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, 2024 March 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 349,909 $ 253,021 Accounts receivable—trade, net 577,019 644,616 Accounts receivable—other, net 54,987 46,884 Inventories 89,134 139,690 Financing receivables—net, current 109,119 102,600 Deferred costs 59,985 59,449 Other current assets 23,951 27,269 Total current assets 1,264,104 1,273,529 Financing receivables and operating leases—net 85,032 79,435 Deferred tax asset 5,620 5,620 Property, equipment, and other assets—net 94,417 89,289 Goodwill 161,508 161,503 Other intangible assets—net 40,292 44,093 TOTAL ASSETS $ 1,650,973 $ 1,653,469 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Current liabilities: Accounts payable $ 270,614 $ 315,676 Accounts payable—floor plan 119,511 105,104 Salaries and commissions payable 40,491 43,696 Deferred revenue 138,619 134,596 Non-recourse notes payable—current 29,898 23,288 Other current liabilities 29,103 34,630 Total current liabilities 628,236 656,990 Non-recourse notes payable - long-term 10,854 12,901 Other liabilities 89,955 81,799 TOTAL LIABILITIES 729,045 751,690 COMMITMENTS AND CONTINGENCIES ( Note 9 ) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.01 per share par value; 2,000 shares authorized; none outstanding - - Common stock, $ 0.01 per share par value; 50,000 shares authorized; 26,940 outstanding at June 30 , 2024 and 26,952 outstanding at March 31 , 2024 276 274 Additional paid-in capital 184,733 180,058 Treasury stock, at cost, 609 shares at June 30 , 2024 and 447 shares at March 31 , 2024 ( 35,746 ) ( 23,811 ) Retained earnings 770,317 742,978 Accumulated other comprehensive income—foreign currency translation adjustment 2,348 2,280 Total Stockholders’ Equity 921,928 901,779 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,650,973 $ 1,653,469 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, 2024 2023 Net sales Product $ 466,349 $ 506,656 Services 78,189 67,519 Total 544,538 574,175 Cost of sales Product 360,157 388,904 Services 49,900 42,998 Total 410,057 431,902 Gross profit 134,481 142,273 Selling, general, and administrative 93,608 90,298 Depreciation and amortization 4,819 4,792 Interest and financing costs 585 851 Operating expenses 99,012 95,941 Operating income 35,469 46,332 Other income (expense), net 2,073 190 Earnings before tax 37,542 46,522 Provision for income taxes 10,203 12,675 Net earnings $ 27,339 $ 33,847 Net earnings per common share—basic $ 1.03 $ 1.27 Net earnings per common share—diluted $ 1.02 $ 1.27 Weighted average common shares outstanding—basic 26,642 26,552 Weighted average common shares outstanding—diluted 26,801 26,648 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, 2024 2023 NET EARNINGS $ 27,339 $ 33,847 OTHER COMPREHENSIVE INCOME, NET OF TAX: Foreign currency translation adjustments 68 947 Other comprehensive income (loss) 68 947 TOTAL COMPREHENSIVE INCOME $ 27,407 $ 34,794 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, 2024 2023 Cash flows from operating activities: Net earnings $ 27,339 $ 33,847 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 5,922 5,755 Provision for credit losses 96 478 Share-based compensation expense 2,855 2,205 Loss (gain) on disposal of property, equipment, and operating lease equipment 54 ( 160 ) Changes in: Accounts receivable 59,276 ( 166,803 ) Inventories 50,555 300 Financing receivables—net ( 5,772 ) ( 42,071 ) Deferred costs and other assets ( 3,160 ) 8,303 Accounts payable—trade ( 45,430 ) 124,948 Salaries and commissions payable, deferred revenue, and other liabilities 5,392 12,298 Net cash provided by (used in) operating activities 97,127 ( 20,900 ) Cash flows from investing activities : Proceeds from sale of property, equipment, and operating lease equipment 61 196 Purchases of property, equipment, and operating lease equipment ( 1,967 ) ( 3,698 ) Cash used in acquisitions, net of cash acquired - ( 59,595 ) Net cash used in investing activities ( 1,906 ) ( 63,097 ) Cash flows from financing activities: Borrowings of non-recourse and recourse notes payable 3,737 97,955 Repayments of non-recourse and recourse notes payable ( 4,467 ) ( 41,573 ) Proceeds from issuance of common stock 1,811 1,398 Repurchase of common stock ( 11,569 ) ( 7,465 ) Payments to settle liabilities for acquisitions ( 2,307 ) - Net borrowings on floor plan facility 14,407 32,290 Net cash provided by financing activities 1,612 82,605 Effect of exchange rate changes on cash 55 ( 127 ) Net increase (decrease) in cash and cash equivalents 96,888 ( 1,519 ) Cash and cash equivalents, beginning of period 253,021 103,093 Cash and cash equivalents, end of period $ 349,909 $ 101,574 8 Table of Contents UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (in thousands) Three Months Ended June 30, 2024 2023 S upplemental disclosures of cash flow information : Cash paid for interest $ 654 $ 566 Cash paid for income taxes $ 10,130 $ 3,605 Cash paid for amounts included in the measurement of lease liabilities $ 1,269 $ 1,261 S chedule of non-cash investing and financing activities : Proceeds from sale of property, equipment, and leased equipment $ 9 $ 15 Purchases of property, equipment, and operating lease equipment $ ( 641 ) $ ( 200 ) Borrowing of non-recourse and recourse notes payable $ 6,546 $ - Debt derecognized due to sales of financial assets $ ( 1,253 ) $ ( 15,857 ) Vesting of share-based compensation $ 10,636 $ 8,483 Repurchase of common stock $ ( 366 ) $ ( 28 ) New operating lease assets obtained in exchange for lease obligations $ 395 $ 3,100 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, 2024 Accumulated Additional Other Common Stock Paid-In Treasury Retained Comprehensive Shares Par Value Capital Stock Earnings Income Total Balance, March 31 , 2024 26,952 $ 274 $ 180,058 $ ( 23,811 ) $ 742,978 $ 2,280 $ 901,779 Issuance of restricted stock awards 121 1 ( 1 ) - - - - Issuance of common stock 29 1 1,810 - - - 1,811 Share-based compensation - - 2,866 - - - 2,866 Repurchase of common stock ( 162 ) - - ( 11,935 ) - - ( 11,935 ) Net earnings - - - - 27,339 - 27,339 Foreign currency translation adjustment - - - - - 68 68 Balance, June 30 , 2024 26,940 $ 276 $ 184,733 $ ( 35,746 ) $ 770,317 $ 2,348 $ 921,928 Three Months Ended June 30, 2023 Accumulated Additional Other Common Stock Paid-In Treasury Retained Comprehensive Shares Par Value Capital Stock Earnings Income Total Balance, March 31 , 2023 26,905 $ 272 $ 167,303 $ ( 14,080 ) $ 627,202 $ 1,568 $ 782,265 Issuance of restricted stock awards 153 2 ( 2 ) - - - - Issuance of common stock 36 - 1,398 - - - 1,398 Share-based compensation - - 2,205 - - - 2,205 Repurchase of common stock ( 147 ) - - ( 7,371 ) - - ( 7,371 ) Net earnings - - - - 33,847 - 33,847 Foreign currency translation adjustment - - - - - 947 947 Balance, June 30 , 2023 26,947 $ 274 $ 170,904 $ ( 21,451 ) $ 661,049 $ 2,515 $ 813,291 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 ( “IT”) solutions which 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 and state and local government and educational institutions (“SLED”) in the United States (“US”) and select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, Singapore, and Israel. BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of ePlus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited consolidated financial statements from the dates of acquisition. During the quarter ended June 30, 2023, we modified our technology segment into new segments — product, professional services, and managed services — that combine to form our technology business to provide our management the ability to better manage and allocate resources among the separate components of this business. Our professional services and managed services are a significant component of our growth and long-term strategic initiatives. Subsequently, we manage and report our operating results through four operating segments: product, professional services, managed services, and financing. For additional information, see Note 16 , “Segment Reporting”. I NTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the three months ended June 30, 2024, and 2023, 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, 2024, and 2023, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ended March 31, 2025, 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, 2024 (“2024 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 sale s are products from Cisco Systems, which represented approximately 36 % and 45 % of our technology business segments net sales for the three months ended June 30, 2024, and 2023, respectively. SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2024, except for the changes provided in Note 2 , “Recent Accounting Pronouncements.” 11 Table of Contents 2. RECENT ACCOUNTING PRONOUNCEMENTS RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. This update is effective for annual periods beginning in our fiscal year ending March 31, 2025 and interim periods beginning in the first quarter of our fiscal year ending March 31, 2026. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This update is effective for annual periods beginning in our fiscal year ending March 31, 2026. Early adoption is permitted. We are currently evaluating the impact that this update will have on our financial statement disclosures. 3. REVENUES CONTRACT BALANCES Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $ 46.8 million and $ 44.6 million of receivables from contracts with customers included within financing receivables as of June 30, 2024, and March 31, 2024, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands): June 30, 2024 March 31, 2024 Current (included in deferred revenue) $ 138,032 $ 134,110 Non-current (included in other liabilities) $ 76,896 $ 68,174 Revenue recognized from the beginning contract liability balance was $ 40.5 million and $ 30.9 million for the three months ended June 30, 2024, and 2023, 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, 2025 $ 68,956 Year ending March 31, 2026 45,452 Year ending March 31, 2027 26,529 Year ending March 31, 2028 10,718 Year ending March 31, 2029 and thereafter 7,166 Total remaining performance obligations $ 158,821 12 Table of Contents The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed. 4. FINANCING RECEIVABLES AND OPERATING LEASES Our financing receivables and operating leases consist of our financing receivables from notes receivable and sales-type leases and the carrying value of our assets that we are leasing to our customers on leases that are classified as operating leases. We generally lease IT, communication, and medical equipment. Our lease terms generally range from 2 to 6 years , with most terms ranging between 3 to 4 years . Our leases often provide the lessee the option to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option. We classify our leases as either sales-type leases or operating leases. Additionally , we finance purchases of third-party software and third-party services for our customers, which we classify as notes receivable. 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, 2024, and 2023 (in thousands): Three Months Ended June 30, 2024 2023 Net sales $ 3,510 $ 7,623 Cost of sales 3,059 7,391 Gross profit $ 451 $ 232 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, 2024, and 2023 (in thousands): Three Months Ended June 30, 2024 2023 Interest income on sales-type leases $ 2,023 $ 1,362 Lease income on operating leases $ 2,867 $ 2,808 FINANCING RECEIVABLES—NET The following tables provide a disaggregation of our financing receivables – net (in thousand s): Notes Sales-Type Lease Financing June 30 , 2024 Receivable Receivables Receivables Gross receivables $ 119,544 $ 83,590 $ 203,134 Unguaranteed residual value (1) - 9,858 9,858 Unearned income ( 7,775 ) ( 13,620 ) ( 21,395 ) Allowance for credit losses (2) ( 1,088 ) ( 1,409 ) ( 2,497 ) Total, net $ 110,681 $ 78,419 $ 189,100 Reported as: Current $ 65,679 $ 43,440 $ 109,119 Long-term 45,002 34,979 79,981 Total, net $ 110,681 $ 78,419 $ 189,100 (1) Includes unguaranteed residual values of $ 3,554 thousand that we retained after selling the related lease receivable. (2) Refer to Note 7 , “Allowance for Credit Losses” for details. 13 Table of Contents Notes Sales-Type Lease Financing March 31 , 2024 Receivable Receivables Receivables Gross receivables $ 114,713 $ 75,658 $ 190,371 Unguaranteed residual value (1) - 9,078 9,078 Unearned income ( 6,503 ) ( 12,036 ) ( 18,539 ) Allowance for credit losses (2) ( 1,056 ) ( 1,435 ) ( 2,491 ) Total, net $ 107,154 $ 71,265 $ 178,419 Reported as: Current $ 61,830 $ 40,770 $ 102,600 Long-term 45,324 30,495 75,819 Total, net $ 107,154 $ 71,265 $ 178,419 (1) Includes unguaranteed residual values of $ 3,718 thousand that we retained after selling the related lease receivable. (2) Refer to Note 7 , “Allowance for Credit Losses” for details. 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, 2024 March 31, 2024 Cost of equipment under operating leases $ 12,370 $ 10,744 Accumulated depreciation ( 7,319 ) ( 7,128 ) Operating leases—net (1) $ 5,051 $ 3,616 (1) Amounts include estimated unguaranteed residual values of $ 1,711 thousand and $ 1,346 thousand as of June 30, 2024, and March 31, 2024, respectively. TRANSFERS OF FINANCIAL ASSETS We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements. For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of June 30, 2024, and March 31, 2024, we had financing receivables of $ 52.2 million and $ 45.8 million, respectively, and operating leases of $ 2.5 million and $ 2.8 million, respectively, which were collateral for non-recourse notes payable. See Note 8 , “Notes Payable and Credit Facility.” For transfers accounted for as sales, we derecognize the carrying value of the financial 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, 2024, and 2023, we recognized net gains of $ 1.3 million for both periods, and total proceeds from these sales were $ 47.9 million and $ 61.4 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, 2024, and March 31, 2024, we had deferred revenue of $ 0.3 million and $ 0.4 million, respectively, for servicing obligations. In a limited number of transfers accounted for as sales, we indemnified the assignee in the event that the lessee elects to early terminate the lease. As of June 30, 2024, and March 31, 2024, our total potential liability that could result from these indemnities is immaterial. 14 Table of Contents 5. LESSEE ACCOUNTING We lease office space for periods up to six years and lease warehouse space for periods of up to ten years , and we have some lease options that can be exercised to extend beyond those lease term limits. 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 recognize operating lease cost as part of selling, general and administrative expenses. We recognized operating lease cost of $ 1.3 million and $ 1.5 million for the three months ended June 30, 2024, and June 30, 2023, respectively. 6. 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, 2024 (in thousand s): Product Professional Services Managed Services Total Balance, March 31, 2024 (1) $ 129,108 $ 22,497 $ 9,898 $ 161,503 Acquisitions - - - - Foreign currency translations 4 1 - 5 Balance, June 30, 2024 (1) $ 129,112 $ 22,498 $ 9,898 $ 161,508 (1) Balance is net of $ 8,673 thousand in accumulated impairments that were recorded in segments that preceded our current segment organization. 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. The only activity in our goodwill balance over the three months ended June 30, 2024 was foreign currency translation adjustments. 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, 2023, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the fair value of our product, professional services, and managed services reporting units continued to exceed their carrying value. Our conclusions would not be impacted by a ten percent change in our estimate of the fair value of the reporting unit. 15 Table of Contents OTHER INTANGIBLE ASSETS Our other intangible assets consist of the following on June 30, 2024, and March 31, 2024 (in thousands): June 30, 2024 March 31, 2024 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Purchased intangibles $ 120,485 $ ( 80,350 ) $ 40,135 $ 120,480 $ ( 76,595 ) $ 43,885 Capitalized software development 10,159 ( 10,002 ) 157 10,516 ( 10,308 ) 208 Total $ 130,644 $ ( 90,352 ) $ 40,292 $ 130,996 $ ( 86,903 ) $ 44,093 Purchased intangibles, consisting mainly of customer relationships, are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years. Total amortization expense for purchased intangibles was $ 3.8 million and $ 3.5 million for the three months ended June 30, 2024, and June 30, 2023, respectively . 7. ALLOWANCE FOR CREDIT LOSSES The following table provides the activity in our allowance for credit losses for the three months ended June 30, 2024, and 2023 (in thousands): Accounts Receivable Notes Receivable Lease Receivables Total Balance as of April 1, 2024 $ 2,687 $ 1,056 $ 1,435 $ 5,178 Provision for credit losses 90 32 ( 26 ) 96 Write-offs and other ( 13 ) - - ( 13 ) Balance as of June 30, 2024 $ 2,764 $ 1,088 $ 1,409 $ 5,261 Accounts Receivable Notes Receivable Lease Receivables Total Balance as of April 1, 2023 $ 2,572 $ 801 $ 981 $ 4,354 Provision for credit losses 629 ( 106 ) ( 45 ) 478 Write-offs and other ( 13 ) 1 - ( 12 ) Balance as of June 30, 2023 $ 3,188 $ 696 $ 936 $ 4,820 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 in the range of 1 % to 8 % . • 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 greater than 8 % and up to 100 % . 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 June 30, 2024 (in thousands): Amortized cost basis by origination year ending March 31, 2025 2024 2023 2022 2021 2020 and prior Total Transfers (2) Net credit exposure Notes receivable: High CQR $ 25,158 $ 48,541 $ 14,290 $ 1,858 $ 1,786 $ 24 $ 91,657 $ ( 26,831 ) $ 64,826 Average CQR 2,490 14,551 2,895 148 28 - 20,112 ( 3,302 ) 16,810 Total $ 27,648 $ 63,092 $ 17,185 $ 2,006 $ 1,814 $ 24 $ 111,769 $ ( 30,133 ) $ 81,636 Lease receivables: High CQR $ 15,363 $ 18,528 $ 8,750 $ 1,218 $ 946 $ 84 $ 44,889 $ ( 2,931 ) $ 41,958 Average CQR 6,298 14,816 8,373 1,732 164 2 31,385 ( 4,292 ) 27,093 Total $ 21,661 $ 33,344 $ 17,123 $ 2,950 $ 1,110 $ 86 $ 76,274 $ ( 7,223 ) $ 69,051 Total amortized cost (1) $ 49,309 $ 96,436 $ 34,308 $ 4,956 $ 2,924 $ 110 $ 188,043 $ ( 37,356 ) $ 150,687 (1) U nguaranteed residual values of $ 3,554 thousand that we retained after selling the related lease receivable excluded from amortized cost. (2) Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis. The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2024 (in thousands): Amortized cost basis by origination year ending March 31, 2024 2023 2022 2021 2020 2019 and prior Total Transfers (2) Net credit exposure Notes receivable: High CQR $ 63,934 $ 15,821 $ 3,440 $ 2,656 $ 30 $ - $ 85,881 $ ( 25,683 ) $ 60,198 Average CQR 18,715 3,260 302 52 - - 22,329 ( 3,476 ) 18,853 Total $ 82,649 $ 19,081 $ 3,742 $ 2,708 $ 30 $ - $ 108,210 $ ( 29,159 ) $ 79,051 Lease receivables: High CQR $ 22,123 $ 9,457 $ 1,341 $ 1,151 $ 100 $ 7 $ 34,179 $ ( 1,128 ) $ 33,051 Average CQR 22,861 9,548 2,133 259 2 - 34,803 ( 5,436 ) 29,367 Total $ 44,984 $ 19,005 $ 3,474 $ 1,410 $ 102 $ 7 $ 68,982 $ ( 6,564 ) $ 62,418 Total amortized cost (1) $ 127,633 $ 38,086 $ 7,216 $ 4,118 $ 132 $ 7 $ 177,192 $ ( 35,723 ) $ 141,469 (1) Unguaranteed residual values of $ 3,718 thousand that we retained after selling the related lease receivable excluded from amortized cost. (2) Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis. The following table provides an aging analysis of our financing receivables as of June 30, 2024 (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 $ 174 $ 823 $ 1,153 $ 2,150 $ 7,302 $ 9,452 $ 102,317 $ 111,769 Lease receivables 281 522 1,852 2,655 5,191 7,846 68,428 76,274 Total $ 455 $ 1,345 $ 3,005 $ 4,805 $ 12,493 $ 17,298 $ 170,745 $ 188,043 17 Table of Contents The following table provides an aging analysis of our financing receivables as of March 31, 2024 (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 $ 1,251 $ 334 $ 2,484 $ 4,069 $ 9,337 $ 13,406 $ 94,804 $ 108,210 Lease receivables 1,174 284 2,213 3,671 4,691 8,362 60,620 68,982 Total $ 2,425 $ 618 $ 4,697 $ 7,740 $ 14,028 $ 21,768 $ 155,424 $ 177,192 Our financial assets on nonaccrual status were not significant as of June 30, 2024, and March 31, 2024. 8. NOTES PAYABLE AND CREDIT FACILITY CREDIT FACILITY 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 business through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). The WFCDF credit facility (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 entirety their then-existing credit agreements with WFCDF. On October 31, 2022, the Borrowers entered into the First Amendment to the credit agreement. Under this agreement and its amendment, the credit facility is provided by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floor plan facility in favor of the Borrowers in the aggregate principal amount of up to $ 425.0 million, together with a sublimit for a revolving credit facility for up to $ 150.0 million. On March 10, 2023, the Borrowers entered into a Second Amendment to the credit agreement which amended the Credit Agreement to increase the maximum aggregate amount of principal available under the floor plan facility from $ 425.0 million to $ 500.0 million and increase the maximum aggregate amount of principal available under the Revolving Facility from $ 150.0 million to $ 200.0 million. Under the accounts payable floor plan facility, we had an outstanding balance of $ 119.5 million and $ 105.1 million as of June 30, 2024, and March 31, 2024 , respectively. On our balance sheet, our liability under the accounts payable floor plan facility is presented as accounts payable – floor plan . We use the floor plan to facilitate the purchase of inventory from designated suppliers. WFCDF pays our suppliers and provides us extended payment terms. We pay down the floor plan facility on three specified dates each month, generally 45 to 60 days from the invoice date. We do not incur any interest or other incremental expenses for the floor plan facility. We are not involved in establishing the terms or conditions of the arrangements between our suppliers and WFCDF . U nder the revolving credit facility, we had no balance outstanding as of June 30, 2024, and March 31, 2024. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current. 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 Term SOFR Rate plus a Term SOFR Adjustment of 0.10 % plus an Applicable Margin of 1.75 %. Our borrowings under the WFCDF Credit Facility are secured by the assets of the Borrowers. Additionally, the WFCDF Credit Facility requires a guaranty of $ 10.5 million by e Plus inc. Under the 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. A s of June 30, 2024, and March 31, 2024 , their available borrowing met the thresholds such that there were no restrictions on their ability to pay dividends. 18 Table of Contents The WFCDF 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 the WFCDF Credit Facility at any time by providing a written termination notice to the other party no less than 90 days prior to such termination . The loss of the WFCDF 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 business and as an operational function of our accounts payable process. 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, 2024, and March 31, 2024 , we had $ 40.8 million and $ 36.2 million, respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due periodically 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 6.52 % and 6.49 %, as of June 30, 2024, and March 31, 2024 , respectively. 9. 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 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 our expectations, our financial condition and operating results for that period may be adversely affected. As of June 30, 2024, 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 us in the future, and these matters could relate to prior, current, or future transactions or events . 10. 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, 2024, and 2023, respectively (in thousands, except per share data). Three Months Ended June 30, 2024 2023 Net earnings attributable to common shareholders - basic and diluted $ 27,339 $ 33,847 Basic and diluted common shares outstanding: Weighted average common shares outstanding — basic 26,642 26,552 Effect of dilutive shares 159 96 Weighted average shares common outstanding — diluted 26,801 26,648 Earnings per common share - basic $ 1.03 $ 1.27 Earnings per common share - diluted $ 1.02 $ 1.27 19 Table of Contents 11. STOCKHOLDERS’ EQUITY SHARE REPURCHASE PLAN On May 18, 2024, our board of directors authorized the repurchase of up to 1,250,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2024. On March 22, 2023, 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, 2023. Under both authorized programs, purchases may be made from time to time in the open market, or in privately negotiated transactions, subject to availability and the plan terms. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes. During the three months ended June 30, 2024 , we purchased 109,869 shares of our outstanding common stock at a value of $ 8.1 million under the share repurchase plan; we also purchased 52,450 shares of common stock at a value of $ 3.8 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock. During the three months ended June 30, 2023 , we purchased 93,541 shares of our outstanding common stock at a value of $ 4.4 million under the share repurchase plan; we also purchased 53,945 shares of common stock at a value of $ 3.0 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock. 12. SHARE-BASED COMPENSATION SHARE-BASED PLANS As of June 30, 2024, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”) and (2) the 2021 Employee Long-Term Incentive Plan (“2021 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, 2024, we granted 437 restricted shares under the 2017 Director LTIP and 121,097 restricted shares under the 2021 Employee LTIP. For the three months ended June 30, 2023, we granted 862 restricted shares under the 2017 Director LTIP and 152,865 restricted shares under the 2021 Employee LTIP. The following table provides a summary of the nonvested restricted shares for the three months ended June 30, 2024: Number of Shares Weighted Average Grant-date Fair Value Nonvested April 1, 2024 308,411 $ 55.02 Granted 121,534 $ 72.69 Vested ( 145,201 ) $ 53.48 Forfeited ( 630 ) $ 55.94 Nonvested June 30 , 2024 284,114 $ 63.37 20 Table of Contents PERFORMANCE STOCK UNITS Beginning with the fiscal year ended March 31, 2024 , we granted Performance Stock Units (“PSUs”) to our executive officers under our 2021 Employee LTIP. The PSUs will vest based on the achievement of certain performance goals at the end of a three-year performance period. The PSUs represent the right to receive shares of our common stock at the time of vesting. The total number of PSUs that vest range from 0 % to 200 % of the target number of PSUs based on our achievement of certain performance targets. The following table provides a summary of the nonvested PSUs for the three months ended June 30, 2024: Number of Units Weighted Average Grant-date Fair Value Nonvested April 1, 2024 15,120 $ 61.17 Granted 19,415 $ 78.54 Nonvested June 30, 2024 34,535 $ 70.94 EMPLOYEE STOCK PURCHASE PLAN On September 15, 2022, our stockholders approved the 2022 Employee Stock Purchase Plan (“ESPP”) through which eligible employees may purchase up to an aggregate of 2.50 million shares of our stock at six-month intervals at a discount off the lesser of the closing market price on the first or the last trading day of each offering period. During the three months ended June 30, 2024, and June 30, 2023, we issued 28,915 shares at a price of $ 62.63 per share and 36,697 shares at a price of $ 38.10 per share, respectively, under the ESPP. As of June 30, 2024, there were 2.40 million shares remaining under the ESPP. COMPENSATION EXPENSE The following table provides a summary of our total share-based compensation expense, including for restricted stock awards, PSUs, our ESPP, and the related income tax benefit for the three months ended June 30, 2024, and 2023 (in thousands): Three Months Ended June 30, 2024 2023 Equity-based compensation expense $ 2,855 $ 2,205 Income tax benefit ( 777 ) ( 600 ) We recognized the income tax benefit as a reduction to our provision for income taxes. As of June 30, 2024, the total unrecognized compensation expense related to non-vested restricted stock was $ 17.1 million, which is expected to be recognized over a weighted-average period of 36 months. We also provide our employees with a contributory 401(k) profit sharing plan (the “401(k) plan”) , to which we may contribute from time to time at our sole discretion. Employer contributions to the 401(k) plan are always fully vested. Our estimated contribution expense to the 401(k) plan for the three months ended June 30, 2024, and 2023, were both $ 1.4 million. 13. INCOME TAXES Our provision for income tax expense was $ 10.2 million for the three months ended June 30, 2024 , as compared to $ 12.7 million for the same three-month period in the prior year. Our effective income tax rate for the three months ended June 30, 2024 , and 2023, were both 27.2 % . The effective tax rate for the three months ended June 30, 2024, and June 30, 2023, differed from the US federal statutory rate of 21.0 % primarily due to state and local income taxes . 21 Table of Contents 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table summarizes the fair value hierarchy of our financial instruments as of June 30, 2024, and March 31, 2024 (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, 2024 Assets: Money market funds $ 283,187 $ 283,187 $ - $ - March 31, 2024 Assets: Money market funds $ 179,709 $ 179,709 $ - $ - 15. BUSINESS COMBINATIONS NETWORK SOLUTIONS GROUP (“NSG”) On April 30, 2023, our subsidiary, e Plus Technology, inc., acquired certain assets and liabilities of NSG, formerly a business unit of CCI Systems, Inc., a Michigan-based provider of networking services and solutions. This acquisition is helping to drive additional growth for us in the service provider end-markets with enhanced engineering, sales, and services delivery capabilities specific to the industry . Our sum for consideration transferred was $ 48.6 million consisting of $ 59.6 million paid in cash at closing minus $ 11.0 million that was paid back to us during the quarter ended September 30, 2023 by the sellers based on adjustments to a determination of the total net assets delivered . Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands): Acquisition Date Amount Accounts receivable $ 20,419 Other assets 1,940 Identified intangible asset 29,960 Accounts payable and other liabilities ( 24,758 ) Contract liabilities ( 1,086 ) Total identifiable net assets 26,475 Goodwill 22,128 Total purchase consideration $ 48,603 The identified intangible asset of $ 30.0 million consists of customer relationships with an estimated useful life of seven years . The fair value of acquired accounts receivable equals the gross contractual amounts receivable. We expect to collect all acquired accounts receivable. We recognized goodwill related to this transaction of $ 22.1 million, of which $ 19.7 million and $ 2.4 million were assigned to our product and professional services reporting segments, respectively. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. 22 Table of Contents The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2023, is not material. 16. SEGMENT REPORTING We manage and report our operating results through four operating segments: product, professional services, managed services, and financing. Our product segment includes sales of IT products, third-party software, and third-party maintenance, software assurance, and other third-party services. Our professional services segment includes our advanced professional services, staff augmentation, project management services, cloud consulting services and security services. Our managed services segment includes our advanced managed services, service desk, storage-as-a-service, cloud hosted services, cloud managed services and managed security services. We refer to the product segment, professional services segment, and managed services segment collectively as our technology business. Our financing business 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 within our technology business based on gross profit, while we measure our financing business segment based on operating income. We do not present asset information for our reportable segments as we do not provide asset information to our chief operating decision maker. 23 Table of Contents The following table provides reportable segment information (in thousands): Three Months Ended June 30, 2024 2023 Net Sales Product $ 457,312 $ 498,166 Professional services 37,279 35,556 Managed services 40,910 31,963 Financing 9,037 8,490 Total 544,538 574,175 Gross Profit Product 98,505 111,391 Professional services 15,455 14,724 Managed services 12,834 9,797 Financing 7,687 6,361 Total 134,481 142,273 Operating expenses Technology business 94,903 92,414 Financing 4,109 3,527 Total 99,012 95,941 Operating income Technology business 31,891 43,498 Financing 3,578 2,834 Total 35,469 46,332 Other income (expense), net 2,073 190 Earnings before tax $ 37,542 $ 46,522 Depreciation and amortization Technology business $ 4,819 $ 4,764 Financing - 28 Total $ 4,819 $ 4,792 Interest and financing costs Technology business $ - $ 550 Financing 585 301 Total $ 585 $ 851 Selected Financial Data - Statement of Cash Flow Purchases of property, equipment, and operating lease equipment Technology business $ 580 $ 2,785 Financing 1,387 913 Total $ 1,967 $ 3,698 24 Table of Contents The following tables provide a disaggregation of net sales by source and further disaggregates our revenue recognized from contracts with customers by timing and our position as principal or agent (in thousands): Three Months Ended June 30, 2024 Product Professional Services Managed Services Financing Total Net Sales: Contracts with customers $ 453,802 $ 37,279 $ 40,910 $ 1,105 $ 533,096 Financing and other 3,510 - - 7,932 11,442 Total $ 457,312 $ 37,279 $ 40,910 $ 9,037 $ 544,538 Timing and position as principal or agent: Transferred at a point in time as principal $ 418,374 $ - $ - $ 1,105 $ 419,479 Transferred at a point in time as agent 35,428 - - - 35,428 Transferred over time as principal - 37,279 40,910 - 78,189 Total revenue from contracts with customers $ 453,802 $ 37,279 $ 40,910 $ 1,105 $ 533,096 Three Months Ended June 30, 2023 Product Professional Services Managed Services Financing Total Net Sales: Contracts with customers $ 490,543 $ 35,556 $ 31,963 $ 1,290 $ 559,352 Financing and other 7,623 - - 7,200 14,823 Total $ 498,166 $ 35,556 $ 31,963 $ 8,490 $ 574,175 Timing and position as principal or agent: Transferred at a point in time as principal $ 452,382 $ - $ - $ 1,290 $ 453,672 Transferred at a point in time as agent 38,161 - - - 38,161 Transferred over time as principal - 35,556 31,963 - 67,519 Total revenue from contracts with customers $ 490,543 $ 35,556 $ 31,963 $ 1,290 $ 559,352 25 Table of Contents TECHNOLOGY BUSINESS DISAGGREGATION OF REVENUE The following table provides a disaggregation of our revenue from contracts with customers for our technology business by customer end market and by type (in thousands): Three Months Ended June 30, 2024 2023 Customer end market: Telecom, media & entertainment $ 117,553 $ 141,335 Technology 109,106 73,403 SLED 92,096 109,405 Healthcare 75,280 86,656 Financial services 49,725 65,690 All others 91,741 89,196 Net sales 535,501 565,685 Less: revenue from financing and other ( 3,510 ) ( 7,623 ) Total revenue from contracts with customers $ 531,991 $ 558,062 Type: Product Networking $ 234,740 $ 245,188 Cloud 137,231 172,044 Security 48,005 45,796 Collaboration 20,899 12,956 Other 16,437 22,182 Total product 457,312 498,166 Professional services 37,279 35,556 Managed services 40,910 31,963 Net sales 535,501 565,685 Less: revenue from financing and other ( 3,510 ) ( 7,623 ) Total revenue from contracts with customers $ 531,991 $ 558,062 We do not disaggregate sales by customer end market beyond the technology business. FINANCING BUSINESS SEGMENT DISAGGREGATION OF REVENUE We analyze our revenues within our financing business 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 our revenues from contracts with customers within our financing business segment are from the sales of off-lease equipment. 26 Table of Contents