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


FORM 10-Q


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


For the quarterly period ended SeptemberJune 30, 20182019


OR


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


For the transition period from____ to ____ .


Commission file number:1-34167001-34167


ePlus inc.


(Exact name of registrant as specified in its charter)


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


1359515395 Dulles Technology Drive, Herndon VA , Virginia20171-3413
(Address, including zip code, of principal executive offices)


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


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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valuePLUSThe Nasdaq Stock Market LLC

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


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


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


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


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


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐  No ☒
The number of shares of common stock outstanding as of NovemberAugust 5, 2018 2019was 13,704,734.13,506,047.




Table of Contents
TABLE OF CONTENTS

ePlus inc. AND SUBSIDIARIES

Part I. Financial Information: 
   
Item 1.
Financial Statements 
   
Unaudited Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20182019 and March 31, 20182019
5
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2019 and Six Months Ended September 30, 2018 and 2017
6
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2019 and Six Months Ended September 30, 2018 and 2017
7
Unaudited Condensed Consolidated Statements of Cash Flows for the SixThree Months Ended SeptemberJune 30, 20182019 and 20172018
8
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the SixThree Months Ended SeptemberJune 30, 2019 and 2018
10
Notes to Unaudited Condensed Consolidated Financial Statements
11
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
43
40
Item 4.
Controls and Procedures
43
41
Part II. Other Information:
Item 1.
Legal Proceedings
41
Item 1A.
Risk Factors
41
 
Part II. Other Information:
Item 1.2.
Legal Proceedings
44
Item 1A.
Risk Factors
44
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
45
42
Item 3.
Defaults Upon Senior Securities
46
42
Item 4.
Mine Safety Disclosures
46
42
Item 5.
Other Information
46
42
Item 6.
Exhibits
46
43
Signatures & Certifications
47
44



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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS


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



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

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

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

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

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

·reduction of vendor incentives provided to us;

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

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

·adapting to meet changes in markets and competitive developments;

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

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

·performing professional and managed services competently;

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

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

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

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

·future growth rates in our core businesses;

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

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

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

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

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

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

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

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

domestic and international economic regulations uncertainty (e.g., tariffs, North American Free Trade Agreement, and Trans-Pacific Partnership).
significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers, or vendors;
exposure to changes in, interpretations of, or enforcement trends in legislation and regulatory matters;
the creditworthiness of our customers and our ability to reserve adequately for credit losses;
reduction of vendor incentives provided to us;
managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
increasing the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
adapting to meet changes in markets and competitive developments;
maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
increasing the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
performing professional and managed services competently;
maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace;
reliance on third-parties to perform some of our service obligations to our customers;
changes in the Information Technology (“IT”) industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), and software as a service (“SaaS”);
our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;
future growth rates in our core businesses;
failure to comply with public sector contracts, or applicable laws or regulations;
changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;
a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
our contracts may not be adequate to protect us, and we are subject to audit in which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
disruptions or a security breach in our or our vendors’ IT systems and data and audio communication networks;
3
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our ability to secure our own and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;

·•
our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common stock or its holders;

·our ability to realize our investment in leased equipment;
our ability to realize our investment in leased equipment;

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

·the possibility of goodwill impairment charges in the future;
the possibility of goodwill impairment charges in the future;

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

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


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


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PART I. FINANCIAL INFORMATION


Item 1.
Financial Statements



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


 September 30, 2018  March 31, 2018  June 30, 2019  March 31, 2019 
ASSETS    (as adjusted)       
      
Current assets:            
Cash and cash equivalents $75,647  $118,198  $35,604  $79,816 
Accounts receivable—trade, net  292,045   268,287   366,163   299,899 
Accounts receivable—other, net  40,312   28,401   41,949   41,328 
Inventories  56,606   39,855   58,205   50,493 
Financing receivables—net, current  86,253   69,936   98,419   63,767 
Deferred costs  16,211   16,589   17,665   17,301 
Other current assets  10,716   23,625   8,227   7,499 
Total current assets  577,790   564,891   626,232   560,103 
                
Financing receivables and operating leases—net  79,119   68,511   71,097   59,032 
Property, equipment and other assets  18,037   19,143   30,211   17,328 
Goodwill  76,445   76,624   110,754   110,807 
Other intangible assets—net  23,805   26,302   36,519   38,928 
TOTAL ASSETS $775,196  $755,471  $874,813  $786,198 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES AND STOCKHOLDERS' EQUITY        
                
LIABILITIES                
                
Current liabilities:                
Accounts payable $92,830  $106,933  $108,954  $86,801 
Accounts payable—floor plan  120,771   112,109   136,013   116,083 
Salaries and commissions payable  17,596   19,801   20,298   21,286 
Deferred revenue  35,860   35,648   48,613   47,251 
Recourse notes payable—current  -   1,343   -   28 
Non-recourse notes payable—current  52,630   40,863   64,583   38,117 
Other current liabilities  20,698   33,370   28,959   19,285 
Total current liabilities  340,385   350,067   407,420   328,851 
                
Non-recourse notes payable—long term  12,656   10,072   8,362   10,502 
Deferred tax liability—net  1,644   1,662   4,925   4,915 
Other liabilities  21,234   21,067   25,463   17,677 
TOTAL LIABILITIES  375,919   382,868   446,170   361,945 
                
COMMITMENTS AND CONTINGENCIES (Note 8)        
COMMITMENTS AND CONTINGENCIES (Note 10)
        
                
STOCKHOLDERS’ EQUITY        
STOCKHOLDERS' EQUITY        
                
Preferred stock, $.01 per share par value; 2,000 shares authorized; none outstanding  -   - 
Common stock, $.01 per share par value; 25,000 shares authorized; 13,727 outstanding at September 30, 2018 and 13,761 outstanding at March 31, 2018
  143   142 
Preferred stock, $0.01 per share par value; 2,000 shares authorized; none outstanding  -   - 
Common stock, $0.01 per share par value; 25,000 shares authorized; 13,509 outstanding at June 30, 2019 and 13,611 outstanding at March 31, 2019  144   143 
Additional paid-in capital  133,561   130,000   139,162   137,243 
Treasury stock, at cost, 578 shares at September 30, 2018 and 467 shares at March 31, 2018  (45,380)  (36,016)
Treasury stock, at cost, 880 shares at June 30, 2019 and 693 shares at March 31, 2019  (67,454)  (53,999)
Retained earnings  311,221   277,945   357,325   341,137 
Accumulated other comprehensive income—foreign currency translation adjustment  (268)  532   (534)  (271)
Total Stockholders’ Equity  399,277   372,603 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $775,196  $755,471 
Total Stockholders' Equity  428,643   424,253 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $874,813  $786,198 


See Notes to Unaudited Condensed Consolidated Financial Statements.

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


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
 2018  2017  2018  2017 
             
Three Months Ended
June 30,
 
    (as adjusted)     (as adjusted)  2019  2018 
                  
Net sales $345,043  $371,363  $701,575  $744,719       
Product $335,601  $322,817 
Services  45,771   33,715 
Total  381,372   356,532 
Cost of sales  259,543   283,792   535,372   579,555         
Product  260,063   255,812 
Services  28,670   20,017 
Total  288,733   275,829 
Gross profit  85,500   87,571   166,203   165,164   92,639   80,703 
                        
Selling, general, and administrative expenses  57,705   56,340   114,671   111,004 
Selling, general, and administrative  65,787   56,966 
Depreciation and amortization  2,741   2,129   5,531   4,192   3,463   2,790 
Interest and financing costs  484   274   960   633   628   476 
Operating expenses  60,930   58,743   121,162   115,829   69,878   60,232 
                        
Operating income  24,570   28,828   45,041   49,335   22,761   20,471 
                        
Other income (expense)  322   (141)  419   130   (45)  97 
                        
Earnings before tax  24,892   28,687   45,460   49,465   22,716   20,568 
                        
Provision for income taxes  6,889   11,466   12,184   18,821   6,528   5,295 
                        
Net earnings $18,003  $17,221  $33,276  $30,644  $16,188  $15,273 
                        
Net earnings per common share—basic $1.33  $1.24  $2.47  $2.21  $1.21  $1.14 
Net earnings per common share—diluted $1.33  $1.23  $2.45  $2.19  $1.20  $1.12 
                        
Weighted average common shares outstanding—basic  13,494   13,879   13,464   13,843   13,356   13,434 
Weighted average common shares outstanding—diluted  13,586   14,008   13,597   14,021   13,457   13,597 


See Notes to Unaudited Condensed Consolidated Financial Statements.

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ePlus inc. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
Three Months Ended
June 30,
 
 2018  2017  2018  2017  2019  2018 
 (amounts in thousands)       
                  
NET EARNINGS $18,003  $17,221  $33,276  $30,644  $16,188  $15,273 
                        
OTHER COMPREHENSIVE INCOME, NET OF TAX:                        
                        
Foreign currency translation adjustments  (143)  391   (800)  703   (263)  (657)
                        
Other comprehensive income (loss)  (143)  391   (800)  703   (263)  (657)
                        
TOTAL COMPREHENSIVE INCOME $17,860  $17,612  $32,476  $31,347  $15,925  $14,616 


See Notes to Unaudited Condensed Consolidated Financial Statements.

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


 Six Months Ended September 30,  Three Months Ended June 30, 
 2018  2017  2019  2018 
    (as adjusted)       
Cash Flows From Operating Activities:            
Net earnings $33,276  $30,644  $16,188  $15,273 
                
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:        
Adjustments to reconcile net earnings to net cash used in operating activities:        
Depreciation and amortization  8,867   6,745   4,964   4,500 
Reserve for credit losses, inventory obsolescence and sales returns  178   232 
Reserve for credit losses, inventory obsolescence, and sales returns  351   192 
Share-based compensation expense  3,561   3,180   1,919   1,693 
Payments from lessees directly to lenders—operating leases
  (75)  (1,190)
Gain on disposal of property, equipment and leased equipment  (939)  (5,364)
Deferred taxes  (3)  - 
Payments from lessees directly to lenders—operating leases  (22)  (32)
Gain on disposal of property, equipment, and leased equipment  (203)  (294)
Gain on sale of financing receivables  (2,584)  (3,498)  -   (1,354)
Other  2   -   -   4 
Changes in:                
Accounts receivable  (29,287)  (21,694)  (69,281)  (60,140)
Inventories  (16,688)  43,041 
Inventories-net  (7,774)  (12,440)
Financing receivables—net  (5,922)  2,730   (58,198)  3,749 
Deferred costs, other intangible assets and other assets  4,920   (8,290)
Accounts payable  2,375   (6,920)
Salaries and commissions payable, deferred revenue and other liabilities  (14,769)  (26,286)
Net cash provided by (used) in operating activities $(17,085) $13,330 
Deferred costs, other intangible assets, and other assets  (14,379)  5,491 
Accounts payable-trade  21,089   10,102 
Salaries and commissions payable, deferred revenue, and other liabilities  17,955   (15,776)
Net cash used in operating activities $(87,394) $(49,032)
                
Cash Flows From Investing Activities:                
Proceeds from sale of property, equipment and leased equipment  1,764   7,976 
Purchases of property, equipment and operating lease equipment  (6,451)  (3,436)
Proceeds from sale of property, equipment, and leased equipment $292  $1,034 
Purchases of property, equipment, and operating lease equipment  (1,518)  (1,630)
Purchases of assets to be leased or financed  (8,620)  (3,792)  -   (7,195)
Issuance of financing receivables  (88,442)  (100,785)  -   (49,355)
Repayments of financing receivables  33,349   41,087   -   15,555 
Proceeds from sale of financing receivables  30,463   43,777   -   9,776 
Cash used in acquisitions, net of cash acquired  -   (37,718)
Net cash used in investing activities $(37,937) $(52,891) $(1,226) $(31,815)
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued


 Six Months Ended September 30,  Three Months Ended June 30, 
 2018  2017  2019  2018 
    (as adjusted)       
Cash Flows From Financing Activities:            
Borrowings of non-recourse and recourse notes payable $27,157  $32,566  $41,394  $18,802 
Repayments of non-recourse and recourse notes payable  (11,229)  (24,730)  (3,414)  (5,903)
Repurchase of common stock  (10,135)  (4,383)  (13,318)  (9,830)
Repayments of financing of acquisitions  (2,134)  (1,104)  (265)  (500)
Net borrowings (repayments) on floor plan facility  8,662   (12,395)  19,930   17,468 
Net cash provided by (used) in financing activities  12,321   (10,046)
Net cash provided by financing activities  44,327   20,037 
                
Effect of exchange rate changes on cash  150   32   81   92 
                
Net Increase (Decrease) in Cash and Cash Equivalents  (42,551)  (49,575)
Net Decrease in Cash and Cash Equivalents  (44,212)  (60,718)
                
Cash and Cash Equivalents, Beginning of Period  118,198   109,760   79,816   118,198 
                
Cash and Cash Equivalents, End of Period $75,647  $60,185  $35,604  $57,480 
                
Supplemental Disclosures of Cash Flow Information:                
Cash paid for interest $945  $254  $595  $473 
Cash paid for income taxes $11,221  $20,041  $5,616  $5,545 
Cash paid for amounts included in the measurement of lease liabilities $1,081  $- 
                
Schedule of Non-Cash Investing and Financing Activities:                
Proceeds from sale of property, equipment, and leased equipment $461  $906  $-  $164 
Purchase of property, equipment, and operating lease equipment $(934) $724 
Purchase of assets to be leased or financed $1,010  $(4,134)
Purchases of property, equipment, and operating lease equipment $(1,947) $(675)
Purchases of assets to be leased or financed $-  $592 
Issuance of financing receivables $(36,655) $(66,764) $-  $(19,709)
Repayment of financing receivables $-  $7,096 
Proceeds from sale of financing receivables $40,265  $70,423  $-  $23,823 
Financing of acquisitions $-  $(12,050)
Borrowing of non-recourse and recourse notes payable $37,688  $8,904  $30,046  $9,606 
Repayments of non-recourse and recourse notes payable $(63) $(10,704) $(22) $(32)
Vesting of share-based compensation $12,769  $11,969  $7,774  $11,345 
Repurchase of common stock $(137) $- 
New operating lease assets obtained in exchange for lease obligations $1,291  $- 

See Notes to Unaudited Condensed Consolidated Financial Statements.


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


     
Common Stock
  
Additional
Paid-In
  Treasury  Retained  
Accumulated
Other
Comprehensive
    


Shares

Par Value

Capital

Stock

Earnings

Income

Total
Balance, April 1, 2018  13,761  $142  $130,000  $(36,016) $277,945  $532  $372,603 
Issuance of restricted
stock awards
  77   1   -   -   -   -   1 
Share-based compensation  -   -   3,561   -   -   -   3,561 
Repurchase of common stock  (111)  -   -   (9,364)  -   -   (9,364)
Net earnings  -   -   -   -   33,276   -   33,276 
Foreign currency translation
adjustment
  -   -   -   -   -   (800)  (800)
                             
Balance, September 30, 2018  13,727  $143  $133,561  $(45,380) $311,221  $(268) $399,277 
  Three Months Ended June 30, 2019 
 Common Stock  
Additional
Paid-In
  Treasury  Retained  
Accumulated
Other
Comprehensive
    
  Shares  Par Value  Capital  Stock  Earnings  Income  Total 
Balance, March 31, 2019  13,611  $143  $137,243  $(53,999) $341,137  $(271) $424,253 
Issuance of restricted stock awards  86   1   -   -   -   -   1 
Share-based compensation  -   -   1,919   -   -   -   1,919 
Repurchase of common stock  (188)  -   -   (13,455)  -   -   (13,455)
Net earnings  -   -   -   -   16,188   -   16,188 
Foreign currency translation adjustment  -   -   -   -   -   (263)  (263)
                             
Balance, June 30, 2019  13,509  $144  $139,162  $(67,454) $357,325  $(534) $428,643 


  Three Months Ended June 30, 2018 
                      
Balance, March 31, 2018  13,761  $142  $130,000  $(36,016) $277,945  $532  $372,603 
Issuance of restricted stock awards  70   1   -   -   -   -   1 
Share-based compensation  -   -   1,693   -   -   -   1,693 
Repurchase of common stock  (108)  -   -   (9,059)  -   -   (9,059)
Dividends declared  -   -   -   -   -   -   - 
Net earnings  -   -   -   -   15,273   -   15,273 
Foreign currency translation adjustment  -   -   -   -   -   (657)  (657)
                             
Balance, June 30, 2018  13,723  $143  $131,693  $(45,075) $293,218  $(125) $379,854 

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ePlus inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,”"we," "our," "us," "ourselves," or “"ePlus.” " ePlus inc. is a holding company that through its subsidiaries provides IT solutions that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, staffing, professional and managed services and complete lifecycle management services, including flexible financing solutions. We focus on state and local governments, middle market and large enterprises in North America and the United Kingdom (“U.K.”UK”).


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


INTERIM FINANCIAL STATEMENTS — The unaudited condensed consolidated financial statements for the three and six months ended SeptemberJune 30, 20182019 and 20172018 were prepared by us, without audit, and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the three and six months ended SeptemberJune 30, 20182019 and 20172018 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2019,2020 or any other future period. These unaudited condensed consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 20182019 (“20182019 Annual Report”), which should be read in conjunction with these interim condensed consolidated financial statements.


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


CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 45%40% of our technology segment’s net sales for both the three months ended SeptemberJune 30, 20182019 and 2017, and 43% and 47% of our technology segment’s net sales for the six months ended September 30, 2018 and 2017, respectively.2018.


SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2018,2019, except for changes from the adoption of Accounting Standards Update (“ASU”("ASU") 2014-09, Revenue from Contracts with Customers2016-02, Leases (Topic 606)842), as amended (“ASU 2014-09”2016-02”). This Update addsupdate establishes Codification Topic 606, Revenue from Contracts with Customers842, Leases (“Codification Topic 606”842”) towithin the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”). The updates to our accounting policies from adopting ASU 2014-092016-02 are provided below.


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

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

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

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

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

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

Sales of third party products

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

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

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

Sales of third party software

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

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

Sales of third party maintenance, software support, and services

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

Sales of ePlus professional and managed services

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

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

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

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

Freight and sales tax

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

Financing revenue and other

We account for leases to customers in accordance with Codification Topic 840, Leases. Our accounting for842. We utilize a portfolio approach by grouping many similar assets being leased to one customer together.

We classify our leases is different depending on the type of lease. Each lease is classified as either a direct financing lease, sales-type lease,leases or operating leases. We classify leases as sales-type leases if any one of five criteria are met, each of which indicate that the lease as appropriate.

We consider whether a lease meets anytransfers control of the following four criteriaunderlying asset to the lessee. We classify our other leases as part of classifying the lease at its inception:operating leases.



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

·the lease contains a bargain purchase option;

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

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

If a lease meets any of the four lease classification criteria and gives rise to dealer’s profit, we classify the lease as a sales-type lease. For sales-type leases, upon lease commencement, we recognize sales equal to the present value of the minimum lease payments and the residual asset discounted using the rate implicit interest rate in the lease. When we are financing equipment provided by another dealer, we typically do not have any selling profit or loss arising from the lease. When we are the dealer of the equipment being leased, we typically recognize revenue in the amount of the lease receivable and cost of sales equal to carryingin the amount of the asset being leased and any initial direct costs incurred, less the presentcarrying value of the underlying asset minus the unguaranteed residual. Interest income fromresidual asset. After the lease is recognized in sales over the lease term in our financing segment.

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

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

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

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

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

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

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For operating leases, we recognize the underlying asset as an operating lease asset. We depreciate the asset on a straight-line basis to its estimated residual value over its estimated useful life. We recognized the lease payments over the lease term on a straight-line basis as part of net sales.

In all our leases, we recognize variable lease payments, primarily reimbursement for property taxes associated with the leased asset, as part of net sales in the period in which the changes in facts and circumstances on which the variable lease payments are based occur. We exclude from revenues and expenses any sales taxes reimbursed by the lessee.

We also finance third-party software and third-party services for our customers, which we classify as notes-receivable. We recognize interest income on our notes-receivable using the effective interest method.

We account for transfers of our financial assets, including our lease receivables and notes receivable, under Codification Topic 860 Transfers and Servicing (“Codification Topic 860”). When a transfer meets all the requirements for sale accounting, we derecognize the financial asset and record a net gain or loss that is included in net sales.

LESSEE ACCOUNTING — We lease office space over initial terms typically between 3 and 6 years. At the lease commencement date, we recognize operating lease liabilities based on the present value of the future minimum lease payments. In determining the present value of future minimum lease payments, we use our incremental borrowing rate based on the information available at the commencement date. When the future minimum payments encompass non-lease components, we account for the lease and non-lease components as a single lease component. We elected not to recognize right-of-use assets and lease liabilities for leases with an initial term of 12 months or less. We recognize lease expense on a straight-line basis over the lease term beginning on the commencement date.

2.RECENT ACCOUNTING PRONOUNCEMENTS


RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS —We adopted ASU 2014-09 on April 1, 2018,2016-02 in our quarter ended June 30, 2019 using the full retrospective method. Under the full retrospective method, wea transition option that allows entities to initially apply the guidance retrospectivelynew standard at the adoption date and recognize a cumulative-effect adjustment to each prior reportingthe opening balance of retained earnings in the period presented. Theof adoption. Under this transition option, we do not update the financial information and disclosures for comparative periods.

Additionally, we elected a package of practical expedients to not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any expired or existing leases, and not reassess initial direct costs for any existing leases. As a result of our adoption, we recorded an initial impact from the adopting ASU 2014-09 onto our consolidated balance sheet assheets of March 31, 2018, was a decrease in accounts receivable – tradeestablishing right-of-use assets of $1.9$12.7 million an increase in accounts receivable – otherand lease liabilities of $1.9 million, a decrease in deferred costs of $3.2$12.3 million and a decreasereduction in deferred revenuesprepaid assets of $3.2 million. There is no impact to$0.4 million at the beginning of our retained earnings as of March 31, 2018. The impact on our consolidated statement of operations was a decrease in net sales and cost of sales by $0.5 million for the three months ended Septemberquarter ending June 30, 2017 and an increase of $6.7 million in net sales and cost of sales for the six months ended September 30, 2017.2019.


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


In November 2016, the FASB issued ASU 2016-02, Leases, which will supersede the current US GAAP on this topic. The core principle of this update is that a lessee should recognize the assets and liabilities that arise from leases. This update requires adoption under the modified retrospective approach and becomes effective for us in our quarter ending June 30, 2019. Early adoption is permitted. We are currently evaluating the impact of this update on our financial statements.

3.REVENUES


Contract balances


Accounts receivable – trade represents amounts due from contracts with customers. In addition, weWe had $38.0$18.9 million and $28.1$16.2 million of receivables from contracts with customers included within financing receivables as of SeptemberJune 30, 20182019 and March 31, 2018,2019, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):


Contract liabilities September 30, 2018  March 31, 2018  June 30, 2019  March 31, 2019 
Current (included in deferred revenue) $35,036  $34,643  $47,549  $46,356 
Non-current (included in other liabilities) $13,430  $12,699  $13,317  $13,593 


Revenue recognized from the beginning contract liability balance was $8.1$15.8 million and $20.9$12.8 million for the three and six months ended SeptemberJune 30, 2018, respectively,2019 and $36.0 million and $55.5 million for the three and six months ended September 30, 2017,2018, respectively.

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Performance obligations


The following table includes revenue expected to be recognized in the future related to performance obligations, primarily non-cancelable contracts for ePlus managed services, that are unsatisfied or partially unsatisfied at the end of the reporting period, in thousands. The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed.


Remaining six months of fiscal 2019 $12,337 
Fiscal 2020  12,607 
Fiscal 2021  6,837 
Fiscal 2022  1,078 
Fiscal 2023  302 
Fiscal 2024  2 
Total remaining performance obligations $33,163 
Remainder of Year ending March 31, 2020 $19,327 
Year ending March 31, 2021  11,640 
Year ending March 31, 2022  4,438 
Year ending March 31, 2023  1,134 
Year ending March 31, 2024  18 
Year ending March 31, 2025 and thereafter  400 
Total remaining performance obligations $36,957 


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4.FINANCING RECEIVABLES AND OPERATING LEASES


Our financing receivables and operating leases consist primarily of assets that we financeleases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Occasionally, our customers, which we manageleases provide the lessee at bargain purchase option. We classify leases as a portfolio of investments. Equipment financed for our customers is accounted for as investments in direct financing,either sales-type or operating leases in accordance with Codification Topic 840, Leases. We also finance third-party software, maintenance,842.

The following table provides the profit recognized for sales-type leases at their commencement date for the three months ended June 30, 2019 (in thousands):


 
Three months ended
June 30, 2019
 
Net sales $4,854 
Cost of sales  3,950 
Gross Profit $904 

The following table provides interest income in aggregate on our sales-type leases and serviceslease income on our operating leases for our customers, which are classified as notes receivables. Our notes receivables are interest bearing and are often due over a period of time that corresponds with the terms of the leased products.three months ended June 30, 2019 (in thousands):



 
Three months ended
June 30, 2019
 
Interest Income on sales-type leases $2,095 
Lease income on operating leases  5,359 

FINANCING RECEIVABLES—NET


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



June 30, 2019
 
Notes
Receivables
  
Lease-Related
Receivables
  
Total Financing
Receivables
 
 Notes  Lease-Related  Total Financing          
September 30, 2018 Receivables  Receivables  Receivables 
Minimum payments $72,585  $77,825  $150,410  $63,074  $85,396  $148,470 
Estimated unguaranteed residual value (1)  -   12,805   12,805   -   18,768   18,768 
Initial direct costs, net of amortization (2)  629   397   1,026   319   374   693 
Unearned income  -   (9,409)  (9,409)  -   (10,867)  (10,867)
Reserve for credit losses (3)  (483)  (598)  (1,081)  (520)  (512)  (1,032)
Total, net $72,731  $81,020  $153,751  $62,873  $93,159  $156,032 
Reported as:                        
Current $52,409  $33,844  $86,253  $48,383  $50,036  $98,419 
Long-term  20,322   47,176   67,498   14,490   43,123   57,613 
Total, net $72,731  $81,020  $153,751  $62,873  $93,159  $156,032 



(1)Includes estimated unguaranteed residual values of $7,074$12,326 thousand for direct financingsales type leases, which have been sold and accounted for as sales.

(2)Initial direct costs are shown net of amortization of $357$306 thousand.

(3)
For details on reserve for credit losses, refer to Note 6,7, “Reserves for Credit Losses.”

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

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March 31, 2019
 
Notes
Receivables
  
Lease-Related
Receivables
  
Total Financing
Receivables
 
          
Minimum payments $40,563  $64,201  $104,764 
Estimated unguaranteed residual value (1)  -   14,639   14,639 
Initial direct costs, net of amortization (2)  377   332   709 
Unearned income  -   (7,671)  (7,671)
Reserve for credit losses (3)  (505)  (530)  (1,035)
Total, net $40,435  $70,971  $111,406 
Reported as:            
Current $30,852  $32,914  $63,766 
Long-term  9,583   38,057   47,640 
Total, net $40,435  $70,971  $111,406 


(1)Includes $8,996 thousand for the estimated unguaranteed residual values of $6,004 thousand forsales type leases and direct financing leases that have beenfor which we sold and accounted for as sales.the financing assets.

(2)Initial direct costs are shown net of amortization of $341$275 thousand.

(3)
For details on reserve for credit losses, refer to Note 6,7, “Reserves for Credit Losses.”


15Future scheduled minimum lease payments for investments in sales-type leases as of June 30, 2019 are as follows (in thousands):

Remainder of Year ending March 31, 2020 $49,243 
Year ending March 31, 2021  20,723 
Year ending March 31, 2022  11,211 
Year ending March 31, 2023  3,510 
Year ending March 31, 2024 and thereafter  709 
Total $85,396 
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OPERATING LEASES—NET


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



 
June 30,
2019
  
March 31,
2019
 
 
September 30,
2018
  
March 31,
2018
       
Cost of equipment under operating leases $20,738  $15,683  $24,162  $21,532 
Accumulated depreciation  (9,117)  (8,729)  (10,678)  (10,139)
Investment in operating lease equipment—net (1) $11,621  $6,954  $13,484  $11,393 


(1)IncludesThese totals include estimated unguaranteed residual values of $2,931$3,104 thousand and $1,921$2,906 thousand as of SeptemberJune 30, 20182019 and March 31, 2018,2019, respectively.



Future scheduled minimum lease rental payments as of June 30, 2019 are as follows (in thousands):

Remainder of Year ending March 31, 2020 $3,794 
Year ending March 31, 2021  3,760 
Year ending March 31, 2022  2,498 
Year ending March 31, 2023  1,451 
Year ending March 31, 2024 and thereafter  443 
Total $11,946 

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TRANSFERS OF FINANCIAL ASSETS


We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings in accordance with Codification Topic 860, Transfers and Servicing. 860.

For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of SeptemberJune 30, 20182019, and March 31, 2018,2019, we had financing receivables of $61.8$75.6 million and $52.0$50.2 million, respectively, and operating leases of $9.3$7.1 million and $5.3$7.8 million, respectively, which were collateral for non-recourse notes payable. See Note 8, “Notes9, "Notes Payable and Credit Facility.”"


For transfers accounted for as sales, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During each of the three months ended SeptemberJune 30, 20182019 and 2017,2018, we recognized net gains of $1.2$3.3 million and total proceeds from these sales were $47.2 million and $48.3 million, respectively. During the six months ended September 30, 2018 and 2017, we recognized net gains of $2.5 million and $3.5$1.3 million, respectively, and total proceeds from these sales were $94.0$69.9 million and $134.1$46.9 million, respectively.


For certain assignments of financial assets,When we retain a servicing obligation. For assignmentsobligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenues, which is recognized as we perform the services.  As of Septemberboth June 30, 20182019 and March 31, 2018,2019, we had deferred revenue of $0.4 million and $0.5 million, respectively, for servicing. servicing obligations.

In a limited number of suchtransfers accounted for as sales, we indemnified the assignee in the event that the lessee elected to early terminate the lease early.lease.  As of SeptemberJune 30, 2018,2019, our maximum potential future payments related to such guarantees is $0.3$0.4 million.  We believe the likelihood of making any such payments to be remote.


5.GOODWILL AND OTHER INTANGIBLE ASSETSLESSEE ACCOUNTING


We lease office space for periods up to 6 years. We recognize our right-of-use assets as part of property, equipment and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent expense of $1.6 million as part of selling, general, and administrative expenses during the three months ended June 30, 2019.

Supplemental information about the remaining lease terms and discount rates applied as of June 30, 2019:

Lease term and Discount Rate
June 30, 2019
Weighted average remaining lease term (months)36
Weighted average discount rate4.1%

Future lease payments under our operating leases as of June 30, 2019 (in thousands):


 June 30, 2019 
Remainder of year ending March 31, 2020 $3,637 
Year ending March 31, 2021  4,471 
Year ending March 31, 2022  3,029 
Year ending March 31, 2023  2,064 
Year ending March 31, 2024  293 
Thereafter  - 
Total lease payments $13,494 
Less: Interest  (816)
Present value of lease liabilities $12,678 

As of June 30, 2019, we committed to two additional office leases that have not yet commenced with a total commitment of $1.5 million.



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6.  GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL


The following table summarizes the changes in the carrying amount of goodwill (infor the three months ended June 30, 2019 (in thousands):


  Six Months Ended September 30, 2018  Six Months Ended September 30, 2017 
  Goodwill  
Accumulated
Impairment
Loss
  
Net
Carrying
Amount
  Goodwill  
Accumulated
Impairment
Loss
  
Net
Carrying
Amount
 
                   
Beginning Balance $85,297  $(8,673) $76,624  $57,070  $(8,673) $48,397 
Acquisitions  -   -   -   27,939   -   27,939 
Foreign currency translations  (179)  -   (179)  134   -   134 
Ending Balance $85,118  $(8,673) $76,445  $85,143  $(8,673) $76,470 

 Three months ended June 30, 2019 
  Goodwill  
Accumulated
Impairment
Loss
  
Net
Carrying
Amount
 
          
Beginning balance $119,480  $(8,673) $110,807 
Foreign currency translations  (53)  -   (53)
Ending balance $119,427  $(8,673) $110,754 



Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. All of our goodwill as of SeptemberJune 30, 2018 and March 31, 20182019  is related to our technology reportable segment, which we also determined to be one reporting unit.

16
See Note 16, “Business Combinations” for additional information regarding prior year acquisitions.
We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value.


OTHER INTANGIBLE ASSETS


Our other intangible assets consist of the following (inat June 30, 2019 and March 31, 2019(in thousands):


 September 30, 2018  March 31, 2018  Three months ended June 30, 2019 ��March 31, 2019 
 
Gross
Carrying
Amount
  
Accumulated
Amortization
/ Impairment
Loss
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
/ Impairment
Loss
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization /
Impairment
Loss
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
/ Impairment
Loss
  
Net
Carrying
Amount
 
                                    
Customer relationships & other intangibles $41,974  $(22,026) $19,948  $41,895  $(18,634) $23,261  $57,343  $(26,012) $31,331  $57,407  $(23,865) $33,542 
Capitalized software development  6,136   (2,279)  3,857   5,608   (2,567)  3,041   10,285   (5,097)  5,188   10,188   (4,802)  5,386 
Total $48,110  $(24,305) $23,805  $47,503  $(21,201) $26,302  $67,628  $(31,109) $36,519  $67,595  $(28,667) $38,928 



Customer relationships and capitalized other intangibles are generally amortized between 5 to 10 years.Capitalizedsoftware development costs areis generally amortized over an estimated useful life, which is generally between 3 to 8 years. Trade names and trademarks are amortized over an estimated useful life of 105 years.


Total amortization expense for other intangible assets was $1.8$2.5 million and $1.2$1.8 million for the three months ended June 30, 2019 and $3.1 million and $2.4 million for the six months ended September 30, 2018, and 2017, respectively. The change in the gross carrying amount



16
Table of other intangible assets is due to foreign exchange translations.Contents

6.
RESERVES FOR CREDIT LOSSES


7.  RESERVES FOR CREDIT LOSSES

Activity in our reserves for credit losses for the three months ended June 30, 2019 and 2018 were as follows (in(in thousands):


 
Accounts
Receivable
  
Notes
Receivable
  
Lease-
Related
Receivables
  Total  
Accounts
Receivable
  
Notes
Receivable
  
Lease-
Related
Receivables
  Total 
Balance April 1, 2018 $1,538  $486  $640  $2,664 
Balance April 1, 2019 $1,579  $505  $530  $2,614 
Provision for credit losses  127   (3)  (42)  82   281   16   (16)  281 
Write-offs and other  (1)  -   -   (1)  (3)  (1)  (2)  (6)
Balance September 30, 2018 $1,664  $483  $598  $2,745 
Balance June 30, 2019 $1,857  $520  $512  $2,889 


 
Accounts
Receivable
  
Notes
Receivable
  
Lease-
Related
Receivables
  Total  
Accounts
Receivable
  
Notes
Receivable
  
Lease-
Related
Receivables
  Total 
Balance April 1, 2017 $1,279  $3,434  $679  $5,392 
Balance April 1, 2018 $1,538  $486  $640  $2,664 
Provision for credit losses  (5)  27   133   155   123   -   56   179 
Write-offs and other  -   (3,020)  (164)  (3,184)  (1)  -   -   (1)
Balance September 30, 2017 $1,274  $441  $648  $2,363 
Balance June 30, 2018 $1,660  $486  $696  $2,842 

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


 September 30, 2018  March 31, 2018  June 30, 2019  March 31, 2019 
 
Notes
Receivable
  
Lease-
Related
Receivables
  
Notes
Receivable
  
Lease-
Related
Receivables
  
Notes
Receivable
  
Lease-
Related
Receivables
  
Notes
Receivable
  
Lease-
Related
Receivables
 
Reserves for credit losses:                        
Ending balance: collectively evaluated for impairment $421  $598  $424  $640  $458  $512  $443  $530 
Ending balance: individually evaluated for impairment  62   -   62   -   62   -   62   - 
Ending balance $483  $598  $486  $640  $520  $512  $505  $530 
                                
Minimum payments:                                
Ending balance: collectively evaluated for impairment $72,523  $77,825  $62,930  $65,943  $62,985  $85,396  $40,501  $64,201 
Ending balance: individually evaluated for impairment  62   -   62   -   89   -   62   - 
Ending balance $72,585  $77,825  $62,992  $65,943  $63,074  $85,396  $40,563  $64,201 


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

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The age of the recorded minimum lease payments and net credit exposure associated with our investment in direct financing and sales-type leases that are past due disaggregated based on our internally assigned credit quality rating (“CQR”) were as follows as of SeptemberJune 30, 20182019 and March 31, 20182019 (in thousands):


 
31-60
Days
Past
Due
  
61-90
Days
Past
Due
  
Greater
than 90
Days
Past
Due
  Total
Past
Due		  Current  
Unbilled
Minimum
Lease
Payments
  
Total
Minimum
Lease
Payments
  
Unearned
Income
  
Non-
Recourse
Notes
Payable
  
Net
Credit
Exposure
  
31-60
Days
Past
Due
  
61-90
Days
Past
Due
  
Greater
than 90
Days
Past
Due
  
Total
Past
Due
  Current  
Unbilled
Minimum
Lease
Payments
  
Total
Minimum
Lease
Payments
  
Unearned
Income
  
Non-
Recourse
Notes
Payable
  
Net
Credit
Exposure
 
                                                            
September 30, 2018                            
June 30, 2019                              
                                                            
High CQR $201  $39  $37  $277  $73  $37,216  $37,566  $(4,331) $(20,572) $12,663  $275  $205  $528  $1,008  $239  $38,379  $39,626  $(4,362) $(13,800) $21,464 
Average CQR  129   57   50   236   42   39,981   40,259   (3,125)  (24,424)  12,710   32   11   29   72   252   45,446   45,770   (3,698)  (25,970)  16,102 
Low CQR  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Total $330  $96  $87  $513  $115  $77,197  $77,825  $(7,456) $(44,996) $25,373  $307  $216  $557  $1,080  $491  $83,825  $85,396  $(8,060) $(39,770) $37,566 
                                                                                
March 31, 2018                                     
March 31, 2019                                        
                                                                                
High CQR $143  $40  $43  $226  $224  $33,779  $34,229  $(3,743) $(17,207) $13,279  $325  $41  $10  $376  $543  $29,503  $30,422  $(2,799) $(11,044) $16,579 
Average CQR  109   31   117   257   171   31,286   31,714   (2,749)  (16,012)  12,953   22   54   15   91   125   33,563   33,779   (2,508)  (20,848)  10,423 
Low CQR  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Total $252  $71  $160  $483  $395  $65,065  $65,943  $(6,492) $(33,219) $26,232  $347  $95  $25  $467  $668  $63,066  $64,201  $(5,307) $(31,892) $27,002 


18
The age of the recorded notes receivable balance disaggregated based on our internally assigned CQR were as follows (inas of June 30, 2019 and March 31, 2019(in thousands):


 
31-60
Days
Past
Due
  
61-90
Days
Past
Due
  
Greater
than 90
Days
Past Due
  
Total
Past
Due
  Current  
Unbilled
Notes
Receivable
  
Total
Notes
Receivable
  
Non-
Recourse
Notes
Payable
  
Net
Credit
Exposure
  
31-60
Days
Past
Due
  
61-90
Days
Past
Due
  
Greater
than 90
Days
Past Due
  
Total
Past
Due
  Current  
Unbilled
Notes
Receivable
  
Total
Notes
Receivable
  
Non-
Recourse
Notes
Payable
  
Net
Credit
Exposure
 
    2017                                                 
September 30, 2018                         
June 30, 2019                           
                                                      
High CQR $2,422  $45  $745  $3,212  $1,352  $53,978  $58,542  $(43,655) $14,887  $-  $23  $106  $129  $7,361  $48,240  $55,730  $(29,962) $25,768 
Average CQR  453   13   18   484   629   12,868   13,981   (8,012)  5,969   27   27   -   54   487   6,714   7,255   (49)  7,206 
Low CQR  -   -   62   62   -   -   62   -   62   -   -   89   89   -   -   89   -   89 
Total $2,875  $58  $825  $3,758  $1,981  $66,846  $72,585  $(51,667) $20,918  $27  $50  $195  $272  $7,848  $54,954  $63,074  $(30,011) $33,063 
                                                                        
March 31, 2018                                 
March 31, 2019                                    
                                                                        
High CQR $175  $527  $423  $1,125  $3,262  $40,896  $45,283  $(30,345) $14,938  $990  $40  $30  $1,060  $3,813  $28,113  $32,986  $(18,245) $14,741 
Average CQR  42   409   22   473   394   16,780   17,647   (10,424)  7,223   105   34   7   146   137   7,232   7,515   (1,507)  6,008 
Low CQR  -   -   62   62   -   -   62   -   62   -   -   62   62   -   -   62   -   62 
Total $217  $936  $507  $1,660  $3,656  $57,676  $62,992  $(40,769) $22,223  $1,095  $74  $99  $1,268  $3,950  $35,345  $40,563  $(19,752) $20,811 


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


7.PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES



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Table of Contents

8.  PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES

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


 
September 30,
2018
  
March 31,
2018
  
June 30,
2019
  
March 31,
2019
 
Other current assets:
            
Deposits & funds held in escrow $4,203  $16,202  $366  $438 
Prepaid assets  5,941   7,031   7,402   6,425 
Other  572   392   459   636 
Total other current assets $10,716  $23,625  $8,227  $7,499 
                
Property, equipment and other assets
                
Property and equipment, net $6,936  $7,510  $6,821  $7,314 
Deferred costs  9,524   9,302 
Deferred costs - non-current  9,505   8,856 
Right-of-use assets  12,550   - 
Other  1,577   2,331   1,335   1,158 
Total other assets - long term $18,037  $19,143  $30,211  $17,328 
        
                
Other current liabilities:
                
Accrued expenses $7,081  $8,339  $8,832  $7,813 
Accrued income taxes payable  283   175   217   181 
Contingent consideration - current  5,888   5,806   5,332   5,162 
Short-term lease liability  4,811   - 
Other  7,446   19,050   9,767   6,129 
Total other current liabilities $20,698  $33,370  $28,959  $19,285 
                
Other liabilities:
                
Deferred revenue $13,626  $12,910  $13,502  $13,789 
Contingent consideration - long-term  7,608   7,707   4,011   3,780 
Long-term lease liability  7,867   - 
Other  -   450   83   108 
Total other liabilities - long term $21,234  $21,067  $25,463  $17,677 


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


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9.  NOTES PAYABLE AND CREDIT FACILITY
8.
NOTES PAYABLE AND CREDIT FACILITY


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


 
September 30,
2018
  
March 31,
2018
  
June 30,
2019
  
March 31,
2019
 
      
Recourse notes payable with interest rate of 4.11% at March 31, 2018.      
Recourse notes payable with interest rates of 4.00% at March 31, 2019.      
Current $-  $1,343  $-  $28 
                
Non-recourse notes payable secured by financing receivables and investments in operating leases with interest rates ranging from 2.04% to 8.45% as of March 31, 2018 and 3.04% to 8.45% as of September 30, 2018.        
Non-recourse notes payable secured by financing receivables and investments in operating leases with interest rates ranging from 3.34% to 8.45% as of June 30, 2019 and 3.23% to 8.45% as of March 31, 2019.        
Current $52,630  $40,863  $64,583  $38,117 
Long-term  12,656   10,072   8,362   10,502 
Total non-recourse notes payable $65,286  $50,935  $72,945  $48,619 


Principal and interest payments on non-recourse notes payable are generally due monthly in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 4.31%4.25% and 4.04%4.68%, as of SeptemberJune 30, 20182019 and March 31, 2018,2019, respectively. The weighted average interest rate for our recourse notes payable was 4.11%4.00% as of March 31, 2018.2019. Under recourse financing, if a customer defaults, the lender has recourse to the customer, the assets serving as collateral, and us. Under non-recourse financing, if a customer defaults, the lender generally only has recourse against the customer and the assets serving as collateral, but not us.


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Table of Contents

Our technology segment, through our subsidiary ePlus Technology, inc., finances its operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC or (“WFCDF”). This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component. Under the floor plan component, we had outstanding balances of $120.8$136.0 million and $112.1million$116.1million as of SeptemberJune 30, 20182019 and March 31, 2018,2019, respectively. Under the accounts receivable component, we had no outstanding balances as of SeptemberJune 30, 20182019 and March 31, 2018.2019.


As of SeptemberJune 30, 2018,2019, the facility had an aggregate limit of $325$250 million for the two components, and the accounts receivable component had a sub-limit of $30$50 million, which bears interest assessed at a rate of the One Month  LIBOR plus two and one half percent.one-half percent. We have an election beginning July 1 in each year to temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the election or October 31 of that same year. On July 31, 2019, we elected to temporarily increase the aggregate limit to $325.0 million.


The credit facility has full recourse to ePlus Technology, inc. and certain subsidiaries and is secured by a blanket lien against all its assets, such as chattel paper, receivables and inventory. Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and ePlus Technology, inc.’s.a minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”). of ePlus Technology, inc. and certain subsidiaries. We were in compliance with these covenants as of SeptemberJune 30, 2018.2019. In addition, the facility restricts the ability of ePlus Technology, inc. and certain subsidiaries to transfer funds to its affiliates in the form of dividends, loans, or advances with certain exceptions for dividends to ePlus inc. The facility also requires that financial statements of ePlus Technology, inc. and certain subsidiaries. be provided within 45 days at the end of each quarter and 90 days of each fiscal year end, and that other operational reports be provided on a regular basis. Either party may terminate the credit facility with 90 days’ advance written notice. We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility. In addition, we do not believe that the covenants of the WFCDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, ePlus Technology, inc. and certain subsidiaries. This credit facility is secured by the assets of only ePlus Technology, inc. and certain subsidiaries. and the guaranty as described below.


The WFCDF facility requires a guaranty of $10.5 million by ePlus inc. The guaranty requires ePlus inc. to deliver its annual audited financial statements by certain dates. We have delivered the annual audited financial statements for the year ended March 31, 2018,2019, as required. The loss of the WFCDF credit facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment, and as an operational function of our accounts payable process.


20
On July 27, 2017, we executed an amendment to the WFCDF credit facility that temporarily increases the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2018. The amendment also provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election or October 31 of that same year. On July 17, 2018, we elected to temporarily increase the aggregate limit to $325.0 million.

Fair Value


As of SeptemberJune 30, 20182019, and March 31, 2018,2019, the fair value of our long-term recourse and non-recourse notes payable approximated their carrying value.


9.COMMITMENTS AND CONTINGENCIES


10.  COMMITMENTS AND CONTINGENCIES

Legal Proceedings


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


10.EARNINGS PER SHARE


11.  EARNINGS PER SHARE

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



20
The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations (infor the three months ended June 30, 2019 and 2018, respectively(in thousands, except per share data).


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
Three Months Ended
June 30,
 
 2018  2017  2018  2017  2019  2018 
                  
Net earnings attributable to common shareholders - basic and diluted $18,003  $17,221  $33,276  $30,644  $16,188  $15,273 
                        
Basic and diluted common shares outstanding:
                        
Weighted average common shares outstanding — basic  13,494   13,879   13,464   13,843   13,356   13,434 
Effect of dilutive shares  92   129   133   178   101   163 
Weighted average shares common outstanding — diluted  13,586   14,008   13,597   14,021   13,457   13,597 
                        
Earnings per common share - basic $1.33  $1.24  $2.47  $2.21  $1.21  $1.14 
                        
Earnings per common share - diluted $1.33  $1.23  $2.45  $2.19  $1.20  $1.12 


11.
STOCKHOLDERS’ EQUITY


12.  STOCKHOLDERS’ EQUITY

Share Repurchase Plan


On August 15, 2017, April 26, 2018, our board of directors authorized the repurchase of up to 500,000 shares of our outstanding common stock over a 12-month period beginning on August 19, 2017, which expired during the current quarter.. May 28, 2018 through May 27, 2019. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.


21
On April 26, 2018, May 24, 2019, our board of directors authorized the repurchase up to 500,000 shares of our outstanding common stock over a 12-month period beginning on May 28, 2018. 2019 through May 27, 2020. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.


During the sixthree months ended SeptemberJune 30, 2019, we purchased 148,790 shares of our outstanding common stock at a value of $10.7 million under the share repurchase plan; we also purchased 38,811 shares of common stock at a value of $2.8 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the three months ended June 30, 2018, we purchased 70,445 shares of our outstanding common stock at a value of $5.5 million under the share repurchase plan; we also purchased 40,09237,086 shares of common stock at a value of $3.9$3.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.


During the six months ended September 30, 2017, we did not purchase any shares of our outstanding common stock under the share repurchase plan; however, we purchase 57,725 shares of common stock at a value of $4.4 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

13.  SHARE-BASED COMPENSATION
12.SHARE-BASED COMPENSATION


Share-Based Plans


As of SeptemberJune 30, 2018,2019, we had share-based awards outstanding under the followingplans: (1) the 2008 Non-Employee Director Long-Term Incentive Plan (“2008 Director LTIP”), (2) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), and (3)(2) the 2012 Employee Long-Term Incentive Plan (“("2012 Employee LTIP”LTIP"). Both of theThese share-based plans define fair market value as the previous trading day’sday's closing price when the grant date falls on a date the stock was not traded.



21
Restricted Stock Activity


For the sixthree months ended SeptemberJune 30, 2019, we granted 454 restricted shares under the 2017 Director LTIP, and 85,132 restricted shares under the 2012 Employee LTIP. For the three months ended June 30, 2018, we granted 8,322841 restricted shares under the 2017 Director LTIP, and 69,847 restricted shares under the 2012 Employee LTIP. For the six months ended September 30, 2017, we granted 535 restricted shares under the 2008 Director LTIP, 5,112 restricted shares under the 2017 Director LTIP, and 66,530 restricted shares under the 2012 Employee LTIP. A summary of the restricted shares is as follows:


 
Number of
Shares
  
Weighted
Average Grant-
date Fair Value
  
Number of
Shares
  
Weighted
Average Grant-
date Fair Value
 
            
Nonvested April 1, 2018  282,235  $51.69 
Nonvested April 1, 2019  224,000  $67.70 
Granted  78,169  $94.31   85,586  $72.50 
Vested  (133,106) $49.15   (107,238) $60.92 
Forfeited  (914) $58.49   (67) $79.70 
Nonvested September 30, 2018  226,384  $67.87 
Nonvested June 30, 2019  202,281  $73.32 


Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we may purchase a sufficient number of shares due to the participant to satisfy their minimum tax withholding on employee stock awards. To satisfy this tax withholding obligation,For the three months ended June 30, 2019, the Company purchased 40,092had withheld 38,811 shares of the awarded common stock shares at a value of $3.9$2.8 million, which wewas included in treasury stock, during the six months ended September 30, 2018,.stock.


Compensation Expense


We recognize compensation cost for awards of restricted stock with graded vesting on a straight linestraight-line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. During the three months ended SeptemberJune 30, 20182019 and 2017,2018, we recognized $1.9 million and $1.5$1.7 million respectively, of total share-based compensation expense. During the six months ended September 30, 2018 and 2017, we recognized $3.6 million and $3.0 million, respectively, of total share-based compensation expense.expense, respectively. Unrecognized compensation expense related to non-vested restricted stock was $13.2$13.6 million as of SeptemberJune 30, 2018,2019, which will be fully recognized over the next thirty three (33)36 months.

We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are fully vested at all times. For both the three months ended SeptemberJune 30, 20182019 and 2017,2018, our estimated contribution expense for the plan was $0.5 million. For the six months ended September 30, 2018 and 2017, our estimated contribution expense for the plan was $1.0$0.7 million and $1.1$0.5 million, respectively.


13.INCOME TAXES


14.  INCOME TAXES

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


Our total gross unrecognized tax benefits recorded for uncertain income tax, and interest and penalties thereon, were negligible as of SeptemberJune 30, 20182019 and SeptemberJune 30, 2017.2018. We had no additions or reductions to our gross unrecognized tax benefits during the three and six months ended SeptemberJune 30, 2018.2019. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.


14.FAIR VALUE OF FINANCIAL INSTRUMENTS


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15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

We account for the fair values of our assets and liabilities in accordance with Codification Topic 820, Fair Value Measurement and Disclosure.The following table summarizes the fair value hierarchy of our financial instruments as of June 30, 2019 and March 31, 2019 (in thousands):





Recorded
Amount


Fair Value Measurement Using     Fair Value Measurement Using 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Recorded
Amount
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
                        
September 30, 2018
            
June 30, 2019            
Assets:                        
Money market funds $25,116  $25,116  $-  $-  $114  $114  $-  $- 
                
Liabilities:                                
Contingent consideration $13,496  $-  $-  $13,496  $9,343  $-  $-  $9,343 
                                
March 31, 2018
                
March 31, 2019                
Assets:                                
Money market funds $60,385  $60,385  $-  $-  $50  $50  $-  $- 
                
Liabilities:                                
Contingent consideration $13,513  $-  $-  $13,513  $8,942  $-  $-  $8,942 


For both the three and six months ended SeptemberJune 30, 2019, and 2018, we recorded adjustments to operating expenses that increased the fair value of our liability for contingent consideration by $0.7 million and $1.1 million, respectively. For both the three and six months ended September 30, 2018, we$0.4 million. There were no payments made payments of $1.1 million to satisfy the current obligations of the contingent consideration arrangements.

Forarrangements for both the three months ended SeptemberJune 30, 2017,2019, and 2018.


16.  BUSINESS COMBINATIONS

SLAIT Consulting, LLC

On January 18, 2019, our subsidiary, ePlus Technology, inc., acquired 100% of the stock of SLAIT Consulting, LLC. SLAIT is an IT consulting and solutions provider with a focus on security advisory and managed services, managed help desk, specialized IT, staffing, and data center solutions. SLAIT is headquartered in Virginia Beach, Virginia and has locations in Richmond, Virginia, and Charlotte, North Carolina. SLAIT provides consultative services in governance, risk management and compliance; bespoke help desk and managed services solutions; and has relationships with fast-growing emerging vendors and related sales and engineering capabilities.

Our sum of consideration transferred is $50.0 million consisting of $50.7 million paid in cash at closing, less $1.0 million cash acquired, and plus a working capital adjustment of $0.3 million that we increasedpaid in May 2019.Our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):


 
Acquisition Date
Amount
 
Accounts receivable $10,208 
Other assets  1,050 
Identified intangible assets  18,190 
Accounts payable and other current liabilities  (8,669)
Performance obligation  (5,110)
     
Total identifiable net assets  15,669 
Goodwill  34,352 
     
Total purchase consideration $50,021 

As of our filing date the initial accounting for the business combination is incomplete in respect to measuring certain assets acquired and liabilities assumed.

The identified intangible assets of $18.2 million consist of customer relationships with an estimated useful life of 10 years. The fair value of our liability for contingent consideration by $10.3 million consisting of establishing a liability from business combinations of $10.0 million and $0.3 million in adjustments recordedacquired receivables equals the gross contractual amounts receivable. We expect to operating expenses. For the six ended September 30, 2017, we increased the fair value of our liability for contingent consideration by $12.4 million consisting of establishing a liability from business combinations of $12.1 million and $0.3 million in adjustments recorded to operating expense. For the three and six months ended September 30, 2017, we made no payments and payments of $0.3 million, respectively, to satisfy the current obligations of contingent consideration arrangements.collect all acquired receivables.


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15.SEGMENT REPORTING
We recognized goodwill related to this transaction of $34.4million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the reporting period ending March 31, 2019 as though the acquisition date had been April 1, 2018, is not material.


17.  SEGMENT REPORTING

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


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


 Three Months Ended  Three Months Ended 
 September 30, 2018  September 30, 2017  June 30, 2019  June 30, 2018 
 Technology  Financing  Total  Technology  Financing  Total  Technology  Financing  Total  Technology  Financing  Total 
                                    
Contracts with customers $329,682  $1,060  $330,742  $352,843  $4,916  $357,759 
Financing and other  5,086   9,215   14,301   5,835   7,769   13,604 
Sales                  
Product $322,764  $12,837  $335,601  $313,149  $9,668  $322,817 
Service  45,771   -   45,771   33,715   -   33,715 
Net sales $334,768  $10,275  $345,043  $358,678  $12,685  $371,363  $368,535  $12,837  $381,372  $346,864  $9,668  $356,532 
                                                
Cost of sales  257,813   1,730   259,543   281,829   1,963   283,792 
Cost of Sales                        
Product  258,054   2,009   260,063   254,064   1,748   255,812 
Service  28,670   -   28,670   20,017   -   20,017 
Total cost of sales  286,724   2,009   288,733   274,081   1,748   275,829 
Gross Profit  76,955   8,545   85,500   76,849   10,722   87,571   81,811   10,828   92,639   72,783   7,920   80,703 
                                                
Selling, general, and administrative  55,138   2,567   57,705   53,503   2,837   56,340   62,667   3,120   65,787   54,454   2,512   56,966 
Depreciation and amortization  2,740   1   2,741   2,128   1   2,129   3,407   56   3,463   2,789   1   2,790 
Interest and financing costs  -   484   484   -   274   274   -   628   628   -   476   476 
Operating expenses  57,878   3,052   60,930   55,631   3,112   58,743   66,074   3,804   69,878   57,243   2,989   60,232 
                                                
Operating income  19,077   5,493   24,570   21,218   7,610   28,828   15,737   7,024   22,761   15,540   4,931   20,471 
                                                
Other income (expense)          322           (141)          (45)          97 
                                                
Earnings befor tax         $24,892          $28,687 
Earnings before tax         $22,716          $20,568 
                        
Net Sales                        
Contracts with customers $363,681  $789  $364,470  $341,459  $596  $342,055 
Financing and other  4,854   12,048   16,902   5,405   9,072   14,477 
Net Sales $368,535  $12,837  $381,372   346,864  $9,668  $356,532 
                                                
Selected Financial Data - Statement of Cash Flow
                                               
                                                
Depreciation and amortization $2,970  $1,397  $4,367  $2,161  $1,359  $3,520  $1,339  $3,625  $4,964  $3,015  $1,485  $4,500 
Purchases of property, equipment and operating lease equipment $1,796  $3,025  $4,821  $955  $610  $1,565  $1,249  $269  $1,518  $1,180  $450  $1,630 
                                                
Selected Financial Data - Balance Sheet
                                               
                                                
Total assets $565,771  $209,425  $775,196  $563,646  $170,641  $734,287  $658,692  $216,121  $874,813  $557,864  $202,535  $760,399 


  Six Months Ended 
  September 30, 2018  September 30, 2017 
  Technology  Financing  Total  Technology  Financing  Total 
                   
Contracts with customers $671,141  $1,656  $672,797  $712,204  $7,731  $719,935 
Financing and other  10,491   18,287   28,778   9,373   15,411   24,784 
Net sales $681,632  $19,943  $701,575  $721,577  $23,142  $744,719 
                         
Cost of sales  531,894   3,478   535,372   575,095   4,460   579,555 
Gross Profit  149,738   16,465   166,203   146,482   18,682   165,164 
                         
Selling, general, and administrative  109,592   5,079   114,671   105,004   6,000   111,004 
Depreciation and amortization  5,529   2   5,531   4,190   2   4,192 
Interest and financing costs  -   960   960   -   633   633 
Operating expenses  115,121   6,041   121,162   109,194   6,635   115,829 
                         
Operating income  34,617   10,424   45,041   37,288   12,047   49,335 
                         
Other income (expense)          419           130 
                         
Earnings befor tax         $45,460          $49,465 
                         
Selected Financial Data - Statement of Cash Flow
                     
                         
Depreciation and amortization $5,985  $2,882  $8,867  $4,256  $2,489  $6,745 
Purchases of property, equipment and operating lease equipment $2,976  $3,475  $6,451  $2,046  $1,390  $3,436 
                         
Selected Financial Data - Balance Sheet
                     
                         
Total assets $565,771  $209,425  $775,196  $563,646  $170,641  $734,287 


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Technology Segment Disaggregation of Revenue


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


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
Three Months Ended
June 30,
 
 2018  2017  2018  2017  2019  2018 
Customer end market:
                  
Technology $75,417  $91,401  $158,234  $180,755  $76,180  $82,817 
Telecom, Media & Entertainment  39,412   49,508   86,280   106,913   62,466   46,868 
Financial Services  47,412   52,507   92,638   90,798   48,241   45,225 
SLED  61,391   66,493   129,596   143,656   71,190   68,205 
Healthcare  51,081   44,372   97,531   90,857   56,109   46,450 
All others  60,055   54,397   117,353   108,598   54,349   57,299 
Net sales  334,768   358,678   681,632   721,577   368,535   346,864 
                        
Financing and other  (5,086)  (5,835)  (10,491)  (9,373)  (4,854)  (5,405)
                        
Revenue from contracts with customers $329,682  $352,843  $671,141  $712,204  $363,681  $341,459 


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
Three Months Ended
June 30,
 
 2018  2017  2018  2017  2019  2018 
Vendor
                  
Cisco Systems $152,063  $165,690  $291,300  $339,035  $146,181  $139,577 
NetApp  9,477   10,433   25,039   25,887   13,427   15,020 
HP Inc. & HPE  16,658   28,377   36,977   56,648   23,113   20,355 
Dell / EMC  19,895   17,485   32,398   30,898   13,781   12,503 
Arista Networks  10,673   7,153   30,471   24,527   20,950   19,844 
Juniper  11,262   14,240   21,660   23,576 
Juniper Networks  7,054   10,431 
All others  114,740   115,300   243,787   221,006   144,029   129,134 
Net sales  334,768   358,678   681,632   721,577   368,535   346,864 
                        
Financing and other  (5,086)  (5,835)  (10,491)  (9,373)  (4,854)  (5,405)
                        
Revenue from contracts with customers $329,682  $352,843  $671,141  $712,204  $363,681  $341,459 


Financing Segment Disaggregation of Revenue


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


16.
BUSINESS COMBINATIONS

Integrated Data Storage, LLC acquisition


On September 15, 2017, our subsidiary ePlus Technology, inc. acquired certain assets and assumed certain liabilities of Integrated Data Storage, LLC (“IDS”) though an asset purchase agreement. Headquartered in Oak Brook, Illinois and with offices in downtown Chicago, Illinois and Indianapolis, Indiana, IDS brought us an advanced data center solutions provider focused on cloud enablement and managed services, including its proprietary IDS Cloud, which features enterprise-class technology infrastructure coupled with consulting services to support private, hybrid, and public cloud deployments. The acquisition expanded ePlus’ footprint in the Midwest and enhances its sales and engineering capabilities in cloud services, disaster recovery and backup as a service, storage, data center, and professional services.
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Our sum of total consideration transferred was $38.4 million, consisting of $29.8 million paid in cash at closing, less $1.4 million paid back as a working capital adjustment, plus an additional $10.0 million equal to the acquisition date fair value of consideration that is contingent on the acquired business’ future gross profit. The contingent consideration was calculated using the Monte Carlo simulation model based on our projections of future gross profits. The maximum payout of the contingent consideration is $15.0 million paid over 3 years. Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

  
Acquisition Date
Amount
 
Accounts receivable and other assets $14,353 
Property and equipment  1,620 
Identified intangible assets  13,650 
Accounts payable and other current liabilities  (12,313)
     
Total identifiable net assets  17,310 
Goodwill  21,088 
     
Total purchase consideration $38,398 

The identified intangible assets of $13.7 million consist of customer relationships with an estimated useful life of 8 years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.

We recognized goodwill related to this transaction of $21.1 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period through the acquisition date had the acquisition date been April 1, 2017, is not material.

OneCloud Consulting Inc.

On May 17, 2017, our subsidiary ePlus Technology, inc., acquired 100% of the stock of OneCloud Consulting, Inc. (“OneCloud”). Based in Milpitas, California, and with locations in India, OneCloud brought us a versatile team of highly trained technology consultants, architects, developers and instructors. Though OneCloud, we enable our customers’ cloud and application strategy via professional services, technical education and software development. The acquisition provides us with additional ability to address customers’ need for cloud-based solutions and infrastructure, including DevOps, OpenStack, and other emerging technologies.

Our sum of total consideration transferred was $10.0 million consisting of $7.9 million paid in cash at closing, net of cash acquired, and $2.1 million equal to the fair value of contingent consideration, calculated using the Monte Carlo simulation model. The maximum payout of the contingent consideration is $4.5 million paid over 3 years.

Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

  
Acquisition Date
Amount
 
Accounts receivable and other assets $488 
Identified intangible assets  4,130 
Accounts payable and other current liabilities  (1,822)
     
Total identifiable net assets  2,796 
Goodwill  7,189 
     
Total purchase consideration $9,985 

The identified intangible assets of $4.1 million consist of customer relationships of $1.7 million with an estimated useful life of 8 years, and internally developed processes of $2.4 million with an estimated useful life of 5 years.

We recognized goodwill related to this transaction of $7.2 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period through the acquisition date had the acquisition date been April 1, 2017, is not material.

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 financial statements included in this quarterly report on Form 10-Q and our 20182019 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 Factors,” in our 20182019 Annual Report,Report., and in Part II, and Item 1A. and “Risk Factors” in our Form 10-Q for the three months ended June 30, 2018.this Report.


EXECUTIVE OVERVIEW


Business Description


We are a leading solutions provider that delivers actionable outcomes for organizations by using 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 ePlus to craft optimized solutions that take advantage of the cost, scale and efficiency of private, public and hybrid cloud in an evolving market. We also provide consulting, staffing, professional, managed, IT staff augmentation, and complete lifecycle management services including flexible financing solutions.and solutions in the areas of security, cloud, networking, data center, collaboration and emerging technologies. We have been in the business of selling, leasing, financing, and managing IT and other assets for more than 2829 years.


Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate Cloud, Security and Digital Infrastructure technologies, both on premiseon-premise 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 and Digital InfrastructureCollaboration are specific skills in orchestration and automation, application modernization, DevOps, 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, Dell EMC, F5 Networks, Gigamon, HP Inc., HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Pure Storage, Quantum,Rubrik, Splunk, and VMware, among many others. 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 current with emerging technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services has enabled ePlus 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, financing, and our proprietary supply chain software, isare unique in the industry. This broad portfolio enables us to deliver a unique customer experience that spans the continuum from fast delivery of competitively priced products, services, subsequent management and upkeep, through to end-of-life disposal services. This approach permits ePlus to deploy ever-more-sophisticated solutions enabling our customers’ business outcomes.


Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises in North America and the U.K..enterprises. For the trailing twelve monthtwelve-month period ended SeptemberJune 30, 2018,2019, the percentage of revenue by customer end market within our technology segment includes technology industry 23%21%, state and local government and educational institutions (“SLED”) 17%, financial services 15%, healthcare 15%, and telecommunications, media and entertainment 13%14%. The majority of our sales were generated within the United States (“US”); however, we have the ability to support our customers nationally and internationally, including physical locations in the U.K.United Kingdom (“UK”) and India. Our technology segment accounts for 97% of our net sales, and 77%69% of our operating income, while our financing segment accounts for 3% of our net sales, and 23%31% of our operating income for the sixthree months ended SeptemberJune 30, 2018.2019.


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26
Key Business Metrics


Our management monitors a number of 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, net earnings per common share, adjusted EBITDA, adjusted EBITDA margin, adjusted gross billings, and non-GAAP net earnings per 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.


These key indicators include financial information that is prepared in accordance with US GAAP and presented in our unaudited condensed consolidated financial statements as well as non-GAAP 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 not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.


Our key business metrics are as follows (dollars in thousands):


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  Three months ended June 30, 
Consolidated
 2018  2017  2018  2017  2019  2018 
Net sales $345,043  $371,363  $701,575  $744,719  $381,372  $356,532 
                        
Gross profit $85,500  $87,571  $166,203  $165,164  $92,639  $80,703 
Gross margin  24.8%  23.6%  23.7%  22.2%  24.3%  22.6%
Operating income margin  7.1%  7.8%  6.4%  6.6%  6.0%  5.7%
                        
Net earnings $18,003  $17,221  $33,276  $30,644  $16,188  $15,273 
Net earnings margin  5.2%  4.6%  4.7%  4.1%  4.2%  4.3%
Net earnings per common share - diluted $1.33  $1.23  $2.45  $2.19  $1.20  $1.12 
                        
Non-GAAP: Net earnings (1) $20,779  $23,481  $38,211  $40,315  $19,459  $17,432 
Non-GAAP: Net earnings per common share - diluted (1) $1.53  $1.68  $2.81  $2.88  $1.44  $1.28 
                        
Adjusted EBITDA (2) $29,880  $33,319  $55,250  $57,726  $28,567  $25,370 
Adjusted EBITDA margin  8.7%  9.0%  7.9%  7.8%  7.5%  7.1%
                        
Purchases of property and equipment used internally $1,796  $955  $2,976  $2,046  $1,249  $1,180 
Purchases of equipment under operating leases  3,025   610   3,475   1,390   269   450 
Total capital expenditures $4,821  $1,565  $6,451  $3,436  $1,518  $1,630 
                        
        
Technology Segment
                        
Net sales $334,768  $358,678  $681,632  $721,577  $368,535  $346,864 
Adjusted gross billings (3) $485,856  $504,500  $968,157  $992,004  $548,363  $482,301 
                        
Gross profit $76,955  $76,849  $149,738  $146,482  $81,811  $72,783 
Gross margin  23.0%  21.4%  22.0%  20.3%  22.2%  21.0%
                        
Operating income $19,077  $21,218  $34,617  $37,288  $15,737  $15,540 
Adjusted EBITDA (2) $24,284  $25,613  $44,625  $45,499  $21,419  $20,341 
                        
Financing Segment
                        
Net sales $10,275  $12,685  $19,943  $23,142  $12,837  $9,668 
                        
Gross profit $8,545  $10,722  $16,465  $18,682  $10,828  $7,920 
                        
Operating Income $5,493  $7,610  $10,424  $12,047  $7,024  $4,931 
Adjusted EBITDA (2) $5,596  $7,706  $10,625  $12,227  $7,148  $5,029 


(1)Non-GAAP net earnings and non-GAAP net earnings per common share – diluted is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share based compensation, and acquisition and integration expenses, and the related tax effects. The presentation of non-GAAP net earnings and non-GAAP net earnings per common share – diluted have been updated to include an adjustment to our tax expense assuming a statutory income tax rate of 21.0% for US operations.


28
27
We use non-GAAP net earnings per common share as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income (expense), share basedshare-based compensation, and acquisition-related amortization expense in calculating non-GAAP net earnings per common share 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 per common share provide useful information to investors and others to understand and evaluate 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 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 or similarly titled measures differently, which may reduce their usefulness as comparative measures.


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  Three months ended June 30, 
 2018  2017  2018  2017  2019  2018 
GAAP: Earnings before tax $24,892  $28,687  $45,460  $49,465  $22,716  $20,568 
Share based compensation  1,868   1,673   3,561   3,180   1,942   1,693 
Acquisition and integration expense  701   689   1,117   1,019   401   416 
Acquisition related amortization expense  1,719   1,186   3,483   2,307   2,187   1,764 
Other (income) expense  (322)  141   (419)  (130)  45   (97)
Non-GAAP: Earnings before provision for income taxes  28,858   32,376   53,202   55,841   27,291   24,344 
                        
GAAP: Provision for income taxes  6,889   11,466   12,184   18,821   6,528   5,295 
Share based compensation  525   483   1,008   918   559   483 
Acquisition and integration expense  197   199   316   294   115   119 
Acquisition related amortization expense  455   309   929   600   607   474 
Other (income) expense  (90)  41   (118)  (37)  13   (28)
Tax benefit on restricted stock  103   189   672   1,444   10   569 
Adjustment to U.S. Federal Income Tax rate to 21%  -   (3,792)      (6,514)
Non-GAAP: Provision for income taxes  8,079   8,895   14,991   15,526   7,832   6,912 
                        
Non-GAAP: Net earnings $20,779  $23,481  $38,211  $40,315  $19,459  $17,432 
                        
GAAP: Net earnings per common share - diluted $1.33  $1.23  $2.45  $2.19  $1.20   1.12 
        
Non-GAAP: Net earnings per common share - diluted $1.53  $1.68  $2.81  $2.88   1.44   1.28 

 Three Months Ended June 30, 
  2019  2018 
GAAP: Net earnings per common share - diluted $1.20  $1.12 
         
Share based compensation  0.10   0.09 
Acquisition and integration expense  0.02   0.02 
Acquisition related amortization expense  0.12   0.10 
Other (income) expense  -   (0.01)
Tax benefit on restricted stock  -   (0.04)
Total non-GAAP adjustments - net of tax $0.24  $0.16 
         
Non-GAAP: Net earnings per common share - diluted $1.44  $1.28 

(2)
We define adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, share based compensation, acquisition and integration expenses, provision for income taxes, and other income (expense). Segment adjusted EBITDA is defined as operating income calculated in accordance with 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. We provide below 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.


28
We use adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance. 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 to understand and evaluate 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 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 a comparative measure.


 Three Months Ended June 30, 
Consolidated 2019  2018 
Net earnings $16,188  $15,273 
Provision for income taxes  6,528   5,295 
Share based compensation  1,942   1,693 
Acquisition and integration expense  401   416 
Depreciation and amortization  3,463   2,790 
Other (income) expense  45   (97)
Adjusted EBITDA $28,567  $25,370 
         
Technology Segment        
Operating income $15,737  $15,540 
Depreciation and amortization  3,407   2,789 
Share based compensation  1,874   1,596 
Acquisition and integration expense  401   416 
Adjusted EBITDA $21,419  $20,341 
         
Financing Segment        
Operating income $7,024  $4,931 
Depreciation and amortization  56   1 
Share based compensation  68   97 
Adjusted EBITDA $7,148  $5,029 

29
  
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
Consolidated
 2018  2017  2018  2017 
Net earnings $18,003  $17,221  $33,276  $30,644 
Provision for income taxes  6,889   11,466   12,184   18,821 
Share based compensation  1,868   1,673   3,561   3,180 
Acquisition and integration expense  701   689   1,117   1,019 
Depreciation and amortization  2,741   2,129   5,531   4,192 
Other (income) expense  (322)  141   (419)  (130)
Adjusted EBITDA $29,880  $33,319  $55,250  $57,726 
                 
Technology Segment
                
Operating income $19,077  $21,218  $34,617  $37,288 
Depreciation and amortization  2,740   2,128   5,529   4,190 
Share based compensation  1,766   1,578   3,362   3,002 
Acquisition and integration expense  701   689   1,117   1,019 
Adjusted EBITDA $24,284  $25,613  $44,625  $45,499 
                 
Financing Segment
                
Operating income $5,493  $7,610  $10,424  $12,047 
Depreciation and amortization  1   1   2   2 
Share based compensation  102   95   199   178 
Adjusted EBITDA $5,596  $7,706  $10,625  $12,227 

(3)We define adjusted gross billings as our technology segment net sales calculated in accordance with US GAAP, adjusted to exclude the costs incurred related to sales of third partythird-party maintenance, software assurance and 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. The presentation of adjusted gross billings has been updated to align with net sales for our technology segment.


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.


 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  Three Months Ended June 30, 
 2018  2017  2018  2017  2019  2018 
Technology segment net sales $334,768  $358,678  $681,632  $721,577  $368,535  $346,864 
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services  151,088   145,822   286,525  $270,427 
Costs incurred related to sales of third-party maintenance, software assurance and subscription/Saas licenses, and services  179,828  $135,437 
        
Adjusted gross billings $485,856  $504,500  $968,157  $992,004  $548,363  $482,301 

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29
Consolidated Results of Operations


During the three months ended SeptemberJune 30, 2018,2019, net sales decreased 7.1%increased 7.0%, or $26.3$24.8 million, to $345.0$381.4 million, compared to $371.4 million for the same period in the prior fiscal year. For the six months ended September 30, 2018, netProduct sales decreased 5.8%, or $43.1 million to $701.6 million, compared to $744.7 million for the same period in the prior fiscal year. For the three months ended SeptemberJune 30, 2018, net sales decreased2019 increased 4.0% to $335.6 million, or an increase of $12.8 million from reduced demand from customers primarily$322.8 million in the SLED, technology, telecom, media & entertainment industries, and financial services,  which was partially offset by increases in demand fromprior year. Services sales during the healthcare and other industries. For the sixthree months ended SeptemberJune 30, 2018, net2019 increased 35.8% to $45.8 million, or an increase of $12.1 million over prior year services sales decreased due to lower demand from customers primarily in the SLED, technology, and telecom, media & entertainment industries, which was partially offset by increases in demand from the healthcare, financial services, and other industries. Also contributing to the decreaseof $33.7 million. The increase in net sales was due to the acquisition of SLAIT Consulting, LLC in January 2019, as well as organic growth. The greatest increase in demand for products was from our customers in the telecom, media and entertainment, SLED, and healthcare industries; we experienced a declinesmall increase in financing revenues for bothdemand from technology and financial services but had a reduction in demand from all other categories of customers, during the three and six months ended SeptemberJune 30, 2018, as2019 compared to the prior year periods.year.


Adjusted gross billings decreased 3.7%increased 13.7%, or $18.6$66.1 million, to $485.9$548.4 million for the three months ended SeptemberJune 30, 20182019 from $504.5 million for the same period in the prior fiscal year. For the six months ended September 30, 2018, adjusted gross billings decreased 2.4%, or $23.8 million to $968.2 million, from $992.0$482.3 million for the same period in the prior fiscal year. The reductionincrease in adjusted gross billings iswas due, in part, to the decline inSLAIT acquisition, as well as higher demand from the same customer end markets as those previously noted for the declineour current customers. This increase was offset by a shift in mix to third-party maintenance, software assurance, subscriptions/SaaS licenses, and services where we recognize revenue on a net sales.basis. As a result, net sales increased by a smaller percentage than adjusted gross billings.


Consolidated gross profit declined 2.4%for the three months ended June 30, 2019, rose 14.8% to $85.5$92.6 million, compared with $87.6$80.7 million for the three months ended SeptemberJune 30, 2017.2018. Consolidated gross margins were 24.8%24.3% for the three months ended SeptemberJune 30, 2018,2019, which is an increase of 120170 basis points compared to 23.6%22.6% for the same period in the prior fiscal year. The increase in margins for the three-month period was due to a shift in product mix, as we sold a higher proportion of third partythird-party maintenance, software assurance and subscription/SaaS licenses, and services. Also contributing to the gross margin improvement was higher product margins, expanded gross profit and margins of our financing segment, and increased service revenues. For the six months ended September 30, 2018, consolidated gross profit rose 0.6% to $166.2 million, compared with $165.2 million for the same period in the prior fiscal year. Consolidated gross margins were 23.7% for the six months ended September 30, 2018, an increase of 150 basis points compared to 22.2% for the same period in the prior fiscal year.


Our operating expenses for the three months ended SeptemberJune 30, 2018,2019, increased 3.7%16.0% to $60.9$69.9 million, as compared to $58.7$60.2 million for the prior year period. For the six months ended September 30, 2018, our operating expenses increased 4.6% to $121.2The majority of this increase reflects increase in selling, general, and administrative expense of 15.5% or $8.8 million, as compared to $115.8 million, in the same prior year period. These increases were due, in part to a full period of salariesincreases in variable compensation,  software license and benefits frommaintenance, as well as the operating expenses associated with the acquisition of IDS on September 15, 2017.SLAIT.  As of June 30, 2019, we had 1,538 employees, an increase of 289, or 23.1%, from 1,249 last year. The increase includes 246 current employees are related to the acquisition of SLAIT, including the employees performing our staffing services. Depreciation and amortization expense increased $0.7 million, due to the SLAIT acquisition, and interest and financing costs increased $0.2 million, due to an increase in the average balance of non-recourse notes payable outstanding during the three months ended June 30, 2019, as compared to the prior year.


OperatingAs a result, operating income increased $2.3 million, or 11.2%, to $22.8 million and operating margin increased by 30 basis points to 6.0%, as compared to the three months ended June 30, 2018.

Consolidated net earnings for the three months ended SeptemberJune 30, 2018, decreased $4.32019 were $16.2 million, an increase of 6.0%, or 14.8%, to $24.6$0.9 million, as compared to $28.8 million. For the three months ended September 30, 2018, the operating income margin decreased 70 basis points to 7.1% from 7.8% for the same period inover the prior year. Operating income foryear’s results, due to the six months ended September 30, 2018, decreased $4.3 million, or 8.7%, to $45.0 million, as compared to $49.3 million for the same periodincrease in the prior year. For the six months ended September 30, 2018, therevenues and gross profit, partially offset by increased operating income margin decreased 20 basis points to 6.4% from 6.6% for the same period in the prior year.

expenses. Our effective tax rate for the current quarter was 27.7%28.7%, compared to 40.0%with 25.7% in the prior year quarter. Due in part

Adjusted EBITDA increased $3.2 million, or 12.6%, to this lower tax rate, consolidated net earnings$28.6 million and adjusted EBITDA margin increased 40 basis points to 7.5% for the three months ended SeptemberJune 30, 2018, were $18.0 million, an increase of 4.5%, or $0.8 million, over the prior year’s results. Our effective tax rate for the six months ending September 30, 2018 was 26.8%, compared to 38.0% for the same period in the prior year, during which time the  consolidated net earnings were $33.3 million, an increase of 8.6%, or $2.6 million, compared to the prior year’s results.

Adjusted EBITDA decreased $3.4 million, or 10.3%, to $29.9 million, and adjusted EBITDA margin decreased 30 basis points to 8.7% for the three months ended September 30, 2018,2019, as compared to the prior year period of 9.0%7.1%. For the six months ended September 30, 2018, adjusted EBITDA decreased $2.5 million, or 4.3%, to $55.3 million and the adjusted EBITDA margin increased 10 basis points to 7.9% for the six months ended September 30, 2018, compared to the prior year six month period.


Diluted earnings per share increased 8.1%7.1%, or $0.10,$0.08, to $1.33$1.20 per share for the three months ended SeptemberJune 30, 2018,2019, as compared to $1.23$1.12 per share for the same period in the prior year.three months ended June 30, 2018. Non-GAAP diluted earnings per share decreased 8.8%, or $0.15,increased 12.5% to $1.53$1.44 for the three months ended SeptemberJune 30, 2018,2019, as compared to $1.68$1.28 for the same period in the prior year.

For the sixthree months ended SeptemberJune 30, 2018, diluted earnings per share increased 11.9%, or $0.26, to $2.45 per share, as compared to $2.19 per share for the same period in the prior year. Non-GAAP diluted earnings per share decreased 2.3% to $2.81 for the six months ended September 30, 2018, as compared to $2.88 for the same period in the prior year.2018.


Cash and cash equivalents decreased $42.6$44.2 million or 36.0%,55.4% to $75.6$35.6 million at SeptemberJune 30, 20182019, as compared to $118.2$79.8 million as of March 31, 2018. 2019. The decrease is primarily the result of an increaseshare repurchases, investments in our financing portfolio, working capital required for the growth in our technology segment,, and $9.4 million paid for the purchase of 110,537 shares ofan increase in our common stock during the six months ended September 30, 2018.cash conversion cycle, partially offset by cash flows from operations. Our cash on hand, funds generated from operations, amounts available under our credit facility and the possible monetization of our investment portfolio providehave provided sufficient liquidity for our business.


30
Segment Overview


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


Technology Segment


The technology segment sells IT equipment and software and related services primarily to corporate customers, state and local governments, and higher education institutions on a nationwide and international basis, with geographic concentrations relating to our physical locations. The technology segment also provides Internet-based business-to-business supply chain management solutions for IT products.


Our technology segment derives revenue from the sales of new equipment and service engagements. Included in net sales are revenues derived from performing advanced IT professional and managed services that may be sold together with and integral to third-party products and software. Our service engagements are generally governed by statements of work and are primarily fixed price (with allowance for changes); however, some service agreements are based on time and materials.


Customers who purchase IT equipment and services from us may have customer master agreements, or CMAs, with our company, which stipulate the terms and conditions of the relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers place orders using purchase orders without a CMA in place or with other documentation customary for the business. Often, our work with state and local governments is based on public bids and our written bid responses.


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


Financing Segment


Our financing segment offers financing solutions to corporations, governmental entities, and educational institutions nationwide, as well as internationally in the UK, Canada, Iceland, and Spain. The financing segment derives revenue from leasing IT and medical equipment and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing of third-party software licenses, software assurance, maintenance and other services.


Financing revenue generally falls into the following three categories:



·
Portfolio income: Interest income from financing receivables and rents due under operating leases;

·Transactional gains: Net gains or losses on the sale of financial assets;

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

Transactional gains: Net gains or losses on the sale of financial assets; and
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and net gains on the sale of off-lease (used) equipment.

Our financing segment sells the equipment underlying a lease to the lessee or a third-party other than the lessee. These sales occur at the end of the lease term and revenues from the sales of such equipment are recognized at the date of sale. We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.


Fluctuations in Revenues


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


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


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CRITICAL ACCOUNTING ESTIMATES


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


Our critical accounting estimates have not changed from those reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20182019 Annual Report.

SEGMENT RESULTS OF OPERATIONS


The three and six months ended SeptemberJune 30, 2018,2019, compared to the three and six months ended SeptemberJune 30, 20172018


Technology Segment


The results of operations for our technology segment for the three months ended June 30, 2019 and 2018 were as follows (dollars in thousands):


 Three Months Ended September 30,  Six Months Ended September 30,  Three Months Ended June 30,    
 2018  2017  2018  2017  2019  2018  Change 
Net sales $334,768  $358,678  $681,632  $721,577             
Product $322,764  $313,149  $9,615   3.1%
Services  45,771   33,715   12,056   35.8%
Total  368,535   346,864   21,671   6.2%
                
Cost of sales  257,813   281,829   531,894   575,095                 
Product  258,054   254,064   3,990   1.6%
Services  28,670   20,017   8,653   43.2%
Total  286,724   274,081   12,643   4.6%
                
Gross profit  76,955   76,849   149,738   146,482   81,811   72,783   9,028   12.4%
                                
Selling, general, and administrative  55,138   53,503   109,592   105,004   62,667   54,454   8,213   15.1%
Depreciation and amortization  2,740   2,128   5,529   4,190   3,407   2,789   618   22.2%
Operating expenses  57,878   55,631   115,121   109,194   66,074   57,243   8,831   15.4%
                                
Operating income $19,077  $21,218  $34,617  $37,288  $15,737  $15,540  $197   1.3%
                                
Adjusted gross billings $485,856  $504,500  $968,157  $992,004  $548,363  $482,301  $66,062   13.7%
Adjusted EBITDA $24,284  $25,613  $44,625  $45,499  $21,419  $20,341  $1,078   5.3%


Net sales: Net sales for the three months ended SeptemberJune 30, 2018,2019, were $334.8368.5 million compared to $358.7346.9 million during the three months ended September 30, 2017, a decrease of 6.7%, or $23.9 million. For the six months ended SeptemberJune 30, 2018, net sales were $681.6an increase of 6.2% or $21.7 million, compareddue to $721.6 million duringincreases from our healthcare, telecom, media and entertainment industries, and all the same period in the prior year, a decreaseother categories of 5.5%, or $39.9 million. The decrease in net salescustomers, which was due, in part, topartially offset by a decrease in demand for productsfrom technology, and services from customers in the SLED telecom, media & entertainment, and technology customer end markets, partially offset by increased demand by the healthcare, financial services customers. Product sales increased 3.1% due to higher demand from our customers. Services revenues increased 35.8%, or $12.1 million due to an increase in staffing and other industries duringprofessional and managed services some of which was from the six months ended September 30, 2018, compared to the prior year. A shift in product mix also contributed to the decrease in net sales for both the three and six months ended September 30, 2018, as we sold a higher proportion of third party software assurance, maintenance and services, which are recognized on a net basis.SLAIT acquisition.


Adjusted gross billings for the three months ended SeptemberJune 30, 2018, were $485.92019 increased to $548.4 million, compared to $504.5or 13.7%, from $482.3 million during the three months ended September 30, 2017, a decrease of 3.7%, or $18.6 million. For the six months ended September 30, 2018, adjusted gross billings were $968.2 million compared to $992.0 million during the same period in the prior year, a decrease of 2.4%, or $23.8 million.year. The decreaseincrease in adjusted gross billings during the six month period was due, in part, to the SLAIT acquisition as well as higher demand from our current customers. This increase was offset by a decreaseshift in demand for productsmix to third-party maintenance, software assurance, subscriptions/SaaS licenses, and services from customers inwhere we recognize revenue on a net basis. As a result, net sales for the telecom, media and entertainment, SLED, and technology industries. Partially offsetting lower demand from these industries was an increase in demand from the healthcare, financial services, and other industries during the sixthree months ended SeptemberJune 30, 2018, compared to the prior year.2019 increased at a lower percentage than adjusted gross billings


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We rely on our vendors to fulfill a large majority of shipments to our customers. As of SeptemberJune 30, 2019, we had open orders of $210.6 million and deferred revenue of $60.9 million. As of June 30, 2018, we had open orders of $150.3 million and deferred revenue of $48.5 million. As of September 30, 2017, we had open orders of $152.7$168.7 million and deferred revenues of $52.859.9 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 are summarized below:




Twelve Months Ended September 30,

Change
 Twelve Months Ended June 30,    
2018  2017 2019  2018  Change 
Revenue by customer end market:
                  
Technology  23%  24%  (1%)  21%  24%  (3%)
SLED  17%  17%  0%
Financial Services  15%  15%  0%
Healthcare  15%  14%  1%
Telecom, Media & Entertainment  13%  15%  (2%)  14%  14%  0%
Financial Services  15%  14%  1%
SLED  17%  18%  (1%)
Healthcare  15%  12%  3%
All others  17%  17%  0%  18%  16%  2%
Total  100%  100%      100%  100%    
            
Revenue by vendor:
            
Cisco Systems  40%  45%  (5%)
NetApp  4%  5%  (1%)
HP Inc. & HPE  5%  7%  (2%)
Dell / EMC  4%  4%  0%
Juniper Networks  3%  5%  (2%)
Arista Networks  4%  3%  1%
All others  40%  31%  9%
Total  100%  100%    


 Twelve Months Ended June 30,    
  2019  2018  Change 
Revenue by vendor:         
Cisco Systems  42%  41%  1%
NetApp  4%  4%  0%
HP Inc. & HPE  6%  6%  0%
Dell/EMC  5%  4%  1%
Juniper Networks  3%  3%  0%
Arista Networks  4%  4%  0%
All others  36%  38%  (2%)
Total  100%  100%    

Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve-month period ended SeptemberJune 30, 2018,2019, we had an increase in the percentage total revenues from customers in the healthcarehealth care and financial services industries,the all other customer category, which were roughlywas partially offset by decreasesa decrease in the percentage of total revenues from SLED,in the technology and telecom, media & entertainment end markets over the prior year period.customer market. These changes were driven by changes in customer buying cycles and specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.


The majority of our revenues by vendor are derived from Cisco Systems and Hewlett Packard companies, which, combined a combined HP Inc.fairly constant percentage of 48% and HPE, and NetApp, which in total, declined to 49% for the trailing twelve-month period ended September 30, 2018 from approximately 57% in the trailing twelve-month period ended September 30, 2017, with the greatest decline in the proportional percentage47% of total revenues in Cisco product sales. The decrease infor the percentage of revenues from the top three vendors is due to substantial competitiontwelve-month periods ending June 30, 2019 and rapid developments in the IT industry.2018, respectively. None of the vendors included within the “other” category exceeded 3%5% of total revenues.


Cost of sales: Cost The 4.6% increase in cost of sales decreased 8.5% and 7.5% for the three and six months ended September 30, 2018,was due to the decreaseincrease in netservice and product sales, combined with a shiftpartially offset by an improvement in product mix, as we sold a higher proportion of third party software assurance, maintenance and services, which are recognized on a net basis. Our gross margin increased 160 basis points to 23.0% for the three months ended September 30, 2018, compared to 21.4% in the same period in the prior yearon product sales, due to a shift in product mix, as we sold a higher proportion of third partythird-party software assurance, maintenance and services, which are recognized on a net basis. Our gross margin increased 100 basis points to 22.2% for the three months ended June 30, 2019, compared to 21.2% in the same period in the prior year due to an increase in our services revenues and a shift in product mix, as we sold a higher proportion of third-party software assurance, maintenance and services for which the revenues are presented on a net basis, as well as lower product margins in the prior year quarter from a large competitively bid project that partially shipped during the period. For the six months ended September 30, 2018, our gross margin increased 170 basis points to 22.0%, compared to 20.3% the prior year period.

basis. Vendor incentives earned as a percentage of sales decreased 3040 basis points for the three months ended SeptemberJune 30, 2018,2019, resulting in a negative impact on gross margin, as compared to same period in the prior year, but remained unchanged as a percentage of sales for the six months ended September 30, 2018, compared to same period in the prior year.

There are ongoing changes to the incentive programs offered to us by our vendors. Accordingly, if we are unable to maintain the level of vendor incentives we are currently receiving, gross marginsmargin may decrease.


Selling, general, and administrative: Selling, general, and administrative expenses of $55.1$62.7 million for the three months ended SeptemberJune 30, 2018,2019, increased $1.6by $8.2 million, or 3.1%,15.1% from $53.5$54.5 million the prior year. Salaries and benefits increased $1.6$6.2 million, or 3.7%,13.6% to $44.6$51.5 million, compared to $43.0 million during the prior year, primarily due to higher salaries and healthcare expenses. The increase in salaries was due, in part, to a full quarter including IDS operations, as we completed this acquisition on September 15, 2017. Our technology segment had 1,213 employees as of September 30, 2018, a decrease of 20, or 1.6%, from 1,233 employees at September 30, 2017. General and administrative expenses increased $0.3 million, or 3.0%, to $9.0 million during the three months ended September 30, 2018, compared to $8.7 million the prior year, due to adjustments to the fair value of contingent consideration of $0.7 million this year, up from $0.4 million last year.

Selling, general, and administrative expenses of $109.6 million for the six months ended September 30, 2018, increased $4.6 million, or 4.4%, from $105.0 million the prior year. Salaries and benefits increased $3.8 million, or 4.4%, to $89.9 million, compared to $86.1$45.3 million during the prior year due to increased costsemployment levels with approximately 29.4% of personnel as well asthis increase due to higher variable compensation as a result ofrelated to the increase in gross profit. TheOur technology segment had 1,505 employees as of June 30, 2019, an increase in salaries was due, in part,of 299, or 24.8%, from 1,206 at June 30, 2018. This increase includes 246 of our current employees are related to a full six monthsthe SLAIT acquisition, including IDS operations, as we completed this acquisition on September 15, 2017.the employees performing our staffing services. General and administrative expenses  increased $1.0$2.0 million, or 6.5%22.5%, to $16.3$11.2 million during the sixthree months ended SeptemberJune 30, 2018,2019, compared to $15.3$9.1 million the prior year, due adjustments to the fair valuehigher software licenses and maintenance, office rent, travel expense, and other general expenses.

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Depreciation and amortization: Depreciation and amortization increased $0.6 million, or 28.8%22.2%, to $2.7$3.4 million during the three months ended SeptemberJune 30, 2018,2019 as compared to $2.1$2.8 million in the prior year, due to the IDS acquisition of SLAIT in September 2017. For the six months ended September 30, 2018, depreciation and amortization increased $1.3 million, or 32.0%, to $5.5 million, compared to the same period in the prior year.January 2019.


Segment operating income: As a result of the foregoing, operating income was $19.1$15.7 million, a decreasean increase of $2.1$0.2 million, or 10.1%1.3%, for the three months ended SeptemberJune 30, 2018,2019 as compared to $21.2$15.5 million in the prior year period. For the three months ended SeptemberJune 30, 2018,2019, adjusted EBITDA was $24.3$21.4 million, a decreasean increase of $1.3$1.1 million, or 5.2%5.3%, compared to $25.6 million in the prior year period. For the six months ended September 30, 2018, operating income was $34.6 million, a decrease of $2.7 million, or 7.2%, compared to $37.3 million in the prior year period. Adjusted EBITDA was $44.6 million, a decrease of $0.9 million, or 1.9%, for the six months ended September 30, 2018, compared to $45.5$20.3 million in the prior year period.


Financing Segment


The results of operations for our financing segment for the three months ended June 30, 2019 and 2018 were as follows (dollars in thousands):


 Three Months Ended September 30,  Six Months Ended September 30,  Three Months Ended June 30,    
 2018  2017  2018  2017  2019  2018  Change 
Net sales $10,275  $12,685  $19,943  $23,142 
Cost of sales  1,730   1,963   3,478   4,460 
Net product sales  12,837   9,668   3,169   32.8%
Cost of product sales  2,009   1,748   261   14.9%
                
Gross profit  8,545   10,722   16,465   18,682   10,828   7,920   2,908   36.7%
                                
Selling, general, and administrative  2,567   2,837   5,079   6,000   3,120   2,512   608   24.2%
Depreciation and amortization  1   1   2   2   56   1   55   5500.0%
Interest and financing costs  484   274   960   633   628   476   152   31.9%
Operating expenses  3,052   3,112   6,041   6,635   3,804   2,989   815   27.3%
                
Operating income $5,493  $7,610  $10,424  $12,047  $7,024  $4,931  $2,093   42.4%
                
Adjusted EBITDA $5,596  $7,706  $10,625  $12,227  $7,148  $5,029  $2,119   42.1%


Net sales: Net sales decreasedincreased by $2.4$3.2 million, or 19.0%32.8%, to $10.3$12.8 million for the three months ended SeptemberJune 30, 2018,2019, as compared to prior year results due to lowerhigher transactional gains, post contract earnings, and other financing revenues. Post contractportfolio earnings, decreased $3.0 million due to the early termination of several large leases in the prior year. Offsetting this decrease was higher portfolio earnings. During the three months ended September 30, 2018 and 2017, we recognized transactional gains of $1.2 million, and total proceeds from these sales were $47.2 million and $48.3 million, respectively.

For the six months ended September 30, 2018, net sales decreased by $3.2 million, or 13.8%, to $19.9 million as compared to prior year results due to lower post contract earnings, transactional gains, and other financing revenues, which partially were offset by higher portfolio earnings. Post contract earnings decreased $3.6 million due to the early termination of several large leases in the prior year. lower other financing revenues. During the six monthsquarters ended SeptemberJune 30, 20182019 and 2017,2018, we recognized net gains on sales of $2.5financial assets of $3.3 million and $3.5$1.3 million, respectively, and total proceedsthe fair value of assets received from these sales were $94.0$69.9 million and $134.1$46.9 million, respectively.


At SeptemberJune 30, 2018,2019, we had $165.4$169.5 million in financing receivables and operating leases, compared to $131.8$140.7 million as of SeptemberJune 30, 2017,2018, an increase of $33.6$28.8 million, or 25.5%20.5%.


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Cost of sales: Cost of sales decreased $0.2 million and $1.0increased $0.3 million for the three and six months ended SeptemberJune 30, 2018, compared to the same periods in the prior year, respectively,2019, which consists of depreciation expense from operating leases and the cost of off-lease equipment sold. leases. Gross profit decreasedincreased by 20.3%36.7% to $8.5$10.8 million, for the three months ended SeptemberJune 30, 2018,2019 as compared to the prior year, and decreased by 11.9% to $16.5 million, for the six months ended September 30, 2018, compared to the prior year.


Selling, general and administrative: For the three months ended SeptemberJune 30, 2018,2019, selling, general, and administrative expenses decreased $0.3increased by $0.6 million or 9.5%24.2%, which was due primarily to an increase variable compensation due to a decrease in variable compensation as a result of the decrease inhigher gross profit. Our financing segment had 42 employees as of September 30, 2018, compared to 49 employees as of September 30, 2017. Selling, general, and administrative expenses decreased by $0.9 million, or 15.4%, for the six months ended September 30, 2018, due to a decrease in variable compensation as a result of the decrease in gross profit, as well as the change in reserves for credit losses.


Interest and financing costs increased by 76.6%31.9% to $0.5$0.6 million for the three months ended June 30, 2019, compared to the prior year, due to an increase in the average total notes payable outstanding and by higher average interest rates over the three months ended SeptemberJune 30, 2018, compared to the same period in the prior year. For the six months ended September 30, 2018, interest and financing costs increased by 51.7% to $1.0 million compared to the same period in the prior year.2018. Total notes payable were $65.3$72.9 million as of SeptemberJune 30, 2018,2019, an increase of $28.2$18.3 million, or 75.9%33.6%, as compared to $37.1$54.6 million as of SeptemberJune 30, 2017.2018. Our weighted average interest rate for non-recourse notes payable was 4.31%4.25% and 3.62%4.31%, as of SeptemberJune 30, 20182019 and 2017,2018, respectively.


Segment operating income: As a result of the foregoing, operating income and adjusted EBITDA decreasedboth increased $2.1 million or 27.8%42.4% and 27.4%42.1%, to $7.0 million and $7.1 million, respectively, for the three months ended SeptemberJune 30, 2018,2019, over the prior year period. For the six months ended September 30, 2018, operating income and adjusted EBITDA decreased $1.6 million or 13.5% and 13.1%, respectively.


Consolidated
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Consolidated

Other income:Other income was $0.3(expense) decreased by $0.1 million fordue to reduction in interest income during the three months ended SeptemberJune 30, 2018,2019, compared to other expense of $0.1 million the prior year period. For the six months ended September 30, 2018 and 2017, other income was $0.4 million and $0.1 million, respectively.


Income taxes: Our provision for income tax expense was $6.9 million and $12.2$6.5 million for the three and six months ended SeptemberJune 30, 2018,2019, as compared to $11.5 million and $18.8$5.3 million for the same periodsperiod in the prior year. Our effective income tax raterates for the three and six months ended SeptemberJune 30, 2019 and 2018 was 27.7%were 28.7% and 26.8%25.7%, compared to 40.0% and 38.0% for the three and six months ended September 30, 2017.respectively. The reductionchange in our effective income tax rate was primarily due to a benefit received in the reduction ofprior year for stock which vested during the U.S. corporate income tax rate from 35% to 21% as a result of the 2017 Tax Cut and Jobs Act.quarter.


Net earnings: The foregoing resulted in net earnings of $18.0$16.2 million an increase of $0.8 million, or 4.5%, for the three months ended SeptemberJune 30, 2018,2019, an increase of 6.0%, as compared to $17.2$15.3 million compared toduring the prior year. For the sixthree months ended SeptemberJune 30, 2018, net earnings were $33.3 million, an increase of $2.6 million, or 8.6%, over the same period in the prior year.2018.


Both basicBasic and fully diluted earnings per common share were $1.33$1.21 and $1.20, for the three months ended SeptemberJune 30, 2018,2019, an increase of 7.3%6.1% and 8.1%,7.1% as compared to $1.24$1.14 and $1.23,$1.12, respectively, for the three months ended SeptemberJune 30, 2017. For the six months ended September 30, 2018, basic and fully diluted earnings per common share were $2.47 and $2.42, an increase of 11.8% and 11.9%, as compared to $2.21 and $2.19 for the same period in the prior year, respectively.2018.


Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for both the three and six months ended SeptemberJune 30, 2018,2019 was 13.513.4 million and 13.613.5 million, respectively. Weighted average common shares outstanding used in the calculation of the basic and diluted earnings per common share for the three months ended SeptemberJune 30, 2017,2018 was 13.913.4 million and 14.0 million, respectively. Weighted average common shares outstanding used in the calculation of the basic and diluted earnings per common share for the six months ended September 30, 2017, was 13.8 million and 14.013.6 million, respectively.


LIQUIDITY AND CAPITAL RESOURCES


Liquidity Overview


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


Our subsidiary ePlus Technology, inc., and certain subsidiaries, part of our technology segment, finances itsfinance their operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC or (“WFCDF”). ePlus Technology, inc.’s agreement withWFCDF. This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component.

As of June 30, 2019, the facility had an aggregate credit limit of $325$250 million as of September 30, 2018.

On July 27, 2017, we executed an amendment to the WFCDF credit facility that temporarily increases the aggregate limit offor the two components, from $250.0and the accounts receivable component had a sub-limit of $50 million, to $325.0 million from the datewhich bears interest assessed at a rate of the agreement through October 31, 2017. The amendment also provides usOne Month LIBOR plus two- and one-half percent. We have an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election or October 31 of that same year. On July 17, 2018, we elected to temporarily increase the aggregate limit to $325.0 million.


There are two components of this facility: (1) a floor plan component, and (2) an accounts receivable component. After a customer places a purchase order with us and we have completed our credit review, we place an order for the equipment with one of our vendors. Generally, most purchase orders from us to our vendors are first financed under the floor plan component and reflected in “accounts payable—floor plan” in our consolidated balance sheets. Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no outstanding balance at SeptemberJune 30, 2018,2019 or SeptemberJune 30, 2017,2018, while the maximum credit limit was $50.0 million and $30.0 million, for both periods.respectively. The borrowings and repayments under the floor plan component are reflected as “net borrowings (repayments) on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows.


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


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


Our ability to continue to fund our planned growth, both internally and externally, is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing, or from other sources of financing, as may be required. While at this time we do not anticipate requiring any additional sources of financing to fund operations, if demand for IT products declines, or if our supply of products is delayed or interrupted, our cash flows from operations may be substantially affected.

Cash Flows


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


  Six Months Ended September 30, 
  2018  2018 
Net cash provided by (used) in operating activities $(17,085) $13,330 
Net cash used in investing activities  (37,937)  (52,891)
Net cash provided by (used) in financing activities  12,321   (10,046)
Effect of exchange rate changes on cash  150   32 
         
Net Increase (Decrease) in Cash and Cash Equivalents $(42,551) $(49,575)
 Three Months Ended June 30, 
  2019  2018 
Net cash used in operating activities $(87,394) $(49,032)
Net cash used in investing activities  (1,226)  (31,815)
Net cash provided by financing activities  44,327   20,037 
Effect of exchange rate changes on cash  81   92 
         
Net Decrease in Cash and Cash Equivalents $(44,212) $(60,718)


Cash flows from operating activities. CashWe used $87.4 million in from operating activities during the three months ended June 30, 2019, compared to $49.0 million for the three months ended June 30, 2018. See below for a breakdown of operating cash flows by segment (in thousands):

 Three Months Ended June 30, 
  2019  2018 
Technology segment $(42,072) $(42,497)
Financing segment  (45,322)  (6,535)
Net cash used in operating activities $(87,394) $(49,032)

Technology Segment: In the three months ended June 30, 2019, our technology segment used $42.1 million from operating activities due to changes in working capital exceeding cash generated from earnings. Partially offsetting the cash used in operations were changes in the accounts payable - floor plan balance of $19.9 million. The accounts payable – floor plan is a facility used to manage working capital needs and we are required to present changes in this balance as financing activity in our consolidated statement of cash flows.

In the three months ended June 30, 2018, our technology segment used $42.5 million from operating activities totaled $17.1 million during the six months ended September 30, 2018. Net earnings adjusted for the impact of non-cash items was $42.3 million. Netdue to changes in assets and liabilities resultedworking capital exceeding cash generated from earnings. Partially offsetting the cash used in a decrease of cash and cash equivalents of $59.4 million, primarily due to net additions to accounts receivables of $29.3 million, salaries and commissions payable, deferred revenues and other liabilities of $14.8 million, inventories of $16.7 million, and financing receivables of $5.9 million, partially offset by reductionsoperations were changes in the accounts payable - floor plan balance of $2.4$17.5 million and deferred costs, other intangible assets and other assets of $4.9 million...

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


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


 As of September 30,  As of June 30,    
 2018  2017  2019  2018  2017 
               
(DSO) Days sales outstanding (1)  60   52   53   53   48 
(DIO) Days inventory outstanding (2)  11   15   11   10   19 
(DPO) Days payable outstanding (3)  (46)  (44)  (40)  (41)  (42)
Cash conversion cycle  25   23   24   22   25 


(1)Represents the rolling three-month average of the balance of trade accounts receivable-trade, net for our technology segment at the end of the period divided by adjusted gross billings for the same three-month period.
(2)Represents the rolling three-month average of the balance of inventory, net for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three-month period.
(3)Represents the rolling three-month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our technology segment at the end of the period divided by Costcost of adjusted gross billings for the same three-month period.



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Our cash conversion cycle increased to 2524 days at SeptemberJune 30, 2019, compared to 22 days at June 30, 2018, compared to 23 days at Septemberresulting from a 1 day increase in DIO and a 1 day decrease in DPO. Our DIO as of June 30, 2017,2019, was primarily drivenimpacted by an increase in DSOaverage inventory balances of 8 days due to19.4%, or $9.1 million, while adjusted gross cost of goods sold for the timing of collections.same period increased 13.9%. The increaseremaining change in our cash conversion cycle was partiallyis due to DPO timing of payments.

Financing Segment: In the three months ended June 30, 2019, our financing segment used $45.3 million from operating activities, primarily due to changes in financing receivables- net of $58.2 million.  In the three months ended June 30, 2018, our financing segment used $6.5 million from operating activities, primarily due to changes in working capital. In this period, which we elected not to update using the transition option available when we adopted ASC 842, changes in financing receivables not sourced through us are reflected in cash flows from investing activities. With the adoption of ASC 842, for periods beginning after April 1, 2019, we recognize the change in financing receivables, including the issuance of financing receivables offset by a decrease in DIO asrepayments of September 30, 2018,financing receivables and the proceeds from the transfer of financing receivables when we account for the transfer as a resultsale, as part of a decrease in average inventory balances of 31.2%, or $22.5 million.operating activities.


Cash flows related to investing activities. CashIn the three months ended June 30, 2019, we used $1.2 million from investing activities, consisting of $1.5 million for purchases of property, equipment and operating lease equipment offset by $0.3 million of proceeds from the sale of property, equipment, and operating lease equipment.

In the three months ended June 30, 2018, we used $31.8 million from investing activities, including $1.6 million for purchases of property, equipment and operating lease equipment. In this period, which we elected not to update using the transition option available when we adopted ASC 842, cash used in investing activities was $37.9also included net cash outflows related to financing receivables of $31.2 million, duringconsisting of the six months ended September 30, 2018. Cash used in investing activities during the six months ended September 30, 2018, was primarily driven by issuance of financing receivables of $88.4$49.4 million, purchases of assets to be leased or financed of $8.6$7.2 million, and purchases of property, equipment, and operating lease equipment of $6.5 million , which was partially offset by cash proceeds from the repayment of financing receivablereceivables of $33.3$15.6 million, and the sale of financing receivables of $30.5 million, and sale of property, equipment, and leased equipment of $1.8$9.8 million.


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

Cash flows from financing activities. CashIn the three months ended June 30, 2019, cash provided by financing activities was $12.3$44.3 million during the six months ended September 30, 2018, which was primarily due toconsisting of net borrowings of non-recourse and recourse notes payable of $15.9$38.0 million, net borrowings on floor plan facility of $19.9 million, and offset by $13.3 million in repurchase of common stock and $0.3 million paid to sellers of SLAIT as part of a working capital adjustment.

In the three months ended June 30, 2018, cash provided by financing activities was $20.0 million consisting of net borrowings of non-recourse and recourse notes payable of $12.9 million, and net borrowing on floor plan facility of $8.7$17.5 million, and partially offset by cash used for the repurchase of common stock of $10.1$9.8 million, and repayment of financing of acquisitions of $2.1$0.5 million.Cash used in

Our borrowing of non-recourse and recourse notes payable primarily arises from our financing activities was $10.0 million during the six months ended September 30, 2017, which was primarilysegment when we transfer contractual payments due to net borrowing on floor plan facility of $12.4 million, cash usedus under lease and financing agreements to third-party financial institutions. When the transfers do not meet the requirements for a sale, the repurchase of common stock of $4.4 million, and repayment of financing of acquisitions of $1.1 million, partially offset by netproceeds paid to us represent borrowings of non-recourse and recourse notes payable of $7.8 million.payable.


Non-Cash Activities


We assign contractual payments due to us under lease and financing agreements to third-party financial institutions, which are accounted for as non-recourse notes payable.institutions. As a condition to the assignment agreement, certain financial institutions may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, if the structure of the agreement does not require a trust, the customer will continue to make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either assignment structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lenderlender. However, when our customer makes payments to pay down the corresponding non-recourse notes payable. However, thesethrough a trust, such payments represent non-cash transactions.

In addition, in certain assignment structures are classified differently within our consolidated statements of cash flows. More specifically,agreements, we are required to exclude non-cash transactions from our consolidated statement of cash flows, so certain contractual payments made by the customer to the trust are excluded from our operating cash receipts and the corresponding repayment of the non-recourse notes payable from the trust tomay direct the third-party financial institution are excludedto pay some of the proceeds from our cash flows from financing activities. Contractual payments received by the trust and paidassignment of directly to the lender onvendor or vendors that have supplied the assets being leased and or financed. In these situations, the portion of the proceeds paid directly to our behalfvendors are disclosed as a non-cash financing activity.transactions.


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Liquidity and Capital Resources


We may useutilize non-recourse notes payable to finance approximately 80% to 100% of the purchase price of the assets being leased or financed by our customers. Any balance of the purchase price remaining after non-recourse funding and any upfront payments received from the customer (our equity investment in the equipment) must generally be financed by cash flows from our operations, the sale of the equipment leased to third parties,third-parties, or other internal means. Although we expect that the credit quality of our financing arrangements and our residual return history will continue to allow us to obtain such financing, such financing may not be available on acceptable terms, or at all.


The financing necessary to support our lease and financing activities has been provided by our cash and non-recourse borrowings. We monitor our exposure closely. We are able to obtain financing through our traditional lending sources using primarily non-recourse borrowings from third partythird-party banks and finance companies. Non-recourse financings are loans whose repayment is the responsibility of a specific customer, although we may make representations and warranties to the lender regarding the specific contract or have ongoing loan servicing obligations. Under a non-recourse loan, we borrow from a lender an amount based on the present value of the contractually committed payments at a fixed rate of interest, and the lender secures a lien on the financed assets. When the lender is fully repaid, the lien is released, and all further proceeds are ours. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The lender assumes the credit risk, and the lender’s only recourse, upon default, is against the customer and the specific equipment.


At SeptemberJune 30, 2018,2019, our non-recourse notes payable increased 28.2%50.0% to $65.3$72.9 million, as compared to $50.9$48.6 million at March 31, 2018.2019. There waswere no recourse notes payable as of SeptemberJune 30, 2018,2019, compared to $1.3 million$28 thousand as of March 31, 2018.2019.


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


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Credit Facility — Technology


Our subsidiary, ePlus Technology, inc., and certain subsidiaries. has a financing facility from WFCDF to finance its working capital requirements for inventories and accounts receivable. There are two components of this facility: (1) a floor plan componentcomponent; and (2) an accounts receivable component. This facility has full recourse to ePlus Technology, inc. and certain subsidiaries. and is secured by a blanket lien against all its assets, such as chattel paper, receivables and inventory. As of SeptemberJune 30, 2018,2019, the facility had an aggregate limit of the two components of $325.0$250.0 million with an accounts receivable sub-limit of $30.0 million.


On July 27, 2017, we executed an amendment to the WFCDF credit facility that temporarily increased the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2017 and provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election orand October 31 of that same year. On July 17, 2018,31, 2019, we elected to temporarily increase the aggregate limit to $325.0 million.


Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and ePlus Technology, inc.’s minimum earnings before interest, taxes, depreciation and amortization. We were in compliance with these covenants as of SeptemberJune 30, 2018.2019. Interest on the facility is assessed at a rate of the One Month LIBOR plus twotwo- and one halfone-half percent if the payments are not made on the three specified dates each month. The facility also requires that financial statements of ePlus Technology, inc. and certain subsidiaries. be provided within 45 days of the end of each quarter and 90 days of each fiscal year end and that other operational reports be provided on a regular basis. Either party may terminate the credit facility with 90 days advance written notice.


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


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The WFCDF credit facility requires a guaranty of $10.5 million by ePlus inc. The guaranty requires ePlus inc. to deliver its annual audited financial statements by a certain date. We have delivered the annual audited financial statements for the year ended March 31, 2018,2019, as required. The loss of the WFCDF credit facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process.


Floor Plan Component


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


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


Maximum Credit Limit
at September 30, 2018
  
Balance as of
September 30, 2018
  
Maximum Credit Limit
at March 31, 2018
  
Balance as of
March 31, 2018
 
$325,000  $120,771  $250,000  $112,109 
Maximum Credit Limit
at June 30, 2019
 
Balance as of
June 30, 2019
 
Maximum Credit Limit
at March 31, 2019
 
Balance as of
March 31, 2019
$250,000 $136,013 $250,000 $116,083


Accounts Receivable Component


ePlus Technology, inc. and certain subsidiaries. has an accounts receivable component included within the WFCDF credit facility, which has a revolving line of credit. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no balance outstanding for the accounts receivable component at SeptemberJune 30, 2018,2019, or March 31, 2018,2019, while the maximum credit limit was $30.0$50.0 million for both periods.


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Performance Guarantees


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


Off-Balance Sheet Arrangements


As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K, or other contractually narrow or limited purposes. As of SeptemberJune 30, 2018,2019, we were not involved in any unconsolidated special purpose entity transactions.


Adequacy of Capital Resources


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


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Inflation


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


Potential Fluctuations in Quarterly Operating Results


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


Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to currency fluctuations, reduction in IT spending, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third partythird-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk Factors,” in our 20182019 Annual Report, and subsequent Forms 10-Q for our fiscal year 2019.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.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk


A substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, which were aligned with the customer financing rate creating an interest rate spread whichthat is our profit. Should we not fund these transactions with debt at inception and interest rates rise above our interest rate with our customer, we may not be able to fund the transaction without reduced profit or a loss, thus inhibiting our ability to generate proceeds from the transaction. We useutilize our lines of credit and other financing facilities whichthat are subject to fluctuations in short-term interest rates. These instruments, which are generally denominated in US dollars, were entered into for other than trading purposes and, with the exception of amounts drawn under the WFCDF facility, bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Borrowings under the WFCDF facility bear interest at a market-based variable rate. As of SeptemberJune 30, 2018,2019, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.


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


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


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


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


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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 SeptemberJune 30, 2018.2019.


Changes in Internal Control Over Financial Reporting.


There have not been any changes in our internal control over financial reporting during the quarter ended SeptemberJune 30, 2018, which2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Limitations on the Effectiveness of Controls


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


PART II. OTHER INFORMATION


Item 1.
Legal Proceedings


We are not currently a party to any legal proceedings with loss contingencies that are expected to be material. From time to time, we may be subject toa plaintiff or a defendant in legal proceedings that arise in the ordinary courseactions arising from our normal business activities, none of business.which has had a material effect on our business, results of operations or financial condition. Legal proceedings thatwhich may arise in the ordinary course of business include preference payment claims asserted in customer bankruptcy proceedings; tax audits; claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights; claims of alleged non-compliance with contract provisions; employment-related claims; claims by competitors, vendors or customers; claims related to alleged violations of laws and regulations; and claims relating to alleged security or privacy breaches. We attempt to ameliorate the effect of potential litigation through insurance coverage and contractual protections such as rights to indemnifications and limitations of liability.

Additionally, we may from time to time receive payouts resulting from claims we submit We do not expect that the outcome in legal proceedings, such as whenany of these matters, individually or collectively, will have a customermaterial adverse effect on our financial condition or vendor has filed bankruptcy,results of operations, however, litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered that could adversely affect our results of operations or cash flows in class action lawsuits.

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


Item 1A.
Risk Factors


There has not been any material change in the risk factors previously disclosed in Part I, Item 1A of our 20182019 Annual Report and Item 1A. “Risk Factors” in our Form 10-Q for the three months ended June 30, 2018.Report.


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


The following table provides information regarding our purchases of ePlus inc. common stock during the sixthree months ended SeptemberJune 30, 2018.2019.


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, 2018 through April 30, 2018  69,645  $78.14   69,645   20,516 (2)
May 1, 2018 through May 27, 2018  800  $79.93   800   19,716 (3)
May 28, 2018 through May 31, 2018  -  $-   -   519,716 (4)
June 1, 2018 through June 30, 2018  37,086  $95.80   -   519,716 (5)
July 1, 2018 through July 31, 2018  3,006  $102   -   519,716 (6)
August 1, 2018 through August 18, 2018  -  $-   -   519,716 (7)
August 19, 2018 through August 31, 2018  -  $-   -   500,000 (8)
September 1, 2018 through September 30, 2018  -  $-   -   500,000 (9)
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, 2019 through April 30, 2019  -  $-   -   385,419 (2)
May 1, 2019 through May 27, 2019  2,301  $83.38   1,300   0 (3)
May 28, 2019 through May 31, 2019  68,207  $72.32   68,207   431,793 (4)
June 1, 2019 through June 30, 2019  117,093  $71.15   79,283   352,510 (5)



(1)Any shares acquired were in open-market purchases, except for 37,08638,811 shares, out of which 1,001 were repurchased in May 2019 and 37,810 in June and 3,006 repurchased in July 20182019 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.

(2)The share purchase authorization in place for the month ended April 30, 20182019 had purchase limitations on the number of shares of up to 500,000 shares. As of April 30, 2018,2019, the remaining authorized shares to be purchased were 20,516.385,419.

(3)The share purchase authorization in place for the month ended May 31, 2018 had purchase limitations on the number of shares of up to 500,000 shares. As of May 31, 2018,27, 2019, the remaining authorized shares to be purchased were 19,716.authorization under the then existing share repurchase plan expired.

(4)On April 26, 2018,May 24, 2019, the board of directors authorized the company to repurchase up to 500,000 shares of our outstanding common stock commencing on May 28, 20182019 and continuing to May 27, 2019.2020. As of May 31, 2018,2019, the remaining authorized shares to be purchased were 519,716 under both authorizations.431,793.

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

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

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

(8)(5)The share purchase authorization in place for the month ended August 31, 2018June 30, 2019 had purchase limitations on the number of shares of up to 500,000 shares. As of August 31, 2018,June 30, 2019, the remaining authorized shares to be purchased were 500,000.352,510.

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


The timing and expiration date of the current stock repurchase authorizations are included in Note 11,12, “Stockholders’ Equity” to our unaudited condensed consolidated financial statements included elsewhere in this report.


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Item 3.Defaults Upon Senior Securities

Not Applicable.

Item 4.Mine Safety Disclosures

Not Applicable.

Item 5.Other Information

None.

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Table of Contents
Item 3.
Defaults Upon Senior Securities

Not Applicable.

Item 4.
Mine Safety Disclosures

Not Applicable.

Item 5.
Other Information

None.

Item 6.
Exhibits


3.1
ePlus inc. Amended and Restated Certificate of Incorporation filed onas amended September 19,15, 2008 (Incorporated herein by reference toas Exhibit 3.1 to our QuarterlyCurrent Report on Form 10-Q for the period ended8-K filed on September 30, 2008)19, 2008)
  
3.2
Amended and Restated Bylaws of ePlus inc., as amended February 15, 2018 (Incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 20, 2018)
  
10.1
Amendment No. 7, dated January 15, 2019, to Amended and Restated Agreement for Wholesale Financing between ePlus Technology, inc. and Wells Fargo Commercial Distribution Finance, LLC (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 18, 2019).
10.2
Amendment No. 7, dated January 15, 2019, to Amended and Restated Business Financing Agreement between ePlus Technology, inc. and Wells Fargo Commercial Distribution Finance, LLC (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on January 18, 2019).
31.1
Certification of the Chief Executive Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
  
31.2
Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
  
32
Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350.
  
101.INSXBRL Instance Document
  
101.SCHXBRL Taxonomy Extension Schema Document
  
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
  
101.LABXBRL Taxonomy Extension Label Linkbase Document
  
101.PREXBRL Taxonomy Extension Presentation Linkbase Document


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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
ePlus inc.
 
   
Date:  NovemberAugust 7, 20182019/s/ MARK P. MARRON 
 By: Mark P. Marron,
 
Chief Executive Officer and
President
 (Principal Executive Officer) 
   
Date:  NovemberAugust 7, 20182019/s/ ELAINE D. MARION 
 By: Elaine D. Marion 
 Chief Financial Officer 
 (Principal Financial Officer)




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