestic and international economic regulations uncertainty (e.g., tariffs, North American Free Trade Agreement, and Trans-Pacific Partnership).

significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers, or vendors;

exposure to changes in, interpretations of, or enforcement trends in legislation and regulatory matters;

the creditworthiness of our customers and our ability to reserve adequately for credit losses;

reduction of vendor incentives provided to us;

managing a diverse product set of solutions in highly competitive markets with a number of key vendors;

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

adapting to meet changes in markets and competitive developments;

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

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

performing professional and managed services competently;

maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace; ~~and~~

reliance on third parties to perform some of our service obligations to our customers;

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

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

future growth rates in our core businesses;

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

changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;

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

our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;

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

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

disruptions or a security breach in our or our vendors’ IT systems and data and audio communication networks;

Table of Contents

our ability to secure our own customers’ electronic and other confidential information, and remain secure during a cyber-security attack;

~~Table of Contents~~

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 or its holders;

our ability to realize our investment in leased equipment;

our ability to successfully perform due diligence and integrate acquired businesses;

the possibility of goodwill impairment charges in the future;

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~~third-party patents, and the costs associated with those actions, and, when appropriate, license required technology; and

significant changes in accounting standards including changes to the financial reporting of leases, which could impact the demand for our leasing services, or misclassification of products and services we sell resulting in the misapplication of revenue recognition policies or inaccurate costs and completion dates for our services, which could affect our estimates.

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

Table of Contents

PART I. FINANCIAL INFORMATION

~~Item 1.~~

Item 1.

Financial Statements

ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)

	September 30, 2018			March 31, 2018			December 31, 2018			March 31, 2018
ASSETS				(as adjusted)						(as adjusted)

Current assets:
Cash and cash equivalents	$	75,647		$	118,198		$	84,334		$	118,198
Accounts receivable—trade, net		292,045			268,287			324,695			268,287
Accounts receivable—other, net		40,312			28,401			34,245			28,401
Inventories		56,606			39,855			51,395			39,855
Financing receivables—net, current		86,253			69,936			94,023			69,936
Deferred costs		16,211			16,589			16,537			16,589
Other current assets		10,716			23,625			7,933			23,625
Total current assets		577,790			564,891			613,162			564,891

Financing receivables and operating leases—net		79,119			68,511			68,058			68,511
Property, equipment and other assets		18,037			19,143			17,843			19,143
Goodwill		76,445			76,624			76,401			76,624
Other intangible assets—net		23,805			26,302			22,725			26,302
TOTAL ASSETS	$	775,196		$	755,471		$	798,189		$	755,471

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES

Current liabilities:
Accounts payable	$	92,830		$	106,933		$	100,270		$	106,933
Accounts payable—floor plan		120,771			112,109			124,558			112,109
Salaries and commissions payable		17,596			19,801			20,456			19,801
Deferred revenue		35,860			35,648			39,444			35,648
Recourse notes payable—current		-			1,343			-			1,343
Non-recourse notes payable—current		52,630			40,863			58,106			40,863
Other current liabilities		20,698			33,370			18,397			33,370
Total current liabilities		340,385			350,067			361,231			350,067

Non-recourse notes payable—long term		12,656			10,072			8,461			10,072
Deferred tax liability—net		1,644			1,662			1,438			1,662
Other liabilities		21,234			21,067			17,882			21,067
TOTAL LIABILITIES		375,919			382,868			389,012			382,868

COMMITMENTS AND CONTINGENCIES (Note 8)
COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS’ EQUITY

Preferred stock, $.01 per share par value; 2,000 shares authorized; none outstanding		-			-			-			-
Common stock, $.01 per share par value; 25,000 shares authorized; 13,727 outstanding at September 30, 2018 and 13,761 outstanding at March 31, 2018		143			142
Common stock, $.01 per share par value; 25,000 shares authorized; 13,640 outstanding at December 31, 2018 and 13,761 outstanding at March 31, 2018								143			142
Additional paid-in capital		133,561			130,000			135,418			130,000
Treasury stock, at cost, 578 shares at September 30, 2018 and 467 shares at March 31, 2018		(45,380	)		(36,016	)
Treasury stock, at cost, 664 shares at December 31, 2018 and 467 shares at March 31, 2018								(51,899	)		(36,016	)
Retained earnings		311,221			277,945			326,085			277,945
Accumulated other comprehensive income—foreign currency translation adjustment		(268	)		532			(570	)		532
Total Stockholders’ Equity		399,277			372,603			409,177			372,603
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	775,196		$	755,471		$	798,189		$	755,471

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended September 30,					Six Months Ended September 30,
	2018		2017			2018		2017		Three Months Ended December 31,					Nine Months Ended December 31,
										2018		2017			2018		2017
			(as adjusted)					(as adjusted)				(as adjusted)					(as adjusted)

Net sales	$	345,043	$	371,363		$	701,575	$	744,719	$	345,664	$	344,225		$	1,047,239	$	1,088,944
Cost of sales		259,543		283,792			535,372		579,555		262,751		267,537			798,123		847,092
Gross profit		85,500		87,571			166,203		165,164		82,913		76,688			249,116		241,852

Selling, general, and administrative expenses		57,705		56,340			114,671		111,004
Selling, general, and administrative											59,728		57,134			174,399		168,138
Depreciation and amortization		2,741		2,129			5,531		4,192		2,719		2,894			8,250		7,086
Interest and financing costs		484		274			960		633		443		270			1,403		903
Operating expenses		60,930		58,743			121,162		115,829		62,890		60,298			184,052		176,127

Operating income		24,570		28,828			45,041		49,335		20,023		16,390			65,064		65,725

Other income (expense)		322		(141	)		419		130		721		(131	)		1,140		(1	)

Earnings before tax		24,892		28,687			45,460		49,465		20,744		16,259			66,204		65,724

Provision for income taxes		6,889		11,466			12,184		18,821		5,880		678			18,064		19,499

Net earnings	$	18,003	$	17,221		$	33,276	$	30,644	$	14,864	$	15,581		$	48,140	$	46,225

Net earnings per common share—basic	$	1.33	$	1.24		$	2.47	$	2.21	$	1.10	$	1.12		$	3.57	$	3.34
Net earnings per common share—diluted	$	1.33	$	1.23		$	2.45	$	2.19	$	1.10	$	1.11		$	3.54	$	3.30

Weighted average common shares outstanding—basic		13,494		13,879			13,464		13,843		13,471		13,851			13,467		13,845
Weighted average common shares outstanding—diluted		13,586		14,008			13,597		14,021		13,544		13,990			13,592		14,022

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended September 30,					Six Months Ended September 30,					Three Months Ended December 31,					Nine Months Ended December 31,
	2018			2017		2018			2017		2018			2017		2018			2017
	(amounts in thousands)										(amounts in thousands)

NET EARNINGS	$	18,003		$	17,221	$	33,276		$	30,644	$	14,864		$	15,581	$	48,140		$	46,225

OTHER COMPREHENSIVE INCOME, NET OF TAX:

Foreign currency translation adjustments		(143	)		391		(800	)		703		(302	)		75		(1,102	)		778

Other comprehensive income (loss)		(143	)		391		(800	)		703		(302	)		75		(1,102	)		778

TOTAL COMPREHENSIVE INCOME	$	17,860		$	17,612	$	32,476		$	31,347	$	14,562		$	15,656	$	47,038		$	47,003

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

	Six Months Ended September 30,						Nine Months Ended December 31,
	2018			2017			2018			2017
				(as adjusted)						(as adjusted)
Cash Flows From Operating Activities:
Net earnings	$	33,276		$	30,644		$	48,140		$	46,225

Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization		8,867			6,745			13,341			11,324
Reserve for credit losses, inventory obsolescence and sales returns		178			232
Reserve for credit losses, inventory obsolescence, and sales returns								269			286
Share-based compensation expense		3,561			3,180			5,418			4,856
Deferred taxes								(215	)		(3,058	)
Payments from lessees directly to lenders—operating leases		(75	)		(1,190	)		(118	)		(1,325	)
Gain on disposal of property, equipment and leased equipment		(939	)		(5,364	)
Gain on disposal of property, equipment, and leased equipment								(1,307	)		(7,555	)
Gain on sale of financing receivables		(2,584	)		(3,498	)		(5,030	)		(4,625	)
Other		2			-			-			1
Changes in:
Accounts receivable		(29,287	)		(21,694	)		(56,769	)		(10,271	)
Inventories		(16,688	)		43,041			(11,674	)		43,332
Financing receivables—net		(5,922	)		2,730			(1,070	)		(13,045	)
Deferred costs, other intangible assets and other assets		4,920			(8,290	)
Deferred costs, other intangible assets, and other assets								3,971			(22,049	)
Accounts payable		2,375			(6,920	)		16,062			18,406
Salaries and commissions payable, deferred revenue and other liabilities		(14,769	)		(26,286	)
Net cash provided by (used) in operating activities	$	(17,085	)	$	13,330
Salaries and commissions payable, deferred revenue, and other liabilities								(8,846	)		(13,678	)
Net cash provided by operating activities							$	2,172		$	48,824

Cash Flows From Investing Activities:
Proceeds from sale of property, equipment and leased equipment		1,764			7,976
Purchases of property, equipment and operating lease equipment		(6,451	)		(3,436	)
Proceeds from sale of property, equipment, and leased equipment								2,550			9,967
Purchases of property, equipment, and operating lease equipment								(8,492	)		(6,298	)
Purchases of assets to be leased or financed		(8,620	)		(3,792	)		(13,941	)		(5,716	)
Issuance of financing receivables		(88,442	)		(100,785	)		(140,307	)		(138,160	)
Repayments of financing receivables		33,349			41,087			55,198			59,029
Proceeds from sale of financing receivables		30,463			43,777			56,983			64,103
Cash used in acquisitions, net of cash acquired		-			(37,718	)		-			(37,718	)
Net cash used in investing activities	$	(37,937	)	$	(52,891	)	$	(48,009	)	$	(54,793	)

Table of Contents

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

	Six Months Ended September 30,						Nine Months Ended December 31,
	2018			2017			2018			2017
				(as adjusted)						(as adjusted)
Cash Flows From Financing Activities:
Borrowings of non-recourse and recourse notes payable	$	27,157		$	32,566		$	40,693		$	39,365
Repayments of non-recourse and recourse notes payable		(11,229	)		(24,730	)		(17,447	)		(27,269	)
Repurchase of common stock		(10,135	)		(4,383	)		(16,261	)		(13,399	)
Repayments of financing of acquisitions		(2,134	)		(1,104	)		(7,634	)		(1,604	)
Net borrowings (repayments) on floor plan facility		8,662			(12,395	)		12,450			(24,851	)
Net cash provided by (used) in financing activities		12,321			(10,046	)		11,801			(27,758	)

Effect of exchange rate changes on cash		150			32			172			72

Net Increase (Decrease) in Cash and Cash Equivalents		(42,551	)		(49,575	)
Net Decrease in Cash and Cash Equivalents								(33,864	)		(33,655	)

Cash and Cash Equivalents, Beginning of Period		118,198			109,760			118,198			109,760

Cash and Cash Equivalents, End of Period	$	75,647		$	60,185		$	84,334		$	76,105

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	945		$	254		$	1,364		$	421
Cash paid for income taxes	$	11,221		$	20,041		$	18,269		$	29,987

Schedule of Non-Cash Investing and Financing Activities:
Proceeds from sale of property, equipment, and leased equipment	$	461		$	906		$	483		$	3,463
Purchase of property, equipment, and operating lease equipment	$	(934	)	$	724
Purchase of assets to be leased or financed	$	1,010		$	(4,134	)
Purchases of property, equipment, and operating lease equipment							$	(2,704	)	$	(751	)
Purchases of assets to be leased or financed							$	2,437		$	(7,225	)
Issuance of financing receivables	$	(36,655	)	$	(66,764	)	$	(96,406	)	$	(74,907	)
Repayment of financing receivables	$	-		$	7,096
Repayments of financing receivables							$	-		$	9,572
Proceeds from sale of financing receivables	$	40,265		$	70,423		$	88,119		$	83,954
Financing of acquisitions	$	-		$	(12,050	)	$	-		$	(12,050	)
Borrowing of non-recourse and recourse notes payable	$	37,688		$	8,904		$	65,042		$	8,904
Repayments of non-recourse and recourse notes payable	$	(63	)	$	(10,704	)	$	(118	)	$	(14,465	)
Vesting of share-based compensation	$	12,769		$	11,969		$	12,795		$	12,010
Repurchase of common stock included in accounts payable							$	(393	)	$	(766	)

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

	Common Stock					Additional Paid-In		Treasury			Retained		Accumulated Other Comprehensive						Common Stock					Additional Paid-In		Treasury			Retained		Accumulated Other Comprehensive
	Shares			Par Value		Capital		Stock			Earnings		Income			Total			Shares			Par Value		Capital		Stock			Earnings		Income			Total
Balance, April 1, 2018		13,761		$	142	$	130,000	$	(36,016	)	$	277,945	$	532		$	372,603			13,761		$	142	$	130,000	$	(36,016	)	$	277,945	$	532		$	372,603
Issuance of restricted stock awards		77			1		-		-			-		-			1			75			1		-		-			-		-			1
Share-based compensation		-			-		3,561		-			-		-			3,561			-			-		5,418		-			-		-			5,418
Repurchase of common stock		(111	)		-		-		(9,364	)		-		-			(9,364	)		(196	)		-		-		(15,883	)		-		-			(15,883	)
Net earnings		-			-		-		-			33,276		-			33,276			-			-		-		-			48,140		-			48,140
Foreign currency translation adjustment		-			-		-		-			-		(800	)		(800	)		-			-		-		-			-		(1,102	)		(1,102	)

Balance, September 30, 2018		13,727		$	143	$	133,561	$	(45,380	)	$	311,221	$	(268	)	$	399,277
Balance, December 31, 2018																				13,640		$	143	$	135,418	$	(51,899	)	$	326,085	$	(570	)	$	409,177

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

ePlus inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED 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 and managed services, and complete lifecycle management services, including flexible financing solutions. We focus on state and local governments, middle market and large enterprises in North America and the United Kingdom (“~~U.K.”~~UK”).

BASIS OF PRESENTATION — The unaudited condensed 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 condensed consolidated financial statements from the dates of acquisition.

INTERIM FINANCIAL STATEMENTS — The unaudited condensed consolidated financial statements for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018 and 2017 were prepared by us, without audit, 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~~nine months ended ~~September 30,~~December 31, 2018 and 2017 are not necessarily indicative of results that may be expected for any other interim period, the full fiscal year ending March 31, 2019, or any other future period. These unaudited condensed 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, 2018 (“2018 Annual Report”), which should be read in conjunction with these interim condensed consolidated financial statements.

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

CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 40% and 39% of our technology segment’s net sales for the three months ended December 31, 2018 and 2017, respectively, and 42% and 45% of our technology segment’s net sales for ~~both~~ the ~~three~~nine months ended ~~September 30, 2018 and 2017, and 43% and 47% of our technology segment’s net sales for the six months ended September 30,~~December 31, 2018 and 2017, 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, 2018, except for changes from the adoption of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), as amended (“ASU 2014-09”). This Update adds Topic 606, Revenue from Contracts with Customers (“Codification Topic 606”) to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”). The updates to our accounting policies from adopting ASU 2014-09 are provided below.

REVENUE RECOGNITION — We recognize ~~the majority of~~ our revenues from the sales of third party products, third party software, ~~third party~~third-party services such as maintenance and software support, ~~and from sales of~~ ePlus professional and managed services, and ~~from~~ hosting ePlus proprietary software. We recognize revenue from these sales under the guidance in Codification Topic 606.

The core principle of Codification Topic 606 is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services. We account for a contract under Codification Topic 606 when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance, and collectability of consideration is probable.

Table of Contents

Revenues are reported net of sales refunds, including an estimate of future returns based on an evaluation of historical sales returns, current economic conditions, volume, and other relevant factors.

Our contracts with customers may include multiple promises that are distinct performance obligations. For such arrangements, we allocate the transaction price to each performance obligation based on its relative standalone selling price. We determine standalone selling prices using expected ~~cost plus~~cost-plus margin.

We recognize revenue when (or as) we satisfy a performance obligation by transferring a promised good or service to a customer. A good or service is transferred when (or as) the customer obtains control of that good or service. Depending on the nature of each performance obligation, this may be at a point in time or over time, as further described below.

We typically invoice our customers for third party products upon shipment, unless our customers lease the equipment through our financing segment, in which case the arrangement is accounted for as a lease in accordance with Codification Topic 840, Leases. We typically invoice our customers for ~~third party~~third-party software upon delivery and ~~third party~~third-party services at the point of sale, unless our customers finance these assets equipment through our financing segment, in which case we record a financing receivable based on the terms of the arrangement.

Sales of third party products

We are the principal in sales of third party products. As such, we recognize sales on a gross basis with the selling price to the customer recorded as sales and the acquisition cost of the product recognized as cost of sales. We recognize revenue from these sales at the point in time that control passes to the customer, which is typically upon delivery of the product to the customer.

In some instances, our customers may request that we bill them for a product but retain physical possession of the product until later delivery, commonly known as “bill-and-hold” arrangements. In these transactions, we recognize revenue when the customer has signed a bill-and-hold agreement with us, the product is identified separately as belonging to the customer and, when orders include configuration, such configuration is complete, and the product is ready for delivery to the customer.

We recognize sales of leased equipment within our financing segment when control passes to the customer, which is typically the date of sale.

Sales of third party software

We are typically the principal in sales of third party software. Sales are recognized on a gross basis with the selling price to the customer recorded as sales and the acquisition cost of the product recognized as cost of sales. We recognize revenue from these sales at the point in time that control passes to the customer, which is typically upon delivery of the software to the customer.

We often sell third party support accompanying third party software. When the ~~third party~~third-party software benefits the customer only in conjunction with the accompanying support, such as in sales of anti-virus software and support, we consider the ~~third party~~third-party software and support as inputs to a single performance obligation. The third party controls the service as it is transferred to the customer and therefore we are acting as an agent in these transactions. We recognize revenue from these sales on a net basis when our customer and vendor accept the terms and conditions of the arrangement.

Sales of third party maintenance, software support, and services

We are the agent in sales of third party maintenance, software support, and services as the third party controls the service until it is transferred to the customer. We recognize sales on a net basis equal to the selling price to the customer less the acquisition cost. We recognize revenue from these sales when our customer and vendor accept the terms and conditions of the arrangement.

Sales of ePlus professional and managed services

Our ePlus professional services offerings include assessments, project management, and staging, configuration, and integration. Our ePlus managed service offerings range from monitoring and notification to a fully outsourced network management solution. In these arrangements, we satisfy our performance obligation and recognize revenue over time.

Table of Contents

We provide ePlus professional services under both time and materials and fixed price contracts. When services are provided on a time and materials basis, we recognize sales at agreed-upon billing rates as services are performed. When services are provided on a fixed fee basis, we recognize sales over time in proportion to our progress toward complete satisfaction of the performance obligation. We measure progress based on costs incurred in proportion to total estimated costs, commonly referred to as the “cost-to-cost” method.

In arrangements for ePlus managed services, our arrangement is typically a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). We typically recognize sales from these services on a straight-line basis over the period services are provided.

We host ePlus proprietary software, including OneSource IT+, OneSource Procurement, and OneSource Catalog+, for customers as a service. We recognize the transaction price for the hosting services evenly over the hosting period.

Freight and sales tax

We present freight billed to our customers within sales and the related freight charged to us within cost of sales. We present sales tax collected from customers and remittances to governmental authorities on a net basis.

Financing revenue and other

We account for leases to customers in accordance with Codification Topic 840, Leases. Our accounting for leases is different depending on the type of lease. Each lease is classified as either a direct financing lease, sales-type lease, or operating lease, as appropriate.

We consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception:

the lease transfers ownership of the property to the lessee by the end of the lease term;

the lease contains a bargain purchase option;

the lease term is equal to 75 percent or more of the estimated economic life of the leased property; or

the present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property at the inception of the lease.

If a lease meets any of the four lease classification criteria and gives rise to dealer’s profit, we classify the lease as a sales-type lease. For sales-type leases, we recognize sales equal to the present value of the minimum lease payments discounted using the implicit interest rate in the lease and cost of sales equal to carrying amount of the asset being leased and any initial direct costs incurred, less the present value of the unguaranteed residual. Interest income from the lease is recognized in sales over the lease term in our financing segment.

If a lease meets any of the four lease classification criteria, and does not give rise to dealer’s profit, we classify the lease as a direct financing lease. For direct financing leases, the difference between our gross investment in the lease and the cost of the leased property is deferred as unearned income and recognized as sales over the lease term.

If a lease meets none of the four lease classification criteria, we classify the lease as an operating lease. For operating leases, we recognize the rent charged on the lease as sales on a straight-line basis ratably over the term of the lease agreement.

We may also finance third-party software and ~~third party~~third-party services for our customers, which are classified as notes receivable. We recognize interest on notes receivable in net sales.

Codification Topic 860, Transfers and Servicing establishes criteria for determining whether a transfer of financial assets in exchange for cash or other consideration should be accounted for as a sale or as secured borrowing. Certain assignments of notes receivable and direct finance and sales-type leases we make on a non-recourse basis meet the requirements for sale accounting set forth by this topic and have therefore been treated in our financial results as sales, where we recognize a net gain or loss on these transactions in sales.

CONTRACT BALANCES — We recognize contract liabilities when cash payments are received or due in advance of our performance.

COSTS OF OBTAINING A CONTRACT — We capitalize costs that are incremental to obtaining customer contracts, predominately sales commissions, and expense them in proportion to each completed contract performance obligation.

Table of Contents

2.	RECENT ACCOUNTING PRONOUNCEMENTS

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS —We adopted ASU 2014-09 on April 1, 2018, using the full retrospective method. Under the full retrospective method, we apply the guidance retrospectively to each prior reporting period presented. The impact from the adopting ASU 2014-09 on our consolidated balance sheet as of March 31, 2018, was a decrease in accounts receivable – trade of $1.9 million, an increase in accounts receivable – other of $1.9 million, a decrease in deferred costs of $3.2 million, and a decrease in deferred revenues of $3.2 million. There is no impact to our retained earnings as of March 31, 2018. The impact on our consolidated statement of operations was ~~a decrease~~an increase in net sales and cost of sales by ~~$0.5~~$1.7 million for the three months ended ~~September 30,~~December 31, 2017 and an increase of ~~$6.7~~$8.4 million in net sales and cost of sales for the ~~six~~nine months ended ~~September 30,~~December 31, 2017.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED —In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update requires adoption under a modified retrospective approach and will become effective for us in the quarter ending June 30, 2020. Early adoption is permitted beginning in our quarter ending June 30, 2019. We are currently evaluating the impact of this update on our financial statements.

In November 2016, the FASB issued ASU 2016-02, Leases (Topic 842)~~, which will supersede the current US GAAP on this topic.~~. The core principle of this update is that a lessee should recognize the assets and liabilities that arise from leases. This update ~~requires~~also makes some changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional transition option by allowing entities to initially apply the new leases standard at the adoption ~~under~~date and recognize a cumulative-effect adjustment to the ~~modified retrospective approach and becomes effective for us~~opening balance of retained earnings in the period of adoption. We expect to adopt this update in our quarter ending June 30, ~~2019. Early adoption is permitted.~~2019 using this new transition option. We anticipate one effect of adopting this update will be recognizing right-of-use assets and corresponding lease liabilities for leases where we are the lessee, primarily comprised of leases for facilities. We are ~~currently evaluating the impact~~continuing to assess all implications of this update on our financial ~~statements.~~statements both as a lessee and a lessor.

REVENUES

Contract balances

Accounts receivable – trade represents amounts due from contracts with customers. In addition, we had ~~$38.0~~$17.1 million and $28.1 million of receivables from contracts with customers included within financing receivables as of ~~September 30,~~December 31, 2018 and March 31, 2018, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):

Contract liabilities	September 30, 2018		March 31, 2018		December 31, 2018		March 31, 2018
Current (included in deferred revenue)	$	35,036	$	34,643	$	38,539	$	34,643
Non-current (included in other liabilities)	$	13,430	$	12,699	$	13,682	$	12,699

Revenue recognized from the beginning contract liability balance was ~~$8.1~~$7.3 million and ~~$20.9~~$28.2 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, respectively, and ~~$36.0~~$2.3 million and ~~$55.5~~$57.8 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2017, respectively.

Table of Contents

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. 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.

Remaining six months of fiscal 2019	$	12,337
Remaining three months of fiscal 2019			$	11,932
Fiscal 2020		12,607		12,892
Fiscal 2021		6,837		6,839
Fiscal 2022		1,078		1,078
Fiscal 2023		302		302
Fiscal 2024		2		2
Total remaining performance obligations	$	33,163	$	33,045

~~Table of Contents~~

4.	FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist of assets that we finance for our customers, which we manage as a portfolio of investments. Equipment financed for our customers is accounted for as investments in direct financing, sales-type or operating leases in accordance with Codification Topic 840, Leases. We also finance third-party software, maintenance, and services for our customers, which are classified as notes receivables. Our notes receivables are interest bearing and are often due over a period ~~of time~~ that corresponds with the terms of the leased products.

FINANCING RECEIVABLES—NET

Our financing receivables-net consist of the following (in thousands):

December 31, 2018										Notes Receivables			Lease-Related Receivables			Total Financing Receivables
	Notes			Lease-Related			Total Financing
September 30, 2018	Receivables			Receivables			Receivables
Minimum payments	$	72,585		$	77,825		$	150,410		$	69,898		$	76,825		$	146,723
Estimated unguaranteed residual value (1)		-			12,805			12,805			-			13,180			13,180
Initial direct costs, net of amortization (2)		629			397			1,026			582			392			974
Unearned income		-			(9,409	)		(9,409	)		-			(10,228	)		(10,228	)
Reserve for credit losses (3)		(483	)		(598	)		(1,081	)		(536	)		(509	)		(1,045	)
Total, net	$	72,731		$	81,020		$	153,751		$	69,944		$	79,660		$	149,604
Reported as:
Current	$	52,409		$	33,844		$	86,253		$	53,150		$	40,873		$	94,023
Long-term		20,322			47,176			67,498			16,794			38,787			55,581
Total, net	$	72,731		$	81,020		$	153,751		$	69,944		$	79,660		$	149,604

(1)

Includes estimated unguaranteed residual values of ~~$7,074~~$8,407 thousand for direct financing leases, which have been sold and accounted for as sales.

(2)

Initial direct costs are shown net of amortization of ~~$357~~$313 thousand.

(3)

For details on reserve for credit losses, refer to Note 6, “Reserves for Credit Losses.”

Notes Lease-Related Total Financing
March 31, 2018 Receivables Receivables Receivables
Minimum payments $ 62,992 $ 65,943 $ 128,935
Estimated unguaranteed residual value (1) - 11,226 11,226
Initial direct costs, net of amortization (2) 375 334 709
Unearned income - (8,251 ) (8,251 )
Reserve for credit losses (3) (486 ) (640 ) (1,126 )
Total, net $ 62,881 $ 68,612 $ 131,493
Reported as:
Current $ 39,993 $ 29,943 $ 69,936
Long-term 22,888 38,669 61,557
Total, net $ 62,881 $ 68,612 $ 131,493

See Note 16, “Business Combinations” for additional information regarding prior year acquisitions.

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.

OTHER INTANGIBLE ASSETS

Our other intangible assets consist of the following (in thousands):

	September 30, 2018							March 31, 2018							December 31, 2018							March 31, 2018
	Gross Carrying Amount		Accumulated Amortization / Impairment Loss			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization / Impairment Loss			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization / Impairment Loss			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization / Impairment Loss			Net Carrying Amount

Customer relationships & other intangibles	$	41,974	$	(22,026	)	$	19,948	$	41,895	$	(18,634	)	$	23,261	$	42,368	$	(23,549	)	$	18,819	$	41,895	$	(18,634	)	$	23,261
Capitalized software development		6,136		(2,279	)		3,857		5,608		(2,567	)		3,041		6,371		(2,465	)		3,906		5,608		(2,567	)		3,041
Total	$	48,110	$	(24,305	)	$	23,805	$	47,503	$	(21,201	)	$	26,302	$	48,739	$	(26,014	)	$	22,725	$	47,503	$	(21,201	)	$	26,302

Customer relationships and capitalized software development costs are amortized over an estimated useful life, which is generally between 3 to 8 years. Trade names and trademarks are amortized over an estimated useful life of 10 years.

Total amortization expense for other intangible assets was ~~$1.8~~$1.7 million and ~~$1.2~~$1.9 million for the three months and ~~$3.1~~$5.3 million and ~~$2.4~~$4.2 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2018 and 2017, respectively. The change in the gross carrying amount of other intangible assets is due to foreign exchange translations.

Table of Contents

6.	RESERVES FOR CREDIT LOSSES

Activity in our reserves for credit losses were as follows (in thousands):

	Accounts Receivable			Notes Receivable			Lease- Related Receivables			Total			Accounts Receivable			Notes Receivable		Lease- Related Receivables			Total
Balance April 1, 2018	$	1,538		$	486		$	640		$	2,664		$	1,538		$	486	$	640		$	2,664
Provision for credit losses		127			(3	)		(42	)		82			275			50		(131	)		194
Write-offs and other		(1	)		-			-			(1	)		(246	)		-		-			(246	)
Balance September 30, 2018	$	1,664		$	483		$	598		$	2,745
Balance December 31, 2018													$	1,567		$	536	$	509		$	2,612

	Accounts Receivable			Notes Receivable			Lease- Related Receivables			Total			Accounts Receivable		Notes Receivable			Lease- Related Receivables			Total
Balance April 1, 2017	$	1,279		$	3,434		$	679		$	5,392		$	1,279	$	3,434		$	679		$	5,392
Provision for credit losses		(5	)		27			133			155			165		37			106			308
Write-offs and other		-			(3,020	)		(164	)		(3,184	)		-		(3,020	)		(164	)		(3,184	)
Balance September 30, 2017	$	1,274		$	441		$	648		$	2,363
Balance December 31, 2017													$	1,444	$	451		$	621		$	2,516

~~Table of Contents~~

Our reserves for credit losses and minimum payments associated with our notes receivables and lease-related receivables disaggregated based on of our impairment method were as follows (in thousands):

	September 30, 2018				March 31, 2018				December 31, 2018				March 31, 2018
	Notes Receivable		Lease- Related Receivables		Notes Receivable		Lease- Related Receivables		Notes Receivable		Lease- Related Receivables		Notes Receivable		Lease- Related Receivables
Reserves for credit losses:
Ending balance: collectively evaluated for impairment	$	421	$	598	$	424	$	640	$	474	$	509	$	424	$	640
Ending balance: individually evaluated for impairment		62		-		62		-		62		-		62		-
Ending balance	$	483	$	598	$	486	$	640	$	536	$	509	$	486	$	640

Minimum payments:
Ending balance: collectively evaluated for impairment	$	72,523	$	77,825	$	62,930	$	65,943	$	69,836	$	76,825	$	62,930	$	65,943
Ending balance: individually evaluated for impairment		62		-		62		-		62		-		62		-
Ending balance	$	72,585	$	77,825	$	62,992	$	65,943	$	69,898	$	76,825	$	62,992	$	65,943

We place receivables on non-accrual status when events, such as a customer’s declaring bankruptcy, occur that indicate a receivable will likely not be ~~collectable.~~collectible. We charge off ~~uncollectable~~uncollectible financing receivables when we stop pursuing collection.

Table of Contents

The age of the recorded minimum lease payments and net credit exposure associated with our investment in direct financing and sales-type leases that are past due disaggregated based on our internally assigned credit quality rating (“CQR”) were as follows as of ~~September 30,~~December 31, 2018 and March 31, 2018 (in thousands):

		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Unbilled Minimum Lease Payments		Total Minimum Lease Payments		Unearned Income			Non- Recourse Notes Payable			Net Credit Exposure			31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Unbilled Minimum Lease Payments		Total Minimum Lease Payments		Unearned Income			Non- Recourse Notes Payable			Net Credit Exposure

September 30, 2018
December 31, 2018																								December 31, 2018

High CQR		$	201	$	39	$	37	$	277	$	73	$	37,216	$	37,566	$	(4,331	)	$	(20,572	)	$	12,663		$	155	$	22	$	70	$	247	$	128	$	44,511	$	44,886	$	(5,497	)	$	(26,929	)	$	12,460
Average CQR			129		57		50		236		42		39,981		40,259		(3,125	)		(24,424	)		12,710			36		3		73		112		59		31,768		31,939		(2,639	)		(19,381	)		9,919
Low CQR			-		-		-		-		-		-		-		-			-			-			-		-		-		-		-		-		-		-			-			-
Total		$	330	$	96	$	87	$	513	$	115	$	77,197	$	77,825	$	(7,456	)	$	(44,996	)	$	25,373		$	191	$	25	$	143	$	359	$	187	$	76,279	$	76,825	$	(8,136	)	$	(46,310	)	$	22,379

March 31, 2018	March 31, 2018																							March 31, 2018

High CQR		$	143	$	40	$	43	$	226	$	224	$	33,779	$	34,229	$	(3,743	)	$	(17,207	)	$	13,279		$	143	$	40	$	43	$	226	$	224	$	33,779	$	34,229	$	(3,743	)	$	(17,207	)	$	13,279
Average CQR			109		31		117		257		171		31,286		31,714		(2,749	)		(16,012	)		12,953			109		31		117		257		171		31,286		31,714		(2,749	)		(16,012	)		12,953
Low CQR			-		-		-		-		-		-		-		-			-			-			-		-		-		-		-		-		-		-			-			-
Total		$	252	$	71	$	160	$	483	$	395	$	65,065	$	65,943	$	(6,492	)	$	(33,219	)	$	26,232		$	252	$	71	$	160	$	483	$	395	$	65,065	$	65,943	$	(6,492	)	$	(33,219	)	$	26,232

~~Table of Contents~~

The age of the recorded notes receivable balance disaggregated based on our internally assigned CQR were as follows (in thousands):

		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Unbilled Notes Receivable		Total Notes Receivable		Non- Recourse Notes Payable			Net Credit Exposure			31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Unbilled Notes Receivable		Total Notes Receivable		Non- Recourse Notes Payable			Net Credit Exposure
				2017
September 30, 2018
December 31, 2018																					December 31, 2018

High CQR		$	2,422	$	45	$	745	$	3,212	$	1,352	$	53,978	$	58,542	$	(43,655	)	$	14,887		$	2,905	$	-	$	560	$	3,465	$	1,824	$	55,048	$	60,337	$	(42,836	)	$	17,501
Average CQR			453		13		18		484		629		12,868		13,981		(8,012	)		5,969			152		7		661		820		39		8,640		9,499		(2,513	)		6,986
Low CQR			-		-		62		62		-		-		62		-			62			-		-		62		62		-		-		62		-			62
Total		$	2,875	$	58	$	825	$	3,758	$	1,981	$	66,846	$	72,585	$	(51,667	)	$	20,918		$	3,057	$	7	$	1,283	$	4,347	$	1,863	$	63,688	$	69,898	$	(45,349	)	$	24,549

March 31, 2018	March 31, 2018																				March 31, 2018

High CQR		$	175	$	527	$	423	$	1,125	$	3,262	$	40,896	$	45,283	$	(30,345	)	$	14,938		$	175	$	527	$	423	$	1,125	$	3,262	$	40,896	$	45,283	$	(30,345	)	$	14,938
Average CQR			42		409		22		473		394		16,780		17,647		(10,424	)		7,223			42		409		22		473		394		16,780		17,647		(10,424	)		7,223
Low CQR			-		-		62		62		-		-		62		-			62			-		-		62		62		-		-		62		-			62
Total		$	217	$	936	$	507	$	1,660	$	3,656	$	57,676	$	62,992	$	(40,769	)	$	22,223		$	217	$	936	$	507	$	1,660	$	3,656	$	57,676	$	62,992	$	(40,769	)	$	22,223

We estimate losses on our net credit exposure to be between 0% - 5% for customers with highest CQR, as these customers are investment grade or the equivalent of investment grade. We estimate losses on our net credit exposure to be between 2% - 15% for customers with average CQR, and between 15% - 100% for customers with low CQR, which includes customers in bankruptcy.

Table of Contents

7.	PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES

Our property, equipment, other assets and liabilities consist of the following (in thousands):

					December 31, 2018		March 31, 2018
	September 30, 2018		March 31, 2018
Other current assets:
Deposits & funds held in escrow	$	4,203	$	16,202	$	565	$	16,202
Prepaid assets		5,941		7,031		6,941		7,031
Other		572		392		427		392
Total other current assets	$	10,716	$	23,625	$	7,933	$	23,625

Property, equipment and other assets
Property and equipment, net	$	6,936	$	7,510	$	6,973	$	7,510
Deferred costs		9,524		9,302		9,641		9,302
Other		1,577		2,331		1,229		2,331
Total other assets - long term	$	18,037	$	19,143	$	17,843	$	19,143


Other current liabilities:
Accrued expenses	$	7,081	$	8,339	$	6,656	$	8,339
Accrued income taxes payable		283		175		280		175
Contingent consideration - current		5,888		5,806		5,227		5,806
Other		7,446		19,050		6,234		19,050
Total other current liabilities	$	20,698	$	33,370	$	18,397	$	33,370

Other liabilities:
Deferred revenue	$	13,626	$	12,910	$	13,869	$	12,910
Contingent consideration - long-term		7,608		7,707		4,013		7,707
Other		-		450		-		450
Total other liabilities - long term	$	21,234	$	21,067	$	17,882	$	21,067

In the above table, deposits and funds held in escrow relate to financial assets that were sold to third-party banks. In conjunction with those sales, a portion of the proceeds was placed in escrow and will be released to us upon payment of outstanding invoices related to the underlying financing arrangements that were sold.

~~Table of Contents~~

8.	NOTES PAYABLE AND CREDIT FACILITY

Non-recourse and recourse obligations consist of the following (in thousands):

	September 30, 2018		March 31, 2018		December 31, 2018		March 31, 2018

Recourse notes payable with interest rate of 4.11% at March 31, 2018.
Current	$	-	$	1,343	$	-	$	1,343

Non-recourse notes payable secured by financing receivables and investments in operating leases with interest rates ranging from 2.04% to 8.45% as of March 31, 2018 and 3.04% to 8.45% as of September 30, 2018.
Non-recourse notes payable secured by financing receivables and investments in operating leases with interest rates ranging from 2.04% to 8.45% as of March 31, 2018 and 3.04% to 8.45% as of December 31, 2018.
Current	$	52,630	$	40,863	$	58,106	$	40,863
Long-term		12,656		10,072		8,461		10,072
Total non-recourse notes payable	$	65,286	$	50,935	$	66,567	$	50,935

Principal and interest payments on non-recourse notes payable are generally due monthly in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was ~~4.31%~~4.54% and 4.04%, as of ~~September 30,~~December 31, 2018 and March 31, 2018, respectively. The weighted average interest rate for our recourse notes payable was 4.11% as of March 31, 2018. Under recourse financing, if a customer defaults, the lender has recourse to the customer, the assets serving as collateral, and us. Under non-recourse financing, if a customer defaults, the lender generally only has recourse against the customer and the assets serving as collateral, but not us.

Table of Contents

Our technology segment, through our subsidiary ePlus Technology, inc. and certain of its subsidiaries, finances its operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC or (“WFCDF”). This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component. Under the floor plan component, we had outstanding balances of ~~$120.8~~$124.6 million and $112.1million as of ~~September 30,~~December 31, 2018 and March 31, 2018, respectively. Under the accounts receivable component, we had no outstanding balances as of ~~September 30,~~December 31, 2018 and March 31, 2018.

As of ~~September 30,~~December 31, 2018, the facility had an aggregate limit of ~~$325~~$250 million for the two components, and the accounts receivable component had a sub-limit of $30 million, which bears interest assessed at a rate of the One Month LIBOR plus two and ~~one half~~one-half percent.

The credit facility has full recourse to ePlus Technology, inc. and certain of its subsidiaries, and is secured by a blanket lien against all ~~its~~their assets, such as chattel paper, receivables and inventory. Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and ePlus Technology, inc.’s. minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”). We were in compliance with these covenants as of ~~September 30,~~December 31, 2018. In addition, the facility restricts the ability of ePlus Technology, inc. to transfer funds to its affiliates in the form of dividends, loans, or advances with certain exceptions for dividends to ePlus inc. The facility also requires that financial statements of ePlus Technology, inc. and ePlus Technology Services, inc. be provided within 45 days at the end of each quarter and 90 days of each fiscal year end, and that other operational reports be provided on a regular basis. Either party may terminate the credit facility with 90 days’ advance written notice. We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility. In addition, we do not believe that the covenants of the WFCDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, ePlus Technology, inc. This credit facility is secured by the assets of only ePlus Technology, inc. and the guaranty as described below.

The WFCDF facility requires a guaranty of $10.5 million by ePlus inc. The guaranty requires ePlus inc. to deliver its annual audited financial statements by certain dates. We have delivered the annual audited financial statements for the year ended March 31, 2018, as required. 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 segment, and as an operational function of our accounts payable process.

~~Table of Contents~~

On July 27, 2017, we executed an amendment to the WFCDF credit facility that temporarily increases the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2018. The amendment also provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election or October 31 of that same year. ~~On July 17, 2018, we elected to temporarily increase the aggregate limit to $325.0 million.~~

On January 15, 2019, we executed an amendment to the WFCDF credit facility that increases the maximum credit limit of the accounts receivable sub-limit component from $30.0 million to $50 million and modifies certain collateral terms of the credit facility.

Fair Value

As of ~~September 30,~~December 31, 2018, and March 31, 2018, the fair value of our long-term recourse and non-recourse notes payable approximated their carrying value.

9.	COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, we may be subject to legal proceedings that arise in the ordinary course of ~~business.~~business, and we are also subject to audit by local, state, federal, and international authorities and by various business partners and customers, relating to purchases and sales under various contracts. In the opinion of management, there was not at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

Table of Contents

During the quarter ended December 31, 2018, we received a distribution of $0.9 million from various claims we owned in a customer bankruptcy, which was recognized within other income in our condensed consolidated statements of operations. In January 2019, we received a distribution of $5.4 million from various claims we owned in a customer bankruptcy, which we will recognize in our fourth quarter of fiscal 2019 within other income.

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 (in thousands, except per share data).

	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended December 31,				Nine Months Ended December 31,
	2018		2017		2018		2017		2018		2017		2018		2017

Net earnings attributable to common shareholders - basic and diluted	$	18,003	$	17,221	$	33,276	$	30,644	$	14,864	$	15,581	$	48,140	$	46,225

Basic and diluted common shares outstanding:
Weighted average common shares outstanding — basic		13,494		13,879		13,464		13,843		13,471		13,851		13,467		13,845
Effect of dilutive shares		92		129		133		178		73		139		125		177
Weighted average shares common outstanding — diluted		13,586		14,008		13,597		14,021		13,544		13,990		13,592		14,022

Earnings per common share - basic	$	1.33	$	1.24	$	2.47	$	2.21	$	1.10	$	1.12	$	3.57	$	3.34

Earnings per common share - diluted	$	1.33	$	1.23	$	2.45	$	2.19	$	1.10	$	1.11	$	3.54	$	3.30

11.	STOCKHOLDERS’ EQUITY

Share Repurchase Plan

~~On August 15, 2017,~~ ~~our board of directors authorized the repurchase of up to 500,000 shares of our outstanding common stock over a 12-month period beginning on August 19, 2017, which expired during the current quarter..~~ The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.

~~Table of Contents~~

On April 26, 2018, our board of directors authorized the repurchase up to 500,000 shares of our outstanding common stock over a ~~12-month~~twelve-month period beginning on May 28, 2018. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.

During the ~~six~~nine months ended ~~September 30,~~December 31, 2018, we purchased ~~70,445~~156,087 shares of our outstanding common stock at an average cost of $77.04 per share for a ~~value~~total purchase price of ~~$5.5~~$12.0 million under the share repurchase plan; we also purchased 40,092 shares of common stock at an average cost of $96.23 for a ~~value~~total purchase price of $3.9 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the ~~six~~nine months ended ~~September 30,~~December 31, 2017, we ~~did not purchase any~~purchased 125,605 shares of our outstanding common stock at an average cost of $77.88 per share for a total purchase price of $9.8 million under the share repurchase ~~plan; however, we purchase~~plan. We also purchased 57,725 shares of common stock at a value of $4.4 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

Table of Contents

12.	SHARE-BASED COMPENSATION

Share-Based Plans

As of ~~September 30,~~December 31, 2018, we had share-based awards outstanding under the following plans: (1) the 2008 Non-Employee Director Long-Term Incentive Plan (“2008 Director LTIP”), (2) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), and (3) the 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”). Both ~~of the~~ share-based plans define fair market value as the previous trading day’s closing price when the grant date falls on a date the stock was not traded.

Restricted Stock Activity

For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, we granted ~~8,322~~8,531 restricted shares under the 2017 Director LTIP, and 69,847 restricted shares under the 2012 Employee LTIP. For the ~~six~~nine months ended ~~September 30,~~December 31, 2017, we granted 535 restricted shares under the 2008 Director LTIP, ~~5,112~~5,310 restricted shares under the 2017 Director LTIP, and 66,530 restricted shares under the 2012 Employee LTIP. A summary of the restricted shares is as follows:

	Number of Shares			Weighted Average Grant- date Fair Value		Number of Shares			Weighted Average Grant- date Fair Value

Nonvested April 1, 2018		282,235		$	51.69		282,235		$	51.69
Granted		78,169		$	94.31		78,378		$	94.30
Vested		(133,106	)	$	49.15		(133,402	)	$	49.19
Forfeited		(914	)	$	58.49		(2,814	)	$	79.20
Nonvested September 30, 2018		226,384		$	67.87
Nonvested December 31, 2018							224,397		$	67.72

Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we may purchase a sufficient number of shares due to the participant to satisfy their minimum tax withholding on employee stock awards. To satisfy this tax withholding obligation, the Company purchased 40,092 shares of the awarded common stock shares at a value of $3.9 million, which we included in treasury stock, during the ~~six~~nine months ended ~~September 30, 2018,.~~December 31, 2018.

Compensation Expense

We recognize compensation cost for awards of restricted stock with graded vesting on a ~~straight line~~straight-line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. During the three months ended ~~September 30,~~December 31, 2018 and 2017, we recognized $1.9 million and ~~$1.5~~$1.7 million, respectively, of total share-based compensation expense. During the ~~six~~nine months ended ~~September 30,~~December 31, 2018 and 2017, we recognized ~~$3.6~~$5.4 million and ~~$3.0~~$4.9 million, respectively, of total share-based compensation expense. Unrecognized compensation expense related to non-vested restricted stock was ~~$13.2~~$11.2 million as of ~~September 30,~~December 31, 2018, which will be fully recognized over the next thirty ~~three (33)~~(30) months.

~~Table of Contents~~

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 fully vested at all times. For ~~both~~ the three months ended ~~September 30,~~December 31, 2018 and 2017, our estimated contribution expense for the plan was $0.7 million and $0.5 ~~million.~~million, respectively. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018 and 2017, our estimated contribution expense for the plan was ~~$1.0~~$1.8 million and ~~$1.1~~$1.6 million, respectively.

13.	INCOME TAXES

We account for our tax positions in accordance with Codification Topic 740, Income Taxes. Under the guidance, we evaluate uncertain tax positions based on the two-step approach. The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. For tax positions that are not likely to be sustained upon audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.

Table of Contents

Our total gross unrecognized tax benefits recorded for uncertain income tax, and interest and penalties thereon, were negligible as of ~~September 30,~~December 31, 2018 and ~~September 30,~~December 31, 2017. We had no additions or reductions to our gross unrecognized tax benefits during the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

14.	FAIR VALUE OF FINANCIAL INSTRUMENTS

We account for the fair values of our assets and liabilities in accordance with Codification Topic 820, Fair Value Measurement and Disclosure.The following table summarizes the fair value hierarchy of our financial instruments (in thousands):

	Recorded Amount		Fair Value Measurement Using								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)		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, 2018
December 31, 2018
Assets:
Money market funds	$	25,116	$	25,116	$	-	$	-	$	40,241	$	40,241	$	-	$	-

Liabilities:
Contingent consideration	$	13,496	$	-	$	-	$	13,496	$	9,240	$	-	$	-	$	9,240

March 31, 2018
Assets:
Money market funds	$	60,385	$	60,385	$	-	$	-	$	60,385	$	60,385	$	-	$	-

Liabilities:
Contingent consideration	$	13,513	$	-	$	-	$	13,513	$	13,513	$	-	$	-	$	13,513

For the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, we recorded adjustments to operating expenses that increased the fair value of our liability for contingent consideration by $0.7 million and ~~$1.1~~$1.9 million, respectively. For ~~both~~ the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, we made payments of ~~$1.1~~$5.0 million and $6.1 million, respectively, to satisfy the current obligations of the contingent consideration arrangements.

For the three and nine months ended ~~September 30,~~December 31, 2017, we recorded adjustments that increased the fair value of our liability for contingent consideration by ~~$10.3 million consisting of establishing a liability from business combinations of $10.0~~$0.7 million, and ~~$0.3~~$12.6 million ~~in adjustments recorded~~due to ~~operating expenses.~~business acquisitions. For the six ended September 30, 2017, we increased the fair value of our liability for contingent consideration by $12.4 million consisting of establishing a liability from business combinations of $12.1 million and $0.3 million in adjustments recorded to operating expense. For the three and sixnine months ended ~~September 30,~~December 31, 2017, we made no$0.6 million in payments ~~and payments of $0.3 million, respectively,~~ to satisfy the current obligations of the contingent consideration ~~arrangements.~~

arrangement from our earlier acquisition of Consolidated IT Services.

~~Table of Contents~~

15.	SEGMENT REPORTING

Our operations are conducted through two operating segments that are also both reportable segments. Our technology segment includes sales of IT products, third-party software, third-party maintenance, advanced professional and managed services, and our proprietary software to commercial enterprises, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software, and related services to commercial enterprises, state and local governments, and government contractors. We measure the performance of the segments based on operating income.

Table of Contents

Our reportable segment information was as follows (in thousands):

	Three Months Ended													Three Months Ended
	September 30, 2018						September 30, 2017							December 31, 2018						December 31, 2017
	Technology		Financing		Total		Technology		Financing		Total			Technology		Financing		Total		Technology		Financing		Total

Contracts with customers	$	329,682	$	1,060	$	330,742	$	352,843	$	4,916	$	357,759		$	329,635	$	813	$	330,448	$	330,534	$	4,523	$	335,057
Financing and other		5,086		9,215		14,301		5,835		7,769		13,604			5,076		10,140		15,216		1,527		7,641		9,168
Net sales	$	334,768	$	10,275	$	345,043	$	358,678	$	12,685	$	371,363		$	334,711	$	10,953	$	345,664	$	332,061	$	12,164	$	344,225

Cost of sales		257,813		1,730		259,543		281,829		1,963		283,792			260,738		2,013		262,751		263,917		3,620		267,537
Gross Profit		76,955		8,545		85,500		76,849		10,722		87,571			73,973		8,940		82,913		68,144		8,544		76,688

Selling, general, and administrative		55,138		2,567		57,705		53,503		2,837		56,340			56,607		3,121		59,728		53,836		3,298		57,134
Depreciation and amortization		2,740		1		2,741		2,128		1		2,129			2,714		5		2,719		2,893		1		2,894
Interest and financing costs		-		484		484		-		274		274			-		443		443		-		270		270
Operating expenses		57,878		3,052		60,930		55,631		3,112		58,743			59,321		3,569		62,890		56,729		3,569		60,298

Operating income		19,077		5,493		24,570		21,218		7,610		28,828			14,652		5,371		20,023		11,415		4,975		16,390

Other income (expense)						322						(141	)						721						(131	)

Earnings befor tax					$	24,892					$	28,687
Earnings before tax																		$	20,744					$	16,259

Selected Financial Data - Statement of Cash Flow

Depreciation and amortization	$	2,970	$	1,397	$	4,367	$	2,161	$	1,359	$	3,520		$	2,910	$	1,564	$	4,474	$	3,157	$	1,422	$	4,579
Purchases of property, equipment and operating lease equipment	$	1,796	$	3,025	$	4,821	$	955	$	610	$	1,565		$	1,496	$	545	$	2,041	$	2,018	$	844	$	2,862

Selected Financial Data - Balance Sheet

Total assets	$	565,771	$	209,425	$	775,196	$	563,646	$	170,641	$	734,287		$	613,494	$	184,695	$	798,189	$	591,445	$	169,068	$	760,513

		Six Months Ended												Nine Months Ended
		September 30, 2018						September 30, 2017						December 31, 2018						December 31, 2017
		Technology		Financing		Total		Technology		Financing		Total		Technology		Financing		Total		Technology		Financing		Total

Contracts with customers		$	671,141	$	1,656	$	672,797	$	712,204	$	7,731	$	719,935	$	1,000,776	$	2,469	$	1,003,245	$	1,042,738	$	12,254	$	1,054,992
Financing and other			10,491		18,287		28,778		9,373		15,411		24,784		15,567		28,427		43,994		10,900		23,052		33,952
Net sales		$	681,632	$	19,943	$	701,575	$	721,577	$	23,142	$	744,719	$	1,016,343	$	30,896	$	1,047,239	$	1,053,638	$	35,306	$	1,088,944

Cost of sales			531,894		3,478		535,372		575,095		4,460		579,555		792,632		5,491		798,123		839,012		8,080		847,092
Gross Profit			149,738		16,465		166,203		146,482		18,682		165,164		223,711		25,405		249,116		214,626		27,226		241,852

Selling, general, and administrative			109,592		5,079		114,671		105,004		6,000		111,004		166,199		8,200		174,399		158,838		9,300		168,138
Depreciation and amortization			5,529		2		5,531		4,190		2		4,192		8,243		7		8,250		7,084		2		7,086
Interest and financing costs			-		960		960		-		633		633		-		1,403		1,403		-		903		903
Operating expenses			115,121		6,041		121,162		109,194		6,635		115,829		174,442		9,610		184,052		165,922		10,205		176,127

Operating income			34,617		10,424		45,041		37,288		12,047		49,335		49,269		15,795		65,064		48,704		17,021		65,725

Other income (expense)							419						130						1,140						(1	)

Earnings befor tax						$	45,460					$	49,465
Earnings before tax																		$	66,204					$	65,724

Selected Financial Data - Statement of Cash Flow	Selected Financial Data - Statement of Cash Flow

Depreciation and amortization		$	5,985	$	2,882	$	8,867	$	4,256	$	2,489	$	6,745	$	8,895	$	4,446	$	13,341	$	7,413	$	3,911	$	11,324
Purchases of property, equipment and operating lease equipment		$	2,976	$	3,475	$	6,451	$	2,046	$	1,390	$	3,436	$	4,472	$	4,020	$	8,492	$	4,064	$	2,234	$	6,298

Selected Financial Data - Balance Sheet	Selected Financial Data - Balance Sheet

Total assets		$	565,771	$	209,425	$	775,196	$	563,646	$	170,641	$	734,287	$	613,494	$	184,695	$	798,189	$	591,445	$	169,068	$	760,513

2425

Table of Contents

Technology Segment Disaggregation of Revenue

We analyze net sales for our technology segment by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized below (in thousands):

	Three Months Ended September 30,						Six Months Ended September 30,						Three Months Ended December 31,						Nine Months Ended December 31,
	2018			2017			2018			2017			2018			2017			2018			2017
Customer end market:
Technology	$	75,417		$	91,401		$	158,234		$	180,755		$	61,549		$	73,554		$	219,783		$	254,310
Telecom, Media & Entertainment		39,412			49,508			86,280			106,913			58,377			50,289			144,657			157,201
Financial Services		47,412			52,507			92,638			90,798			54,411			63,326			147,048			154,124
SLED		61,391			66,493			129,596			143,656			43,846			40,724			173,442			184,380
Healthcare		51,081			44,372			97,531			90,857			48,121			53,750			145,652			144,607
All others		60,055			54,397			117,353			108,598			68,407			50,418			185,761			159,016
Net sales		334,768			358,678			681,632			721,577			334,711			332,061			1,016,343			1,053,638

Financing and other		(5,086	)		(5,835	)		(10,491	)		(9,373	)		(5,076	)		(1,527	)		(15,567	)		(10,900	)

Revenue from contracts with customers	$	329,682		$	352,843		$	671,141		$	712,204		$	329,635		$	330,534		$	1,000,776		$	1,042,738

	Three Months Ended September 30,						Six Months Ended September 30,						Three Months Ended December 31,						Nine Months Ended December 31,
	2018			2017			2018			2017			2018			2017			2018			2017
Vendor
Cisco Systems	$	152,063		$	165,690		$	291,300		$	339,035		$	131,949		$	124,598		$	423,249		$	463,634
NetApp		9,477			10,433			25,039			25,887			12,408			21,712			37,447			47,599
HP Inc. & HPE		16,658			28,377			36,977			56,648			22,042			17,458			59,020			74,106
Dell / EMC		19,895			17,485			32,398			30,898			17,201			12,879			49,599			43,777
Arista Networks		10,673			7,153			30,471			24,527			13,668			13,203			44,139			37,730
Juniper		11,262			14,240			21,660			23,576			18,681			13,189			40,341			36,764
All others		114,740			115,300			243,787			221,006			118,762			129,022			362,548			350,028
Net sales		334,768			358,678			681,632			721,577			334,711			332,061			1,016,343			1,053,638

Financing and other		(5,086	)		(5,835	)		(10,491	)		(9,373	)		(5,076	)		(1,527	)		(15,567	)		(10,900	)

Revenue from contracts with customers	$	329,682		$	352,843		$	671,141		$	712,204		$	329,635		$	330,534		$	1,000,776		$	1,042,738

Financing Segment Disaggregation of Revenue

We analyze our revenues within our financing segment based on the nature of the arrangement, and our revenues from contracts with customers consist of proceeds from the sale of off-lease equipment.

16.	BUSINESS COMBINATIONS

SLAIT Consulting, LLC

On January 22, 2019, our subsidiary, ePlus Technology, inc., acquired SLAIT Consulting, LLC (“SLAIT”). SLAIT is an IT consulting and solutions provider with a focus on security advisory and managed services, managed help desk, specialized IT, staffing, and data center solutions. SLAIT is headquartered in Virginia Beach, Virginia and has locations in Richmond, Virginia, and Charlotte, North Carolina. SLAIT provides consultative services in governance, risk management, and compliance, bespoke help desk and managed services solutions, and has relationships with fast-growing emerging vendors and related sales and engineering capabilities.

Total consideration transferred was $50.7 million, which was paid in cash at closing. As of our filing date, the initial accounting for the business combination is incomplete.

Table of Contents

Integrated Data Storage, LLC acquisition

On September 15, 2017, our subsidiary ePlus Technology, inc. acquired certain assets and assumed certain liabilities of Integrated Data Storage, LLC (“IDS”) though an asset purchase agreement. Headquartered in Oak Brook, Illinois and with offices in downtown Chicago, Illinois and Indianapolis, Indiana, IDS brought us an advanced data center solutions provider focused on cloud enablement and managed services, including its proprietary IDS Cloud, which features enterprise-class technology infrastructure coupled with consulting services to support private, hybrid, and public cloud deployments. The acquisition expanded ePlus’ footprint in the Midwest and ~~enhances~~enhanced its sales and engineering capabilities in cloud services, disaster recovery and backup as a service, storage, data center, and professional services.

Transactional ~~gains:~~gains/losses: 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 ~~net gains on~~proceeds from the sale of off-lease (used) equipment. We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.

3234

Table of Contents

~~We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.~~

Fluctuations in Revenues

Our results of operations are susceptible to fluctuations for ~~a number of~~several reasons, including, without limitation, customer demand for our products and services, supplier costs, changes in vendor incentive programs, interest rate fluctuations, general economic conditions, and differences between estimated residual values and actual amounts realized related to the equipment we lease. Operating results could also fluctuate as a result of a sale prior to the expiration of the lease term to the lessee or to a third-party or from post-term events.

We expect to continue to expand by opening new sales locations and hiring additional staff for specific targeted market areas in the near future whenever we can find both experienced personnel and desirable geographic areas. These investments may reduce our results from operations in the short term.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with US GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that alternative accounting policies would have been applied, resulting in a change in financial results. On an ongoing basis, we reevaluate our estimates, including those related to revenue recognition, residual values, vendor incentives, lease classification, goodwill and intangibles, and reserves for credit losses and income taxes specifically relating to uncertain tax positions. We base estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. For all such estimates, we caution that future events rarely develop exactly as forecasted, and therefore, these estimates may require adjustment.

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 2018 Annual Report.

~~Table of Contents~~

SEGMENT RESULTS OF OPERATIONS

The three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, compared to the three and ~~six~~nine months ended ~~September 30,~~December 31, 2017

Technology Segment

The results of operations for our technology segment were as follows (dollars in thousands):

	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended December 31,				Nine Months Ended December 31,
	2018		2017		2018		2017		2018		2017		2018		2017
Net sales	$	334,768	$	358,678	$	681,632	$	721,577	$	334,711	$	332,061	$	1,016,343	$	1,053,638
Cost of sales		257,813		281,829		531,894		575,095		260,738		263,917		792,632		839,012
Gross profit		76,955		76,849		149,738		146,482		73,973		68,144		223,711		214,626

Selling, general, and administrative		55,138		53,503		109,592		105,004		56,607		53,836		166,199		158,838
Depreciation and amortization		2,740		2,128		5,529		4,190		2,714		2,893		8,243		7,084
Operating expenses		57,878		55,631		115,121		109,194		59,321		56,729		174,442		165,922

Operating income	$	19,077	$	21,218	$	34,617	$	37,288	$	14,652	$	11,415	$	49,269	$	48,704

Adjusted gross billings	$	485,856	$	504,500	$	968,157	$	992,004	$	478,447	$	465,213	$	1,446,603	$	1,457,218
Adjusted EBITDA	$	24,284	$	25,613	$	44,625	$	45,499	$	20,074	$	16,632	$	64,699	$	62,133

Table of Contents

Net sales: Net sales for the three months ended ~~September 30,~~December 31, 2018, were $~~334.8~~334.7 million compared to $~~358.7~~332.1 million during the three months ended ~~September 30,~~December 31, 2017, ~~a decrease~~an increase of ~~6.7%~~0.8%, or ~~$23.9~~$2.6 million. For the ~~six~~three months ended ~~September 30,~~December 31, 2018, net sales increased due to higher demand from customers primarily in the SLED, technology, telecom, media & entertainment industries, and financial services, which was partially offset by decreases in demand from the healthcare and other industries. For the nine months ended December 31, 2018, net sales were ~~$681.6 million~~$1.016 billion compared to ~~$721.6 million~~$1.054 billion during the same period in the prior year, a decrease of ~~5.5%~~3.5%, or ~~$39.9~~$37.3 million. The decrease in net sales during the nine months ended December 31, 2018, compared to the prior year, was due, in part, to a decrease in demand for products and services from customers in the ~~SLED~~technology, telecom, media &and entertainment, financial services, and ~~technology~~SLED customer end markets, partially offset by increased demand by the ~~healthcare, financial services, and~~ other ~~industries during the six months ended September 30, 2018, compared to the prior year.~~industries. A shift in product mix also contributed to the decrease in net sales in proportion to adjusted gross billings for both the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, as we sold a higher proportion of ~~third party~~third-party software assurance, maintenance and services, which are recognized on a net basis.

Adjusted gross billings for the three months ended ~~September 30,~~December 31, 2018, were ~~$485.9~~$478.4 million compared to ~~$504.5~~$465.2 million during the three months ended ~~September 30,~~December 31, 2017, ~~a decrease~~an increase of ~~3.7%~~2.8%, or ~~$18.6 million.~~$13.2 million, due to the same factors as described previously for net sales. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, adjusted gross billings were ~~$968.2 million~~$1.447 billion compared to ~~$992.0 million~~$1.457 billion during the same period in the prior year, a decrease of ~~2.4%~~0.7%, or ~~$23.8~~$10.6 million. The decrease in adjusted gross billings during the ~~six month~~nine-month period was due, in part, to a decrease in demand for products and services from customers in the technology, telecom, media and entertainment, ~~SLED,~~ and ~~technology~~SLED industries. Partially offsetting lower demand from these industries was an increase in demand from the healthcare, financial services, and other industries during the ~~six~~nine months ended ~~September 30,~~December 31, 2018, compared to the prior year.

We rely on our vendors to fulfill a large majority of shipments to our customers. As of ~~September 30,~~December 31, 2018, ~~we had open orders of $150.3 million and deferred revenue of $48.5 million. As of September 30, 2017,~~ we had open orders of $152.7 million and deferred revenue of $51.6 million. As of December 31, 2017, we had open orders of $170.0 million and deferred revenues of $~~52.8~~55.5 million.

~~Table of Contents~~

We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. The percentage of net sales by industry and vendor are summarized below:

	Twelve Months Ended September 30,						Change			Twelve Months Ended December 31,						Change
	2018			2017			Change			2018			2017			Change
Revenue by customer end market:
Technology		23	%		24	%		(1	%)		22	%		25	%		(3	%)
Telecom, Media & Entertainment		13	%		15	%		(2	%)		14	%		14	%		0	%
Financial Services		15	%		14	%		1	%		15	%		15	%		0	%
SLED		17	%		18	%		(1	%)		17	%		17	%		0	%
Healthcare		15	%		12	%		3	%		14	%		13	%		1	%
All others		17	%		17	%		0	%		18	%		16	%		2	%
Total		100	%		100	%					100	%		100	%

Revenue by vendor:
Cisco Systems		40	%		45	%		(5	%)		41	%		43	%		(2	%)
NetApp		4	%		5	%		(1	%)		3	%		5	%		(2	%)
HP Inc. & HPE		5	%		7	%		(2	%)		5	%		7	%		(2	%)
Dell / EMC		4	%		4	%		0	%		5	%		4	%		1	%
Juniper Networks		3	%		5	%		(2	%)		4	%		5	%		(1	%)
Arista Networks		4	%		3	%		1	%		4	%		3	%		1	%
All others		40	%		31	%		9	%		38	%		33	%		5	%
Total		100	%		100	%					100	%		100	%

Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve-month period ended ~~September 30,~~December 31, 2018, we had an increase in the percentage total revenues from customers in the healthcare and financial services industries, which were roughly offset by decreases in the percentage of total revenues from SLED, technology, and telecom, media & entertainment end markets over the prior year period. These changes were driven by changes in customer buying cycles and specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.

The majority of our revenues by vendor are derived from Cisco Systems, a combined HP Inc. and HPE, and NetApp, which in total, declined to 49% for the trailing twelve-month period ended ~~September 30,~~December 31, 2018 from approximately ~~57%~~55% in the trailing twelve-month period ended ~~September 30,~~December 31, 2017, with the greatest decline in the proportional percentage of total revenues in Cisco product sales. The decrease in the percentage of revenues from the top three vendors is due to substantial competition and rapid developments in the IT industry. None of the vendors included within the “other” category exceeded 3% of total revenues.

Table of Contents

Cost of sales: Cost of sales decreased ~~8.5%~~1.2% and ~~7.5%~~5.5% for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, due to the decrease in net sales, combined with a shift in product mix, as we sold a higher proportion of ~~third party~~third-party software assurance, maintenance and services, which are recognized on a net basis.Our gross margin increased 160 basis points to ~~23.0%~~22.1% for the three months ended ~~September 30,~~December 31, 2018, compared to ~~21.4%~~20.5% in the same period in the prior year due to a shift in product mix, as we sold a higher proportion of ~~third party~~third-party software assurance, maintenance and services for which the revenues are presented on a net basis, as well as lower product margins in the prior year quarter from a large competitively bid project that partially shipped during the period. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, our gross margin increased ~~170~~160 basis points to 22.0%, compared to ~~20.3%~~20.4% the prior year period.

Vendor incentives earned as a percentage of sales ~~decreased 30~~increased 20 basis points for the three months ended ~~September 30,~~December 31, 2018, compared to same period in the prior year, but remained unchanged as a percentage of sales for the ~~six~~nine months ended ~~September 30,~~December 31, 2018, compared to same period in the prior year. There are ongoing changes to the incentive programs offered to us by our vendors. Accordingly, if we are unable to maintain the level of vendor incentives we are currently receiving, gross margins may decrease.

Selling, general, and administrative: Selling, general, and administrative expenses of ~~$55.1~~$56.6 million for the three months ended ~~September 30,~~December 31, 2018, increased ~~$1.6~~$2.8 million, or ~~3.1%~~5.1%, from ~~$53.5~~$53.8 million the prior year. Salaries and benefits increased ~~$1.6~~$2.6 million, or ~~3.7%~~5.7%, to ~~$44.6~~$47.0 million, compared to ~~$43.0~~$44.5 million during the prior year, primarily due to higher ~~salaries and healthcare expenses. The~~variable compensation of $1.9 million related to the increase in ~~salaries was~~gross profits over the prior year period. Our technology segment had 1,222 employees as of December 31, 2018, a decrease of 14, or 1.1%, from 1,236 employees at December 31, 2017. Professional and other fees increased $0.2 million to $1.6 million due in part to a full quarter including IDS operations, as we completed this acquisition on September 15, 2017. Our technology segment had 1,213 employees as of September 30, 2018, a decrease of 20, or 1.6%, from 1,233 employees at September 30, 2017.fees related to acquisitions. General and administrative expenses increased ~~$0.3~~$0.1 million ~~or 3.0%,~~ to ~~$9.0~~$8.0 million during the three months ended ~~September 30, 2018, compared to $8.7 million the prior year, due to adjustments to the fair value of contingent consideration of $0.7 million this year, up from $0.4 million last year.~~December 31, 2018.

~~Table of Contents~~

Selling, general, and administrative expenses of ~~$109.6~~$166.2 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2018, increased ~~$4.6~~$7.4 million, or ~~4.4%~~4.6%, from ~~$105.0~~$158.8 million the prior year. Salaries and benefits increased ~~$3.8~~$6.4 million, or ~~4.4%~~4.9%, to ~~$89.9~~$137.0 million, compared to ~~$86.1~~$130.6 million during the prior year due to increased costs of personnel as well as higher variable compensation as a result of the increase in gross profit. The increase in salaries was due, to higher variable compensation of $3.0 million due to higher gross profits, and in part, to ~~a full six months including~~additional operations costs related to the IDS ~~operations, as we~~acquisition, which was completed ~~this acquisition~~ on September 15, 2017. General and administrative expenses increased $1.0 million, or ~~6.5%~~4.5%, to ~~$16.3~~$24.3 million during the ~~six~~nine months ended ~~September 30,~~December 31, 2018, compared to ~~$15.3~~$23.3 million the prior year, due to adjustments to the fair value of contingent consideration of ~~$1.1~~$1.9 million this year, up from ~~$0.4~~$0.7 million last year.

Depreciation and amortization: Depreciation and amortization ~~increased $0.6~~decreased $0.2 million, or ~~28.8%~~6.2%, to $2.7 million during the three months ended ~~September 30,~~December 31, 2018, compared to ~~$2.1~~$2.9 million in the prior ~~year,~~year. For the nine months ended December 31, 2018, depreciation and amortization increased $1.2 million, or 16.4%, to $8.2 million, due to the IDS acquisition ~~in September 2017. For the six months ended September 30, 2018, depreciation and amortization increased $1.3 million, or 32.0%, to $5.5 million,~~as compared to the same period in the prior year.

Segment operating income: As a result of the foregoing, operating income was ~~$19.1~~$14.7 million, ~~a decrease~~an increase of ~~$2.1~~$3.2 million, or ~~10.1%~~28.3%, for the three months ended ~~September 30,~~December 31, 2018, compared to ~~$21.2~~$11.4 million in the prior year period. For the three months ended ~~September 30,~~December 31, 2018, adjusted EBITDA was ~~$24.3~~$20.1 million, ~~a decrease~~an increase of ~~$1.3~~$3.4 million, or ~~5.2%~~20.7%, compared to ~~$25.6~~$16.6 million in the prior year period. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, operating income was ~~$34.6~~$49.3 million, ~~a decrease~~an increase of ~~$2.7~~$0.6 million, or ~~7.2%~~1.2%, compared to ~~$37.3~~$48.7 million in the prior year period. Adjusted EBITDA was ~~$44.6~~$64.7 million, ~~a decrease~~an increase of ~~$0.9~~$2.6 million, or ~~1.9%~~4.1%, for the ~~six~~nine months ended ~~September 30,~~December 31, 2018, compared to ~~$45.5~~$62.1 million in the prior year period.

Table of Contents

Financing Segment

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

	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended December 31,				Nine Months Ended December 31,
	2018		2017		2018		2017		2018		2017		2018		2017
Net sales	$	10,275	$	12,685	$	19,943	$	23,142	$	10,953	$	12,164	$	30,896	$	35,306
Cost of sales		1,730		1,963		3,478		4,460		2,013		3,620		5,491		8,080
Gross profit		8,545		10,722		16,465		18,682		8,940		8,544		25,405		27,226

Selling, general, and administrative		2,567		2,837		5,079		6,000		3,121		3,298		8,200		9,300
Depreciation and amortization		1		1		2		2		5		1		7		2
Interest and financing costs		484		274		960		633		443		270		1,403		903
Operating expenses		3,052		3,112		6,041		6,635		3,569		3,569		9,610		10,205

Operating income	$	5,493	$	7,610	$	10,424	$	12,047	$	5,371	$	4,975	$	15,795	$	17,021

Adjusted EBITDA	$	5,596	$	7,706	$	10,625	$	12,227	$	5,480	$	5,071	$	16,105	$	17,296

Net sales: Net sales decreased by ~~$2.4~~$1.2 million, or ~~19.0%~~10.0%, to ~~$10.3~~$11.0 million for the three months ended ~~September 30,~~December 31, 2018, as compared to prior year results due to lower post contract earnings, and other financing revenues. Post contract earnings decreased ~~$3.0~~$3.4 million due to ~~the early termination of several large leases~~a decrease in ~~the prior year.~~off lease sales. Offsetting this decrease was higher transactional gains of $1.3 million and higher portfolio ~~earnings.~~earnings of $1.1 million or the same period in the prior year. During the three months ended ~~September 30,~~December 31, 2018 and 2017, we recognized net transactional gains of $2.4 million and $1.2 million, and total proceeds from these sales were ~~$47.2~~$95.2 million and ~~$48.3~~$32.8 million, respectively.

For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, net sales decreased by ~~$3.2~~$4.4 million, or ~~13.8%~~12.5%, to ~~$19.9~~$30.9 million as compared to prior year results due to lower post contract earnings, transactional gains, and other financing revenues, which partially were offset by higher portfolio earnings. Post contract earnings decreased ~~$3.6~~$6.9 million due to the early termination of several large leases in the prior ~~year.~~year, which were partially offset by an increase in portfolio earnings of $3.0 million. During the ~~six~~nine months ended ~~September 30,~~December 31, 2018 and 2017, we recognized net transactional gains of ~~$2.5~~$5.0 million and ~~$3.5~~$4.6 million, respectively, and total proceeds from these sales were ~~$94.0~~$189.2 million and ~~$134.1~~$166.9 million, respectively.

At ~~September 30,~~December 31, 2018, we had ~~$165.4~~$162.1 million in financing receivables and operating leases, compared to ~~$131.8~~$147.2 million as of ~~September 30,~~December 31, 2017, an increase of ~~$33.6~~$14.9 million, or ~~25.5%~~10.1%.

~~Table of Contents~~

Cost of sales: Cost of sales decreased ~~$0.2~~$1.6 million and ~~$1.0~~$2.6 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, compared to the same periods in the prior year, respectively, which consists of depreciation expense from operating leases and the cost of off-lease equipment sold. Gross profit ~~decreased~~increased by ~~20.3%~~4.6% to ~~$8.5~~$8.9 million, for the three months ended ~~September 30,~~December 31, 2018, compared to the prior year, and decreased by ~~11.9%~~6.7% to ~~$16.5~~$25.4 million, for the ~~six~~nine months ended ~~September 30,~~December 31, 2018, compared to the prior year.

Selling, general, and administrative: For the three months ended ~~September 30,~~December 31, 2018, selling, general, and administrative expenses decreased ~~$0.3~~$0.2 million, or ~~9.5%~~5.4%, due to a decrease in variable compensation as a result of the decrease in gross ~~profit.~~profit, and a decrease in the number of employees. Our financing segment had 4243 employees as of ~~September 30,~~December 31, 2018, compared to 4948 employees as of ~~September 30,~~December 31, 2017. Selling, general, and administrative expenses decreased by ~~$0.9~~$1.1 million, or ~~15.4%~~11.8%, for the ~~six~~nine months ended ~~September 30,~~December 31, 2018, due to a decrease in variable compensation as a result of the decrease in gross profit, as well as the change in reserves for credit losses.

Table of Contents

Interest and financing costs increased by ~~76.6%~~64.1% to ~~$0.5~~$0.4 million, due to an increase in the average total notes payable outstanding and by higher average interest rates over the three months ended ~~September 30,~~December 31, 2018, compared to the same period in the prior year. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, interest and financing costs increased by ~~51.7%~~55.4%, or $0.5 million, to ~~$1.0~~$1.4 million compared to the same period in the prior year. Total notes payable ~~were $65.3~~was $66.6 million as of ~~September 30,~~December 31, 2018, an increase of ~~$28.2~~$35.1 million or ~~75.9%~~111.4% compared to ~~$37.1~~$31.5 million as of ~~September 30,~~December 31, 2017. Our weighted average interest rate for non-recourse notes payable was ~~4.31%~~4.54% and ~~3.62%~~3.73%, as of ~~September 30,~~December 31, 2018 and 2017, respectively.

Segment operating income: As a result of the foregoing, operating income and adjusted EBITDA ~~decreased $2.1~~increased $0.4 million, or ~~27.8%~~8.0% and ~~27.4%~~8.1%, respectively, for the three months ended ~~September 30,~~December 31, 2018, over the prior year period. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, operating income and adjusted EBITDA decreased ~~$1.6~~$1.2 million or ~~13.5%~~7.2% and ~~13.1%~~6.9%, respectively.

~~Consolidated~~

Consolidated

Other income: ~~Other income~~During the quarter ended December 31, 2018, we received a distribution of $0.9 million from various claims we owned in a customer bankruptcy, which was ~~$0.3 million for the three months ended September 30, 2018, compared to other expense of $0.1 million the prior year period. For the six months ended September 30, 2018 and 2017,~~recognized within other income ~~was $0.4 million and $0.1 million, respectively.~~in our condensed consolidated statements of operations.

Income taxes: Our provision for income tax expense was ~~$6.9~~$5.9 million and ~~$12.2~~$18.1 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, as compared to ~~$11.5~~$0.7 million and ~~$18.8~~$19.5 million for the same periods in the prior year. Our effective income tax rate for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2018, was ~~27.7%~~28.3% and ~~26.8%~~27.3%, compared to ~~40.0%~~4.2% and ~~38.0%~~29.7% for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2017. ~~The reduction in~~During the quarter ended December 31, 2017, we revised our ~~effective income~~estimated annual tax rate ~~was primarily due~~ to reflect a change in the ~~reduction of the U.S. corporate income tax~~US federal statutory rate from 35% to 21% as, resulting from legislation that was enacted on December 22, 2017. The rate change was administratively effective at the beginning of our 2018 fiscal year, using a blended rate for the annual period. The blended US statutory tax rate for the 2018 fiscal year was 31.5%, and our total estimated effective tax rate for fiscal year 2018 is 37%. As a result, we recognized an estimated tax benefit in our tax provision of $5.7 million for the quarter ended December 31, 2017 ~~Tax Cut and Jobs Act.~~related to the provisional adjustment our deferred tax balance to reflect the new corporate tax rate as well as adjustment of our provision from the beginning of our fiscal year to the new blended tax rate.

Net earnings: The foregoing resulted in net earnings of ~~$18.0~~$14.9 million, ~~an increase~~a decrease of ~~$0.8~~$0.7 million, or ~~4.5%~~4.6%, for the three months ended ~~September 30,~~December 31, 2018, as compared to ~~$17.2~~$15.6 million compared to the prior year. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, net earnings were ~~$33.3~~$48.1 million, an increase of ~~$2.6~~$1.9 million, or ~~8.6%~~4.1%, ~~over~~as compared to $46.2 million for the same period in the prior year.

Both basic and fully diluted earnings per common share were ~~$1.33~~$1.10 for the three months ended ~~September 30,~~December 31, 2018, ~~an increase~~a decrease of ~~7.3%~~1.8% and ~~8.1%~~0.9%, as compared to ~~$1.24~~$1.12 and ~~$1.23,~~$1.11, respectively, for the three months ended ~~September 30,~~December 31, 2017. For the ~~six~~nine months ended ~~September 30,~~December 31, 2018, basic and fully diluted earnings per common share were ~~$2.47~~$3.57 and ~~$2.42,~~$3.54, an increase of ~~11.8%~~6.9% and ~~11.9%~~7.3%, as compared to ~~$2.21~~$3.34 and ~~$2.19~~$3.30 for the same period in the prior year, respectively.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for ~~both~~ the three ~~and six~~ months ended ~~September 30,~~December 31, 2018, was 13.5 million. For the nine months ended December 31, 2018, weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share was 13.5 million and 13.6 million, respectively. Weighted average common shares outstanding used in the calculation of the basic and diluted earnings per common share for the three months ended ~~September 30,~~December 31, 2017, was 13.9 million and 14.0 million, respectively. Weighted average common shares outstanding used in the calculation of the basic and diluted earnings per common share for the ~~six~~nine months ended ~~September 30,~~December 31, 2017, was 13.8 million and 14.0 million, respectively.

3739

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Overview

Our primary sources of liquidity have historically been cash and cash equivalents, internally generated funds from operations, and borrowings, both non-recourse and recourse. We have used those funds to meet our capital requirements, which have historically consisted primarily of working capital for operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions, and the repurchase of shares of our common stock.

Our subsidiary ePlus Technology, inc., and certain of its subsidiaries, which are part of our technology segment, ~~finances its~~finance their operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC or (“WFCDF”). e~~Plus Technology, inc.’s~~The agreement with WFCDF had an aggregate credit limit of ~~$325~~$250 million as of ~~September 30,~~December 31, 2018.

On July 27, 2017, we executed an amendment to the WFCDF credit facility that temporarily increases the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2017. The amendment also provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election or October 31 of that same year. On July 17, 2018, we elected to temporarily increase the aggregate limit to $325.0 million.

There are two components of this facility: (1) a floor plan component, and (2) an accounts receivable component. After a customer places a purchase order with us and we have completed our credit review, we place an order for the equipment with one of our vendors. Generally, most purchase orders from us to our vendors are first financed under the floor plan component and reflected in “accounts payable—floor plan” in our consolidated balance sheets. Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no outstanding balance at September 30, 2018, or September 30, 2017, while the maximum credit limit was $30.0 million for both periods. The borrowings and repayments under the floor plan component are reflected as “net borrowings on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows.

The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no outstanding balance at December 31, 2018, or December 31, 2017. On January 15, 2019, we executed an amendment to the WFCDF credit facility that increases the maximum credit limit of the accounts receivable sub-limit component from $30.0 million to $50 million and modifies certain collateral terms of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash.

Most customer payments in our technology segment are remitted to our lockboxes. Once payments are cleared, the monies in the lockbox accounts are automatically transferred to our operating account on a daily basis. On the due dates of the floor plan component, we make cash payments to WFCDF. These payments from the accounts receivable component to the floor plan component and repayments from our cash are reflected as “net borrowings on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows. We engage in this payment structure to minimize our interest expense and bank fees in connection with financing the operations of our technology segment.

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

Our ability to continue to fund our planned growth, both internally and externally, is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing, or from 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.

3840

Table of Contents

Cash Flows

The following table summarizes our sources and uses of cash over the periods indicated (in thousands):

	Six Months Ended September 30,						Nine Months Ended December 31,
	2018			2018			2018			2017
Net cash provided by (used) in operating activities	$	(17,085	)	$	13,330
Net cash provided by operating activities							$	2,172		$	48,824
Net cash used in investing activities		(37,937	)		(52,891	)		(48,009	)		(54,793	)
Net cash provided by (used) in financing activities		12,321			(10,046	)		11,801			(27,758	)
Effect of exchange rate changes on cash		150			32			172			72

Net Increase (Decrease) in Cash and Cash Equivalents	$	(42,551	)	$	(49,575	)
Net Decrease in Cash and Cash Equivalents							$	(33,864	)	$	(33,655	)

Cash flows from operating activities. Cash ~~used in~~provided by operating activities totaled $~~17.1~~2.2 million during the ~~six~~nine months ended ~~September 30,~~December 31, 2018. Net earnings adjusted for the impact of non-cash items was ~~$42.3~~$60.5 million. Net changes in assets and liabilities resulted in a decrease of cash and cash equivalents of ~~$59.4~~$58.3 million, primarily due to net additions to accounts receivables of ~~$29.3~~$56.8 million, due in part to $25.6 million in higher billing in the last 15 days of December 2018 compared to the prior year, salaries and commissions payable, deferred revenues and other liabilities of ~~$14.8~~$8.8 million, inventories of ~~$16.7~~$11.7 million, and financing receivables of ~~$5.9~~$1.1 million, partially offset by reductions in accounts payable of ~~$2.4~~$16.1 million, and deferred costs, other intangible assets and other assets of ~~$4.9 million..~~$4.0 million.

Cash provided by operating activities totaled $~~13.3~~48.8 million during the ~~six~~nine months ended ~~September 30,~~December 31, 2017. Net earnings adjusted for the impact of non-cash items was ~~$30.7~~$46.1 million. Net changes in assets and liabilities resulted in ~~a decrease~~an increase of cash and cash equivalents of ~~$17.4~~$2.7 million, primarily due to net reductions in inventories of $43.3 million and increased in accounts payable of $18.4 million, mostly offset by additions to deferred costs, other intangible assets and other assets of $26.2 million financing receivables of $13.0 million, accounts receivables of ~~$21.7~~$10.3 million, and salaries and commissions payable and deferred revenues and other liabilities of $26.3 million, deferred costs, other intangible assets and other assets of $8.3 million, and accounts payable of $6.9 million, partially offset by reductions in inventories of $43.0 million and financing receivables of $2.7$9.5 million.

To manage our working capital, we monitor our cash conversion cycle for our Technology segment, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases outstanding in accounts payable (“DPO”). The following table presents the components of the cash conversion cycle for our Technology segment:

	As of September 30,						As of December 31,
	2018			2017			2018			2017

(DSO) Days sales outstanding (1)		60			52			54			52
(DIO) Days inventory outstanding (2)		11			15			11			12
(DPO) Days payable outstanding (3)		(46	)		(44	)		(39	)		(40	)
Cash conversion cycle		25			23			26			24

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

(2)	Represents the rolling three-month average of the balance of inventory, net for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three-month period.

(3)	Represents the rolling three-month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our technology segment at the end of the period divided by ~~Cost~~cost of adjusted gross billings for the same three-month period.

Our cash conversion cycle increased to 2526 days at ~~September 30,~~December 31, 2018, compared to 2324 days at ~~September 30,~~December 31, 2017, primarily driven by an increase in DSO of 82 days due to the timing of collections. The increase in our cash conversion cycle was partially offset by a decrease in DIO as of ~~September 30,~~December 31, 2018, as a result of a decrease in average inventory ~~balances of 31.2%, or $22.5 million.~~balances.

Cash flows related to investing activities. Cash used in investing activities was ~~$37.9~~$48.0 million during the ~~six~~nine months ended ~~September 30,~~December 31, 2018. Cash used in investing activities during the ~~six~~nine months ended ~~September 30,~~December 31, 2018, was primarily driven by issuance of financing receivables of ~~$88.4~~$140.3 million, purchases of assets to be leased or financed of ~~$8.6~~$13.9 million, and purchases of property, equipment, and operating lease equipment of ~~$6.5~~$8.5 million, , which was partially offset by cash proceeds from the repayment financing receivable of ~~$33.3~~$55.2 million, and the sale of financing receivables of ~~$30.5~~$57.0 million, and sale of property, equipment, and leased equipment of ~~$1.8~~$2.5 million.

3941

Table of Contents

Cash used in investing activities was ~~$52.9~~$54.8 million during the ~~six~~nine months ended ~~September 30,~~December 31, 2017. Cash used in investing activities during the ~~six~~nine months ended ~~September 30,~~December 31, 2017 was primarily driven by acquisitions of $37.7 million, net issuance and ~~repayment~~repayments of financing receivables of ~~$59.7~~$79.1 million, purchases of assets to be leased or financed of ~~$3.8~~$5.7 million, and purchases of property, equipment, software, and operating lease equipment of ~~$3.4~~$6.3 million, which was partially offset by the sale of financing receivables of ~~$43.8~~$64.1 million, and proceeds from sale of property, equipment and operating leases of ~~$8.0 million~~$10.0 million.

Cash flows from financing activities. Cash provided by financing activities was ~~$12.3~~$11.8 million during the ~~six~~nine months ended ~~September 30,~~December 31, 2018, which was primarily due to net borrowings of non-recourse and recourse notes payable of ~~$15.9~~$23.2 million, and net borrowing on floor plan facility of ~~$8.7~~$12.5 million, partially offset by cash used for the repurchase of common stock of ~~$10.1~~$16.3 million, and repayment of financing of acquisitions of ~~$2.1~~$7.6 million. Cash used in financing activities was ~~$10.0~~$27.8 million during the ~~six~~nine months ended ~~September 30,~~December 31, 2017, which was primarily due to net ~~borrowing~~repayment on the floor plan facility of ~~$12.4~~$24.9 million, cash used for the repurchase of common stock of ~~$4.4~~$13.4 million, and repayment of financing of acquisitions of ~~$1.1~~$1.6 million, partially offset by net borrowings of non-recourse and recourse notes payable of ~~$7.8~~$12.1 million.

Non-Cash Activities

We assign contractual payments due under lease and financing agreements to third-party financial institutions, which are accounted for as non-recourse notes payable. As a condition to the assignment agreement, certain financial institutions may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, if the structure of the agreement does not require a trust, the customer will continue to make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either assignment structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender to pay down the corresponding non-recourse notes payable. However, these assignment structures are classified differently within our consolidated statements of cash flows. More specifically, we are required to exclude non-cash transactions from our consolidated statement of cash flows, so certain contractual payments made by the customer to the trust are excluded from our operating cash receipts and the corresponding repayment of the non-recourse notes payable from the trust to the third-party financial institution are excluded from our cash flows from financing activities. Contractual payments received by the trust and paid to the lender on our behalf are disclosed as a non-cash financing activity.

Liquidity and Capital Resources

We may use non-recourse notes payable to finance approximately 80% to 100% of the purchase price of the assets being leased or financed by our customers. Any balance of the purchase price remaining after non-recourse funding and any upfront payments received from the customer (our equity investment in the equipment) must generally be financed by cash flows from our operations, the sale of the equipment leased to third parties, or other internal means. Although 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.

The financing necessary to support our lease and financing activities has been provided by our cash and non-recourse borrowings. We monitor our exposure closely. We are able to obtain financing through our traditional lending sources using primarily non-recourse borrowings from third party banks and finance companies. Non-recourse financings are loans whose repayment is the responsibility of a specific customer, although we may make representations and warranties to the lender regarding the specific contract or have ongoing loan servicing obligations. Under a non-recourse loan, we borrow from a lender an amount based on the present value of the contractually committed payments at a fixed rate of interest, and the lender secures a lien on the financed assets. When the lender is fully repaid, the lien is released, and all further proceeds are ours. 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 the lender’s only recourse, upon default, is against the customer and the specific equipment.

At ~~September 30,~~December 31, 2018, our non-recourse notes payable increased ~~28.2%~~30.8% to ~~$65.3~~$66.6 million, as compared to $50.9 million at March 31, 2018. There ~~was~~were no recourse notes payable as of ~~September 30,~~December 31, 2018, compared to $1.3 million as of March 31, 2018.

Whenever desirable, we arrange for equity investment financing, which includes selling lease payments, including the residual portions, to third parties and financing the equity investment on a non-recourse basis. We generally retain customer control and operational services and have minimal residual risk. We usually reserve the right to share in remarketing proceeds of the equipment on a subordinated basis after the investor has received an agreed-to return on its investment.

4042

Table of Contents

Credit Facility — Technology

Our ~~subsidiary,~~subsidiaries, ePlus Technology, inc., and ePlus Technology Services, inc., has a financing facility from WFCDF to finance ~~its~~their working capital requirements for inventories and accounts receivable. There are two components of this facility: (1) a floor plan component and (2) an accounts receivable component. This facility has full recourse to ePlus Technology, inc., and ePlus Technology Services, inc. and is secured by a blanket lien against all ~~its~~their assets, such as chattel paper, receivables and inventory. As of ~~September 30,~~December 31, 2018, the facility had an aggregate limit of the two components of ~~$325.0~~$250.0 million with an accounts receivable sub-limit ofcomponent that increased from $30.0 ~~million.~~million to $50 million on January 15, 2019 through an amendment to the WFCDF credit facility.

On July 27, 2017, we executed an amendment to the WFCDF credit facility that temporarily increased the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2017, and provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election or October 31 of that same year. On July 17, 2018, we elected to temporarily increase the aggregate limit to $325.0 million.

Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and ePlus Technology, inc.’s and ePlus Technology Services, inc.’s minimum earnings before interest, taxes, depreciation and amortization. We were in compliance with these covenants as of ~~September 30,~~December 31, 2018. Interest on the facility is assessed at a rate of the One Month LIBOR plus two and ~~one half~~one-half percent if the payments are not made on the three specified dates each month. The facility also requires that financial statements of ePlus Technology, inc. and ePlus Technology Services, inc. be provided within 45 days of the end of each quarter and 90 days of each fiscal year end, and that other operational reports be provided on a regular basis. Either party may terminate the credit facility with 90 days advance written notice.

We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility. In addition, we do not believe that the covenants of the WFCDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, ePlus Technology, inc. This credit facility is secured by the assets of only ePlus Technology, inc. and ePlus Technology Services, inc., and the guaranty as described below.

The WFCDF credit facility requires a guaranty of $10.5 million by ePlus inc. The guaranty requires ePlus inc. to deliver its annual audited financial statements by a certain date. We have delivered the annual audited financial statements for the year ended March 31, 2018, as required. 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 segment, and as an operational function of our accounts payable process.

Floor Plan Component

Purchases by ePlus Technology, inc. including computer technology products, software, maintenance and services are in part financed through a floor plan component in which interest expense for the first thirty to sixty days, in general, is not charged. The floor plan liabilities are recorded as accounts payable—floor plan on our consolidated balance sheets, as they are normally repaid within the fifteen to sixty-day time frame and represent assigned accounts payable originally generated with the manufacturer/distributor. In some cases, we ~~are able to~~can pay invoices early and receive a discount, but if the fifteen to sixty-day obligation is not paid timely, interest is then assessed at stated contractual rates.

The respective floor plan component credit limits and actual outstanding balance payables for the dates indicated were as follows (in thousands):

Maximum Credit Limit at September 30, 2018		Balance as of September 30, 2018		Maximum Credit Limit at March 31, 2018		Balance as of March 31, 2018
Maximum Credit Limit at December 31, 2018								Maximum Credit Limit at December 31, 2018	Balance as of December 31, 2018		Maximum Credit Limit at March 31, 2018			Balance as of March 31, 2018
$	325,000	$	120,771	$	250,000	$	112,109	250,000	$	124,558	$	250,000	��	$	112,109

Table of Contents

Accounts Receivable Component

ePlus Technology, inc. has an accounts receivable component included within the WFCDF credit facility, which has a revolving line of credit. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no balance outstanding for the accounts receivable component at ~~September 30,~~December 31, 2018, or March 31, 2018, while the maximum credit limit was $30.0 million for both periods.

~~Table of Contents~~

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 ~~the amount of~~ 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 as defined in Item 303(a)(4)(ii) of Regulation S-K, or other contractually narrow or limited purposes. As of ~~September 30,~~December 31, 2018, we were not involved in any unconsolidated special purpose entity transactions.

Adequacy of Capital Resources

The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also open offices in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance the platform of bundled solutions to provide additional functionality and value-added services. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivables due from our customers. These actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include additional debt and equity financing.

Inflation

For the periods presented herein, inflation has been relatively low, and we believe that inflation has not had a material effect on our results of operations.

Potential Fluctuations in Quarterly Operating Results

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

Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to currency fluctuations, reduction in IT spending, 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 2018 Annual Report, and subsequent Forms 10-Q for our fiscal year 2019.

Table of Contents

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.

~~Table of Contents~~

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

A substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, which were aligned with the customer financing rate creating an interest rate spread which is our profit. Should we not fund these transactions with debt at inception and interest rates rise above our interest rate with our customer, we may not be able to fund the transaction without reduced profit or a loss, thus inhibiting our ability to generate proceeds from the transaction. We use our lines of credit and other financing facilities which are subject to fluctuations in short-term interest rates. These instruments, which are generally denominated in US dollars, were entered ~~into~~ for other than trading purposes and, with the exception of amounts drawn under the WFCDF facility, 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. Borrowings under the WFCDF facility bear interest at a market-based variable rate. As of ~~September 30,~~December 31, 2018, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.

We have transactions in foreign currencies, primarily in British Pounds, Euros, and Indian Rupees. There is a potential for exposure to fluctuations in foreign currency rates resulting primarily from the translation exposure associated with the preparation of our consolidated financial statements. In addition, we have foreign currency exposure when transactions are not denominated in our subsidiary’s functional currency. To date, our foreign operations are insignificant in relation to total consolidated operations, and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

The ~~U.K.~~UK referendum (“Brexit”) to leave the European Union could impact revenue items, cost items, tax, immigration, trade, goodwill impairments and liquidity, among others. The most obvious immediate impact is the effect of foreign exchange fluctuations on revenue and cost items. We evaluate Brexit-related developments on a regular basis to determine if such developments are anticipated to have a material impact on the Company’s results on operations and financial position.

We have determined that our foreign currency exposure for our United Kingdom operations is insignificant in relation to total consolidated operations and we believe those potential fluctuations in currency exchange rates and other Brexit-related economic and operational risks will not have a material effect on our results of operations and financial position.

We have assets in the UK, Canada, Iceland, and Spain. As a lessor, we have entered into lease contracts and non-recourse, fixed-interest-rate financing denominated in British pounds, Canadian dollars, Icelandic krona, and Euros. To date, our foreign operations have been insignificant in relation to total consolidated operations, and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

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,~~December 31, 2018.

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,~~December 31, 2018, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4345

Table of Contents

Limitations on the 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

From time to time, we may be subject to legal proceedings that arise in the ordinary course of business. Legal proceedings ~~that~~which may arise in the ordinary course of business include preference payment claims asserted in customer bankruptcy ~~proceedings;~~proceedings, tax ~~audits;~~audits, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property ~~rights;~~rights, claims of alleged non-compliance with contract ~~provisions;~~provisions, employment-related ~~claims;~~claims, claims by competitors, vendors or ~~customers;~~customers, claims related to alleged violations of laws and ~~regulations;~~regulations, and claims relating to alleged security or privacy breaches. We attempt to ameliorate the effect of potential litigation through insurance coverage and contractual protections such as rights to indemnifications and limitations of liability.

Additionally, we may from time to time receive payouts resulting from claims we submit in legal proceedings, such as when a customer or vendor has filed bankruptcy, or in class action lawsuits.

We provide for costs relating to contingencies when a loss is probable, and the amount is reasonably determinable. In the opinion of management, there was not at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

Item 1A.

Risk Factors

There has not been any material change in the risk factors previously disclosed in Part I, Item 1A of our 2018 Annual Report and Item 1A. “Risk Factors” in our Form 10-Q for the three months ended June 30, 2018.

4446

Table of Contents

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding our purchases of ePlus inc. common stock during the ~~six~~nine months ended ~~September 30,~~December 31, 2018.

Period	Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs				Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
April 1, 2018 through April 30, 2018		69,645	$	78.14		69,645		20,516	(2	)		69,645	$	78.14		69,645		20,516	(2	)
May 1, 2018 through May 27, 2018		800	$	79.93		800		19,716	(3	)		800	$	79.93		800		19,716	(3	)
May 28, 2018 through May 31, 2018		-	$	-		-		519,716	(4	)		-	$	-		-		519,716	(4	)
June 1, 2018 through June 30, 2018		37,086	$	95.80		-		519,716	(5	)		37,086	$	95.80		-		519,716	(5	)
July 1, 2018 through July 31, 2018		3,006	$	102		-		519,716	(6	)		3,006	$	101.50		-		519,716	(6	)
August 1, 2018 through August 18, 2018		-	$	-		-		519,716	(7	)		-	$	-		-		519,716	(7	)
August 19, 2018 through August 31, 2018		-	$	-		-		500,000	(8	)		-	$	-		-		500,000	(8	)
September 1, 2018 through September 30, 2018		-	$	-		-		500,000	(9	)		-	$	-		-		500,000	(9	)
October 1, 2018 through October 31, 2018												21,505	$	84.57		21,505		478,495	(10	)
November 1, 2018 through November 30, 2018												14,513	$	81.93		14,513		463,982	(11	)
December 1, 2018 through December 31, 2018												49,624	$	70.76		49,624		414,358	(12	)

(1)

Any shares acquired were in open-market purchases, except for 37,086 shares repurchased in June and 3,006 repurchased in July 2018 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.

(2)

The share purchase authorization in place for the month ended April 30, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of April 30, 2018, the remaining authorized shares to be purchased were 20,516.

(3)

The share purchase authorization in place for the month ended May 31, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of May 31, 2018, the remaining authorized shares to be purchased were 19,716.

(4)

On April 26, 2018, the board of directors authorized the company to repurchase up to 500,000 shares of our outstanding common stock commencing on May 28, 2018 and continuing to May 27, 2019. As of May 31, 2018, the remaining authorized shares to be purchased were 519,716 under both authorizations.

(5)

The share purchase authorizations in place for the month ended June 30, 2018 had purchase limitations on the number of shares of up to 519,716 shares. As of June 30, 2018, the remaining authorized shares to be purchased were 519,716.

(6)

The share purchase authorizations in place for the month ended July 31, 2018 had purchase limitations on the number of shares of up to 519,716 shares. As of July 31, 2018, the remaining authorized shares to be purchased were 519,716.

(7)

The share purchase authorization in place for outstanding common stock over a 12-month period expired on August 18, 2018, which had a remaining unused authorization for the repurchase of 19,716 shares. As of August 18, 2018, the remaining authorized shares to be purchased were 519,716.

(8)

The share purchase authorization in place for the month ended August 31, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of August 31, 2018, the remaining authorized shares to be purchased were 500,000.

(9)

The share purchase authorization in place for the month ended September 30, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of September 30, 2018, the remaining authorized shares to be purchased were 500,000.

(10)

The share purchase authorization in place for the month ended October 31, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of October 31, 2018, the remaining authorized shares to be purchased were 478,495.

(11)

The share purchase authorization in place for the month ended November 30, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of November 30, 2018, the remaining authorized shares to be purchased were 463,882.

(12)

The share purchase authorization in place for the month ended December 31, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of December 31, 2018, the remaining authorized shares to be purchased were 414,358.

Table of Contents

The timing and expiration date of the current stock repurchase authorizations are included in Note 11, “Stockholders’ Equity” to our unaudited condensed consolidated financial statements included elsewhere in this report.

~~Table of Contents~~

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

3.1	ePlus inc. Amended and Restated Certificate of Incorporation, filed on September 19, 2008 (Incorporated herein by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2008)

3.2	Amended and Restated Bylaws of ePlus inc., as amended February 15, 2018 (Incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 20, 2018)

10.1	Amendment No. 7, dated January 15, 2019, to Amended and Restated Agreement for Wholesale Financing between ePlus Technology, inc. and Wells Fargo Commercial Distribution Finance, LLC (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 18, 2019).

10.2	Amendment No. 7, dated January 15, 2019, to Amended and Restated Business Financing Agreement between ePlus Technology, inc. and Wells Fargo Commercial Distribution Finance, LLC (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on January 18, 2019).

31.1	Certification of the Chief Executive Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).

31.2	Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).

32	Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

4648

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~~February 7, ~~2018~~2019	/s/ MARK P. MARRON
	By: Mark P. Marron,
	Chief Executive Officer and President
	(Principal Executive Officer)

Date: ~~November~~February 7, ~~2018~~2019	/s/ ELAINE D. MARION
	By: Elaine D. Marion
	Chief Financial Officer
	(Principal Financial Officer)

4749

							December 31, 2018			March 31, 2018
	September 30, 2018			March 31, 2018
Cost of equipment under operating leases	$	20,738		$	15,683		$	22,451		$	15,683
Accumulated depreciation		(9,117	)		(8,729	)		(9,974	)		(8,729	)
Investment in operating lease equipment—net (1)	$	11,621		$	6,954		$	12,477		$	6,954

	Six Months Ended September 30, 2018									Six Months Ended September 30, 2017							Nine Months Ended December 31, 2018									Nine Months Ended December 31, 2017
	Goodwill			Accumulated Impairment Loss			Net Carrying Amount			Goodwill		Accumulated Impairment Loss			Net Carrying Amount		Goodwill			Accumulated Impairment Loss			Net Carrying Amount			Goodwill		Accumulated Impairment Loss			Net Carrying Amount

Beginning Balance	$	85,297		$	(8,673	)	$	76,624		$	57,070	$	(8,673	)	$	48,397	$	85,297		$	(8,673	)	$	76,624		$	57,070	$	(8,673	)	$	48,397
Acquisitions		-			-			-			27,939		-			27,939		-			-			-			27,996		-			27,996
Foreign currency translations		(179	)		-			(179	)		134		-			134		(223	)		-			(223	)		153		-			153
Ending Balance	$	85,118		$	(8,673	)	$	76,445		$	85,143	$	(8,673	)	$	76,470	$	85,074		$	(8,673	)	$	76,401		$	85,219	$	(8,673	)	$	76,546

	Acquisition Date Amount
Accounts receivable and other assets	$	14,353
Property and equipment		1,620
Identified intangible assets		13,650
Accounts payable and other current liabilities		(12,313	)

Total identifiable net assets		17,310
Goodwill		21,088

Total purchase consideration	$	38,398

	Acquisition Date Amount
Accounts receivable and other assets	$	488
Identified intangible assets		4,130
Accounts payable and other current liabilities		(1,822	)

Total identifiable net assets		2,796
Goodwill		7,189

Total purchase consideration	$	9,985

	Three Months Ended September 30,						Six Months Ended September 30,						Three Months Ended December 31,						Nine Months Ended December 31,
	2018			2017			2018			2017			2018			2017			2018			2017
GAAP: Earnings before tax	$	24,892		$	28,687		$	45,460		$	49,465		$	20,744		$	16,259		$	66,204		$	65,724
Share based compensation		1,868			1,673			3,561			3,180			1,857			1,676			5,418			4,856
Acquisition and integration expense		701			689			1,117			1,019			955			743			2,072			1,762
Acquisition related amortization expense		1,719			1,186			3,483			2,307			1,552			1,871			5,035			4,178
Other (income) expense		(322	)		141			(419	)		(130	)		(721	)		131			(1,140	)		1
Non-GAAP: Earnings before provision for income taxes		28,858			32,376			53,202			55,841			24,387			20,680			77,589			76,521

GAAP: Provision for income taxes		6,889			11,466			12,184			18,821			5,880			678			18,064			19,499
Share based compensation		525			483			1,008			918			526			484			1,534			1,402
Acquisition and integration expense		197			199			316			294			270			215			586			509
Acquisition related amortization expense		455			309			929			600			414			508			1,343			1,108
Other (income) expense		(90	)		41			(118	)		(37	)		(204	)		38			(322	)		1
Remeasurement of deferred taxes														-			3,407						3,407
Tax benefit on restricted stock		103			189			672			1,444			-			-			672			1,444
Adjustment to U.S. Federal Income Tax rate to 21%		-			(3,792	)					(6,514	)		-			(104	)					(6,618	)
Non-GAAP: Provision for income taxes		8,079			8,895			14,991			15,526			6,886			5,226			21,877			20,752

Non-GAAP: Net earnings	$	20,779		$	23,481		$	38,211		$	40,315		$	17,501		$	15,454		$	55,712		$	55,769

GAAP: Net earnings per common share - diluted	$	1.33		$	1.23		$	2.45		$	2.19		$	1.10		$	1.11		$	3.54		$	3.30
Non-GAAP: Net earnings per common share - diluted	$	1.53		$	1.68		$	2.81		$	2.88		$	1.29		$	1.10		$	4.10		$	3.98