What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-05-21 compared with 2020-05-22 · 242 added, 135 removed, 313 unchanged (55% of the section changed)

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The financial review is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the related notes included elsewhere in this report.

For a discussion of results for the year ended March 31, 2018, see “Item 7.

For a discussion of results for the year ended March 31, 2020 compared to the results for the year ended March 31, 2019, see "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the Securities and Exchange Commission on May 22, 2020.

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We continue to strengthen our relationships with vendors focused on emerging technologies, which have enabled us to provide our customers with new and evolving IT solutions.

We are an authorized reseller of over 1,000 vendors, but primarily of approximately 100 vendors, including Check Point, Cisco Systems, Dell EMC, FireEye, F5 Networks, Gigamon, Hewlett Packard Enterprise, Juniper, McAfee, NetApp, Nimble, Oracle, Palo Alto Networks, Pure Storage, Splunk, VMware, among many others.

We are an authorized reseller of over 1,000 vendors, but primarily of approximately 100 vendors, including Arista Networks, Check Point, Cisco Systems, Dell EMC, F5 Networks, FireEye, Fortinet, Gigamon, Hewlett Packard Enterprise, HP Inc., Juniper, Lenovo, McAfee, NetApp, Nutanix, Oracle, Palo Alto Networks, Pure Storage, Splunk, VMware, among many others.

We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer IT solutions that are optimized for each of our customers’ specific requirements.

Our proprietary software solutions allow our customers to procure, control and automate their IT solutions environment.

The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices.

Governments and public health authorities have required measures to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of non-essential businesses.

As COVID-19 impacts continue to expand across the country and globe, e Plus has been adjusting our business activities for the safety of our employees and to best serve our customers in this rapidly evolving environment.

e Plus has implemented a flexible work from home strategy applicable to all offices and our operational continuity plans ensure that we have sufficient resources to continue supporting our customers.

For example, our managed service teams are distributed across the United States with the ability to leverage technology to provide seamless coverage from any combination of work and/or home offices.

While e Plus and many of our customers and vendor partners have restricted travel, we are leveraging video and other collaborative tools to continue to be responsive.

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 in the future require measures to contain the virus, including 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 to expand across the country and globe, we have been adjusting our business activities for the safety of our employees and to best serve our customers in this rapidly evolving environment.

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.

For employees who wish to return to the office, we have reopened our headquarters along with other sales offices with limited capacity and with required health and safety protocols in place.

We plan to reopen our other offices using a phased approach.

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 and approve employees’ business-related travel.

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 travel, 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.

We are working closely with our partners to address varying impacts on their supply chain to satisfy infrastructure needs.

e Plus has a resource page to support specific customer inquiries from security to collaboration to financing options.

Also, we are working closely with our vendor partners to address varying impacts on their supply chain to satisfy infrastructure needs.

Certain of our vendor partners extended payment terms to us and our competitors.

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 partners.

e Plus remains committed to driving positive business outcomes.

We have an internal resource page to support specific customer inquiries from security to collaboration to financing options.

We remain committed to driving positive business outcomes.

The extent 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 various mutations;

governmental, business, and individuals’ actions in response to the pandemic;

the efficacy of the vaccine, duration of the vaccination distribution, and demand by people to be inoculated;

and the impact on economic activity including the possibility of recession or financial market instability.

These factors may adversely impact business, and government spending 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,” of this Annual Report on Form 10-K.

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 consolidated financial statements, as well as Non-GAAP performance measurement tools.

Generally, a Non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP.

Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

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

Year Ended March 31,

Operating income margin

Net earnings margin

Net earnings per common share - diluted

Net earnings (1)

Net earnings per common share - diluted (1)

Adjusted EBITDA (2)

Adjusted EBITDA margin

Technology Segment

Adjusted gross billings (3)

Operating income

Adjusted EBITDA (2)

Financing Segment

Operating income

Adjusted EBITDA (2)

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.

Year Ended March 31,

Earnings before tax

Share based compensation

Acquisition and integration expense

Acquisition related amortization expense

Earnings before provision for income taxes

Provision for income taxes

Share based compensation

Acquisition and integration expense

Acquisition related amortization expense

Tax benefit on restricted stock

Provision for income taxes

Year Ended March 31,

Net earnings per common share - diluted

Share based compensation

Acquisition and integration expense

Acquisition related amortization expense

Tax benefit on restricted stock

Total non-GAAP adjustments - net of tax

Net earnings per common share - diluted

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.

Year Ended March 31,

Provision for income taxes

Share based compensation

Interest and financing costs

Acquisition and integration expense

Depreciation and amortization

Adjusted EBITDA

Technology Segment

Operating income

Depreciation and amortization

Share based compensation

Interest and financing costs

Acquisition and integration expense

Adjusted EBITDA

Financing Segment

Operating income

Depreciation and amortization

Share based compensation

Adjusted EBITDA

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.

Year Ended March 31,

Technology segment net sales

Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services

Adjusted gross billings

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.

Financial Summary

During the year ended March 31, 2020, net sales increased 15.7% to $1,588.4 million, or an increase of $215.7 million compared to $1,372.7 million in the prior fiscal year.

Product sales for the year ended March 31, 2020, increased 14.1% to $1,395.3 million, or an increase of $172.1 million compared to $1,223.2 million in the prior year.

During the year ended March 31, 2021, net sales decreased 1.3% to $1,568.3 million, or a decrease of $20.1 million compared to $1,588.4 million in the prior fiscal year.

Product sales for the year ended March 31, 2021, decreased 2.1% to $1,366.2 million, or a decrease of $29.1 million compared to $1,395.3 million in the prior year.

Services sales during the year ended March 31, 2021, increased 4.7% to $202.2 million, or an increase of $9.1 million, over prior year services sales of $193.1 million.

There was a substantial increase in demand for products from our customers in the telecom, media and entertainment industries, and increases in the technology, SLED, healthcare, and all other category of customers, offset by a decrease in demand from financial services customers.

Adjusted gross billings increased by 16.1% to $2,227.9 million for the year ended March 31, 2020, compared to $1,919.0 million the prior fiscal year.

The decrease in net sales was mostly due a change in product sales mix, with a greater portion in sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, for which the revenues and cost of sales are presented on a net basis.

We had decreases in net sales to customers in the technology and healthcare markets, which were almost entirely offset by increases in net sales to customers in the telecom, media and entertainment, financial services, and a few smaller other categories of customers, during the year ended March 31, 2021, compared to the prior year.

Adjusted gross billings increased by 1.6%, or $36.0 million, to $2,263.9 million for the year ended March 31, 2021, compared to $2,227.9 million in the prior fiscal year.

The increase in Adjusted gross billings was due to higher demand from our current customers, as well as from our acquisitions.

Net sales increased at a slightly lower percentage than adjusted gross billings year over year due to a shift in mix to third party maintenance, software assurance, subscriptions/SaaS licenses, and services which we recognize revenue on a net basis.

Adjusted gross billings increased year over year while net sales decreased slightly due to a shift in mix to a higher proportion of third-party maintenance, software assurance, subscriptions/SaaS licenses, and services which we recognize revenue on a net basis.

Consolidated gross profit increased 0.6%, to $393.6 million, compared to $391.2 million in the prior fiscal year due to higher margins.

Consolidated gross margin increased 50 basis points to 25.1% for the year ended March 31, 2021, compared to 24.6% for the year ended March 31, 2020.

The increase in gross margin was due to expanded gross profit and margins of our financing segment, a shift in the technology segment revenue mix resulting from our continued focus on value added services for our customers, including the increase in sales of our professional and managed services, and sales of third-party maintenance agreements.

The increase in gross margin was due to expanded gross profit and margins of our technology segment, due to a shift in revenue mix resulting from our continued focus on value added services for our customers, including the increase in sales of our professional and managed services, and sales of third-party maintenance agreements, software assurance, subscriptions/SaaS licenses, and services.

The increase in gross margin was partially offset by lower margins in our finance segment due to gains on several large transactions in the prior year.

For the year ended March 31, 2021, operating expenses decreased $8.7 million, or 2.9%, to $287.2 million, as compared to $295.9 million in the prior year.

The decrease in operating expenses for the year ended March 31, 2021, was due to reductions in selling, general and administrative expenses, interest and financing costs, and depreciation and amortization expense.

Selling, general, and administrative expense for the year, decreased $7.9 million, or 2.8%, to $271.3 million, due to decreases in travel and entertainment, advertising and marketing, employee fringe benefits, a reduction in acquisition related expense, general office related expenses, and salary expense, partially offset by an increase in variable compensation, and our provision for credit losses.

As of March 31, 2021, we had 1,560 employees, a decrease of 1.1% from 1,579 as of March 31, 2020.

Depreciation and amortization expense decreased by $0.2 million and interest and financing costs decreased $0.6 million, due to a decrease in the average balance of non-recourse and recourse notes payable outstanding during the year.

Operating income increased $11.1 million, or 11.6%, to $106.3 million and operating margin increased by 80 basis points to 6.8%, as compared to the year ended March 31, 2020.

The increase in operating earnings was due to a year over year increase in gross profit partially offset by selling, general, and administrative expense increase of 17.8% or $42.1 million, due, in part to increases variable compensation, salaries, healthcare costs, office rent, and software license and maintenance, as well as full year expenses associated with the SLAIT acquisition in January 2019, and the ABS Technology acquisition in August 2019.

As of March 31, 2020, we had 1,579 employees, an increase of 2.7% from 1,537 as of March 31, 2019.

Depreciation and amortization expense increased $2.3 million, due to the acquisitions, and interest and financing costs increased $0.6 million, due to an increase in the average balance of non-recourse and recourse notes payable outstanding during the year.

Our effective tax rate for the year ended March 31, 2020, was 28.0%, compared to 26.7% for the same period in the prior year, due to a decrease in the tax benefit from the vesting of restricted stock.

The higher tax rate had a negative effect on net earnings for the year ended March 31, 2020, of $1.2 million compared to the prior year tax rate.

Net earnings for the year ended March 31, 2020, increased 9.3% to $69.1 million, as compared to the year ended March 31, 2019.

Net earnings for the year ended March 31, 2020, and 2019 included other income of $1.0 and $6.3 million from payments received from distributions from various legal claims.

Adjusted EBITDA for the year ended March 31, 2020, was $119.4 million, an increase of $18.9 million, or 18.9%, compared to $100.4 million in the prior year.

The increase in operating earnings was due to a year over year reductions in selling, general and administrative expense and an increase in gross profit.

Our effective tax rate for the year ended March 31, 2021, was 30.4%, compared to 28.0% for the same period in the prior year primarily due to non-deductible executive compensation.

The higher effective tax rate had a negative effect on earnings for the year ended March 31, 2021.

Net earnings for the year ended March 31, 2021, increased 7.7% to $74.4 million, as compared to $69.1 million for the year ended March 31, 2020.

Net earnings for the year ended March 31, 2020 included other income of $1.0 million from payments received from distributions from various legal claims.

Adjusted EBITDA for the year ended March 31, 2021, was $128.2 million, an increase of $8.9 million, or 7.4%, compared to the prior year.

Adjusted EBITDA margin was 8.2% for the year ended March 31, 2021 an increase of 70 basis points over the prior year.

For the year ended March 31, 2021, diluted earnings per share were $5.54, an increase of $0.39, or 7.6%, compared to the prior year of $5.15 per diluted share.

Non-GAAP diluted earnings per share was $6.13 for fiscal year 2020, an increase of $1.01, or 19.7%, from the prior year of $5.12 per diluted share.

Non-GAAP diluted earnings per share was $6.38 for fiscal year 2021, an increase of $0.25, or 4.1%, from $6.13 per diluted share in the prior year.

Cash and cash equivalents increased $43.3 million, or 50.2%, to $129.6 million at March 31, 2021, compared to March 31, 2020.

The increase is primarily the result of cash flows from operations and a $35 million balance on the accounts receivable component of our credit facility , which was partially offset by an increase in working capital required for the growth in our technology segment, and an increase in our cash conversion cycle, investments in our financing portfolio, and the repurchase of shares of our common stock for $14.4 million under our stock repurchase authorization in the year ended March 31, 2020.

The increase is primarily the result of cash flows from operations , which was partially offset by an increase in working capital required for the growth in our technology segment, and an increase in our cash conversion cycle, investments in our financing portfolio, and the repurchase of shares of our common stock for $6.9 million.

Our cash on hand, funds generated from operations, amounts available under our credit facility and the possible monetization of our investment portfolio have provided sufficient liquidity for our business.

The extent of the impact of COVID-19 is uncertain and may impact our liquidity position over the longer term.

As credit markets have tightened as a result of COVID-19, we may have difficulty funding our financing transactions with lenders which may result in the use of our cash or a decrease in financing originations.

Segment Overview

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The technology segment also provides internet-based business-to-business supply chain management solutions for information technology products.

Customers who purchase IT equipment and services from us may have customer master agreements, or CMAs, with our company, which stipulate the terms and conditions of the relationship.

Customers who purchase IT equipment and services from us may have 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.

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The programs we qualify for are generally set by our reseller authorization level with the vendor.

The authorization level we achieve and maintain governs the types of products we can resell as well as such items as pricing received, funds provided for the marketing of these products and other special promotions.

The authorization level we achieve and maintain governs the types of products we can resell as well as such items as variable discounts applied against the list price, funds provided for the marketing of these products and other special promotions.

These authorization levels are achieved by us through purchase volume, certifications held by sales executives or engineers and/or contractual commitments by us.

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early termination, prepayment, make-whole or buyout fees;

and net gains on the sale of off-lease (used) equipment.

and the sale of off-lease (used) equipment.

We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.

Fluctuations in Operating Results

Our results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, customer demand for our products and services, supplier costs, changes in vendor incentive programs, interest rate fluctuations, decision to sell 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.

We expect to continue to expand by opening new sales locations and 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 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 the impact to the IT market demand for our products and services.

CRITICAL ACCOUNTING ESTIMATES

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Should our actual performance be different from our estimates, we may be required to adjust our receivables.

RESERVES FOR CREDIT LOSSES — We maintain our reserves for credit losses related to our accounts receivable and financing receivables at levels believed to be adequate to absorb potential losses inherent in their respective balances.

We assign an internal rating for the credit quality of all new customers and update these ratings regularly, but no less than annually.

Our determination of the adequacy of the reserve for credit losses for our accounts receivable is based on the age of the receivable balance, our internal rating of the customer’s credit quality, our historical credit losses, current economic conditions, and other relevant factors.

Our determination of the adequacy of the reserve for credit losses for financing receivables is based on our internal rating of the customer’s credit quality, our historical credit losses, current economic conditions, the fair value of the underlying collateral, and the volume, growth, the composition of the lease portfolio, and other relevant facts.

We adjust our reserve for credit losses to reflect transfers of financial assets that are recognized as non-recourse debt.

Our ongoing consideration of all these factors could result in an increase in our reserve for credit losses in the future, which could adversely affect our operating results.

ALLOWANCE FOR CREDIT LOSSES — We maintain an allowance for credit losses related to our accounts receivable and financing receivables.

We measure expected credit losses on a collective (pool) basis when similar risk characteristics exist.

Prior to providing credit, we assign an internal rating for each customer’s credit quality based on the customer’s financial status, rating agency reports and other financial information.

We review our internal ratings for each customer at least annually or when there is an indicator of a change in credit quality, such as a delinquency or bankruptcy.

We estimate a loss rate for each pool using the historical loss rate as a basis and adjust for differences in asset specific risk and current conditions.

Since the onset of COVID-19, we have recognized an increase in the allowance to reflect forecasted credit deterioration.

Should our actual credit losses be different from our estimates, this will result in adjustments to credit losses that could adversely affect our operating results.

INCOME TAXES — We make certain estimates and judgments in determining income tax expense for financial statement reporting purposes.

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BUSINESS COMBINATIONS — We account for business combinations using the acquisition method.

For each acquisition, we recognize the majority of assets acquired and liabilities assumed at their fair values at the acquisition date.

For each acquisition, we recognize most assets acquired, and liabilities assumed at their fair values at the acquisition date.

Our valuations of certain assets acquired, including customer relationships and trade names, and certain liabilities assumed, such as performance obligations, involve significant judgement and estimation.

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Adjusted EBITDA

Net sales for the year ended March 31, 2020, increased by $200.6 million, or 15.1%, to $1,530.1 million due to increases from customers in telecom, media and entertainment industry which was partially offset by a decrease in demand from SLED, financial services, and all the other category of customers.

Product sales increased 13.3%, or $157.0 million, to $1,337.0 million and services revenues increased 29.2%, or $43.6 million, to $193.1 million due to an increase in staffing and professional and managed services primarily from the SLAIT acquisition.

Net sales for the year ended March 31, 2021, decreased by $22.2 million, or 1.4%, to $1,508.0 million due to a decrease in net sales to our customers in technology, healthcare, and all the other category of customers, partially offset by increases in net sales to our customers in the telecom, media and entertainment, financial services, and SLED sectors.

Product sales decreased 2.3%, or $31.2 million, to $1,305.8 million and services revenues increased 4.7%, or $9.0 million, to $202.2 million due to an increase in managed services for the year ended March 31, 2021, as compared to the prior year.

Adjusted gross billings increased to $2,263.9 million, or 1.6%, from $2,227.9 million in the prior year.

The increase in adjusted gross billings was due, in part, to acquisitions as well as higher demand from our current customers.

This increase was a higher percentage than that for the net sales increase due a shift in mix to more third-party maintenance, software assurance, subscriptions/SaaS licenses, and services where we recognize revenue on a net basis.

The increase in Adjusted gross billings was due to our acquisition of Systems Management and Planning, Inc.

(“SMP ”) and an increase in organic demand from our customers in the telecom, media and entertainment, SLED, financial services, and smaller other categories of customers.

Despite the increase in Adjusted gross billings, we had a decrease in net sales due a shift in mix to more third-party maintenance, software assurance, subscriptions/SaaS licenses, and services for which we recognize revenue on a net basis.

We analyze sales by customer end market and by manufacturer.

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Revenue by customer end market:

Financial Services

Telecom, Media & Entertainment

Financial Services

Twelve Months Ended

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Our revenues by customer end market have remained consistent over the prior year, with over 80% of our sales being generated from customers within the five end markets specified above.

In fiscal year 2020, we had a percentage increase in revenues from customers in telecommunications, media and entertainment, a consistent percentage for healthcare, and decreases in the percentage of revenues for technology, SLED, financial services, and all other category of customers.

These changes were driven by changes in customer buying cycles and specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.

The majority of our revenues by vendor are derived from Cisco Systems, Dell/EMC, Hewlett Packard companies, and NetApp which collectively remain at or above 55% of total revenues for both fiscal year 2020 and 2019.

None of the vendors included within the “other” category exceeded 5% of total revenues.

In fiscal year 2021, we had an increase in the percentage total revenues from customers in the telecom, media and entertainment industry, and decreases in the percentage of total revenues in the technology, and, healthcare industry.

These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.

The percentage of sales revenues for SLED, financial services, and the all other category remained constant year over year

The majority of our revenues by vendor are derived from our top six suppliers, which, when combined, is a fairly constant percentage of 60% or more of total revenues for the twelve-month periods ended March 31, 2021, and 2020.

Cost of sales:

The 14.9% increase in cost of sales was due to the increase in product sales, and a higher amount of services revenues, partially offset by an improvement in gross margin on product sales.

Gross margin increased 10 basis points to 22.3% for the year ended March 31, 2020, from 22.2% in the prior year due to an increase in sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, for which the revenues are presented on a net basis, as well as increases in revenues from our professional and managed service.

Vendor incentives earned as a percentage of sales for the year ended March 31, 2020, and 2019 remained constant.

The 2.3% decrease in cost of sales was due to the decrease in product sales and a change in product sales mix, with a greater portion from sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, for which the revenues and cost of sales are presented on a net basis, and with a greater portion from services revenue, for which we have higher profit margins.

Gross profit :

Gross profit increased 1.7%, to $346.2 million, compared to $340.6 million in the prior fiscal year due to higher margins.

Gross margin on product sales increased 60 basis points to 20.6% due a shift in product mix to a greater proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services.

The gross margin on services increased 50 basis points to 38.1%.

for the year ended March 31, 2021, due to the increase in managed services, as compared to the prior year.

Vendor incentives earned as a percentage of sales for the year ended March 31, 2021 declined by 30 basis points, which has a negative effect on gross margin, as compared to the prior year.

Selling, general, and administrative expenses:

Selling, general, and administrative expenses of $264.1 million for the year ended March 31, 2020, increased by $38.0 million, or 16.8% compared to the prior year.

Salaries and benefits increased $32.2 million or 17.2% to $219.0 million, compared to $186.8 million during the prior year.

Approximately 39.6% of this increase was due to higher variable compensation due to the increase in gross profit, and the remaining increase was due to the costs for employees acquired in the acquisition of SLAIT in January 2019 included for the entire current fiscal year, the acquisition of ABS technology in August 2019, and organic position additions.

Our technology segment had 1,543 employees as of March 31, 2020, an increase of 40, or 2.7%, from 1,503 at March 31, 2019.

There was an increase 52 positions related to sales, marketing, and professional services personnel, along with a reduction in administrative positions.

Employee benefits, including healthcare, increased $1.9 million, or 8.9% over the prior year.

General and administrative expenses, excluding acquisition related expense, increased $5.8 million, or 15.7%, to $42.9 million during the fiscal year ended March 31, 2020, compared to $37.1 million the prior year.

Contributing to the increase in costs were the operational expenses for the full calendar year related to the acquisition of SLAIT and also the partial year operational expenses related to the ABS Technology acquisition, as well as increases in the cost of software licenses and maintenance.

Selling, general, and administrative expenses of $256.2 million for the year ended March 31, 2021, decreased by $7.9 million, or 3.0% compared to the prior year, due to decreases in travel and entertainment, advertising and marketing, acquisition related expense, and general office related expenses, partially offset by an increase in variable compensation.

Salaries and benefits, including variable compensation, increased $2.8 million or 1.3% to $221.8 million, compared to $219.0 million during the prior year, due to higher variable compensation a result of the increase in gross profit.

Our technology segment had 1,526 employees as of March 31, 2021, which is a decrease of 17, or 1.1%, from 1,543 at March 31, 2020.

We added 102 employees on December 31, 2020 due to our acquisition of SMP.

Our overall decrease of 17 employees from March 31, 2020 to March 31, 2021 was primarily attributable to an overall decrease of 14 positions in sales and marketing.

General and administrative expenses, excluding acquisition related expense and provision for credit losses, decreased $9.3 million, or 21.7%, to $33.6 million during the year ended March 31, 2021, compared to $42.9 million the prior year.

Contributing to the year over year decrease in general and administrative expense were reductions in travel and entertainment, advertising and marketing, and general office related expenses.

Some of the reduction in general and administrative expense was driven by changes as a result of the COVID-19 pandemic and management cost reduction efforts.

Acquisition related expenses in the year ended March 31, 2021 were $1.4 million lower than the prior year expense which included adjustments to contingent consideration related to a previous acquisition of $1.4 million.

Depreciation and amortization expense:

Depreciation and amortization expense increased $2.2 million, or 18.7%, to $14.0 million during the fiscal year ended March 31, 2020, compared to $11.8 million in the prior year.

The increase is related to the SLAIT and ABS Technology acquisitions.

Depreciation and amortization expense decreased $0.2 million, or 1.3%, to $13.8 million during the fiscal year ended March 31, 2021, compared to $14.0 million in the prior year.

Interest and financing costs:

Interest and financing costs were $0.5 million for the year ended March 31, 2021, compared to $0.3 million in the prior year.

Segment earnings :

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Net sales increased by $2.1 million, or 3.6%, to $60.4 million for the year ended March 31, 2021.

The increase was due to significantly higher transactional gains and higher portfolio earnings and to a lesser degree by increases other financing revenues and post-contract earnings.

Transactional gains increased $12.7 million to $21.8 million compared to the prior year due to a higher volume of sales of financing receivables, particularly with government-related customers, and portfolio earnings increased $1.4 million to $14.7 million, due to increases in sales-type lease earnings and notes receivable earnings over the prior fiscal year.

Other financing revenues increased $0.7 million to $2.4 million compared to the prior year, while post-contract earnings increased $0.3 million to $19.4 million.

The increase was due to higher post contract earnings, portfolio earnings, and other financing revenues, partially offset by gains on several significant transactions in the prior year.

Post-contract earnings increased by $4.4 million to $23.8 million as compared to $19.4 million in the prior year due to gain on the sale of equipment at the end of leases.

Portfolio earnings increased $1.8 million to $16.5 million, due to increases in sales-type lease earnings and notes receivable earnings over the prior fiscal year.

Other financing revenues increased $3.2 million to $5.6 million, compared to the prior year primarily due to higher profit being recognized upon the extension of certain operating leases where the modified leases were determined to be sales-type leases.

Transactional gains decreased $7.3 million to $14.5 million compared to the prior year which had a high volume of sales of financing receivables, particularly with government-related customers.

T otal proceeds from sales of financing receivables were $364.0 million and $593.7 million for the years ended March 31, 2021, and 2020, respectively .

Our total financing receivables and operating leases increased as of March 31, 2020, to $144.3 million from $122.8 million in the prior year, which was due to an increase in notes receivable of $14.4 million and an increase of $8.4 million in sales-type leases, partially offset by a decrease of $1.3 million operating leases as compared to the prior year, respectively .

Direct lease costs:

Direct lease costs increased 3.2%, or $0.2 million, to $7.7 million for the year ended March 31, 2020, as compared to the prior year, due to an increase in other lease expense in the current year by $0.9 million, and cost of off-lease equipment sales of $0.3 million, mostly offset by a reduction in operating lease depreciation expense of $1.0 million.

Gross profit increased 41.6%, or $14.9 million, to $50.6 million primarily due to higher transactional gains and higher portfolio earnings as compared to the prior year.

Cost of sales :

Cost of sales, which consists of depreciation expense from operating leases and cost of off-lease equipment sales , increased 70.3%, or $5.4 million, to $13.1 million for the year ended March 31, 2021, as compared to the prior year, due to an increase in the cost of off-lease equipment sales of $4.4 million and increase in operating lease depreciation of $0.9 million.

Gross profit decreased 6.5%, or $3.3 million, to $47.3 million primarily due to gains on several significant transactions in the prior year.

Selling, general, and administrative expenses:

Selling, general, and administrative expenses were $15.1 million, an increase of $4.1 million or 37.3%, due primarily to an increase in salaries and benefits and reserves for credit losses.

Salaries and benefits increased by $3.4 million, or 37.7%, to $12.4 million primarily due to an increase in variable compensation of $2.5 million and an increase in other salaries and benefits.

Our financing segment employed 36 people as of March 31, 2020, compared to 34 employees as of March 31, 2019, an increase of 5.9%.

Reserve for credit losses increased $0.5 million over the prior year.

Selling, general, and administrative expenses were $15.1 million for both the years ended March 31, 2021 and 2020.

Increases in our provision for credit losses of $0.4 million and variable compensation of $0.3 million, were offset by reductions in general and administrative expense of $0.6 million and salaries and benefits of $0.1 million, for the year ended March 31, 2021 as compared to the prior year.

Our financing segment employed 34 people as of March 31, 2021, compared to 36 employees as of March 31, 2020, a decrease of 5.6%.

Certain support functions for the financing segment are outsourced to the technology segment.

Interest and financing costs:

Costs increased by $0.3 million, or 17.0%, to $2.3 million during the year ended March 31, 2020, as compared to the prior year.

Our total notes payable for the financing segment decreased as of March 31, 2020, to $37.8 million from $48.7 million for the prior year, although our average balance of notes payable outstanding during the year was higher than during the year ended March 31, 2019.

Interest and financing costs decreased by $0.8 million, or 34.9%, to $1.5 million for the year ended March 31, 2021, as compared to the prior year.

Our total notes payable for the financing segment increased as of March 31, 2021, to $56.1 million from $37.8 million for the prior year, although our average balance of notes payable outstanding during the year was lower than during the year ended March 31, 2020.

Our weighted average interest rate for our non-recourse notes payable was 3.35% as of March 31, 2021, compared to 3.84% for March 31, 2020.

Segment earnings :

As a result of the foregoing, operating income increased $10.3 million, or 45.3%, to $33.1 million for the year ended March 31, 2020, as compared to $22.8 million in the prior year.

Adjusted EBITDA increased $10.3 million, or 44.4%, to $33.5 million for the year ended March 31, 2020, as compared to $23.2 million in the prior year.

As a result of the foregoing, operating income decreased $2.5 million, or 7.4%, to $30.7 million for the year ended March 31, 2021, as compared to the prior year.

Adjusted EBITDA decreased $2.5 million, or 7.4%, to $31.0 million for the year ended March 31, 2021, as compared to the prior year.

Other income:

Other income and expense during the year ended March 31, 2020, was $0.7 million and included other non-operating income of $1.0 million from payments received from distributions from various legal claims.

Other income and expense during the year ended March 31, 2021, was income of $0.6 million and included foreign exchange rate gain of $0.5 million and interest income of $0.1 million.

Other non-operating income of $0.7 million for the prior year included $1.0 million from payments received from distributions from various legal claims and interest income of $0.1 million, partially offset by foreign exchange rate loss of $0.4 million.

Income taxes:

Our effective income tax rates for the years ended March 31, 2021, and 2020 were 30.4% and 28.0%, respectively.

The increase in our effective income tax rate is due to a decrease in the tax benefit from the vesting of restricted stock.

The increase in our effective income tax rate is primarily due to non-deductible executive compensation.

Net earnings:

Net earnings were $74.4 million for the year ended March 31, 2021, an increase of 7.7% or $5.3 million as compared to $69.1 million in the prior fiscal year.

The net earnings increase was due primarily to the increase in operating profits from the financing segment and technology segment, partially offset by reductions in other income and the higher tax rate in the current year compared to the year ended March 31, 2019.

The net earnings increase was due primarily to the increase in operating profits from our technology segment, partially offset by lower financing segment profits and the higher tax rate in the current year compared to the year ended March 31, 2020.

Basic and fully diluted earnings per common share for the year ended March 31, 2021, were $5.58 and $5.54, and increased 7.7% and 7.6% over the prior year, respectively.

Basic and fully diluted earnings per common share were $5.18 and $5.15, respectively, for the year ended March 31, 2020.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for the year ended March 31, 2020, were 13.3 million and 13.4 million, respectively.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for the year ended March 31, 2019, were 13.4 million and 13.6 million, respectively.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for both the years ended March 31, 2021 and 2020, were 13.3 million and 13.4 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Overview

Our primarily source of funding is cash from operations and borrowings which are accounted for as non-recourse and recourse notes payable.

Our primary source of funding is cash from operations and borrowings which are accounted for as non-recourse and recourse notes payable.

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

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Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash flows from operating activities

We used $74.2 million from operating activities during the year ended March 31, 2020, compared to $39.4 million provided by operating activities during the year ended March 31, 2029.

Our operating activities provided $129.5 million during the year ended March 31, 2021, compared to using $74.2 million during the year ended March 31, 2020.

The following table provides a breakdown of operating cash flows by segment for the years end March 31, 2021, and 2020 (in thousands):

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Technology Segment :

During the year ended March 31, 2020, operating cash flows used by our technology segment was $15.8 million as cash generated from earnings were exceeded by changes in working capital.

In addition, cash provided by the accounts payable – floor plan facility was $11.3 million.

During the year ended March 31, 2021, operating cash flows provided by our technology segment were $153.3 million due to cash generated from earnings and changes in working capital.

Cash used by the accounts payable – floor plan facility was $34.4 million.

Accounts payable – floor plan is a facility used to manage working capital needs and we are required to present changes in this balance as financing activity in our consolidated statement of cash flows.

During the year ended March 31, 2019, our technology segment provided $31.8 million from operating activities due to cash generated from earnings exceeding changes in working capital.

During the year ended March 31, 2020, operating cash flows used by our technology segment was $15.8 million as cash generated from earnings were exceeded by changes in working capital.

In addition, cash provided by the accounts payable – floor plan facility was $11.3 million.

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however, certain customers or orders may be approved for extended payment terms.

Our DSO increased due to an increase in sales during the quarter ended March 31, 2020, to customers with terms greater than or equal to net 60 days.

Our DSOs for the quarters ended March 31, 2021 and 2020 were greater than our standard payment terms primarily due to a significant proportion of sales in those quarters to customers with payment terms greater than or equal to net 60 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 cash conversion cycle was 37 days for March 31, 2020, compared to 27 days for March 31, 2019 primarily driven by an increase in DSO from 59 days as of March 31, 2019, to 71 days in March 2020.

Our cash conversion cycle remained at 37 days for March 31, 2021 compared to 37 days for March 31, 2020 as a 4 day increase in DIO was offset by a 2 day decrease in DSO and a 2 day increase in DPO from March 31, 2020 to March 2021.

Financing Segment :

During the year ended March 31, 2021, our financing segment used $23.8 million from operating activities, primarily due to the issuance of new financing receivables.

During the year ended March 31, 2019, our financing segment provided $7.7 million from operating activities, primarily due to changes in working capital.

When we adopted ASC 842, we elected the transition option to not restate comparative periods.

In the comparative period, changes in financing receivables not sourced through us are reflected in cash flows from investing activities.

With the adoption of ASC 842, for periods beginning after April 1, 2019, we recognize the change in financing receivables, including the issuance of financing receivables offset by repayments of financing receivables and the proceeds from the transfer of financing receivables when we account for the transfer as a sale, as part of operating activities.

During the year ended March 31, 2020, our financing segment used $58.4 million from operating activities, primarily due to the issuance of new financing receivables.

Cash flows related to investing activities

During the year ended March 31, 2021, we used $35.8 million from investing activities, consisting of $27.0 million for our acquisition of SMP and $11.5 million for purchases of property, equipment and operating lease equipment, and offset by $2.8 million of proceeds from the sale of property, equipment, and operating lease equipment.

During the year ended March 31, 2020, we used $20.3 million from investing activities, consisting of $15.0 million for acquisitions and $7.0 million for purchases of property, equipment and operating lease equipment, and offset by $1.7 million of proceeds from the sale of property, equipment, and operating lease equipment.

During the year ended March 31, 2019, we used $96.2 million from investing activities, including $49.8 million for acquisitions and $11.6 million for purchases of property, equipment and operating lease equipment.

We elected not to update our cash flows using the transition option available when we adopted ASC 842 in this period.

Therefore, cash used in investing activities also included net cash outflows related to financing receivables of $38.4 million, consisting of the issuance of financing receivables of $175.4 million, purchases of assets to be leased or financed of $10.4 million, and was partially offset by cash proceeds from the repayment of financing receivables of $73.9 million, and the sale of financing receivables of $73.4 million.

Cash flows from financing activities

During the year ended March 31, 2021, we used $49.8 million from financing activities.

We had net repayments on the accounts receivable component of our credit facility of $35.0 million, offset by net borrowings of non-recourse and recourse notes payable of $27.1 million by our financing segment.

Contributing to cash outflows was net repayments on floor plan facility of $34.4 million, repurchase of common stock of $6.9 million, and payments to payoff contingent consideration agreements and hold backs from prior fiscal year acquisitions of $0.6 million.

During the year ended March 31, 2020, cash provided by financing activities was $100.6 million, consisting of net borrowings of non-recourse and recourse notes payable of $74.5 million by our financing segment, net borrowings on the accounts receivable component of our credit facility of $35.0 million, net borrowings on floor plan facility of $11.3 million, and offset by $14.4 million in repurchase of common stock and $5.8 million in payments of contingent consideration for acquisitions.

During the year ended March 31, 2019, cash provided by financing activities was $18.5 million, which was primarily due to net borrowings of non-recourse and recourse notes payable of $40.9 million, and net borrowing on floor plan facility of $4.0 million, partially offset by cash used for the repurchase of common stock of $18.8 million, and repayment of financing of acquisitions of $7.6 million.

Our borrowing of non-recourse and recourse notes payable primarily arises from our financing segment when we transfer contractual payments due to us under financing agreements to third-party financial institutions.

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As a result of COVID-19, credit markets have tightened.

We may no longer be able to transfer receivables from certain customers with lower credit quality to financial institutions.

Our lenders are more discerning and are taking longer to approve transactions.

In addition, certain lenders have narrowed their demand to certain types of transactions and/or credit quality and excluding others.

For example, some lenders have declined transactions that have longer terms or transactions with certain market segments.

Therefore, we may no longer be able to transfer certain receivables to financial institutions which may result in investing our capital or declining the transaction.

Credit facility — Technology segment

Our subsidiary, e Plus Technology, inc., and certain of its subsidiaries, have a credit facility from WFCDF to finance their operations.

Within our technology segment, ePlus Technology, inc., and certain of its subsidiaries have a financing facility from WFCDF to finance their working capital requirements for inventories and accounts receivable.

There are two components of this facility:

(1) a floor plan component and (2) an accounts receivable component.

As of March 31, 2020, except during a temporary uplift, the facility had an aggregate limit of $ 250 million for the two components and the accounts receivable component had a sub-limit of $50 million, which bears interest assessed at a rate of the One Month LIBOR plus two- and one-half percent.

We had an election beginning July 1 in each year to temporarily increase the aggregate limit of the two components to $325 million ending the earlier of 90 days following the election or October 31 of that same year.

(1) a floor plan component;

and (2) an accounts receivable component.

On March 31, 2020, we executed an additional amendment to the WFCDF credit facility that temporarily increased the aggregate limit of the two components from $250.0 million to $300.0 million through May 5, 2020.

Similarly, the amendment temporarily increased the limit on the accounts receivable component of the WFCDF credit facility to $75.0 million through April 14, 2020.

The facility between Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”) and ePlus Technology, inc.

provides that ePlus Technology, inc.

may make loans or advances in the ordinary course of business up to $30.0 million, if (i) we are not in default under the terms and conditions of the agreement, and (ii) our available borrowing as defined in the credit facility is not less than $20.0 million.

However, prior written consent is required to make loans or advances to affiliates outside of normal course of business.

In addition, ePlus Technology, inc.

may make a dividend to ePlus inc.

if, after giving effect to such dividend and as of the date of the dividend;

(i) we are not in default under the terms and conditions of the agreement, (ii) our available borrowing as defined in the credit facility is not less than $20.0 million, and (iii) we do not have any outstanding borrowings under the accounts receivable component of the credit facility.

Under the amendment signed March 31, 2020, the third condition does not apply as of March 31, 2020.

We meet the first two criteria as of March 31, 2020, and, as such, there were no restricted net assets of ePlus Technology, inc as of that date.

The facility includes certain covenants including a minimum excess availability of the facility and for e Plus Technology, inc to attain certain minimum earnings before interest, taxes, depreciation and amortization.

We were compliant with these covenants as of March 31, 2020.

We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility.

This credit facility is secured by the assets of e Plus Technology, inc.

and certain of its subsidiaries.

Additionally, the WFCDF credit facility requires a guaranty of $10.5 million by e Plus inc.

Either party may terminate the credit facility with 90 days advance written notice.

The loss of the WFCDF credit facility, including due to circumstances related to COVID-19, 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.

On May 18, 2020, we executed an additional amendment to the WFCDF credit facility that increased the aggregate limit of the two components, except during a temporary uplift, to $275.0 million.

On May 15, 2020, we executed an amendment to the WFCDF credit facility that increased the aggregate limit of the two components, except during a temporary uplift, to $275.0 million.

Additionally, we have an election to temporarily increase the aggregate limit to $350.0 million for a period of not less than 30 days, provided that all such periods shall not exceed 150 days in the aggregate in any calendar year.

Further, the amendment increased the limit on the accounts receivable component of the WFCDF credit facility to $100.0 million, reduced the interest rate to LIBOR plus 2.00%, and removed certain restrictions on ePlus Technology, inc.’s ability to pay dividends to ePlus inc.

Further, the amendment increased the limit on the accounts receivable component of the WFCDF credit facility to $100.0 million, changed the interest rate to two percent (2.00%) plus the greater of one month LIBOR or seventy-five hundredths of one percent (0.75%), and modified certain restrictions on ePlus Technology, inc.’s ability to pay dividends to ePlus inc.

As of March 31, 2021, the limit of the two components of the credit facility was $275 million, and the accounts receivable component had a sub-limit of $100 million.

Our borrowing availability under the credit facility varies based upon the value of the receivables and inventory of ePlus Technology, inc.

and certain of its subsidiaries.

The WFCDF credit facility is secured by the assets of ePlus Technology, inc.

and certain of its subsidiaries.

Additionally, the credit facility requires a guaranty of $10.5 million by ePlus inc.

The credit facility restricts the ability of ePlus Technology, inc.

and certain of its subsidiaries to pay dividends to ePlus inc.

unless their available borrowing meets certain thresholds.

As of March 31, 2021, their available borrowing met the threshold such that there were no restricted net assets of ePlus Technology, inc.

The credit facility requires that financial statements of ePlus Technology, inc.

and certain of its subsidiaries be provided within 45 days of each quarter and 90 days of each fiscal year end and requires that other operational reports be provided on a regular basis.

Either party may terminate with 90 days’ advance notice.

The loss of the WFCDF credit facility, including during circumstances related to COVID-19, could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process.

Floor plan component

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Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date.

In addition, certain suppliers have temporarily extended their repayment terms to us due to COVID-19.

Most customer payments in our technology segment are remitted to our lockboxes.

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The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets.

Our borrowings and repayments under the accounts component 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.

Our borrowings and repayments under the accounts receivable component are included in “borrowings of non-recourse and recourse notes payable” and “repayments of non-recourse and recourse notes payable,” respectively, within cash flows from the financing activities in our consolidated statements of cash flows.

As of March 31, 2021, we did not have any outstanding balance under the accounts receivable component of the WFCDF credit facility.

The maximum credit limit under this facility was $100.0 million.

As of March 31, 2020, we had $35.0 million outstanding under the accounts receivable component of the WFCDF credit facility and a maximum credit limit of $75.0 million.

As of March 31, 2019, we had no amounts outstanding under the accounts receivable component of the WFCDF credit facility and a maximum credit limit of $50.0 million.

We may maintain or increase this outstanding balance to assist in mitigating risk as a result of COVID-19.

We may from time to time maintain a balance on the accounts receivable component to assist in mitigating risk arising from COVID-19.

Performance Guarantees

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Contractual Obligations

The impact that our contractual obligations as of March 31, 2020, are expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

Our estimated future undiscounted payments under contractual obligations that existed as of March 31, 2021 (in thousands):

Payments Due by Period

Less than 1 year

More than 5 years

Non-recourse notes payable (1)

Interest payments on non-recourse notes payable (2)

Recourse notes payable

Operating lease obligations

(1) Payments reflect principal amounts related to the recourse and non-recourse notes payable.

Hosted software

(1) Our customers are responsible for repaying the debt from a secured borrowing accounted for as non-recourse debt.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis