EPLUS INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our 2021 Annual Report. These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in Part I, Item 1A, “ Risk Factors ,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “ Risk Factors ” in this Report. On December 13, 2021, we completed a two-for-one stock split in the form of a stock dividend. References made to outstanding shares or per share amounts have been retroactively adjusted for this stock split. EXECUTIVE OVERVIEW BUSINESS DESCRIPTION We are a leading solutions provider that delivers actionable outcomes for organizations by using IT and consulting solutions to drive business agility and innovation. Leveraging our engineering talent, we assess, plan, deliver, and secure solutions comprised of leading technologies and consumption models aligned with our customers’ needs. Our expertise and experience enable us to craft optimized solutions that take advantage of the cost, scale and efficiency of private, public and hybrid cloud in an evolving market. We also provide consulting, staffing, professional, managed, IT staff augmentation, and complete lifecycle management services including flexible financing and solutions in the areas of security, cloud, networking, data center, collaboration and emerging technologies. We have been in the business of selling, leasing, financing, and managing IT and other assets for more than 30 years. Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-premise and in the cloud. Our approach is to lead with advisory consulting to understand our customers’ needs, and then design, deploy and manage solutions aligned to their objectives. Underpinning the broader areas of Cloud, Security, Networking, Data Center and Collaboration are specific skills in orchestration and automation, application modernization, DevOps, data management, data visualization, analytics, network modernization, edge compute and other advanced and emerging technologies. These solutions are comprised of class-leading technologies from partners such as Amazon Web Services, Arista Networks, Check Point, Cisco Systems, Citrix, Commvault, Dell EMC, F5 Networks, Fortinet, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Pure Storage, Rubrik, Splunk, Varonis, and VMware, among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized for each of our customers’ specific requirements. Our hosted, proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their owned, leased, and consumption-based assets. Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay on the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled e Plus to remain a trusted advisor for our customers. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We believe our lifecycle approach offering of integrated solutions, services and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a customized customer experience that spans the continuum from fast delivery of competitively priced products, services, subsequent management and upkeep, through to end-of-life disposal services. This approach permits e Plus to deploy sophisticated solutions enabling our customers’ business outcomes. Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local government and educational institutions (“ SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which accounts for most of our sales, and to customers in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, and Singapore . Our technology segment accounts for 96% of our net sales, and 73% of our operating income, while our financing segment accounts for 4% of our net sales, and 27% of our operating income, for the nine months ended December 31, 2021. 27 Table of Contents BUSINESS TRENDS COVID-19 pandemic update : The novel coronavirus (“COVID-19”) pandemic continues to have widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and local governments and public health authorities have required and may in the future require measures to contain the virus, including rules related to vaccine status, social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, safety-related modifications to workplaces, supply chain logistical changes, and closure of non-essential businesses. As COVID-19 impacts continue across the country and globe, we have been adjusting our business activities for the safety of our employees and to best serve our customers in this rapidly evolving environment. Most of our offices are open, with required health and safety protocols in place. However, we have implemented a flexible work from home strategy applicable to all offices and operational continuity plans to provide sufficient resources to continue supporting our customers, and we will continue to evaluate returning to the office on an ongoing basis. Our configuration centers have remained open with our employees working in them following required health and safety protocols. In addition, we also have a procedure to review our employees’ business-related travel in accordance with health regulations and guidance. Our managed service teams are distributed across the US with the ability to leverage technology to provide coverage while working from home. While we and many of our customers and vendor partners have restricted in-person meetings, we are leveraging video and other collaborative tools to continue to be responsive. Our account relationship teams are actively engaging with our customers to ensure they have the support needed in adjusting to changes in the business environment and government directives. Also, we are working closely with our vendor partners to address varying impacts on their supply chains, which have been impacted by materials shortages. We continue to execute against and adjust our business continuity plans to maximize our ability to support our employees and customers in concert with our vendor partners. We have an internal resource page to support specific customer inquiries from security to collaboration to financing options. We remain committed to driving 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 variants; governmental, business, and individuals’ actions in response to the pandemic; the efficacy of vaccines and boosters; the willingness of people to be inoculated; potential vaccine-related regulations; court rulings; and the impact on economic activity including the possibility of recession, inflation, or financial market instability. These factors may adversely impact business and government 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,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “ Risk Factors ” in this Report . Supply constraints : A worldwide shortage of certain IT products is resulting from, among other things, shortages in semiconductors and other product components. Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, the costs of products, vendor return and cancellation policies, and our ability to meet customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters. Inflation : For the periods presented herein, inflation has not had a material effect on our results of operations. We have experienced increases in prices from our suppliers as well as rising wages and interest rates. We generally have been able to pass price increases to our customers. Our labor costs related to services we perform will take longer to pass to customers that have services engagements where prices may be set. Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds and lock in our profit on the transaction. There can be no assurances, however, that inflation would not have a material impact on our sales, gross profit or operating costs in the future. 28 Table of Contents KEY BUSINESS METRICS Our management monitors several financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, net earnings per common share, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross billings, and Non-GAAP Net earnings per share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets. These key indicators include financial information that is prepared in accordance with US GAAP and presented in our unaudited consolidated financial statements, as well as Non-GAAP performance measurement tools. Generally, a Non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Our key business metrics for the three- and nine-month periods ended December 31, 2021, and 2020 are summarized in the following tables (dollars in thousands): Three Months Ended December 31, Nine Months Ended December 31, Consolidated 2021 2020 2021 2020 Net sales $ 494,834 $ 427,604 $ 1,369,500 $ 1,215,716 Gross profit $ 117,117 $ 98,151 $ 345,631 $ 295,670 Gross margin 23.7 % 23.0 % 25.2 % 24.3 % Operating income margin 7.3 % 6.8 % 8.2 % 6.8 % Net earnings $ 26,424 $ 21,638 $ 81,355 $ 58,844 Net earnings margin 5.3 % 5.1 % 5.9 % 4.8 % Net earnings per common share - diluted $ 0.98 $ 0.81 $ 3.03 $ 2.20 Non-GAAP: Net earnings (1) $ 29,711 $ 23,929 $ 90,870 $ 66,606 Non-GAAP: Net earnings per common share - diluted (1) $ 1.10 $ 0.89 $ 3.38 $ 2.48 Adjusted EBITDA (2) $ 41,797 $ 34,395 $ 130,264 $ 98,670 Adjusted EBITDA margin 8.4 % 8.0 % 9.5 % 8.1 % Purchases of property and equipment used internally $ 1,339 $ 959 $ 3,594 $ 4,060 Purchases of equipment under operating leases 3,793 1 17,781 167 Total capital expenditures $ 5,132 $ 960 $ 21,375 $ 4,227 Technology Segment Net sales $ 476,975 $ 415,570 $ 1,313,634 $ 1,176,153 Adjusted gross billings (3) $ 685,031 $ 587,825 $ 1,982,162 $ 1,735,283 Gross profit $ 104,483 $ 88,321 $ 304,994 $ 262,359 Gross margin 21.9 % 21.3 % 23.2 % 22.3 % Operating income $ 27,166 $ 22,829 $ 82,640 $ 61,658 Adjusted EBITDA (2) $ 32,794 $ 27,876 $ 99,811 $ 77,312 Financing Segment Net sales $ 17,859 $ 12,034 $ 55,866 $ 39,563 Gross profit $ 12,634 $ 9,830 $ 40,637 $ 33,311 Operating income $ 8,919 $ 6,434 $ 30,200 $ 21,087 Adjusted EBITDA (2) $ 9,003 $ 6,519 $ 30,453 $ 21,358 29 Table of Contents (1) Non-GAAP Net earnings and Non-GAAP Net earnings per common share – diluted is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share-based compensation, and acquisition and integration expenses, and the related tax effects. We use Non-GAAP Net earnings per common share as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP Net earnings per common share provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAP Net earnings per common share provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate similar Non-GAAP Net earnings and Non-GAAP Net earnings per common share or similarly titled measures differently, which may reduce their usefulness as comparative measures. Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 GAAP: Earnings before tax $ 35,910 $ 30,076 $ 112,463 $ 83,840 Share based compensation 1,780 1,756 5,355 5,427 Acquisition and integration expense - 233 - 232 Acquisition related amortization expense 2,497 1,986 7,854 6,386 Other (income) expense 175 (813 ) 377 (1,095 ) Non-GAAP: Earnings before provision for income taxes 40,362 33,238 126,049 94,790 GAAP: Provision for income taxes 9,486 8,438 31,108 24,996 Share based compensation 470 493 1,494 1,621 Acquisition and integration expense - 65 - 65 Acquisition related amortization expense 649 541 2,156 1,856 Other (income) expense 46 (228 ) 104 (314 ) Tax benefit (expense) on restricted stock - - 317 (40 ) Non-GAAP: Provision for income taxes 10,651 9,309 35,179 28,184 Non-GAAP: Net earnings $ 29,711 $ 23,929 $ 90,870 $ 66,606 GAAP: Net earnings per common share - diluted $ 0.98 $ 0.81 $ 3.03 $ 2.20 Non-GAAP: Net earnings per common share - diluted $ 1.10 $ 0.89 $ 3.38 $ 2.48 Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 GAAP: Net earnings per common share - diluted $ 0.98 $ 0.81 $ 3.03 $ 2.20 Share based compensation 0.05 0.05 0.14 0.14 Acquisition related amortization expense 0.07 0.05 0.21 0.16 Other (income) expense - (0.02 ) 0.01 (0.02 ) Tax benefit (expense) on restricted stock - - (0.01 ) - Total non-GAAP adjustments - net of tax 0.12 0.08 0.35 0.28 Non-GAAP: Net earnings per common share - diluted $ 1.10 $ 0.89 $ 3.38 $ 2.48 30 Table of Contents (2) We define Adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for income taxes, and other income. Segment Adjusted EBITDA is defined as operating income calculated in accordance with GAAP, adjusted for interest expense, share-based compensation, acquisition and integration expenses, and depreciation and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. We provide below a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial measure to this Non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales. The presentation of Adjusted EBITDA has been changed from prior period presentations to include adjustments for expenses related to acquisitions such as legal, accounting, tax, and adjustments to the fair value of contingent purchase price consideration as well as stock compensation. We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures. Three Months Ended December 31, Nine Months Ended December 31, Consolidated 2021 2020 2021 2020 Net earnings $ 26,424 $ 21,638 $ 81,355 $ 58,844 Provision for income taxes 9,486 8,438 31,108 24,996 Share based compensation 1,780 1,756 5,355 5,427 Interest and financing costs 335 - 693 266 Acquisition and integration expense - 233 - 232 Depreciation and amortization 3,597 3,143 11,376 10,000 Other income (expense) 175 (813 ) 377 (1,095 ) Adjusted EBITDA $ 41,797 $ 34,395 $ 130,264 $ 98,670 Technology Segment Operating income $ 27,166 $ 22,829 $ 82,640 $ 61,658 Depreciation and amortization 3,569 3,115 11,292 9,916 Share based compensation 1,724 1,699 5,186 5,240 Interest and financing costs 335 - 693 266 Acquisition and integration expense - 233 - 232 Adjusted EBITDA $ 32,794 $ 27,876 $ 99,811 $ 77,312 Financing Segment Operating income $ 8,919 $ 6,434 $ 30,200 $ 21,087 Depreciation and amortization 28 28 84 84 Share based compensation 56 57 169 187 Adjusted EBITDA $ 9,003 $ 6,519 $ 30,453 $ 21,358 (3) We define Adjusted gross billings as our technology segment net sales calculated in accordance with US GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services. We have provided below a reconciliation of Adjusted gross billings to technology segment net sales, which is the most directly comparable financial measure to this Non-GAAP financial measure. 31 Table of Contents Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 Technology segment net sales $ 476,975 $ 415,570 $ 1,313,634 $ 1,176,153 Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services 208,056 172,255 668,528 $ 559,130 Adjusted gross billings $ 685,031 $ 587,825 $ 1,982,162 $ 1,735,283 We use Adjusted gross billings as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment, and to analyze the changes to our accounts receivable and accounts payable. Our use of Adjusted gross billings as an analytical tool has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted gross billings or a similarly titled measure differently, which may reduce its usefulness as a comparative measure. CONSOLIDATED RESULTS OF OPERATIONS During the three months ended December 31, 2021, net sales increase d 15.7%, or $67.2 million, to $494.8 mill ion, as compared to $427.6 million for the same period in the prior year. Product sales for the three months ended December 31, 2021, increase d 15.1% to $432.3 million, an increase of $56.8 million from $375.5 mill ion for the same period in the prior year, due to increased demand from our technology segment customers as well as higher financing revenue. Service sales during the three months ended December 31, 2021, increas ed 20.0% to $62.5 million, an increase of $10.4 million over prior year services sales of $52.1 m illion due to increases in both managed services and professional services. In the technology segment, we saw increases in net sales from customers in the telecom, media and entertainment, healthcare, technology, and SLED, which was partially offset by decreases in net sales from customers in financial services, during the three months ended December 31, 2021, compared to the same period in the prior year. For the nine months ended December 31, 2021, net sales increas ed 12.6%, or $153.8 million, to $1.370 billion, compared to $1.216 billion for the same period in t he prior year. Product sales for the nine months ended December 31, 2021, increase d 11.6%, or $124.1 million, to $1.191 billion, compared to $1.066 billion for the same period in the prior year. Services sales during the nine months ended December 31, 2021, increased 19.9%, or $29.7 million, to $179.0 million compared to prior year services sales of $149.3 millio n. The increase in net sales was due, in part, to the Systems Management Planning Inc. (“SMP”) acquisition as well as increased demand from our customers in healthcare, telecom, media and entertainment and all other categories of customers, which were partially offset by decreases in demand from our customers in financial services, technology and SLED, during the nine months ended December 31, 2021, compared to the prior year. Adjusted gross billings increase d 16.5%, or $97.2 million, to $685.0 million for the three months ended December 31, 2021, from $587.8 million for the same period in the prior year. There was an increase in adjusted gross billings from our customers in telecom, media and entertainment, healthcare, technology, and SLED, which was partially offset by decreases in demand from our customers in the financial service market. For the nine months ended December 31, 2021, adjusted gross billings increase d 14.2%, or $246.9 million, to $1.982 billion, from $1.735 bi llion for the same period in the prior year. The increase in adjusted gross billings is due, in part, to the SMP acquisition as well as higher demand from our customers in telecom, media and entertainment, healthcare and all other categories of customers, which was partially offset by decreases in demand from our customers in the financial services market and SLED. Consolidated gross profit for the three months ended December 31, 2021, increased $19.0 million, or 19.3%, to $117.1 million, compared wit h $98.2 m illion for the same period in the prior year. Consolidated gross margins wer e 23.7% for the three months ended December 31, 2021, which is an increase o f 70 basis points compared to 23.0% fo r the same period in the prior year. The increase in margins was primarily due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which was recognized on a net basis, as well as higher service revenue and service margin, and higher gross profit from our financing segment. 32 Table of Contents For the nine months ended December 31, 2021, consolidated gross profit increase d $50.0 million, or 16.9%, to $345.6 million, compared with $295.7 million for the same period in the prior year. Consolidated gross margins were 25.2% for the nine months ended December 31, 2021, an increas e of 90 basis points compared to 24.3% for the same period in the prior year. The increase in gross margin for the nine-month period was due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which is recognized on a net basis, as well as higher service revenue and service margins, and higher gross profit from our financing segment. Our operating expenses for the three months ended December 31, 2021, increased $12.1 million, or 17.6%, to $81.0 million, as compared to $68.9 million for the prior year period. This increase is primarily due to an increase in general and administrative expenses including higher travel and entertainment costs as travel restrictions from COVID-19 have started to ease, higher software license and maintenance costs, higher property taxes, and an increase in salaries and benefits driven by an increase in variable compensation and fringe benefits. These increases are partially offset by a decrease in our provision for credit losses. As of December 31, 2021, we had 1,554 employees, a decrease of 32 from 1,586 as of December 31, 2020, which included 102 employees from the SMP acquisition on December 31, 2020. For the nine months ended December 31, 2021, operating expenses increase d $19.9 million, or 9.3%, to $232.8 mil lion, as compare d to $212.9 mi llion for the same period in the prior year. The increase in operating expenses for the nine months ended December 31, 2021, is due to increase in general and administrative expense due to higher travel and entertainment expenses as travel restriction from COVID-19 have started to ease, software license and maintenance, sales, property and other taxes, and the increase in salaries and benefits due to increase in fringe benefits and variable compensation. These increases are partially offset by a decrease in our provision for credit losses. Depreciation and amortization expense increased $0.5 million and $1.4 mill ion for the three and nine months ended December 31, 2021, respectively, primarily due to our December 31, 2020, acquisition of SMP. Interest and financing costs increa sed $0.2 million and $0.1 million for the three and nine months ended December 31, 2021, respectively, primarily driven by the timing of borrowings from our credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”) offset by a decrease in interest and financing costs in our financing segment. As a result, operating income for the three months ended December 31, 2021, increased $6.8 million, or 23.3% , to $36.1 million as compared to $29.3 millio n for the same period in the prior year. For the nine months ended December 31, 2021, operating income increase d $30.1 million, or 36.4%, to $112.8 m illion, as compared to $82.7 mil lion for the same period in the prior year. Consolidated net earnings for the three months ended December 31, 2021, were $26.4 million, an increase of 22.1%, or $4.8 millio n, over the prior year’s results, due to the increase in gross profit and offset by increased operating expenses and the provision for income taxes. For the nine months ended December 31, 2021, the consolidated net earnings were $81.4 million, an increase of 38.3%, or $22.5 m illion, compared to the prior year’s results, due to the increase in revenues and gross profit mostly offset by an increase in operating expenses and the provision for income taxes. Our effective tax rate for the three and nine months ended December 31, 2021, was 26.4% and 27.7% respectively, compared with 28.1% and 29.8%, respectively, for the same periods in the prior year. The change in our effective income tax rate for the nine months ended December 31, 2021 compared to the same period in the prior year was primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes. Adjusted EBITDA increased $7.4 mill ion, or 21.5%, to $41.8 mi llion and Adjusted EBITDA margin i ncreased 40 b asis points to 8.4% f or the three months ended December 31, 2021, as compared to the prior year period of 8.0%. For the nine months ended December 31, 2021, adjusted EBITDA increased $31.6 million, or 32.0%, to $130.3 millio n and the adjusted EBITDA margin increased 140 basis points to 9.5% as compared to the prior year period of 8.1 %. Diluted earnings per share increased 21.0%, or $0.17, to $0.98 per share for the three months ended December 31, 2021, as compared to $0.81 per share for the three months ended December 31, 2020, retroactively restated for the stock split. Non-GAAP diluted earnings per share increased 23.6%, or $0.21, to $1.10 for the three months ended December 31, 2021, as compared to $0.89 for the three months ended December 30, 2020, retroactively restated for the stock split. For the nine months ended December 31, 2021, diluted earnings per share increased 37.7%, or $0.83, to $3.03 per share, as compared to $2.20 per share in the prior year period, retroactively restated for the stock split. Non-GAAP diluted earnings per share increased 36.3%, or $0.90, to $3.38 for the nine months ended December 31, 2021, as compared to $2.48 for the nine months ended December 31, 2020, retroactively restated for the stock split. 33 Table of Contents Cash and cash equivalents decreased by 18.5% to $105.6 million as of December 31, 2021, as compared to $129.6 million as of March 31, 2021, primarily due to increases in our accounts receivable and inventory, partially offset by net borrowings on the floor plan component of our credit facility. Additional uses of cash during the nine months ended December 31, 2021, included cash paid of $9.5 million to repurchase outstanding shares of our common stock. Our cash on hand, funds generated from operations, amounts available under our credit facility, and the ability to monetize our investment portfolio provide sufficient liquidity for our business. SEGMENT OVERVIEW Our operations are conducted through two segments: technology and financing. TECHNOLOGY SEGMENT The technology segment derives revenue from sales of product, project-related advanced professional services, managed services and staff augmentation. The technology segment sells primarily to corporate customers, state and local governments, and higher education institutions on a nationwide basis, with geographic concentrations relating to our physical locations. 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 a customer master agreement (“CMA”) with our company, which stipulates the terms and conditions of the relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers place orders using purchase orders without a CMA in place, or with other documentation customary for the business. Often, our work with state and local governments is based on public bids and our written bid responses. Our service engagements are generally governed by statements of work and are primarily fixed price (with allowance for changes); however, some service agreements are based on time and materials. We endeavor to minimize the cost of sales through incentive programs provided by vendors and distributors. 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 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. The authorization levels are costly to maintain, and these programs continually change and, therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs. FINANCING SEGMENT Our financing segment offers financing solutions to corporations, governmental entities, and educational institutions nationwide and in Canada, the UK, and several other European countries. The financing segment derives revenue from leasing IT and medical equipment and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing of third-party software licenses, software assurance, maintenance and other services. Financing revenue generally falls into the following three categories: • Portfolio income: Interest income from financing receivables and rents due under operating leases; • Transactional gains: Net gains or losses on the sale of financial assets; and • Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and the sale of off-lease (used) equipment. 34 Table of Contents 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, product availability, 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 offices and warehouses and by hiring additional staff for specific targeted market areas whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may reduce our results from operations. COVID-19 may negatively affect market supply and demand, which will likely lower our financial results, and may adversely impact our ability to expand. We are uncertain as to the extent and duration of COVID-19’s impact to demand in the IT market for our products and services. CRITICAL ACCOUNTING ESTIMATES Our critical accounting estimates have not changed from those reported in Item 7 , “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report. 35 Table of Contents SEGMENT RESULTS OF OPERATIONS The three and nine months ended December 31, 2021, compared to the three and nine months ended December 31, 2020 TECHNOLOGY SEGMENT The results of operations for our technology segment were as follows (dollars in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 Net sales Product $ 414,448 $ 363,478 $ 1,134,658 $ 1,026,845 Services 62,527 52,092 178,976 149,308 Total 476,975 415,570 1,313,634 1,176,153 Cost of sales Product 334,585 295,310 899,437 820,859 Services 37,907 31,939 109,203 92,935 Total 372,492 327,249 1,008,640 913,794 Gross profit 104,483 88,321 304,994 262,359 Selling, general, and administrative 73,413 62,377 210,369 190,519 Depreciation and amortization 3,569 3,115 11,292 9,916 Interest and financing costs 335 - 693 266 Operating expenses 77,317 65,492 222,354 200,701 Operating income $ 27,166 $ 22,829 $ 82,640 $ 61,658 Adjusted gross billings $ 685,031 $ 587,825 $ 1,982,162 $ 1,735,283 Adjusted EBITDA $ 32,794 $ 27,876 $ 99,811 $ 77,312 Net sales : Net sales for the three months ended December 31, 2021, were $477.0 million compared to $415.6 m illion for the same period in the prior year, an increase o f 14.8% or $61.4 m illion, due to increases in net sales from customers in the telecom, media and entertainment, healthcare, technology, and SLED, which was partially offset by decreases in net sales from customers in financial services. Product sales increase d 14.0%, or $51.0 million, to $414.4 million. Services revenues increased 20.0%, or $10.4 million t o $62.5 mill ion compared to the same period in the prior year of $52.1 m illion due to increase in professional and managed services for the three months ended December 31, 2021. For the nine months ended December 31, 2021, net sales in creased 11.7%, or $137.5 million to $1.314 billion compared to $1.176 billion during the same period in the prior year. Product sales for the nine months ended December 31, 2021, increased 10.5%, or $107.8 million to $1.135 bi llion, and service revenue increased by 19.9%, or $29.7 millio n, to $179.0 million compared to $149.3 million during th e same period in the prior year. Adjusted gross billings increase d 16.5%, or $97.2 million, to $685.0 million for the three months ended December 31, 2021, from $587.8 million for the same period in the prior yea r. The increase in adjusted gross billings was due, in part, to the SMP acquisition as well as higher demand from our current customers. For the nine months ended December 31, 2021, adjusted gross billings increase d 14.2%, or $246.9 million, to $1.982 billion, from $1.735 b illion for the same period in the prior year. The increase in adjusted gross billings is due to higher demand from the same customer end markets that were previously identified for the increase in net sales. We rely on our vendors to fulfill a large majority of shipments to our customers. As of December 31, 2021, we had open orders of $852.9 million and deferred revenue of $121.0 million. As of December 31, 2020, we had open orders o f $413.9 million and deferred revenue of $96.3 million. We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. The percentage of net sales by industry and vendor for the twelve-month periods ended December 31, 2021, and 2020 are summarized below: 36 Table of Contents Twelve Months Ended December 31, Change Revenue by customer end market: 2021 2020 Telecom, Media & Entertainment 29 % 23 % 6 % Healthcare 16 % 14 % 2 % SLED 15 % 16 % (1 %) Technology 15 % 18 % (3 %) Financial Services 9 % 13 % (4 %) All others 16 % 16 % 0 % Total 100 % 100 % Twelve Months Ended December 31, Change Revenue by vendor: 2021 2020 Cisco Systems 38 % 36 % 2 % Dell EMC 8 % 8 % 0 % Juniper Networks 6 % 5 % 1 % NetApp 5 % 4 % 1 % HP Inc. & HPE 3 % 4 % (1 %) Arista Networks 3 % 4 % (1 %) All others 37 % 39 % (2 %) Total 100 % 100 % Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve-month period ended December 31, 2021, we had an increase in the percentage of total revenues from customers in the telecom, media and entertainment and healthcare industry, and decreases in the percentage of total revenues in the financial services, technology, and SLED markets. These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers. The majority of our revenues by vendor is derived from our top six suppliers. None of the vendors included within the “other” category exceeded 5% of total revenues. Cost of sales : Cost of sales for the three months ended December 31, 2021, increased 13.8% or $45.2 million to $372.5 million compared to $327.2 million for the same period in the prior year . Our gross margin increased 60 b asis points to 21.9% for the three months ended December 31, 2021, compared to 21.3% for the same period in the prior year. The increase in gross margin was driven by higher product margin, where a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services are recognized on a net basis, and higher service margin. Cost of sales for the nine months ended December 31, 2021, increas ed 10.4% or $94.8 million which is in line with the increase in net sales. For the nine months ended December 31, 2021, gross margin increased by 90 basis points to 23.2%, as compared to 22.3% f or the prior year period, primarily due to higher service margin, and a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, which are recognized on a net basis. Selling, general, and administrative : Selling, general, and administrative expenses of $73.4 million for the three months ended December 31, 2021, increased by $11.0 million, or 17.7% from $62.4 million for the same period in the prior year. Salaries and benefits increased $9.6 million, or 17.8% to $63.3 million, compared to $53.7 million during the prior year mainly due to an increase in variable compensation. Our technology segment had 1,521 employees as of December 31, 2021, a decrease of 30 from 1,551 as of December 31, 2020. Our headcount as of December 31, 2020, incorporates the addition of 102 employees from the December 31, 2020, acquisition of SMP. For the nine months ended December 31, 2021, selling, general, and administrative expenses increased by $19.9 million, o r 10.4%, to $210.4 mi llion compared to $190.5 million for the same period in the prior year. Salaries and benefits increased $17.5 million, or 10.6% to $182.1 million, compared to $164.6 million during the same period in the prior year. 37 Table of Contents General and administrative expenses increased $1.9 million, or 24.0%, to $10.0 million during the three months ended December 31, 2021, compared to the same period in the prior year, due to higher software license and maintenance fees, travel and entertainment as travel restrictions from COVID-19 have started to ease, and sales, property and other tax expenses. For the nine months ended December 31, 2021, general and administrative expenses increased $3.3 million, o r 13.3%, to $28.2 m illion. The increase in general and administrative expenses was primarily due to an increase in travel and entertainment expenses, legal and professional fees and software license and maintenance. The provision for credit losses w as $0.7 m illion lower than for the same period in the prior year. Depreciation and amortization : Depreciation and amortization increased $0.5 million, or 14.6%, to $3.6 million during the three months ended December 31, 2021, as compared to $3.1 mi llion in the prior year period primarily due to the amortization of the intangible assets acquired in our acquisition of SMP . For the nine months ended December 31, 2021, depreciation and amortization increased $1.4 million, or 13.9%, to $11.3 million as compared to $9.9 million for the same period in the prior year. Interest and financing costs : Interest and financing costs were $0.3 million, and $0.7 mil lion for the three and nine months ended December 31, 2021, an increase of $0.3 million and $0.4 million, respectively, as compared to the same periods in the prior year. The increase is primarily due to timing and amount of our borrowings from our WFCDF credit facility and borrowings on an installment payment arrangement. We had $58.8 million of recourse debt in our technology segment as of December 31, 2021, compared to no recourse debt as of December 31, 2020. Segment operating income : As a result of the foregoing, operating income was $27.2 million, an increase of $4.3 million, or 19.0%, for the three months ended December 31, 2021, as compared to $22.8 million for the same period in the prior year. For the nine months ended December 31, 2021, operating income was $82.6 million, compared to $61.7 million for the same period in the prior year, an increase of $21.0 million, or 34.0%. For the three months ended December 31, 2021, Adjusted EBITDA was $32.8 million, an increase of $4.9 million, or 17.6%, compared to $27.9 million for the same period in the prior year. Adjusted EBITDA was $99.8 million, an increase of $22.5 million, or 29.1%, for the nine months ended December 31, 2021, compared to $77.3 million for th e same period in the prior year. FINANCING SEGEMENT The results of operations for our financing segment were as follows (dollars in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 Net sales $ 17,859 $ 12,034 $ 55,866 $ 39,563 Cost of sales 5,225 2,204 15,229 6,252 Gross profit 12,634 9,830 40,637 33,311 Selling, general, and administrative 3,461 3,013 9,784 11,227 Depreciation and amortization 28 28 84 84 Interest and financing costs 226 355 569 913 Operating expenses 3,715 3,396 10,437 12,224 Operating income $ 8,919 $ 6,434 $ 30,200 $ 21,087 Adjusted EBITDA $ 9,003 $ 6,519 $ 30,453 $ 21,358 38 Table of Contents Net sales : Net sales increased by $5.8 million, or 48.4%, to $17.9 million for the three months ended December 31, 2021, as compared to prior year results due to higher post contract sales from several early buyouts of assets under lease and higher month to month rents, which were partially offset by lower transaction gains. During the quarter ended December 31, 2021, we recognized net gains on sales of financial assets of $2.3 million. Net gains on the sale of financial assets for the quarter ended December 31, 2020, was $3.0 million and the proceeds from these sales were $67.5 million. For the nine months ended December 31, 2021, net sales increased to $55.9 million, an increase of $16.3 million, or 41.2% as compared to the same period in the prior year of $39.6 million due to higher proceeds from sales of equipment, transactional gains, and month to month rents. During the nine months ended December 31, 2021, we recognized net gains on sales of financial assets of $15.6 mil lion, which included several large transactions that closed in July 2021, and the proceeds received from these sales were $753.9 million. For the nine months ended December 31, 2020, we recognized net gains on sales of financial assets o f $10.1 million, and the proceeds from these sales were $259.2 million. At December 31, 2021, we had $171.1 million in financing receivables and operating leases, compared to $214.0 million as of December 31, 2020, a decrease of $43.0 million, or 20.1%. Cost of sales : Cost of sales increas ed $3.0 m illion and $9.0 million for the three and nine months ended December 31, 2021, respectively, compared to the prior year results due to higher cost of sales on off-lease equipment and higher depreciation expense from operating leases. Gross profit increase d by 28.5% to $12.6 million for the three months ended December 31, 2021, and increased b y 22.0% to $40.6 m illion, for the nine months ended December 31, 2021, as compared to the prior year periods. Selling, general and administrative : For the three months ended December 31, 2021, selling, general and administrative expenses increase d $0.4 mil lion or 14.9% to $3.5 million due to higher variable compensation. For the nine months ended December 31, 2021, selling, general and administrative expenses decreas ed $1.4 m illion or 12.9% compared to the prior year period, primarily due to decrease in the provision for credit losses and decrease in salaries and benefits, partially offset by a slight increase to general and administrative cost. Interest and financing costs : Interest and financing costs decreased by 36.3% to $0.2 mill ion for the three months ended December 31, 2021, and dec reased by 37.7% to $0.6 million for the nine months ended December 31, 2021, compared to the prior year, due to a decrease in the average balance on total notes payable outstanding. Total notes payable for the financing segment comprised entirely of non-recourse debt was $43.6 m illion as of December 31, 2021, a decrease of $24.7 million, or 36.2% , as compared to $68.3 million as of December 31, 2020. Our weighted average interest rate for non-recourse notes payable was 3.68% and 3.57%, a s of December 31, 2021, and 2020, respectively. Segment operating income : As a result of the foregoing, both operating income and Adjusted EBITDA increase d $2.5 million to $8.9 million a nd $9.0 million, re spectively, for the three months ended December 31, 2021, as compared to the prior year period. For the nine months ended December 31, 2021, both operating income and Adjusted EBITDA increase d b y $9.1 million to $30.2 million and $30.5 mi llion, respectively, for the nine months ended December 31, 2021, as compared to the same period in the prior year. CONSOLIDATED Other income : Other income and expense for both the three and nine months ended December 31, 2021, was an expense of $0.2 million and $0.4 million, respectively, due to unfavorable foreign exchange rates, compared to an income of $0.8 million and $1.1 million in the three and nine month periods in the prior year, respectively. Income taxes : Our provision for income tax expense was $9.5 million and $31.1 million for the three and nine months ended December 31, 2021, as compared to $8.4 million and $25.0 million for the same periods in the prior year. Our effective income tax rates for the three and nine months ended December 31, 2021, were 26.4% and 27.7%, compared to 28.1% and 29.8% for the three and nine months ended December 31, 2020, respectively. The change in our effective income tax rate for the nine months ended December 31, 2021 compared to the same period in the prior year was primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes. 39 Table of Contents Net earnings : The foregoing resulted in net earnings of $26.4 million for the three months ended December 31, 2021, an increase of $4.8 million, or 22.1%, as compared to $21.6 million during the three months ended December 31, 2020. For the nine months ended December 31, 2021, net earnings were $81.4 million, an increase of $22.5 million, or 38.3%, as compared to $58.8 million for the same period in the prior year. Basic and fully diluted earnings per common share was $0.99 and $0.98, respectively, for the three months ended December 31, 2021, an increase of 22.2% and 21.0% as compared to $0.81 for both basic and fully diluted earnings per common share, for the three months ended December 31, 2020. For the nine months ended December 31, 2021, basic and fully diluted earnings per common share were $3.05 and $3.03, an increase of 38.0% and 37.7%, as compared to $2.21 and $2.20, respectively, for nine months ended December 31, 2020. Non-GAAP diluted earnings per share increased 23.6% to $1.10 for the three months ended December 31, 2021, as compared to $0.89 for the three months ended December 31, 2020. Non-GAAP diluted earnings per share increased 36.2% to $3.38 for the nine months ended December 31, 2021, as compared to $2.48 for the nine months ended December 31, 2020. Weighted average common shares outstanding was 26.7 million in the calculation of basic earnings per common share for both the three- and nine-months ended December 31, 2021, and 26.9 million in the calculation of diluted earnings per common share for both the three- and nine-months ended December 31, 2021. Weighted average common shares outstanding used in the calculation of basic earnings per common share, was 26.7 million for both the three- and nine-months ended December 31, 2020, and 26.8 million in the calculation of diluted earnings per common share for both the three- and nine-months ended December 31, 2020. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY OVERVIEW We finance our operations through funds generated from operations and through borrowings. We use those funds to meet our capital requirements, which have historically consisted primarily of working capital for operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock. Our borrowings in our technology segment are primarily through our WFCDF credit facility. Our borrowings in our financing segment are primarily through secured borrowings that involve transferring all or part of the contractual payments due to us to third-party financing institutions. We believe that cash on hand and funds generated from operations, together with available credit under our credit facility, will be enough to finance our working capital, capital expenditures, and other requirements for at least the next year. Our ability to continue to expand, both organically and through acquisitions, is dependent upon our ability to generate enough cash flow from operations or from borrowing or other sources of financing as may be required. While at this time we do not anticipate requiring any additional sources of financing to fund operations, if demand for IT products declines, or if our supply of products is delayed or interrupted, our cash flows from operations may be substantially affected. 40 Table of Contents CASH FLOWS The following table summarizes our sources and uses of cash over the periods indicated (in thousands): Nine Months Ended December 31, 2021 2020 Net cash provided by (used in) operating activities $ (121,542 ) $ 5,244 Net cash used in investing activities (18,448 ) (30,659 ) Net cash provided by financing activities 115,996 26,382 Effect of exchange rate changes on cash (2 ) (735 ) Net increase (decrease) in cash and cash equivalents $ (23,996 ) $ 232 Cash flows from operating activities : We used $121.5 million in operating activities during the nine months ended December 31, 2021, compared to $5.2 million provided by operating activities for the nine months ended December 31, 2020. See below for a breakdown of operating cash flows by segment (in thousands): Nine Months Ended December 31, 2021 2020 Technology segment $ (112,740 ) $ 43,694 Financing segment (8,802 ) (38,450 ) Net cash provided by (used in) operating activities $ (121,542 ) $ 5,244 Technology segment : In the nine months ended December 31, 2021, our technology segment used $112.7 million from operating activities primarily due to increases in our accounts receivable of $123.4 million and inventories of $77.9 million, offset by net earnings. Additionally, we had net borrowing on the floor plan component of our credit facility of $59.0 million. We use this facility to manage working capital needs. We present changes in this balance as financing activity in our consolidated statement of cash flows. In the nine months ended December 31, 2020, our technology segment provided $43.7 million from operating activities primarily due to cash generated from earnings. Additionally, we had net borrowing on the floor plan component of our credit facility of $44.1 million. To manage our working capital, we monitor our cash conversion cycle for our technology segment, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases outstanding in accounts payable (“DPO”). The following table presents the components of the cash conversion cycle for our technology segment: As of December 31, 2021 2020 (DSO) Days sales outstanding (1) 67 62 (DIO) Days inventory outstanding (2) 21 13 (DPO) Days payable outstanding (3) (41 ) (51 ) Cash conversion cycle 47 24 (1) Represents the rolling three month average of the balance of trade accounts receivable-trade, net for our technology segment at the end of the period divided by adjusted gross billings for the same three month period. (2) Represents the rolling three month average of the balance of inventory, net for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three month period. (3) Represents the rolling three month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three month period. 41 Table of Contents Our cash conversion cycle increased to 47 days at December 31, 2021, compared to 24 days at December 31, 2020. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended payment terms. Our DPO decreased 10 days. Invoices processed through our credit facility, or the A/P-floor plan balance, are typically paid within 45-60 days from the invoice date, while A/P trade invoices are typically paid within 30 days from the invoice date. Our DSO increased to 67 days, which reflects higher sales to customers with terms greater than or equal to net 60 days for the period ended December 31, 2021, as compared to the same period in the prior year. Our DIO increased to 21 days due to higher inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 111.2% to $147.7 million as of December 31, 2021, up from $70.0 million as of March 31, 2021, partially due to ongoing projects with customers. Financing segment : In the nine months ended December 31, 2021, our financing segment used $8.8 million from operating activities, primarily due to increases in accounts receivable of $8.8 million and financing receivables-net of $23.4 million, offset by net earnings. In the nine months ended December 31, 2020, our financing segment used $38.5 million from operating activities, primarily due to changes in financing receivables- net of $67.1 million, partially offset by earnings of $15.4 million and an increase in accounts payable trade of $12.5 million. Cash flows related to investing activities : In the nine months ended December 31, 2021, we used $18.4 million from investing activities, consisting of $21.4 million for purchases of property, equipment and operating lease equipment offset by $2.9 million of proceeds from the sale of property, equipment, and operating lease equipment. In the nine months ended December 31, 2020, we used $30.7 million from investing activities, consisting of $27.1 million for the acquisition of SMP, $4.2 million for purchases of property, equipment and operating lease equipment offset by $0.7 million of proceeds from the sale of property, equipment, and operating lease equipment. Cash flows from financing activities : In the nine months ended December 31, 2021, cash provided by financing activities was $116.0 million, consisting of net borrowings on the floor plan component of our credit facility of $59.0 million and net repayments of non-recourse and recourse notes payable of $66.4 million, partially offset by $9.5 million in cash used to repurchase outstanding shares of our common stock . In the nine months ended December 31, 2020, cash provided by financing activities was $26.4 million consisting of net borrowings on floor plan facility of $44.1 million, net borrowings of non-recourse and recourse notes payable of $24.8 million, which was partially offset by repayment of $35.0 million in borrowings under the accounts receivable component of our Technology segment credit facility, $6.9 million in repurchase of common stock, and $0.6 million paid to the sellers of a prior acquisition. Our borrowing of non-recourse and recourse notes payable primarily arises from our financing segment when we transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. When the transfers do not meet the requirements for a sale, the proceeds paid to us represent borrowings of non-recourse or recourse notes payable. Non-cash activities : We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. As a condition of these agreements, certain financial institutions may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, the customer will make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender. However, when our customer makes payments through a trust, such payments represent non-cash transactions. Also, in certain assignment agreements, we may direct the third-party financial institution to pay some of the proceeds from the assignment directly to the vendor or vendors that have supplied the assets being leased and or financed. In these situations, the portion of the proceeds paid directly to our vendors are non-cash transactions. SECURED BORROWINGS – FINANCING SEGMENT We may finance all or most of the cost of the assets that we finance for customers by transferring all or part of the contractual payments due to us to third-party financing institutions. When we account for the transfer as a secured borrowing, we recognize the proceeds as either recourse or non-recourse notes payable. Our customers are responsible for repaying the debt from a secured borrowing. The lender typically secures a lien on the financed assets at the time the financial assets are transferred and releases it upon collecting all the transferred payments. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The lender assumes the credit risk and their only recourse, upon default by the customer, is against the customer and the specific equipment under lease. While we expect that the credit quality of our financing arrangements and our residual return history will continue to allow us to obtain such financing, such financing may not be available on acceptable terms, or at all. 42 Table of Contents CREDIT FACILITY – TECHNOLOGY SEGMENT We finance the operations of our subsidiaries e Plus Technology, inc., e Plus Technology Services, inc. and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology segment through a credit facility with WFCDF. The WFCDF credit facility has a floor plan facility and a revolving credit facility. On October 13, 2021, the Borrowers amended, restated and replaced in their entirety their then-existing credit agreements with WFCDF. The new credit facility is established by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the aggregate principal amount of up to $375 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”). Please refer to Note 8 “Credit Facility and Notes Payable” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements” for additional information concerning our 2021 Credit Facility. The loss of the 2021 Credit Facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process. Floor plan facility : We finance most purchases of products for sale to our customers through the floor plan facility. Once our customer places a purchase order with us and we have approved their credit, we place an order for the desired products with one of our vendors. Our vendors are generally paid by the floor plan facility and our liability is reflected in “accounts payable—floor plan” in our consolidated balance sheets. Most customer payments to us are remitted to our lockbox accounts. Once payments are cleared, the monies in the lockbox accounts are automatically and daily transferred to our operating account. We pay down the floor plan facility on three specified dates each month, generally 30-60 days from the invoice date . Our borrowings and repayments under the floor plan component are included in “net borrowings (repayments) on floor plan facility” within cash flows from the financing activities in our consolidated statements of cash flows. As of December 31, 2021, and March 31, 2021, we had a maximum credit limit of $375.0 million and $275.0 million, respectively, and an outstanding balance on the floor plan facility of $157.7 million and $98.7 million, respectively. On our balance sheet, our liability under the floor plan facility is presented as part of as accounts payable – floor plan. Revolving credit facility : The outstanding balance under the revolving credit facility is presented as part of as recourse notes payable- current on our consolidated balance sheets. Our borrowings and repayments under the revolving credit facility are included in “borrowings of non-recourse and recourse notes payable” and “repayments of non-recourse and recourse notes payable,” respectively, within cash flows from the financing activities in our consolidated statements of cash flows. As of December 31, 2021, we had an outstanding balance under the revolving credit facility of $44.0 million. We did not have any outstanding balance under the revolving credit facility as of March 31, 2021. The maximum credit limit under this facility was $100.0 million as of both December 31, 2021, and March 31, 2021. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current. PERFORMANCE GUARANTEES In the normal course of business, we may provide certain customers with performance guarantees, which are generally backed by surety bonds. In general, we would only be liable for these guarantees in the event of default in the performance of our obligations. We are in compliance with material performance obligations under all service contracts for which there is a performance guarantee, and we believe that any liability incurred in connection with these guarantees would not have a material adverse effect on our consolidated statements of operations. 43 Table of Contents OFF-BALANCE SHEET ARRANGEMENTS As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or other contractually narrow or limited purposes. As of December 31, 2021, we were not involved in any unconsolidated special purpose entity transactions. ADEQUACY OF CAPITAL RESOURCES The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also open offices in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance the platform of bundled solutions to provide additional functionality and value-added services. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivables due from our customers. These actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include additional debt and equity financing. The impacts of COVID-19 may limit or eliminate our access to capital. While the future is uncertain, we do not believe our credit facility will be terminated by WFCDF or us. Additionally, while our lending partners in our financing segment have become more discerning in their approval processes, we currently have funding resources available for our transactions. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS Our future quarterly operating results and the market price of our common stock may fluctuate. In the event our revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing and financing companies, IT resellers, software competitors, or our major customers or vendors. Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to the worldwide impacts from COVID-19, currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “ Risk Factors ,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “ Risk Factors ” in this Report. We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance.