EPLUS INC 10-Q

Item 1. Financial Statements e Plus inc. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) June 30, 2022 March 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 83,488 $ 155,378 Accounts receivable—trade, net 482,166 430,380 Accounts receivable—other, net 47,581 48,673 Inventories 246,873 155,060 Financing receivables—net, current 75,170 61,492 Deferred costs 34,104 32,555 Other current assets 15,961 13,944 Total current assets 985,343 897,482 Financing receivables and operating leases—net 68,719 64,292 Deferred tax asset—net 5,054 5,050 Property, equipment, and other assets 45,888 45,586 Goodwill 126,378 126,543 Other intangible assets—net 24,768 27,250 TOTAL ASSETS $ 1,256,150 $ 1,166,203 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Current liabilities: Accounts payable $ 165,793 $ 136,161 Accounts payable—floor plan 138,047 145,323 Salaries and commissions payable 32,490 39,602 Deferred revenue 100,637 86,469 Recourse notes payable—current 47,529 7,316 Non-recourse notes payable—current 19,873 17,070 Other current liabilities 29,603 28,095 Total current liabilities 533,972 460,036 Recourse notes payable - long-term 3,878 5,792 Non-recourse notes payable - long-term 6,569 4,108 Other liabilities 35,443 35,529 TOTAL LIABILITIES 579,862 505,465 COMMITMENTS AND CONTINGENCIES (Note 8) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.01 per share par value; 2,000 shares authorized; none outstanding - - Common stock, $ 0.01 per share par value; 50,000 shares authorized; 26,893 outstanding at June 30 , 2022 and 26,886 outstanding at March 31 , 2022 271 270 Additional paid-in capital 161,253 159,480 Treasury stock, at cost, 258 shares at June 30 , 2022 and 130 shares at March 31 , 2022 ( 13,958 ) ( 6,734 ) Retained earnings 530,185 507,846 Accumulated other comprehensive income—foreign currency translation adjustment ( 1,463 ) ( 124 ) Total Stockholders’ Equity 676,288 660,738 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,256,150 $ 1,166,203 See Notes to Unaudited Consolidated Financial Statements. 5 Table of Contents e Plus inc. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Three Months Ended June 30, 2022 2021 Net sales Product $ 395,250 $ 361,057 Services 63,109 55,592 Total 458,359 416,649 Cost of sales Product 304,210 277,227 Services 40,626 33,910 Total 344,836 311,137 Gross profit 113,523 105,512 Selling, general, and administrative 76,767 68,775 Depreciation and amortization 3,210 3,926 Interest and financing costs 363 359 Operating expenses 80,340 73,060 Operating income 33,183 32,452 Other income (expense) ( 2,153 ) 123 Earnings before tax 31,030 32,575 Provision for income taxes 8,691 9,057 Net earnings $ 22,339 $ 23,518 Net earnings per common share—basic $ 0.84 $ 0.88 Net earnings per common share—diluted $ 0.84 $ 0.87 Weighted average common shares outstanding—basic 26,513 26,666 Weighted average common shares outstanding—diluted 26,685 26,882 See Notes to Unaudited Consolidated Financial Statements. 6 Table of Contents e Plus inc. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Three Months Ended June 30, 2022 2021 NET EARNINGS $ 22,339 $ 23,518 OTHER COMPREHENSIVE INCOME, NET OF TAX: Foreign currency translation adjustments ( 1,339 ) 66 Other comprehensive income (loss) ( 1,339 ) 66 TOTAL COMPREHENSIVE INCOME $ 21,000 $ 23,584 See Notes to Unaudited Consolidated Financial Statements. 7 Table of Contents e Plus inc. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended June 30, 2022 2021 Cash flows from operating activities: Net earnings $ 22,339 $ 23,518 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 4,472 6,082 Provision for credit losses 698 ( 261 ) Share-based compensation expense 1,773 1,735 Payments from lessees directly to lenders—operating leases - ( 32 ) Gain on disposal of property, equipment, and operaing lease equipment ( 224 ) ( 148 ) Changes in: Accounts receivable ( 53,556 ) ( 68,641 ) Inventories-net ( 92,678 ) ( 7,800 ) Financing receivables—net ( 20,574 ) 193 Deferred costs and other assets ( 4,177 ) 61 Accounts payable-trade 30,376 ( 15,393 ) Salaries and commissions payable, deferred revenue, and other liabilities 8,608 ( 4,450 ) Net cash used in operating activities ( 102,943 ) ( 65,136 ) Cash flows from investing activities : Proceeds from sale of property, equipment, and operating lease equipment 85 843 Purchases of property, equipment and operating lease equipment ( 1,777 ) ( 6,994 ) Net cash used in investing activities ( 1,692 ) ( 6,151 ) Cash flows from financing activities: Borrowings of non-recourse and recourse notes payable 49,256 3,199 Repayments of non-recourse and recourse notes payable ( 3,645 ) ( 4,819 ) Repurchase of common stock ( 7,224 ) ( 3,807 ) Net borrowings (repayments) on floor plan facility ( 7,276 ) 40,921 Net cash provided by financing activities 31,111 35,494 Effect of exchange rate changes on cash 1,634 71 Net increase in cash and cash equivalents ( 71,890 ) ( 35,722 ) Cash and cash equivalents, beginning of period 155,378 129,562 Cash and cash equivalents, end of period $ 83,488 $ 93,840 8 Table of Contents UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (in thousands) Three Months Ended June 30, 2022 2021 S upplemental disclosures of cash flow information : Cash paid for interest $ 341 $ 519 Cash paid for income taxes $ 7,532 $ 7,275 Cash paid for amounts included in the measurement of lease liabilities $ 1,226 $ 1,182 S chedule of non-cash investing and financing activities : Proceeds from sale of property, equipment, and leased equipment $ 183 $ 978 Purchases of property, equipment, and operating lease equipment $ ( 63 ) $ ( 2,619 ) Borrowing of non-recourse and recourse notes payable $ 7,267 $ - Repayments of non-recourse and recourse notes payable $ - $ ( 32 ) Vesting of share-based compensation $ 9,215 $ 7,493 Repurchase of common stock $ - $ ( 304 ) New operating lease assets obtained in exchange for lease obligations $ 34 $ - See Notes to Unaudited Consolidated Financial Statements. 9 Table of Contents e Plus inc. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Three Months Ended June 30, 2022 Common Stock Additional Paid-In Treasury Retained Accumulated Other Comprehensive Shares Par Value Capital Stock Earnings Income Total Balance, March 31 , 2022 26,886 $ 270 $ 159,480 $ ( 6,734 ) $ 507,846 $ ( 124 ) $ 660,738 Issuance of restricted stock awards 135 1 - - - - 1 Share-based compensation - - 1,773 - - - 1,773 Repurchase of common stock ( 128 ) - - ( 7,224 ) - - ( 7,224 ) Net earnings - - - - 22,339 - 22,339 Foreign currency translation adjustment - - - - - ( 1,339 ) ( 1,339 ) Balance, June 30 , 2022 26,893 $ 271 $ 161,253 $ ( 13,958 ) $ 530,185 $ ( 1,463 ) $ 676,288 Three Months Ended June 30, 2021 Common Stock Additional Paid-In Treasury Retained Accumulated Other Comprehensive Shares Par Value Capital Stock Earnings Income Total Balance, March 31 , 2021 27,006 $ 145 $ 152,366 $ ( 75,372 ) $ 484,616 $ 655 $ 562,410 Issuance of restricted stock awards 156 1 - - - - 1 Share-based compensation - - 1,735 - - - 1,735 Repurchase of common stock ( 90 ) - - ( 4,111 ) - - ( 4,111 ) Net earnings - - - - 23,518 - 23,518 Foreign currency translation adjustment - - - - - 66 66 Balance, June 30 , 2021 27,072 $ 146 $ 154,101 $ ( 79,483 ) $ 508,134 $ 721 $ 583,619 See Notes to Unaudited Consolidated Financial Statements. 10 Table of Contents e Plus inc. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. e Plus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” or “ e Plus.” e Plus inc. is a holding company that through its subsidiaries provides information technology solutions that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, professional, and managed services and complete lifecycle management services including flexible financing solutions. We focus on selling to medium and large enterprises in North America, the United Kingdom (“UK”), and other European countries. BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of e Plus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited consolidated financial statements from the dates of acquisition. INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the three months ended June 30, 2022, and 2021, were prepared by us and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the three months ended June 30, 2022, and 2021, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ended March 31, 2023, or any other future period. These unaudited consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 2022 (“2022 Annual Report”), which should be read in conjunction with these interim consolidated financial statements. USE OF ESTIMATES — The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, lease classification, goodwill and intangible assets, allowance for credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 35 % of our technology segment’s net sales for the three months ended June 30, 2022, and 42 % for the three months ended June 30, 2021. SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2022 . STOCK SPLIT — 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 in the accompanying financial statements and disclosures have been retroactively adjusted for this stock split. 11 Table of Contents 2. REVENUES CONTRACT BALANCES Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $ 57.1 million and $ 47.5 million of receivables from contracts with customers included within financing receivables as of June 30 , 2022, and March 31, 2022, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousand s): June 30, 2022 March 31, 2022 Current (included in deferred revenue) $ 100,092 $ 85,826 Non-current (included in other liabilities) $ 30,574 $ 30,086 Revenue recognized from the beginning contract liability balance was $ 24.9 million and $ 21.5 million for the three months ended June 30, 2022, and 2021, respectively. PERFORMANCE OBLIGATIONS The following table includes revenue expected to be recognized in the future related to performance obligations, primarily non-cancelable contracts for e Plus managed services, that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousand s): Remainder of the year ending March 31, 2023 $ 43,194 Year ending March 31, 2024 24,954 Year ending March 31, 2025 9,466 Year ending March 31, 2026 2,510 Year ending March 31, 2027 and thereafter 986 Total remaining performance obligations $ 81,110 The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed. 3. FINANCING RECEIVABLES AND OPERATING LEASES Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third -party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option. The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three months ended June 30, 2022, and 2021 (in thousands): Three months ended June 30, 2022 2021 Net sales $ 4,983 $ 3,817 Cost of sales 4,067 3,365 Gross profit $ 916 $ 452 12 Table of Contents The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three months ended June 30, 2022, and 2021 (in thousands): Three months ended June 30, 2022 2021 Interest income on sales-type leases $ 861 $ 1,290 Lease income on operating leases $ 4,582 $ 5,210 FINANCING RECEIVABLES—NET The following tables provide a disaggregation of our financing receivables – net (in thousand s): June 30 , 2022 Notes Receivable Lease Receivables Financing Receivables Gross receivables $ 88,178 $ 51,103 $ 139,281 Unguaranteed residual value (1) - 9,233 9,233 Unearned income ( 3,346 ) ( 4,996 ) ( 8,342 ) Allowance for credit losses (2) ( 792 ) ( 913 ) ( 1,705 ) Total, net $ 84,040 $ 54,427 $ 138,467 Reported as: Current $ 52,547 $ 22,623 $ 75,170 Long-term 31,493 31,804 63,297 Total, net $ 84,040 $ 54,427 $ 138,467 (1) Includes unguaranteed residual values of $ 5,607 thousand that we retained after selling the related lease receivable. (2) Refer to Note 6 , “Allowance for Credit Losses” for details. March 31 , 2022 Notes Receivable Lease Receivables Financing Receivables Gross receivables $ 80,517 $ 38,788 $ 119,305 Unguaranteed residual value (1) - 9,141 9,141 Unearned income ( 2,728 ) ( 3,604 ) ( 6,332 ) Allowance for credit losses (2) ( 708 ) ( 681 ) ( 1,389 ) Total, net $ 77,081 $ 43,644 $ 120,725 Reported as: Current $ 45,415 $ 16,077 $ 61,492 Long-term 31,666 27,567 59,233 Total, net $ 77,081 $ 43,644 $ 120,725 (1) Includes unguaranteed residual values of $ 6,424 thousand that we retained after selling the related lease receivable. (2) Refer to Note 6 , “Allowance for Credit Losses” for details. 13 Table of Contents OPERATING LEASES—NET Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands): June 30, 2022 March 31, 2022 Cost of equipment under operating leases $ 14,322 $ 13,044 Accumulated depreciation ( 8,900 ) ( 7,985 ) Investment in operating lease equipment—net (1) $ 5,422 $ 5,059 (1) Amounts include estimated unguaranteed residual values of $ 1.8 million and $ 1.7 million as of June 30, 2022, and March 31, 2022, respectively. TRANSFERS OF FINANCIAL ASSETS We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings. For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of June 30, 2022, and March 31, 2022, we had financing receivables of $ 29.0 million and $ 21.1 million, respectively, and operating leases of $ 1.8 million and $ 2.0 million, respectively, which were collateral for non-recourse notes payable. See Note 7 , “ Credit Facility and Notes Payable. ” For transfers accounted for as a sale, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended June 30, 2022, and 2021, we recognized net gains of $ 1.8 million and $ 3.2 million, respectively, and total proceeds from these sales were $ 52.5 million and $ 75.3 million, respectively. When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform the services. As of June 30, 2022, and March 31, 2022, we had deferred revenue of $ 0.4 million and $ 0.5 million, respectively, for servicing obligations. In a limited number of transfers accounted for as sales, we indemnified the assignee if the lessee elects to early terminate the lease. As of June 30, 2022, and March 31, 2022, the total potential payments that could result from these indemnities is immaterial. 4. LESSEE ACCOUNTING We lease office space for periods up to six years . We recognize our right-of-use assets as part of property, equipment, and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent expense as part of selling, general and administrative expenses. We recognized rent expense of $ 1.3 million for both the three months ended June 30, 2022, and June 30, 2021. 14 Table of Contents 5. GOODWILL AND OTHER INTANGIBLE ASSETS GOODWILL The following table summarizes the changes in the carrying amount of goodwill for the three months ended June 30, 2022 (in thousand s): Three months ended June 30, 2022 Goodwill Accumulated Impairment Loss Net Carrying Amount Beginning balance $ 135,216 $ ( 8,673 ) $ 126,543 Foreign currency translations ( 165 ) - ( 165 ) Ending balance $ 135,051 $ ( 8,673 ) $ 126,378 Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. Our entire balance as of June 30, 2022, relates to our technology segment, which we also determined to be one reporting unit. The change in our goodwill balance during the three months ended June 30, 2022, is due solely to foreign currency translation. We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our annual test as of October 1, 2021, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the fair value of our technology reporting unit continued to substantially exceed its carrying value. OTHER INTANGIBLE ASSETS Our other intangible assets consist of the following on June 30, 2022, and March 31, 2022 (in thousands): June 30, 2022 March 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships & other intangibles $ 77,041 $ ( 54,101 ) $ 22,940 $ 77,224 $ ( 52,087 ) $ 25,137 Capitalized software development 10,517 ( 8,689 ) 1,828 10,517 ( 8,404 ) 2,113 Total $ 87,558 $ ( 62,790 ) $ 24,768 $ 87,741 $ ( 60,491 ) $ 27,250 Customer relationships and other intangibles are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years. Total amortization expense for customer relationships and other intangible assets was $ 2.2 million and $ 2.7 million for the three months ended June 30, 2022, and June 30, 2021, respectively . 15 Table of Contents 6. ALLOWANCE FOR CREDIT LOSSES The following table provides the activity in our allowance for credit losses for the three months ended June 30, 2022, and 2021 (in thousands): Accounts Receivable Notes Receivable Lease Receivables Total Balance April 1, 2022 $ 2,411 $ 708 $ 681 $ 3,800 Provision for credit losses 382 84 232 698 Write-offs and other ( 65 ) - - ( 65 ) Balance June 30 , 2022 $ 2,728 $ 792 $ 913 $ 4,433 Accounts Receivable Notes Receivable Lease Receivables Total Balance April 1, 2021 $ 2,064 $ 1,212 $ 1,171 $ 4,447 Provision for credit losses ( 40 ) 77 ( 298 ) ( 261 ) Write-offs and other ( 22 ) - - ( 22 ) Balance June 30 , 2021 $ 2,002 $ 1,289 $ 873 $ 4,164 We evaluate our customers using an internally assigned credit quality rating “CQR”. The CQR categories of our financing receivables are: • High CQR: This rating includes accounts with excellent to good business credit, asset quality and capacity to meet financial obligations. Loss rates in this category are generally less than 1 % . • Average CQR: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. Loss rates in this category are generally in the range of 2 % to 10 % . • Low CQR: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. The loss rates in this category in the normal course are generally in the range of 10 % to 100 % . The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of June 30, 2022 (in thousands): Amortized cost basis by origination year ending March 31, 2023 2022 2021 2020 2019 2018 Total Non-recourse debt (2) Net credit exposure Notes receivable: High CQR $ 22,785 $ 18,879 $ 24,314 $ 969 $ 158 $ 3 $ 67,108 $ ( 24,331 ) $ 42,777 Average CQR 7,471 6,784 2,671 746 52 - 17,724 ( 8,280 ) 9,444 Low CQR - - - - - - - - - Total $ 30,256 $ 25,663 $ 26,985 $ 1,715 $ 210 $ 3 $ 84,832 $ ( 32,611 ) $ 52,221 Lease receivables: High CQR $ 14,828 $ 9,539 $ 4,209 $ 1,809 $ 731 $ 44 $ 31,160 $ ( 3,531 ) $ 27,629 Average CQR 6,654 9,029 2,334 473 39 44 18,573 ( 188 ) 18,385 Low CQR - - - - - - - - - Total $ 21,482 $ 18,568 $ 6,543 $ 2,282 $ 770 $ 88 $ 49,733 $ ( 3,719 ) $ 46,014 Total amortized cost (1) $ 51,738 $ 44,231 $ 33,528 $ 3,997 $ 980 $ 91 $ 134,565 $ ( 36,330 ) $ 98,235 (1) Unguaranteed residual values of $ 5,607 thousand that we retained after selling the related lease receivable is excluded from amortized cost. (2) Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis. 16 Table of Contents The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2022 (in thousands): Amortized cost basis by origination year ending March 31, 2022 2021 2020 2019 2018 2017 Total Transfers (2) Net credit exposure Notes receivable: High CQR $ 35,264 $ 28,005 $ 1,297 $ 345 $ 2 $ 4 $ 64,917 $ ( 30,274 ) $ 34,643 Average CQR 8,922 2,976 758 213 3 - 12,872 ( 4,763 ) 8,109 Low CQR - - - - - - - - - Total $ 44,186 $ 30,981 $ 2,055 $ 558 $ 5 $ 4 $ 77,789 $ ( 35,037 ) $ 42,752 Lease receivables: High CQR $ 14,549 $ 5,002 $ 2,499 $ 902 $ 50 $ 11 $ 23,013 $ ( 3,385 ) $ 19,628 Average CQR 10,936 3,092 741 47 72 - 14,888 ( 347 ) 14,541 Low CQR - - - - - - - - - Total $ 25,485 $ 8,094 $ 3,240 $ 949 $ 122 $ 11 $ 37,901 $ ( 3,732 ) $ 34,169 Total amortized cost (1) $ 69,671 $ 39,075 $ 5,295 $ 1,507 $ 127 $ 15 $ 115,690 $ ( 38,769 ) $ 76,921 (1) Unguaranteed residual values of $ 6,424 thousand that we retained after selling the related lease receivable is excluded from amortized cost. (2) Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis and receivables that are in the process of being transferred to third-party financial institutions. The following table provides an aging analysis of our financing receivables as of June 30 , 2022 (in thousands): 31-60 Days Past Due 61-90 Days Past Due > 90 Days Past Due Total Past Due Current Total Billed Unbilled Amortized Cost Notes receivable $ 268 $ 425 $ 97 $ 790 $ 5,623 $ 6,413 $ 78,419 $ 84,832 Lease receivables 240 154 551 945 905 1,850 47,883 49,733 Total $ 508 $ 579 $ 648 $ 1,735 $ 6,528 $ 8,263 $ 126,302 $ 134,565 The following table provides an aging analysis of our financing receivables as of March 31 , 2022 (in thousands): 31-60 Days Past Due 61-90 Days Past Due > 90 Days Past Due Total Past Due Current Total Billed Unbilled Amortized Cost Notes receivable $ 187 $ 37 $ 23 $ 247 $ 5,307 $ 5,554 $ 72,235 $ 77,789 Lease receivables 115 325 430 870 639 1,509 36,392 37,901 Total $ 302 $ 362 $ 453 $ 1,117 $ 5,946 $ 7,063 $ 108,627 $ 115,690 Our financial assets on nonaccrual status were not significant as of June 30, 2022, and March 31, 2022. 17 Table of Contents 7. CREDIT FACILITY AND NOTES PAYABLE CREDIT FACILITY We finance the operations of our subsidiaries ePlus Technology, inc., ePlus Technology Services, inc., and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology segment through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). The WFCDF credit facility has a floor plan facility and a revolving credit facility. Under the floor plan facility, we had an outstanding balance of $ 138.0 million and $ 145.3 million as of June 30, 2022, and March 31, 2022, respectively. On our balance sheet, our liability under the floor plan facility is presented as accounts payable – floor plan . Under the revolving credit facility, we had $ 40.0 million outstanding as of June 30, 2022, and no balance outstanding as of March 31, 2022. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current. The fair value of the outstanding balances under the WFCDF credit facility were approximately equal to their carrying value as of June 30, 2022, and March 31, 2022. On October 13, 2021, the Borrowers amended, restated, and replaced in entirety their then-existing credit agreements with WFCDF. The new credit facility is established by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the aggregate principal amount of up to $ 375 million, an increase from $ 275 million, together with a sublimit for a revolving credit facility for up to $ 100 million (collectively, the “2021 Credit Facility”). The amount of principal available is subject to a borrowing base determined by, among other things, the Borrowers’ accounts receivable and inventory, each pursuant to a formula and subject to certain reserves. Loans accrue interest at a rate per annum equal to LIBOR plus 1.75 %. The LIBOR rate is based upon one-month, three-month, six-month, and 12-month LIBOR periods, as selected by the Borrowers, and subject to a floor of 0.00 %. Our borrowings under the 2021 Credit Facility are secured by the assets of the Borrowers. Additionally, the 2021 Credit Facility requires a guaranty of $ 10.5 million by e Plus inc. Under the 2021 Credit Facility, and under the predecessor WFCDF credit facility, the Borrowers are restricted in their ability to pay dividends to e Plus inc. unless their available borrowing meets or met certain thresholds. As of June 30, 2022, and March 31, 2022, their available borrowing met the thresholds such that there were no restrictions on their ability to pay dividends. The 2021 Credit Facility has an initial one-year term, which automatically renews for successive one-year terms thereafter. However, either the Borrowers or WFCDF may terminate by providing a written termination notice to the other party no less than 90 days prior to such termination. RECOURSE NOTES PAYABLE Recourse notes payable consist of borrowings that, in the event of default, the lender has recourse against us. As of June 30, 2022, we had $ 51.4 million in recourse borrowings consisting of $ 40.0 million outstanding under our revolving WFCDF credit facility, and $ 11.4 million arising from one installment payment arrangement within our technology segment. Our payments under this installment agreement are due quarterly in amounts that are correlated to the payments due to us from a customer under a related notes receivable. We discounted our payments due under this installment agreement to calculate our payable balance using an interest rate of 3.50 % as of both June 30, 2022, and March 31, 2022. 18 Table of Contents NON-RECOURSE NOTES PAYABLE Non-recourse notes payable consists of borrowings that, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us. As of June 30, 2022, and March 31, 2022, we had $ 26.4 million and $ 21.2 million, respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 3.78 % and 3.59 %, as of June 30, 2022, and March 31, 2022, respectively. 8. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS We are subject to various legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business and have not been fully resolved. The ultimate outcome of any litigation or any other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, we accrue our best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against us in a reporting period for amounts above management’s expectations, our financial condition and operating results for that period could be adversely affected. As of June 30, 2022, we do not believe that there is a reasonable possibility that any material loss exceeding the amounts already recognized for these proceedings and matters, if any, has been incurred. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the us in the future, and these matters could relate to prior, current, or future transactions or events . 9. EARNINGS PER SHARE Basic earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding plus common stock equivalents during each period. The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations for the three months ended June 30, 2022, and 2021, respectively (in thousands, except per share data). Three Months Ended June 30, 2022 2021 Net earnings attributable to common shareholders - basic and diluted $ 22,339 $ 23,518 Basic and diluted common shares outstanding: Weighted average common shares outstanding — basic 26,513 26,666 Effect of dilutive shares 172 216 Weighted average shares common outstanding — diluted 26,685 26,882 Earnings per common share - basic $ 0.84 $ 0.88 Earnings per common share - diluted $ 0.84 $ 0.87 10. STOCKHOLDERS’ EQUITY SHARE REPURCHASE PLAN On March 24, 2022, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2022 . On March 18, 2021, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2021. Under both authorized programs, purchases may be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes. 19 Table of Contents During the three months ended June 30, 2022, we purchased 70,473 shares of our outstanding common stock at a value of $ 3.9 million under the share repurchase plan; we also purchased 58,080 shares of common stock at a value of $ 3.3 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock. During the three months ended June 30, 2021, we purchased 35,258 shares of our outstanding common stock at a value of $ 1.6 million under the share repurchase plan; we also purchased 55,430 shares of common stock at a value of $ 2.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock. 11. SHARE-BASED COMPENSATION SHARE-BASED PLANS As of June 30, 2022, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), (2) the 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”), and (3) the 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”) . The 2021 Employee LTIP was approved by our shareholders on September 16, 2021, and became effective October 1, 2021. The 2021 Employee LTIP replaced the 2012 Employee LTIP that had previously been approved by our stockholders on September 13, 2012. Beginning September 16, 2021, we permanently ceased issuing any additional shares under the 2012 Employee LTIP . These share-based plans define fair market value as the closing sales price of a share of common stock as quoted on any established stock exchange for such date or the most recent trading day preceding such date if there were no trades on such date. RESTRICTED STOCK ACTIVITY For the three months ended June 30, 2022, we granted 774 shares under the 2017 Director LTIP, and 138,643 restricted shares under the 2021 Employee LTIP. For the three months ended June 30, 2021, we granted 828 shares under the 2017 Director LTIP, and 155,722 restricted shares under the 2012 Employee LTIP. A summary of our restricted stock activity , is as follows: Number of Shares Weighted Average Grant-date Fair Value Nonvested April 1, 2022 343,806 $ 41.01 Granted 139,417 $ 58.51 Vested ( 163,034 ) $ 39.25 Forfeited ( 4,382 ) $ 40.77 Nonvested June 30 , 2022 315,807 $ 49.65 COMPENSATION EXPENSE We recognize compensation cost for awards of restricted stock with graded vesting on a straight-line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. During the three months ended June 30, 2022, and 2021, we recognized $ 1.8 million and $ 1.7 million of total share-based compensation expense, respectively. Unrecognized compensation expense related to unvested restricted stock was $ 14.9 million as of June 30, 2022, which will be fully recognized over the next 36 months. 20 Table of Contents We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are always fully vested. Our estimated contribution expense to the plan for the three months ended June 30, 2022, and 2021, was $ 1.1 million and $ 0.8 million, respectively. 12. INCOME TAXES Our provision for income tax expense was $ 8.7 million for the three months ended June 30, 2022, as compared to $ 9.1 million for the same period in the prior year. Our effective income tax rate for the three months ended June 30, 2022, was 28.0 %, comparable to 27.8 % for the same period in the prior year. The effective tax rate for the three months ended June 30, 2022, and June 30, 2021, differed from the US federal statutory rate of 21.0 % primarily due to state and local income taxes and non-deductible executive compensation . 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table summarizes the fair value hierarchy of our financial instruments as of June 30, 2022, and March 31, 2022 (in thousands): Fair Value Measurement Using Recorded Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30 , 2022 Assets: Money market funds $ 23,193 $ 23,193 $ - $ - March 31 , 2022 Assets: Money market funds $ 18,138 $ 18,138 $ - $ - 14. BUSINESS COMBINATIONS FUTURE COM On July 15, 2022, our subsidiary, ePlus Technology, inc., acquired certain assets and liabilities of Future Com, Ltd., a Texas-based provider of cyber security solutions, cloud security and security consulting services throughout the US. Our acquisition provides access to enhanced engineering, sales, and services delivery capabilities in the South-Central US region, as well as bolstering the skills and expertise surrounding ePlus’ growing cyber security practice. Our preliminary total consideration transferred was $ 13.0 million, which was paid in cash at closing. As of our filing date, our initial accounting for the business combination is incomplete. 15. SEGMENT REPORTING Our operations are conducted through two operating segments that are also both reportable segments. Our technology segment includes sales of IT products, third-party software, third-party maintenance, advanced professional and managed services, and our proprietary software to commercial enterprises, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software, and related services to commercial enterprises, state and local governments, and government contractors. We measure the performance of the segments based on operating income. 21 Table of Contents Our reportable segment information for the three month periods ended June 30, 2022, and 2021 are summarized in the following table (in thousands): Three Months Ended June 30, 2022 June 30, 2021 Technology Financing Total Technology Financing Total Net Sales Product $ 385,676 $ 9,574 $ 395,250 $ 344,766 $ 16,291 $ 361,057 Service 63,109 - 63,109 55,592 - 55,592 Total 448,785 9,574 458,359 400,358 16,291 416,649 Cost of Sales Product 302,508 1,702 304,210 271,015 6,212 277,227 Service 40,626 - 40,626 33,910 - 33,910 Total 343,134 1,702 344,836 304,925 6,212 311,137 Gross Profit 105,651 7,872 113,523 95,433 10,079 105,512 Selling, general, and administrative 73,112 3,655 76,767 66,153 2,622 68,775 Depreciation and amortization 3,182 28 3,210 3,898 28 3,926 Interest and financing costs 138 225 363 159 200 359 Operating expenses 76,432 3,908 80,340 70,210 2,850 73,060 Operating income 29,219 3,964 33,183 25,223 7,229 32,452 Other income (expense) ( 2,153 ) 123 Earnings before tax $ 31,030 $ 32,575 Net Sales Contracts with customers $ 443,802 $ 945 $ 444,747 $ 396,541 $ 5,418 $ 401,959 Financing and other 4,983 8,629 13,612 3,817 10,873 14,690 Total $ 448,785 $ 9,574 $ 458,359 $ 400,358 $ 16,291 $ 416,649 Selected Financial Data - Statement of Cash Flow Depreciation and amortization $ 3,515 $ 957 $ 4,472 $ 4,103 $ 1,979 $ 6,082 Purchases of property, equipment and operating lease equipment $ 1,286 $ 491 $ 1,777 $ 1,307 $ 5,687 $ 6,994 Selected Financial Data - Balance Sheet Total assets $ 1,007,898 $ 248,252 $ 1,256,150 $ 868,276 $ 209,140 $ 1,077,416 22 Table of Contents TECHNOLOGY SEGMENT DISAGGREGATION OF REVENUE We analyze net sales for our technology segment by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized below (in thousands): Three Months Ended June 30, 2022 2021 Customer end market: Telecom, Media & Entertainment $ 128,277 $ 112,192 Technology 69,862 69,140 Healthcare 68,512 54,688 State and local government and educational institutions 64,602 65,415 Financial Services 33,299 30,011 All others 84,233 68,912 Net sales 448,785 400,358 Less: Revenue from financing and other ( 4,983 ) ( 3,817 ) Revenue from contracts with customers $ 443,802 $ 396,541 Three Months Ended June 30, 2022 2021 Vendor: Cisco Systems $ 156,878 $ 166,902 Dell EMC 61,873 26,340 Juniper Networks 22,509 24,714 NetApp 13,985 10,457 Arista Networks 11,172 11,498 All others 182,368 160,447 Net sales 448,785 400,358 Less: Revenue from financing and other ( 4,983 ) ( 3,817 ) Revenue from contracts with customers $ 443,802 $ 396,541 FINANCING SEGMENT DISAGGREGATION OF REVENUE We analyze our revenues within our financing segment based on the nature of the arrangement. Our financing revenue generally consists of portfolio income, transactional gains, and post-contract earnings including month-to-month rents and the sales of off-lease equipment. All of our revenues from contracts with customers within our financing segment is from the sales of off-lease equipment. 23 Table of Contents