10-Q 1 ef20015351_10q.htm 10-Q

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, 2023

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 class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value
PLUS
NASDAQ 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:

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 February 2, 2024, was 26,954,906.



TABLE OF CONTENTS
 
ePlus inc. AND SUBSIDIARIES

Part I. Financial Information:
 
       
Item 1.
 
Financial Statements
 
       
    5
   
 
   
6
   
 
   
7
   
 
   
8
   
 
    10
   
 
   
11
   
 
Item 2.
 
29
   
 
Item 3.
 
47
   
 
Item 4.
 
47
       
Part II. Other Information:
 
       
Item 1.
 
48
       
Item 1A.
  48
       
Item 2.
  48
       
Item 3.
 
49
       
Item 4.
  49
       
Item 5.
  49
       
Item 6.
 
49
       
   
51

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:


national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and inflation, including increases in our costs and our ability to increase prices to our customers, which may result in adverse changes in our gross profit;

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

supply chain issues, including a shortage of Information Technology (“IT”) products, may increase our costs or cause a delay in fulfilling customer orders, or increase our need for working capital, or delay completing professional services, or purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;

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

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

our ability to secure our own and our customers’ electronic and other confidential information, while maintaining compliance with evolving data privacy and regulatory laws and regulations;

ongoing remote work trends, and the increase in cybersecurity attacks that have occurred while employees work remotely;

loss of our credit facility or credit lines with our vendors may restrict our current and future operations;

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

rising interest rates or the loss of key lenders or the constricting of credit markets;

our ability to manage a diverse product set of solutions, including artificial intelligence (“AI”) products and services, in highly competitive markets with a number of key vendors;

reliance on third-parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements, guaranteed price agreements, or assurance of stock availability;

the possibility of a reduction of vendor incentives provided to us;

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

our ability to remain secure during a cybersecurity attack, including both disruptions in our or our vendors’ IT systems and data and audio communication networks;

our ability to identify acquisition candidates, or perform sufficient due diligence prior to completing an acquisition, or failure to integrate a completed acquisition may affect our earnings;

significant and rapid inflation may cause price, wage, and interest rate increases, as well as increases in operating costs that may impact the arrangements that have pricing commitments over the term of the agreement;

a natural disaster or other adverse event at one of our primary configuration centers, data centers, or a third-party provider location could negatively impact our business;

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


changes in the 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”), platform as a service (“PaaS”), and AI;

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

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

our ability to perform professional and managed services competently;

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

exposure to changes in, interpretations of, or enforcement trends in, and customer and vendor actions in anticipation of or response to, legislation and regulatory matters;

domestic and international economic regulations uncertainty (e.g., tariffs, sanctions, and trade agreements);

our contracts may not be adequate to protect us, 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 ability to maintain our proprietary software and update our technology infrastructure to remain competitive in the marketplace;

fluctuations in foreign currency exchange rates may impact our results of operation and financial position; and

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

We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks, and uncertainties. For a further list and description of various risks, relevant factors, and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see Part II, Item 1A, “Risk Factors” and Part I, 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”).
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, 2023
   
March 31, 2023
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
 
$
142,170
   
$
103,093
 
Accounts receivable—trade, net
   
597,363
     
504,122
 
Accounts receivable—other, net
   
50,055
     
55,508
 
Inventories
   
218,046
     
243,286
 
Financing receivables—net, current
   
110,344
     
89,829
 
Deferred costs
   
54,279
     
44,191
 
Other current assets
   
47,057
     
55,101
 
Total current assets
   
1,219,314
     
1,095,130
 
                 
Financing receivables and operating leases—net
   
87,012
     
84,417
 
Deferred tax asset
   
3,682
     
3,682
 
Property, equipment, and other assets—net
   
84,335
     
70,447
 
Goodwill
   
158,284
     
136,105
 
Other intangible assets—net
   
42,970
     
25,045
 
TOTAL ASSETS
 
$
1,595,597
   
$
1,414,826
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES
               
                 
Current liabilities:
               
Accounts payable
 
$
294,705
   
$
220,159
 
Accounts payable—floor plan
   
92,518
     
134,615
 
Salaries and commissions payable
   
45,372
     
37,336
 
Deferred revenue
   
130,352
     
114,028
 
Recourse notes payable—current
   
-
     
5,997
 
Non-recourse notes payable—current
   
36,165
     
24,819
 
Other current liabilities
   
32,351
     
24,372
 
Total current liabilities
   
631,463
     
561,326
 
                 
Non-recourse notes payable - long-term
   
12,233
     
9,522
 
Deferred tax liability
    561       715  
Other liabilities
   
73,587
     
60,998
 
TOTAL LIABILITIES
   
717,844
     
632,561
 
                 
COMMITMENTS AND CONTINGENCIES (Note 9)
               
             
STOCKHOLDERS’ EQUITY
               
                 
Preferred stock, $0.01 per share par value; 2,000 shares authorized; none outstanding
   
-
     
-
 
Common stock, $0.01 per share par value; 50,000 shares authorized; 26,954 outstanding at December 31, 2023 and 26,905 outstanding at March 31, 2023
   
274
     
272
 
Additional paid-in capital
   
177,465
     
167,303
 
Treasury stock, at cost, 446 shares at December 31, 2023 and 261 shares at March 31, 2023
   
(23,774
)
   
(14,080
)
Retained earnings
   
720,995
     
627,202
 
Accumulated other comprehensive income—foreign currency translation adjustment
   
2,793
     
1,568
 
Total Stockholders’ Equity
   
877,753
     
782,265
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
1,595,597
   
$
1,414,826
 

See Notes to Unaudited Consolidated Financial Statements.

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,
 
   
2023
   
2022
   
2023
   
2022
 
                         
Net sales
                       
Product
 
$
434,371
   
$
556,018
   
$
1,457,636
   
$
1,379,813
 
Services
   
74,684
     
67,458
     
213,205
     
195,728
 
Total
   
509,055
     
623,476
     
1,670,841
     
1,575,541
 
Cost of sales
                               
Product
   
328,908
     
441,015
     
1,116,046
     
1,062,352
 
Services
   
46,337
     
44,089
     
134,347
     
127,990
 
Total
   
375,245
     
485,104
     
1,250,393
     
1,190,342
 
                                 
Gross profit
   
133,810
     
138,372
     
420,448
     
385,199
 
                                 
Selling, general, and administrative
   
89,381
     
86,730
     
272,331
     
248,201
 
Depreciation and amortization
   
5,399
     
3,609
     
15,821
     
10,387
 
Interest and financing costs
   
983
     
1,575
     
3,054
     
2,863
 
Operating expenses
   
95,763
     
91,914
     
291,206
     
261,451
 
                                 
Operating income
   
38,047
     
46,458
     
129,242
     
123,748
 
                                 
Other income (expense), net
   
366
     
2,907
   
673
     
(3,112
)
                                 
Earnings before tax
   
38,413
     
49,365
     
129,915
     
120,636
 
                                 
Provision for income taxes
   
11,131
     
13,671
     
36,122
     
34,134
 
                                 
Net earnings
 
$
27,282
   
$
35,694
   
$
93,793
   
$
86,502
 
Net earnings per common share—basic
 
$
1.02
   
$
1.34
   
$
3.53
   
$
3.26
 
Net earnings per common share—diluted
 
$
1.02
   
$
1.34
   
$
3.52
   
$
3.24
 
                                 
Weighted average common shares outstanding—basic
   
26,618
     
26,592
     
26,598
     
26,561
 
Weighted average common shares outstanding—diluted
   
26,697
     
26,648
     
26,665
     
26,688
 

See Notes to Unaudited Consolidated Financial Statements.

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

 
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2023
   
2022
   
2023
   
2022
 
                         
NET EARNINGS
 
$
27,282
   
$
35,694
   
$
93,793
   
$
86,502
 
                                 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                               
                                 
Foreign currency translation adjustments
   
2,027
   
3,131
   
1,225
   
721
                                 
Other comprehensive income
   
2,027
   
3,131
   
1,225
   
721
                                 
TOTAL COMPREHENSIVE INCOME
 
$
29,309
   
$
38,825
   
$
95,018
   
$
87,223
 

See Notes to Unaudited Consolidated Financial Statements.

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

 
Nine Months Ended December 31,
 
   
2023
   
2022
 
Cash flows from operating activities:
           
Net earnings
 
$
93,793
   
$
86,502
 
                 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
               
Depreciation and amortization
   
19,561
     
14,248
 
Provision for credit losses
   
1,027
     
2,846
 
Share-based compensation expense
   
7,145
     
5,681
 
Deferred taxes
    (153 )     195
 
Gain on disposal of property, equipment, and operating lease equipment
   
(263
)
   
(3,201
)
Changes in:
               
Accounts receivable
   
(68,329
)
   
(266,470
)
Inventories—net
   
26,623
     
(90,205
)
Financing receivables—net
   
(32,666
)
   
(47,442
)
Deferred costs and other assets
   
(13,695
)
   
(60,804
)
Accounts payable—trade
   
68,164
     
156,283
 
Salaries and commissions payable, deferred revenue, and other liabilities
   
42,285
     
55,329
 
Net cash provided by (used in) operating activities
   
143,492
     
(147,038
)
                 
Cash flows from investing activities:
               
Proceeds from sale of property, equipment, and operating lease equipment
   
469
     
3,325
 
Purchases of property, equipment and operating lease equipment
   
(7,704
)
   
(5,661
)
   Cash used in acquisitions, net of cash acquired
    (48,603 )     (13,288 )
Net cash used in investing activities
   
(55,838
)
   
(15,624
)
                 
Cash flows from financing activities:
               
Borrowings of non-recourse and recourse notes payable
   
293,809
     
189,063
 
Repayments of non-recourse and recourse notes payable
   
(277,612
)
   
(87,502
)
Proceeds from issuance of common stock
    3,019       -  
Repurchase of common stock
   
(9,816
)
   
(7,224
)
Net borrowings (repayments) on floor plan facility
   
(58,051
)
   
9,218
 
Net cash provided by (used in) financing activities
   
(48,651
)
   
103,555
 
                 
Effect of exchange rate changes on cash
   
74
     
3,124
 
                 
Net increase (decrease) in cash and cash equivalents
   
39,077
     
(55,983
)
                 
Cash and cash equivalents, beginning of period
   
103,093
     
155,378
 
                 
Cash and cash equivalents, end of period
 
$
142,170
   
$
99,395
 

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

 
Nine Months Ended December 31,
 
   
2023
   
2022
 
Supplemental disclosures of cash flow information:
           
Cash paid for interest
 
$
2,924
   
$
2,402
 
Cash paid for income taxes
 
$
32,732
   
$
39,693
 
Cash paid for amounts included in the measurement of lease liabilities
 
$
2,992
   
$
3,374
 
                 
Schedule of non-cash investing and financing activities:
               
Proceeds from sale of property, equipment, and leased equipment
 
$
11
   
$
34
 
Purchases of property, equipment, and operating lease equipment
 
$
(165
)
 
$
(125
)
Borrowing of non-recourse and recourse notes payable
 
$
30,329
   
$
38,267
 
Debt derecognized due to sales of financial assets
  $
(38,465 )   $
(22,686 )
Vesting of share-based compensation
 
$
9,434
   
$
9,854
 
New operating lease assets obtained in exchange for lease obligations
 
$
4,883
   
$
3,348
 

See Notes to Unaudited Consolidated Financial Statements.

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


 
Nine Months Ended December 31, 2023
 
                            Accumulated        
          Additional                 Other        
   
Common Stock
   
Paid-In
   
Treasury
   
Retained
   
Comprehensive
       
   
Shares
   
Par Value
   
Capital
   
Stock
   
Earnings
   
Income
   
Total
 
Balance, March 31, 2023
   
26,905
   
$
272
   
$
167,303
   
$
(14,080
)
 
$
627,202
   
$
1,568
   
$
782,265
 
Issuance of restricted stock awards
   
153
     
2
     
(2
)
   
-
     
-
     
-
     
 
Issuance of common stock
    36       -       1,398       -       -       -       1,398  
Share-based compensation
   
-
     
-
     
2,205
     
-
     
-
     
-
     
2,205
 
Repurchase of common stock
   
(147
)
   
-
     
-
     
(7,371
)
   
-
     
-
     
(7,371
)
Net earnings
   
-
     
-
     
-
     
-
     
33,847
     
-
     
33,847
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
947
     
947
 
                                                         
Balance, June 30, 2023
   
26,947
   
$
274
   
$
170,904
   
$
(21,451
)
 
$
661,049
   
$
2,515
   
$
813,291
 
Issuance of restricted stock awards
   
10
     
-
     
-
     
-
     
-
     
-
     
-
 
Share-based compensation
   
-
     
-
     
2,414
     
-
     
-
     
-
     
2,414
 
Repurchase of common stock
    (15 )     -       -       (924 )     -       -       (924 )
Net earnings
   
-
     
-
     
-
     
-
     
32,664
     
-
     
32,664
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(1,749
)
   
(1,749
)
                                                         
Balance, September 30, 2023
   
26,942
   
$
274
   
$
173,318
   
$
(22,375
)
 
$
693,713
   
$
766
   
$
845,696
 
Issuance of restricted stock awards     1       -       -       -       -       -       -  
Issuance of common stock
    34       -       1,621       -       -       -       1,621  
Share-based compensation     -       -       2,526       -       -       -       2,526  
Repurchase of common stock
    (23 )     -       -       (1,399 )     -       -       (1,399 )
Net earnings     -       -       -       -       27,282       -       27,282  
Foreign currency translation adjustment     -       -       -       -       -       2,027       2,027  
                                                         
Balance, December 31, 2023     26,954     $ 274     $ 177,465     $ (23,774 )   $ 720,995     $ 2,793     $ 877,753  

 
 
Nine Months Ended December 31, 2022
 
                            Accumulated        
          Additional                 Other        
   
Common Stock
   
Paid-In
   
Treasury
   
Retained
   
Comprehensive
       
 
 
Shares
   
Par Value
   
Capital
   
Stock
   
Earnings
   
Income
   
Total
 
Balance, March 31, 2022
   
26,886
   
$
270
   
$
159,480
   
$
(6,734
)
 
$
507,846
   
$
(124
)
 
$
660,738
 
Issuance of restricted stock awards
   
135
     
1
     
-
     
-
     
-
     
-
     
1
 
Share-based compensation
   
-
     
-
     
1,773
     
-
     
-
     
-
     
1,773
 
Repurchase of common stock
   
(128
)
   
-
     
-
     
(7,224
)
   
-
     
-
     
(7,224
)
Net earnings
   
-
     
-
     
-
     
-
     
22,339
     
-
     
22,339
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(1,339
)
   
(1,339
)
 
                                                       
Balance, June 30, 2022
   
26,893
   
$
271
   
$
161,253
   
$
(13,958
)
 
$
530,185
   
$
(1,463
)
 
$
676,288
 
Issuance of restricted stock awards
   
13
     
1
     
-
     
-
     
-
     
-
     
1
 
Share-based compensation
   
-
     
-
     
1,958
     
-
     
-
     
-
     
1,958
 
Net earnings
   
-
     
-
     
-
     
-
     
28,469
     
-
     
28,469
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(1,071
)
   
(1,071
)
                                                         
Balance, September 30, 2022
   
26,906
   
$
272
   
$
163,211
   
$
(13,958
)
 
$
558,654
   
$
(2,534
)
 
$
705,645
 
Issuance of restricted stock awards     1       -       -       -       -       -       -  
Share-based compensation     -       -       1,950       -       -       -       1,950  
Net earnings     -       -       -       -       35,694       -       35,694  
Foreign currency translation adjustment     -       -       -       -       -       3,131       3,131  
                                                         
Balance, December 31, 2022     26,907     $ 272     $ 165,161     $ (13,958 )   $ 594,348     $ 597     $ 746,420  

See Notes to Unaudited Consolidated Financial Statements.

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 IT solutions that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, professional services, managed services, and complete lifecycle management services including flexible financing solutions. We focus on selling to medium and large enterprises, with customers in the United States (“US”) and in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, Singapore, and Israel.

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. During the quarter ended June 30, 2023, we modified our technology segment into new segmentsproduct, professional services, and managed servicesthat combine to form our technology business to provide our management the ability to better manage and allocate resources among the separate components of this business. Our professional services and managed services are a significant component of our growth and long-term strategic initiatives. Subsequently, we manage and report our operating results through four operating segments: product, professional services, managed services, and financing. For additional information, see Note 16, “Segment Reporting”.

INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the nine months ended December 31, 2023, and 2022, were prepared by us and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the nine months ended December 31, 2023, and 2022, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2024, or any other future period. These unaudited consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. These financial statements should be read in conjunction with the information contained in our annual report on Form 10-K for the year ended March 31, 2023 (“2023 Annual Report”), and our Form 8-K that we filed with the SEC on October 6, 2023, which recasts the disclosures in certain portions of our 2023 Annual Report to reflect changes in our reportable segments.

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 36% and 39% of our technology business segments net sales for the three months ended December 31, 2023, and 2022, respectively, and 45% and 38% of our technology business segments net sales for the nine months ended December 31, 2023, and 2022, respectively.

SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2023, except for the changes provided in Note 2, “Recent Accounting Pronouncements.”


2.
RECENT ACCOUNTING PRONOUNCEMENTS



In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This update requires buyers in a supplier finance program to disclose certain qualitative and quantitative information about the program. It is intended to provide information about an entity’s use of supplier finance programs and their effect on the entity’s working capital, liquidity, and cash flows. This update is effective for us beginning in the first quarter of our fiscal year ending March 31, 2024, except for a requirement to provide a roll forward of our obligations during the annual period, which is effective for us beginning in the first quarter of our fiscal year ending March 31, 2025. We adopted the standard during the first quarter of fiscal year ending March 31, 2024, except for the roll forward requirement, which will be adopted during the first quarter of fiscal year ending March 31, 2025. The adoption of the standard resulted in new disclosures only for amounts presented within Accounts payable – floor plan. For additional information on the new disclosures, see Note 8, “Notes Payable and Credit Facility”.


In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. This update is effective for annual periods beginning in our fiscal year ending March 31, 2025 and interim periods beginning in the first quarter of our fiscal year ending March 31, 2026. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This update is effective for annual periods beginning in our fiscal year ending March 31, 2026. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures.

3.
REVENUES

CONTRACT BALANCES

Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $67.3 million and $70.4 million of receivables from contracts with customers included within financing receivables as of December 31, 2023, and March 31, 2023, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):

 
December 31, 2023
   
March 31, 2023
 
Current (included in deferred revenue)
 
$
129,875
   
$
113,713
 
Non-current (included in other liabilities)
 
$
58,766
   
$
47,217
 

Revenue recognized from the beginning contract liability balance was $15.5 million and $70.1 million for the three and nine months ended December 31, 2023, respectively, and $15.0 million and $57.4 million for the three and nine months ended December 31, 2022, respectively.

PERFORMANCE OBLIGATIONS

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

Remainder of the year ending March 31, 2024
 
$
25,473
 
Year ending March 31, 2025
   
59,995
 
Year ending March 31, 2026
   
29,509
 
Year ending March 31, 2027
   
13,633
 
Year ending March 31, 2028 and thereafter
   
4,810
 
Total remaining performance obligations
 
$
133,420
 

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

4.
FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Often, 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, 2023, and 2022 (in thousands):