UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549D.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 SeptemberJune 30, 20222023

OR

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

For the transition period from____ to ____.

Commission file number: 1-34167

ePlus inc.

(Exact name of registrant as specified in its charter)

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

13595 Dulles Technology Drive, Herndon, VA 20171-3413
(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code: (703) 984-8400

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valuePLUSNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒   No ☐

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

Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
 
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐  No ☒
The number of shares of common stock outstanding as of November 1, 2022August 2, 2023, was 26,906,709.26,937,903.

TABLE OF CONTENTS

ePlus inc. AND SUBSIDIARIES

TABLE OF CONTENTS
ePlus inc. AND SUBSIDIARIES
Part I. Financial Information: 
   
Item 1.
Financial Statements 
   
 
5
   
 
6
   
 
7
   
 
8
   
 
10
   
 
11
   
Item 2.
26
27
   
Item 3.
43
44
   
Item 4.
43
44
  
Part II. Other Information:
 
   
Item 1.
44
45
   
Item 1A.
44
45
 
 
Item 2.
44
45
 
Item 3.
Defaults Upon Senior Securities
45
Item 4.
Mine Safety Disclosures
45
Item 5.
Other Information
45
Item 6.
Exhibits
46
   
Signatures
Item 3.
 
45
Item 4.
45
Item 5.
46
Item 6.
46
47

2
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CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS

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

significant adverse changes in, reductions in, or loss of one or more of our larger volume customers or vendors;
supply chain issues, including a shortage of Information Technology (“IT”) products, may increase our costs or cause a delay in fulfilling customer orders, or increase our need for working capital, or completing professional services, or purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
our ability to secure our own and our customers’ electronic and other confidential information, while maintaining compliance with evolving data privacy and regulatory laws and regulations;
ongoing remote work trends, and the increase in cybersecurity attacks that have occurred while employees work remotely;
loss of our credit facility or credit lines with our vendors may restrict our current and future operations;

•
our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common stock price;
rising interest rates or the loss of key lenders or the constricting of credit markets;
our ability to manage a diverse product set of solutions in highly competitive markets with a number of key vendors;
reliance on third-parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements, guaranteed price agreements, or assurance of stock availability;
the possibility of a reduction of vendor incentives provided to us;
our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;
our ability to remain secure during a cybersecurity attack, including both disruptions in our or our vendors’ IT systems and data and audio communication networks;
our ability to identify acquisition candidates, or perform sufficient due diligence prior to completing an acquisition, or failure to integrate a completed acquisition may affect our earnings;
national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and inflation, including increases in our costs and our ability to increase prices to our customers, which may result in adverse changes in our gross profit;
significant and rapid inflation may cause price, wage, and interest rate increases, as well as increases in operating costs whichthat may impact the arrangements that have pricing commitments over the term of the agreement;
significanta natural disaster or other adverse changes in, reductions in, or loss ofevent at one or more of our larger volume customersprimary configuration centers, data centers, or vendors;
supply chain issues, including a shortage of IT products, may increasethird-party provider location could negatively impact our costs or cause a delay in fulfilling customer orders, or increase our need for working capital, or completing professional services, or purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;
the duration and ongoing impact of the novel coronavirus (“COVID-19”) pandemic, including but not limited to the impact and severity of new variants, vaccine efficacy, and immunization rates, the closure of non-essential businesses and other associated governmental containment actions, and the increase in cyber-security attacks that have occurred while employees work remotely;
maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
our ability to secure our own and our customers’ electronic and other confidential information, while maintaining compliance with evolving data privacy and regulatory laws and regulations;
our ability to remain secure during a cybersecurity attack, including both disruptions in our or our vendors’ IT systems and data and audio communication networks;
reliance on third-parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements, guaranteed price agreements, or assurance of stock availability;
the creditworthiness of our customers and our ability to reserve adequately for credit losses;
loss of our credit facility or credit lines with our vendors may restrict our current and future operations;business;
a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;

•
our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common stock price;
reduction
3
Table of vendor incentives provided to us;Contents
changes in the Information Technology (“IT”)IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), software as a service (“SaaS”) and platform as a service (“PaaS”);
our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;
future growth rates in our core businesses;
rising interest rates or the loss of key lenders or the constricting of credit markets;

Table of Contents
the possibility of goodwill impairment charges in the future;
adapting to meet changes in markets and competitive developments;
increasingincrease the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
increasingour ability to increase the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
performingour ability to perform professional and managed services competently;
our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;
exposure to changes in, interpretations of, or enforcement trends in, and customer and vendor actions in anticipation of or response to, legislation and regulatory matters;

•
domestic and international economic regulations uncertainty (e.g., tariffs, sanctions, and trade agreements);
our contracts may not be adequate to protect us, and we are subject to audit which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
failure to comply with public sector contracts, or applicable laws or regulations;
maintainingour ability to maintain our proprietary software and updatingupdate our technology infrastructure to remain competitive in the marketplace;
fluctuations in foreign currency exchange rates may impact our ability to realize our investment in leased equipment;
our ability to successfully perform due diligenceresults of operation and integrate acquired businesses;financial position; and
our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, licensethe costs associated with licensing required technology.

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

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PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

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

 September 30, 2022  March 31, 2022  June 30, 2023  March 31, 2023 
ASSETS            
Current assets:            
Cash and cash equivalents $99,531  $155,378  $101,574  $103,093 
Accounts receivable—trade, net  525,176   430,380   677,988   504,122 
Accounts receivable—other, net  44,278   48,673   78,637   55,508 
Inventories  274,863   155,060   244,331   243,286 
Financing receivables—net, current  65,010   61,492   81,111   89,829 
Deferred costs  36,085   32,555   45,408   44,191 
Other current assets  24,970   13,944   47,084   55,101 
Total current assets  1,069,913   897,482   1,276,133   1,095,130 
                
Financing receivables and operating leases—net  75,093   64,292   120,664   84,417 
Deferred tax asset—net  5,058   5,050 
Deferred tax asset  3,682   3,682 
Property, equipment, and other assets  55,033   45,586   70,794   70,447 
Goodwill  135,907   126,543   158,280   136,105 
Other intangible assets—net  30,336   27,250   51,253   25,045 
TOTAL ASSETS $1,371,340  $1,166,203  $1,680,806  $1,414,826 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                
LIABILITIES                
                
Current liabilities:                
Accounts payable $192,511  $136,161  $351,384  $220,159 
Accounts payable—floor plan  136,215   145,323   182,859   134,615 
Salaries and commissions payable  34,304   39,602   41,144   37,336 
Deferred revenue  108,004   86,469   118,976   114,028 
Recourse notes payable—current  92,744   7,316   58,115   5,997 
Non-recourse notes payable—current  10,346   17,070   17,742   24,819 
Other current liabilities  33,187   28,095   30,566   24,372 
Total current liabilities  607,311   460,036   800,786   561,326 
                
Recourse notes payable - long-term  1,947   5,792 
Non-recourse notes payable - long-term  10,446   4,108   5,005   9,522 
Deferred tax liability
  717   715 
Other liabilities  45,991   35,529   61,007   60,998 
TOTAL LIABILITIES  665,695   505,465   867,515   632,561 
                
COMMITMENTS AND CONTINGENCIES (Note 9)
      
COMMITMENTS AND CONTINGENCIES (Note 9)      
                
STOCKHOLDERS’ EQUITY                
                
Preferred stock, $0.01 per share par value; 2,000 shares authorized; none outstanding
  -   -   -   - 
Common stock, $0.01 per share par value; 50,000 shares authorized; 26,906 outstanding at September 30, 2022 and 26,886 outstanding at March 31, 2022
  272   270 
Common stock, $0.01 per share par value; 50,000 shares authorized; 26,947 outstanding at June 30, 2023 and 26,905 outstanding at March 31, 2023
  274   272 
Additional paid-in capital  163,211   159,480   170,904   167,303 
Treasury stock, at cost, 258 shares at September 30, 2022 and 130 shares at March 31, 2022
  (13,958)  (6,734)
Treasury stock, at cost, 408 shares at June 30, 2023 and 261 shares at March 31, 2023
  (21,451)  (14,080)
Retained earnings  558,654   507,846   661,049   627,202 
Accumulated other comprehensive income—foreign currency translation adjustment  (2,534)  (124)  2,515   1,568
Total Stockholders’ Equity  705,645   660,738   813,291   782,265 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,371,340  $1,166,203  $1,680,806  $1,414,826 

See Notes to Unaudited Consolidated Financial Statements.

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

 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
Three Months Ended
June 30,
 
 2022
  2021  2022  2021  2023  2022 
                  
Net sales                  
Product $428,545  $397,160  $823,795  $758,217  $506,656  $395,250 
Services  65,161   60,857   128,270   116,449   67,519   63,109 
Total  493,706   458,017   952,065   874,666   574,175   458,359 
Cost of sales                        
Product  317,127   297,629   621,337   574,856   388,904   304,210 
Services  43,275   37,386   83,901   71,296   42,998   40,626 
Total  360,402   335,015   705,238   646,152   431,902   344,836 
                
Gross profit  133,304   123,002   246,827   228,514   142,273   113,523 
                        
Selling, general, and administrative  84,704   74,504   161,471   143,279   90,298   76,767 
Depreciation and amortization  3,568   3,853   6,778   7,779   4,792   3,210 
Interest and financing costs  925   342   1,288   701   851   363 
Operating expenses  89,197   78,699   169,537   151,759   95,941   80,340 
                        
Operating income  44,107   44,303   77,290   76,755   46,332   33,183 
                        
Other income (expense)  (3,866)  (325)  (6,019)  (202)
Other income (expense), net
  190   (2,153)
                        
Earnings before tax  40,241   43,978   71,271   76,553   46,522   31,030 
                        
Provision for income taxes  11,772   12,565   20,463   21,622   12,675   8,691 
                        
Net earnings $28,469  $31,413  $50,808  $54,931  $33,847  $22,339 
        
Net earnings per common share—basic $1.07  $1.18  $1.91  $2.06  $1.27  $0.84 
Net earnings per common share—diluted $1.07  $1.17  $1.91  $2.04  $1.27  $0.84 
                        
Weighted average common shares outstanding—basic  26,578   26,664   26,546   26,666   26,552   26,513 
Weighted average common shares outstanding—diluted  26,623   26,864   26,671   26,862   26,648   26,685 

See Notes to Unaudited Consolidated Financial Statements.

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

 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
Three Months Ended
June 30,
 
 2022  2021  2022  2021  2023  2022 
                  
NET EARNINGS $28,469  $31,413  $50,808  $54,931  $33,847  $22,339 
                        
OTHER COMPREHENSIVE INCOME, NET OF TAX:                        
                        
Foreign currency translation adjustments  (1,071)  (506)  (2,410)  (440)  947   (1,339)
                        
Other comprehensive income (loss)
  (1,071)  (506)  (2,410)  (440)  947   (1,339)
                        
TOTAL COMPREHENSIVE INCOME $27,398  $30,907  $48,398  $54,491  $34,794  $21,000 

See Notes to Unaudited Consolidated Financial Statements.

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ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 Six Months Ended September 30,  Three Months Ended June 30, 
 2022  2021  2023  2022 
Cash flows from operating activities:            
Net earnings $50,808  $54,931  $33,847  $22,339 
                
Adjustments to reconcile net earnings to net cash used in operating activities:        
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
        
Depreciation and amortization  9,539   12,044   5,755   4,472 
Provision for credit losses  1,739   98   478   698 
Share-based compensation expense  3,731   3,575   2,205   1,773 
Deferred taxes  -   (1)
Payments from lessees directly to lenders—operating leases  -   (32)
Gain on disposal of property, equipment, and operaing lease equipment  (3,052)  (525)
Gain on disposal of property, equipment, and operating lease equipment  (160)  (224)
Changes in:                
Accounts receivable  (93,103)  (85,463)  (166,803)  (53,556)
Inventories-net  (122,182)  (64,661)  300   (92,678)
Financing receivables—net  (23,164)  (18,019)  (42,071)  (20,574)
Deferred costs and other assets  (24,711)  (6,115)  8,303   (4,177)
Accounts payable-trade  49,626   (43,375)  124,948   30,376 
Salaries and commissions payable, deferred revenue, and other liabilities  31,098   12,539   12,298   8,608 
Net cash used in operating activities  (119,671)  (135,004)  (20,900)  (102,943)
                
Cash flows from investing activities:
                
Proceeds from sale of property, equipment, and operating lease equipment  3,114   2,553   196   85 
Purchases of property, equipment and operating lease equipment  (2,410)  (16,243)  (3,698)  (1,777)
Cash used in acquisitions, net of cash acquired  (12,998)  -   (59,595)  - 
Net cash used in investing activities  (12,294)  (13,690)  (63,097)  (1,692)
                
Cash flows from financing activities:                
Borrowings of non-recourse and recourse notes payable  142,271   64,815   97,955   49,256 
Repayments of non-recourse and recourse notes payable  (54,597)  (29,386)  (41,573)  (3,645)
Proceeds from issuance of common stock  1,398   - 
Repurchase of common stock  (7,224)  (6,874)  (7,465)  (7,224)
Net borrowings (repayments) on floor plan facility  (9,108)  47,227   32,290   (7,276)
Net cash provided by financing activities  71,342   75,782   82,605   31,111 
                
Effect of exchange rate changes on cash  4,776   300   (127)  1,634 
                
Net decrease in cash and cash equivalents  (55,847)  (72,612)  (1,519)  (71,890)
                
Cash and cash equivalents, beginning of period  155,378   129,562   103,093   155,378 
                
Cash and cash equivalents, end of period $99,531  $56,950  $101,574  $83,488 

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

 Six Months Ended September 30,  Three Months Ended June 30, 
 2022  2021  2023  2022 
Supplemental disclosures of cash flow information:
            
Cash paid for interest $1,111  $683  $566  $341 
Cash paid for income taxes $28,878  $24,511  $3,605  $7,532 
Cash paid for amounts included in the measurement of lease liabilities $2,300  $2,280  $1,261  $1,226 
                
Schedule of non-cash investing and financing activities:
                
Proceeds from sale of property, equipment, and leased equipment $35  $100  $15  $183 
Purchases of property, equipment, and operating lease equipment $(720) $(2,386) $(200) $(63)
Consideration for acquisitions
 $
(290) $
- 
Borrowing of non-recourse and recourse notes payable $15,532  $41,195  $-  $7,267 
Repayments of non-recourse and recourse notes payable $-  $(32)
Vesting of share-based compensation $9,811  $8,398  $8,483  $9,215 
Repurchase of common stock $
(28) $
- 
New operating lease assets obtained in exchange for lease obligations $2,353  $1,070  $3,100  $34 

See Notes to Unaudited Consolidated Financial Statements.

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

 Six Months Ended September 30, 2022  Three Months Ended June 30, 2023 
             Accumulated                 Accumulated    
    Additional        Other        Additional        Other    
 Common Stock  Paid-In  Treasury  Retained  Comprehensive     Common Stock  Paid-In  Treasury  Retained  Comprehensive    
 Shares  Par Value  Capital  Stock  Earnings  Income  Total  Shares  Par Value  Capital  Stock  Earnings  Income  Total 
Balance, March 31, 2022
  26,886  $270  $159,480  $(6,734) $507,846  $(124) $660,738 
Balance, March 31, 2023
  26,905  $272  $167,303  $(14,080) $627,202  $1,568  $782,265 
Issuance of restricted stock awards  135   1   -   -   -   -   1   153   2   (2)  -   -   -   - 
Issuance of common stock
  36   -   1,398   -   -   -   1,398 
Share-based compensation  -   -   1,773   -   -   -   1,773   -   -   2,205   -   -   -   2,205 
Repurchase of common stock  (128)  -   -   (7,224)  -   -   (7,224)  (147)  -   -   (7,371)  -   -   (7,371)
Net earnings  -   -   -   -   22,339   -   22,339   -   -   -   -   33,847   -   33,847 
Foreign currency translation adjustment  -   -   -   -   -   (1,339)  (1,339)  -   -   -   -   -   947   947 
                                                        
Balance, June 30, 2022
  26,893  $271  $161,253  $(13,958) $530,185  $(1,463) $676,288 
Issuance of restricted stock awards  13   1   -   -   -   -   1 
Share-based compensation  -   -   1,958   -   -   -   1,958 
Repurchase of common stock  -   -   -   -   -   -   - 
Net earnings  -   -   -   -   28,469   -   28,469 
Foreign currency translation adjustment  -   -   -   -   -   (1,071)  (1,071)
                            
Balance, September 30, 2022
  26,906  $272  $163,211  $(13,958) $558,654  $(2,534) $705,645 
Balance, June 30, 2023
  26,947  $274  $170,904  $(21,451) $661,049  $2,515  $813,291 

 Six Months Ended September 30, 2021  Three Months Ended June 30, 2022 
             Accumulated                 Accumulated    
    Additional        Other        Additional        Other    
 Common Stock  Paid-In  Treasury  Retained  Comprehensive     Common Stock  Paid-In  Treasury  Retained  Comprehensive    
 Shares  Par Value  Capital  Stock  Earnings  Income  Total  Shares  Par Value  Capital  Stock  Earnings  Income  Total 
Balance, March 31, 2021  27,006  $145  $152,366  $(75,372) $484,616  $655  $562,410 
Balance, March 31, 2022
  26,886  $270  $159,480  $(6,734) $507,846  $(124) $660,738 
Issuance of restricted stock awards  156   1   -   -   -   -   1   135   1   -   -   -   -   1 
Share-based compensation  -   -   1,735   -   -   -   1,735   -   -   1,773   -   -   -   1,773 
Repurchase of common stock  (90)  -   -   (4,111)  -   -   (4,111)  (128)  -   -   (7,224)  -   -   (7,224)
Net earnings  -   -   -   -   23,518   -   23,518   -   -   -   -   22,339   -   22,339 
Foreign currency translation adjustment  -   -   -   -   -   66   66   -   -   -   -   -   (1,339)  (1,339)
                                                        
Balance, June 30, 2021
  27,072  $146  $154,101  $(79,483) $508,134  $721  $583,619 
Issuance of restricted stock awards  12   -   -   -   -   -   - 
Share-based compensation  -   -   1,840   -   -   -   1,840 
Repurchase of common stock  (64)  -   -   (2,763)  -   -   (2,763)
Net earnings  -   -   -   -   31,413   -   31,413 
Foreign currency translation adjustment  -   -   -   -   -   (506)  (506)
                            
Balance, September 30, 2021
  27,020  $146  $155,941  $(82,246) $539,547  $215  $613,603 
Balance, June 30, 2022
  26,893  $271  $161,253  $(13,958) $530,185  $(1,463) $676,288 

See Notes to Unaudited Consolidated Financial Statements.

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ePlus inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of ePlusePlus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited consolidated financial statements from the dates of acquisition. During the quarter ended June 30, 2023, we split our technology segment into new segments-- product, professional services, and managed services-- to provide our management the ability to better manage and allocate resources among the separate components of our technology business. Our professional services and managed services are a significant component of our growth and long-term strategic initiatives. Subsequently, we manage and report our operating results through four operating segments: product, professional services, managed services, and financing. For additional information, see Note 16, “Segment Reporting”.

INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the sixthree months ended SeptemberJune 30, 2022,2023, and 2021,2022, were prepared by us and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the sixthree months ended SeptemberJune 30, 2022,2023, and 2021,2022, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ended March 31, 2023,2024, or any other future period. These unaudited consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 20222023 (“20222023 Annual Report”), which should be read in conjunction with these interim consolidated financial statements.

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

CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 39% and 40%45% of our technology segment’sbusiness net sales for the three months ended SeptemberJune 30, 2022,2023, and 2021, respectively, and 37% and 41% of our technology segment’s net sales35% for the sixthree months ended SeptemberJune 30, 2022, and 2021, respectively.
2022.
STOCK SPLIT — On December 13, 2021, we completed a two-for-one stock split in the form of a stock dividend. References made to outstanding shares or per share amounts in the accompanying financial statements and disclosures have been retroactively adjusted for this stock split.

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, 2022,2023, except for the changes provided in Note 2,, “Recent Accounting Pronouncements”.Pronouncements.”

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2.
RECENT ACCOUNTING PRONOUNCEMENTS



RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS —PRONOUNCEMENTS— In October 2021,September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2021-08, Business combinations (Topic 805)ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Accounting for contract assets and contract liabilities from contracts with customers (“ASU 2021-08”) thatDisclosure of Supplier Finance Program Obligations. This update requires companies to apply Accounting Standards Codification Topic 606, Contracts with customers (“ASC Topic 606”) to recognize and measure contract assets and contract liabilities from contracts with customers acquiredbuyers in a business combination. We early adopted this accounting standardsupplier finance program to disclose certain qualitative and quantitative information about the program. It is intended to provide information about an entity’s use of supplier finance programs and their effect on the entity’s working capital, liquidity, and cash flows. This update is effective for us beginning in the secondfirst quarter of our fiscal year 2023 and it did not haveending March 31, 2024, except for a material impactrequirement to provide a roll forward of our obligations during the annual period, which is effective for us beginning in the first quarter of our fiscal year ending March 31, 2025. We adopted the standard during the first quarter of fiscal year ending March 31, 2024, as reflected in this Quarterly Report on our Consolidated Financial Statements. The ongoing impact of this standardForm 10-Q, except for the roll forward requirement, which will be fact dependentadopted during the first quarter of fiscal year ending March 31, 2025. The adoption of the standard resulted in new disclosures only for amounts presented within Accounts payable – floor plan. For additional information on the transactions within its scope.new disclosures, see Note 8, “Notes Payable and Credit Facility”.

3.REVENUES

CONTRACT BALANCES

Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $62.3$58.5 million and $47.5$70.4 million of receivables from contracts with customers included within financing receivables as of SeptemberJune 30,, 2022, 2023, and March 31, 2022,2023, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands) thousands):

 September 30, 2022  March 31, 2022  June 30, 2023  March 31, 2023 
Current (included in deferred revenue) $107,802  $85,826  $118,646  $113,713 
Non-current (included in other liabilities) $40,119  $30,086  $48,390  $47,217 

Revenue recognized from the beginning contract liability balance was $17.5$30.9 million and $42.4$24.9 million for the three and six months ended SeptemberJune 30, 2022, respectively,2023, and $14.6 million and $36.1 million for the three and six months ended September 30, 2021,2022, respectively.

PERFORMANCE OBLIGATIONS

The following table includes revenue expected to be recognized in the future related to performance obligations, primarily non-cancelable contracts for ePlus managed services, that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):

Remainder of the year ending March 31, 2023
 $33,299 
Year ending March 31, 2024
  34,681 
Remainder of the year ending March 31, 2024
 $55,368 
Year ending March 31, 2025
  17,839   34,042 
Year ending March 31, 2026
  5,470   16,872 
Year ending March 31, 2027 and thereafter
  2,354 
Year ending March 31, 2027
  5,298 
Year ending March 31, 2028 and thereafter
  2,357 
Total remaining performance obligations $93,643  $113,937 

The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed.

4.FINANCING RECEIVABLES AND OPERATING LEASES

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

12
The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and six months ended SeptemberJune 30, 2022,2023, and 20212022 (in thousands):

12
 Three months ended September 30,  Six months ended September 30,  Three months Ended June 30, 
 2022  2021  2022  2021  2023  2022 
Net sales $4,506  $5,962  $9,489  $9,779  $7,623  $4,983 
Cost of sales  3,769   4,926   7,836   8,291   7,391   4,067 
Gross profit $737  $1,036  $1,653  $1,488  $232  $916 

The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three  and six months ended SeptemberJune 30, 2022,2023, and 20212022 (in thousands):

 Three months ended September 30,  Six months ended September 30,  Three months Ended June 30, 
 2022  2021  2022  2021  2023  2022 
Interest income on sales-type leases $819  $1,000  $1,680  $2,290  $1,362  $861 
Lease income on operating leases $4,659  $6,634  $9,241  $11,844  $2,808  $4,582 

FINANCING RECEIVABLES—NET

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

 Notes  Lease  Financing  Notes  Lease  Financing 
September 30, 2022
 Receivable  Receivables  Receivables 
June 30, 2023
 Receivable  Receivables  Receivables 
Gross receivables $89,717  $50,714  $140,431  $151,336  $60,660  $211,996 
Unguaranteed residual value (1)  -   8,385   8,385   -   8,348   8,348 
Unearned income  (5,795)  (5,104)  (10,899)  (14,278)  (7,925)  (22,203)
Allowance for credit losses (2)  (976)  (1,207)  (2,183)  (696)  (936)  (1,632)
Total, net $82,946  $52,788  $135,734  $136,362  $60,147  $196,509 
Reported as:                        
Current $45,443  $19,567  $65,010  $49,674  $31,437  $81,111 
Long-term  37,503   33,221   70,724   86,688   28,710   115,398 
Total, net $82,946  $52,788  $135,734  $136,362  $60,147  $196,509 

(1)Includes unguaranteed residual values of $4,830$4,488 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 7,, “Allowance for Credit Losses” for details.

 Notes  Lease  Financing  Notes   Lease   Financing 
March 31, 2022
 Receivable  Receivables  Receivables 
March 31, 2023
 Receivable  Receivables  Receivables 
Gross receivables $80,517  $38,788  $119,305  $117,008  $60,157  $177,165 
Unguaranteed residual value (1)  -   9,141   9,141   -   8,161   8,161 
Unearned income  (2,728)  (3,604)  (6,332)  (5,950)  (8,050)  (14,000)
Allowance for credit losses (2)  (708)  (681)  (1,389)  (801)  (981)  (1,782)
Total, net $77,081  $43,644  $120,725  $110,257  $59,287  $169,544 
Reported as:                        
Current $45,415  $16,077  $61,492  $65,738  $24,091  $89,829 
Long-term  31,666   27,567   59,233   44,519   35,196   79,715 
Total, net $77,081  $43,644  $120,725  $110,257  $59,287  $169,544 

(1)
Includes unguaranteed residual values of $6,4244,222 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 7, “Allowance for Credit Losses” for details.

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OPERATING LEASES—NET

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

  September 30,   March 31,   June 30,   March 31, 
 2022  2022  2023  2023 
Cost of equipment under operating leases $14,121  $13,044  $16,091  $15,301 
Accumulated depreciation  (9,752)  (7,985)  (10,825)  (10,599)
Investment in operating lease equipment—net (1) $4,369  $5,059  $5,266  $4,702 


(1)Amounts include estimated unguaranteed residual values of $1.8 million$1,873 thousand and $1.7 million$1,717 thousand as of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, respectively.

TRANSFERS OF FINANCIAL ASSETS

We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings.

For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, we had financing receivables of $20.2$22.0 million and $21.1$35.7 million, respectively, and operating leases of $1.7$2.1 million and $2.0$2.5 million, respectively, which were collateral for non-recourse notes payable. See Note 8,, ‘‘“Notes Payable and Credit Facility and Notes Payable.’’Facility.”

For transfers accounted for as a sale, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended SeptemberJune 30, 2022,2023, and 2021,2022, we recognized net gains of $8.1$1.3 million and $10.1$1.8 million, respectively, and total proceeds from these sales were $376.4$61.4 million and $615.0 million, respectively. For the year to date periods ended September 30, 2022, and 2021, we recognized net gains of $9.9 million and $13.3 million, respectively, and total proceeds from these sales were $428.9 million and $690.3$52.5 million, respectively.

When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform the services. As of both SeptemberJune 30, 2022,2023, and March 31, 2022,2023, we had deferred revenue of $0.4 million and $0.5 million, respectively, for servicing obligations.

In a limited number of transfers accounted for as sales, we indemnified the assignee ifin the event that the lessee elects to early terminate the lease. As of SeptemberJune 30, 2022,2023, and March 31, 2022, the2023, our total potential paymentsliability that could result from these indemnities is immaterial.

5.LESSEE ACCOUNTING

We lease office space for periods up to six years and lease warehouse space for periods generally between oneof up to five10 years, and inwe have some instances, for longer periods uplease options that can be exercised to ten years.extend beyond those lease term limits. We recognize our right-of-use assets as part of property, equipment, and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent expense as part of selling, general and administrative expenses. We recognized rent expense of $1.2$1.5 million as part of selling, general and administrative expenses$1.3 million for the three months ended SeptemberJune 30, 2023, and June 30, 2022, and $1.3 million for the three months ending September 30, 2021, and $2.5 million and $2.6 million for the six months ended September 30, 2022, and 2021, respectively.respectively.

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6.GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

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The following table summarizes the changes in the carrying amount of goodwill for the sixthree months ended SeptemberJune 30, 20222023 (in thousands):

 Six months ended September 30, 2022  Technology Segment  Product  Professional Services  Managed Services  Total 
Balance March 31, 2023               
Goodwill $144,778  $-   -   -   
144,778
 
Accumulated impairment losses  
(8,673
)
  -   -   -   
(8,673
)
Net carrying amount $136,105  $-  $-  $-  $136,105 
 Goodwill  
Accumulated Impairment
Loss
  
Net Carrying
Amount
                     
Beginning balance $135,216  $(8,673) $126,543 
Reporting unit change  (136,105)  
106,497
   
19,712
   
9,896
   - 
Acquisitions
  9,694   -   9,694   -   
19,672
   
2,456
   -   
22,128
 
Impairment losses  -   -   -   -   - 
Foreign currency translations  (330)  -   (330)  -   
37
   
7
   
3
   
47
 
Ending balance $144,580  $(8,673) $135,907 
Balance June 30, 2023
                    
Goodwill $-  $134,879  $22,175  $9,899  $166,953 
Accumulated impairment losses  -   
(6,787
)
  (1,256)  (630)  
(8,673
)
Net carrying amount $-  $128,092  $20,919  $9,269  $158,280 

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. OurAs of March 31, 2023, our entire balance as of September 30, 2022, relatesrelated to our technology segment, which we had also determined to be one reporting unit. During the first quarter ended June 30, 2023, we separated our technology segment into three different reporting unit. units: product, professional services, and managed services. As such, we allocated our goodwill and impairment losses to the reporting units affected using a relative fair value.

The carrying value of goodwill was $135.9$158.3 million and $126.5$136.1 million as of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, respectively. Our goodwill balance increased by $9.4$22.2 million over the sixthree months ended SeptemberJune 30, 2022,2023, due to $9.7$22.1 million in goodwill additions from our acquisition of Future Com, Ltd.Network Solutions Group (“NSG”), offset byand from foreign currency translationtranslations of $0.3$0.1 million. Please refer toNote 15,, “Business Combinations” for details of our acquisitionacquisition..

We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our prior year annual test as of October 1, 2021,2022, we performed a qualitativequantitative assessment of goodwill and concluded that more likely than not, the fair value of our technology reporting unit continued to substantially exceedexceeded its carrying value. Our conclusions would not be impacted by a ten percent change in our estimate of the fair value. of the reporting unit.

OTHER INTANGIBLE ASSETS

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Our other intangible assets consist of the following on SeptemberJune 30, 2022,2023, and March 31, 2022 (in2023(in thousands):

 September 30, 2022  March 31, 2022  June 30, 2023  March 31, 2023
 
 
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net Carrying
Amount
 
Purchased intangibles $85,218  $(56,425) $28,793  $77,224  $(52,087) $25,137  $115,463  $(64,897) $50,566  $85,449  $(61,376) $24,073 
Capitalized software development  10,516   (8,973)  1,543   10,517   (8,404)  2,113   10,516   (9,829)  687   10,516   (9,544)  972 
Total $95,734  $(65,398) $30,336  $87,741  $(60,491) $27,250  $125,979  $(74,726) $51,253  $95,965  $(70,920) $25,045 

Purchased intangibles, consisting mainly of customer relationships,intangibles, are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years.

Total amortization expense for purchased intangiblescustomer relationships and other intangible assets was $2.5$3.5 million and $2.2 million for the three months ended SeptemberJune 30, 2023, and June 30, 2022, and $2.7 million for the three months ended September 30, 2021, and $4.7 million and $5.4 million for the six months ended September 30, 2022, and 2021, respectively.respectively.

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7.ALLOWANCE FOR CREDIT LOSSES

The following table provides the activity in our allowance for credit losses for the sixthree months ended SeptemberJune 30, 2022,2023, and 20212022 (in thousands):

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

  
Accounts
Receivable
  
Notes
Receivable
  
Lease
Receivables
  Total 
Balance April 1, 2021
 $2,064  $1,212  $1,171  $4,447 
Provision for credit losses  116   479   (497)  98 
Write-offs and other  (64)  (4)  (2)  (70)
Balance September 30, 2021
 $2,116  $1,687  $672  $4,475 
  Accounts Receivable  
Notes
Receivable
  
Lease
Receivables
  Total 
Balance April 1, 2023
 $2,572  $801  $981  $4,354 
Provision for credit losses  629   (106)  (45)  478 
Write-offs and other  (13)  1   -   (12)
Balance June 30, 2023
 $3,188  $696  $936  $4,820 

  
Accounts
Receivable
  
Notes
Receivable
  
Lease
Receivables
  Total 
Balance April 1, 2022
 $2,411  $708  $681  $3,800 
Provision for credit losses  382   84   232  698 
Write-offs and other  (65)  -  -  (65)
Balance June 30, 2022
 $2,728  $792  $913  $4,433 

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

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

•
Average CQR: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. Loss rates in this category are generally in the range of 2%1% to 10%8%.

•
Low CQR: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. The loss rates in this category in the normal course are generally in the range ofgreater than 10%8% and up to 100%.
 
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The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of SeptemberJune 30, 20222023 (in thousands):

 Amortized cost basis by origination year ending March 31,          
 Amortized cost basis by origination year ending March 31,           2024  2023  2022  2021  2020  
2019 and
prior
  Total  
Transfers
(2)
  
Net credit
exposure
 
 2023  2022  2021  2020  2019  2018  Total  
Non-recourse
debt (2)
  
Net credit
exposure
                            
Notes receivable:                                                      
High CQR $37,200  $14,436  $18,494  $791  $452  $-  $71,373  $(16,450) $54,923  $67,836  $36,270  $13,539  $3,428  $142  $1  $121,216  $(14,619) $106,597 
Average CQR  8,039   2,655   1,220   508   123   4   12,549   (493)  12,056   4,871   9,695   1,096   96   58   26   15,842   (2,068)  13,774 
Low CQR  -   -   -   -   -   -   -   -   - 
Total $45,239  $17,091  $19,714  $1,299  $575  $4  $83,922  $(16,943) $66,979  $72,707  $45,965  $14,635  $3,524  $200  $27  $137,058  $(16,687) $120,371 
                                                                        
Lease receivables:                                                                        
High CQR $11,271  $5,513  $2,879  $2,754  $317  $32  $22,766  $(1,965) $20,801  $7,378  $16,566  $3,595  $1,775  $432  $133  $29,879  $(1,665) $28,214 
Average CQR  16,625   7,802   1,584   330   33   25   26,399   (1,248)  25,151   6,218   16,547   3,316   572   63   -   26,716   (4,049)  22,667 
Low CQR  -   -   -   -   -   -   -   -   - 
Total $27,896  $13,315  $4,463  $3,084  $350  $57  $49,165  $(3,213) $45,952  $13,596  $33,113  $6,911  $2,347  $495  $133  $56,595  $(5,714) $50,881 
                                                                        
Total amortized cost (1) $73,135  $30,406  $24,177  $4,383  $925  $61  $133,087  $(20,156) $112,931  $86,303  $79,078  $21,546  $5,871  $695  $160  $193,653  $(22,401) $171,252 

(1)
UnguaranteedExcludes unguaranteed residual values of $4,8304,488 thousand that we retained after selling the related lease receivable is excluded from amortized cost.receivable.
(2)Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis.

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The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 20222023 (in thousands):

  Amortized cost basis by origination year ending March 31,          

 2022  2021  2020  2019  2018  2017  Total  
Transfers
(2)
  
Net credit
exposure
 
                            
Notes receivable:                           
High CQR $35,264  $28,005  $1,297  $345  $2  $4  $64,917  $(30,274) $
34,643 
Average CQR  8,922   2,976   758   213   3   -   12,872   (4,763)  8,109 
Low CQR  -   -   -   -   -   -   -   -   - 
Total $44,186  $30,981  $2,055  $558  $5  $4  $77,789  $(35,037) $
42,752 
                                     
Lease receivables:                                    
High CQR $14,549  $5,002  $2,499  $902  $50  $11  $23,013  $(3,385) $
19,628 
Average CQR  10,936   3,092   741   47   72   -   14,888   (347)  14,541 
Low CQR  -   -   -   -   -   -   -   -   - 
Total $25,485  $8,094  $3,240  $949  $122  $11  $37,901  $(3,732) $
34,169 
                                     
Total amortized cost (1) $69,671  $39,075  $5,295  $1,507  $127  $15  $115,690  $(38,769) $
76,921 
  Amortized cost basis by origination year ending March 31,          

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

(1)
UnguaranteedExcludes unguaranteed residual values of $6,4244,222 thousand that we retained after selling the related lease receivable is excluded from amortized cost.receivable.
 
(2)
Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis and receivables that are in the process of being transferred to third-party financial institutions.

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The following table provides an aging analysis of our financing receivables as of SeptemberJune 30, 20222023 (in thousands):


 
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  Amortized
Cost		  
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  Amortized
Cost		 
Notes receivable $268  $425  $97  $790  $5,623  $6,413  $77,509  $83,922  $748  $113  $1,093  $1,954  $7,750  $9,704  $127,354  $137,058 
Lease receivables  240   154   551   945   905   1,850   47,315   49,165   250   367   902   1,519   3,771   5,290   51,305   56,595 
Total $508  $579  $648  $1,735  $6,528  $8,263  $124,824  $133,087  $998  $480  $1,995  $3,473  $11,521  $14,994  $178,659  $193,653 

The following table provides an aging analysis of our financing receivables as of March 31, 20222023 (in thousands):

 
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  
Amortized
Cost
  
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  
Amortized
Cost
 
Notes receivable $187  $37  $23  $247  $5,307  $5,554  $72,235  $77,789  $1,020  $862  $473  $2,355  $7,703  $10,058  $101,000  $111,058 
Lease receivables  115   325   430   870   639   1,509   36,392   37,901   1,068   463   864   2,395   5,413   7,808   48,238   56,046 
Total $302  $362  $453  $1,117  $5,946  $7,063  $108,627  $115,690  $2,088  $1,325  $1,337  $4,750  $13,116  $17,866  $149,238  $167,104 

Our financial assets on nonaccrual status were not significant as of SeptemberJune 30, 2022,2023, and March 31, 2022.2023.

8.NOTES PAYABLE AND CREDIT FACILITY AND NOTES PAYABLE

CREDIT FACILITY

We finance the operations of our subsidiaries ePlusePlus Technology, inc., ePlusePlus Technology Services, inc., and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology segmentbusiness through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). The WFCDF credit facility (the “WFCDF Credit Facility”) has an accounts payablea floor plan facility component and a revolving credit facility component.
facility.
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On October 13, 2021, the Borrowers amended, restated, and replaced in entirety their then-existing credit agreements with WFCDF. On October 31, 2022, the Borrowers entered into the First Amendment to the credit agreement. Under this agreement and its amendment, the credit facility is provided by a syndicate of banks (collectively, the “Lenders”) for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplanfloor plan facility in favor of the Borrowers.



On March 10, 2023, the Borrowers inentered into a Second Amendment to the credit agreement that amended the credit agreement to increase the maximum aggregate principal amount of upprincipal available under the floor plan facility to $375.0$500.0 million together with a sublimit for a revolving credit facility for upand increase the maximum aggregate amount of principal available under the Revolving Facility to $100.0 million (collectively, the “WFCDF Credit Facility”).$200.0 million.

Under the accounts payable floor plan facility, we had an outstanding balance of $136.2$182.9 million and $145.3$134.6 million as of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, respectively. On our balance sheet, our liability under the accounts payable floor plan facility is presented as accounts payable – floor plan.

Under

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



Under the revolving credit facility, we had $85.0$52.0 million outstanding as of SeptemberJune 30, 2022,2023, and no balance outstanding as of March 31, 2022.2023. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current.

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The fair value of the outstanding balances under the WFCDF Credit Facility were approximately equal to their carrying value as of SeptemberJune 30, 2022,2023, and March 31, 2022.2023.

The amount of principal available is subject to a borrowing base determined by, among other things, the Borrowers’ accounts receivable and inventory, each pursuant to a formula and subject to certain reserves. Loans accrue interest at a rate per annum equal to LIBORTerm SOFR Rate plus a Term SOFR Adjustment of 0.10% plus an Applicable Margin of 1.75%. The LIBOR rate is based upon one-month, three-month, six-month, and 12-month LIBOR periods, as selected by the Borrowers, and subject to a floor of 0.00%.

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

Under the WFCDF Credit Facility, the Borrowers are restricted in their ability to pay dividends to ePlus inc. unless their available borrowing meets or met certain thresholds. AsAs of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, their available borrowing met the thresholds such that there were no restrictions on their ability to pay dividends.

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

On October 31, 2022, the Borrowers executed an amendment toThe loss of the WFCDF Credit Facility that increased the limitcould have a material adverse effect on the aggregate principal amount to $425.0 millionour future results as we currently rely on this facility and increased the sublimit on the revolving credit facility up to $150.0 million. Additionally, this amendment converted allits components for daily working capital and liquidity for our technology business and as an operational function of the Borrower’s loans from a LIBOR rate to a Term SOFR rate.
our accounts payable process.

RECOURSE NOTES PAYABLE

Recourse notes payable consist of borrowings that, in the event of default, the lender has recourse against us. As of SeptemberJune 30, 2022,2023, we had $94.7$58.1 million in recourse notes payable consisting of $85.0 $52.0 million outstanding under theour revolving credit facility component of our WFCDF Credit Facility, and $9.7 $4.0 million arising from one installment payment arrangement within our technology business, and $2.1 million arising from borrowings that that were collateralized by financial receivables held by our financing segment. As of March 31, 2022,2023, we had $13.1had $6.0 million in recourse notes payable arising entirely from one installment payment arrangement within our technology segment.business. Our payments under this installment agreement are due quarterly in amounts that are correlated to the payments due to us from a customer under a related notes receivable. We discounted our payments due under this installment agreement to calculate our payable balance using an interest rate of 3.50% as of both SeptemberJune 30, 2022,2023, and March 31, 2022.2023. The weighted average interest rate for our recourse notes payable in our financing segment was 6.27% as of June 30, 2023.

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NON-RECOURSE NOTES PAYABLE

Non-recourse notes payable consists of borrowings that, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us. As of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, we had $20.8$22.7 million and $21.2$34.3 million, respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due periodically in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 4.09%5.22% and 3.59%5.01%, as of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, respectively.

9.COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

We are subject to various legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business and have not been fully resolved. The ultimate outcome of any litigation or any other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, we accrue our best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against us in a reporting period for amounts above management’sour expectations, our financial condition and operating results for that period couldmay be adversely affected. As of SeptemberJune 30, 2022,2023, we do not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the us in the future, and these matters could relate to prior, current, or future transactions or events.

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10.EARNINGS PER SHARE

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

The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations for the three and six months ended SeptemberJune 30, 2023, and 2022, and 2021, respectively (in(in thousands, except per share data).

 
 Three Months Ended
September 30,
  
 Six Months Ended
September 30,
  Three Months Ended June 30, 
 2022  2021  2022  2021  2023  2022 
                  
Net earnings attributable to common shareholders - basic and diluted $28,469  $31,413  $50,808  $54,931  $33,847  $22,339 
                        
Basic and diluted common shares outstanding:
                
Basic and diluted common shares outstanding:        
Weighted average common shares outstanding — basic  26,578   26,664   26,546   26,666   26,552   26,513 
Effect of dilutive shares  45   200   125   196   96   172 
Weighted average shares common outstanding — diluted  26,623   26,864   26,671   26,862   26,648   26,685 
                        
Earnings per common share - basic $1.07  $1.18  $1.91  $2.06  $1.27  $0.84 
                        
Earnings per common share - diluted $1.07  $1.17  $1.91  $2.04  $1.27  $0.84 

11.STOCKHOLDERS’ EQUITY
 
SHARE REPURCHASE PLAN

On March 22, 2023, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2023. On March 24, 2022, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2022. On March 18, 2021, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2021. Under both authorized programs, purchases may be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.

During the three months ended June 30, 2023, we purchased 93,541 shares of our outstanding common stock at a value of $4.4 million under the share repurchase plan; we also purchased 53,945 shares of common stock at a value of $3.0 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.
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During the sixthree months ended SeptemberJune 30, 2022, we purchased 70,473 shares of our outstanding common stock at a value of $3.9 million under the share repurchase plan; we also purchased 58,080 shares of common stock at a value of $3.3 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

20
During the six months ended September 30, 2021, we purchased 98,056 shares
Table of our outstanding common stock at a value of $4.3 million under the share repurchase plan; we also purchased 55,430 shares of common stock at a value of $2.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.Contents

12.SHARE-BASED COMPENSATION

SHARE-BASED PLANS

As of SeptemberJune 30, 2022,2023, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), (2) the 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”), and (3) the 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”).

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

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

RESTRICTED STOCK ACTIVITY

For the sixthree months ended SeptemberJune 30, 2023, we granted 862 shares under the 2017 Director LTIP, and 152,865 restricted shares under the 2021 Employee LTIP. For the three months ended June 30, 2022, we granted 15,954774 shares of our stock under the 2017 Director LTIP, and 138,643 restricted shares of our stock under the 2021 Employee LTIP. For

The following table provides a summary of the sixnon-vested restricted shares for the three months ended SeptemberJune 30, 2021, we granted 12,786 shares of our stock under the 2017 Director LTIP, and 155,722 restricted shares of our stock under the 2012 Employee LTIP. A summary of our restricted stock activity2023:, is as follows:

 
Number of
Shares
  
Weighted Average
Grant-date Fair Value
  
Number of
Shares
  
Weighted Average
Grant-date Fair Value
 
            
Nonvested April 1, 2022
  343,806  $41.01 
Nonvested April 1, 2023
  314,860  $49.57 
Granted  154,597  $56.82   153,727  $55.88 
Vested  (177,360) $39.44   (152,477) $46.10 
Forfeited  (6,399) $41.51   (961) $54.89 
Nonvested September 30, 2022
  314,644  $
49.58 
Nonvested June 30, 2023
  315,149  $54.31 


EMPLOYEE STOCK PURCHASE PLAN



On September 15, 2022, our shareholdersstockholders approved the 2022 Employee Stock Purchase Plan (“2022 ESPP”) through which eligible employees may purchase up to an aggregate of 2.50 million shares of our stock at 6-month intervals at a discounted purchase price of up to 85% ofdiscount off the lesser of the closing market price on the first or the last trading day of each offering date or closingperiod. Our inaugural offering period under the ESPP was January 1, 2023, to June 30, 2023. During the three months ended June 30, 2023, we issued 36,697 shares at a price onof $38.10 per share under the purchase date.ESPP. As of SeptemberJune 30, 2022, we have not had any offerings2023, there were 2.46 million shares remaining under the 2022 ESPP.

COMPENSATION EXPENSE

We recognizeThe following table provides a summary of our total share-based compensation costexpense, including for awards of restricted stock with graded vesting on a straight-line basis overawards and our ESPP, and the requisite service period. There are no additional conditionsrelated income tax benefit for vesting other than service conditions. During the three months ended SeptemberJune 30, 2023, and 2022 and 2021, we(in thousands):

  Three Months Ended June 30, 
  2023  2022 
       
Equity-based compensation expense $2,205  $1,773 
Income tax benefit  (600)  (496)

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We recognized $2.0 million and $1.8 millionthe income tax benefit as a reduction to our provision for income taxes. As of June 30, 2023, the total share-based compensation expense, respectively. During the six months ended September 30, 2022, and 2021, we recognized $3.7 million and $3.6 million of total share-based compensation expense, respectively. Unrecognizedunrecognized compensation expense related to unvestednon-vested restricted stock was $13.5$16.2 million, as of September 30, 2022, which willis expected to be fully recognized over the next 33a weighted-average period of 36 months.

20

We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are always fully vested. Our estimated contribution expense to the plan was $1.0 million for both the three months ended SeptemberJune 30, 2023, and 2022, and 2021. For the six months ended September 30, 2022, and 2021, our estimated contribution expense for the plan was $2.0$1.4 million and $1.8$1.1 million, respectively.


13.INCOME TAXES

Our provision for income tax expense was $11.8 million and $20.5$12.7 million for the three and six months ended SeptemberJune 30, 2022,2023, as compared to $12.6$8.7 million and $21.6  for the same period in the prior year. Our effective income tax rate for the three and six months ended SeptemberJune 30, 2022,2023, was 29.3% and 28.7% respectively,27.2%, compared with 28.6% and 28.2%, respectively,to 28.0% for the same periodsperiod in the prior year.year, primarily due to a lower state effective tax rate. The effective tax rate for the three and six months ended SeptemberJune 30, 2022,2023, and SeptemberJune 30, 2021,2022, differed from the US federal statutory rate of 21.0% primarily due to state and local income taxtaxeses. Our effective income tax rate for the three and six months ended September 30,2022, was higher compared to the same periods in the prior year primarily due to foreign currency losses incurred in lower tax jurisdictions.

14.FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table summarizes the fair value hierarchy of our financial instruments as of SeptemberJune 30, 2022,2023, and March 31, 20222023 (in thousands):

    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, 2022
            
June 30, 2023
            
Assets:                        
Money market funds $10,204  $10,204  $-  $-  $22,225  $22,225  $-  $- 
                                
March 31, 2022
                
March 31, 2023
                
Assets:                                
Money market funds $18,138  $18,138  $-  $-  $8,880  $8,880  $-  $- 

15.
BUSINESS COMBINATIONS


FUTURE COMNETWORK SOLUTIONS GROUP (NSG)



On July 15, 2022,April 30, 2023, our subsidiary, ePlusePlus Technology, inc., acquired certain assets and liabilities of Future Com, Ltd.NSG, formerly a business unit of CCI Systems, Inc., a Texas-basedMichigan-based provider of cybersecurity solutions, cloud securitynetworking services and security consulting services throughoutsolutions. This acquisition will help drive additional growth for us in the US. Our acquisition provides access toservice provider end-markets with enhanced engineering, sales, and services delivery capabilities inspecific to the South-Central region of the United States, as well as bolstering the skills and expertise surrounding ePlus’ growing cybersecurity practice.industry.


Our preliminary sum for consideration transferred is $13.3 $48.6 million consisting of $13.0$59.6 million paid in cash at closing plus an additional $0.3 minus $11.0 million that is oweddue to us from the sellers based on adjustments to our determination of the total net assets delivered.delivered. Our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):


 		 
Acquisition Date
Amount
 
Accounts receivable $4,033 
Other assets  129 
Identified intangible assets  8,360 
Accounts payable and other current liabilities  (8,714)
Contract liabilities  (214)
Total identifiable net assets  3,594 
Goodwill  9,694 
Total purchase consideration $13,288 
22

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



The identified intangible assets of $8.4$30.0 million consists of customer relationships with an estimated useful life of seven years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.



We recognized goodwill related to this transaction of $9.7$22.1 million, of which was$19.7 million and $2.4 million were assigned to our technologyproduct and professional services reporting unit.units, respectively. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes.



The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2022,2023, is not material.



As of our filing date, our accounting for this business combination is incomplete in respect to determining the final consideration transferred and the fair value of assets acquired, and liabilities assumed.

16.SEGMENT REPORTING

Prior to the start of the fiscal year ending March 31, 2024, we had two segments: technology and financing. During the quarter ended June 30, 2023, we split our technology segment into new segments-- product, professional services, and managed services-- to provide our management the ability to better manage and allocate resources among the separate components of our technology business. Our operationsprofessional services and managed services are conducteda significant component of our growth and long-term strategic initiatives. Subsequently, we manage and report our operating results through twofour operating segments that are also both reportable segments.segments: product, professional services, managed services, and financing. Our technologyproduct segment includes sales of IT products, third-party software, and third-party maintenance, software assurance, and other third-party services. Our professional services segment includes our advanced professional services, staff augmentation, project management services, cloud consulting services and security services. Our managed services segment includes our advanced managed services, service desk, storage-as-a-service, cloud hosted services, cloud managed services and our proprietary software to commercial enterprises, state and local governments, and government contractors.managed security services. 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 within our technology business based on gross profit, while we measure our financing segment based on operating income.

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Our reportable segment We do not present asset information for the three-and six-month periods ended September 30, 2022, and 2021 are summarized in the following table (in thousands):our reportable segments as we do not provide asset information to our chief operating decision maker (“CODM”).

 Three Months Ended 
  September 30, 2022  September 30, 2021 
  Technology  Financing  Total  Technology  Financing  Total 
                   
Net Sales                  
Product $406,317  $22,228  $428,545  $375,444  $21,716  $397,160 
Service  65,161   -   65,161   60,857   -   60,857 
Total
  471,478   22,228   493,706   436,301   21,716   458,017 
                         
Cost of Sales                        
Product  311,928   5,199   317,127   293,837   3,792   297,629 
Service  43,275   -   43,275   37,386   -   37,386 
Total
  355,203   5,199   360,402   331,223   3,792   335,015 
                         
Gross Profit  116,275   17,029   133,304   105,078   17,924   123,002 
                         
Selling, general, and administrative  80,161   4,543   84,704   70,803   3,701   74,504 
Depreciation and amortization  3,540   28   3,568   3,825   28   3,853 
Interest and financing costs  671   254   925   199   143   342 
Operating expenses  84,372   4,825   89,197   74,827   3,872   78,699 
                         
Operating income  31,903   12,204   44,107   30,251   14,052   44,303 
                         
Other income (expense)          (3,866)          (325)
                         
Earnings before tax         $40,241          $43,978 
                         
Net Sales                        
Contracts with customers $466,972  $6,923  $473,895  $430,339  $1,776  $432,115 
Financing and other  4,506   15,305   19,811   5,962   19,940   25,902 
Total
 $471,478  $22,228  $493,706  $436,301  $21,716  $458,017 
                         
Selected Financial Data - Statement of Cash Flow                        
                         
Depreciation and amortization $3,871  $1,196  $5,067  $4,074  $1,888  $5,962 
Purchases of property, equipment and operating lease equipment $611  $22  $633  $948  $8,301  $9,249 
                         
Selected Financial Data - Balance Sheet                        
                         
Total assets $1,167,532  $203,808  $1,371,340  $902,070  $237,875  $1,139,945 

23
 Six Months Ended 
  September 30, 2022  September 30, 2021 
  Technology  Financing  Total  Technology  Financing  Total 
                   
Net Sales                  
Product $791,993  $31,802  $823,795  $720,210  $38,007  $758,217 
Service  128,270   -   128,270   116,449   -   116,449 
Total
  920,263   31,802   952,065   836,659   38,007   874,666 
                         
Cost of Sales                        
Product  614,436   6,901   621,337   564,852   10,004   574,856 
Service  83,901   -   83,901   71,296   -   71,296 
Total
  698,337   6,901   705,238   636,148   10,004   646,152 
                         
Gross Profit  221,926   24,901   246,827   200,511   28,003   228,514 
                         
Selling, general, and administrative  153,273   8,198   161,471   136,956   6,323   143,279 
Depreciation and amortization  6,722   56   6,778   7,723   56   7,779 
Interest and financing costs  809   479   1,288   358   343   701 
Operating expenses  160,804   8,733   169,537   145,037   6,722   151,759 
                         
Operating income  61,122   16,168   77,290   55,474   21,281   76,755 
                         
Other income (expense)          (6,019)          (202)
                         
Earnings before tax         $71,271          $76,553 
                         
Net Sales                        
Contracts with customers $910,774  $7,868  $918,642  $826,880  $7,194  $834,074 
Financing and other  9,489   23,934   33,423   9,779   30,813   40,592 
Total
 $920,263  $31,802  $952,065  $836,659  $38,007  $874,666 
                         
Selected Financial Data - Statement of Cash Flow                        
                         
Depreciation and amortization $7,386  $2,153  $9,539  $8,177  $3,867  $12,044 
Purchases of property, equipment and operating lease equipment $1,897  $513  $2,410  $2,255  $13,988  $16,243 
                         
Selected Financial Data - Balance Sheet                        
                         
Total assets $1,167,532  $203,808  $1,371,340  $902,070  $237,875  $1,139,945 

The following table provides reportable segment information for the three-month periods ended June 30, 2023, and 2022 (in thousands):


  Three Months Ended June 30, 
  2023
  2022
 
       
Net Sales      
Product $498,166  $385,676 
Professional Services  35,556   37,168 
Managed Services  31,963   25,941 
Financing  8,490   9,574 
Total  574,175   458,359 
         
Gross Profit        
Product  111,391   83,168 
Professional Services  14,724   15,055 
Managed Services  9,797   7,428 
Financing  6,361   7,872 
Total  142,273   113,523 
         
Operating income        
Technology Business  43,498   29,219 
Financing  2,834   3,964 
Total  46,332   33,183 
Other income (expense), net  190   (2,153)
Earnings before tax $46,522  $31,030 
         
Depreciation and amortization        
Technology Business $4,764  $3,182 
Financing  28   28 
Total $4,792  $3,210 
         
Interest and financing costs        
Technology Business $550  $138 
Financing  301   225 
Total $851  $363 
         
Selected Financial Data - Statement of Cash Flow        
         
Purchases of property, equipment and operating lease equipment Technology Business $2,785  $1,286 
Financing  913   491 
Total $3,698  $1,777 


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The following table provides a disaggregation of net sales by source and further disaggregates our revenue recognized from contracts with customers by timing and our position as principal or agent for the three-month period ended June 30, 2023 (in thousands):


  Three months ended June 30, 2023 
  Product  Professional
Services		  Managed Services  Financing  Total 
                
Net Sales               
Contracts with customers $490,543  $35,556  $31,963  $1,290  $559,352 
Financing and other  7,623   -   -   7,200   14,823 
Total $498,166  $35,556  $31,963  $8,490  $574,175 
                     
Timing and position as principal or agent                    
Transferred at a point in time as principal $452,382  $-  $-  $1,290  $453,672 
Transferred at a point in time as agent  38,161   -   -   -   38,161 
Transferred over time as principal  -   35,556   31,963   -   67,519 
Total revenue from contracts with customers $490,543  $35,556  $31,963  $1,290  $559,352 



The following table provides a disaggregation of net sales by source and further disaggregates our revenue recognized from contracts with customers by timing and our position as principal or agent for the three-month period ended June 30, 2022 (in thousands):


  Three months ended June 30, 2022 
  Product  Professional
Services		  Managed Services  Financing  Total 
                
Net Sales               
Contracts with customers $380,693  $37,168  $25,941  $945  $444,747 
Financing and other  4,983   -   -   8,629   13,612 
Total $385,676  $37,168  $25,941  $9,574  $458,359 
                     
Timing and position as principal or agent                    
Transferred at a point in time as principal $335,714  $-  $-  $945  $336,659 
Transferred at a point in time as agent  44,979   -   -   -   44,979 
Transferred over time as principal  -   37,168   25,941   -   63,109 
Total revenue from contracts with customers $380,693  $37,168  $25,941  $945  $444,747 

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TECHNOLOGY SEGMENTBUSINESS DISAGGREGATION OF REVENUE

We analyze net sales
The following table provides a disaggregation of our revenue from contracts with customers for our technology segmentbusiness by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized for the three- and six-month periods ended September 30, 2022, and 2021 in the tables belowtype (in thousands):

 Three Months Ended September 30,  Six Months Ended September 30, 
  2022  2021  2022  2021 
Customer end market:            
Telecom, media & entertainment $118,454  $115,784  $246,731  $227,976 
Technology  96,160   53,752   166,021   122,892 
Healthcare  66,959   88,237   135,471   142,925 
State and local government and educational institutions  70,491   68,662   135,092   134,077 
Financial services  37,611   37,036   70,910   67,047 
All others  81,803   72,830   166,038   141,742 
Net sales  471,478   436,301   920,263   836,659 
                 
Less: Revenue from financing and other  (4,506)  (5,962)  (9,489)  (9,779)
                 
Revenue from contracts with customers $466,972  $430,339  $910,774  $826,880 

 Three Months Ended September 30,  Six Months Ended September 30, 
  2022  2021  2022  2021 
Vendor:            
Cisco systems $185,318  $174,072  $342,196  $340,974 
Juniper networks  39,580   18,438   62,089   43,152 
HPE
  32,330   8,965   39,129   21,301 
NetApp  16,710   29,536   30,695   39,993 
Dell EMC
  15,221   43,498   77,094   69,838 
Arista networks  8,933   8,047   20,105   19,545 
All others  173,386   153,745   348,955   301,856 
Net sales  471,478   436,301   920,263   836,659 
                 
Less: Revenue from financing and other  (4,506)  (5,962)  (9,489)  (9,779)
                 
Revenue from contracts with customers $466,972  $430,339  $910,774  $826,880 
  Three Months Ended June 30, 
  2023
  2022
 
Customer end market:      
Telecom, media & entertainment $141,335  $128,277 
SLED  109,405   64,602 
Healthcare  86,656   68,512 
Technology  73,403   69,862 
Financial services  65,690   33,299 
All others  89,196   84,233 
Net sales  565,685   448,785 
Less: revenue from financing and other  (7,623)  (4,983)
Total revenue from contracts with customers $558,062  $443,802 
         
Type:        
Product        
Networking $245,188  $142,641 
Cloud  172,044   164,733 
Security  45,796   47,995 
Collaboration  12,956   12,980 
Other  22,182   17,327 
Total product  498,166   385,676 
         
Professional services  35,556   37,168 
Managed services  31,963   25,941 
Net sales  565,685   448,785 
Less: revenue from financing and other  (7,623)  (4,983)
Total revenue from contracts with customers $558,062  $443,802 

We do not disaggregate sales by customer end market beyond the technology business level.

FINANCING SEGMENT DISAGGREGATION OF REVENUE

We analyze our revenues within our financing segment based on the nature of the arrangement. Our financing revenue generally consists of portfolio income, transactional gains, and post-contract earnings including month-to-month rents and the sales of off-lease equipment. All of our revenues from contracts with customers within our financing segment is from the sales of off-lease equipment.

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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTRESULTS OF OPERATIONS

This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the unaudited consolidated financial statements included in this quarterly reportQuarterly Report on Form 10-Q and the audited consolidated financial statements included in our 20222023 Annual Report. These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in Part I, Item 1A, “Risk“Risk Factors,,” in our 20222023 Annual Report.Report, as well as in our other filings with the SEC.

EXECUTIVE OVERVIEW

BUSINESS DESCRIPTION

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

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

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

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Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local government and educational institutions (“SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which accountsaccount for most of our sales, and to customers in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, Singapore, and Singapore.Israel. Our technology segmentbusiness segments accounted for 97%99% of our net sales and 79%94% of our operating income, while our financing segment accounted for 3%1% of our net sales and 21%6% of our operating income, for the sixthree months ended SeptemberJune 30, 2022.2023.

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BUSINESS TRENDS

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

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

A worldwide shortage of certain IT products is resulting from, among other things, shortages in semiconductors and other product components. Like others in the industry, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, our having to carry more inventory for longer periods, the costscost of products, vendor return and cancellation policies, and our ability to meet customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters.

We are experiencing increases in prices from our suppliers, as well as rising wages and interest rates. We generally have been able to pass price increases to our customers. Our labor costs related to services we perform will take longer to pass to customers that have servicesservice engagements where prices may be set. Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds and lock in our profit on the transaction. There can be no assurances thatAccordingly, inflation will notcould have a material impact on our sales, gross profit, or operating costs in the future.

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

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

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

KEY BUSINESS METRICS

Our management monitors several financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, and net earnings per common share, in each case based on information prepared in accordance with US GAAP, as well as the non-GAAP financial measures and ratios, including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross billings, and Non-GAAPNon-GAAP: Net earnings and Non-GAAP: Net earnings per common share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets. We use Gross billings as an operational metric to assess the volume of transactions within our Technology business as well as to understand changes in our accounts receivable. We believe Gross billings will aid investors in the same manner.

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

Set forth in footnotes (1) and (2) of the tables that immediately follow this paragraph, we set forth our reasons for using and presenting Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share-diluted in the tables and discussion that follow.
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29
OurThe following table provides our key business metrics for the three- and six-month periods ended September 30, 2022, and 2021 are summarized in the following tables (dollars in thousands)(in thousands, except per share amounts):

 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  Three Months Ended June 30, 
Consolidated 2022  2021  2022  2021  2023  2022 
      
Financial Metrics      
Net sales 
$
493,706
  
$
458,017
  
$
952,065
  
$
874,666
  
$
574,175
  
$
458,359
 
                  
Gross profit 
$
133,304
  
$
123,002
  
$
246,827
  
$
228,514
  
$
142,273
  
$
113,523
 
Gross margin 
27.0
%
 
26.9
%
 
25.9
%
 
26.1
%
 
24.8
%
 
24.8
%
Operating income margin 
8.9
%
 
9.7
%
 
8.1
%
 
8.8
%
 
8.1
%
 
7.2
%
              
Net earnings 
$
28,469
  
$
31,413
  
$
50,808
  
$
54,931
  
$
33,847
  
$
22,339
 
Net earnings margin 
5.8
%
 
6.9
%
 
5.3
%
 
6.3
%
 
5.9
%
 
4.9
%
Net earnings per common share - diluted 
$
1.07
 
$
1.17
 
$
1.91
 
$
2.04
  
$
1.27
 
$
0.84
 
              
Non-GAAP Financial Metrics     
Non-GAAP: Net earnings (1) 
$
34,396
  
$
34,806
  
$
60,909
  
$
61,159
  
$
37,687
  
$
26,513
 
Non-GAAP: Net earnings per common share - diluted (1) 
$
1.29
 
$
1.30
 
$
2.28
 
$
2.28
  
$
1.41
 
$
0.99
 
              
Adjusted EBITDA (2) 
$
50,304
  
$
50,195
  
$
88,608
  
$
88,467
  
$
53,879
  
$
38,304
 
Adjusted EBITDA margin 
10.2
%
 
11.0
%
 
9.3
%
 
10.1
%
 
9.4
%
 
8.4
%
              
Technology Business     
              
Technology Segment         
Financial Metrics     
Net sales 
$
471,478
  
$
436,301
  
$
920,263
  
$
836,659
  
$
565,685
  
$
448,785
 
Adjusted gross billings (3) 
$
765,762
  
$
664,124
  
$
1,467,705
  
$
1,297,131
 
                  
Gross profit 
$
116,275
  
$
105,078
  
$
221,926
  
$
200,511
  
$
135,912
  
$
105,651
 
Gross margin 
24.7
%
 
24.1
%
 
24.1
%
 
24.0
%
 
24.0
%
 
23.5
%
              
Operating income 
$
31,903
  
$
30,251
  
$
61,122
  
$
55,474
  
$
43,498
  
$
29,219
 
      
Non-GAAP Financial Metric      
Adjusted EBITDA (2) 
$
38,012
  
$
36,059
  
$
72,266
  
$
67,017
  
$
50,949
  
$
34,254
 
               
Operational Metric      
Gross billings (3)      
Cloud 
$
258,924
  
$
253,337
 
Networking 
276,645
  
165,626
 
Security 
147,343
  
145,349
 
Collaboration 
22,161
  
34,775
 
Other  
69,761
   
49,009
 
Product gross billings 
774,834
  
648,096
 
Service gross billings  
67,136
   
68,167
 
Total gross billings 
$
841,970
   
716,263
 
     
Financing Segment              
     
Financial Metrics     
Net sales 
$
22,228
  
$
21,716
  
$
31,802
  
$
38,007
  
$
8,490
  
$
9,574
 
                  
Gross profit 
$
17,029
  
$
17,924
  
$
24,901
  
$
28,003
  
$
6,361
  
$
7,872
 
              
Operating income 
$
12,204
  
$
14,052
  
$
16,168
  
$
21,281
  
$
2,834
  
$
3,964
 
      
Non-GAAP Financial Metric      
Adjusted EBITDA (2) 
$
12,292
  
$
14,136
  
$
16,342
  
$
21,450
  
$
2,930
  
$
4,050
 

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

30
We use Non-GAAPNon-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted as a supplemental measuremeasures of our performance to gain insight into our operating performance and performance trends. We believe that the exclusion of other income and acquisition-related amortization expense in calculating Non-GAAPNon-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAPNon-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Non-GAAPnon-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate similar Non-GAAPNon-GAAP: Net earnings and Non-GAAPNon-GAAP: Net earnings per common share – diluted or similarly titled measures differently, which may reduce their usefulness as comparative measures.

28
TableThe following table provides our calculation of Contents
Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted (in thousands, except per share amounts):
  
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
  2022  2021  2022  2021 
GAAP: Earnings before tax 
$
40,241
  
$
43,978
  
$
71,271
  
$
76,553
 
Share based compensation  
1,958
   
1,840
   
3,731
   
3,575
 
Acquisition related amortization expense  
2,494
   
2,661
   
4,677
   
5,357
 
Other expense  
3,866
   
325
   
6,019
   
202
 
Non-GAAP: Earnings before provision for income taxes  
48,559
   
48,804
   
85,698
   
85,687
 
                 
GAAP: Provision for income taxes  
11,772
   
12,565
   
20,463
   
21,622
 
Share based compensation  
572
   
528
   
1,080
   
1,024
 
Acquisition related amortization expense  
720
   
750
   
1,337
   
1,507
 
Other expense  
1,128
   
93
   
1,744
   
58
 
Tax benefit (expense) on restricted stock  
(29
)
  
62
   
165
   
317
 
Non-GAAP: Provision for income taxes  
14,163
   
13,998
   
24,789
   
24,528
 
                 
Non-GAAP: Net earnings 
$
34,396
  
$
34,806
  
$
60,909
  
$
61,159
 

  
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
  2022  2021  2022  2021 
GAAP: Net earnings per common share - diluted 
$
1.07
  
$
1.17
  
$
1.91
  
$
2.04
 
                 
Share based compensation  
0.05
   
0.05
   
0.09
   
0.10
 
Acquisition related amortization expense  
0.07
   
0.07
   
0.13
   
0.14
 
Other expense  
0.10
   
0.01
   
0.16
   
0.01
 
Tax expense on restricted stock  
-
   
-
   
(0.01
)
  
(0.01
)
Total non-GAAP adjustments - net of tax  
0.22
   
0.13
   
0.37
   
0.24
 
                 
Non-GAAP: Net earnings per common share - diluted 
$
1.29
  
$
1.30
  
$
2.28
  
$
2.28
 
  Three Months Ended June 30, 
  2023  2022 
GAAP: Earnings before tax 
$
46,522
  
$
31,030
 
Share based compensation  
2,205
   
1,773
 
Acquisition related amortization expense  
3,469
   
2,183
 
Other (income) expense  
(190
)
  
2,153
 
Non-GAAP: Earnings before provision for income taxes  
52,006
   
37,139
 
         
GAAP: Provision for income taxes  
12,675
   
8,691
 
Share based compensation  
607
   
508
 
Acquisition related amortization expense  
952
   
617
 
Other (income) expense  
(52
)
  
616
 
Tax benefit (expense) on restricted stock  
137
   
194
 
Non-GAAP: Provision for income taxes  
14,319
   
10,626
 
         
Non-GAAP: Net earnings 
$
37,687
  
$
26,513
 

  Three Months Ended June 30, 
  2023  2022 
GAAP: Net earnings per common share - diluted 
$
1.27
  
$
0.84
 
         
Share based compensation  
0.06
   
0.04
 
Acquisition and integration expense  
-
   
-
 
Acquisition related amortization expense  
0.09
   
0.06
 
Other (income) expense  
-
   
0.06
 
Tax benefit (expense) on restricted stock  
(0.01
)
  
(0.01
)
Total non-GAAP adjustments - net of tax  
0.14
   
0.15
 
         
Non-GAAP: Net earnings per common share - diluted 
$
1.41
  
$
0.99
 

(2)
We define Adjusted EBITDA as net earnings calculated in accordance with US GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for income taxes, and other income. Segment Adjusted EBITDA is defined as operating income calculated in accordance with US GAAP, adjusted for interest expense, share-based compensation, acquisition and integration expenses, and depreciation and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. WeIn the table below, we provide below a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial measure to this Non-GAAPnon-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales. The presentation of Adjusted EBITDA has been changed from prior period presentations to include adjustments for expenses related to acquisitions such as legal, accounting, tax, and adjustments to the fair value of contingent purchase price consideration as well as stock compensation.

31
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance and performance trends. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.

29The following table provides our calculations of Adjusted EBITDA (in thousands):
 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  Three Months Ended June 30, 
Consolidated 2022  2021  2022  2021  2023  2022 
Net earnings 
$
28,469
 
$
31,413
 
$
50,808
 
$
54,931
  
$
33,847
 
$
22,339
 
Provision for income taxes 
11,772
 
12,565
 
20,463
 
21,622
  
12,675
 
8,691
 
Share based compensation 
1,958
 
1,840
 
3,731
 
3,575
  
2,205
 
1,773
 
Interest and financing costs 
671
 
199
 
809
 
358
  
550
 
138
 
Depreciation and amortization 
3,568
 
3,853
 
6,778
 
7,779
  
4,792
 
3,210
 
Other income  
3,866
  
325
  
6,019
  
202
 
Other income (expense)  
(190
)
  
2,153
 
Adjusted EBITDA 
$
50,304
 
$
50,195
 
$
88,608
 
$
88,467
  
$
53,879
 
$
38,304
 
              
Technology Segment         
Technology Business     
Operating income 
$
31,903
 
$
30,251
 
$
61,122
 
$
55,474
  
$
43,498
 
$
29,219
 
Depreciation and amortization 
3,540
 
3,825
 
6,722
 
7,723
  
4,764
 
3,182
 
Share based compensation 
1,898
 
1,784
 
3,613
 
3,462
  
2,137
 
1,715
 
Interest and financing costs  
671
  
199
  
809
  
358
   
550
  
138
 
Adjusted EBITDA 
$
38,012
 
$
36,059
 
$
72,266
 
$
67,017
  
$
50,949
 
$
34,254
 
              
     
Financing Segment              
Operating income 
$
12,204
 
$
14,052
 
$
16,168
 
$
21,281
  
$
2,834
 
$
3,964
 
Depreciation and amortization 
28
 
28
 
56
 
56
  
28
 
28
 
Share based compensation  
60
  
56
  
118
  
113
   
68
  
58
 
Adjusted EBITDA 
$
12,292
 
$
14,136
 
$
16,342
 
$
21,450
  
$
2,930
 
$
4,050
 

(3)
We define Adjusted grossGross billings are the total dollar value of customer purchases of goods and services including shipping charges during the period, net of customer returns and credit memos, sales, or other taxes. Gross billings includes the transaction values for certain sales transactions that are recognized on a net basis, and, therefore, includes amounts that will not be recognized as our technology segment net sales calculated in accordance with US GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services. We have provided below a reconciliation of Adjusted gross billings to technology segment net sales, which is the most directly comparable financial measure to this Non-GAAP financial measure.revenue.

  
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
  2022  2021  2022  2021 
Technology segment net sales 
$
471,478
  
$
436,301
  
$
920,263
  
$
836,659
 
Costs incurred related to sales of third party maintenance, software assurance and subscription/SaaS licenses, and services  
294,284
   
227,823
   
547,442
  
$
460,472
 
Adjusted gross billings 
$
765,762
  
$
664,124
  
$
1,467,705
  
$
1,297,131
 

We use Adjusted gross billings as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment, and to analyze the changes to our accounts receivable and accounts payable. Our use of Adjusted gross billings as an analytical tool has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted gross billings or a similarly titled measure differently, which may reduce its usefulness as a comparative measure.

3032
CONSOLIDATED RESULTS OF OPERATIONS

Net sales: Net sales for the three months ended SeptemberJune 30, 2022, increased $35.72023, increased 25.3% to $574.2 million, or 7.8%, to $493.7 million, asan increase of $115.8 million compared to $458.0$458.4 million forin the same three-month period in the prior year. ProductThe increase in net sales was driven by higher revenues from our technology business segments, offset by lower revenues from our financing segment. The increase in sales from the technology business segments was due to increases in both product and managed services sales, driven by increased demand from our customers, including customers from the Network Solutions Group (“NSG”) and Future Com acquisitions. These increases were offset by lower professional service sales due to lower staff augmentation revenues due to softer demand by our customers. The decline in revenues from our financing segment was due to lower transactional gains from the sale of financial assets and lower month-to-month rents.

Gross billings from our technology business segments for the three months ended SeptemberJune 30, 2022, increased $31.42023, increased by 17.6%, or $125.7 million, or 7.9% to $428.6$842.0 million as compared to $397.2$716.3 million forin the same period in the prior year, due to increased demand and higher prices for some products in our technology segment. Service sales for the three months ended September 30, 2022, increased $4.3 million, or 7.1%, to $65.2 million, as compared to $60.9 million for the same period in the prior year, primarily due to growth in managed services volume. In the technology segment, we had increases in net sales to customers in technology, telecom, media, and entertainment, and SLED due to increases in demand and the timing of fulfilling orders from existing customers, which were partially offset by decreases in net sales to customers in healthcare due to the timing of fulfilling orders from existing customers during the three months ended September 30, 2022, compared to the same period in the prior year.

Net sales for the six months ended September 30, 2022, increased $77.4 million, or 8.8%, to $952.1 million, as compared to $874.7 million for the samethree-month period in the prior year. Product sales for the six months ended September 30, 2022, increased $65.6 million, or 8.6%, to $823.8 million, as compared to $758.2 million for the same period in the prior year,Gross billings increased due to increasedboth organic customer demand as well as from the acquisitions of NSG and higher prices for some products in our technology segment. Service sales for the six months ended September 30, 2022, increased $11.9 million, or 10.2%, to $128.3 million, as compared to $116.4 million for the same period in the prior year, primarily due to growth in managed services volume and increases in professional services volume and rates. In the technology segment, we had increases in net sales to customers in technology, telecom, media, and entertainment, and professional services due to increases in demand and the timing of fulfilling orders from existing customers, which were partially offset by decreases in net sales to customers in healthcare and manufacturing due to the timing of fulfilling orders from existing customers during the six months ended September 30, 2022, compared to the same period in the prior year.Future Com.

Adjusted gross billings for the three months ended September 30, 2022, increased $101.7 million, or 15.3%, to $765.8 million, as compared to $664.1 million for the same period in the prior year. We had increases in adjusted gross billings to customers in technology, telecom, media and entertainment, financial services, and SLED, which were partially offset by decreases in adjusted gross billings to customers in the healthcare market.

Adjusted gross billings for the six months ended September 30, 2022, increased $170.6 million, or 13.2%, to $1,467.7 million, as compared to $1,297.1 million for the same period in the prior year. We had increases in adjusted gross billings to customers in technology, telecom, media and entertainment, financial services, and SLED, which were partially offset by decreases in adjusted gross billings to customers in the healthcare market.

Consolidated grossGross profit: Gross profit for the three months ended SeptemberJune 30, 2022,2023, increased $10.3 million, or 8.4%25.3%, to $133.3$142.3 million, as compared to $123.0$113.5 million forin the same three-month period in the prior year. Our increase inyear due to increased net sales volume. Overall, gross margins was due to an increase inwere consistent quarter over quarter as higher product margins due to a higher volume of sales of third-party maintenance, software assurance and subscription/SaaS licenses, and services,in our technology business were offset by lower service margins due to increases in third-party costs. Consolidated gross margins for the three months ended September 30, 2022, increased 10 basis points to 27.0%, as compared to 26.9% for the same period in the prior year. Our increase in gross margins was primarily due to an increase in product margins, partially offset by a decrease in service margins.our financing segment.

Consolidated gross profit for the six months ended September 30, 2022, increased $18.3 million, or 8.0%, to $246.8 million, as compared to $228.5 million for the same period in the prior year. Our increase in gross margins was due to an increase in product margins, due to a higher volume of sales of third-party maintenance, software assurance and subscription/SaaS licenses, and services, offset by lower service margins due to increases in third party costs. Consolidated gross margins for the six months ended September 30, 2022, decreased 20 basis points to 25.9%, as compared to the same period in the prior year. Our decrease in gross margins was primarily due to a decrease in service margins.

Operating expenses: Operating expenses for the three months ended SeptemberJune 30, 2022,2023, increased $10.5$15.6 million, or 13.3%19.4%, to $89.2$95.9 million, as compared to $78.7$80.3 million for the same three-month period in the prior year. Our increase in operating expenses was primarily due to $5.8an increase of $12.1 million in higher salaries and benefits, $3.7 million in higher general and administrative expenses including higher advertising and marketing fees and higher travel and entertainment costs, $0.7 million in a higher provision for credit losses causedmainly driven by an increase in our receivables over this periodheadcount as well as higher variable compensation corresponding to the increase in gross profit. As of June 30, 2023, we had 1,853 employees, an increase of 13.2% from 1,637 as of June 30, 2022.

General and administrative expenses also increased $1.6 million for the three-months ended June 30, 2023, compared to a decrease in our receivables overthe three months ended June 30, 2022, as we had higher software, subscription and maintenance fees and travel and entertainment costs. Travel and entertainment increased due to the return of in-person business meetings and events. In addition, we had higher professional fees, mainly driven by certain internal projects.

Depreciation and amortization increased $1.6 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, due to increased amortization of intangible assets from the acquisition of NSG. Interest and financing costs increased $0.5 million for the three months ended June 30, 2023, compared to the same three-month period in the prior year $0.6due to higher outstanding borrowings. Offsetting these increases was a decrease of $0.2 million in higher interest and financing costs, and partially offset by a $0.3 million decrease in depreciation and amortization. As of September 30, 2022, we had 1,729 employees, an increase of 175 from 1,554 as of September 30, 2021.

Operating expenses for the six months ended September 30, 2022, increased $17.8 million, or 11.7%, to $169.6 million, as compared to $151.8 million for the same period in the prior year. Our increase in operating expenses was primarily due to $9.8 million in salaries and benefits, $6.8 million in higher general and administrative expenses including higher advertising and marketing fees and higher travel and entertainment costs, $1.6 million in a higher provision for credit losses caused by an increase in our receivables over this period compared to a decrease in our receivables over the same period in the prior year, $0.6 million in higher interest and financing costs, and partially offset by a $1.0 million decrease in depreciation and amortization.losses.

31
: As a result of the foregoing, operating income for the three months ended SeptemberJune 30, 2022, decreased $0.22023, increased $13.1 million, or 0.4%39.6%, to $44.1$46.3 million, as compared to $44.3 million for the same period in the prior year. Operating income for the six months ended September 30, 2022, increased $0.5$33.2 million or 0.7%, to $77.3 million, as compared to $76.8 million for the same period in the prior year.

Our effective tax rate for the three and six months ended September 30, 2022, was 29.3% and 28.7% respectively, compared with 28.6% and 28.2%, respectively, for the same periods in the prior year. The change in our effective income tax rate for the three and six months ended September 30, 2022, compared to the same periods in the prior year was primarily due to foreign currency losses incurred in lower tax jurisdictions.

Consolidated net earnings for the three months ended SeptemberJune 30, 2022, decreased $2.9 million, or 9.4%,and operating margin increased by 90 basis points to $28.5million, as compared to $31.4 million for the same period in the prior year, due to the8.1%. The increase in operating expenses and foreign exchange losses, partiallyincome was due to increases from our technology business segments, which was offset by an increase in gross profit. Consolidated net earnings for the six months ended September 30, 2022, decreased $4.1 million, or 7.5%, to $50.8million, as compared to $54.9 million for the same period in the prior year, due to the increase inlower operating expenses and foreign exchange losses, partially offset by an increase in gross profit.income from our financing segment.

Adjusted EBITDA for the three months ended SeptemberJune 30, 2022, increased $0.12023, was $53.9 million, an increase of $15.6 million, or 0.2%40.7%, to $50.3 million, as compared to $50.2 million for the same three-month period in the prior year. Adjusted EBITDA margin for the three months ended SeptemberJune 30, 2022, decreased 80 basis2023, increased 100 basis points to 10.2%9.4%, as compared to the prior year periodthree months ended June 30, 2022, of 11.0%8.4%. The increase in Adjusted EBITDA was due to increases from our technology business, which was offset by lower Adjusted EBITDA from our financing segment.

Adjusted EBITDANet earnings per common share diluted for the sixthree months ended SeptemberJune 30, 2022,2023, increased $0.1 million,$0.43, or 0.2%51.2%, to $88.6 million,$1.27 per share, as compared to $88.5 million for$0.84 per share in the same three-month period in the prior year. Adjusted EBITDA marginNon-GAAP: Net earnings per common share diluted for the sixthree months ended SeptemberJune 30, 2022, decreased 80 basis points 2023, increased $0.42, or 42.4%, to 9.3%,$1.41 per share, as compared to the prior year period of 10.1%.

Diluted earnings$0.99 per share for the three months ended SeptemberJune 30, 2022, decreased $0.10, or 8.5%, to $1.07 per share, as compared to $1.17 per share for same period in the prior year. Non-GAAP diluted earnings per share for the three months ended September 30, 2022, decreased $0.01, or 0.8%, to $1.29, as compared to $1.30 for the same period in the prior year.2022.

Diluted earnings per share for the six months ended September 30, 2022, decreased $0.13, or 6.4%, to $1.91 per share, as compared to $2.04 per share for same period in the prior year. Non-GAAP diluted earnings per share for the six months ended September 30, 2022, remained flat at $2.28, as compared to the same period in the prior year.
33
Cash and cash equivalents decreased $55.8 million, or 35.9%, to $99.5 million as of September 30, 2022, as compared to $155.4 million as of March 31, 2022. Our decrease in cash and cash equivalents was due to increases in our accounts receivable and inventory, and $13.0 million paid for the acquisition of Future Com, Ltd, partially offset by borrowings on our revolving credit facility. Additional uses of cash during the six months ended September 30, 2022, included cash paid of $7.2 million to repurchase outstanding shares of our common stock as part of our share repurchase plan and to satisfy the minimum tax withholding requirements on employee stock awards.

SEGMENT OVERVIEW

Our operations are conducted through two segments: technology and financing.

TECHNOLOGY SEGMENTBUSINESS SEGMENTS

Our technology segment earns revenues from sales of IT products,business includes three segments: product, professional services and managed services as further discussed below.

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

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

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

This is the first quarterly period in which we are reporting these three separate segments within our technology business as we previously consolidated this information within a single technology segment. Based upon our current business and operations, we intend to continue reporting these three segments that will comprise our technology business.

Our technology segment sellsbusiness segments sell primarily to corporations, state and local governments, and higher education institutions. We sell across the US, which accounts for mostCustomers of our sales, and in select international markets. Our technology segment also provides business-to-business supply chain management solutions for IT products.

32
Our customers generally purchase IT products and services from us underbusiness may have a customer master agreement (“CMA”) with our company, which stipulates the terms and conditions of a customer master agreement (“CMA”).the commercial relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers generally place orders for IT products using purchase orders. Customer orders fromwithout a CMA in place or with other documentation customary for the business. Often, our work with state and local governments may involveis based on public bids and our written bid responses. Our customersservice engagements are generally purchase services from us under the terms ofgoverned by statements of work. Our charges for services may bework and are primarily fixed price or determined(with allowance for changes); however, some service agreements are based on time and materials.

We purchase IT products for resale fromendeavor to minimize the cost of sales in our product segment through incentive programs provided by vendors and distributors. Our relationships with vendorsThe programs we qualify for are generally governedset by our reseller authorization level. We achieve these authorization levels through purchase volume, certifications held by sales executives or engineers, and though contractual commitments. Ourlevel with the vendor. The authorization level determineswe achieve and maintain governs the types of products we can resell as well as such items as variable discounts applied against the list price, funds provided for the marketing of these products and other special promotions.

We endeavor to minimize our cost of These authorization levels are achieved by us through purchase volume, certifications held by sales through vendor incentive programs. Our benefit from these programs is also determinedexecutives or engineers and/or contractual commitments by our reseller authorization level. Theseus. The authorization levels are costly to maintain, and vendors often change their incentive programs. As such, our ability to continue to reduce our costs of sales through participating in these programs continually change; therefore, there is not guaranteed.no guarantee of future reductions of costs provided by these vendor consideration programs.

FINANCING SEGMENT

Our financing segment offers financing solutions to corporations, government contractors, state and local governments, and higher education institutions. We provide financing acrosseducational institutions in the US,, which accounts for most of our sales,transactions, and to corporations in select international markets. Our including Canada, the UK, and the EU. The financing segment earns revenuesderives revenue from leasing IT equipment, medical equipment, and other equipment, and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing purchases of third-party software licenses, software assurance, maintenance, and other services, and from selling IT equipment at the end of a lease.services.

Our financing
34
Financing revenue is generally earned fromfalls into the following three sources:categories:

Portfolio income: Interest income from financing receivables and rents due under operating leasesleases.

Transactional gains: Net gains or losses on the sale of financial assetsassets.

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

FLUCTUATIONS IN OPERATING RESULTS

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

CRITICAL ACCOUNTING ESTIMATES

As disclosed in Note 2, “Recent Accounting Pronouncements,” we adopted a new standard on accounting for contract assets and contract liabilities from contracts with customers in a business combination in the second quarter of our fiscal year 2023. Under this new standard, we apply Accounting Standards Codification Topic 606, Contracts with customers, to recognize and measure contract assets and contract liabilities from contracts with customers. Other than this change, our critical accounting estimates have not changed from those reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report.

33
SEGMENT RESULTS OF OPERATIONS

The three and six months ended SeptemberJune 30, 2022,2023, compared to the three and six months ended SeptemberJune 30, 20212022

TECHNOLOGY SEGMENTBUSINESS SEGMENTS

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

  
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
  2022  2021  2022  2021 
Net sales            
Product $406,317  $375,444  $791,993  $720,210 
Services  65,161   60,857   128,270   116,449 
Total  471,478   436,301   920,263   836,659 
                 
Cost of sales                
Product  311,928   293,837   614,436   564,852 
Services  43,275   37,386   83,901   71,296 
Total  355,203   331,223   698,337   636,148 
                 
Gross profit  116,275   105,078   221,926   200,511 
                 
Selling, general, and administrative  80,161   70,803   153,273   136,956 
Depreciation and amortization  3,540   3,825   6,722   7,723 
Interest and financing costs  671   199   809   358 
Operating expenses  84,372   74,827   160,804   145,037 
                 
Operating income $31,903  $30,251  $61,122  $55,474 
                 
Adjusted gross billings $765,762  $664,124  $1,467,705  $1,297,131 
Adjusted EBITDA $38,012  $36,059  $72,266  $67,017 
35
  Three Months Ended June 30,       
  2023  2022  Change  
Percent
Change
 
Financial Metrics            
Net sales            
Product 
$
498,166
  
$
385,676
  
$
112,490
   
29.2
%
Professional Services  
35,556
   
37,168
   
(1,612
)
  
(4.3
%)
Managed Services  
31,963
   
25,941
   
6,022
   
23.2
%
Total  
565,685
   
448,785
   
116,900
   
26.0
%
                 
Gross Profit                
Product  
111,391
   
83,168
   
28,223
   
33.9
%
Professional Services  
14,724
   
15,055
   
(331
)
  
(2.2
%)
Managed Services  
9,797
   
7,428
   
2,369
   
31.9
%
Total  
135,912
   
105,651
   
30,261
   
28.6
%
                 
Selling, general, and administrative  
87,100
   
73,112
   
13,988
   
19.1
%
Depreciation and amortization  
4,764
   
3,182
   
1,582
   
49.7
%
Interest and financing costs  
550
   
138
   
412
   
298.6
%
Operating expenses  
92,414
   
76,432
   
15,982
   
20.9
%
                 
Operating income 
$
43,498
  
$
29,219
  
$
14,279
   
48.9
%
                 
Key Metrics & Other Information                
Gross billings 
$
841,970
  
$
716,263
  
$
125,707
   
17.6
%
                 
Adjusted EBITDA 
$
50,949
  
$
34,254
  
$
16,695
   
48.7
%
Product margin  
22.4
%
  
21.6
%
        
Professional service margin  
41.4
%
  
40.5
%
        
Managed service margin  
30.7
%
  
28.6
%
        
                 
Net sales by customer end market:                
Telecom, media & entertainment 
$
141,335
  
$
128,277
  
$
13,058
   
10.2
%
SLED  
109,405
   
64,602
   
44,803
   
69.4
%
Healthcare  
86,656
   
68,512
   
18,144
   
26.5
%
Technology  
73,403
   
69,862
   
3,541
   
5.1
%
Financial services  
65,690
   
33,299
   
32,391
   
97.3
%
All others  
89,196
   
84,233
   
4,963
   
5.9
%
Total 
$
565,685
  
$
448,785
  
$
116,900
   
26.0
%
                 
Net sales by type:                
Networking 
$
245,188
  
$
142,641
  
$
102,547
   
71.9
%
Cloud  
172,044
   
164,733
   
7,311
   
4.4
%
Security  
45,796
   
47,995
   
(2,199
)
  
(4.6
%)
Collaboration  
12,956
   
12,980
   
(24
)
  
(0.2
%)
Other  
22,182
   
17,327
   
4,855
   
28.0
%
Total Products  
498,166
   
385,676
   
112,490
   
29.2
%
                 
Professional services  
35,556
   
37,168
   
(1,612
)
  
(4.3
%)
Managed services  
31,963
   
25,941
   
6,022
   
23.2
%
Total 
$
565,685
  
$
448,785
  
$
116,900
   
26.0
%

36
Net sales: Net sales of the combined technology business for the three months ended SeptemberJune 30, 2023, increased compared to the three months ended June 30, 2022, driven by demand from customers in telecom, media, and entertainment, financial services, SLED, and healthcare industries.

Product segment sales for the three months ended June 30, 2023, increased $35.2 million, or 8.1%, to $471.5 million, as compared to $436.3 million for the same three-month period in the prior year due to increaseshigher sales of networking equipment and cloud products. These changes were driven by the timing of purchases by existing customers, which are determined by their buying cycles, and the timing of specific IT related initiatives. In addition, the increase in net product sales during this three-month period, was due to demand from customers from the NSG and Future Com acquisitions, which combined contributed $34.8 million to the increase in technology, telecom, media, and entertainment, and SLED, whichproduct net sales. Also contributing to the increase in product sales were partially offset by decreasesimprovements in net sales to customers in healthcare. Productthe supply chain, particularly networking products.

Professional services segment sales for the three months ended SeptemberJune 30, 2023, decreased compared to the three months ended June 30, 2022, increased $30.9due to a decrease in staff augmentation revenue of $1.9 million or 8.2%,primarily related to $406.3 million. Servicesofter demand from customers. Offsetting this decline was higher project related services of $0.3 million.

Managed services segment sales for the three months ended SeptemberJune 30, 2023, increased compared to the three months ended June 30, 2022, increasdue to ongoing expansion of these service offerings primarily related to ongoing growth in Enhanced Maintenance Support (“EMS”) and Security Operations Center (“SOC”) revenue.

Gross profited $4.3: Gross profit of the combined technology business segments for the three months ended June 30, 2023, increased compared to the three months ended June 30, 2022, due to the increase in product and managed service sales. Gross margin increased during this three-month period due to higher product, professional service, and managed service margins.

Product segment margin for the three months ended June 30, 2023, increased by 80 basis points from the same three-month period in the prior year as higher up-front margins were offset by lower vendor rebates and a lower proportion of sales of third-party maintenance, software assurance, subscriptions/SaaS licenses, and services, which was recognized on a net basis. The increase in margin was due to the timing of customer buying cycles and specific IT initiatives.

Professional services segment margins for the three months ended June 30, 2023, increased by 90 basis points from the same three-month period in the prior year primarily due to a shift in mix toward higher margin project-based services.

Managed services segment margins for the three months ended June 30, 2023, increased by 210 basis points from the same three-month period in the prior year due to improved margins as we continue to scale these service offerings.

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

Salaries and benefits for the three months ended June 30, 2023, increased $12.4 million, or 7.1%,20.1% to $65.2 $74.1 million, as compared to $60.9 million $61.7 million for the same period in the prior year, due to an increase of $8.0 million in managed services.

Net salessalaries and benefits, mainly driven by increased headcount, and an increase of $4.4 million in variable compensation because of the increase in gross profit. Our three technology business segments had an aggregate of 1,818 employees as of June 30, 2023, an increase of 216 from 1,602 as of June 30, 2022, of which 83 were from the acquisition of NSG. In total, we added 171 additional customer-facing employees for the sixthree months ended SeptemberJune 30, 2022, increased $83.6 million, or 10.0%, to $920.3 million, as2023, compared to $836.7 million for the same period in the prior year. Product sales for the six months ended September 30, 2022, increased 10.0%, or $71.8 million to $792.0 million, as compared to $720.2 million for the samethree-month period in the prior year, and service revenue increased by 10.2%, or $11.9 million, to $128.3 million, as compared to $116.4 million during the same period in the prior year.

Adjusted gross billings for the three months ended September 30, 2022, increased $101.7 million, or 15.3%, to $765.8 million, as compared to $664.1 million for the same period in the prior year. Our increase in adjusted gross billings was due to higher demand from our current customers and higher prices for some products.

34
Adjusted gross billings for the six months ended September 30, 2022, increased $170.6 million, or 13.2%, to $1,467.7 million, as compared to $1,297.1 million for the same period in the prior year. The increase in adjusted gross billings is due to higher demand from the same customer end markets that were previously identified for the increase in net sales.

We rely on our vendors to fulfill a large majority of shipments to our customers. As of September 30, 2022, we had open orders of $1.0 billion and deferred revenue of $148.5 million. As of September 30, 2021, we had open orders of $707.1 million and deferred revenue of $110.0 million.

We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. The percentage of net sales by industry and vendor for the twelve month periods ended September 30, 2022, and 2021 are summarized below:

  
Twelve Months Ended
September 30,
    
Net sales by customer end market: 2022  2021  Change 
Telecom, Media & Entertainment  29%  28%  1%
Technology  16%  14%  2%
Healthcare  14%  15%  (1%)
SLED  13%  15%  (2%)
Financial Services  9%  11%  (2%)
All others  19%  17%  2%
Total  100%  100%    

  
Twelve Months Ended
September 30,
    
Net sales by vendor: 2022  2021  Change 
Cisco Systems  37%  36%  1%
Dell EMC  9%  8%  1%
Juniper Networks  6%  6%  0%
NetApp  5%  5%  0%
HPE  3%  2%  1%
Arista Networks  2%  3%  (1%)
All others  38%  40%  (2%)
Total  100%  100%    

Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve month period ended September 30, 2022, we had an increase in the percentage of total revenues from customers in the telecom, media and entertainment, and technology industry, and decreases in the percentage of total revenues in healthcare, SLED, and the financial services industry. These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.

The majority of our revenues by vendor is derived from our top six suppliers. None of the vendors included within the “All others” category exceeded 5% of total revenues.

Cost of sales: Cost of sales for the three months ended September 30, 2022, increased $24.0 million, or 7.2%, to $355.2 million, as compared to $331.2 million for the same period in the prior year. Our gross margin increased 60 basis points to 24.7% for the three months ended September 30, 2022, compared to 24.1% for the same period in the prior year. Our increase in gross margins was primarily due to higher product gross margin primarily from a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services which are recognized on a net basis, partially offset by lower service gross margin from higher third-party costs.

Cost of sales for the six months ended September 30, 2022, increased 9.8% or $62.2 million which is in-line with the increase in net sales. Our gross margin increased 10 basis points to 24.1% for the six months ended September 30, 2022, compared to 24.0% for the same period in the prior year, primarily due to higher product margin primarily from a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services which are recognized on a net basis, partially offset by lower service margin driven by higher third-party costs.

35
Selling, general, and administrative: Selling, general, and administrative expenses for the three months ended September 30, 2022, increased $9.4 million, or 13.2%, to $80.2 million, as compared to $70.8 million for the same period in the prior year. Salaries and benefits for the three months ended September 30, 2022, increased $5.5million, or 9.0% to $66.3million, as compared to $60.8 million for the same period in the prior year, mainly due to an increase in salaries and variable compensation that was driven by increases in headcount. Our technology segment had 1,693 employees as of September 30, 2022, an increase of 171 from 1,522as of September 30, 2021, driven by increased demand for our services and the acquisition of Future Com, Ltd. We added 145 additional customer facing employees, of which 10084 were professional services and technical support personnel. personnel due to demand for our services.

General and administrative expenses for the three technology business segments for the three months ended SeptemberJune 30, 2022,2023, increased $3.3$1.4 million, or 33.2%12.5%, to $13.2$12.5 million, as compared to $9.9$11.1 million for the same three-month period in the prior year, due to higher advertising and marketingprofessional fees professional service fees, andof $0.8 million, mainly driven by certain internal projects. In addition, we incurred higher travel and entertainment costs.costs of $0.2 million due to the return of in-person business meetings and events.

Selling, general, and administrative expenses
37
Provision for credit losses for the sixthree technology business segments for the three months ended SeptemberJune 30, 2022, increased by $16.3 million, or 11.9%, to $153.32023, was $0.5 million, as compared to $137.0$0.3 million for the same three-month period in the prior year. Salaries and benefits Our higher provision for the six months ended September 30, 2022, increased $9.2 million, or 7.8% to $128.0 million, compared to $118.8 million during the same period in the prior year, mainly due to an increase in salaries and variable compensation that was driven by increases in headcount. General and administrative expenses for the six months ended September 30, 2022, increased $6.2 million, or 33.8%, to $24.3 million, as compared to $18.1 million for the same period in the prior year, due to higher advertising and marketing fees, professional service fees, software license and maintenance fees and higher travel and entertainment costs.

Depreciation and amortization: Depreciation and amortizationcredit losses for the three months ended SeptemberJune 30, 2022, decreased $0.3 million, or 7.5%,2023, was due to $3.5 million, as changes in our net credit exposure.

comparedDepreciation and amortization to $3.8 million: Depreciation and amortization of the three technology business segments for the same period inthree months ended June 30, 2023, increased compared to the prior year,three months ended June 30, 2022, primarily due to lessmore amortization from intangible assets acquired in past acquisitions as the rate of amortization declines each year. Depreciation and amortization for the six months ended September 30, 2022, decreased $1.0 million, or 13.0%, to $6.7 million, as compared to $7.7 million for the same period in the prior year.NSG acquisition.

Interest and financing costs: Interest and financing costs forof the three and six months ended September 30, 2022, were $0.7 million and $0.8 million, respectively, an increase of $0.5 million and $0.4 million, respectively, as compared to $0.2 million and $0.4 million, respectively, for the same periods in the prior year. The increase in interest expense is primarily due to an increase in borrowings from our revolving credit facility, partially offset by a decrease in borrowings on an installment payment arrangement. We had $94.7 million of recourse debt in our technology segment as of September 30, 2022, compared to $44.9 million as of September 30, 2021.

Segment operating income:As a result of the foregoing, operating incomebusiness segments for the three months ended SeptemberJune 30, 2022,2023, increased $1.6 million, or 5.5%, to $31.9 million, as compared to $30.3 million for the same period in the prior year. Operating income for the six months ended September 30, 2022, increased $5.6 million, or 10.2%, to $61.1 million, as compared to $55.5 million for the same period in the prior year.

Adjusted EBITDA for the three months ended SeptemberJune 30, 2022, increased $1.9 million, or 5.4%, due to $38.0 million, as compared to $36.1 million for the same period in the prior year. Adjusted EBITDA for the six months ended September 30, 2022, increased $5.3 million, or 7.8%, to $72.3 million, as compared to $67.0 million for the same period in the prior year.higher average borrowings outstanding and higher interest rates under our WFCDF Credit Facility.

36
FINANCING SEGEMENT

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

 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  Three Months Ended June 30,       
 2022  2021  2022  2021  2023  2022 Change  
Percent
Change
 
Financial Metrics          
Portfolio earnings 
$
3,073
  
$
2,673
  
$
400
  
15.0
%
Transactional gains 
1,279
  
1,835
  
(556
)
 
(30.3
%)
Post-contract earnings 
3,634
  
4,726
  
(1,092
)
 
(23.1
%)
Other  
504
  
340
   
164
  
48.2
%
Net sales $22,228  $21,716  $31,802  $38,007  
$
8,490
  
$
9,574
  
$
(1,084
)
 
(11.3
%)
         
Cost of sales  5,199   3,792   6,901   10,004 
                        
Gross profit 17,029  17,924  24,901  28,003  
6,361
  
7,872
  
(1,511
)
 
(19.2
%)
                        
Selling, general, and administrative 4,543  3,701  8,198  6,323 
Selling, general, and adminstrative 
3,198
  
3,655
  
(457
)
 
(12.5
%)
Depreciation and amortization 28  28  56  56  
28
  
28
  
-
  
0.0
%
Interest and financing costs  254   143   479   343   
301
   
225
   
76
  
33.8
%
Operating expenses 4,825  3,872  8,733  6,722  
3,527
  
3,908
  
(381
)
 
(9.7
%)
                               
Operating income $12,204  $14,052  $16,168  $21,281  
$
2,834
  
$
3,964
  
$
(1,130
)
 
(28.5
%)
                  
Key Metrics & Other Information          
Adjusted EBITDA $12,292  $14,136  $16,342  $21,450  
$
2,930
  
$
4,050
  
$
(1,120
)
 
(27.7
%)

Net sales: Net sales for the three months ended SeptemberJune 30, 2022, increased $0.5 million, or 2.4%, to $22.2 million, as compared to $21.7 million for the same period in the prior year. The increase in net sales was2023, decreased due to higher post contract earnings partially offset by lower portfoliopost-contract earnings and transactional gains. For the three months ended September 30, 2022, we recognized net gains on sales of financial assets of $8.1 million and proceeds from these sales were $376.4 million. For the three months ended September 30, 2021, net gains on the sale of financial assets were $10.1 million and the proceeds from these sales were $615.0 million.

Net sales for the six months ended September 30, 2022,Post-contract earnings decreased$6.2 million, or 16.3%, to $31.8 million, as compared to $38.0 million for the same period in the prior year. The decrease in net sales was due to lower portfolio earnings and transactional gains. Formonth-to-month rents. Transactional gains decreased compared to the six months ended September 30, 2022, we recognized net gains onprior year due to lower margin from financial assets sold during the quarter. Total proceeds from sales of financial assets of $9.9 million and proceeds from these salesfinancing receivables were $428.9 million. For the six months ended September 30, 2021, net gains on the sale of financial assets were $13.3$61.4 million and the proceeds from these sales were $690.3 million.

As of September 30, 2022, our financing segment had $128.1$52.5 million in financing receivables and operating leases, compared to $166.9 million as of September 30, 2021, a decrease of $38.8 million, or 23.2%.

Cost of sales: Cost of sales for the three months ended SeptemberJune 30, 2023, and 2022, increased $1.4 million, or 37.1%, to $5.2 million, asrespectively.

Gross Profit: Gross profit for the three months ended June 30, 2023, decreased compared to $3.8 million for the same period in the prior year,three months ended June 30, 2022, due to higher cost of sales on off-lease equipment and direct lease costs, which were offset slightly by lower depreciation expense from operating leases. Gross profit for the three months ended September 30, 2022, decreased by 5.0% to $17.0 million, as compared to the same period in the prior year.

Cost
38

Selling, general and administrative: Selling, general, and administrative expenses for the three months ended SeptemberJune 30, 2023, decreased compared to the three months ended June 30, 2022, increased $0.8 million, or 22.8%, to $4.5 million, as compared to $3.7 million for the same period in the prior year, due to higherreduced provision for credit losses because of changes in our net credit exposure. In addition, salaries and benefits consisting mostly of higherdecreased, mainly driven by a decrease in variable compensation and higherdue to the decline in gross profit. These decreases are offset by a slight increase in general and administrative expenses consisting mostlycosts due to the deployment of a hosted lease accounting software in August 2022, as we incurred higher professional fees following the implementation of this software platform, as well as higher software license and maintenance fees driven bycosts including amortization of the deployment of newly hosted software in August 2022.

Selling, general, and administrative expenses for the six months ended September 30, 2022, increased $1.9 million, or 29.7%, to $8.2 million, as compared to $6.3 million for the same period in the prior year, due to higher salaries and benefits consisting mostly of higher variable compensation, higher general and administrative expenses consisting mostly of higher software, license and maintenance fees driven by the deployment of newly hosted software in August 2022, and a higher provision for credit losses caused by changes in our net credit exposure.

37
In August 2022, we completed the deployment of a new hosted software to manage our financing portfolio. As a result, we anticipate higher general and administrative costs of approximately $1.5 million per year related to amortizing the cost to implement the hosted software and annual fees paid to license the hosted software.

Interest and financing costs: Interest and financing costs for the three months ended SeptemberJune 30, 2022,2023, increased by 77.6% to $0.3 million, and increased by 39.7% to $0.5 million for the six months ended September 30, 2022,slightly compared to the prior year.three months ended June 30, 2022, due to higher interest rates. As of SeptemberJune 30, 2022,2023, our non-recourse notes payable was $20.8decreased to $20.2 million a decrease of $4.6from $26.4 million or 18.1% compared to notes payable of $25.4 million as of September 30, 2021. As of September 30, 2022, and 2021, our notes payable consisted entirely of non-recourse notes payable.in the prior year. Our weighted average interest rate for non-recourse notes payable was 4.09%5.22% and 3.59%, as3.78% as of SeptemberJune 30, 2022,2023, and 2021,2022, respectively.

CONSOLIDATED

Segment operatingOther income (expense), net: As a result of the foregoing, both operatingOther income and Adjusted EBITDA decreased $1.8 million to $12.2 million and $12.3 million, respectively,(expense), net, for the three months ended SeptemberJune 30, 2022, as2023, increased to $0.2 million, compared to a net expense of $2.2 million in the prior year period. Operatingyear. We incurred $0.4 million of interest and dividend income and Adjusted EBITDA foron investments, offset by foreign currency transaction losses of $0.2 million during the sixthree months ended SeptemberJune 30, 2022, decreased by $5.1 million to $16.2 million and $16.3 million, respectively, as2023, compared to foreign currency transaction losses of $2.2 million in the same three-month period in the prior year.

CONSOLIDATED

Other income: Other income and expense increasedProvision for both the three and six months ended September 30, 2022 to $3.9 million and $6.0 million, respectively, due to foreign exchange losses, compared to expense of $0.3 million and $0.2 million, respectively, in the prior year.

Incomeincome taxes: Our provision for income tax expense was $11.8 million and $20.5$12.7 million for the three and six months ended SeptemberJune 30, 2022,2023, as compared to $12.6 million and $21.6$8.7 million for the same periodsthree-month period in the prior year. Our effective income tax rates for the three and six months ended September 30, 2022, were 29.3% and 28.7%, compared to 28.6% and 28.2% for the three and six months ended September 30, 2021, respectively. The change in our effective income tax rate was primarily due to foreign currency losses incurred in lower tax jurisdictions.

Net earnings: As a result of the foregoing, our net earnings for the three months ended SeptemberJune 30, 2022, decreased $2.9 million, or 9.4%2023, was 27.2%, to $28.5 million, as compared to $31.4 million duringwith 28.0% for the same period in the prior year. Our effective tax rate was lower for the three months ended June 30, 2023, as compared to the prior year, primarily due to a lower state effective tax rate.

Net earnings: Net earnings for the sixthree months ended SeptemberJune 30, 2022, decreased $4.12023, were $33.8 million, an increase of 51.5% or 7.5%, to $50.8$11.5 million, as compared to $54.9$22.3 million during the same period in the prior year. The net earnings increase was due primarily to the increase in operating profits from our technology business.

Basic and fully diluted earnings per common share were both $1.07$1.27, for the three months ended SeptemberJune 30, 2022, a decrease2023, an increase of 9.3% and 8.5%, respectively, as compared to $1.18 and $1.17, respectively, for51.2% over the three months ended September 30, 2021.prior year. Basic and fully diluted earnings per common share were both $1.91 for the six months ended September 30, 2022, a decrease of 7.3% and 6.4%, respectively, as compared to $2.06 and $2.04, respectively, for the six months ended September 30, 2021.

Non-GAAP diluted earnings per share$0.84, for the three months ended SeptemberJune 30, 2022, decreased $0.01, or 0.8%, to $1.29, as compared to $1.30 for the three months ended September 30, 2021. Non-GAAP diluted earnings per share for the six months ended September 30, 2022, remained flat at $2.28, as compared to the six months ended September 30, 2021.2022.

Weighted average common shares outstanding was 26.6 million in the calculation of both basic earnings per common share and diluted earnings per common share for the three-months ending September 30, 2022. Weighted average common shares outstanding was 26.5 million in the calculation of basic earnings per common share for the six-months ending September 30, 2022, and 26.7 million in the calculation of diluted earnings per common share for the six-months ending September 30, 2022. Weighted average common shares outstanding used in the calculation of basic earnings per common share, was 26.7 million for both the three- and six-months ending September 30, 2021, and 26.9 million in the calculation of diluted earnings per common share were both 26.6 million for both the three-three months ended June 30, 2023. Weighted average common shares outstanding used in the calculation of basic and six-months ending Septemberdiluted earnings per common share were 26.5 million and 26.7 million, respectively, for the three months ended and June 30, 2021.2022.

38
LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY OVERVIEW

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

Our borrowings in our technology segmentbusiness segments are primarily through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (the “WFCDF Credit Facility”). Theour WFCDF Credit Facility has an accounts payable floor plan facility component and a revolving credit facility component.Facility. Our borrowings in our financing segment are primarily through secured borrowings that involve transferring all or part of the contractual payments due to us to third-party financing institutions.

39
We believe that cash on hand and funds generated from operations, together with available credit under our WFCDF Credit Facility,credit facility, will be enough to finance our working capital, capital expenditures, and other standard business requirements for at least the next year.

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

CASH FLOWS

The following table summarizes our sources and uses of cash overfor the periods indicatedthree months ended June 30, 2023, and 2022 (in thousands):

 Six Months Ended September 30,  Three Months Ended June 30, 
 2022 2021  2023 2022 
Net cash used in operating activities 
$
(119,671
)
 
$
(135,004
)
 
$
(20,900
)
 
$
(102,943
)
Net cash used in investing activities 
(12,294
)
 
(13,690
)
 
(63,097
)
 
(1,692
)
Net cash provided by financing activities 
71,342
 
75,782
 
Net cash provided by (used in) financing activities 
82,605
 
31,111
 
Effect of exchange rate changes on cash  
4,776
  
300
   
(127
)
  
1,634
 
Net decrease in cash and cash equivalents 
$
(55,847
)
 
$
(72,612
)
Net deccrease in cash and cash equivalents 
$
(1,519
)
 
$
(71,890
)

Cash flows from operating activities: We used $119.7$20.9 million in operating activities during the sixthree months ended SeptemberJune 30, 2022,2023, compared to $135.0using $102.9 million used by operating activities for the sixthree months ended SeptemberJune 30, 2021.2022. See below for a breakdown of operating cash flows by segment (in thousands):

  Six Months Ended September 30, 
  2022  2021 
Technology segment 
$
(120,746
)
 
$
(127,361
)
Financing segment  
1,075
   
(7,643
)
Net cash provided by (used in) operating activities 
$
(119,671
)
 
$
(135,004
)
  Three Months Ended June 30, 
  2023  2022 
Technology business 
$
(48,259
)
 
$
(104,645
)
Financing segment  
27,359
   
1,702
 
Net cash used in operating activities 
$
(20,900
)
 
$
(102,943
)

Technology segmentbusiness: For the sixthree months ended September June 30, 2022,2023, our technology segmentbusiness used $120.7$48.3 million from operating activities primarily due to increases in our accounts receivable of $159.3 million, offset by an increase in accounts payable - trade of $60.2 million and net earnings. Further, we had net borrowings on the floor plan component of our credit facility of $32.3 million. We use this credit facility to manage working capital needs, however, we present changes in this balance as financing activity in our consolidated statement of cash flows.

For the three months ended June 30, 2022, our technology business used $104.6 million from operating activities primarily due to increases in our accounts receivable and inventories, partially offset by net earnings. Further, we had net repayments on the floor plan component of our credit facility of $7.3 million.

In the six months ended September 30, 2021, our technology segment used $127.4 million from operating activities primarily due to increases in our accounts receivable and inventories, partially offset by net earnings and a decrease in accounts payable-trade.

39
To manage our working capital, we monitor our cash conversion cycle for our technology segment,business, 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:Technology business:

  As of Sepember 30, 
  2022  2021 
(DSO) Days sales outstanding (1)  65   64 
(DIO) Days inventory outstanding (2)  36   18 
(DPO) Days payable outstanding (3)  (47)  (47)
Cash conversion cycle  54   35 
40
  As of June 30, 
  2023  2022 
(DSO) Days sales outstanding (1)  
62
   
59
 
(DIO) Days inventory outstanding (2)  
32
   
30
 
(DPO) Days payable outstanding (3)  
(46
)
  
(45
)
Cash conversion cycle  
48
   
44
 

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

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

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

Our cash conversion cycle increased to 5448 days as of SeptemberJune 30, 2022,2023, as compared to 3544 days as of SeptemberJune 30, 2021.2022. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended payment terms. Our DPO remained the same at 47 days.increased 1 day as of June 30, 2023. Invoices processed through our credit facility, or the accounts payable floorA/P-floor plan facility,balance, are typically paid within 45-60 days from the invoice date, while accounts payableA/P trade invoices are typically paid within 3030-60 days from the invoice date. Our DSO increased by 1 day3 days to 65 days. The DSO for both September62 days as of June 30, 2023, compared to June 30, 2022, and 2021, reflectsreflecting higher sales to customers with terms greater than or equal to net 60 days. Our DIO increased to 3632 days due to higher inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 77.3% to $274.9 million as of SeptemberJune 30, 2022, up from $155.1 million2023, compared to 30 days as of March 31, 2022, due to ongoing projects with customers and supply constraints that lengthen the time over which we receive all the parts in an order for a completed delivery to our customers.June 30, 2022.

Financing segment: For the sixthree months ended SeptemberJune 30, 2023, our financing segment provided $27.4 million from operating activities, primarily due to an increase in accounts payable-trade offset by increases in financing receivables-net. In the three months ended June 30, 2022, our financing segment provided $1.1$1.7 million from operating activities, primarily due to net earnings, decreases in accounts receivable, and increases in accounts payable-trade offset by increases in financing receivables.

In the six months ended September 30, 2021, our financing segment used $7.6 million from operating activities, primarily due to increases in accounts receivable and financing receivables, offset by net earnings.receivables-net.

Cash flows related to investing activities: For the sixthree months ended SeptemberJune 30, 2022,2023, we used $12.3$63.1 million from investing activities, consisting of $13.0$59.6 million in cash used in acquiring Future Com, Ltdfor the acquisition of NSG, and $2.4 $3.7 million for purchases of property, equipment and operating lease equipment and partially offset by $3.1$0.2 million of proceeds from the sale of property, equipment, and operating lease equipment. For the three months ended June 30, 2022, we used $1.7 million from investing activities, consisting of $1.8 million for purchases of property, equipment and operating lease equipment offset by $0.1 million of proceeds from the sale of property, equipment, and operating lease equipment.
 
In the six months ended September 30, 2021, we used $13.7 million from investing activities, consisting of $16.2 million for purchases of property, equipment and operating lease equipment offset by $2.6 million of proceeds from the sale of property, equipment, and operating lease equipment.
Cash flows from financing activities: For the sixthree months ended SeptemberJune 30, 2022,2023, cash provided by financing activities was $71.3$82.6 million, consisting of net borrowings of non-recourse and recourse notes payable of $87.7$56.4 million, net borrowings on the floor plan component of our credit facility of $32.3 million, and proceeds of issuance of common stock to employees under an employee stock purchase plan of $1.4 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $9.1 million in net repayments on the accounts payable floor plan facility.

40
For the six months ended September 30, 2021, cash provided by financing activities was $75.8 million, consisting of net borrowings on the accounts payable floor plan facility of $47.2 million and net repayments of non-recourse and recourse notes payable of $35.4 million, partially offset by $6.9$7.5 million in cash used to repurchase outstanding shares of our common stock. For the three months ended June 30, 2022, cash provided by financing activities was $31.1 million, consisting of net borrowings of non-recourse and recourse notes payable of $45.6 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $7.3 million in net repayments on the floor plan component of our credit facility.

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

41
Non-cash activities: We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. As a condition of these agreements, certain financial institutions may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, the customer will make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender. However, when our customer makes payments through a trust, such payments represent non-cash transactions. Also, inIn certain assignment agreements, we may direct the third-party financial institution to pay some of the proceeds from the assignment directly to the vendor or vendors that have supplied the assets being leased and or financed. In these situations, the portion of the proceeds paid directly to our vendors are non-cash transactions.

SECURED BORROWINGS – FINANCING SEGMENT

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

CREDIT FACILITY – TECHNOLOGY SEGMENTBUSINESS

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

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

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

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

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

41
As of SeptemberJune 30, 2022,2023, and March 31, 2022,2023, we had a maximum credit limit of $375.0$500.0 million, and an outstanding balance on the floor plan facility of $136.2$182.9 million and $145.3$134.6 million, respectively. On our balance sheet, our liability under the floor plan facility is presented as part of accounts payable – floor plan.

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

42
As of SeptemberJune 30, 2022,2023, the outstanding balance under the revolving credit facility was $85.0$52.0 million. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current. As of March 31, 2022,2023, we did not have any outstanding balance under the revolving credit facility. The maximum credit limit under this facility was $100.0$200.0 million as of both SeptemberJune 30, 2022,2023, and March 31, 2022.

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.2023.

PERFORMANCE GUARANTEES

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

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or other contractually narrow or limited purposes. As of SeptemberJune 30, 2022,2023, we were not involved in any unconsolidated special purpose entity transactions.

ADEQUACY OF CAPITAL RESOURCES

The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also open facilities in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance our geographic footprint, or the platform of bundled solutions to provide additional functionality and value-added services. We may require additional capital due to increases in inventory to accommodate our customers’ IT installation schedules. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivablesreceivable due from our customers. These actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include additional debt and equity financing. The impacts of COVID-19 may limit or eliminate our access to capital. While the future is uncertain, we do not believe our WFCDF Credit Facility will be terminated by WFCDF or us. Additionally, while our lending partners in our financing segment have become more discerning in their approval processes, we currently have funding resources available for our transactions.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

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

42
Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to the worldwide impacts from COVID-19, currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk“Risk Factors,,” in our 20222023 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.

43
We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance.

CRITICAL ACCOUNTING ESTIMATES

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

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our cash flow may be adversely affected by the risks related to the COVID-19 pandemic, which may result in delays in the collections of our accounts receivables or non-payment.

Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize lines of credit and other financing facilities that are subject to fluctuations in short-term interest rates. Our non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds. Borrowings under the WFCDF Credit Facility bear interest at a market-based variable rate. As of SeptemberJune 30, 2022,2023, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.

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

Item 4.
CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report,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 SeptemberJune 30, 2022.2023.

43
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the quarter, we completed the implementation of a new ERP system within our Financing segment. As a result of this implementation, certain internal controls over financial reporting have been automated or modified to align with the new ERP system. While we believe this new system will strengthen our internal controls, there are inherent risks in implementing any new system, and we will continue to evaluate these control changes as part of our assessment of internal control over financial reporting throughout Fiscal 2023.

There have not been any other changes in our internal control over financial reporting during the quarter ended SeptemberJune 30, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

44
LIMITATIONS AND EFFECTIVENESS OF CONTROLS

Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process; therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II. OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

Please refer to Note 9,, “Commitment and Contingencies” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements”.

Item 1A.RISK FACTORS

There has not been any material change in the risk factors disclosed in “Part I, Item 1A. Risk Factors”Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.2023.

Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding our total purchases of 128,553 shares of ePlus inc. common stock during the sixthree months ended SeptemberJune 30, 2022, including a total of 70,473 shares purchased as part of the publicly announced share repurchase plans or programs.2023.

Period 
Total
number
of shares
purchased
(1)
  
Average
price
paid per
share
  
Total number of
shares purchased
as part of publicly
announced plans
or programs
  
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs
 
April 1, 2022 through April 30, 2022  34,961  
$
56.02
   34,961   737,049(2)
May 1, 2022 through May 27, 2022  35,512  
$
55.86
   35,512   701,537(3)
May 28, 2022 through May 31, 2022  -  
$
-
   -   1,000,000(4)
June 1, 2022 through June 30, 2022  58,080  
$
56.51
   -   1,000,000(5)
July 1, 2022 through July 31, 2022  -  
$
-
   -   1,000,000(6)
August 1, 2022 through August 31, 2022  -  
$
-
   -   1,000,000(7)
September 1, 2022 through September 30, 2022  -  
$
-
   -   1,000,000(8)
Period 
Total
number of
shares
purchased (1)
  
Average
price paid
per share
  
Total number of
shares purchased
as part of publicly
announced plans
or programs
  
Maximum number
of shares that may
yet be purchased
under the plans or
programs (2)
 
April 1, 2023 through April 30, 2023  
40,180
  
$
48.14
   
40,180
   
957,320
 
May 1, 2023 through May 31, 2023  
47,685
  
$
44.43
   
47,685
   
909,635
 
June 1, 2023 through June 30, 2023  
59,621
  
$
55.64
   
5,676
   
994,324
 
Total  
147,486
       
93,541
     

44

(1)
All shares were acquired were in open-market purchases, except for 58,08053,945 shares, which were repurchased in June 20222023 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.

(2)
The share purchase authorizationamounts presented in place forthis column are the month ended April 30, 2022, had purchase limitations on theremaining number of shares of up to 1,000,000 shares. As of April 30, 2022,that may be repurchased after repurchases during the remaining authorized shares to be purchased were 737,049.

(3)
month. As of May 27, 2022,2023, the authorization under the then-existing share repurchase plan expired.

(4)
On March 24, 2022, the22, 2023, our board of directors authorized the company to repurchase of up to 1,000,000 shares of our outstanding common stock, commencing onover a 12-month period beginning May 28, 2022, and continuing to May 27, 2023. As of May 31, 2022, the remaining authorized shares to be purchased were 1,000,000.

(5)
The share purchase authorization in place for the month ended June 30, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of June 30, 2022, the remaining authorized shares to be purchased were 1,000,000.

(6)
The share purchase authorization in place for the month ended July 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of July 31, 2022, the remaining authorized shares to be purchased were 1,000,000.

(7)
The share purchase authorization in place for the month ended August 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of August 31, 2022, the remaining authorized shares to be purchased were 1,000,000.

(8)
The share purchase authorization in place for the month ended September 30, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of September 30, 2022, the remaining authorized shares to be purchased were 1,000,000.
 
The timing and expiration date of the current stock repurchase authorizations are included in Note 11,, “Stockholders’ Equity” to our unaudited consolidated financial statements included elsewhere in this report.

Item 3.
DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

Item 4.
MINE SAFETY DISCLOSURES

Not Applicable.

Item 5.
OTHER INFORMATION

Because this Quarterly Report on Form 10-Q is being filed within four business days from the date of the reportable event, we have elected to make the following disclosure in this Quarterly Report on Form 10-Q instead of in a Current Report on Form 8-K under Items 1.01 and 2.03.

Entry into a Material Definitive Agreement

ePlus Technology, inc., ePlus Technology Services, inc. and SLAIT Consulting, LLC (collectively, the “Borrowers”) are parties to that certain First Amended and Restated Credit Agreement, dated as of October 13, 2021 (the “Credit Agreement”) by and among the Borrowers, the various lenders who are parties thereto (collectively, the “Lenders”) and Wells Fargo Commercial Distribution Finance, LLC, acting as Administrative Agent thereunder (in such capacity, “Administrative Agent”), pursuant to which, among other things, the Lenders severally established in favor of the Borrowers a discretionary senior secured floorplan facility in the original aggregate principal amount of up to $375,000,000 (the “Floorplan Facility"), together with a submit thereunder for a discretionary senior secured revolving credit facility in the original aggregate principal amount of up to $100,000,000 (the “Revolving Facility”).

On October 31, 2022, the Borrowers entered into a certain First Amendment to Credit Agreement by and among the Borrowers, the Lenders who are parties thereto and the Administrative Agent (the “First Amendment to Credit Agreement”) (all capitalized terms not defined in this paragraph but defined in the First Amendment to Credit Agreement shall have the meanings given to such terms in the First Amendment to Credit Agreement) which amended the Credit Agreement to (a) increase the maximum aggregate amount of principal available under the Floorplan Facility from $375,000,000 to $425,000,000, (b) increase the maximum aggregate amount of principal available under the Revolving Facility from $100,000,000 to $150,000,000, (c) increase the maximum aggregate amount of principal available under the Swingline Loans from $25,000,000 to $35,000,000, and (d) change the interest rate on any Loans accruing interest at a rate per annum equal to the LIBOR Rate plus an Applicable Margin of 1.75%, with a rate per annum equal to the Term SOFR Rate plus a Term SOFR Adjustment of 0.10% plus an Applicable Margin of 1.75%.

The Administrative Agent, certain of the Lenders and their respective affiliates, have performed, and may in the future perform, various commercial banking, investment banking, brokerage, and other financial advisory services for ePlus and its subsidiaries for which they have received, and will receive, customary fees and expenses.

The foregoing description of the Amendment is a summary and is qualified in its entirety by reference to such agreement, a copy of which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q, and incorporated herein by reference.

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The information described above under “Entry into a Material Definitive Agreement" is incorporated herein by reference.

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Item 5.OTHER INFORMATION

Insider Trading Arrangements and Policies

During the three months ended June 30, 2023, no director or officer of ePlus inc. adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6.EXHIBITS

Exhibit
Number
 Exhibit Description
   
3.1
 
ePlus inc. Amended and Restated Certificate of Incorporation, as last amended November 9, 2021 (Incorporated herein by reference to Exhibit 3.1 to our QuarterlyAnnual Report on Form 10-Q10-K for the period ended DecemberMarch 31, 2021)2023).
   
3.2
 
Amended and Restated Bylaws of ePlus inc., as of March 2, 2022. (Incorporated herein by reference to Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2022).
  
10.1
 
Form of Restricted Stock Award Agreement (for awards granted to U.S. employees under and subject to the provisions of the ePlus inc. 20222021 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 10.1 to our Current Report in Form 8-K filed on September 20, 2022).Long-Term Incentive Plan)
  
10.2
 
First AmendmentForm of Restricted Stock Award Agreement (for awards granted to First AmendedU.K. employees under and Restated Credit Agreement, dated assubject to the provisions of October 31, 2022, by and among ePlus Technology, inc., ePlus Technology Services inc., SLAIT Consulting, LLC, certain ofthe ePlus inc. subsidiaries as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent and the Lenders party thereto.*2021 Employee Long-Term Incentive Plan)
  
31.110.3
Form of Stock Agreement (for awards granted to non-employee directors under and subject to the provisions of the ePlus inc. 2017 Non-Employee Director Long-Term Incentive Plan)
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.
99.1
Press Release dated November 1, 2022, issued by ePlus inc.
   
101.INS
 
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
 
Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document)

* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

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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 3, 2022August 7, 2023
/s/ MARK P. MARRON

 
By: Mark P. Marron
 
Chief Executive Officer and
President

 
President
(Principal Executive Officer)

  
Date:  November 3, 2022August 7, 2023
/s/ ELAINE D. MARION

 
By: Elaine D. Marion

 
Chief Financial Officer

 
(Principal Financial Officer)


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