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

FORM 10-Q

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

For the quarterly period ended December 31, 2021June 30, 2022

OR

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

For the transition period from____ to ____.

Commission file number: 1-34167

ePlus inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐  No ☒
The number of shares of common stock outstanding as of FebruaryAugust 1, 2022, was 26,887,216.26,891,568.


TABLE OF CONTENTS

ePlus inc. AND SUBSIDIARIES

Part I. Financial Information: 
    
Item 1. Financial Statements 
    
  5
    
  6
    
  7
    
  8
    
  10
    
  11
    
Item 2.
 
2724
    
Item 3.
 
4439
    
Item 4.
 
4539
    
Part II. Other Information:
 
    
Item 1.
 
4640
    
Item 1A.
 
4640
    
Item 2.
 
46
Item 3.
Defaults Upon Senior Securities
47
Item 4.
Mine Safety Disclosures
47
Item 5.
Other Information
47
Item 6.
Exhibits
4840
    
Item 3.
40
Item 4.
40
Item 5.
41
Item 6.
41
4942

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CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS

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

the duration and ongoing impact of the novel coronavirus (“COVID-19”) pandemic, which could materially adversely affect our financial condition and results of operations and has resulted in governmental authorities imposing numerous unprecedented measures and court opinions concerning the legality thereof, to contain the virus that has impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners;
national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and pressure on prices;inflation, including increases in our costs and price increases to our customers which may result in adverse changes in our gross profit;
significant and rapid inflation may cause price, wage, and interest rate increases, as well as increases in operating costs which may impact the arrangements that have pricing commitments over the term of the agreement;
significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our largelarger volume customers or vendors;
supply chain issues, including a shortage of IT products, may increase our costs or cause a delay in fulfilling customer orders, or increase our need for working capital, or completing professional services, or purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;
the duration and ongoing impact of the novel coronavirus (“COVID-19”) pandemic, including but not limited to the impact and severity of new variants, vaccine efficacy, and immunization rates, the closure of non-essential business and other associated governmental containment actions, and the increase in cyber-security attacks that have occurred while employees work remotely;
maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
our ability to secure our own and our customers’ electronic and other confidential information, while maintaining compliance with evolving data privacy and regulatory laws and regulations;
Our ability to remain secure during a cybersecurity attack, including both disruptions in our or our vendors’ IT systems and data and audio communication networks;
reliance on third-parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements, guaranteed price agreements, or assurance of stock availability;
the creditworthiness of our customers and our ability to reserve adequately for credit losses;
loss of our credit facility or credit lines with our vendors may restrict our current and future operations;
uncertainty regarding the phase out of LIBOR may negatively affect our operating results;
a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
•
our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common stock price;
reliance on third partiesour common stock price;
reduction of vendor incentives provided to perform some of our service obligations to our customers;us;
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”), software as a service (“SaaS”) and platform as a service (“PaaS”);
our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;
availability of products from our vendors;
significant and rapid inflation may cause price and wage increases, as well as increases in operating costs which may impact the arrangements that have pricing commitments over the term of the agreement.
future growth rates in our core businesses;
reduction of vendor incentives provided to us;
rising interest rates or the loss of key lenders or the constricting of credit markets;

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the possibility of goodwill impairment charges in the future;
maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
adapting to meet changes in markets and competitive developments;
increasing the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
our ability to secure our own and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;
managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
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;

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our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;
changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;
exposure to changes in, interpretations of, or enforcement trends in, and customer and vendor actions in anticipation of or response to, legislation and regulatory matters;
domestic and international economic regulations uncertainty (e.g., tariffs, sanctions, and trade agreements);
our contracts may not be adequate to protect us, and we are subject to audit which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
failure to comply with public sector contracts, or applicable laws or regulations;
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace;
disruptions or a security breach in our or our vendors’ IT systems and data and audio communication networks;
our ability to realize our investment in leased equipment;
our ability to successfully perform due diligence and integrate acquired businesses;
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.

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

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

 December 31, 2021  March 31, 2021  June 30, 2022  March 31, 2022 
ASSETS            
Current assets:            
Cash and cash equivalents $105,566  $129,562  $83,488  $155,378 
Accounts receivable—trade, net  520,629   391,567   482,166   430,380 
Accounts receivable—other, net  40,818   41,053   47,581   48,673 
Inventories  147,739   69,963   246,873   155,060 
Financing receivables—net, current  98,183   106,272   75,170   61,492 
Deferred costs  34,684   28,201   34,104   32,555 
Other current assets  12,932   10,976   15,961   13,944 
Total current assets  960,551   777,594   985,343   897,482 
                
Financing receivables and operating leases—net  90,026   90,165   68,719   64,292 
Deferred tax asset—net  1,972   1,468   5,054   5,050 
Property, equipment and other assets  46,215   42,289 
Property, equipment, and other assets  45,888   45,586 
Goodwill  126,604   126,645   126,378   126,543 
Other intangible assets—net  29,778   38,614   24,768   27,250 
TOTAL ASSETS $1,255,146  $1,076,775  $1,256,150  $1,166,203 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                
LIABILITIES                
                
Current liabilities:                
Accounts payable $162,670  $165,162  $165,793  $136,161 
Accounts payable—floor plan  157,667   98,653   138,047   145,323 
Salaries and commissions payable  39,184   36,839   32,490   39,602 
Deferred revenue  93,319   72,802   100,637   86,469 
Recourse notes payable—current  51,104   5,450   47,529   7,316 
Non-recourse notes payable—current  37,245   50,397   19,873   17,070 
Other current liabilities  26,224   30,061   29,603   28,095 
Total current liabilities  567,413   459,364   533,972   460,036 
                
Recourse notes payable - long-term  7,689   12,658   3,878   5,792 
Non-recourse notes payable - long-term  6,340   5,664   6,569   4,108 
Other liabilities  34,408   36,679   35,443   35,529 
TOTAL LIABILITIES  615,850   514,365   579,862   505,465 
                
COMMITMENTS AND CONTINGENCIES (Note 9)  0   0 
COMMITMENTS AND CONTINGENCIES (Note 8)  
   
 
                
STOCKHOLDERS’ EQUITY                
                
Preferred stock, $0.01 per share par value; 2,000 shares authorized; NaN outstanding
  0   0   0   0 
Common stock, $0.01 per share par value; 50,000 shares authorized; 26,966 outstanding at December 31, 2021 and 27,006 outstanding at March 31, 2021
  270   145 
Common stock, $0.01 per share par value; 50,000 shares authorized; 26,893 outstanding at June 30, 2022 and 26,886 outstanding at March 31, 2022
  271   270 
Additional paid-in capital  157,721   152,366   161,253   159,480 
Treasury stock, at cost, 50 shares at December 31, 2021 and 1,987 shares at March 31, 2021
  (2,592)  (75,372)
Treasury stock, at cost, 258 shares at June 30, 2022 and 130 shares at March 31, 2022
  (13,958)  (6,734)
Retained earnings  483,601   484,616   530,185   507,846 
Accumulated other comprehensive income—foreign currency translation adjustment  296   655   (1,463)  (124)
Total Stockholders’ Equity  639,296   562,410   676,288   660,738 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,255,146  $1,076,775  $1,256,150  $1,166,203 

See Notes to Unaudited Consolidated Financial Statements.

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

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  Three Months Ended June 30, 
 2021  2020  2021  2020  2022  2021 
                  
Net sales                  
Product $432,307  $375,512  $1,190,524  $1,066,408  $395,250  $361,057 
Services  62,527   52,092   178,976   149,308   63,109   55,592 
Total  494,834   427,604   1,369,500   1,215,716   458,359   416,649 
Cost of sales                        
Product  339,810   297,514   914,666   827,111   304,210   277,227 
Services  37,907   31,939   109,203   92,935   40,626   33,910 
Total  377,717   329,453   1,023,869   920,046   344,836   311,137 
                        
Gross profit  117,117   98,151   345,631   295,670   113,523   105,512 
                        
Selling, general, and administrative  76,874   65,390   220,153   201,746   76,767   68,775 
Depreciation and amortization  3,597   3,143   11,376   10,000   3,210   3,926 
Interest and financing costs  561   355   1,262   1,179   363   359 
Operating expenses  81,032   68,888   232,791   212,925   80,340   73,060 
                        
Operating income  36,085   29,263   112,840   82,745   33,183   32,452 
                        
Other income (expense)  (175)  813   (377)  1,095   (2,153)  123 
                        
Earnings before tax  35,910   30,076   112,463   83,840   31,030   32,575 
                        
Provision for income taxes  9,486   8,438   31,108   24,996   8,691   9,057 
                        
Net earnings $26,424  $21,638  $81,355  $58,844  $22,339  $23,518 
        
Net earnings per common share—basic $0.99  $0.81  $3.05  $2.21  $0.84  $0.88 
Net earnings per common share—diluted $0.98  $0.81  $3.03  $2.20  $0.84  $0.87 
                        
Weighted average common shares outstanding—basic  26,668   26,664   26,666   26,684   26,513   26,666 
Weighted average common shares outstanding—diluted  26,930   26,756   26,887   26,804   26,685   26,882 

See Notes to Unaudited Consolidated Financial Statements.

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

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  Three Months Ended June 30, 
 2021  2020  2021  2020  2022  2021 
                  
NET EARNINGS $26,424  $21,638  $81,355  $58,844  $22,339  $23,518 
                        
OTHER COMPREHENSIVE INCOME, NET OF TAX:                        
                        
Foreign currency translation adjustments  81  983   (359)  1,540   (1,339)  66 
                        
Other comprehensive income (loss)
  81  983   (359)  1,540   (1,339)  66 
                        
TOTAL COMPREHENSIVE INCOME $26,505  $22,621  $80,996  $60,384  $21,000  $23,584 

See Notes to Unaudited Consolidated Financial Statements.

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

 Nine Months Ended December 31,  Three Months Ended June 30, 
 2021  2020  2022  2021 
Cash flows from operating activities:            
Net earnings $81,355  $58,844  $22,339  $23,518 
                
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:        
Adjustments to reconcile net earnings to net cash used in operating activities:        
Depreciation and amortization  18,620   13,762   4,472   6,082 
Provision for credit losses  77   1,920   698   (261)
Share-based compensation expense  5,355   5,427   1,773   1,735 
Deferred taxes  (504)  1,033 
Payments from lessees directly to lenders—operating leases  (32)  (25)  0   (32)
Gain on disposal of property, equipment, and operaing lease equipment  (855)  (408)  (224)  (148)
Changes in:                
Accounts receivable  (132,228)  (67,989)  (53,556)  (68,641)
Inventories-net  (77,921)  (28,340)  (92,678)  (7,800)
Financing receivables—net  (20,296)  (67,112)  (20,574)  193 
Deferred costs and other assets  (12,432)  (15,865)  (4,177)  61 
Accounts payable-trade  526   70,726   30,376   (15,393)
Salaries and commissions payable, deferred revenue, and other liabilities  16,793   33,271   8,608   (4,450)
Net cash provided by (used in) operating activities  (121,542)  5,244 
Net cash used in operating activities  (102,943)  (65,136)
                
Cash flows from investing activities:
                
Proceeds from sale of property, equipment, and operating lease equipment  2,927   670   85   843 
Purchases of property, equipment and operating lease equipment  (21,375)  (4,227)  (1,777)  (6,994)
Cash used in acquisitions, net of cash acquired  0   (27,102)
Net cash used in investing activities  (18,448)  (30,659)  (1,692)  (6,151)
                
Cash flows from financing activities:                
Borrowings of non-recourse and recourse notes payable  98,547   31,698   49,256   3,199 
Repayments of non-recourse and recourse notes payable  (32,099)  (41,870)  (3,645)  (4,819)
Repurchase of common stock  (9,466)  (6,948)  (7,224)  (3,807)
Repayments of financing of acquisitions  0   (556)
Net borrowings on floor plan facility  59,014   44,058 
Net borrowings (repayments) on floor plan facility  (7,276)  40,921 
Net cash provided by financing activities  115,996   26,382   31,111   35,494 
                
Effect of exchange rate changes on cash  (2)  (735)  1,634   71 
                
Net increase (decrease) in cash and cash equivalents  (23,996)  232 
Net increase in cash and cash equivalents  (71,890)  (35,722)
                
Cash and cash equivalents, beginning of period  129,562   86,231   155,378   129,562 
                
Cash and cash equivalents, end of period $105,566  $86,463  $83,488  $93,840 

See Notes to Unaudited Consolidated Financial Statements.

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

 Nine Months Ended December 31,  Three Months Ended June 30, 
 2021  2020  2022  2021 
Supplemental disclosures of cash flow information:
            
Cash paid for interest $1,182  $929  $341  $519 
Cash paid for income taxes $35,676  $21,257  $7,532  $7,275 
Cash paid for amounts included in the measurement of lease liabilities $3,420  $4,460  $1,226  $1,182 
                
Schedule of non-cash investing and financing activities:
                
Proceeds from sale of property, equipment, and leased equipment $87  $0  $183  $978 
Purchases of property, equipment, and operating lease equipment $(16) $(221) $(63) $(2,619)
Borrowing of non-recourse and recourse notes payable $56,240  $77,289  $7,267  $0 
Repayments of non-recourse and recourse notes payable $(32) $(25) $0  $(32)
Vesting of share-based compensation $8,439  $7,926  $9,215  $7,493 
Repurchase of common stock
 $0  $(304)
New operating lease assets obtained in exchange for lease obligations $2,489  $1,097  $34  $0 

See Notes to Unaudited Consolidated Financial Statements.

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

 Nine Months Ended December 31, 2021  Three Months Ended June 30, 2022 
 Common Stock  
Additional
Paid-In
  Treasury  Retained  
Accumulated
Other
Comprehensive
     Common Stock  
Additional
Paid-In
  Treasury  Retained  
Accumulated
Other
Comprehensive
    
 Shares  Par Value  Capital  Stock  Earnings  Income  Total  Shares  Par Value  Capital  Stock  Earnings  Income  Total 
Balance, March 31, 2021
  27,006  $145  $152,366  $(75,372) $484,616  $655  $562,410 
Balance, March 31, 2022
  26,886  $270  $159,480  $(6,734) $507,846  $(124) $660,738 
Issuance of restricted stock awards  156   1   0   0   0   0   1   135   1   0   0   0   0   1 
Share-based compensation  0   0   1,735   0   0   0   1,735   0   0   1,773   0   0   0   1,773 
Repurchase of common stock  (90)  0   0   (4,111)  0   0   (4,111)  (128)  0   0   (7,224)  0   0   (7,224)
Net earnings  -   0   0   0   23,518   0   23,518   -   0   0   0   22,339   0   22,339 
Foreign currency translation adjustment  -   0   0   0   0   66   66   -   0   0   0   0   (1,339)  (1,339)
                            
Balance, June 30, 2021
  27,072  $146  $154,101  $(79,483) $508,134  $721  $583,619 
Issuance of restricted stock awards  12   0   0   0   0   0   0 
Share-based compensation  0   0   1,840   0   0   0   1,840 
Repurchase of common stock  (63)  0   0   (2,763)  0   0   (2,763)
Net earnings  -   0   0   0   31,413   0   31,413 
Foreign currency translation adjustment  -   0   0   0   0   (506)  (506)
                            
Balance, September 30, 2021
  27,021  $146  $155,941  $(82,246) $539,547  $215  $613,603 
Issuance of restricted stock awards  (5)  0   0   0   0   0   0 
Share-based compensation  0   0   1,780   0   0   0   1,780 
Repurchase of common stock  (50)  0   0   (2,592)  0   0   (2,592)
Stock split effected in the form of a dividend  -   135   0   0   (135)  0   0 
Retirement of treasury stock  -   (11)  0   82,246   (82,235)  0   0 
Net earnings  -   0   0   0   26,424   0   26,424 
Foreign currency translation adjustment  -   0   0   0   0   81   81 
                            
Balance, December 31, 2021  26,966  $270  $157,721  $(2,592) $483,601  $296  $639,296 
Balance, June 30, 2022
  26,893  $271  $161,253  $(13,958) $530,185  $(1,463) $676,288 

 Nine Months Ended December 31, 2020  Three Months Ended June 30, 2021 
 Common Stock  
Additional
Paid-In
  Treasury  Retained  
Accumulated
Other
Comprehensive
     Common Stock  
Additional
Paid-In
  Treasury  Retained  
Accumulated
Other
Comprehensive
    
 Shares  Par Value  Capital  Stock  Earnings  Income  Total 
 Shares  Par Value  Capital  Stock  Earnings  Income  Total 
Balance, March 31, 2020  27,000  $144  $145,197  $(68,424) $410,219  $(991) $486,145 
Balance, March 31, 2021
  27,006  $145  $152,366  $(75,372) $484,616  $655  $562,410 
Issuance of restricted stock awards  182   1   0   0   0   0   1   156   1   0   0   0   0   1 
Share-based compensation  0   0   1,885   0   0   0   1,885   0   0   1,735   0   0   0   1,735 
Repurchase of common stock  (76)  0   0   (2,703)  0   0   (2,703)  (90)  0   0   (4,111)  0   0   (4,111)
Net earnings  -   0   0   0   17,360   0   17,360   -   0   0   0   23,518   0   23,518 
Foreign currency translation adjustment  -   0   0   0   0   37   37   -   0   0   0   0   66   66 
                            
Balance, June 30, 2020
  27,106  $145  $147,082  $(71,127) $427,579  $(954) $502,725 
Issuance of restricted stock awards  16   0   0   0   0   0   0 
Share-based compensation  0   0   1,763   0   0   0   1,763 
Repurchase of common stock  (48)  0   0   (1,784)  0   0   (1,784)
Net earnings  -   0   0   0   19,846   0   19,846 
Foreign currency translation adjustment  -   0   0   0   0   520   520 
                            
Balance, September 30, 2020
  27,074  $145  $148,845  $(72,911) $447,425  $(434) $523,070 
Issuance of restricted stock awards  2   0   0   0   0   0   0 
Share-based compensation  0   0   1,779   0   0   0   1,779 
Repurchase of common stock  (70)  0   0   (2,461)  0   0   (2,461)
Net earnings  -   0   0   0   21,638   0   21,638 
Foreign currency translation adjustment  -   0   0   0   0   983   983 
                            
Balance, December 31, 2020  27,006  $145  $150,624  $(75,372) $469,063  $549  $545,009 
Balance, June 30, 2021
  27,072  $146  $154,101  $(79,483) $508,134  $721  $583,619 

See Notes to Unaudited Consolidated Financial Statements.

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ePlus inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the ninethree months ended December 31,June 30, 2022, and 2021, and 2020, were prepared by us and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the ninethree months ended December 31,June 30, 2022, and 2021, and 2020, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ended March 31, 2022,2023, or any other future period. These unaudited consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 20212022 (“20212022 Annual Report”), which should be read in conjunction with these interim consolidated financial statements.

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

CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 38% and 32%35% of our technology segment’s net sales for the three months ended December 31, 2021,June 30, 2022, and 2020, respectively, and 40% and 37% of our technology segment’s net sales42% for the ninethree months ended December 31, 2021, and 2020, respectively.June 30, 2021.

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, 20212022.

STOCK SPLIT — On December 13, 2021, we completed a 2-for-one stock split in the form of a stock dividend. References made to outstanding shares or per share amounts in the accompanying financial statements and disclosures have been retroactively adjusted for this stock split.

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2.REVENUES

CONTRACT BALANCES

Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $62.757.1 million and $54.647.5 million of receivables from contracts with customers included within financing receivables as of December 31June 30, 2021,2022, and March 31, 2021,2022, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):

 December 31, 2021  March 31, 2021  June 30, 2022  March 31, 2022 
Current (included in deferred revenue) $92,662  $72,299  $100,092  $85,826 
Non-current (included in other liabilities) $28,335  $26,042  $30,574  $30,086 

Revenue recognized from the beginning contract liability balance was $11.7$24.9 million and $47.9$21.5 million for the three and nine months ended December 31,June 30, 2022, and 2021, respectively, and $9.6 million and $36.5 million for the three and nine months ended December 31, 2020, respectively.

PERFORMANCE OBLIGATIONS

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

Remainder of the year ending March 31, 2022
 $17,884 
Year ending March 31, 2023
  34,059 
Remainder of the year ending March 31, 2023
 $43,194 
Year ending March 31, 2024
  15,388   24,954 
Year ending March 31, 2025
  4,626   9,466 
Year ending March 31, 2026 and thereafter
  1,742 
Year ending March 31, 2026
  2,510 
Year ending March 31, 2027 and thereafter
  986 
Total remaining performance obligations $73,699  $81,110 

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.

3.FINANCING RECEIVABLES AND OPERATING LEASES

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

The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and nine months ended December 31,June 30, 2022, and 2021 and 2020 (in thousands):

 Three months ended December 31,  Nine months ended December 31,  Three months ended June 30, 
 2021  2020  2021  2020  2022  2021 
Net sales $3,212  $4,182  $12,991  $22,000  $4,983  $3,817 
Cost of sales  2,645   3,362   10,936   14,091   4,067   3,365 
Gross profit $567  $820  $2,055  $7,909  $916  $452 

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The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three  and nine months ended December 31,June 30, 2022, and 2021 and 2020 (in thousands):

 Three months ended December 31,  Nine months ended December 31,  Three months ended June 30, 
 2021  2020  2021  2020  2022  2021 
Interest income on sales-type leases $786  $1,956  $3,076  $6,059  $861  $1,290 
Lease income on operating leases $7,356  $3,623  $19,200  $11,361  $4,582  $5,210 

FINANCING RECEIVABLES—NET

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

December 31, 2021
 
Notes
Receivable
  
Lease
Receivables
  
Financing
Receivables
 
June 30, 2022
 
Notes
Receivable
  
Lease
Receivables
  
Financing
Receivables
 
Gross receivables $115,446  $46,509  $161,955  $88,178  $51,103  $139,281 
Unguaranteed residual value (1)  0   11,522   11,522   0   9,233   9,233 
Initial direct costs, net of amortization  234   0   234 
Unearned income  0   (5,988)  (5,988)  (3,346)  (4,996)  (8,342)
Allowance for credit losses (2)  (1,160)  (646)  (1,806)  (792)  (913)  (1,705)
Total, net $114,520  $51,397  $165,917  $84,040  $54,427  $138,467 
Reported as:                        
Current $78,426  $19,757  $98,183  $52,547  $22,623  $75,170 
Long-term  36,094   31,640   67,734   31,493   31,804   63,297 
Total, net $114,520  $51,397  $165,917  $84,040  $54,427  $138,467 

(1)Includes unguaranteed residual values of $7,176$5,607 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 6, “Allowance for Credit Losses” for details.

March 31, 2021
 
Notes
Receivable
  
Lease
Receivables
  
Financing
Receivables
 
March 31, 2022
 
Notes
Receivable
  
Lease
Receivables
  
Financing
Receivables
 
Gross receivables $112,641  $68,393  $181,034  $80,517  $38,788  $119,305 
Unguaranteed residual value (1)  0   14,876   14,876   0   9,141   9,141 
Initial direct costs, net of amortization  425   0   425 
Unearned income  0   (8,393)  (8,393)  (2,728)  (3,604)  (6,332)
Allowance for credit losses (2)  (1,212)  (1,171)  (2,383)  (708)  (681)  (1,389)
Total, net $111,854  $73,705  $185,559  $77,081  $43,644  $120,725 
Reported as:                        
Current $73,175  $33,097  $106,272  $45,415  $16,077  $61,492 
Long-term  38,679   40,608   79,287   31,666   27,567   59,233 
Total, net $111,854  $73,705  $185,559  $77,081  $43,644  $120,725 

(1)
Includes unguaranteed residual values of $9,4536,424 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 6, “Allowance for Credit Losses” for details.

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OPERATING LEASES—NET

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

 
December 31,
2021
  
March 31,
2021
  
June 30,
2022
  
March 31,
2022
 
Cost of equipment under operating leases $34,893  $18,748  $14,322  $13,044 
Accumulated depreciation  (12,601)  (7,870)  (8,900)  (7,985)
Investment in operating lease equipment—net (1) $22,292  $10,878  $5,422  $5,059 

(1)Amounts include estimated unguaranteed residual values of $5.0$1.8 million and $2.5$1.7 million as of December 31, 2021,June 30, 2022, and March 31, 2021,2022, respectively.

TRANSFERS OF FINANCIAL ASSETS

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

For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of December 31, 2021,June 30, 2022, and March 31, 2021,2022, we had financing receivables of $33.3$29.0 million and $60.5$21.1 million, respectively, and operating leases of $8.6$1.8 million and $3.3$2.0 million, respectively, which were collateral for non-recourse notes payable. See Note 8, ‘‘7, “Credit Facility and Notes Payable.’’”

For transfers accounted for as sales,a sale, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended December 31,June 30, 2022, and 2021, and 2020, we recognized net gains of $2.3$1.8 million and $3.0$3.2 million, respectively, and total proceeds from these sales were $63.5$52.5 million and $67.5 million, respectively. For the year to date periods ended December 31, 2021, and 2020, we recognized net gains of $15.6 million and $10.1 million, respectively, and total proceeds from these sales were $753.9 million and $259.2$75.3 million, respectively.

When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform the services. As of December 31, 2021,June 30, 2022, and March 31, 2021,2022, we had deferred revenue of $0.5$0.4 million and $0.3$0.5 million, respectively, for servicing obligations.

In a limited number of transfers accounted for as sales, we indemnified the assignee if the lessee elects to early terminate the lease. As of December 31, 2021,June 30, 2022, and March 31, 2021,2022, the total potential payments that could result from these indemnities is immaterial.

4.LESSEE ACCOUNTING

We lease office space for periods up to six 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 as part of selling, general and administrative expenses. We recognized rent expense of $1.4$1.3 million and $1.5 million for both the three months ended December 31, 2021,June 30, 2022, and 2020, respectively. We recognized rent expense of $4.0 million and $4.6 million for the nine months ended December 31, 2021, and 2020, respectively.June 30, 2021.

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5.GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

The following table summarizes the changes in the carrying amount of goodwill for the ninethree months ended December 31, 2021June 30, 2022 (in thousands):

 Nine months ended December 31, 2021  Three months ended June 30, 2022 
 Goodwill  
Accumulated
Impairment
Loss
  
Net
Carrying
Amount
  Goodwill  
Accumulated
Impairment
Loss
  
Net
Carrying
Amount
 
Beginning balance $135,318  $(8,673) $126,645  $135,216  $(8,673) $126,543 
Foreign currency translations  (41)  -   (41)  (165)  -   (165)
Ending balance $135,277  $(8,673) $126,604  $135,051  $(8,673) $126,378 

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. Our entire balance as of December 31, 2021,June 30, 2022, relates to our technology segment, which we also determined to be 1 reporting unit. The change in our goodwill balance during the ninethree months ended December 31, 2021,June 30, 2022, is due solely to foreign currency translation.

We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our annual test as of October 1, 2021, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the fair value of our technology reporting unit continued to substantially exceed its carrying value.value.

OTHER INTANGIBLE ASSETS

OurOur other intangible assets consist of the following on December 31, 2021,June 30, 2022, and March 31, 2021 (in2022(in thousands):

 December 31, 2021  March 31, 2021  June 30, 2022  March 31, 2022
 
 
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Net
Carrying
Amount
 
Customer relationships & other intangibles $77,290  $(49,929) $27,361  $77,335  $(42,115) $35,220  $77,041  $(54,101) $22,940  $77,224  $(52,087) $25,137 
Capitalized software development  10,515   (8,098)  2,417   10,553   (7,159)  3,394   10,517   (8,689)  1,828   10,517   (8,404)  2,113 
Total $87,805  $(58,027) $29,778  $87,888  $(49,274) $38,614  $87,558  $(62,790) $24,768  $87,741  $(60,491) $27,250 

Customer relationships and other intangibles are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years.

Total amortization expense for customer relationships and other intangible assets was $2.8$2.2 million and $2.3$2.7 million for the three months ended December 31,June 30, 2022, and June 30, 2021, and December 31, 2020, respectively and $8.8 million and $7.3 million for the nine months ended December 31, 2021, and December 31, 2020, respectively..

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6.ALLOWANCE FOR CREDIT LOSSES

The following table provides the activity in our allowance for credit losses for the ninethree months ended December 31,June 30, 2022, and 2021 and 2020 (in thousands):

 
Accounts
Receivable
  
Notes
Receivable
  
Lease
Receivables
  Total  
Accounts
Receivable
  
Notes
Receivable
  
Lease
Receivables
  Total 
Balance April 1, 2021
 $2,064  $1,212  $1,171  $4,447 
Balance April 1, 2022
 $2,411  $708  $681  $3,800 
Provision for credit losses  330   60   (313)  77   382   84   232  698 
Write-offs and other  (129)  (112)  (212)  (453)  (65)  0  0  (65)
Balance December 31, 2021
 $2,265  $1,160  $646  $4,071 
Balance June 30, 2022
 $2,728  $792  $913  $4,433 

 
Accounts
Receivable
  
Notes
Receivable
  
Lease
Receivables
  Total  
Accounts
Receivable
  
Notes
Receivable
  
Lease
Receivables
  Total 
Balance April 1, 2020
 $1,781  $798  $610  $3,189 
Balance April 1, 2021
 $2,064  $1,212  $1,171  $4,447 
Provision for credit losses  866   570   484   1,920   (40)  77   (298)  (261)
Write-offs and other  (46)  (88)  (6)  (140)  (22)  0   0   (22)
Balance December 31, 2020
 $2,601  $1,280  $1,088  $4,969 
Balance June 30, 2021
 $2,002  $1,289  $873  $4,164 

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

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

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

•
Low CQR: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. The loss rates in this category in the normal course are generally in the range of 10% to 100%.
 
The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of December 31, 2021June 30, 2022 (in thousands):

 Amortized cost basis by origination year ending March 31,           Amortized cost basis by origination year ending March 31,          
 2022  2021  2020  2019  2018  2017  Total  
Transfers
(2)
  
Net credit
exposure
  2023  2022  2021  2020  2019  2018  Total  
Non-recourse
debt (2)
  
Net credit
exposure
 
Notes receivable:                                                      
High CQR $57,295  $32,657  $1,952  $285  $110  $6  $92,305  $(46,939) $45,366  $22,785  $18,879  $24,314  $969  $158  $3  $67,108  $(24,331) $42,777 
Average CQR  17,762   3,724   1,337   316   2   0   23,141   (10,759)  12,382   7,471   6,784   2,671   746   52   0   17,724   (8,280)  9,444 
Low CQR  0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0   0 
Total $75,057  $36,381  $3,289  $601  $112  $6  $115,446  $(57,698) $57,748  $30,256  $25,663  $26,985  $1,715  $210  $3  $84,832  $(32,611) $52,221 
                                                                        
Lease receivables:                                                                        
High CQR $16,273  $5,671  $3,047  $1,241  $103  $14  $26,349  $(3,194) $23,155  $14,828  $9,539  $4,209  $1,809  $731  $44  $31,160  $(3,531) $27,629 
Average CQR  10,250   5,579   1,330   124   110   10   17,403   (2,234)  15,169   6,654   9,029   2,334   473   39   44   18,573   (188)  18,385 
Low CQR  267   848   0   0   0   0   1,115   0   1,115   0   0   0   0   0   0   0   0   0 
Total $26,790  $12,098  $4,377  $1,365  $213  $24  $44,867  $(5,428) $39,439  $21,482  $18,568  $6,543  $2,282  $770  $88  $49,733  $(3,719) $46,014 
                                                                        
Total amortized cost (1) $101,847  $48,479  $7,666  $1,966  $325  $30  $160,313  $(63,126) $97,187  $51,738  $44,231  $33,528  $3,997  $980  $91  $134,565  $(36,330) $98,235 

(1)
Unguaranteed residual values of $7,1765,607 thousand that we retained after selling the related lease receivable and initial direct costs of notes receivable of $234 thousand areis excluded from amortized cost.
(2)
Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis.

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The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2022 (in thousands):

  Amortized cost basis by origination year ending March 31,          
 2022  2021  2020  2019  2018  2017
  Total
  
Transfers
(2)
  
Net credit
exposure
 
                            
Notes receivable:                           
High CQR $35,264  $28,005  $1,297  $345  $2  $4  $64,917  $(30,274) $
34,643 
Average CQR  8,922   2,976   758   213   3   0   12,872   (4,763)  8,109 
Low CQR  0   0   0   0   0   0   0   0   0 
Total $44,186  $30,981  $2,055  $558  $5  $4  $77,789  $(35,037) $
42,752 
                                     
Lease receivables:                                    
High CQR $14,549  $5,002  $2,499  $902  $50  $11  $23,013  $(3,385) $
19,628 
Average CQR  10,936   3,092   741   47   72   0   14,888   (347)  14,541 
Low CQR  0   0   0   0   0   0   0   0   0 
Total $25,485  $8,094  $3,240  $949  $122  $11  $37,901  $(3,732) $
34,169 
                                     
Total amortized cost (1) $69,671  $39,075  $5,295  $1,507  $127  $15  $115,690  $(38,769) $
76,921 

(1)
Unguaranteed residual values of $6,424 thousand that we retained after selling the related lease receivable is excluded from amortized cost.
(2)
Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis and receivables that are in the process of being transferred to third-party financial institutions.

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The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2021 (in thousands):

  Amortized cost basis by origination year ending March 31,          
 2021  2020  2019  2018  2017  Total  
Transfers
(2)
  
Net credit
exposure
 
                         
Notes receivable:                        
High CQR $93,793  $6,250  $769  $771  $19  $101,602  $(63,471) $38,131 
Average CQR  7,689   2,468   550   8   0   10,715   (2,896)  7,819 
Low CQR  0   0   324   0   0   324   0   324 
Total $101,482  $8,718  $1,643  $779  $19  $112,641  $(66,367) $46,274 
                                 
Lease receivables:                                
High CQR $28,898  $5,885  $1,798  $463  $125  $37,169  $(7,468) $29,701 
Average CQR  23,445   3,482   1,017   270   40   28,254   (4,592)  23,662 
Low CQR  0   0   0   0   0   0   0   0 
Total $52,343  $9,367  $2,815  $733  $165  $65,423  $(12,060) $53,363 
                                 
Total amortized cost (1) $153,825  $18,085  $4,458  $1,512  $184  $178,064  $(78,427) $99,637 

(1)
Unguaranteed residual values of $9,453 thousand that we retained after selling the related lease receivable and initial direct costs of notes receivable of $425 thousand are excluded from amortized cost.
(2)Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis and receivables that are in the process of being transferred to third-party financial institutions.

The following table provides an aging analysis of our financing receivables as of December 31June 30, 20212022 (in thousands):

 
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  
Amortized
Cost
  
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  
Amortized
Cost
 
Notes receivable $945  $87  $866  $1,898  $6,112  $8,010  $107,436  $115,446  $268  $425  $97  $790  $5,623  $6,413  $78,419  $84,832 
Lease receivables  256   208   482   946   2,578   3,524   41,343   44,867   240   154   551   945   905   1,850   47,883   49,733 
Total $1,201  $295  $1,348  $2,844  $8,690  $11,534  $148,779  $160,313  $508  $579  $648  $1,735  $6,528  $8,263  $126,302  $134,565 

The following table provides an aging analysis of our financing receivables as of March 31, 20212022 (in thousands):

 
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  
Amortized
Cost
  
31-60
Days Past
Due
  
61-90
Days Past
Due
  
> 90
Days Past
Due
  
Total
Past Due
  Current  
Total
Billed
  Unbilled  
Amortized
Cost
 
Notes receivable $648  $910  $673  $2,231  $3,240  $5,471  $107,170  $112,641  $187  $37  $23  $247  $5,307  $5,554  $72,235  $77,789 
Lease receivables  804   132   643   1,579   2,566   4,145   61,278   65,423   115   325   430   870   639   1,509   36,392   37,901 
Total $1,452  $1,042  $1,316  $3,810  $5,806  $9,616  $168,448  $178,064  $302  $362  $453  $1,117  $5,946  $7,063  $108,627  $115,690 

Our financial assets on nonaccrual status were not significant as of December 31, 2021,June 30, 2022, and March 31, 2021.2022.

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7.PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES

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

 
December 31,
2021
  
March 31,
2021
 
Other current assets:      
Deposits & funds held in escrow $459  $759 
Prepaid assets  12,063   9,939 
Other  410   278 
Total $12,932  $10,976 
         
Property, equipment and other assets
        
Property and equipment, net $7,644  $7,388 
Deferred costs - non-current  19,734   19,063 
Right-of-use assets  7,935   8,763 
Other  10,902   7,075 
Total $46,215  $42,289 
         
Other current liabilities:
        
Accrued expenses $13,663  $13,598 
Accrued income taxes payable  905   4,439 
Short-term lease liability  4,114   3,934 
Other  7,542   8,090 
Total $26,224  $30,061 
         
Other liabilities:
        
Deferred revenue - non-current $28,691  $26,309 
Long-term lease liability  3,833   5,040 
Other  1,884   5,330 
Total $34,408  $36,679 

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.

8.CREDIT FACILITY AND NOTES PAYABLE

CREDIT FACILITY

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

Under the floor plan facility, we had an outstanding balance of $157.7$138.0 million and $98.7$145.3 million as of December 31, 2021,June 30, 2022, and March 31, 2021,2022, respectively. On our balance sheet, our liability under the floor plan facility is presented as accounts payable – floor plan.

Under the revolving credit facility, we had $44.0$40.0 million outstanding as of December 31, 2021,June 30, 2022, and 0 balance outstanding as of March 31, 2021.2022. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current.

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The fair value of the outstanding balances under the WFCDF credit facility were approximately equal to their carrying value as of December 31, 2021,June 30, 2022, and March 31, 2021.2022.

On October 13, 2021, the Borrowers amended, restated, and replaced in entirety their then-existing credit agreements with WFCDF. The new credit facility is established by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the aggregate principal amount of up to $375 million, an increase from $275 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).

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

Our borrowings under the 2021 Credit Facility are secured by the assets of the Borrowers. Additionally, the 2021 Credit Facility requires a guaranty of $10.5 million by ePlus inc.

Under the 2021 Credit Facility, and under the predecessor WFCDF credit facility, the Borrowers are restricted in their ability to pay dividends to ePlus inc. unless their available borrowing meets or met certain thresholds. As of December 31, 2021,June 30, 2022, and March 31, 2021,2022, their available borrowing met the thresholds such that there were no restrictions on their ability to pay dividends.

The 2021 Credit Facility has an initial one-year term, which automatically renews for successive one-year terms thereafter. However, either the Borrowers or WFCDF may terminate by providing a written termination notice to the other party no less than 90 days prior to such termination.

RECOURSE NOTES PAYABLE

Recourse notes payable consist of borrowings that, in the event of default, the lender has recourse against us. As of December 31, 2021,June 30, 2022, we had $58.8$51.4 million in recourse borrowings consisting of $44.0$40.0 million outstanding under our revolving WFCDF credit facility, and $14.8$11.4 million arising from one installment payment arrangement within our technology segment. Our payments under this installment agreement are due quarterly in amounts that are correlated to the payments due to us from a customer under a related notes receivable. We discounted our payments due under this installment agreement to calculate our payable balance using an interest rate of 3.50% as of both December 31, 2021,June 30, 2022, and March 31, 2021.2022.

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NON-RECOURSE NOTES PAYABLE

Non-recourse notes payable consists of borrowings that, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us. As of December 31, 2021,June 30, 2022, and March 31, 2021,2022, we had $43.6$26.4 million and $56.1$21.2 million, respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due 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 3.68%3.78% and 3.35%3.59%, as of December 31, 2021,June 30, 2022, and March 31, 2021,2022, respectively.

9.8.COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

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

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10.9.EARNINGS PER SHARE

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

The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations for the three and nine months ended December 31,June 30, 2022, and 2021, and 2020, respectively (in(in thousands, except per share data). The numbers of shares and per share amounts for the prior periods presented in the table have been retroactively restated to reflect the stock split. See  Note 1 “Organization and Summary of Significant Accounting Policies” and  Note 11 “Stockholders’ Equity” in the consolidated financial statements included elsewhere in this report for additional information on the stock split.

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  Three Months Ended June 30, 
 2021  2020  2021  2020  2022  2021 
                  
Net earnings attributable to common shareholders - basic and diluted $26,424  $21,638  $81,355  $58,844  $22,339  $23,518 
                        
Basic and diluted common shares outstanding:
                
Basic and diluted common shares outstanding:        
Weighted average common shares outstanding — basic  26,668   26,664   26,666   26,684   26,513   26,666 
Effect of dilutive shares  262   92   221   120   172   216 
Weighted average shares common outstanding — diluted  26,930   26,756   26,887   26,804   26,685   26,882 
                        
Earnings per common share - basic $0.99  $0.81  $3.05  $2.21  $0.84  $0.88 
                        
Earnings per common share - diluted $0.98  $0.81  $3.03  $2.20  $0.84  $0.87 

11.10.STOCKHOLDERS’ EQUITY

STOCK SPLIT AND TREASURY STOCK
On November 9, 2021, our Board of Directors (“Board”) approved a 2-for-one stock split of our common stock in the form of a stock dividend paid on December 13, 2021, to shareholders of record as of close of business on November 29, 2021. All share and per share information have been retroactively adjusted to reflect the stock split and the incremental par value of the newly issued shares was recorded with the offset to additional paid-in capital.
On November 10, 2021, we retired 2,139,918 shares of treasury stock, adjusted for the stock split, with a carrying value of $82.2 million, which was deducted from common stock, for the par value of the retired shares, and from retained earnings, for the excess of cost over the par value.
SHARE REPURCHASE PLAN

On March 24, 2022, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2022. On March 18, 2021, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, adjusted for the stock split, over a 12-month period beginning May 28, 2021. On May 20, 2020, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, retroactively restated for the split, over a 12-month period beginning May 28, 2020. Under both authorized programs, purchases may be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.

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During the ninethree months ended December 31, 2021,June 30, 2022, we purchased 147,99970,473 shares of our outstanding common stock at a value of $6.9$3.9 million under the share repurchase plan; we also purchased 58,080 shares of common stock at a value of $3.3 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the three months ended June 30, 2021, we purchased 35,258 shares of our outstanding common stock at a value of $1.6 million under the share repurchase plan; we also purchased 55,430 shares of common stock at a value of $2.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the nine months ended December 31, 2020, we purchased 118,202 shares of our outstanding common stock at a value of $4.2 million under the share repurchase plan; we also purchased 75,280 shares of common stock at a value of $2.7 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

12.11.SHARE-BASED COMPENSATION

SHARE-BASED PLANS

ePlus’ 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”) was approved by our shareholders on September 16, 2021. The 2021 Employee LTIP is effective October 1, 2021 and replaces the ePlus inc. 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”), as approved by our stockholders on September 13, 2012. Beginning September 15, 2021, we permanently ceased issuing any additional shares under the 2012 Employee LTIP.

As of December 31, 2021,June 30, 2022, we had share-based awards outstanding under the followingplans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), and (2) the 2012 Employee LTIP.Long-Term Incentive Plan (“2012 Employee LTIP”), and (3) the 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”).

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

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

RESTRICTED STOCK ACTIVITY

For the ninethree months ended December 31, 2021, adjusted for the stock split,June 30, 2022, we granted 13,562774 shares under the 2017 Director LTIP, and 138,643 restricted shares under the 2021 Employee LTIP. For the three months ended June 30, 2021, we granted 828 shares under the 2017 Director LTIP, and 155,722 restricted shares under the 2012 Employee LTIP. For the nine months ended December 31, 2020, retroactively restated for the stock split, we granted 19,742 shares under the 2017 Director LTIP, and 179,746 restricted shares under the 2012 Employee LTIP. A summary of our restricted stock activity reflecting the stock split,, is as follows:

 
Number of
Shares
  
Weighted Average
Grant-date Fair Value
  
Number of
Shares
  
Weighted Average
Grant-date Fair Value
 
            
Nonvested April 1, 2021
  366,756  $37.49 
Nonvested April 1, 2022
  343,806  $41.01 
Granted  169,284  $46.52   139,417  $58.51 
Vested  (184,962) $39.12   (163,034) $39.25 
Forfeited  (6,106) $40.57   (4,382) $40.77 
Nonvested December 31, 2021
  344,972  

 
Nonvested June 30, 2022
  315,807  $
49.65 

Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we purchased enough shares due to participants to satisfy the minimum tax withholding requirements on employee stock awards. For the nine months ended December 31, 2021, adjusted for the stock split, we withheld 55,430 shares of common stock at a value of $2.6 million, which was included in treasury stock and retired on November 10, 2021.

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COMPENSATION EXPENSE

We recognize compensation cost for awards of restricted stock with graded vesting on a straight-line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. Share-based compensation expense for both During the three and nine months ended December 31,June 30, 2022, and 2021, and 2020, werewe recognized $1.8 million and $5.4$1.7 million of total share-based compensation expense, respectively. Unrecognized compensation expense related to unvested restricted stock was $10.4$14.9 million as of December 31, 2021,June 30, 2022, which will be fully recognized over the next 3036 months.

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We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are always fully vested. Our estimated contribution expense forto the plan for the three months ended December 31,June 30, 2022, and 2021, and 2020, was $0.81.1 million and $0.9 million, respectively. For the nine months ended December 31, 2021, and 2020, our estimated contribution expense for the plan was $2.60.8 million, and $2.2 million, respectively.

13.12.INCOME TAXES

Our provision for income tax expense was $9.5 million and $31.1$8.7 million for the three and nine months ended December 31, 2021,June 30, 2022, as compared to $8.4 million and $25.0$9.1 million for the same periodsperiod in the prior year. Our effective income tax rate for the three and nine months ended December 31, 2021,June 30, 2022, was 26.4% and 27.7%28.0%, comparedcomparable to 28.1% and 29.8%27.8% for the three and nine months ended December 31, 2020. The change in our effective income tax rate for the nine months ended December 31, 2021 compared to the same period in the prior year wasyear. The effective tax rate for the three months ended June 30, 2022, and June 30, 2021, differed from the US federal statutory rate of 21.0% primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes.and local income taxes and non-deductible executive compensation.

14.13.FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table summarizes the fair value hierarchy of our financial instruments as of December 31, 2021,June 30, 2022, and March 31, 20212022 (in thousands):

    Fair Value Measurement Using 
  
Recorded
Amount
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
December 31, 2021
            
Assets:            
Money market funds $5,136  $5,136  $0  $0 
                 
March 31, 2021
                
Assets:                
Money market funds $45,134  $45,134  $0  $0 
    Fair Value Measurement Using 
  
Recorded
Amount
  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
June 30, 2022
            
Assets:            
Money market funds $23,193  $23,193  $0  $0 
                 
March 31, 2022
                
Assets:                
Money market funds $18,138  $18,138  $0  $0 

15.14.
BUSINESS COMBINATIONS

SYSTEMS MANAGEMENT PLANNING, INC. (“SMP”)

FUTURE COM


On December 31, 2020,July 15, 2022, our subsidiary, ePlusePlus Technology, inc., acquired certain assets and liabilities of SMP, an establishedFuture Com, Ltd., a Texas-based provider of technologycyber security solutions, cloud security and security consulting services throughout the US. Our acquisition provides access to enhanced engineering, sales, and services in upstate New York and the Northeast. The acquisition enhances ePlus’ footprint across the region, broadens our technology solution offerings especiallydelivery capabilities in the areas of collaborationSouth-Central US region, as well as bolstering the skills and supporting virtual employees, and adds to ePlus’ set of commercial, enterprise and state, local, and education customers.

22
expertise surrounding ePlus’ growing cyber security practice. Our sum ofpreliminary total consideration transferred was $27.0$13.0 million, consisting of $29.0 millionwhich was paid in cash at closing less $2.0 million that was paid back to us inclosing. As of our quarter ended March 31, 2021, related to a working capital adjustment. Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

 
Acquisition
Date Amount
 
Accounts receivable $14,526 
Other assets  3,344 
Identified intangible assets  14,280 
Accounts payable and other current liabilities  (11,424)
Performance obligations  (2,020)
Total identifiable net assets  18,706 
Goodwill  8,328 
Total purchase consideration $27,034 

The identified intangible assets of $14.3 million consists of customer relationships with an estimated useful life of seven years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.

We recognized goodwill related to this transaction of $8.3 million, which was assigned tofiling date, 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 entityinitial accounting for the current reporting period as though the acquisition date had been April 1, 2020,business combination is not material.incomplete.

16.15.SEGMENT REPORTING

Our operations are conducted through 2 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.

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Our reportable segment information for the three-and nine-monththree month periods ended December 31,June 30, 2022, and 2021 and 2020 are summarized in the following table (in thousands):

 Three Months Ended  Three Months Ended 
 December 31, 2021  December 31, 2020  June 30, 2022  June 30, 2021 
 Technology  Financing  Total  Technology  Financing  Total  Technology  Financing  Total  Technology  Financing  Total 
                                    
Net Sales                                    
Product $414,448  $17,859  $432,307  $363,478  $12,034  $375,512  $385,676  $9,574  $395,250  $344,766  $16,291  $361,057 
Service  62,527   0   62,527   52,092   0   52,092   63,109   0   63,109   55,592   0   55,592 
Total
  476,975   17,859   494,834   415,570   12,034   427,604   448,785   9,574   458,359   400,358   16,291   416,649 
                                                
Cost of Sales                                                
Product  334,585   5,225   339,810   295,310   2,204   297,514   302,508   1,702   304,210   271,015   6,212   277,227 
Service  37,907   0   37,907   31,939   0   31,939   40,626   0   40,626   33,910   0   33,910 
Total
  372,492   5,225   377,717   327,249   2,204   329,453   343,134   1,702   344,836   304,925   6,212   311,137 
                                                
Gross Profit  104,483   12,634   117,117   88,321   9,830   98,151   105,651   7,872   113,523   95,433   10,079   105,512 
                                                
Selling, general, and administrative  73,413   3,461   76,874   62,377   3,013   65,390   73,112   3,655   76,767   66,153   2,622   68,775 
Depreciation and amortization  3,569   28   3,597   3,115   28   3,143   3,182   28   3,210   3,898   28   3,926 
Interest and financing costs  335   226   561   0   355   355   138   225   363   159   200   359 
Operating expenses  77,317   3,715   81,032   65,492   3,396   68,888   76,432   3,908   80,340   70,210   2,850   73,060 
                                                
Operating income  27,166   8,919   36,085   22,829   6,434   29,263   29,219   3,964   33,183   25,223   7,229   32,452 
                                                
Other income (expense)          (175)          813           (2,153)          123 
                                                
Earnings before tax         $35,910          $30,076          $31,030          $32,575 
                                                
Net Sales                                                
Contracts with customers $473,763  $5,840  $479,603  $411,175  $1,904  $413,079  $443,802  $945  $444,747  $396,541  $5,418  $401,959 
Financing and other  3,212   12,019   15,231   4,395   10,130   14,525   4,983   8,629   13,612   3,817   10,873   14,690 
Total
 $476,975  $17,859  $494,834  $415,570  $12,034  $427,604  $448,785  $9,574  $458,359  $400,358  $16,291  $416,649 
                                                
Selected Financial Data - Statement of Cash Flow                                                
                                                
Depreciation and amortization $3,846  $2,730  $6,576  $3,311  $991  $4,302  $3,515  $957  $4,472  $4,103  $1,979  $6,082 
Purchases of property, equipment and operating lease equipment $1,339  $3,793  $5,132  $959  $1  $960  $1,286  $491  $1,777  $1,307  $5,687  $6,994 
                                                
Selected Financial Data - Balance Sheet                                                
                                                
Total assets $998,594  $256,552  $1,255,146  $887,684  $238,270  $1,125,954  $1,007,898  $248,252  $1,256,150  $868,276  $209,140  $1,077,416 

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Table of Contents
 Nine Months Ended 
  December 31, 2021  December 31, 2020 
  Technology  Financing  Total  Technology  Financing  Total 
                   
Net Sales                  
Product $1,134,658  $55,866  $1,190,524  $1,026,845  $39,563  $1,066,408 
Service  178,976   0   178,976   149,308   0   149,308 
Total
  1,313,634   55,866   1,369,500   1,176,153   39,563   1,215,716 
                         
Cost of Sales                        
Product  899,437   15,229   914,666   820,859   6,252   827,111 
Service  109,203   0   109,203   92,935   0   92,935 
Total
  1,008,640   15,229   1,023,869   913,794   6,252   920,046 
                         
Gross Profit  304,994   40,637   345,631   262,359   33,311   295,670 
                         
Selling, general, and administrative  210,369   9,784   220,153   190,519   11,227   201,746 
Depreciation and amortization  11,292   84   11,376   9,916   84   10,000 
Interest and financing costs  693   569   1,262   266   913   1,179 
Operating expenses  222,354   10,437   232,791   200,701   12,224   212,925 
                         
Operating income  82,640   30,200   112,840   61,658   21,087   82,745 
                         
Other income (expense)          (377)          1,095 
                         
Earnings before tax         $112,463          $83,840 
                         
Net Sales                        
Contracts with customers $1,300,643  $13,034  $1,313,677  $1,157,519  $3,892  $1,161,411 
Financing and other  12,991   42,832   55,823   18,634   35,671   54,305 
Total
 $1,313,634  $55,866  $1,369,500  $1,176,153  $39,563  $1,215,716 
                         
Selected Financial Data - Statement of Cash Flow                        
                         
Depreciation and amortization $12,023  $6,597  $18,620  $10,444  $3,318  $13,762 
Purchases of property, equipment and operating lease equipment $3,594  $17,781  $21,375  $4,060  $167  $4,227 
                         
Selected Financial Data - Balance Sheet                        
                         
Total assets $998,594  $256,552  $1,255,146  $887,684  $238,270  $1,125,954 

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Table of Contents
TECHNOLOGY SEGMENT DISAGGREGATION OF REVENUE

We analyze net sales for our technology segment by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized for the three and nine month periods ended December 31, 2021, and 2020 in the tables below (in thousands):

 Three Months Ended December 31,  Nine Months Ended December 31,  Three Months Ended June 30, 
 2021  2020  2021  2020  2022  2021 
Customer end market:                  
Telecom, Media & Entertainment $152,584  $123,441  $380,560  $277,020  $128,277  $112,192 
Technology  67,959   57,346   190,851   203,634   69,862   69,140 
Healthcare  68,512   54,688 
State and local government and educational institutions  59,449   50,703   193,526   197,758   64,602   65,415 
Healthcare  64,775   44,706   207,700   150,494 
Financial Services  39,182   60,610   106,229   154,763   33,299   30,011 
All others  93,026   78,764   234,768   192,484   84,233   68,912 
Net sales  476,975   415,570   1,313,634   1,176,153   448,785   400,358 
                        
Less: Revenue from financing and other  (3,212)  (4,395)  (12,991)  (18,634)  (4,983)  (3,817)
                        
Revenue from contracts with customers $473,763  $411,175  $1,300,643  $1,157,519  $443,802  $396,541 

 Three Months Ended December 31,  Nine Months Ended December 31,  Three Months Ended June 30, 
 2021  2020  2021  2020  2022  2021 
Vendor            
Vendor:      
Cisco Systems $183,195  $132,290  $524,169  $433,388  $156,878  $166,902 
Dell / EMC  40,254   34,027   110,092   80,457 
Dell EMC  61,873   26,340 
Juniper Networks  28,792   29,781   71,944   68,076   22,509   24,714 
HP Inc. & HPE  12,568   14,100   43,808   47,533 
NetApp
  13,985   10,457 
Arista Networks  13,484   22,157   33,029   42,420   11,172   11,498 
NetApp  30,261   13,861   70,254   39,196 
All others  168,421   169,354   460,338   465,083   182,368   160,447 
Net sales  476,975   415,570   1,313,634   1,176,153   448,785   400,358 
                        
Less: Revenue from financing and other  (3,212)  (4,395)  (12,991)  (18,634)  (4,983)  (3,817)
                        
Revenue from contracts with customers $473,763  $411,175  $1,300,643  $1,157,519  $443,802  $396,541 

FINANCING SEGMENT DISAGGREGATION OF REVENUE

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

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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT 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 20212022 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 20212022 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.

On December 13, 2021, we completed a two-for-one stock split in the form of a stock dividend. References made to outstanding shares or per share amounts have been retroactively adjusted for this stock split.

EXECUTIVE OVERVIEW

BUSINESS DESCRIPTION

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

Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-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 Collaboration 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, Fortinet, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Pure Storage, Rubrik, Splunk, Varonis, 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 on the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled 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 and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a customized customer experience that spans the continuum from fast delivery of competitively priced products and services to subsequent management and upkeep,maintenance, and through to end-of-life disposal services. This approach permits ePlus to deploy sophisticated solutions enabling our customers’ business outcomes.

Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local government and educational institutions (“SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which accounts for most of our sales, and to customers in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, and Singapore. Our technology segment accountsaccounted for 96%98% of our net sales and 73%88% of our operating income, while our financing segment accountsaccounted for 4%2% of our net sales and 27%12% of our operating income, for the ninethree months ended December 31, 2021.June 30, 2022.

2724
BUSINESS TRENDS

COVID-19 pandemic update: The novel coronavirus (“COVID-19”) pandemic continues to have widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and local governments and public health authorities have required and may inWe believe the future require measures to contain the virus, including rules related to vaccine status, social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, safety-related modifications to workplaces, supply chain logistical changes, and closure of non-essential businesses.

As COVID-19 impacts continue across the country and globe, we have been adjustingfollowing key factors are impacting our business activities for the safety of our employeesperformance and to best serve our customers in this rapidly evolving environment. Most of our offices are open, with required health and safety protocols in place. However, we have implemented a flexible work from home strategy applicable to all offices and operational continuity plans to provide sufficient resources to continue supporting our customers, and we will continue to evaluate returning to the office on an ongoing basis. Our configuration centers have remained open with our employees working in them following required health and safety protocols. In addition, we also have a procedure to review our employees’ business-related travel in accordance with health regulations and guidance. Our managed service teams are distributed across the US with the ability to leverage technology to provide coverage while working from home. While we and many of our customers and vendor partners have restricted in-person meetings, we are leveraging video and other collaborative tools to continue to be responsive.

Our account relationship teams are actively engaging with our customers to ensure they have the support needed in adjusting to changes in the business environment and government directives. Also, we are working closely with our vendor partners to address varying impacts on their supply chains, which have been impacted by materials shortages.

We continue to execute against and adjust our business continuity plans to maximize our ability to support our employees and customers in concert with our vendor partners. We have an internal resource page to support specific customer inquiries from security to collaboration to financing options. We remain committed to driving positiveachieve business outcomes.results:

The extentGeneral economic concerns including inflation, rising interest rates, staffing shortages, COVID variants, and global unrest may impact our customers’ willingness to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic including the impact of variants; governmental, business, and individuals’ actions in response to the pandemic; the efficacy of vaccines and boosters; the willingness of people to be inoculated; potential vaccine-related regulations; court rulings; and the impact on economic activity including the possibility of recession, inflation, or financial market instability. These factors may adversely impact business and government spendingspend on technology as well as our customers’ ability to pay for our products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions. Refer to Part I, Item 1A, “Risk Factors,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.services.

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

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

Customers’ top focus areas include security, cloud solutions, hybrid work environments (work from home and return to office) as well as digital transformation and modernization. We have developed advisory services, solutions, and professional and managed services to meet these priorities and help our customers attain their desired state.
28
Modernizing legacy applications, data modernization, reducing operational complexity, securing workloads, the cost and performance of IT operations, and agility are changing the way companies are purchasing and consuming technology. These are fueling deployments of solutions on cloud, managed services and hybrid platforms and licensing models.
KEY BUSINESS METRICS

Our management monitors several financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, 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 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 for the three- and nine-monththree month periods ended December 31,June 30, 2022, and 2021 and 2020 are summarized in the following tables (dollars in thousands):

  
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
Consolidated 2021  2020  2021  2020 
Net sales $494,834  $427,604  $1,369,500  $1,215,716 
                 
Gross profit $117,117  $98,151  $345,631  $295,670 
Gross margin  23.7%  23.0%  25.2%  24.3%
Operating income margin  7.3%  6.8%  8.2%  6.8%
                 
Net earnings $26,424  $21,638  $81,355  $58,844 
Net earnings margin  5.3%  5.1%  5.9%  4.8%
Net earnings per common share - diluted $0.98  $0.81  $3.03  $2.20 
                 
Non-GAAP: Net earnings (1) $29,711  $23,929  $90,870  $66,606 
Non-GAAP: Net earnings per common share - diluted (1) $1.10  $0.89  $3.38  $2.48 
                 
Adjusted EBITDA (2) $41,797  $34,395  $130,264  $98,670 
Adjusted EBITDA margin  8.4%  8.0%  9.5%  8.1%
                 
Purchases of property and equipment used internally $1,339  $959  $3,594  $4,060 
Purchases of equipment under operating leases  3,793   1   17,781   167 
Total capital expenditures $5,132  $960  $21,375  $4,227 
                 
Technology Segment                
Net sales $476,975  $415,570  $1,313,634  $1,176,153 
Adjusted gross billings (3) $685,031  $587,825  $1,982,162  $1,735,283 
                 
Gross profit $104,483  $88,321  $304,994  $262,359 
Gross margin  21.9%  21.3%  23.2%  22.3%
                 
Operating income $27,166  $22,829  $82,640  $61,658 
Adjusted EBITDA (2) $32,794  $27,876  $99,811  $77,312 
                 
Financing Segment                
Net sales $17,859  $12,034  $55,866  $39,563 
                 
Gross profit $12,634  $9,830  $40,637  $33,311 
                 
Operating income $8,919  $6,434  $30,200  $21,087 
Adjusted EBITDA (2) $9,003  $6,519  $30,453  $21,358 

2925
  Three Months Ended June 30, 
Consolidated 2022  2021 
Net sales 
$
458,359
  
$
416,649
 
         
Gross profit 
$
113,523
  
$
105,512
 
Gross margin  
24.8
%
  
25.3
%
Operating income margin  
7.2
%
  
7.8
%
         
Net earnings 
$
22,339
  
$
23,518
 
Net earnings margin  
4.9
%
  
5.6
%
Net earnings per common share - diluted 
$
0.84
  
$
0.87
 
         
Non-GAAP: Net earnings (1) 
$
26,513
  
$
26,353
 
Non-GAAP: Net earnings per common share - diluted (1) 
$
0.99
  
$
0.98
 
         
Adjusted EBITDA (2) 
$
38,304
  
$
38,272
 
Adjusted EBITDA margin  
8.4
%
  
9.2
%
         
Technology Segment        
Net sales 
$
448,785
  
$
400,358
 
Adjusted gross billings (3) 
$
701,943
  
$
633,007
 
         
Gross profit 
$
105,651
  
$
95,433
 
Gross margin  
23.5
%
  
23.8
%
         
Operating income 
$
29,219
  
$
25,223
 
Adjusted EBITDA (2) 
$
34,254
  
$
30,958
 
         
Financing Segment        
Net sales 
$
9,574
  
$
16,291
 
         
Gross profit 
$
7,872
  
$
10,079
 
         
Operating income 
$
3,964
  
$
7,229
 
Adjusted EBITDA (2) 
$
4,050
  
$
7,314
 

(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.

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 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 in understanding and evaluating our operating results. However, our use of Non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under 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
December 31,
  
Nine Months Ended
December 31,
 
  2021  2020  2021  2020 
GAAP: Earnings before tax $35,910  $30,076  $112,463  $83,840 
Share based compensation  1,780   1,756   5,355   5,427 
Acquisition and integration expense  -   233   -   232 
Acquisition related amortization expense  2,497   1,986   7,854   6,386 
Other (income) expense  175   (813)  377   (1,095)
Non-GAAP: Earnings before provision for income taxes  40,362   33,238   126,049   94,790 
                 
GAAP: Provision for income taxes  9,486   8,438   31,108   24,996 
Share based compensation  470   493   1,494   1,621 
Acquisition and integration expense  -   65   -   65 
Acquisition related amortization expense  649   541   2,156   1,856 
Other (income) expense  46   (228)  104   (314)
Tax benefit (expense) on restricted stock  -   -   317   (40)
Non-GAAP: Provision for income taxes  10,651   9,309   35,179   28,184 
                 
Non-GAAP: Net earnings $29,711  $23,929  $90,870  $66,606 
                 
GAAP: Net earnings per common share - diluted $0.98  $0.81  $3.03  $2.20 
                 
Non-GAAP: Net earnings per common share - diluted $1.10  $0.89  $3.38  $2.48 

  
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
  2021  2020  2021  2020 
GAAP: Net earnings per common share - diluted $0.98  $0.81  $3.03  $2.20 
                 
Share based compensation  0.05   0.05   0.14   0.14 
Acquisition related amortization expense  0.07   0.05   0.21   0.16 
Other (income) expense  -   (0.02)  0.01   (0.02)
Tax benefit (expense) on restricted stock  -   -   (0.01)  - 
Total non-GAAP adjustments - net of tax  0.12   0.08   0.35   0.28 
                 
Non-GAAP: Net earnings per common share - diluted $1.10  $0.89  $3.38  $2.48 

3026
  Three Months Ended June 30, 
  2022  2021 
GAAP: Earnings before tax 
$
31,030
  
$
32,575
 
Share based compensation  
1,773
   
1,735
 
Acquisition related amortization expense  
2,183
   
2,696
 
Other (income) expense  
2,153
   
(123
)
Non-GAAP: Earnings before provision for income taxes  
37,139
   
36,883
 
         
GAAP: Provision for income taxes  
8,691
   
9,057
 
Share based compensation  
508
   
496
 
Acquisition related amortization expense  
617
   
757
 
Other (income) expense  
616
   
(35
)
Tax benefit on restricted stock  
194
   
255
 
Non-GAAP: Provision for income taxes  
10,626
   
10,530
 
         
Non-GAAP: Net earnings 
$
26,513
  
$
26,353
 

  Three Months Ended June 30, 
  2022  2021 
GAAP: Net earnings per common share - diluted 
$
0.84
  
$
0.87
 
         
Share based compensation  
0.04
   
0.05
 
Acquisition related amortization expense  
0.06
   
0.07
 
Other (income) expense  
0.06
   
-
 
Tax benefit on restricted stock  
(0.01
)
  
(0.01
)
Total non-GAAP adjustments - net of tax  
0.15
   
0.11
 
         
Non-GAAP: Net earnings per common share - diluted 
$
0.99
  
$
0.98
 

(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. 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. The presentation of Adjusted EBITDA has been changed from prior period presentations to include adjustments for expenses related to acquisitions such as legal, accounting, tax, and adjustments to the fair value of contingent purchase price consideration as well as stock compensation.

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 in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.


  
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
Consolidated 2021  2020  2021  2020 
Net earnings $26,424  $21,638  $81,355  $58,844 
Provision for income taxes  9,486   8,438   31,108   24,996 
Share based compensation  1,780   1,756   5,355   5,427 
Interest and financing costs  335   -   693   266 
Acquisition and integration expense  -   233   -   232 
Depreciation and amortization  3,597   3,143   11,376   10,000 
Other income (expense)  175   (813)  377   (1,095)
Adjusted EBITDA $41,797  $34,395  $130,264  $98,670 
                 
Technology Segment                
Operating income $27,166  $22,829  $82,640  $61,658 
Depreciation and amortization  3,569   3,115   11,292   9,916 
Share based compensation  1,724   1,699   5,186   5,240 
Interest and financing costs  335   -   693   266 
Acquisition and integration expense  -   233   -   232 
Adjusted EBITDA $32,794  $27,876  $99,811  $77,312 
                 
Financing Segment                
Operating income $8,919  $6,434  $30,200  $21,087 
Depreciation and amortization  28   28   84   84 
Share based compensation  56   57   169   187 
Adjusted EBITDA $9,003  $6,519  $30,453  $21,358 
27
  Three Months Ended June 30, 
Consolidated 2022  2021 
Net earnings 
$
22,339
  
$
23,518
 
Provision for income taxes  
8,691
   
9,057
 
Share based compensation  
1,773
   
1,735
 
Interest and financing costs  
138
   
159
 
Depreciation and amortization  
3,210
   
3,926
 
Other income (expense)  
2,153
   
(123
)
Adjusted EBITDA 
$
38,304
  
$
38,272
 
         
Technology Segment        
Operating income 
$
29,219
  
$
25,223
 
Depreciation and amortization  
3,182
   
3,898
 
Share based compensation  
1,715
   
1,678
 
Interest and financing costs  
138
   
159
 
Adjusted EBITDA 
$
34,254
  
$
30,958
 
         
Financing Segment        
Operating income 
$
3,964
  
$
7,229
 
Depreciation and amortization  
28
   
28
 
Share based compensation  
58
   
57
 
Adjusted EBITDA 
$
4,050
  
$
7,314
 

(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-party maintenance, software assurance, subscription/SaaS licenses, and services. We have provided below a reconciliation of Adjusted gross billings to technology segment net sales, which is the most directly comparable financial measure to this Non-GAAP financial measure.

31

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  Three Months Ended June 30, 

 2021  2020  2021  2020  2022  2021 
Technology segment net sales $476,975 $415,570 $1,313,634 $1,176,153  
$
448,785
 
$
400,358
 
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services  208,056  172,255  668,528 $559,130 
Costs incurred related to sales of third party maintenance, software assurance and subscription/SaaS licenses, and services  
253,158
  
232,649
 
Adjusted gross billings $685,031 $587,825 $1,982,162 $1,735,283  
$
701,943
 
$
633,007
 

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.

28
CONSOLIDATED RESULTS OF OPERATIONS

DuringNet sales for the three months ended December 31, 2021, net salesJune 30, 2022, increased 15.7%$41.7 million, or 10.0%, or $67.2 million, to $494.8$458.4 million, as compared to $427.6$416.6 million for the same period in the prior year. Product sales for the three months ended December 31, 2021,June 30, 2022, increased 15.1%$34.2 million, or 9.5%, to $432.3$395.3 million, an increase of $56.8as compared to $361.1 million from $375.5 million for the same period in the prior year, due to increased demand fromand higher prices for some products in our technology segment customers as well as higher financing revenue.segment. Service sales duringfor the three months ended December 31, 2021,June 30, 2022, increased 20.0%$7.5 million, or 13.5%, to $62.5$63.1 million, an increase of as compared to$10.4 million over $55.6 million for the same period in the prior year, services sales of $52.1 million due to increases in both managed services and professional services. In the technology segment, we sawhad increases in net sales fromto customers in the telecom, media, and entertainment, healthcare, technology, and SLED,professional services, which waswere partially offset by decreases in net sales fromto customers in financial services,manufacturing during the three months ended December 31, 2021,June 30, 2022, compared to the same period in the prior year.

For the nine months ended December 31, 2021, net sales increased 12.6%, or $153.8 million, to $1.370 billion, compared to $1.216 billion for the same period in the prior year. Product sales for the nine months ended December 31, 2021, increased 11.6%, or $124.1 million, to $1.191 billion, compared to $1.066 billion for the same period in the prior year. Services sales during the nine months ended December 31, 2021, increased 19.9%, or $29.7 million, to $179.0 million compared to prior year services sales of $149.3 million. The increase in net sales was due, in part, to the Systems Management Planning Inc. (“SMP”) acquisition as well as increased demand from our customers in healthcare, telecom, media and entertainment and all other categories of customers, which were partially offset by decreases in demand from our customers in financial services, technology and SLED, during the nine months ended December 31, 2021, compared to the prior year.

Adjusted gross billings increased 16.5%, or $97.2 million, to $685.0 million for the three months ended December 31, 2021, from $587.8June 30, 2022, increased $68.9 million, or 10.9%, to $701.9 million, as compared to $633.0 million for the same period in the prior year. There was an increaseWe had increases in adjusted gross billings from ourto customers in telecom, media and entertainment, healthcare, technology,financial services, professional services, and SLED, which waswere partially offset by decreases in demand from ouradjusted gross billings to customers in the financial servicemanufacturing market. For the nine months ended December 31, 2021, adjusted gross billings increased 14.2%, or $246.9 million, to $1.982 billion, from $1.735 billion for the same period in the prior year. The increase in adjusted gross billings is due, in part, to the SMP acquisition as well as higher demand from our customers in telecom, media and entertainment, healthcare and all other categories of customers, which was partially offset by decreases in demand from our customers in the financial services market and SLED.

Consolidated gross profit for the three months ended December 31, 2021,June 30, 2022, increased $19.0 $8.0 million, or 19.3%7.6%, to $117.1$113.5 million, compared with $98.2 million for the same period in the prior year. Consolidated gross margins were 23.7% for the three months ended December 31, 2021, which is an increase of 70 basis pointsas compared to 23.0% for the same period in the prior year. The increase in margins was primarily due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which was recognized on a net basis, as well as higher service revenue and service margin, and higher gross profit from our financing segment.

32
For the nine months ended December 31, 2021, consolidated gross profit increased $50.0 million, or 16.9%, to $345.6 million, compared with $295.7$105.5 million for the same period in the prior year. Our increase in gross profit was due to higher net sales, offset by lower gross margin. Consolidated gross margins were 25.2% for the ninethree months ended December 31, 2021, an increase of 90June 30, 2022, decreased 50 basis points to 24.8%, as compared to 24.3%25.3% for the same period in the prior year. The increaseOur decrease in gross margin for the nine-month periodmargins was primarily due to a shiftdecrease in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which is recognized on a net basis, as well as higher service revenue and service margins, and highera reduction in gross profit from our financing segment.

Our operatingOperating expenses for the three months ended December 31, 2021,June 30, 2022, increased $12.1$7.3 million, or 17.6%10.0%, to $81.0$80.3 million, as compared to $68.9$73.1 million for the prior year period. This increase is primarily due to an increase in general and administrative expenses including higher travel and entertainment costs as travel restrictions from COVID-19 have started to ease, higher software license and maintenance costs, higher property taxes, and an increase in salaries and benefits driven by an increase in variable compensation and fringe benefits. These increases are partially offset by a decrease in our provision for credit losses. As of December 31, 2021, we had 1,554 employees, a decrease of 32 from 1,586 as of December 31, 2020, which included 102 employees from the SMP acquisition on December 31, 2020.

For the nine months ended December 31, 2021, operating expenses increased $19.9 million, or 9.3%, to $232.8 million, as compared to $212.9 million for the same period in the prior year. TheOur increase in operating expenses for the nine months ended December 31, 2021, iswas primarily due to increase$4.0 million in higher salaries and benefits, $3.1 million in higher general and administrative expense due toexpenses including higher software license and maintenance fees and higher travel and entertainment expenses as travel restriction from COVID-19 have started to ease, software license and maintenance, sales, property and other taxes, and thecosts, $1.0 million in a higher provision for credit losses caused by an increase in salaries and benefits dueour receivables over this period compared to increase in fringe benefits and variable compensation. These increases are partially offset by a decrease in our provision for credit losses.

Depreciationreceivables over the same period in the prior year, and amortization expense increased $0.5 million and $1.4 million for the three and nine months ended December 31, 2021, respectively, primarily due to our December 31, 2020, acquisition of SMP. Interest and financing costs increased $0.2 million and $0.1 million for the three and nine months ended December 31, 2021, respectively, primarily driven by the timing of borrowings from our credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”) offset by a $0.7 million decrease in interestdepreciation and financing costs in our financing segment.amortization. As of June 30, 2022, we had 1,637 employees, an increase of 90 from 1,547 as of June 30, 2021.

As a result of the foregoing, operating income for the three months ended December 31, 2021,June 30, 2022, increased $6.8$0.7 million, or 23.3%2.3%, to $36.133.2 million, as compared to $29.3$32.5 million for the same period in the prior year. For the nine months ended December 31, 2021, operating income increased $30.1 million, or 36.4%, to $112.8 million, as compared to $82.7 million for the same period in the prior year.

Consolidated net earnings for the three months ended December 31, 2021, were $26.4June 30, 2022, decreased $1.2 million, or 5.0%, to $22.3 million, an increase of 22.1%, or $4.8 million, overas compared to $23.5 million for the same period in the prior year’s results,year, due to the increase in gross profit and offset by increased operating expenses and the provision for income taxes. For the nine months ended December 31, 2021, the consolidated net earnings were $81.4 million, an increase of 38.3%, or $22.5 million, compared to the prior year’s results, due to the increase in revenues and gross profit mostlyforeign exchange losses, offset by an increase in operating expenses and the provision for income taxes.

gross profit. Our effective tax rate for the three and nine months ended December 31, 2021,June 30, 2022, was 26.4% and 27.7% respectively, compared with 28.1% and 29.8%28.0%, respectively, for the same periods in the prior year. The change in our effective income tax rate for the nine months ended December 31, 2021 comparedwhich is comparable to the same period27.8% in the prior year was primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes.quarter.

Adjusted EBITDA increased $7.4 million, or 21.5%, to $41.8 millionfor both the three months ended June 30, 2022, and 2021 was $38.3 million. Adjusted EBITDA margin ifor the three months ended June 30, 2022, decreasedncreased 40 80 basis points to 8.4% for the three months ended December 31, 2021,, as compared to the prior year period of 8.0%9.2%.For the nine months ended December 31, 2021, adjusted EBITDA increased $31.6 million, or 32.0%, to $130.3 million and the adjusted EBITDA margin increased 140 basis points to 9.5% as compared to the prior year period of 8.1%.

Diluted earnings per share increased 21.0%, or $0.17, to $0.98 per share for the three months ended December 31, 2021,June 30, 2022, decreased $0.03, or 3.4%, to $0.84 per share, as compared to $0.81$0.87 per share for same period in the prior year. Non-GAAP diluted earnings per share for the three months ended December 31, 2020, retroactively restated for the stock split. Non-GAAP diluted earnings per shareJune 30, 2022, increased 23.6%$0.01, or 1.0%, or $0.21, to $1.10 for the three months ended December 31, 2021,$0.99, as compared to $0.89$0.98 for the three months ended December 30, 2020, retroactively restated for the stock split. For the nine months ended December 31, 2021, diluted earnings per share increased 37.7%, or $0.83, to $3.03 per share, as compared to $2.20 per sharesame period in the prior year period, retroactively restated for the stock split. Non-GAAP diluted earnings per share increased 36.3%, or $0.90, to $3.38 for the nine months ended December 31, 2021, as compared to $2.48 for the nine months ended December 31, 2020, retroactively restated for the stock split.year.

33
Cash and cash equivalents decreased by 18.5%$71.9 million, or 46.3%, to $105.6$83.5 million as of December 31, 2021,June 30, 2022, as compared to $129.6$155.4 million as of March 31, 2021, primarily2022. Our decrease in cash and cash equivalents was due to increases in our accounts receivable and inventory, partially offset by net borrowings on the floor plan component of our revolving credit facility. Additional uses of cash during the ninethree months ended December 31, 2021,June 30, 2022, included cash paid of $9.5$7.2 million to repurchase outstanding shares of our common stock. Our cashstock as part of our share repurchase plan and to satisfy the minimum tax withholding requirements on hand, funds generated from operations, amounts available under our credit facility, and the ability to monetize our investment portfolio provide sufficient liquidity for our business.employee stock awards.

29
SEGMENT OVERVIEW

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

TECHNOLOGY SEGMENT

TheOur technology segment derives revenueearns revenues from sales of product, project-related advancedIT products, professional services, managed services, and staff augmentation. TheOur technology segment sells primarily to corporate customers,corporations, state and local governments, and higher education institutions on a nationwide basis, with geographic concentrations relating toinstitutions. We sell across the US, which accounts for most of our physical locations. Thesales, and in select international markets. Our technology segment also provides Internet-based business-to-business supply chain management solutions for information technologyIT products.

Customers whoOur customers generally purchase IT equipmentproducts and services from us may haveunder the terms and conditions of a customer master agreement (“CMA”) with our company, which stipulates the terms and conditions of the relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses.. Our other customers generally place orders for IT products using purchase orders. Customer orders without a CMA in place, or with other documentation customary for the business. Often, our work withfrom state and local governments is based onmay involve public bids and our written bid responses. Our service engagements arecustomers generally governed bypurchase services from us under the terms of statements of work and are primarilywork. Our charges for services may be fixed price (with allowance for changes); however, some service agreements are basedor determined on time and materials.

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

We endeavor to minimize our cost of sales through vendor incentive programs. Our benefit from these programs is also determined by our reseller authorization level. 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 vendors often change their incentive programs. As such, our ability to continue to reduce our costs of sales through participating in these programs continually change and, therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs.not guaranteed.

FINANCING SEGMENT

Our financing segment offers financing solutions to corporations, governmental entities,state and educational institutions nationwidelocal governments, and higher education institutions. We provide financing across the US, which accounts for most of our sales, and in Canada, the UK, and several other European countries. Theselect international markets. Our financing segment derives revenueearns revenues from leasing IT and medical equipment, and the disposition of that equipment at the end of the lease. Thefrom financing segment also derives revenues from the financingpurchases of third-party software licenses, software assurance, maintenance, and other services.services, and from selling IT equipment at the end of a lease.

Our financing revenue is generally earned from the following three sources:

Financing revenue generally falls into the following three categories:

Portfolio income: Interest income from financing receivables and rents due under operating leases;leases
Transactional gains: Net gains or losses on the sale of financial assets; andassets
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and the salesales of off-lease (used) equipment.

34
FLUCTUATIONS IN OPERATING RESULTS

Our operating results of operations are susceptiblemay fluctuate due to fluctuations for a number of reasons, including, without limitation, customer demand for our products and services, supplier costs, product availability, changes in vendor incentive programs, interest rate fluctuations, decision to sellthe timing of sales of financial assets, 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 other post-term events.

for leased equipment. We expect to continue to expand by opening new offices and warehouses and by hiring additional staff for specific targeted market areas whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may reduce our results from operations. COVID-19 may negatively affect market supply and demand, which will likely lower our financial results, and may adversely impact our ability to expand. We are uncertain as to the extent and duration of COVID-19’s impact to demand in the IT market for our products and services.operating results.

CRITICAL ACCOUNTING ESTIMATES

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 20212022 Annual Report.

3530
SEGMENT RESULTS OF OPERATIONS

The three and nine months ended December 31, 2021,June 30, 2022, compared to the three and nine months ended December 31, 2020June 30, 2021

TECHNOLOGY SEGMENT

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

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  Three Months Ended June 30, Change  
 2021  2020  2021  2020  2022  2021 
Net sales                        
Product $414,448  $363,478  $1,134,658  $1,026,845  $385,676  $344,766  $40,910  11.9%
Services  62,527   52,092   178,976   149,308   63,109   55,592   7,517   13.5%
Total  476,975   415,570   1,313,634   1,176,153   448,785   400,358   48,427   12.1%
                        
Cost of sales                        
Product 334,585 295,310 899,437 820,859  302,508 271,015  31,493  11.6%
Services  37,907  31,939  109,203  92,935   40,626  33,910   6,716   19.8%
Total  372,492  327,249  1,008,640  913,794   343,134  304,925   38,209   12.5%
                        
Gross profit 104,483  88,321  304,994  262,359  105,651  95,433  10,218  10.7%
                        
Selling, general, and administrative 73,413  62,377  210,369  190,519  73,112  66,153  6,959  10.5%
Depreciation and amortization 3,569  3,115  11,292  9,916  3,182  3,898  (716) (18.4%)
Interest and financing costs  335   -   693   266   138   159   (21)  (13.2%)
Operating expenses 77,317  65,492  222,354  200,701  76,432  70,210  6,222  8.9%
                        
Operating income $27,166  $22,829  $82,640  $61,658  $29,219  $25,223  $3,996   15.8%
                  
Adjusted gross billings $685,031  $587,825  $1,982,162  $1,735,283  $701,943  $633,007  $68,936   10.9%
Adjusted EBITDA $32,794  $27,876  $99,811  $77,312  $34,254  $30,958  $3,296   10.6%

Net sales: Net sales for the three months ended December 31, 2021, wereJune 30, 2022, increased $48.4 million, or $477.012.1%, to $448.8 million, as compared to $415.6$400.4 million for the same period in the prior year, an increase of 14.8% or $61.4 million, due to increases in net sales from customers in the telecom, media, and entertainment, healthcare, technology, and SLED,professional services, which waswere partially offset by decreases in net sales fromto customers in financial services.manufacturing. Product sales for the three months ended June 30, 2022, increased 14.0%$40.9 million, or 11.9%, to $385.7 million. Service sales for the three months ended June 30, 2022, increased $7.5 million, or $51.013.5%, to $63.1 million, to $414.4 million. Services revenues increased 20.0%, or $10.4 million to $62.5 millionas compared to $55.6 million for the same period in the prior year, of $52.1 million due to increaseincreases in professional andboth managed services and professional services.

Adjusted gross billings for the three months ended December 31, 2021.June 30, 2022, increase

For the nine months ended December 31, 2021, net sales increased 11.7%d $68.9 million, or 10.9%, or $137.5to $701.9 million, to $1.314 billion compared to $1.176 billion during the same period in the prior year. Product sales for the nine months ended December 31, 2021, increased 10.5%, or $107.8 million to $1.135 billion, and service revenue increased by 19.9%, or $29.7 million, to $179.0 millionas compared to $149.3 million during the same period in the prior year.

Adjusted gross billings increased 16.5%, or $97.2 million, to $685.0 million for the three months ended December 31, 2021, from $587.8$633.0 million for the same period in the prior year. TheOur increase in adjusted gross billings was due in part, to the SMP acquisition as well as higher demand from our current customers. For the nine months ended December 31, 2021, adjusted gross billings increased 14.2%, or $246.9 million, to $1.982 billion, from $1.735 billioncustomers and higher prices for the same period in the prior year. The increase in adjusted gross billings is due to higher demand from the same customer end markets that were previously identified for the increase in net sales.some products.

We rely on our vendors to fulfill a large majority of shipments to our customers. As of December 31, 2021,June 30, 2022, we had open orders of $852.9 million$1.0 billion and deferred revenue of $121.0$130.7 million. As of December 31, 2020,June 30, 2021, we had open orders of $413.9$565.8 million and deferred revenue of $96.3$100.3 million.

31
We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. The percentage of net sales by industry and vendor for the twelve-monthtwelve month periods ended December 31,June 30, 2022, and 2021 and 2020 are summarized below:

36
 Twelve Months Ended
December 31,		    Change   Twelve Months Ended June 30,  Change 
Revenue by customer end market: 2021 2020
Net sales by customer end market: 2022 2021   Change 
Telecom, Media & Entertainment 29% 23% 6% 29% 27% %
Healthcare 16% 14% 2% 16% 13% 3%
Technology 14% 16% (2%)
SLED 15% 16% (1%) 14% 15% (1%)
Technology 15% 18% (3%)
Financial Services 9% 13% (4%) 9% 12% (3%)
All others  16%  16% 0%  18%  17% 1%
Total 100% 100%    100% 100%   

 Twelve Months Ended
December 31,		    Change   Twelve Months Ended June 30,  Change 
Revenue by vendor: 2021 2020
Net sales by vendor: 2022 2021   Change 
Cisco Systems 38% 36% 2% 37% 37% %
Dell EMC 8% 8% 0% 10% 7% 3%
Juniper Networks 6% 5% 1% 5% 7% (2%)
NetApp 5% 4% 1% 5% 3% 2%
HP Inc. & HPE 3% 4% (1%)
Arista Networks 3% 4% (1%) 2% 4% (2%)
All others  37%  39% (2%)  41%  42% (1%)
Total 100% 100%    100% 100%   

Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve-monthtwelve month period ended December 31, 2021,June 30, 2022, we had an increase in the percentage of total revenues from customers in the telecom, media and entertainment and healthcare industry, and decreases in the percentage of total revenues in the financial services, technology, and SLED markets. These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.

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

Cost of sales: Cost of sales for the three months ended December 31, 2021, June 30, 2022, increased 13.8%$38.2 million, or $45.212.5%, to $343.1 million, to $372.5 millionas compared to $327.2 million$304.9 million for the same period in the prior year.year. Our gross margin increased 60decreased 30 basis points to 21.9%23.5% for the three months ended December 31, 2021,June 30, 2022, compared to 21.3%23.8% for the same period in the prior year. The increaseOur decrease in gross marginmargins was driven by higher product margin, where a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services are recognized on a net basis, and higher service margin. Cost of sales for the nine months ended December 31, 2021, increased 10.4% or $94.8 million which is in line with the increase in net sales. For the nine months ended December 31, 2021, gross margin increased by 90 basis points to 23.2%, as compared to 22.3% for the prior year period, primarily due to higher service margin, and a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, which are recognized on a net basis.costs incurred in providing our professional services.

Selling, general, and administrative: Selling, general, and administrative expenses of $73.4 million for the three months ended December 31, 2021,June 30, 2022, increased by $11.0$7.0 million, or 17.7% from $62.410.5%, to $73.1 million, as compared to $66.2 million for the same period in the prior year. Salaries and benefits increased $9.6$3.7 million, or 17.8%6.4% to $63.3$61.6 million, as compared to $53.7$57.9 million duringfor the same period in the prior year, mainly due to an increase in variable compensation. Our technology segment had 1,5211,602 employees as of December 31, 2021, a decreaseJune 30, 2022, an increase of 3088 from 1,5511,514 as of December 31, 2020. Our headcount asJune 30, 2021. We added 77 additional customer facing employees, of December 31, 2020, incorporates the addition of 102 employees from the December 31, 2020, acquisition of SMP. For the nine months ended December 31, 2021, selling, general,which 59 were professional services and administrative expenses increased by $19.9million, or 10.4%,technical support personnel due to $210.4 million compared to $190.5milliondemand for the same period in the prior year. Salaries and benefits increased $17.5million, or 10.6% to $182.1million, compared to $164.6million during the same period in the prior year.our services.

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General and administrative expenses increased $1.9 million, or 24.0%, to $10.0 million duringfor the three months ended December 31, 2021,June 30, 2022, increased $2.9 million, or 34.6%, to $11.1 million, as compared to $8.3 million for the same period in the prior year, due to higher software license and maintenance fees and higher travel and entertainment as travel restrictions from COVID-19 have started to ease, and sales, property and other tax expenses. costs.

For the nine months ended December 31, 2021, general and administrative expenses increased32 $3.3
million, oTable of Contentsr 13.3%, to $28.2 million. The increase in general and administrative expenses was primarily due to an increase in travel and entertainment expenses, legal and professional fees and software license and maintenance. The
Our provision for credit losses wfor the three months ended June 30, 2022 was $0.3 million, as $0.7 million lower thancompared to negligible expense for the same period in the prior year. Our higher provision for credit losses for the three months ended June 30, 2022 was due to changes in our net credit exposure.

Depreciation and amortization: Depreciation and amortization increased $0.5 million, or 14.6%, to $3.6 million duringfor the three months ended December 31, 2021,June 30, 2022, decreased $0.7 million, or 18.4%, to $3.2 million, as compared to $3.1$3.9 million in the prior year period primarily due to the amortization of the intangible assets acquired in our acquisition of SMP. For the nine months ended December 31, 2021, depreciation and amortization increased $1.4 million, or 13.9%, to $11.3 million as compared to $9.9 million for the same period in the prior year, primarily due to less amortization from intangible assets acquired in past acquisitions as the rate of amortization declines each year.

Interest and financing costs: Interest and financing costs of $0.1 million were $0.3 million, and $0.7 milincurredlion for in the three and nine months ended December 31, 2021, an increase of $0.3 million and $0.4 million, respectively,June 30, 2022, as compared to $0.2 million for the same periodsperiod in the prior year. The increase is primarily due to timing and amount of our borrowings from our WFCDF credit facility and borrowings on an installment payment arrangement. We had $58.8 million of recourse debt in our technology segment as of December 31, 2021, compared to no recourse debt as of December 31, 2020.

Segment operating income: As a result of the foregoing, operating income was $27.2 million, an increase of $4.3 million, or 19.0%, for the three months ended December 31, 2021,June 30, 2022, increased $4.0 million, or 15.8%, to $29.2 million, as compared to $22.8$25.2 million for the same period in the prior year. For

Adjusted EBITDA for the ninethree months ended December 31, 2021, operating income wasJune 30, 2022, increased $3.3 million, or 10.6%, $82.6to $34.3 million, as compared to $61.7$31.0 million for the same period in the prior year, an increase of $21.0 million, or 34.0%.

For the three months ended December 31, 2021, Adjusted EBITDA was $32.8 million, an increase of $4.9 million, or 17.6%, compared to $27.9 million for the same period in the prior year. Adjusted EBITDA was $99.8 million, an increase of $22.5 million, or 29.1%, for the nine months ended December 31, 2021, compared to $77.3 million for the same period in the prior year.

FINANCING SEGEMENT

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

 
Three Months Ended
December 31,
  Nine Months Ended
December 31,		  Three Months Ended June 30,  Change 
 2021  2020  2021  2020  2022  2021   
Net sales $17,859  $12,034  $55,866  $39,563  $9,574  $16,291  $(6,717) (41.2%)
                  
Cost of sales  5,225   2,204   15,229   6,252   1,702   6,212   (4,510)  (72.6%)
                        
Gross profit 12,634  9,830  40,637  33,311  7,872  10,079  (2,207) (21.9%)
                        
Selling, general, and administrative 3,461  3,013  9,784  11,227  3,655  2,622  1,033  39.4%
Depreciation and amortization 28  28  84  84  28  28  -  0.0%
Interest and financing costs  226   355   569   913   225   200   25   12.5%
Operating expenses 3,715  3,396  10,437  12,224  3,908  2,850  1,058  37.1%
                                
Operating income $8,919  $6,434  $30,200  $21,087  $3,964  $7,229  $(3,265)  (45.2%)
                  
Adjusted EBITDA $9,003  $6,519  $30,453  $21,358  $4,050  $7,314  $(3,264)  (44.6%)

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Net sales: Net sales increased by $5.8 million, or 48.4%, to $17.9 million for the three months ended December 31, 2021,June 30, 2022, decreased $6.7 million, or 41.2%, to $9.6 million, as compared to $16.3 million for the same period in the prior year resultsyear. The decrease in net sales was due to higherlower post contract sales from several early buyouts of assets under leaseearnings and higher month to month rents, which were partially offset by lower transactiontransactional gains. DuringFor the quarterthree months ended December 31, 2021,June 30, 2022, we recognized net gains on sales of financial assets of $2.3 $1.8 million and proceeds from these sales were $52.5 million. NetFor the three months ended June 30, 2021, net gains on the sale of financial assets for the quarter ended December 31, 2020, was $3.0were $3.2 million and the proceeds from these sales were $67.5$75.3 million.

For the nine months ended December 31, 2021, net sales increased to $55.9million, an increaseAs of $16.3million, or 41.2% as compared to the same period in the prior year of $39.6 million due to higher proceeds from sales of equipment, transactional gains, and month to month rents. During the nine months ended December 31, 2021, we recognized net gains on sales of financial assets of $15.6 million, which included several large transactions that closed in July 2021, and the proceeds received from these sales were $753.9 million. For the nine months ended December 31, 2020, we recognized net gains on sales of financial assets of $10.1 million, and the proceeds from these sales were $259.2 million.

At December 31, 2021, weJune 30, 2022, our financing segment had $171.1$130.0 million in financing receivables and operating leases, compared to $214.0$141.7 million as of December 31, 2020,June 30, 2021, a decrease of $43.0$11.7 million, or 20.1%8.3%.

Cost of sales: Cost of sales increasfor the three months ended June 30, 2022, decreased $3.0$4.5 million, and $9.0or 72.6%, to $1.7 million, as compared to $6.2 million for the three and nine months ended December 31, 2021, respectively, compared tosame period in the prior year, results due to higherlower cost of sales on off-lease equipment and higherlower depreciation expense from operating leases. Gross profit increasedecreased by 28.5%$2.2 million, or 21.9%, to $12.6$7.9 million million for the three months ended December 31, 2021, and increased by 22.0% to $40.6 million, for the nine months ended December 31, 2021,June 30, 2022, as compared to $10.1 million in the prior year periods.year.

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Selling, general and administrative: ForSelling, general, and administrative expenses for the three months ended December 31, 2021, selling,June 30, 2022, increased $1.0 million, or 39.4%, to $3.7 million, as compared to $2.6 million for the same period in the prior year, due to higher salaries and benefits consisting mostly of higher variable compensation, higher general and administrative expenses increased $0.4 million or 14.9% to $3.5 million due toconsisting mostly of higher variable compensation. For the nine months ended December 31, 2021, selling, generalbusiness taxes, and administrative expenses decreased $1.4 million or 12.9% compared to the prior year period, primarily due to decrease in thea higher provision for credit losses and decreasecaused by changes in salaries and benefits, partially offset byour net credit exposure. Beginning in the second quarter of our fiscal year 2023, we anticipate completing our deployment of a slight increasenew hosted software to manage our financing portfolio. Once we begin using the hosted software, we anticipate higher general and administrative cost.costs of approximately $1.5 million per year related to amortizing the cost to implement the hosted software and annual fees paid to license the hosted software.

Interest and financing costs: Interest and financing costs decreased by 36.3% to $0.2 million for the both the three months ended December 31,June 30, 2022, and 2021, and decreased by 37.7% to $0.6 were $0.2 million. As of June 30, 2022, our notes payable was $26.4 million, for the nine months ended December 31, 2021,an increase of $11.2 million, or 73.0% compared to the prior year, due to a decrease in the average balance on total notes payable outstanding. Totalof $15.3 million as of June 30, 2021. As of June 30, 2022, and 2021, our notes payable for the financing segment comprisedconsisted entirely of non-recourse debt was $43.6 million as of December 31, 2021, a decrease of $24.7 million, or 36.2%, as compared to $68.3 million as of December 31, 2020.notes payable. Our weighted average interest rate for non-recourse notes payable was 3.68%3.78% and 3.57%3.66%, as of December 31,June 30, 2022, and 2021, and 2020, respectively.

Segment operating income: As a result of the foregoing, both operating income and Adjusted EBITDA increasedecreased $2.5$3.3 million to $8.9$4.0 million and $9.0$4.1 million, respectively, for the three months ended December 31, 2021,June 30, 2022, as compared to the prior year period. For the nine months ended December 31, 2021, both operating income and Adjusted EBITDA increased by $9.1 million to $30.2 million and $30.5 million, respectively, for the nine months ended December 31, 2021, as compared to the same period in the prior year.

CONSOLIDATED

Other income: Other income and expense for both the three and nine months ended December 31, 2021,June 30, 2022, was an expense of $0.2$2.2 million, and $0.4 million, respectively, due to unfavorable foreign exchange rates,losses, compared to an income of $0.8 million and $1.1$0.1 million in the three and nine month periods in the prior year, respectively.year.

Income taxes: Our provision for income tax expense was $9.5 million and $31.1$8.7 million for the three and nine months ended December 31, 2021,June 30, 2022, as compared to $8.4 million and $25.0$9.1 million for the same periodsperiod in the prior year. Our effective income tax ratesrate for the three and nine months ended December 31, 2021, were 26.4% and 27.7%June 30, 2022, was 28.0%, comparedwhich is comparable to 28.1% and 29.8%27.8% for the three and nine months ended December 31, 2020, respectively. The change in our effective income tax rate for the nine months ended December 31, 2021 compared to the same period in the prior year was primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes.year.

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Net earnings: TheAs a result of the foregoing, resulted inour net earnings of $26.4 million for the three months ended December 31, 2021, an increase of $4.8June 30, 2022, decreased $1.2 million, or 22.1%5.0%, to $22.3 million, as compared to $21.6$23.5 million during the three months ended December 31, 2020. For the nine months ended December 31, 2021, net earnings were $81.4 million, an increase of $22.5 million, or 38.3%, as compared to $58.8 million for the same period in the prior year.

Basic and fully diluted earnings per common share was $0.99 and $0.98, respectively, for the three months ended December 31, 2021, an increase of 22.2% and 21.0% as compared to $0.81 for both basic and fully diluted earnings per common share, for the three months ended December 31, 2020. For the nine months ended December 31, 2021, basic and fully diluted earnings per common share were $3.05both $0.84 for the three months ended June 30, 2022, a decrease of $0.04 and $3.03, an increase of 38.0% and 37.7%,$0.03, respectively, as compared to $2.21$0.88 and $2.20,$0.87, respectively, for nine months ended December 31, 2020.the same period in the prior year.

Non-GAAP diluted earnings per share increased 23.6% to $1.10 for the three months ended December 31, 2021,June 30, 2022, increased $0.01, or 1.0%, to $0.99, as compared to $0.89$0.98 for the three months ended December 31, 2020. Non-GAAP diluted earnings per share increased 36.2% to $3.38 for the nine months ended December 31, 2021, as compared to $2.48 for the nine months ended December 31, 2020.June 30, 2021.

Weighted average common shares outstanding was 26.726.5 million in the calculation of basic earnings per common share for both the three-three months ended June 30, 2022, and nine-months ended December 31, 2021, and 26.926.7 million in the calculation of diluted earnings per common share for both the three- and nine-monthsthree months ended December 31, 2021.June 30, 2022. Weighted average common shares outstanding used in the calculation of basic earnings per common share, was 26.7 million for both the three-three months ended June 30, 2021, and nine-months ended December 31, 2020, and 26.826.9 million in the calculation of diluted earnings per common share for both the three- and nine-monthsthree months ended December 31, 2020.June 30, 2021.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY OVERVIEW

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

Our borrowings in our technology segment are primarily through our WFCDF credit facility. Our borrowings in our financing segment are primarily through secured borrowings that involve transferring all or part of the contractual payments due to us to third-party financing institutions.

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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 enough to finance our working capital, capital expenditures, and other standard business requirements for at least the next year.

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

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CASH FLOWS

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

 Nine Months Ended December 31,  Three Months Ended June 30, 
 2021 2020  2022 2021 
Net cash provided by (used in) operating activities $(121,542) $5,244 
Net cash used in operating activities 
$
(102,943
)
 
$
(65,136
)
Net cash used in investing activities (18,448) (30,659) 
(1,692
)
 
(6,151
)
Net cash provided by financing activities 115,996 26,382  
31,111
 
35,494
 
Effect of exchange rate changes on cash  (2)  (735)  
1,634
  
71
 
Net increase (decrease) in cash and cash equivalents $(23,996) $232 
Net decrease in cash and cash equivalents 
$
(71,890
)
 
$
(35,722
)

Cash flows from operating activities: We used $121.5$102.9 million in operating activities during the ninethree months ended December 31, 2021,June 30, 2022, compared to $5.2$65.1 million provided by operating activities for the ninethree months ended December 31, 2020.June 30, 2021. See below for a breakdown of operating cash flows by segment (in thousands):

 Nine Months Ended December 31,  Three Months Ended June 30, 
 2021 2020  2022 2021 
Technology segment $(112,740) $43,694  
$
(104,645
)
 
$
(65,980
)
Financing segment  (8,802)  (38,450)  
1,702
   
844
 
Net cash provided by (used in) operating activities $(121,542) $5,244  
$
(102,943
)
 
$
(65,136
)

Technology segment: InFor the ninethree months ended December 31, 2021,June 30, 2022, our technology segment used $112.7$104.6 million from operating activities primarily due to increases in our accounts receivable of $123.4$59.1 million and inventories of $77.9$92.7 million, offset by net earnings. Additionally,Further, we had net borrowingrepayments on the floor plan component of our credit facility of $59.0$7.3 million. We use this facility to manage working capital needs. Weneeds, however, we present changes in this balance as financing activity in our consolidated statement of cash flows.

In the ninethree months ended December 31, 2020,June 30, 2021, our technology segment provided $43.7used $66.0 million from operating activities primarily due to cash generated from earnings. Additionally,increases in our accounts receivable and inventories and a decrease in accounts payable-trade. Offsetting this, we had net borrowing on the floor plan component of our credit facility of $44.1$40.9 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 December 31,  As of June 30, 
 2021 2020  2022 2021 
(DSO) Days sales outstanding (1) 67 62  61 61 
(DIO) Days inventory outstanding (2) 21 13  30 13 
(DPO) Days payable outstanding (3)  (41)  (51)  (45)  (42)
Cash conversion cycle  47  24   46  32 

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

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Our cash conversion cycle increased to 4746 days at December 31, 2021,as of June 30, 2022, as compared to 2432 days at December 31, 2020.as of June 30, 2021. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended payment terms. Our DPO decreased 10increased 3 days. Invoices processed through our credit facility, or the A/P-floor plan balance, are typically paid within 45-60 days from the invoice date, while A/P trade invoices are typically paid within 30 days from the invoice date. Our DSO increased to 67 days, whichremained the same at 61 days. The DSO for both June 30, 2022, and 2021, reflects higher sales to customers with terms greater than or equal to net 60 days for the period ended December 31, 2021, as compared to the same period in the prior year.days. Our DIO increased to 2130 days due to higher inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 111.2%59.2% to $147.7$246.9 million as of December 31, 2021,June 30, 2022, up from $70.0$155.1 million as of March 31, 2021, partially2022, due to ongoing projects with customers and supply constraints that lengthen the time over which we receive all the parts in an order for a completed delivery to our customers.

Financing segment: InFor the ninethree months ended December 31, 2021,June 30, 2022, our financing segment used $8.8provided $1.7 million from operating activities, primarily due to net earnings, decreases in accounts receivable, and increases in accounts receivable of $8.8 million and financing receivables-net of $23.4 million,payable-trade offset by net earnings.increases in financing receivables-net. In the ninethree months ended December 31, 2020,June 30, 2021, our financing segment used $38.5provided $0.8 million from operating activities, primarily due to changes in financing receivables- net of $67.1 million, partiallyearnings offset by earnings of $15.4 million and an increasedecreases in accounts payable trade of $12.5 million.payable-trade.

Cash flows related to investing activities: InFor the ninethree months ended December 31, 2021,June 30, 2022, we used $18.4$1.7 million from investing activities, consisting of $21.4$1.8 million for purchases of property, equipment and operating lease equipment offset by $2.9$0.1 million of proceeds from the sale of property, equipment, and operating lease equipment. In the ninethree months ended December 31, 2020,June 30, 2021, we used $30.7$6.2 million from investing activities, consisting of $27.1 million for the acquisition of SMP, $4.2$7.0 million for purchases of property, equipment and operating lease equipment offset by $0.7$0.8 million of proceeds from the sale of property, equipment, and operating lease equipment.

Cash flows from financing activities: InFor the ninethree months ended December 31, 2021,June 30, 2022, cash provided by financing activities was $116.0$31.1 million, consisting of net borrowings on the floor plan component of our credit facility of $59.0 million and net repayments of non-recourse and recourse notes payable of $66.4$45.6 million, partially offset by $9.5$7.2 million in cash used to repurchase outstanding shares of our common stock and $7.3 million in net repayments on the floor plan component of our credit facility. In the ninethree months ended December 31, 2020,June 30, 2021, cash provided by financing activities was $26.4$35.5 million consisting of net borrowings on the floor plan component of our credit facility of $44.1$40.9 million partially offset by net borrowingsrepayments of non-recourse and recourse notes payable of $24.8$1.6 million, which was partially offset by repayment of $35.0and $3.8 million in borrowings under the accounts receivable componentcash used to repurchase outstanding shares of our Technology segment credit facility, $6.9 million in repurchase of common stock, and $0.6 million paid to the sellers of a prior acquisition.stock.

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

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

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SECURED BORROWINGS – FINANCING SEGMENT

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

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CREDIT FACILITY – TECHNOLOGY SEGMENT

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

On October 13, 2021, the Borrowers amended, restated, and replaced in their entirety their then-existing credit agreements with WFCDF. The new credit facility is established by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the aggregate principal amount of up to $375 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).

Please refer to Note 87 “Credit Facility and Notes Payable” to the accompanying Consolidated Financial Statements included in “Part"Part I, Item 1. Financial Statements”Statements" for additional information concerning our 2021 Credit Facility.

The loss of the 2021 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 facility: We finance most purchases of products for sale to our customers through the floor plan facility. Once our customer places a purchase order with us and we have approved their credit, we place an order for the desired products with one of our vendors. Our vendors are generally paid by the floor plan facility and our liability is reflected in “accounts payable—floor plan” in our consolidated balance sheets.

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

As of December 31, 2021,June 30, 2022, and March 31, 2021,2022, we had a maximum credit limit of $375.0 million, and $275.0 million, respectively, and an outstanding balance on the floor plan facility of $157.7$138.0 million and $98.7$145.3 million, respectively. On our balance sheet, our liability under the floor plan facility is presented as part of as accounts payable – floor plan.

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

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As of December 31, 2021, we had anJune 30, 2022, the outstanding balance under the revolving credit facility was $40.0 million. As of $44.0 million. WeMarch 31, 2022, we did not have any outstanding balance under the revolving credit facility as of March 31, 2021.facility. The maximum credit limit under this facility was $100.0 million as of both December 31, 2021,June 30, 2022, and March 31, 2021. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current.2022.

PERFORMANCE GUARANTEES

In the normal course of business, we may provide certain customers with performance guarantees, which are generally backed by surety bonds. In general, we would only be liable for these guarantees in the event of default in the performance of our obligations. We are in compliance with material 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.

43
OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or other contractually narrow or limited purposes. As of December 31, 2021,June 30, 2022, 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. The impacts of COVID-19 may limit or eliminate our access to capital. While the future is uncertain, we do not believe our credit facility will be terminated by WFCDF or us. Additionally, while our lending partners in our financing segment have become more discerning in their approval processes, we currently have funding resources available for our transactions.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

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

Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to the worldwide impacts from COVID-19, currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk Factors,” in our 20212022 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.

38
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

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

44
Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize lines of credit and other financing facilities that are subject to fluctuations in short-term interest rates. Our non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Financing transactions funded with our cash flows, not debt, and may be subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds. Borrowings under the WFCDF credit facility bear interest at a market-based variable rate. As of December 31, 2021,June 30, 2022, 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’ssubsidiaries’ functional currency. To date, our foreign operations are insignificant in relation to total consolidated operations,currency, which include purchases and sales of the products and services we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

We evaluate developments related to the UK leaving the European Union on a regular basis to determine if such developments will have a material impact on our results on operations and financial position. Our assessment is that foreign currency exposure for our UK operations is insignificant in relation to total consolidated operations, andprovide, as well as loans with other ePlus entities. Additionally, we believe those potential fluctuations in currency exchange rates and other economic and operational risks will not have a material effect on our results of operations and financial position.

We lease assets in foreign countries, including Canada, the UK, and several other European countries. As a lessor, we lease assets for amounts denominated in British Pounds, Euros, and Canadian dollars. As ourTo date, foreign operationscurrency exposure associated with purchases and sales of the products and services we provide has not been significant. We have been smaller compared to our domestic operations, we believe that potential fluctuationsincurred foreign currency transaction gains and losses in certain foreign subsidiaries on US dollar denominated loans. Fluctuations in currency exchange rates will not have a material effect onmay impact our results of operations and financial position.

Item 4.CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2021.June 30, 2022.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2021,June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

LIMITATIONS AND EFFECTIVENESS OF CONTROLS

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


4539
PART II. OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

Please refer to Note 98, “Commitment and Contingencies” to the accompanying Consolidated Financial Statements included in “Part"Part I, Item 1. Financial Statements”Statements".

Item 1A.RISK FACTORS

There has not been any material change in the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as supplemented in Part II, Item 1A of our Quarterly Report for the period ended June 30, 2021.2022.

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

The following table provides information regarding our total purchases of 203,429128,553 shares of ePlus inc. common stock during the ninethree months ended December 31, 2021,June 30, 2022, including a total of 147,99970,473 shares purchased as part of the publicly announced share repurchase plans or programs. The numbers of shares and price per share for the prior periods presented in the table have been retroactively restated to reflect the stock split. See Note 11 “Stockholders’ Equity” in the consolidated financial statements included elsewhere in this report for additional information on the stock split.

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, 2021 through April 30, 2021  -  $-   -   881,798  (2)
May 1, 2021 through May 27, 2021  1,998  $50.40   -   881,798  (3)
May 28, 2021 through May 31, 2021  -  $-   -   1,000,000  (4)
June 1, 2021 through June 30, 2021  88,690  $45.21   35,258   964,742  (5)
July 1, 2021 through July 31, 2021  62,798  $44.00   62,798   901,944  (6)
August 1, 2021 through August 31, 2021  -  $-   -   901,944  (7)
September 1, 2021 through September 30, 2021  -  $-   -   901,944  (8)
October 1, 2021 through October 31, 2021  -  $-   -   901,944  (9)
November 1, 2021 through November 30, 2021  -  $-   -   901,944  (10)
December 1, 2021 through December 31, 2021  49,943  $51.90   49,943   852,001  (11)
Period 
Total
number of
shares
purchased
(1)
  
Average
price
paid per
share
  
Total number of
shares purchased
as part of publicly
announced plans
or programs
  
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs
 
April 1, 2022 through April 30, 2022  34,961  
$
56.02
   34,961   737,049  (2)
May 1, 2022 through May 27, 2022  35,512  
$
55.86
   35,512   701,537  (3)
May 28, 2022 through May 31, 2022  -  
$
-
   -   1,000,000  (4)
June 1, 2022 through June 30, 2022  58,080  
$
56.51
   -   1,000,000  (5)


(1)All shares acquired were in open-market purchases, except for 55,43058,080 shares, out of which 1,998 were repurchased in May 2021 and 53,432 in June 20212022 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, 2021,2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of April 30, 2021,2022, the remaining authorized shares to be purchased were 881,798.737,049.

(3)
As of May 27, 2021,2022, the authorization under the then-existing share repurchase plan expired.

(4)
On March 18, 2021,24, 2022, the board of directors authorized the company to repurchase up to 1,000,000 shares of our outstanding common stock commencing on May 28, 2021,2022, and continuing to May 27, 2022.2023. As of May 31, 2021,2022, the remaining authorized shares to be purchased were 1,000,000.

(5)
The share purchase authorization in place for the month ended June 30, 2021,2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of June 30, 2021,2022, the remaining authorized shares to be purchased were 964,742.

1,000,000.
46

(6)The share purchase authorization in place for the month ended July 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of July 31, 2021, the remaining authorized shares to be purchased were 901,944.

(7)The share purchase authorization in place for the month ended August 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of August 31, 2021, the remaining authorized shares to be purchased were 901,944.

(8)The share purchase authorization in place for the month ended September 30, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of September 30, 2021, the remaining authorized shares to be purchased were 901,944.

(9)The share purchase authorization in place for the month ended October 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of October 31, 2021, the remaining authorized shares to be purchased were 901,944.

(10)The share purchase authorization in place for the month ended November 30, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of November 30, 2021, the remaining authorized shares to be purchased were 901,944.

(11)The share purchase authorization in place for the month ended December 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of December 31, 2021, the remaining authorized shares to be purchased were 852,001.
 
The timing and expiration date of the current stock repurchase authorizations are included in Note 1110, “Stockholders’ Equity” to our unaudited consolidated financial statements included elsewhere in this report.

Item 3.3.
DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

Item 4.  
MINE SAFETY DISCLOSURES

Not Applicable.

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Item 5.OTHER INFORMATION

None.

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Item 6.EXHIBITS

Exhibit
Number

Exhibit Description
 
 
3.1

ePlus inc. Amended and Restated Certificate of Incorporation, as last amended November 9, 2021.
2021 (Incorporated herein by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the period ended December 31, 2021).
 
 
3.2

Amended and Restated Bylaws of ePlus inc., as of September 1, 2021.March 2, 2022. (Incorporated herein by reference to Exhibit 3.2 to our QuarterlyAnnual Report on Form 10-Q10-K for the periodfiscal year ended September 30, 2021)March 31, 2022)
 
10.1

ePlus 2021 Employee Long-Term Incentive Plan (updated to reflect the stock split effected December 13, 2021) as amended.

10.2

First Amended and Restated Credit Agreement, dated as of October 13, 2021, by and among ePlus Technology, inc., ePlus Technology Services, inc., SLAIT Consulting, LLC, certain of ePlus inc. subsidiaries as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent and the Lenders party thereto (Incorporated herein by reference to Exhibit 10.1 to our Current Report in Form 8-K filed on October 19, 2021).

10.3

Guaranty and Security Agreement, dated as of October 13, 2021, by and among ePlus Technology, inc., ePlus Technology Services, inc., SLAIT Consulting, LLC, certain future subsidiaries of ePlus inc., as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on October 19, 2021).

10.4

First Amended and Restated Collateralized Guaranty, dated as of October 13, 2021, by and among ePlus Group, inc. and Wells Fargo Commercial Distribution Finance, LLC as agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on October 19, 2021).

10.5

First Amended and Restated Limited Guaranty, dated as of October 13, 2021, by and between ePlus inc. and Wells Fargo Commercial Distribution Finance, LLC as agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on October 19, 2021).

10.6

ePlus inc. 2017 Non-Employee Director Long-Term Incentive Plan (updated to reflect the stock split effected December 13, 2021) as amended.

 
31.1

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

Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
 
 
32

Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350.
 
 
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
 
 
101.SCH

Inline XBRL Taxonomy Extension Schema Document
 
 
101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
104

Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document)

4841
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:  FebruaryAugust 3, 2022/s/ MARK P. MARRON

By: Mark P. Marron

Chief Executive Officer and
President


(Principal Executive Officer)



Date:  FebruaryAugust 3, 2022/s/ ELAINE D. MARION

By: Elaine D. Marion

Chief Financial Officer

(Principal Financial Officer)


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