Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements included in our 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, 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 at the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled us to remain a trusted advisor for our customers. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We believe our lifecycle approach offering of integrated solutions, services and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a customized customer experience that spans the continuum from fast delivery of competitively priced products and services to subsequent management and maintenance, and through to end-of-life disposal services. This approach permits us to deploy sophisticated solutions to enable our customers’ business outcomes.
Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local government and educational institutions (“SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which account for most of our sales, and to customers in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, Singapore, and Singapore.Israel. Our technology segmentbusiness segments accounted for 97%99% of our net sales and 83%94% of our operating income, while our financing segment accounted for 3%1% of our net sales and 17%6% of our operating income, for the ninethree months ended December 31, 2022.June 30, 2023.
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, 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 service 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. Accordingly, inflation could 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, 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, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets. We use Gross billings as an operational metric to assess the volume of transactions within our Technology business as well as to understand changes in our accounts receivable. We believe Gross billings will aid investors in the same manner.
These key indicators include financial information that is prepared in accordance with US GAAP and presented in our unaudited consolidated financial statements, as well as non-GAAP and operational performance measurement tools. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are correspondingly not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP. Our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results reported under non-GAAP,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) and (3) of the tables that immediately follow this paragraph, we set forth our reasons for using and presenting Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross billings, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share-diluted in the tables and discussion that follow.
The following table provides our key business metrics for the three- and nine-month periods ended December 31, 2022, and 2021 are summarized in the following tables (dollars in(in thousands, except per share amounts):
| | Three Months Ended December 31, | | | Nine Months Ended December 31, | | | Three Months Ended June 30, | |
Consolidated | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
| | | | | | | |
Financial Metrics | | | | | | | |
Net sales | | $ | 623,476 | | | $ | 494,834 | | | $ | 1,575,541 | | | $ | 1,369,500 | | | $ | 574,175 | | | $ | 458,359 | |
| | | | | | | | | | | | | | | | | | |
Gross profit | | $ | 138,372 | | | $ | 117,117 | | | $ | 385,199 | | | $ | 345,631 | | | $ | 142,273 | | | $ | 113,523 | |
Gross margin | | 22.2 | % | | 23.7 | % | | 24.4 | % | | 25.2 | % | | 24.8 | % | | 24.8 | % |
Operating income margin | | 7.5 | % | | 7.3 | % | | 7.9 | % | | 8.2 | % | | 8.1 | % | | 7.2 | % |
| | | | | | | | | | | | | | |
Net earnings | | $ | 35,694 | | | $ | 26,424 | | | $ | 86,502 | | | $ | 81,355 | | | $ | 33,847 | | | $ | 22,339 | |
Net earnings margin | | 5.7 | % | | 5.3 | % | | 5.5 | % | | 5.9 | % | | 5.9 | % | | 4.9 | % |
Net earnings per common share - diluted | | $ | 1.34 | | $ | 0.98 | | $ | 3.24 | | $ | 3.03 | | | $ | 1.27 | | $ | 0.84 | |
| | | | | | | | | | | | | | |
Non-GAAP Financial Metrics | | | | | | |
Non-GAAP: Net earnings (1) | | $ | 36,714 | | | $ | 29,711 | | | $ | 97,623 | | | $ | 90,870 | | | $ | 37,687 | | | $ | 26,513 | |
Non-GAAP: Net earnings per common share - diluted (1) | | $ | 1.38 | | $ | 1.10 | | $ | 3.66 | | $ | 3.38 | | | $ | 1.41 | | $ | 0.99 | |
| | | | | | | | | | | | | | |
Adjusted EBITDA (2) | | $ | 53,325 | | | $ | 41,797 | | | $ | 141,933 | | | $ | 130,264 | | | $ | 53,879 | | | $ | 38,304 | |
Adjusted EBITDA margin | | 8.6 | % | | 8.4 | % | | 9.0 | % | | 9.5 | % | | 9.4 | % | | 8.4 | % |
| | | | | | | | | | | | | | |
Technology Segment | | | | | | | | | | |
Technology Business | | | | | | |
| | | | | | |
Financial Metrics | | | | | | |
Net sales | | $ | 611,774 | | | $ | 476,975 | | | $ | 1,532,037 | | | $ | 1,313,634 | | | $ | 565,685 | | | $ | 448,785 | |
Adjusted gross billings (3) | | $ | 888,621 | | | $ | 685,031 | | | $ | 2,356,326 | | | $ | 1,982,162 | | |
| | | | | | | | | | | | | | | | | | |
Gross profit | | $ | 127,854 | | | $ | 104,483 | | | $ | 349,780 | | | $ | 304,994 | | | $ | 135,912 | | | $ | 105,651 | |
Gross margin | | 20.9 | % | | 21.9 | % | | 22.8 | % | | 23.2 | % | | 24.0 | % | | 23.5 | % |
| | | | | | | | | | | | | | |
Operating income | | $ | 41,090 | | | $ | 27,166 | | | $ | 102,212 | | | $ | 82,640 | | | $ | 43,498 | | | $ | 29,219 | |
| | | | | | | |
Non-GAAP Financial Metric | | | | | | | |
Adjusted EBITDA (2) | | $ | 47,869 | | | $ | 32,794 | | | $ | 120,135 | | | $ | 99,811 | | | $ | 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 | | $ | 11,702 | | | $ | 17,859 | | | $ | 43,504 | | | $ | 55,866 | | | $ | 8,490 | | | $ | 9,574 | |
| | | | | | | | | | | | | | | | | | |
Gross profit | | $ | 10,518 | | | $ | 12,634 | | | $ | 35,419 | | | $ | 40,637 | | | $ | 6,361 | | | $ | 7,872 | |
| | | | | | | | | | | | | | |
Operating income | | $ | 5,368 | | | $ | 8,919 | | | $ | 21,536 | | | $ | 30,200 | | | $ | 2,834 | | | $ | 3,964 | |
| | | | | | | |
Non-GAAP Financial Metric | | | | | | | |
Adjusted EBITDA (2) | | $ | 5,456 | | | $ | 9,003 | | | $ | 21,798 | | | $ | 30,453 | | | $ | 2,930 | | | $ | 4,050 | |
(1) | Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted are based on net earnings calculated in accordance with US GAAP, adjusted to exclude other income (expense),(income) expense, share-based compensation, and acquisition and integration expenses, and the related tax effects. |
We use Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted as supplemental measures of our performance to gain insight into our operating performance and performance trends. We believe that the exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted provide useful information to investors and others in understanding and evaluating our operating results. However, our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate similar Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted or similarly titled measures differently, which may reduce their usefulness as comparative measures.
| | Three Months Ended December 31, | | | Nine Months Ended December 31, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
GAAP: Earnings before tax | | $ | 49,365 | | | $ | 35,910 | | | $ | 120,636 | | | $ | 112,463 | |
Share based compensation | | | 1,950 | | | | 1,780 | | | | 5,681 | | | | 5,355 | |
Acquisition related amortization expense | | | 2,505 | | | | 2,497 | | | | 7,182 | | | | 7,854 | |
Other (income) expense | | | (2,907 | ) | | | 175 | | | | 3,112 | | | | 377 | |
Non-GAAP: Earnings before provision for income taxes | | | 50,913 | | | | 40,362 | | | | 136,611 | | | | 126,049 | |
| | | | | | | | | | | | | | | | |
GAAP: Provision for income taxes | | | 13,671 | | | | 9,486 | | | | 34,134 | | | | 31,108 | |
Share based compensation | | | 544 | | | | 470 | | | | 1,624 | | | | 1,494 | |
Acquisition related amortization expense | | | 693 | | | | 649 | | | | 2,030 | | | | 2,156 | |
Other (income) expense | | | (811 | ) | | | 46 | | | | 933 | | | | 104 | |
Tax benefit (expense) on restricted stock | | | 102 | | | | - | | | | 267 | | | | 317 | |
Non-GAAP: Provision for income taxes | | | 14,199 | | | | 10,651 | | | | 38,988 | | | | 35,179 | |
| | | | | | | | | | | | | | | | |
Non-GAAP: Net earnings | | $ | 36,714 | | | $ | 29,711 | | | $ | 97,623 | | | $ | 90,870 | |
The following table provides our calculation of Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted (in thousands, except per share amounts):
| | Three Months Ended December 31, | | | Nine Months Ended December 31, | | | Three Months Ended June 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
GAAP: Net earnings per common share - diluted | | $ | 1.34 | | $ | 0.98 | | $ | 3.24 | | $ | 3.03 | | |
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 | | 0.05 | | 0.05 | | 0.15 | | 0.14 | | | 607 | | 508 | |
Acquisition related amortization expense | | 0.07 | | 0.07 | | 0.20 | | 0.21 | | | 952 | | 617 | |
Other (income) expense | | (0.08 | ) | | - | | 0.08 | | 0.01 | | | (52 | ) | | 616 | |
Tax benefit (expense) on restricted stock | | | - | | | - | | | (0.01 | ) | | | (0.01 | ) | | | 137 | | | 194 | |
Total non-GAAP adjustments - net of tax | | 0.04 | | 0.12 | | 0.42 | | 0.35 | | |
Non-GAAP: Provision for income taxes | | | 14,319 | | 10,626 | |
| | | | | | | | | | | | | | | | |
Non-GAAP: Net earnings per common share - diluted | | $ | 1.38 | | $ | 1.10 | | $ | 3.66 | | $ | 3.38 | | |
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. In the table below, we provide a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial measure to this non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales. |
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance and performance trends. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.
| | Three Months Ended December 31, | | | Nine Months Ended December 31, | |
Consolidated | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Net earnings | | $ | 35,694 | | | $ | 26,424 | | | $ | 86,502 | | | $ | 81,355 | |
Provision for income taxes | | | 13,671 | | | | 9,486 | | | | 34,134 | | | | 31,108 | |
Share based compensation | | | 1,950 | | | | 1,780 | | | | 5,681 | | | | 5,355 | |
Interest and financing costs | | | 1,308 | | | | 335 | | | | 2,117 | | | | 693 | |
Depreciation and amortization | | | 3,609 | | | | 3,597 | | | | 10,387 | | | | 11,376 | |
Other income (expense) | | | (2,907 | ) | | | 175 | | | | 3,112 | | | | 377 | |
Adjusted EBITDA | | $ | 53,325 | | | $ | 41,797 | | | $ | 141,933 | | | $ | 130,264 | |
| | | | | | | | | | | | | | | | |
Technology Segment | | | | | | | | | | | | | | | | |
Operating income | | $ | 41,090 | | | $ | 27,166 | | | $ | 102,212 | | | $ | 82,640 | |
Depreciation and amortization | | | 3,582 | | | | 3,569 | | | | 10,304 | | | | 11,292 | |
Share based compensation | | | 1,889 | | | | 1,724 | | | | 5,502 | | | | 5,186 | |
Interest and financing costs | | | 1,308 | | | | 335 | | | | 2,117 | | | | 693 | |
Adjusted EBITDA | | $ | 47,869 | | | $ | 32,794 | | | $ | 120,135 | | | $ | 99,811 | |
| | | | | | | | | | | | | | | | |
Financing Segment | | | | | | | | | | | | | | | | |
Operating income | | $ | 5,368 | | | $ | 8,919 | | | $ | 21,536 | | | $ | 30,200 | |
Depreciation and amortization | | | 27 | | | | 28 | | | | 83 | | | | 84 | |
Share based compensation | | | 61 | | | | 56 | | | | 179 | | | | 169 | |
Adjusted EBITDA | | $ | 5,456 | | | $ | 9,003 | | | $ | 21,798 | | | $ | 30,453 | |
The following table provides our calculations of Adjusted EBITDA (in thousands):
| | Three Months Ended June 30, | |
Consolidated | | 2023 | | | 2022 | |
Net earnings | | $ | 33,847 | | | $ | 22,339 | |
Provision for income taxes | | | 12,675 | | | | 8,691 | |
Share based compensation | | | 2,205 | | | | 1,773 | |
Interest and financing costs | | | 550 | | | | 138 | |
Depreciation and amortization | | | 4,792 | | | | 3,210 | |
Other income (expense) | | | (190 | ) | | | 2,153 | |
Adjusted EBITDA | | $ | 53,879 | | | $ | 38,304 | |
| | | | | | | | |
Technology Business | | | | | | | | |
Operating income | | $ | 43,498 | | | $ | 29,219 | |
Depreciation and amortization | | | 4,764 | | | | 3,182 | |
Share based compensation | | | 2,137 | | | | 1,715 | |
Interest and financing costs | | | 550 | | | | 138 | |
Adjusted EBITDA | | $ | 50,949 | | | $ | 34,254 | |
| | | | | | | | |
| | | | | | | | |
Financing Segment | | | | | | | | |
Operating income | | $ | 2,834 | | | $ | 3,964 | |
Depreciation and amortization | | | 28 | | | | 28 | |
Share based compensation | | | 68 | | | | 58 | |
Adjusted EBITDA | | $ | 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 December 31, | | | Nine Months Ended December 31, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Technology segment net sales | | $ | 611,774 | | | $ | 476,975 | | | $ | 1,532,037 | | | $ | 1,313,634 | |
Costs incurred related to sales of third party maintenance, software assurance and subscription/SaaS licenses, and services | | | 276,847 | | | | 208,056 | | | | 824,289 | | | $ | 668,528 | |
Adjusted gross billings | | $ | 888,621 | | | $ | 685,031 | | | $ | 2,356,326 | | | $ | 1,982,162 | |
We use Adjusted gross billings as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment, and to analyze the changes to our accounts receivable and accounts payable. Our use of Adjusted gross billings as an analytical tool has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted gross billings or a similarly titled measure differently, which may reduce its usefulness as a comparative measure.
CONSOLIDATED RESULTS OF OPERATIONS
Net sales: Net sales for the three months ended December 31, 2022, increased $128.7June 30, 2023, increased 25.3% to $574.2 million, or 26.0%, to $623.5 million, asan increase of $115.8 million compared to $494.8$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 December 31, 2022, increased $123.7June 30, 2023, increased by 17.6%, or $125.7 million, or 28.6% to $556.0$842.0 million as compared to $432.3$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 December 31, 2022, increased $5.0 million, or 7.9%, to $67.5 million, as compared to $62.5 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, professional services, financial services, SLED, and healthcare due to increases in demand from existing customers.
Net sales for the nine months ended December 31, 2022, increased $206.0 million, or 15.0%, to $1,575.5 million, as compared to $1,369.5 million for the samethree-month period in the prior year. Product sales for the nine months ended December 31, 2022, increased $189.3 million, or 15.9%, to $1,379.8 million, as compared to $1,190.5 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 nine months ended December 31, 2022, increased $16.7 million, or 9.4%, to $195.7 million, as compared to $179.0 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, professional services, financial services, 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 manufacturing due to the timing of fulfilling orders from existing customers during the nine months ended December 31, 2022, compared to the same period in the prior year.Future Com.
Withing our technology segment, Adjusted gross billings for the three months for the three months ended December 31, 2022, increased $203.6 million, or 29.7%, to $888.6 million, as compared to $685.0 million for the same period in the prior year. We had increases in adjusted gross billings to customers in technology, telecom, media, and entertainment, professional services, financial services, SLED, and healthcare.
Adjusted gross billings for the nine months ended December 31, 2022, increased $374.1 million, or 18.9%, to $2,356.3 million, as compared to $1,982.2 million for the same period in the prior year. We had increases in adjusted gross billings to customers in technology, telecom, media and entertainment, professional services, financial services, SLED, and healthcare, which were partially offset by decreases in adjusted gross billings to customers in the manufacturing market.
Gross profit: Consolidated grossGross profit for the three months ended December 31, 2022,June 30, 2023, increased $21.3 million, or 18.1%25.3%, to $138.4$142.3 million, as compared to $117.1$113.5 million forin the same three-month period in the prior year. While gross profit increased during the three month period ended December 31, 2022, our overall gross margin decreased, primarilyyear due to lower service margins. We also had a decrease inincreased net sales volume. Overall, gross margins were consistent quarter over quarter as higher product margins during this period, drivenin our technology business were offset by a lower volume of sales of third party maintenance, software assurance and subscription/SaaS licenses, and services. Consolidated gross margins for the three months ended December 31, 2022, decreased 150 basis points to 22.2%, as compared to 23.7% for the same period in the prior year.our financing segment.
Consolidated gross profit for the nine months ended December 31, 2022, increased $39.6 million, or 11.4%, to $385.2 million, as compared to $345.6 million for the same period in the prior year. While gross profit increased during the nine month period ended December 31, 2022, our overall gross margin decreased, primarily due to lower service margins. We also had a decrease in product margins during this period, driven by a lower volume of sales of third party maintenance, software assurance and subscription/SaaS licenses, and services. Consolidated gross margins for the nine months ended December 31, 2022, decreased 80 basis points to 24.4%, as compared to 25.2% for the same period in the prior year.
Operating expenses: Operating expenses for the three months ended December 31, 2022,June 30, 2023, increased $10.9$15.6 million, or 13.4%19.4%, to $91.9$95.9 million, as compared to $81.0$80.3 million for the same period in the prior year. Our increase in operating expenses was primarily due to an increase in salaries and benefits of $6.8 million, an increase in general and administrative expenses of $2.0 million including higher software, subscription, and maintenance fees, professional service fees, and travel and entertainment costs, an increase in our provision for credit losses of $1.1 million caused by an increase in our receivables over this period compared to the same period in the prior year, and an increase in interest and financing costs of $1.0 million. As of December 31, 2022, we had 1,745 employees, an increase of 191 from 1,554 as of December 31, 2021.
Operating expenses for the nine months ended December 31, 2022, increased $28.7 million, or 12.3%, to $261.5 million, as compared to $232.8 million for the samethree-month period in the prior year. Our increase in operating expenses was primarily due to an increase of $16.5$12.1 million in salaries and benefits, mainly driven by an increase in headcount as well as higher variable compensation corresponding to the increase in gross profit. As of June 30, 2023, we had 1,853 employees, an increase of $8.8 million in general13.2% from 1,637 as of June 30, 2022.
General and administrative expenses includingalso increased $1.6 million for the three-months ended June 30, 2023, compared to the three months ended June 30, 2022, as we had higher advertising and marketing fees, software, subscription and maintenance fees professional service fees, and travel and entertainment costs, an increasecosts. Travel and entertainment increased due to the return of $2.8in-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 in our provision for credit losses caused by an increase in our receivables over this periodthe 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 an increasedue to higher outstanding borrowings. Offsetting these increases was a decrease of $1.6$0.2 million in interest and financing costs, and partially offset by a $1.0 million decrease in depreciation and amortization.provision for credit losses.
Operating income: As a result of the foregoing, operating income for the three months ended December 31, 2022,June 30, 2023, increased $10.4 $13.1 million, or 28.7%39.6%, to $46.5$46.3 million, as compared to $36.1 million for the same period in the prior year. Operating income for the nine months ended December 31, 2022, increased $10.9$33.2 million or 9.7%, to $123.7 million, as compared to $112.8 million for the same period in the prior year.
Provision for income taxes: Our effective tax rate for the three and nine months ended December 31, 2022, was 27.7% and 28.3% respectively, compared with 26.4% and 27.7%, respectively, for the same periods in the prior year. Our effective tax rate was higher for the three months ended December 31,June 30, 2022, than for the same period in the prior year dueand operating margin increased by 90 basis points to a tax benefit from restricted stock in the prior year. Our effective tax rate was higher for the nine months ended December 31, 2022, than for the same period in the prior year due to foreign currency transaction losses incurred in lower tax jurisdictions.
Net earnings: Consolidated net earnings for the three months ended December 31, 2022, increased $9.3 million, or 35.1%, to $35.7million, as compared to $26.4 million for the same period in the prior year, due to an increase in gross profit and other income (expense), net.8.1%. The increase in otheroperating income (expense), net was driven by the receipt of $1.9 million relateddue to increases from our claim in a class action lawsuit,technology business segments, which was received in December 2022, and foreign exchange gains. These increases were partially offset by an increase inlower operating expenses. Consolidated net earnings for the nine months ended December 31, 2022, increased $5.1 million, or 6.3%, to $86.5million, as compared to $81.4 million for the same period in the prior year, due to an increase in gross profit, offset by an increase in operating expenses and foreign exchange losses.income from our financing segment.
Adjusted EBITDA for the three months ended December 31, 2022, increased $11.5June 30, 2023, was $53.9 million, an increase of $15.6 million, or 27.6%40.7%, to $53.3 million, as compared to $41.8 million for the same three-month period in the prior year. Adjusted EBITDA margin for the three months ended December 31, 2022,June 30, 2023, increased 20 basis 100 basis points to 8.6%9.4%, as compared to the prior year periodthree months ended June 30, 2022, of 8.4%.
The increase in Adjusted EBITDA for the nine months ended December 31, 2022, increased $11.7 million, or 9.0%,was due to $142.0 million, as compared to $130.3 million for the same period in the prior year.increases from our technology business, which was offset by lower Adjusted EBITDA margin for the nine months ended December 31, 2022, decreased 50 basis points to 9.0%, as compared to the prior year period of 9.5%.from our financing segment.
Net earnings per common share diluted for the three months ended December 31, 2022,June 30, 2023, increased $0.36,$0.43, or 36.7%51.2%, to $1.34$1.27 per share, as compared to $0.98$0.84 per share forin the same three-month period in the prior year. Non-GAAP netNon-GAAP: Net earnings per common share diluted for the three months ended December 31, 2022,June 30, 2023, increased $0.28,$0.42, or 25.5%42.4%, to $1.38, as compared to $1.10 for the same period in the prior year.
Net earnings per common share diluted for the nine months ended December 31, 2022, increased $0.21, or 6.9%, to $3.24$1.41 per share, as compared to $3.03$0.99 per share for the same period in the prior year. Non-GAAP net earnings per common share diluted for the ninethree months ended December 31, 2022, increased $0.28, or 8.3%, to $3.66 per share, as compared to $3.38 per share for the same period in the prior year.June 30, 2022.
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.
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.
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 assets; andassets.
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and salesthe sale of off-lease equipment(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, which may impact our operating results.
SEGMENT RESULTS OF OPERATIONS
The three and nine months ended December 31, 2022,June 30, 2023, compared to the three and nine months ended December 31, 2021June 30, 2022
TECHNOLOGY SEGMENTBUSINESS SEGMENTS
The results of operations for our technology segmentbusiness segments were as follows (dollars in thousands):
| | Three Months Ended December 31, | | | Nine Months Ended December 31, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Net sales | | | | | | | | | | | | |
Product | | $ | 544,316 | | | $ | 414,448 | | | $ | 1,336,309 | | | $ | 1,134,658 | |
Services | | | 67,458 | | | | 62,527 | | | | 195,728 | | | | 178,976 | |
Total | | | 611,774 | | | | 476,975 | | | | 1,532,037 | | | | 1,313,634 | |
| | | | | | | | | | | | | | | | |
Cost of sales | | | | | | | | | | | | | | | | |
Product | | | 439,831 | | | | 334,585 | | | | 1,054,267 | | | | 899,437 | |
Services | | | 44,089 | | | | 37,907 | | | | 127,990 | | | | 109,203 | |
Total | | | 483,920 | | | | 372,492 | | | | 1,182,257 | | | | 1,008,640 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 127,854 | | | | 104,483 | | | | 349,780 | | | | 304,994 | |
| | | | | | | | | | | | | | | | |
Selling, general, and administrative | | | 81,874 | | | | 73,413 | | | | 235,147 | | | | 210,369 | |
Depreciation and amortization | | | 3,582 | | | | 3,569 | | | | 10,304 | | | | 11,292 | |
Interest and financing costs | | | 1,308 | | | | 335 | | | | 2,117 | | | | 693 | |
Operating expenses | | | 86,764 | | | | 77,317 | | | | 247,568 | | | | 222,354 | |
| | | | | | | | | | | | | | | | |
Operating income | | $ | 41,090 | | | $ | 27,166 | | | $ | 102,212 | | | $ | 82,640 | |
| | | | | | | | | | | | | | | | |
Adjusted gross billings | | $ | 888,621 | | | $ | 685,031 | | | $ | 2,356,326 | | | $ | 1,982,162 | |
Adjusted EBITDA | | $ | 47,869 | | | $ | 32,794 | | | $ | 120,135 | | | $ | 99,811 | |
| | 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 | % |
Net sales: Net sales of the combined technology business for the three months ended December 31, 2022,June 30, 2023, increased $134.8 million, or 28.3%, to $611.8 million, as compared to $477.0 million for the same period in the prior year, due to increases in net salesthree months ended June 30, 2022, driven by demand from customers in technology, telecom, media, and entertainment, financial services, SLED, and healthcare. healthcare industries.
Product segment sales for the three months ended December 31, 2022, increased $129.9 million, or 31.3%, to $544.3 million, asJune 30, 2023, increased compared to $414.4 million for the same three-month period in the prior year. Service due to higher 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 product net sales. Also contributing to the increase in product sales were improvements in the supply chain, particularly networking products.
Professional services segment sales for the three months ended December 31,June 30, 2023, decreased compared to the three months ended June 30, 2022, increasdue to a decrease in staff augmentation revenue of $1.9 million primarily related to softer demand from customers. Offsetting this decline was higher project related services of $0.3 million.
Managed services segment sales for the three months ended June 30, 2023, increased compared to the three months ended June 30, 2022, due 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 $5.0: 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 7.9%,20.1% to $67.5 $74.1 million, as compared to $62.5 million $61.7 million for the same period in the prior year, due to an increase of $8.0 million in managedsalaries 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 three months ended June 30, 2023, compared to the same three-month period in the prior year, of which 84 were professional services and technical support personnel due to demand for our services.
Net salesGeneral and administrative expenses for the ninethree technology business segments for the three months ended December 31, 2022,June 30, 2023, increased $218.4$1.4 million, or 16.6%12.5%, to $1,532.0$12.5 million, as compared to $1,313.6 million$11.1 million for the same three-month period in the prior year, due to increases in net sales from customers in technology, telecom, media,higher professional fees of $0.8 million, mainly driven by certain internal projects. In addition, we incurred higher travel and entertainment financial services, SLED,costs of $0.2 million due to the return of in-person business meetings and healthcare. Product salesevents.
Provision for credit losses for the nine months ended December 31, 2022, increased 17.8%, or $201.7 million to $1,336.3 million, as compared to $1,134.7 million for the same period in the prior year, and service revenue increased by 9.4%, or $16.7 million, to $195.7 million, as compared to $179.0 million during the same period in the prior year.
Adjusted gross billingsthree technology business segments for the three months ended December 31, 2022, increased $203.6 million, or 29.7%, to $888.6June 30, 2023, was $0.5 million, as compared to $685.0$0.3 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.
Adjusted gross billings for the nine months ended December 31, 2022, increased $374.2 million, or 18.9%, to $2,356.3 million, as compared to $1,982.2 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 December 31, 2022, we had open orders of $957.3 million and deferred revenue of $168.6 million. As of December 31, 2021, we had open orders of $852.9 million and deferred revenue of $121.0 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 December 31, 2022, and 2021 are summarized below:
| | Twelve Months Ended December 31, | | | | |
Net sales by customer end market: | | 2022 | | | 2021 | | | Change | |
Telecom, Media & Entertainment | | | 28 | % | | | 29 | % | | | (1 | %) |
Technology | | | 18 | % | | | 15 | % | | | 3 | % |
Healthcare | | | 14 | % | | | 16 | % | | | (2 | %) |
SLED | | | 13 | % | | | 15 | % | | | (2 | %) |
Financial Services | | | 9 | % | | | 9 | % | | | 0 | % |
All others | | | 18 | % | | | 16 | % | | | 2 | % |
Total | | | 100 | % | | | 100 | % | | | | |
| | Twelve Months Ended December 31, | | | | |
Net sales by vendor: | | 2022 | | | 2021 | | | Change | |
Cisco Systems | | | 37 | % | | | 38 | % | | | (1 | %) |
Dell EMC | | | 8 | % | | | 8 | % | | | 0 | % |
Juniper Networks | | | 7 | % | | | 6 | % | | | 1 | % |
NetApp | | | 4 | % | | | 5 | % | | | (1 | %) |
HPE | | | 4 | % | | | 2 | % | | | 2 | % |
Arista Networks | | | 3 | % | | | 3 | % | | | 0 | % |
All others | | | 37 | % | | | 38 | % | | | (1 | %) |
Total | | | 100 | % | | | 100 | % | | | | |
Our revenues by customer end market have remained consistent over the twelve-month period, with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve month period ended December 31, 2022, we had an increase in the percentage of total revenues from customers in the technology industry, and decreases in the percentage of total revenues in the telecom, media and entertainment, healthcare, and SLED, industries. 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 individually exceeded 5% of total net sales.
Cost of sales: Cost of sales for the three months ended December 31, 2022, increased $111.4 million, or 29.9%, to $483.9 million, as compared to $372.5 million for the samethree-month period in the prior year. Our gross margin decreased 100 basis points to 20.9%higher provision for credit losses for the three months ended December 31, 2022, compared to 21.9% for the same period in the prior year. Our decrease in gross marginsJune 30, 2023, was primarily due to lower service gross margin from a changechanges in services mix. We also had a decrease in product margins, of 10 basis points to 19.2%.our net credit exposure.
Cost of sales for the nine months ended December 31, 2022, increased $173.6 million, or 17.2%, to $1,182.3 million, as compared to $1,008.6 million, which is in-line with the increase in net sales that occurred during the prior year period. Our gross margin decreased 40 basis points to 22.8% for the nine months ended December 31, 2022, compared to 23.2% for the same period in the prior year, primarily due to lower service margins offset by higher product margins.
Selling, general,Depreciation and administrativeamortization: Selling, general, Depreciation and administrative expensesamortization of the three technology business segments for the three months ended December 31, 2022,June 30, 2023, increased $8.5 million, or 11.5%, to $81.9 million, as compared to $73.4 million for the same periodthree months ended June 30, 2022, primarily due to more amortization from intangible assets acquired in the prior year. NSG acquisition.
SalariesInterest and benefitsfinancing costs: Interest and financing costs of the three technology business segments for the three months ended December 31, 2022,June 30, 2023, increased $7.2million, or 11.4% to $70.5million, as compared to $63.3 million for the same period in the prior year, primarily due to an increase in salaries driven by increases in headcount and an increase in variable compensation driven by increases in gross profit. Our technology segment had 1,709 employees as of December 31, 2022, an increase of 188 from 1,521as of December 31, 2021, driven by increased demand for our services and the acquisition of Future Com, Ltd. We added 157 additional customer-facing employees, of which 101 were professional services and technical support personnel. General and administrative expenses for the three months ended December 31,June 30, 2022, increased $1.0 million, or 10.0%, to $11.0 million, as compared to $10.0 million for the same period in the prior year, due to higher professional service fees,average borrowings outstanding and higher travel and entertainment costs.
Selling, general, and administrative expenses for the nine months ended December 31, 2022, increased by $24.8 million, or 11.8%, to $235.1 million, as compared to $210.4 million for the same period in the prior year. Salaries and benefits for the nine months ended December 31, 2022, increased $16.4 million, or 9.0% to $198.5 million, compared to $182.1 million during the same period in the prior year, mainly due to an increase in salaries driven by increases in headcount and an increase in variable compensation driven by increases in gross profit. General and administrative expenses for the nine months ended December 31, 2022, increased $7.1 million, or 25.4%, to $35.3 million, as compared to $28.2 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 amortization for the three months ended December 31, 2022, remained flat at $3.6 million, as compared to the same period in the prior year. Depreciation and amortization for the nine months ended December 31, 2022, decreased $1.0 million, or 8.7%, to $10.3 million, as compared to $11.3 million for the same period in the prior year.
Interest and financing costs: Interest and financing costs for the three and nine months ended December 31, 2022, were $1.3 million and $2.1 million, respectively, an increase of $1.0 million and $1.4 million, respectively, as compared to $0.3 million and $0.7 million, respectively, for the same periods in the prior year. The increase in interest expense for the three and nine month periods is primarily due to an increase in borrowings fromrates under our revolving credit facility. We had $103.0 million of recourse debt in our technology segment as of December 31, 2022, compared to $58.8 million as of December 31, 2021.
Segment operating income:As a result of the foregoing, operating income for the three months ended December 31, 2022, increased $13.9 million, or 51.3%, to $41.1 million, as compared to $27.2 million for the same period in the prior year. Operating income for the nine months ended December 31, 2022, increased $19.6 million, or 23.7%, to $102.2 million, as compared to $82.6 million for the same period in the prior year.
Adjusted EBITDA for the three months ended December 31, 2022, increased $15.1 million, or 46.0%, to $47.9 million, as compared to $32.8 million for the same period in the prior year. Adjusted EBITDA for the nine months ended December 31, 2022, increased $20.3 million, or 20.4%, to $120.1 million, as compared to $99.8 million for the same period in the prior year.WFCDF Credit Facility.
FINANCING SEGMENTSEGEMENT
The results of operations for our financing segment were as follows (dollars in thousands):
| | Three Months Ended December 31, | | | Nine Months Ended December 31, | | | 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 | | $ | 11,702 | | | $ | 17,859 | | | $ | 43,504 | | | $ | 55,866 | | | $ | 8,490 | | | $ | 9,574 | | | $ | (1,084 | ) | | (11.3 | %) |
| | | | | | | | | | | | | | | | | |
Cost of sales | | | 1,184 | | | | 5,225 | | | | 8,085 | | | | 15,229 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 10,518 | | | | 12,634 | | | | 35,419 | | | | 40,637 | | | 6,361 | | | 7,872 | | | (1,511 | ) | | (19.2 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general, and administrative | | | 4,856 | | | | 3,461 | | | | 13,054 | | | | 9,784 | | |
Selling, general, and adminstrative | | | 3,198 | | | 3,655 | | | (457 | ) | | (12.5 | %) |
Depreciation and amortization | | | 27 | | | | 28 | | | | 83 | | | | 84 | | | 28 | | | 28 | | | - | | | 0.0 | % |
Interest and financing costs | | | 267 | | | | 226 | | | | 746 | | | | 569 | | | | 301 | | | | 225 | | | | 76 | | | 33.8 | % |
Operating expenses | | | 5,150 | | | | 3,715 | | | | 13,883 | | | | 10,437 | | | 3,527 | | | 3,908 | | | (381 | ) | | (9.7 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | $ | 5,368 | | | $ | 8,919 | | | $ | 21,536 | | | $ | 30,200 | | | $ | 2,834 | | | $ | 3,964 | | | $ | (1,130 | ) | | (28.5 | %) |
| | | | | | | | | | |
Key Metrics & Other Information | | | | | | | | | | | |
Adjusted EBITDA | | $ | 5,456 | | | $ | 9,003 | | | $ | 21,798 | | | $ | 30,453 | | | $ | 2,930 | | | $ | 4,050 | | | $ | (1,120 | ) | | (27.7 | %) |
Net sales: Net sales for the three months ended December 31, 2022,June 30, 2023, decreased$6.2 million, or 34.5%, to $11.7 million, as compared to $17.9 million for the same period in the prior year. The decrease in net sales was due to lower post- contract and portfolio earnings, partially offset by higher transactional gains. For the three months ended December 31, 2022, we recognized net gains on sales of financial assets of $5.2 million and proceeds from these sales were $157.2 million. For the three months ended December 31, 2021, net gains on the sale of financial assets were $2.3 million and the proceeds from these sales were $63.5 million.
Net sales for the nine months ended December 31, 2022, decreased $12.4 million, or 22.1%, to $43.5 million, as compared to $55.9 million for the same period in the prior year. The decrease in net sales was due to lower post-contract and portfolio earnings and transactional gains. ForPost-contract earnings decreased due to lower month-to-month rents. Transactional gains decreased compared to the nine months ended December 31, 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 $15.1 million and proceeds from these salesfinancing receivables were $586.1 million. For the nine months ended December 31, 2021, net gains on the sale of financial assets were $15.6$61.4 million and the proceeds from these sales were $753.9 million.
As of December 31, 2022, our financing segment had $174.4$52.5 million in financing receivables and operating leases, compared to $171.1 million as of December 31, 2021, an increase of $3.3 million, or 1.9%.
Cost of sales: Cost of sales for the three months ended December 31,June 30, 2023, and 2022, respectively.
Gross Profit: Gross profit for the three months ended June 30, 2023, decreased $4.0 million, or 77.3%, to $1.2 million, as compared to $5.2 million for the same period in the prior year,three months ended June 30, 2022, due to lowerhigher 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 December 31, 2022, decreased by 16.8% to $10.5 million, as compared to the same period in the prior year.
Cost of sales for the nine months ended December 31, 2022, decreased $7.1 million, or 46.9%, to $8.1 million, as compared to $15.2 million for the same period in the prior year, due to lower cost of sales of off-lease equipment and depreciation expense from operating leases. Gross profit for the nine months ended December 31, 2022, decreased by 12.8% to $35.4 million, as compared to the same period in the prior year.
Selling, general and administrative: Selling, general, and administrative expenses for the three months ended December 31, 2022, increased $1.4 million, or 40.3%, to $4.9 million, asJune 30, 2023, decreased compared to $3.5 million for the same period in the prior year, three months ended June 30, 2022, due to higherreduced provision for credit losses because of changes in our net credit exposure. In addition, salaries and benefits decreased, mainly driven by a decrease in variable compensation due 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 service 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, and a higher reserve for credit losses caused by changes in our net credit exposure.
Selling, general, and administrative expenses for the nine months ended December 31, 2022, increased $3.3 million, or 33.4%, to $13.1 million, as compared to $9.8 million for the same period in the prior year, due to higher general and administrative expenses consisting mostly of higher professional service fees, higher software, license and maintenance fees driven by the deployment of newly hosted software in August 2022, and a higher reserve for credit losses caused by changes in our net credit exposure.
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 December 31, 2022,June 30, 2023, increased by 18.1% to $0.3 million, and increased by 31.1% to $0.7 million for the nine months ended December 31, 2022,slightly compared to the prior year.three months ended June 30, 2022, due to higher interest rates. As of December 31, 2022,June 30, 2023, our non-recourse notes payable was $48.5decreased to $20.2 million an increase of $4.9from $26.4 million or 11.2% compared to notes payable of $43.6 million as of December 31, 2021. As of December 31, 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 5.05%5.22% and 3.68%, as3.78% as of December 31,June 30, 2023, and 2022, and 2021, respectively.
Segment operating income: As a result of the foregoing, operating income for the three months ended December 31, 2022, decreased by $3.6 million to $5.4 million and Adjusted EBITDA decreased by $3.5 million to $5.5 million, as compared to the prior year period. Operating income and Adjusted EBITDA for the nine months ended December 31, 2022, decreased by $8.7 million to $21.5 million and $21.8 million, respectively, as compared to the same period in the prior year.
CONSOLIDATED
Other income (expense), net: Other income (expense), net, for the three and nine months ended December 31, 2022 was a net gain of $2.9June 30, 2023, increased to $0.2 million, and a net expense of $3.1 million, respectively, compared to a net expense of $0.2$2.2 million and a net expense of $0.4 million, respectively, for the same periods in the prior year. Our higher net gain forWe incurred $0.4 million of interest and dividend income on investments, offset by foreign currency transaction losses of $0.2 million during the three months ended December 31, 2022, was dueJune 30, 2023, compared to higher net foreign exchange gainscurrency transaction losses of $2.2 million in the currentsame three-month period and $1.9 million we received in December 2022 related to our claim in a class action lawsuit. Our higher net expense for the nine months ended December 31, 2022, was due to higher exchange losses that were only partially offset by the gain related to our claim in a class action lawsuit.prior year.
Provision for income taxes: Our provision for income tax expense was $13.7 million and $34.1$12.7 million for the three and nine months ended December 31, 2022,June 30, 2023, as compared to $9.5 million and $31.1$8.7 million for the same periodsthree-month period in the prior year. Our effective tax rate for the three and nine months ended December 31, 2022,June 30, 2023, was 27.7% and 28.3% respectively, 27.2%, compared with 26.4% and 27.7%, respectively,28.0% for the same periodsperiod in the prior year. Our effective tax rate was higherlower for the three months ended December 31, 2022, than for the same period inJune 30, 2023, as compared to the prior year, primarily due to a tax benefit from restricted stock in the prior year. Ourlower state effective tax rate was higher for the nine months ended December 31, 2022, than for the same period in the prior year due to foreign currency transaction losses incurred in lower tax jurisdictions.rate.
Net earnings: As a result of the foregoing, our netNet earnings for the three months ended December 31, 2022, increased $9.3June 30, 2023, were $33.8 million, an increase of 51.5% or 35.1%, to $35.7$11.5 million, as compared to $26.4$22.3 million during the same period in the prior year. NetThe net earnings forincrease was due primarily to the nine months ended December 31, 2022, increased $5.1 million, or 6.3%, to $86.5 million, as compared to $81.4 million during the same periodincrease in the prior year.operating profits from our technology business.
Basic and fully diluted earnings per common share were both $1.34$1.27, for the three months ended December 31, 2022,June 30, 2023, an increase of 35.4% and 36.7%, respectively, as compared to $0.99 and $0.98, respectively, for51.2% over the three months ended December 31, 2021.prior year. Basic and fully diluted earnings per common share were $3.26 and $3.24, respectively, for the nine months ended December 31, 2022, an increase of 6.9%, as compared to $3.05 and $3.03, respectively, for the nine months ended December 31, 2021.
Non-GAAP net earnings per common share dilutedboth $0.84, for the three months ended December 31, 2022, increased $0.28, or 25.5%, to $1.38, as compared to $1.10 for the three months ended December 31, 2021. Non-GAAP net earnings per common share diluted for the nine months ended December 31, 2022, increased $0.28, or 8.3%, to $3.66, as compared to $3.38 for the nine months ended December 31, 2021.June 30, 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 December 31, 2022. Weighted average common shares outstanding was 26.6 million in the calculation of basic earnings per common share for the nine months ending December 31, 2022, and 26.7 million in the calculation of diluted earnings per common share for the nine months ending December 31, 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 nine months ending December 31, 2021, and 26.9 million in the calculation of diluted earnings per common share were both 26.6 million for both the three months ended June 30, 2023. Weighted average common shares outstanding used in the calculation of basic and ninediluted earnings per common share were 26.5 million and 26.7 million, respectively, for the three months ending December 31, 2021.ended and June 30, 2022.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY OVERVIEW
We finance our operations through funds generated from operations and through borrowings. We use those funds to meet our capital requirements, which have historically consisted primarily of working capital for operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock.
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.
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):
| | Nine Months Ended December 31, | | | Three Months Ended June 30, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Net cash used in operating activities | | $ | (147,038 | ) | | $ | (121,542 | ) | | $ | (20,900 | ) | | $ | (102,943 | ) |
Net cash used in investing activities | | (15,624 | ) | | (18,448 | ) | | (63,097 | ) | | (1,692 | ) |
Net cash provided by financing activities | | 103,555 | | 115,996 | | |
Net cash provided by (used in) financing activities | | | 82,605 | | 31,111 | |
Effect of exchange rate changes on cash | | | 3,124 | | | (2 | ) | | | (127 | ) | | | 1,634 | |
Net decrease in cash and cash equivalents | | $ | (55,983 | ) | | $ | (23,996 | ) | |
Net deccrease in cash and cash equivalents | | | $ | (1,519 | ) | | $ | (71,890 | ) |
Cash flows from operating activities: We used $147.0$20.9 million in operating activities during the ninethree months ended December 31, 2022,June 30, 2023, compared to $121.5using $102.9 million used by operating activities for the ninethree months ended December 31, 2021.June 30, 2022. See below for a breakdown of operating cash flows by segment (in thousands):
| | Nine Months Ended December 31, | | | Three Months Ended June 30, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Technology segment | | $ | (115,811 | ) | | $ | (112,740 | ) | |
Technology business | | | $ | (48,259 | ) | | $ | (104,645 | ) |
Financing segment | | | (31,227 | ) | | | (8,802 | ) | | | 27,359 | | | 1,702 | |
Net cash used in operating activities | | $ | (147,038 | ) | | $ | (121,542 | ) | | $ | (20,900 | ) | | $ | (102,943 | ) |
Technology segmentbusiness: For the ninethree months ended December 31, 2022,June 30, 2023, our technology segmentbusiness used $115.8$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.
In the nine months ended December 31, 2021, our technology segment used $112.7 million from operating activities primarily due to increases in our accounts receivable of $123.4 million and inventories of $77.9 million, offset by net earnings. Additionally,Further, we had net borrowingrepayments on the floor plan component of our credit facility of $59.0$7.3 million. We use this facility to manage working capital needs. We present changes in this balance as financing activity in our consolidated statement of cash flows.
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 December 31, | |
| | 2022 | | | 2021 | |
(DSO) Days sales outstanding (1) | | | 62 | | | | 67 | |
(DIO) Days inventory outstanding (2) | | | 30 | | | | 21 | |
(DPO) Days payable outstanding (3) | | | (41 | ) | | | (41 | ) |
Cash conversion cycle | | | 51 | | | | 47 | |
| | 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 5148 days as of December 31, 2022,June 30, 2023, as compared to 4744 days as of December 31, 2021.June 30, 2022. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended payment terms. Our DPO remained the same at 41 days.increased 1 day as of June 30, 2023. Invoices processed through our credit facility, or the accounts payable floorA/P-floor plan facilitybalance, 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 decreased by 5increased 3 days to 62 days. The DSO for both December 31,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 32 days as of June 30, 2023, compared to 30 days due to higher inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 57.9% to $244.8 million as of December 31, 2022, up from $155.1 million 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 ninethree months ended December 31, 2022,June 30, 2023, our financing segment used $31.2 million in operating activities, primarily due to increases in financing receivables-net, offset by net earnings.
In the nine months ended December 31, 2021, our financing segment used $8.8provided $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 $1.7 million from operating activities, primarily due to net earnings, decreases in accounts receivable, and increases in accounts receivable of $8.8 million and financing receivables-net of $23.4 million,payable-trade offset by net earnings.increases in financing receivables-net.
Cash flows related to investing activities: For the ninethree months ended December 31, 2022,June 30, 2023, we used $15.6$63.1 million infrom investing activities, consisting of $13.3$59.6 million in cash used in acquiring Future Com, Ltd.for the acquisition of NSG, and $5.7 $3.7 million for purchases of property, equipment and operating lease equipment and partially offset by $3.3$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 nine months ended December 31, 2021, we used $18.4 million from investing activities, consisting of $21.4 million for purchases of property, equipment and operating lease equipment offset by $2.9 million of proceeds from the sale of property, equipment, and operating lease equipment.
Cash flows from financing activities: For the ninethree months ended December 31, 2022,June 30, 2023, cash provided by financing activities was $103.6$82.6 million, consisting of net borrowings of non-recourse and recourse notes payable of $101.6$56.4 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $9.2 million in net repayments on the accounts payable floor plan facility.
In the nine months ended December 31, 2021, cash provided by financing activities was $116.0 million, consisting of net borrowings on the floor plan component of our credit facility of $59.0$32.3 million, and net repaymentsproceeds of non-recourse and recourse notes payableissuance of $66.4common stock to employees under an employee stock purchase plan of $1.4 million, partially offset by $9.5$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.
Non-cash activities: We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. In certain assignment agreements, we may direct the third-party financial institution to pay some of the proceeds from the assignment directly to the vendor or vendors that have supplied the assets being leased 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.
As of DecemberJune 30, 2023, and March 31, 2022,2023, we had a maximum credit limit of $425.0$500.0 million, and an outstanding balance on the floor plan facility of $154.5 million. As of March 31, 2022, we had a maximum credit limit of $375.0$182.9 million and the outstanding balance on the floor plan facility was $145.3 million.$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.
As of December 31, 2022,June 30, 2023, the outstanding balance under the revolving credit facility was $95.0$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 $150.0$200.0 million as of December 31, 2022,both June 30, 2023, and $100.0 million as of 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 December 31, 2022,June 30, 2023, we were not involved in any unconsolidated special purpose entity transactions.
ADEQUACY OF CAPITAL RESOURCES
The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also open facilities in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance our geographic footprint, or the platform of bundled solutions to provide additional functionality and value-added services. We may require additional capital due to increases in inventory to accommodate our customers’ IT installation schedules. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes 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. 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.
Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk“Risk Factors,,” in our 20222023 Annual Report, as well assupplemented in our other filings with the SEC.subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.
We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance.
CRITICAL ACCOUNTING ESTIMATES
As disclosed in
Note 2,, “Recent Accounting Pronouncements,” we adopted a new
standardstandard 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 20222023 Annual Report.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize lines of credit and other financing facilities that are subject to fluctuations in short-term interest rates. Our non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds. Borrowings under the WFCDF Credit Facility bear interest at a market-based variable rate. As of December 31, 2022,June 30, 2023, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.
We have foreign currency exposure when transactions are not denominated in our subsidiaries’ functional currency, which include purchases and sales of the products and services we provide, as well as loans with other ePlus entities. Additionally, we lease assets in foreign countries, including Canada, the UK, and several other European countries. As a lessor, we lease assets for amounts denominated in British Pounds, Euros, and Canadian dollars. To date, foreign currency exposure associated with purchases and sales of the products and services we provide has not been significant. We have incurred foreign currency transaction gains and losses in certain foreign subsidiaries on US dollar denominated loans. Fluctuations in currency exchange rates may impact our results of operations and financial position.
Item 4. | CONTROLS AND PROCEDURES |
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2022.June 30, 2023.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
In August 2022, 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 December 31, 2022,June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
LIMITATIONS AND EFFECTIVENESS OF CONTROLS
Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process; therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
PART II. OTHER INFORMATION
Please refer to Note 9,, “Commitment and Contingencies” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements.”
On February 25, 2022, a putative class action complaint was filed in the Delaware Court of Chancery by Michael Kent, a stockholder, against us and our then-current directors (the “Action”)Statements”. The complaint sought a declaration that Section 2.9 of our then-bylaws violated Section 228 of the Delaware General Corporation Law because, as alleged in the complaint, the bylaw provision restricted the ability of our stockholders to act by written consent unless the Board of Directors provided prior approval for such stockholder action. While we disagreed with plaintiff’s allegations, we nevertheless amended our bylaws on March 2, 2022, to make clear that stockholders may act by written consent, subject to certain procedures. On April 8, 2022, the Court of Chancery entered a stipulated order pursuant to which the plaintiff voluntarily dismissed the Action. The dismissal was without prejudice with regard to the anticipated application of plaintiff’s counsel’s claim for attorneys’ fees and expenses. The Court of Chancery retained jurisdiction solely for the purpose of deciding the anticipated application of plaintiff’s counsel for an award of attorneys’ fees and reimbursement of expenses in connection with the company’s bylaw amendment. We subsequently agreed to pay $150,000 to plaintiff’s counsel for attorneys’ fees and expenses in full satisfaction of the claim for attorneys’ fees and expenses in the Action. The Court of Chancery has not been asked to review, and will pass no judgment on, the payment of the attorneys’ fees and expenses or their reasonableness, and the Action shall be dismissed with prejudice.
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 nine months ended December 31, 2022, including a total of 70,473 shares purchased as part of the publicly announced share repurchase plans or programs. There were no share repurchases during the three months ended December 31, 2022.June 30, 2023.
Period | | Total number of shares
purchased (1) | | | Average
price
paid per share | | | Total number of shares purchased as part of publicly announced plans or programs | | | Maximum number (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 | ) |
October 1, 2022 through October 31, 2022 | | | - | | | $ | - | | | | - | | | | 1,000,000 | | | | (9 | ) |
November 1, 2022 through November 30, 2022 | | | - | | | $ | - | | | | - | | | | 1,000,000 | | | | (10 | ) |
December 1, 2022 through December 31, 2022 | | | - | | | $ | - | | | | - | | | | 1,000,000 | | | | (11 | ) |
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 | | | | | |
| (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.
|
| (9) | The share purchase authorization in place for the month ended October 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of October 31, 2022, the remaining authorized shares to be purchased were 1,000,000.
|
| (10) | The share purchase authorization in place for the month ended November 30, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of November 30, 2022, the remaining authorized shares to be purchased were 1,000,000.
|
| (11) | The share purchase authorization in place for the month ended December 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of December 31, 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 4. | MINE SAFETY DISCLOSURES
|
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