UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___to___.

Commission file number: 1-34167

ePlus inc.
(Exact name of registrant as specified in its charter)

Delaware
 
54-1817218
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

13595 Dulles Technology Drive, Herndon, VA 20171-3413
(Address of principal executive offices)

Registrant’s telephone number, including area code: (703) 984-8400

Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes   No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes  No 

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes   No





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer 
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   No

The aggregate market value of the common stock held by non-affiliates of ePlus, computed by reference to the closing price at which the stock was sold as of September 30, 2020, was $967,253,381. The outstanding number of shares of common stock of ePlus as of May 18, 2021, was 13,502,767.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into the indicated parts of this Form 10-K:
 
Portions of the Company's definitive Proxy Statement relating to its 2021 annual meeting of stockholders (the “2021 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2021 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the Company's fiscal year end to which this report relates.






Table of Contents
Table of Contents

 
Page
     
Cautionary Language About Forward-Looking Statements
1
     
Part I
   
     
Item 1.
Business
3
 
Executive Officers
12
Item 1A.
Risk Factors
13
Item 1B.
Unresolved Staff Comments
24
Item 2.
Properties
24
Item 3.
Legal Proceedings
24
Item 4.
Mine Safety Disclosures
24
     
Part II
   
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
25
Item 6.
Selected Financial Data
26
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
45
Item 8.
Financial Statements and Supplementary Data
45
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
45
Item 9A.
Controls and Procedures
45
Item 9B.
Other Information
46
     
Part III
   
     
Item 10.
Directors, Executive Officers and Corporate Governance
47
Item 11.
Executive Compensation
47
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
47
Item 13.
Certain Relationships and Related Transactions, and Director Independence
47
Item 14.
Principal Accounting Fees and Services
47
     
Part IV
   
     
Item 15.
Exhibits, Financial Statement Schedule
48
Item 16.
Form 10-K Summary
51
Signatures
52




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CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions, or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:

the duration and impact of the novel coronavirus (“COVID-19”) pandemic, which could materially adversely affect our financial condition and results of operations and has resulted in governmental authorities imposing numerous unprecedented measures to try to contain the virus that has impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners;
national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and downward pressure on prices;
significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers, or vendors;
the creditworthiness of our customers and our ability to reserve adequately for credit losses;
loss of our credit facility or credit lines with our vendors may restrict our current and future operations;
uncertainty regarding the phase out of LIBOR may negatively affect our operating results;
a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common stock price;
reliance on third parties to perform some of our service obligations to our customers;
changes in the Information Technology (“IT”) industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), software as a service (“SaaS”) and platform as a service (“PaaS”);
our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;
future growth rates in our core businesses;
reduction of vendor incentives provided to us;
rising interest rates or the loss of key lenders or the constricting of credit markets;
the possibility of goodwill impairment charges in the future;
maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;
adapting to meet changes in markets and competitive developments;
increasing the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
our ability to secure our own and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;
managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
increasing the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
performing professional and managed services competently;
our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;

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changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;
exposure to changes in, interpretations of, or enforcement trends in legislation and regulatory matters;
domestic and international economic regulations uncertainty (e.g., tariffs, and trade agreements);
our contracts may not be adequate to protect us, and we are subject to audit in which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
failure to comply with public sector contracts, or applicable laws or regulations;
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace;
disruptions or a security breach in our or our vendors’ IT systems and data and audio communication networks;
our ability to realize our investment in leased equipment;
our ability to successfully perform due diligence and integrate acquired businesses;
significant changes in accounting standards including changes to the financial reporting of leases, which could impact the demand for our leasing services, or misclassification of products and services we sell resulting in the misapplication of revenue recognition policies or inaccurate costs and completion dates for our services, which could affect our estimates; and
our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, license required technology.

We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks, and uncertainties. For a further list and description of various risks, relevant factors, and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see Item 1A, “Risk Factors” and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).

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PART I

ITEM 1.
BUSINESS

GENERAL

ePlus inc., sometimes referred to in this Annual Report on Form 10-K as “we,” “our,” “us,” “ourselves,” or “ePlus.”, was founded in 1990. We conduct our operations through two business segments. Our technology segment sells IT hardware products, third-party software and maintenance contracts, our own and third-party advanced professional and managed services, and our proprietary software. Our financing segment operations primarily consist of the financing of IT equipment, software and related services. Both segments sell to commercial entities, state and local governments, government contractors, and educational institutions.

OUR BUSINESS

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 ePlus 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, professional and managed services, 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 over 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 world 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 ePlus 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 unique 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 ePlus 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. For the year ended March 31, 2021, the percentage of revenue by customer end market within our technology segment includes 25% for the telecommunications, media and entertainment industry, 17% for the technology industry, 16% for state and local government, and educational institutions (“SLED”), 13% for healthcare, and 13% for financial services. Sales to a Verizon Communications Inc. represented 19% and 15% of our net sales for the years ended March 31, 2021 and 2020, respectively. Sales to no one customer exceeded 10% of net sales for the year ended March 31, 2019. 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 accounted for 96% of our net sales, and 71% of our operating income, while our financing segment accounted for 4% of our net sales, and 29% of our operating income for the year ended March 31, 2021.

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OUR INDUSTRY BACKGROUND AND MARKET OPPORTUNITY

We have identified and focused on several specific trends that we believe will create higher growth in the broader US IT market:

Multi-Cloud Strategy. Over the past several years, public, private and hybrid cloud architectures and cloud-enabled frameworks have become a core foundation of modern IT. Our strategy is to assist our customers in aligning cloud strategy with business objective, creating an enterprise cloud foundation, enabling multi-cloud capabilities, accelerating cloud migrations, modernizing the datacenter and extending to the cloud, and optimizing cloud deployments along with their associated costs. We focus on being a guide to customers on their Journey to Modernization of applications, data, and platforms. This strategy leverages our strength in deploying private clouds, extending them to public cloud and incorporating the necessary elements of networking and security. By understanding our customers’ environment, applications, and business requirements, we deploy solutions that leverage the most appropriate technology on the most appropriate platform with the most appropriate consumption model. For example, we may build a private cloud solution to host mission critical applications, while utilizing a public cloud solution for development, collaboration, or disaster recovery. As the market matures, we will continue to build and acquire skills that align with agile development (DevOps), application refactoring, and analytics. Our cloud strategy is tightly aligned with all our key strategic initiatives, including data center, security, networking, collaboration, and emerging technology.

Increasing sophistication and incidences of IT security breaches and cyber-attacks. Over the last decade, cyber-attacks have become more sophisticated, numerous, and invasive. Organizations are finding it increasingly difficult to effectively safeguard their information assets and business operations from a constant stream of advanced threats. Cyber-threats have shifted from uncoordinated individual efforts to highly coordinated and well-funded attacks by criminal organizations and nation-state actors. Additional drivers include data privacy concerns of both user data and machine data as companies continue to pursue digital transformation efforts. For most organizations, it is no longer a matter of if a cyber-attack will occur; the question is when and what impact it will have on the organization. We believe our customers are focused on all aspects of cyber security, including information and physical security, data protection, intellectual property, and compliance requirements related to industry and government regulations. To meet current and future security threats, enterprises must identify their risks, implement security controls and technology solutions that leverage integrated products and services to help monitor, mitigate, and remediate security threats and attacks while ensuring a data-centric security model that is scalable to meet today’s digital demands.

Disruptive technologies are creating complexity and challenges for customers and vendors. The rapid evolution of disruptive technologies, and the speed by which they impact organizations’ IT platforms, has made it difficult for customers to effectively design, procure, implement, and manage their own IT systems. Moreover, increased budget pressures, fewer internal resources, a fragmented vendor landscape and fast time-to-value expectations make it challenging for customers to design, implement and manage secure, efficient, and cost-effective IT environments. Customers are increasingly turning to IT solutions providers such as ePlus to implement complex IT offerings, including managed services, software defined infrastructure, cloud computing, converged and hyper-converged infrastructures, big data analytics, and flash storage.

Customer IT decision-making is shifting from IT departments to line-of- business personnel. As IT consumption shifts from legacy, on-premise infrastructure to agile “on-demand” and “as-a-service” solutions, customer procurement decisions are shifting from traditional IT personnel to lines-of-business personnel, which is changing the customer engagement model and types of consultative services required to fulfill customer needs. In addition, many of the services create recurring annuity revenue streams payable over time, rather than upfront revenue. Our partners are also evolving by developing more annuity models through subscription and consumption-based models operating both on-premises and the cloud.

Lack of sufficient internal IT resources at mid-sized and large enterprises, and scarcity of IT personnel in certain high-demand disciplines. We believe that IT departments at mid-sized and large enterprises are facing pressure to deliver emerging technologies and business outcomes but lack the properly trained staff and the ability to hire personnel with high in-demand disciplines such as security and data analytics. At the same time the prevalence of security threats, increased use of cloud computing, software-defined networking, new architectures, and rapid software development frameworks, the proliferation of mobile devices, dispersed workforces, employees working from home, bring-your-own-device (BYOD) policies, and complexity of multi-vendor solutions, have made it difficult for IT departments to implement high-quality IT solutions.

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Reduction in the number of IT solutions providers. We believe that customers are seeking to reduce the number of solutions providers they do business with to improve supply chain and internal efficiencies, enhance accountability, improve supplier management practices, and reduce costs. As a result, customers are required to select IT solutions providers that can deliver complex multi-vendor IT solutions.

Increasing need for third-party services. We believe that customers are relying on third-party service providers, such as ePlus, to manage significant aspects of their IT environment, from design, implementation, pre- and post-sales support, to maintenance, engineering, cloud management, security operations, and other services.

COMPETITION

The market for IT solutions is highly competitive, subject to macro-economic cycles and the entry of new competitors. Additionally, the consolidation of existing market participants can create significantly larger competitors and is also affected by disruptive technologies and other market activities of industry participants. We expect to continue to compete in all areas of our business against local, regional, national, and international firms, including vendors, international, national, and regional resellers and service providers. Some of our competitors are direct marketers with little value add and sell products as commodities, which can place downward pressure on product pricing. In addition, many IT vendors may sell or lease directly to our customers, and our continued ability to compete effectively may be affected by the policies of such vendors. We face indirect competition from potential customers’ internal development efforts and must overcome potential customers’ reluctance to move away from legacy systems, processes, and solution providers. As IT consumption shifts from IT personnel and legacy infrastructure to line-of-business based outcomes using off-premise, on-demand, and cloud solutions, the legacy resale model is shifting from an upfront sale to a recurring revenue model.

The leasing and financing markets are also competitive and subject to changing economic conditions and market activities of leading industry participants. We expect to continue to compete against local, regional, national, and international firms, including banks, specialty finance companies, private-equity asset managers, vendors' captive finance companies, and third-party leasing companies. Banks and other large financial services companies sell directly to business customers, particularly larger enterprise customers, and may provide other financial or ancillary services that we do not provide. Vendor captive leasing companies may use internal transfer pricing to effectively lower lease rates and/or bundle equipment sales and leasing to provide highly competitive packages to customers. Third-party leasing companies may have deep customer relationships with contracts in place that are difficult to displace; however, these competitors typically do not provide the breadth of product, service, and software offerings that we provide to our customers. Our competitors also may have access to more capital to fund more originations than us.

In all our markets, some of our competitors have longer operating histories and greater financial, technical, marketing, and other resources than we do. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer requirements. Many current and potential competitors also have greater name recognition and engage in more extensive promotional marketing and advertising activities, offer more attractive terms to customers, and adopt more aggressive pricing policies than we do.

OUR SOLUTIONS

Technology Segment

IT Sales: Our offerings consist of hardware, perpetual and subscription software, maintenance, software assurance, and internally provided and outsourced services. We believe that our customers view technology purchases as integrated solutions, rather than discrete product and service categories, and the majority of our sales are derived from integrated solutions involving our customers’ data center, network, security, and collaboration infrastructure. We hold various technical and sales-related certifications from leading manufacturers and software publishers, which authorizes us to market their products and enables us to provide advanced professional services. We actively engage with emerging vendors to offer their technologies to our customers. Our flexible platform and customizable catalogs facilitate the addition of new vendors’ products with minimal incremental effort.

Advanced Professional and Managed Services: We provide a range of advanced professional and managed services to help our customers improve productivity, profitability, and revenue growth while reducing operating costs. Our solutions and services include the following:

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ePlus managed services proactively monitors and manages a broad range of technologies on premises and in the cloud such as service desk, Infrastructure, Cloud Managed Backup and Recovery, Cloud Hosted Infrastructure & Managed Power Protection. a flexible subscription model to monitor, manage, and maximize business critical technologies—including cloud, security, data center, mobility, and collaboration based on a an ITIL Framework with SOC 1/2 and HIPAA accreditation;

Professional services focus on cloud infrastructure, unified communications, collaboration, networking, storage, hyper-converged infrastructure, and virtual desktop infrastructure, supported by security and managed services solutions;

Security solutions help safeguard our customers’ business and information assets through the appropriate application of governance, technology and supporting services:

Governance, Risk, and Compliance (GRC) services help ensure customers are meeting governance and compliance requirements by leveraging regulatory frameworks, industry best practices, and supporting controls - thereby allowing customers to effectively identify, assess, and mitigate risk.
 
Managed Security Services help customers strengthen their information security profile with industry-leading tools, technology and expertise - often at a fraction of the cost of in-house security resources. Services include Security Operations Center (SOC), Managed Detection and Response (MDR), and Incident Response (IR).

ePlus Cloud Consulting Services (ECCS) is a suite of white-glove cloud services providing data protection via Cloud Managed Backup and Cloud Disaster Recovery, as well as hosting mission-critical workloads via Cloud Hosted Infrastructure.

Staff augmentation services provide customers with flexible headcount options, which may range from service desk to infrastructure to software developer skills. Staff augmentation allows customers to access talent, fill specific technology skill gaps, or provide short-term or long-term IT professional help, which also includes services, such as Virtual Chief Information Officer (vCIO) and Virtual Chief Information Security Officer (vCISO), used to complement existing personnel and build three-to-five-year IT roadmaps.

Service desk provides outsourced functions including but not limited to server and desktop support to respond to our customers’ business demands while minimizing overhead.

Project management services enhance productivity and collaboration management and enable successful implementations and adoption of solutions for our customers.

Financing Segment

We specialize in financing arrangements, including sales-type and operating leases; loans, and consumption-based financing arrangements; and underwriting and management and disposal of IT equipment and assets. Our financing operations include sales, pricing, credit, contracts, accounting, risk management, and asset management.

We primarily finance IT equipment, communication-related equipment, and medical equipment. We may also finance industrial machinery and equipment, office furniture and general office equipment, transportation equipment, and other general business equipment. We offer our solutions both directly and through vendors.

We offer enhanced financing solutions, and our business process services approach automates a significant portion of the IT procurement process and reduces our customers’ cost of doing business. The solution incorporates value-added services at every step in the process, including:

Front-end processing, such as procurement, order aggregation, order automation, vendor performance measurement, ordering, reconciliation, and payment;

Lifecycle and asset ownership services, including asset management, change management, and property tax filing; and

End-of-life services such as equipment audit, removal, and disposal.

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OUR COMPETITIVE STRENGTHS

Large Addressable Market with Long-term Growth Opportunities Driven by Increasing IT Complexity

We sell IT solutions focusing on the data center, network, cloud, security, virtualization, and mobility segments of the industry, facilitated by our professional and managed service solutions. We primarily target our sales efforts toward middle-market and large commercial entities, state and local governments, education, and healthcare customers throughout the US and in certain markets in Europe and Asia. We believe IT departments in these organizations are facing pressure to deliver higher service levels with fewer resources, increasing their reliance on third-parties who can provide complex, multi-vendor technology solutions, such as our company.

Broad and Diverse Customer Base across a Wide Range of End Markets

We have a broad and diverse customer base of over 3,500 customers across a wide range of end-markets, including education, financial services, healthcare, media and entertainment, state and local government, technology, and telecommunications.

Differentiated Business Model Serving Entire IT Lifecycle – Procurement, Solutions, Services, Software, Financing

We believe we are a trusted IT advisor, delivering differentiated products and services to enable our customers to meet increasingly complex IT requirements. We are able to provide complete, turn-key solutions aligned to the entire IT lifecycle – procurement, products, services, software, and financing. We provide upfront assessments, design and configuration capabilities, installation and implementation, and ongoing services to support our customers’ solutions.

Deep Expertise in Advanced Technology to Address Cloud, Security, Digital Infrastructure and other Emerging IT Trends

We believe our customers choose us for their complex IT infrastructure needs based on our track record of delivering best-of-breed solutions, value-added services, and close relationships with both established and emerging vendors. We focus on obtaining and maintaining top-level engineering certifications and professional services expertise in advanced technologies of strategic vendors that we leverage to help our customers achieve positive business outcomes. We have over 650 employees that collectively hold approximately 2,200 certification titles, across more than 60 vendors, with a heavy concentration in our top vendors.

Strategic Ability to Design and Integrate Cloud Solutions Across Multiple Vendors

We believe our expertise across both Data Center and Cloud architectures allows us to provide differentiated offerings in assisting our customers with their journey to the cloud. Combined with our established practices in Networking and Security, we are uniquely poised to help customers adopt a multi-cloud strategy utilizing our cloud cost management framework to help overcome the inherent challenges. We leverage our strategic partnerships with leading vendors such as Amazon Web Services, Cisco Systems, Dell EMC, Hewlett Packard Enterprise, Microsoft Azure, NetApp, and VMware in conjunction with our professional, managed and lifecycle services to help our customers achieve their desired business outcomes.

Proven Track Record of Successfully Integrating Acquisitions and Accelerating Growth

We view acquisitions as an important factor in our strategic growth plan. Since 1997, we have successfully integrated nearly 30 acquisitions. Most recently, we have been active in tuck-in acquisitions to broaden our product offerings, sector reach, and geographic footprint.

We generally integrate acquired firms into the ePlus platform immediately, which allows us to maintain customers and vendor relationships, retain key employees from acquired firms, and accelerate growth.

We continue to review new acquisition opportunities to expand our global footprint and expand our offerings.

Financial Performance Characterized by Growth and Profitability

We have focused on achieving top-line revenue growth while maintaining industry-leading gross margins – with a compound annual growth rate of 4.2% on net sales and 7.0% for consolidated gross profit, respectively, from fiscal year 2017 to fiscal year 2021.

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Through our organic expansion and acquisitions, we have increased our employee base by 33.0% from March 31, 2017 to March 31, 2021. The increase in our employee base has largely been in customer facing roles, which represented 92.5% of the total increase in headcount over the same period, as we continue to build our sales and services team while leveraging our operational infrastructure.

GROWTH STRATEGY

Our goal is to continue to grow as a leading provider of technology solutions. The key elements of our strategy include the following:

Be Our Customers’ Partner of Choice for Comprehensive IT and Lifecycle Solutions, Including Consulting, Managed and Professional Services, and Financing

We seek to become the primary provider of IT solutions and flexible financing solutions for each of our customers, whether on-premise, cloud, hybrid or managed services-based. We strive to provide excellent customer service, pricing, availability, and advanced professional and managed services in an efficient manner. We believe the increasing complexity of the IT ecosystem and the emergence of new technologies, vendors, licensing, and service options are factors that will lead to a growing demand from existing customers. We have many experienced pre-sales engineers who engage with customers about the most advanced technologies. Our account executives are trained on our broad solutions capabilities with access to many, category-focused subject-matter experts, which allow them to sell in a consultative business outcome-based manner that increases the likelihood of cross-selling our solutions. Our account executives are supported by experienced and professional inside sales representatives. We believe that our bundled offerings are an important differentiating factor from our competitors.

We focus on gaining top-level engineering certifications and professional services expertise in advanced technologies of strategic vendors. This expertise helps our customers develop their cloud capabilities including private, public, and hybrid infrastructures. We are providing virtual desktop infrastructure, unified communications, collaboration, networking, security, storage, big-data, mobility, converged and hyper-converged infrastructures, and managed services offerings, all of which remain in high demand. We believe our ability to deliver advanced professional services provides benefits in two ways. First, we gain recognition and mindshare of our strategic vendor partners and become the “go-to” partner in selected regional markets as well as the national market. This significantly increases direct and referral sales opportunities for our products and services and allows us to offer competitive pricing levels. Second, within our existing and potential customer base, our advanced professional services are a key differentiator against competitors who cannot provide services or advanced services for these key technologies or across multiple vendor product lines.

Our managed services portfolio expanded this year to include Managed SDWAN, Service Desk, Carrier Expense Management, Cloud Cost Optimization, Vulnerability Management as a Service (VMaas), Managed UCM, Hyperflex, Nutanix and Aruba monitoring and management. We have further increased our breadth and depth of engineering expertise through the integration of recent acquisitions, supplementing our Cisco service offerings, expanding our Netapp SSC/EMS portfolio, and security solutions releases. We have also enhanced our Managed Services and consolidated all ePlus annuity-based service solutions into a single service management platform to enhance customer experience. Likewise, we have increased automation of Service Level Target reporting to ensure remediation and response are top-of-mind.

Build Our Geographic Footprint

We intend to increase our direct sales and go-to-market capabilities in each of our geographic areas. We actively seek to acquire new account relationships through personal relationships, electronic commerce, leveraging our partnerships with vendors, and targeted demand-generation activities to increase awareness of our solutions. We also seek to broaden our customer base, expand our geographic reach, and improve our technology and professional services delivery capabilities. During the last fiscal year, we continued to expand our sales and delivery capabilities across multiple international markets as we see more demand for solutions within this market.

Recruit, Retain, and Develop Employees

Based on our prior experience, capital structure, and business systems and processes, we believe we are well positioned to hire experienced sales people and engineers, make strategic acquisitions that expand our customer facing talent, broaden our customer base, expand our geographic reach, scale our existing operating structure, and/or enhance our product and service offerings. Part of our growth strategy is to hire purposefully and enhance our technical and skill base through strategic acquisitions. Once recruited, we believe that that our culture, competitive performance-based compensation, policies and labor practices contribute to strong relations with our employees. We offer a range of affordable and flexible benefits options to assist with health and well-being. As our employees are an important resource to us, we invest in their ongoing professional development. Our education program provides financial support for employees who want to participate in undergraduate and graduate studies, continuing education, skill building including technical certifications, and other professional enrichment related to their position with ePlus.

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Improve Operational Efficiencies

We continue to invest in our internal technology infrastructure and software platforms to optimize our operations and engage in process re-engineering efforts to become more streamlined and cost effective.

RESEARCH AND DEVELOPMENT

We incur software development costs associated with maintaining, enhancing, or upgrading our proprietary software, which may be performed by internal IT development resources or by an offshore software-development company that we use to supplement our internal development team or various US-based consultants.

SALES AND MARKETING

We focus our sales and marketing efforts on becoming the primary provider of IT solutions for each of our customers. We actively seek to acquire new account relationships through personal relationships, electronic commerce, leveraging our partnerships with vendors and targeted demand-generation activities to increase awareness of our solutions. We target middle-market and large commercial entities and state and local governments, and educational institution. We currently have over 3,500 customers. We undertake direct marketing and leverage digital marketing and social media campaigns to target certain markets in conjunction with our primary vendor partners, who may provide financial reimbursement, outsourced services, and personnel to assist us in these efforts.

Our sales representatives are compensated by a combination of salary and commission, with commission becoming the primary component of compensation as the sales representatives gain experience. To date, we acquired a majority of our customers through the efforts of our direct sales force and acquisitions. We market to different areas within a customer’s organization, including business units as well as the IT department, or finance department, depending on the solutions.

As of March 31, 2021, our sales force consisted of 589 sales, marketing and sales support personnel organized regionally across the US, UK, India, and Singapore.

INTELLECTUAL PROPERTY RIGHTS

Our success depends in part upon proprietary business methodologies and technologies that we have licensed and modified. We own certain software programs or have entered into software licensing agreements to provide services to our customers. We rely on a combination of copyrights, trademarks, service marks, trade secret protection, confidentiality and nondisclosure agreements, and licensing arrangements to establish and protect our intellectual property rights. We seek to protect our documentation and other written materials and confidential corporate information under trade secret and copyright laws, which afford only limited protection.

For example, we currently have patents in the US and Canada. We cannot provide assurance that any patents, as issued, will prevent the development of competitive products or that our patents will not be successfully challenged by others or invalidated through the administrative process or litigation.

In the US, our registered trademarks include e+®, ePlus®, Procure+®, Manage+®, Docpak®, Viewmark®, OneSource®, Where Technology Means More® and GRIT: Girls Re-Imagining Tomorrow ®. We also have registered IGXGlobal®, and IGXGlobal an ePlus Technology, inc. Company® and certain variations thereon in the United Kingdom and the European Union (“EU”). We intend to use and protect these and our other marks, including common-law marks, as we deem necessary. We have over 20 registered copyrights, in addition to unregistered copyrights in our website content, software, marketing and other written materials. We believe our trademarks and copyrights have significant value and are an important factor in the marketing of our products.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop similar technology, duplicate our products or design around our proprietary intellectual property.

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FINANCIAL AND RISK MANAGEMENT ACTIVITIES

Inventory Management: We have drop-shipment arrangements with many of our vendors and distributors, which permit us to offer products to our customers without taking physical delivery of the equipment. Ingram Micro, Arrow Enterprises, Tech Data, and Synnex Corporation are our largest distributors. Using the distribution systems available, we frequently sell products that are shipped from the vendors or distributors directly to our customers’ location, which allows us to keep our inventory of any product and shipping expenses to a minimum. For the year ended March 31, 2021, our four largest distributors accounted for over 30% of our purchases related to our technology segment net sales.

Risk Management and Process Controls: We use and maintain conservative underwriting policies and disciplined credit approval processes in both our technology and financing segments. We have an executive management review process and other internal controls in place to evaluate transactions’ potential risk.

In our technology segment, we manage our risk by using conservative credit quality analysis and periodic monitoring of customer financial results or third-party risk evaluation tools; monitoring customer accounts receivable balances and payment history; proactively pursuing delinquent accounts; ensuring we have appropriate contractual terms and conditions; perfecting security interests when practicable; requiring prepayment or deposits if indicated; performing fraud checks for new accounts; and evaluating general economic as well as industry specific trends. Our systems automatically decrease trade credit lines based on assigned risk ratings.

In our financing segment, we manage our risk in assets we finance by assigning the contractual payments due under the financing arrangement to third-parties and the continued monitoring of our customers’ credit profile. We also use agency purchase orders to procure equipment for lease to our customers and otherwise take measures to minimize our inventory of financed assets. When our technology segment is the supplier of the assets being financed, we retain certain procurement risks. Our financing arrangements with our customers are generally fixed rate.

As a result of COVID-19, we have tightened our credit lines with many of our customers, particularly in the customer end markets under significant duress such as retail. Some customers have requested extended terms which we are assessing on a case by case basis. In our financing segment, we reduced our exposure by transferring certain transactions on a non-recourse basis.

Credit Risk Loss Experience: During the fiscal year ended March 31, 2021, we increased our allowance for credit losses by $1,436 thousand and incurred actual credit losses of $178 thousand. During the fiscal year ended March 31, 2020, we increased our allowance for credit losses by $1,004 thousand and incurred actual credit losses of $429 thousand.

BACKLOG

We rely on our vendors or distributors to fulfill a large majority of our shipments to our customers. As of March 31, 2021, we recorded customer commitments to purchase products or services that remain open until either executed or canceled (“open orders”) of $476.8 million and deferred revenue of $99.1 million. As of March 31, 2020, we had open orders of $277.6 million and deferred revenues of $72.2 million. We expect that most of the open orders and approximately 75% of deferred revenue as of March 31, 2021 will be recognized within the next 12 months.

HUMAN CAPITAL

Our employees’ collective dedication and talent enable us to be a trusted advisor to our customers.

As of March 31, 2021, we employed a total of 1,560 employees, including 1,510 in the US, 18 in the United Kingdom, 30 in India, and 2 in Singapore. We believe we have a good relationship with our employees, and none are represented by a labor union.

Our Culture

In the early days of the COVID-19 pandemic, our Chief Executive Officer introduced the motto of “Be Safe, Be Smart, and Be Kind.” to convey the timeless qualities that embody the culture we have spent 30 years building and have been even more important during this past year. Through our Code of Conduct, policies, our training, and the everyday actions of our leadership, we expect our employees to treat each other, our customers, and all our business partners consistent with the “Be Safe, Be Smart, Be Kind” motto, with respect and equality for all persons.

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Corporate social responsibility is also an important part of our culture and focus efforts around supporting the communities in which we live and work. A sample of our efforts include participating in One Tree Planted, Habitat for Humanity, and Be the Match. Since 2017, we have sponsored GRIT: Girls Re-Imagining Tomorrow in partnership with Cisco Systems, Inc. GRIT exists for the sole purpose of introducing diverse groups of middle school girls to technology-focused career possibilities, with an emphasis on cyber security and artificial intelligence.

Functional Areas of our Employee Base

The functional areas of our employees are as follows:

 
Year Ended March 31,
       
   
2021
   
2020
   
Change
 
Sales and marketing
   
589
     
605
     
(16
)
Professional services
   
662
     
666
     
(4
)
Administration
   
217
     
212
     
5
 
Software development and internal IT
   
85
     
89
     
(4
)
Management
   
7
     
7
     
-
 
     
1,560
     
1,579
     
(19
)

Nearly one-third of our employees have a tenure of six or more years, and 15% have a tenure of more than 10 years.

Covid-19 Safety

During the past year, considering COVID-19, we implemented a flexible work from home strategy for all our offices, and provided training, policies and face coverings for our employees who perform essential services onsite with customers and in our integration centers, supporting critical infrastructure sectors. Our flexible work from home strategy during the pandemic is designed to keep our employees and their families as well as our communities safe, and to support those who cannot return to the office due to childcare responsibilities while schools and day care centers are closed.

Attracting Talent

While we operate in a competitive labor environment, we believe that that our culture, competitive performance-based compensation, policies and labor practices contribute to strong relations with our employees. We offer a range of affordable and flexible benefits options to assist with health and well-being. New this fiscal year, we added Martin Luther King, Jr. Day to our corporate holidays, which complements two personal days to allow employees flexibility for other holidays. In recent years, we have received several Comparably Talent Awards in the Large Companies category, including in 2020: Best CEO, Best Company Work-Life Balance, and Best CEO for Women.

Training and Development

As our employees are an important resource to us, we invest in their ongoing professional development. Our education program provides financial support for employees who want to participate in undergraduate and graduate studies, continuing education, skill building including technical certifications, and other professional enrichment related to their position with ePlus. New employees are assigned 30 short training videos during their first eight months of employment, covering soft skills, compliance, and our specific business. All employees have access to ePlus University, which offers thousands of on-demand courses, from business and technical skills to leadership to compliance. We also provide live and recorded presentations from numerous in-house leaders and experts in a variety of topics, as well as in-person workshops on management skills and leadership. All employees are supported in, and expected to, remain current in the knowledge areas relevant to their position.

Our employee base of highly skilled, experienced personnel includes account executives, pre-sales and inside-sales staff trained on our broad solutions capabilities and category-focuses subject-matter experts. Additionally, we have over 650 employees that collectively hold approximately 2,200 certification titles, across more than 60 vendors, with a heavy concentration in our top vendors.

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US SECURITIES AND EXCHANGE COMMISSION REPORTS

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, filed with or furnished to the US SEC, are available free of charge through our Internet website, www.eplus.com, as soon as reasonably practical after we have electronically filed such material with, or furnished it to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents on or accessible through these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

EXECUTIVE OFFICERS

The following table sets forth the name, age and position of each person who was an executive officer of ePlus on March 31, 2021. There are no family relationships between any directors or executive officers of ePlus.

Name
Age
Position
 
 
 
 
 
Mark P. Marron
59
Chief Executive Officer, President, and Director
 
 
 
 
 
Elaine D. Marion
53
Chief Financial Officer
 
 
 
 
 
Darren Raiguel
50
Chief Operating Officer and ePlus Technology, inc. President

The business experience of each executive officer of ePlus is described below:

Mark Marron – Chief Executive Officer, President and Director

Mark P. Marron became the Chief Executive Officer and President of ePlus inc. on August 1, 2016. He began his career at ePlus in 2005 as Senior Vice President of Sales and became Chief Operating Officer in 2010. A 30-year plus industry veteran, he was formerly with NetIQ where he held the position of Senior Vice President of Worldwide Sales and Services. Prior to joining NetIQ, Mr. Marron served as General Manager of Worldwide Channel Sales for Computer Associates International Inc., a provider of software and services that enables organizations to manage their IT environments. Mr. Marron has extensive experience throughout North America, Europe, the Middle East, and Africa and holds a Bachelor of Science degree in Computer Science from Montclair State University.

Elaine Marion – Chief Financial Officer

Elaine D. Marion joined us in 1998. Ms. Marion became our Chief Financial Officer on September 1, 2008. From 2004 to 2008, Ms. Marion served as our Vice President of Accounting. Prior to that, she was the Controller of ePlus Technology, inc., a subsidiary of ePlus, from 1998 to 2004. Ms. Marion currently serves on the Advisory Board of the School of Business at the University of Mary Washington and as chair of the George Mason University School of Business Dean’s Advisory Council. Ms. Marion is a graduate of George Mason University, where she earned a Bachelor of Science degree in Business Administration with a concentration in Accounting.

Darren Raiguel – Chief Operating Officer and ePlus Technology inc. President

Darren S, Raiguel joined the company in 1997 as an account executive and has held numerous management positions in the organization for well over a decade. Mr. Raiguel became our Executive Vice President of Technology Sales, and in May 2018 was promoted to Chief Operating Officer of ePlus inc. and President of ePlus Technology, inc. Mr. Raiguel received a Bachelor of Business Administration degree from Temple University, with dual majors in Marketing and Finance. He has participated in numerous industry organizations, councils, and advisory boards throughout his career.

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ITEM 1A.
RISK FACTORS

There are many factors that could adversely affect our business, results of operations and cash flows, some of which are beyond our control. The following is a description of some important factors that may cause our business prospects, results of operations and cash flows in future periods to differ materially from those currently expected or desired. Factors not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, results of operations and cash flows.

Risks Specific to Our Business

Actual or anticipated epidemics, pandemics, outbreaks, or other public health crises may adversely affect our customers’ and suppliers’ financial condition and the operations of our business.

Our business could be materially and adversely affected by the impact of the disease caused by the novel coronavirus, COVID-19, which was declared a pandemic by the World Health Organization, or the actual or public perception of the risks related to any epidemic, pandemic, outbreak, or other public health crisis. The risk of COVID-19 pandemic, or public perception of the risks associated with the COVID-19 pandemic, could cause customers to delay or cancel orders, and could cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our products and services to our customers. Quarantines or other cancellations of public events as well as governmental containment actions could also adversely affect our customers' financial condition, resulting in reduced spending for the products and services we sell or uncollectible accounts receivable, leases or notes receivable or our customers’ ability to receive goods we ship to their locations. Moreover, the COVID-19 pandemic has resulted in a high percentage of our employees who work from home, which could adversely affect our ability to adequately staff and manage our businesses. Risks or regulations related to an epidemic, pandemic, or other health crisis, such as COVID-19, has and may continue to lead to the complete or partial closure of one or more of our offices or configuration centers or the operations of our customers or our sourcing partners. Office closures of our customers may reduce our ability to provide onsite professional services and staffing. The ultimate extent to which the current COVID-19 pandemic and the distribution and efficacy of the vaccine will affect the financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and duration of the current pandemic.

We began monitoring the COVID-19 outbreak and following the guidance of public health authorities in January 2020. In March 2020, we put in place a number of protective measures in response to the COVID-19 outbreak that is taking place world-wide. These measures include having employees work from home to the extent their job function enables them to do so, cancelling all non-essential business travel, asking some employees to self-quarantine at home, adjusting our facilities’ janitorial and sanitary policies. We have and may continue to include various health-related measures, such as requiring employees and visitors to undergo a health screening or wear a mask. In addition, our employees may have health issues related to COVID-19 and may have unpredictable work schedules due to childcare responsibilities as many schools and childcare centers are closed. We are regularly revisiting the measures we are taking in response to the evolving COVID-19 pandemic, and we are likely to take additional action in response to the various requirements and recommendations of governmental and other health authorities. In addition, as Stay at Home orders by state and local governments are lifted or changed, additional risks may arise, including infections within our employee base, office closures, and/or closures at customers sites. These existing measures and any future actions, such as additional or renewed Stay at Home orders, may result in a disruption to our business.

As a high percentage of our employees are working from home due to COVID-19, we are highly reliant on the availability and functionality of our information systems to enable our operations. Working from home may increase risk of data loss. If our information systems are not operational for reasons which may include cyber security attacks, data center failures, failures by telecom providers to provide service to our business and to our employees’ homes, power failures, or failures of off-premise software such as SaaS based software, our business and financial results may be adversely impacted.

As our employees return to the workplace, we may face challenges implementing newly required processes technologies, and procedures specific to COVID-19, including paid time off laws and health screenings. Additionally, as the facts, guidance and perception are rapidly changing, we may face challenges responding to actual or possible COVID-19 exposure in the workplace, training managers to address an anticipated uptick in leave and accommodation issues, and issuing corporate communications to effectively assuage and respond to employee concerns regarding COVID-19.

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If we lost one or more of our large volume customers, our earnings may be affected.

The contracts for the provision of products and services from us to our customers are generally non-exclusive agreements without volume purchase commitments and are terminable by either party upon 30 days’ notice. The loss of one or more of our largest customers, the failure of such customers to pay amounts due to us, or a material reduction in the amount of purchases made by such customers could have a material adverse effect on our business, financial position, results of operations and cash flows. Our accounts receivable-trade balance as of March 31, 2021, and 2020, included approximately 20% concentration of invoices due from Verizon Communications Inc.

We depend on having creditworthy customers to avoid an adverse impact on our operating results and financial condition.

Our financing and technology segments require sufficient amounts of debt or equity capital to fund our equipment purchases. If the credit quality of our customer base materially decreases, or if we experience a material increase in our credit losses, we may find it difficult to continue to obtain the required capital for our business, and our operating results and financial condition may be harmed. In addition to the impact on our ability to attract capital, a material increase in our delinquency and default experience would itself have a material adverse effect on our business, operating results, and financial condition.

As a result of COVID-19, many of our customers may be susceptible to economic slowdowns or recessions and may be unable to pay for their purchases or repay the leases or note receivable to us or repayment may be extended by our customers or us. Therefore, our non-performing assets may increase, and the value of our portfolio may decrease during these periods as we are required to record our investments at their current fair value. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net earnings, and assets in our financing segment. Unfavorable economic conditions also could increase our financing segment’s funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our financing portfolio and harm our operating results.

As of March 31, 2021, and 2020, we had an allowance for credit losses of $4.4 million and $3.2 million, respectively.

The terms of our Credit Facility or lines of credit with our vendors or loss thereof may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations.

Our technology segment, primarily through our subsidiary ePlus Technology, inc., finances its operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC or WFCDF. This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component and (2) an accounts receivable component. As of March 31, 2021, the facility agreement had an aggregate limit of the two components of $275 million, and the accounts receivable component had a sub-limit of $100 million, which bears interest assessed at a rate of two percent (2.00%) plus the greater of one month LIBOR or seventy-five hundredths of one percent (0.75%).

The loss of the technology segment’s credit facility could have a material adverse effect on our future results as we rely on this facility and its components for daily working capital and the operational function of our accounts payable process. Our credit agreement contains various covenants that must be met each quarter and either party may terminate the agreement for any reason with 90-days notice. There can be no assurance that we will continue to meet those covenants and failure to do so may limit availability of, or cause us to lose, such financing. There can be no assurance that such financing will continue to be available to us in the future on acceptable terms.

COVID-19 may negatively impact our lender’s willingness to extend credit to us at the current credit limit or an increase in credit limit thus restricting our working capital. We also have lines of credit with our vendors for the purchase of goods and services for resale or internal use with terms including net 15, net 30, net 45, net 60 and net 90. The loss or decrease of our working capital facility or lines of credit with our vendors may have a material adverse effect on our business, results of operations and financial condition.

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We rely on a small number of key vendors in our supply chain, and do not have long-term supply or guaranteed price agreements or assurance of stock availability with our vendors.

A substantial portion of our revenue within our technology segment depends on a small number of key vendors. Products manufactured by Cisco Systems represented approximately 36%, 40%, and 42% of our technology segment net sales for the years ended March 31, 2021, 2020, and 2019, respectively. Products manufactured by NetApp, Hewlett Packard, Juniper Networks, Dell/EMC, and Arista Networks, collectively represented approximately 23% - 24% of technology segment net sales for the last three years. Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, changes or the addition of trade laws, duties or tariffs, currency fluctuations, significant labor disputes such as strikes, natural disasters, political or social unrest, pandemics (such as the COVID-19 pandemic) or other public health crises, or other adverse events affecting any of our vendors’ facilities, could disrupt our supply chain. We could experience product constraints due to the unavailability of raw materials or components, delays in shipping, failure of vendors to accurately forecast customer demand or to manufacture or otherwise obtain sufficient quantities of product or component parts to meet customer demand, among other reasons. If we experience significant supply chain disruptions, we may not be able to develop alternate sourcing quickly on favorable terms, if at all, which could result in increased costs, loss of sales and a loss of customers, and adversely impact our financial condition and results of operations.

As we do not stock inventory that is not related to an order we have received from our customers, we depend upon the supply of products available from our vendors to fulfill orders from our customers on a timely basis.

The loss of a key vendor or changes in its policies could adversely impact our financial results. Violations of a contract that results in either the termination of our ability to sell the product or a decrease in our certification level with the vendor could adversely impact our financial results. In addition, a reduction in the trade credit lines or the favorable terms granted to us by our vendors and financial partners could increase our need for and cost of working capital and have a material adverse effect on our business, results of operations and financial condition.

We depend on third-party companies to perform certain of our obligations to our customers, which if not performed adequately could cause significant disruption to our business.

We rely on arrangements with third-parties to perform certain professional services, staffing services, managed services, warranties, configuration services, and other services for our customers. If these third-parties do not perform these services in accordance with the terms of our agreement and of a professional standard customary for the services, or if they cause disruption of or security weaknesses in our customers’ businesses, results to our organization could include legal claims and associated costs, monetary damages paid to our customers, and an adverse effect on our customer relationships, our brand, and our reputation, and our results of operations or cash flows could be affected. In addition, the acquisition of third-party companies by our competitors may impact our revenue.

We rely on independent shipping companies to deliver products from us and our vendors to our customers. The failure or inability of these shipping companies to deliver products, or the unavailability of their shipping services, even temporarily, could have an adverse effect on our business. We may also be adversely affected by an increase in freight surcharges that may result from economic, supply-chain, geopolitical, or other disruptions.

Breaches of data security and the failure to protect our information technology systems from cybersecurity threats could adversely impact our business.

Our business involves the storage and transmission of proprietary information and sensitive or confidential data, including personal information of our employees, customers, and others. In addition, we rely on our vendors that provide goods and services to us to operate our business to have adequate security measures in place to protect our operations. Also, we operate data centers for our customers that host their technology infrastructure and may store and transmit both business-critical data and confidential information. In connection with our services business, some of our employees also have access to our customers’ confidential data and other information. We have privacy and data security policies in place that are designed to prevent security breaches; however, as newer technologies evolve, and the portfolio of the service providers with whom we share confidential information grows, we could be exposed to increased risk of breaches in security and other illegal or fraudulent acts, including ransomware attacks and other types of cyberattacks. The evolving nature of such threats, considering new and sophisticated methods used by criminals and cyberterrorists, including computer viruses, malware, phishing, misrepresentation, social engineering and forgery, are making it increasingly challenging to anticipate and adequately mitigate these risks.

As a result of COVID-19, a high percentage of our employees are working from home. As a result of employees’ desire to remain current on the virus and its impacts, there may be increased risks relating to cyber security in the form of malware, hacking or phishing schemes, as criminals and cyberterrorists attempt to steal passwords, cookies, and other sensitive data. In addition, the vulnerability of our employees’ home network may also increase this risk.

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We may fail to innovate or create new solutions which align with changing market and customer demand.

As a provider of a comprehensive set of solutions, which involves the offering of bundled solutions consisting of direct IT sales, advanced professional and managed services, our propriety software, and financing, we expect to encounter some of the challenges, risks, difficulties, and uncertainties frequently encountered by companies providing bundled solutions in rapidly evolving markets. Some of these challenges include our ability to increase the total number of users of our services, adapt to meet changes in our markets and competitive developments, or continue to update our technology to enhance the features and functionality of our suite of products. Our personnel must continually stay current with vendor and marketplace technology advancements, create solutions which may integrate evolving vendor products and services as well as services and solutions we provide, to meet changing marketplace and customer demand. Further, we may provide customized solutions and services that are solely reliant on our own marketing, design, and fulfillment services, and we may lack the skills or personnel to execute, or COVID-19 may impact our ability to innovate due to travel restrictions, staff availability, or closed lab or data center locations. Our failure to innovate and provide bespoke value to our customers may erode our competitive position, market share and lead to reduced revenue and financial performance.

In the software market, a number of companies market business-to-business electronic commerce solutions similar to ours, and competitors are adapting their product offerings to a SaaS platform. We may not be able to compete successfully against current or future competitors, and competitive pressures faced by us may harm our business, operating results, or financial condition. We also face indirect competition from customers’ potential internal development efforts and have to overcome customers’ potential reluctance to move away from legacy systems and processes.

In all of our markets, some of our competitors have longer operating histories and greater financial, technical, marketing, and other resources than we do. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer requirements. Many current competitors may have, and potential competitors may have, greater name recognition, engage in more extensive promotional marketing and advertising activities, offer more attractive terms to customers, and adopt more aggressive pricing and credit policies than we do. We may not be successful in achieving revenue growth and may incur additional costs associated with our software products, which may have a material adverse effect on our future operating results as a whole.

We may experience a reduction in incentives offered to us and earned by us from our vendors that would affect our earnings.

We receive payments and credits from vendors, including consideration pursuant to volume incentive programs, shared marketing expense programs, and early pay discounts. These programs are usually of finite terms and may not be renewed or may be changed in a way that adversely affects us. Vendor funding is used to offset inventory costs, costs of goods sold, marketing costs and other operating expenses. Certain of these funds are based on our volume of purchases, growth rate of purchases, and marketing programs. If we do not grow our sales over prior periods, or if we do not comply with the terms of these programs, or do not sell certain products that earn the incentive, there could be a material negative effect on the amount of incentives offered or paid to us by vendors. COVID-19 may affect our ability to meet these volume requirements and may affect our and our vendors’ ability to engage in marketing programs. We may not continue to receive such incentives or may not be able to collect outstanding amounts relating to these incentives in a timely manner, or at all. Any sizeable reduction in, the discontinuance of, a significant delay in receiving, or the inability to collect such incentives, particularly related to incentive programs with our largest vendors, could have a material adverse effect on our business, results of operations and financial condition. If we are unable to react timely to any fundamental changes in the programs of vendors, including the elimination of funding for some of the activities for which we have been compensated in the past, such changes could have a material adverse effect on our business, results of operations and financial condition.

We may not have adequately designed or maintained our IT systems for internal use or solutions we offer to our customers or have adequate or competent IT personnel to support our business.

We depend heavily upon the accuracy and reliability of our information, telecommunication, cybersecurity, and other systems which are used for customer management, sales, distribution, marketing, purchasing, inventory management, order processing and fulfillment, customer service and general accounting functions. We must continually maintain, secure, and improve our systems. The protections we have in place address a variety of threats to our information technology systems, both internal and external, including human error. Inadequate security practices or design of our IT systems, or IT systems from third-parties which we utilize, or third-party service providers’ failure to provide adequate services could result in the disclosure of sensitive or confidential information or personal information or cause other business interruptions that could damage our reputation and disrupt our business. Inadequate design or interruption of our information systems, Internet availability, telecommunications systems or power failures could have a material adverse effect on our business, our reputation, financial condition, cash flows, or results of operations.

As a high percentage of our workforce is currently working from home as a result of the COVID-19 pandemic, we are highly reliant on the availability and functionality of our information systems to enable our operations. Working from home may increase risk of data loss, including privacy-related events. If our information systems are not operational for reasons which may include cyber security attacks, data center failures, failures by telecom providers to provide services to our business and to our employees’ homes, power failures, or failures of off-premise software such as SaaS based software, our business and financial results may be adversely impacted.

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Our managed services business requires us to monitor our customers’ devices on their networks across varying levels of service. If we have not designed our IT systems to provide this service accurately or if there is a security breach in our IT system or the customers’ systems, we may be liable for claims. In addition, we rely on our managed services personnel to perform this service. Illness, including from COVID-19, or improper training, performance or supervision may negatively affect the services we provide our customers resulting in decreased revenue and the potential for litigation.

Products as complex as those used to provide our electronic commerce solutions or cloud automation solutions can contain unknown and undetected errors, performance problems, or use open-source code. We may have serious defects following introduction of new products or enhancements to existing products. Undetected errors or performance problems may be discovered in the future and certain errors we consider to be minor may be serious to our customers.

Our software products, or automation solutions, may be circumvented or sabotaged by third-parties such as hackers, which could result in the disclosure of sensitive information or personal information, unauthorized procurement, or cause other business interruptions that could damage our reputation and disrupt our business. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. In addition, our customers may experience a loss in connectivity to our proprietary software solutions because of a power loss at our data center, interruption in internet availability, or defects in our software. This could result in lost revenues, delays in customer acceptance, security breaches, and unforeseen liabilities that would be detrimental to our reputation and to our business.

We rely on the competency of our internal IT personnel. Our failure to hire, develop, retain, and supervise competent IT personnel to secure our data, or design and maintain resilient technology systems including our data and voice networks, infrastructure, and applications, could significantly interrupt our business causing a negative impact on our results.

We may not be able to hire and/or retain personnel that we need.

To increase market awareness and sales of our offerings, we may need to expand our marketing efforts and sales operations in the future. Our products and services require a sophisticated sales effort and significant technical engineering talent. For example, our sales and engineering candidates must have highly technical hardware and software knowledge to create a customized solution for our customers’ business processes. Competition for qualified sales, marketing and engineering personnel fluctuates depending on market conditions. Prior to COVID-19, the US was in a low unemployment environment which resulted in difficulties in hiring or retaining sufficient personnel to maintain and grow our business. COVID-19 initially resulted in significant unemployment; however, recently unemployment has reduced. While we are currently experiencing an increasingly competitive labor market, we are uncertain as to the employment environment in the future, or how that environment will impact our workforce.

In addition, changes to immigration laws, prior to, because of, and subsequent to COVID-19, may impact our ability to hire or retain talent. Changes in laws relating to non-compete and non-solicitation agreements make it difficult to manage hiring and retention. In some cases, our competitors have required their employees to agree to such agreements as part of their employment, and in some cases, we may not be able to enforce similar restrictions; both scenarios present challenges and costs. Additionally, in some cases our relationship with a customer may be impacted by turnover in our sales or engineering team.

If we fail to identify acquisition candidates, or perform sufficient due diligence prior to completing an acquisition, or fail to integrate a completed acquisition our earnings may be affected.

Mergers and acquisitions are significant factors in our growth strategy. If we fail to identify businesses available for purchase or at an acceptable valuation, our growth strategy may be negatively affected and, as such, our results of operations.

Our ability to successfully integrate the operations we acquire, reduce costs, or leverage these operations to generate revenue and earnings growth, could significantly impact future revenue and earnings. Integrating acquired operations is a significant challenge particularly during the pandemic where most tasks must take place remotely, may divert management’s attention from other business concerns, and there is no assurance that we will be able to manage the integrations successfully. Failure to successfully integrate acquired operations may adversely affect our cost structure thereby reducing our earnings and return on investment. In addition, we may fail to perform adequate due diligence and acquire entities with unknown liabilities, fraud, cultural or business environment issues, or that may not have adequate internal controls as may be required by law.

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If we acquire a company that does not fit culturally, strategically, or in some other fashion, the acquisition may not produce the expected results or may negatively affect our reputation, which may negatively affect our business, results of operations, or cash flows. The unpredictability of the economic impact of COVID-19 will also make it difficult to properly value or anticipate the future success of acquisition targets and impact our overall growth strategy.

To the extent the value of goodwill or identifiable assets with indefinite lives becomes impaired; we may be required to incur material charges relating to the impairment of those assets.

We face substantial competition from other companies.

In our technology segment, we compete in all areas of our business against local, regional, national, and international firms, including other direct marketers; national and regional resellers; online marketplace competitors; and regional, national, and international service providers. In addition, we face competition from vendors, which may choose to market their products directly to end-users, rather than through channel partners such as our company, and this could adversely affect our future sales. Many competitors compete based principally on price and may have lower costs or accept lower selling prices than we do and, therefore, our gross margins may not be maintainable. Online marketplace competitors are continually improving their pricing and offerings to customers as well as ease of use of their online marketplaces. Our competitors may offer better or different products and services than we offer. In addition, we do not have guaranteed purchasing volume commitments from our customers and, therefore, our sales volume may be volatile.

In our financing segment, we face competition from many sources including much larger companies with greater financial resources. Our competition may originate from vendors of the products we finance or financial partners who choose to market directly to customers through the vendors’ captive leasing organization or large or regional financial institutions such as banks with substantially lower cost of funds. Our competition may lower lease rates to increase market share.

We may be liable for misuse of our customers’ or employees’ information.

Third-parties, such as hackers, could circumvent or sabotage the security practices and products used in our product and service offerings, and/or the security practices or products used in our internal IT systems, which could result in disclosure of sensitive or personal information, unauthorized procurement, or other business interruptions that could damage our reputation and disrupt our business. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats.

As a high percentage of our employees are currently working from home as a result of the COVID-19 pandemic, we are highly reliant on the availability and functionality of our information systems to enable our operations. Working from home may increase risk of data loss, including privacy-related events. If our information systems are not operational for reasons which may include cyber security attacks, data center failures, failures by telecom providers to provide services to our business and to our employees’ homes, power failures, or failures of off-premise software such as SaaS based software, our business and financial results may be adversely impacted.

If third-parties or our employees are able to maliciously penetrate our network security or otherwise misappropriate our customers’ information or employees’ personal information, or other information for which our customers may be responsible and for which we agree to be responsible in connection with service contracts into which we may enter, or if we give third-parties or our employees improper access to certain information, we could be subject to liability. This liability could include claims for unauthorized access to devices on our network; unauthorized access to our customers’ networks, hardware, applications, data, devices, or software; unauthorized purchases with credit card information; and identity theft or other similar fraud-related claims. This liability could also include claims for other misuses of or inappropriate access to personal information. Other liability could include claims alleging misrepresentation of our privacy and data security practices. Any such liability for misappropriation of this information could decrease our profitability. In addition, federal and state agencies have been investigating various companies regarding whether they misused or inadequately secured information. We could incur additional expenses when new laws or regulations regarding the use, safeguarding, or privacy of information are enacted, or if governmental agencies require us to substantially modify our privacy or security practices. We could fail to comply with international and domestic data privacy laws, the violation of which may result in audits, fines, penalties, litigation, or administrative enforcement actions with associated costs.

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Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the security practices we use to protect sensitive customer transaction information and employee information. A party that can circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. Further, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user-names, passwords, or other information or otherwise compromise the security of our internal networks and/or our customers’ information. Since techniques used to obtain unauthorized access change frequently and the impact and severity of security breaches are increasing, we may be unable to implement adequate preventative measures or timely identify or stop security breaches while they are occurring.

We may be required to expend significant capital and other resources to protect against security breaches or to remediate the subsequent risks and issues caused by such breaches. Our security measures are designed to protect against security breaches, but our failure to prevent such security breaches could cause us to incur significant expense to investigate and respond to a security breach and remediate any problems caused by any breach, subject us to liability, damage our reputation, and diminish the value of our brand. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing insurance coverage for errors and omissions or security breaches will continue to be available on acceptable terms or in sufficient amounts to cover one or more large claims, or that our insurers will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or changes in our insurance policies, including additional exclusions, premium increases or the imposition of large deductible or co-insurance requirements, could have an adverse effect on our business, financial condition, and results of operations.

Loss of services by any of our executive officers or senior management and/or failure to successfully implement a succession plan could adversely affect our business.

The loss of the services by our executive officers or senior management and/or failure to successfully implement a succession plan could disrupt management of our business and impair the execution of our business strategies. We believe that our success depends in part upon our ability to retain the services of our executive officers and senior management and successfully implement a succession plan. Our executive officers are at the forefront in determining our strategic direction and focus. The loss of our executive officers’ and senior management’s services without replacement by qualified successors could adversely affect our ability to effectively manage our overall operations and successfully execute current or future business strategies and could cause other instability within our workforce.

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

We have configuration centers in the US and third-party providers in the UK and Netherlands. The configuration centers contain inventory owned by us and our customers, which serve as distribution centers for orders, as we do not drop ship directly to the customer. We perform services in those warehouses such as product configuration services, and warehouse and logistics services. If the configuration centers were to be seriously damaged or disrupted by a natural disaster or other adverse event, including disruption related to political or social unrest, we could utilize another distribution center or third-party distributors to ship products to our customers. However, this may not be sufficient to avoid interruptions in our service and may not enable us to meet all of the needs of our customers and would cause us to incur incremental operating costs. In addition, we operate in facilities which may contain both business-critical data and confidential information of our customers and third parties, such as data center colocation and hosted solution partners. A natural disaster or other adverse event at locations such as these or third-party provider locations could negatively impact our business, results of operations or cash flows.

Our earnings may fluctuate, which could adversely affect the price of our common stock.

Our earnings are susceptible to fluctuations for several reasons, including, but not limited to, variability in the timing of large transactions in our technology and financing segments, and the risk factors discussed herein. In addition, our cost structure is based, in part, on expected sales and gross profit. Therefore, if we experience any unexpected sales or gross profit shortfall, we may not be able to adjust our cost structure rapidly which could have an adverse effect on our business, results of operations or cash flows. In the event our sales or net earnings are less than the level expected by the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock.

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Our results of operations are subject to fluctuations in foreign currency.

We have several foreign subsidiaries and conduct business in various countries and currencies. As result of these foreign operations, we have exposure to fluctuations in foreign currency rates resulting primarily from the translation exposure associated with the preparation of our consolidated financial statements. While our consolidated financial statements are reported in US dollars, the financial statements of our subsidiaries outside the US are prepared using the local currency as the functional currency and translated into US dollars. As a result, fluctuations in the exchange rate of the US dollar relative to the functional currencies of our subsidiaries could cause fluctuations in our results of operations. Our operations in foreign countries are insignificant. We also have foreign currency exposure to the extent net sales and purchases are not denominated in a subsidiary’s functional currency, which could have an adverse effect on our business, results of operations, or cash flows.

COVID-19 has had an effect on the global economy and as such may have or continue to have an effect on currency valuations which may cause currency losses for us.

We may be required to take impairment charges for goodwill or other intangible assets related to acquisitions.

We have acquired certain portions of our business and assets through acquisitions. Further, as part of our long-term business strategy, we may continue to pursue acquisitions of other companies or assets. In connection with prior acquisitions, we have accounted for the portion of the purchase price paid in excess of the book value of the assets acquired as goodwill or intangible assets, and we may be required to account for similar premiums paid on future acquisitions in the same manner.

Under the applicable accounting principles, goodwill is not amortized and is carried on our books at its original value, subject to annual review and evaluation for impairment, whereas intangible assets are amortized over the life of the asset. Changes in the business itself, the economic environment (including business valuation levels and trends), or the legislative or regulatory environment may trigger a review and evaluation of our goodwill and intangible assets for potential impairment outside of the normal review periods. These changes may adversely affect either the fair value of the business or our individual reporting units and we may be required to take an impairment charge.

If market and economic conditions deteriorate as a result of COVID-19 or otherwise, this could increase the likelihood that we will need to record impairment charges to the extent the carrying value of our goodwill exceeds the fair value of our overall business. Such impairment charges could materially adversely affect our net earnings during the period in which the charge is taken. As of March 31, 2021, we had goodwill and other intangible assets of $126.6 million and $38.6 million, respectively.

We may not be able to realize our entire investment in the equipment we lease.

The realization of the residual value of the equipment we lease, predominantly at the end of the term of a lease, as well as during the life of the lease, is an important element in our financing segment. At the inception of certain leases, we record a residual value for the leased equipment based on our estimate of the value of the equipment at the expected disposition date.

A decrease in the market value of leased equipment at a rate greater than the rate we projected, whether due to rapid technological or economic obsolescence, excessive or unusual wear and tear on the equipment, or other factors, would adversely affect the recoverability of the estimated residual values of such equipment. Further, certain equipment residual values are dependent on the vendor’s warranties, reputation, rules regarding relicensing of software to operate the equipment, and other factors, including market liquidity. In addition, we may not realize the full market value of equipment if we are required to sell it to meet liquidity needs or for other reasons outside of the ordinary course of business. Consequently, there can be no assurance that we will realize our estimated residual values for equipment.

The degree of residual realization risk varies by transaction type. Sales-type leases bear less risk because contractual payments typically cover 90% or more of the equipment’s lease cost at inception. Operating leases have a higher degree of risk because a smaller percentage of the equipment’s value is covered by contractual cash flows at lease inception.

Risks Related to the Economy and our Industry

General economic weakness may harm our operating results and financial condition.

Our results of operations are largely dependent upon the state of the economy. Global economic weakness and uncertainty may result in decreased sales, gross margin, earnings and/or growth rates from our US based customers and from customers outside the US.

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For example, there continues to be substantial uncertainty regarding the economic impact of the Referendum on the UK’s Membership of the European Union (“EU”) (referred to as “Brexit”). An agreement was reached between the UK and the EU in relation to their future relationship in certain areas, which included a new trade and cooperation agreement relating principally to the free trade in goods (the "EU-UK Trade and Cooperation Agreement"). While the EU-UK Trade and Cooperation Agreement provides clarity in respect of the free trade in goods between the UK and the EU, there remain uncertainties related to the stability and effects of the new relationship. Potential adverse consequences of Brexit and the uncertainties around EU-UK Trade and Cooperation Agreement include global market uncertainty, volatility in currency exchange rates, additional costs and operational burdens associated with increased operational restrictions on imports and exports between the UK and other countries and potentially increased regulatory complexities, each of which could have a negative impact on our business, financial condition, or results of operations. We have established two subsidiaries in the Netherlands to help address future developments, as needed, for Brexit, which could add complexity to our international operations as well as result in higher costs associated with serving our customers.

Changes in the IT industry, customers’ usage, or procurement of IT, and/or rapid changes in product standards may result in reduced demand for the IT hardware and software solutions and services we sell.

Our results of operations are influenced by a variety of factors, including the condition of the IT industry, shifts in demand for, or availability of, IT hardware, software, peripherals and services, and industry introductions of new products, upgrades, methods of distribution, and the nature of how IT is consumed and procured. The IT industry is characterized by rapid technological change and the frequent introduction of new products, product enhancements and new distribution methods or channels, each of which can decrease demand for current products or render them obsolete. In addition, the proliferation of cloud technology, IaaS, SaaS, PaaS, software defined networking, or other emerging technologies may reduce the demand for products and services we sell to our customers. Cloud offerings may influence our customers to move workloads to cloud providers, which may reduce the procurement of products and services from us. Changes in the IT industry may also affect the demand for our advanced professional and managed services. These ‘as a service’ offerings in many cases are recorded on a net basis which results in a reduction of net sales and an increase in gross margin. Over the past several years, we have seen a significant increase in adjusted gross billings recorded on a net basis due to the industry shift to ‘as a service’ offerings. We have invested a significant amount of capital in our strategy to provide certain products and services, and this strategy may adversely impact our financial position due to competition or changes in the industry or improper focus or selection of the products and services we decide to offer. If we fail to react in a timely manner to such changes, our results of operations may be adversely affected. Our sales can be dependent on demand for specific product categories, and any change in demand for or supply of such products could have a material adverse effect on our results of operations.

Rising interest rates or the loss of key lenders or the constricting of credit markets may affect our future profitability and our ability to monetize our financing receivables and investments in operating leases.

We finance transactions with our customers utilizing fix-rate borrowing. If we fund such transactions at inception with a third-party lender, we are able to lock an interest rate spread on the transaction between the customer rate and third-party rate. However, we may delay funding the transaction, and if interest rates increase in the interim, the interest rate spread will decrease, which will adversely impact our profitability, or we may not choose to fund the transaction due to higher interest rates, thus inhibiting our ability to monetize our portfolio to generate cash.

We rely on lenders to fund financing transactions we originate with our customers. Loss of any lender or group of lenders may significantly impact our ability to originate financing transactions, which may negatively impact our financial condition. In addition, our lenders may no longer be willing to provide funding under our current terms and conditions and may demand new terms and conditions that negatively impact our ability to consummate a financing transaction with our customers. We are also subject to changes, if any, in our lenders’ willingness to provide financing for different, particularly lower, credit quality lessees.

COVID-19 has resulted in a tightened credit market, which may impede our ability to fund on a recourse or non-recourse basis certain of our lesser credit quality customers or other general customers. This may result in less earnings, use of our own cash, or lesser credit quality in our financing portfolio.

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We depend on continued innovations in hardware, software, and services offerings by our vendors, as well as the competitiveness of their offerings and our ability to partner with new and emerging technology providers.

The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software, and services offerings, such as cloud-based solutions, including IaaS, SaaS, and PaaS. We depend on innovations in hardware, software, and services offerings by our vendors, as well as the acceptance of those innovations by our customers for the offerings we sell. A decrease in the rate of innovation by our vendors, or the lack of acceptance of innovations by our customers, or a shift by customers to technology platforms that we do not sell could have an adverse effect on our business, results of operations or cash flows.

In addition, if we are unable to keep up with changes in technology and new hardware, software, and services offerings––for example by not providing the appropriate training to our account managers, sales technology specialists and engineers to enable them to effectively sell and deliver such new offerings to customers––our business, results of operations or cash flows could be adversely affected.

We also depend upon our vendors for the development and marketing of hardware, software, and services to compete effectively with hardware, software, and services of vendors whose products and services we do not currently offer or are not authorized to offer in one or more customer channels. In addition, our success depends on our ability to develop relationships with and sell hardware, software, and services from emerging vendors, as well as vendors that we have not historically represented in the marketplace. To the extent that a vendor's offering that is highly in demand is not available to us for resale in one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such customer channels, or we are unable to develop relationships with new technology providers or companies that we have not historically represented, or we partner with a vendor that is not in demand or the demand for whose products significantly decreases, our business, results of operations, or cash flows could be adversely impacted.

Risks Related to Laws and Regulations

Failure to comply with new laws or changes to existing laws may adversely impact our business.

Our operations are subject to numerous US and foreign laws and regulations in a number of areas including, but not limited to, areas of labor and employment, immigration, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy requirements, anti-competition, and environmental, health, and safety. Compliance with these laws, regulations, and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business, and the risk of noncompliance. We have implemented policies and procedures designed to help comply with applicable laws and regulations, but there can be no certainty that our employees, contractors, or agents will fully comply with laws and regulations or our policies and procedures.

In addition, many countries and state and local governments have issued Stay at Home orders to combat COVID-19. These orders may mandate or recommend office closures, telework, or health or safety actions, such as social distancing in the workplace, masks, or health screening. The orders frequently change, and each order is different and must be interpreted and applied to the jurisdiction. Additional risk may arise from these orders as they are lifted or changed which may include infections in our employee base, office closures, closures at customers sites, and additional Stay at Home orders or mandated or recommended safety actions. Additionally, many employment related regulations, such as leave and accommodation matters, have been issued by federal, state, and local governments. These regulations continue to undergo revisions. We may fail to interpret or follow the regulations or orders properly which may result in sanction, penalties, fines, or litigation.

Failure to comply with our public-sector contracts or applicable laws and regulations could result in, among other things, termination, fines or other liabilities, and changes in procurement regulations could adversely impact our business.

Revenues in our public sector are derived from sales to SLED customers, through various contracts and open market sales of products and services. Sales to SLED customers are highly regulated and SLED customer purchases are subject to availability of funds from taxation, grants, or other sources. Noncompliance with contract provisions, government procurement regulations, or other applicable laws or regulations could result in civil, criminal, and administrative liability, including substantial monetary fines or damages, termination of SLED sector customer contracts, and suspension, debarment, or ineligibility from doing business with the government and other customers in the SLED sector. Contracts in the SLED sector are generally terminable at any time for convenience of the contracting agency or upon default and are subject to audits. In addition, most contracts require successfully bidding and award of the contract. These bid processes can be complex and require extensive review of terms and conditions and data compilation. Multiple bidders may win a product category, which creates aggressive competition even after contract award. The effect of any of these possible actions could adversely affect our business, results of operations or cash flows. In addition, the adoption of new or modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our business, results of operations, or cash flows.

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We may not adequately protect ourselves through our contract vehicles, or our insurance policies may not be adequate to address potential losses or claims.

Our contracts may not protect us against the risks inherent in our business including, but not limited to, warranties, limitations of liability, indemnification obligations, human resources and subcontractor-related claims, patent and product liability, regulatory and compliance obligations, data security and privacy, and financing activities. Also, we face pressure from our customers for competitive pricing and contract terms. In addition, order cancellations by our customers may result from COVID-19 or the economic consequences thereof. If orders are cancelled and the equipment has shipped to us, we may have an increased risk of dispute resulting in non-payment. Such disputes may be complicated by novel legal arguments relating to contract enforceability, such as the application of force majeure, impossibility or impracticability of performance, and frustration of purpose. Despite the non-recourse nature of the loans financing certain of our activities, non-recourse lenders may file suit if the underlying transaction turns out poorly for the lenders. We are subject to such claims and the cost of defending such claims due to the nature of our business.

We also are subject to audits by various vendor partners and customers, including government agencies, relating to purchases and sales under various contracts. In addition, we are subject to indemnification claims under various contracts.

The uncertainty regarding the phase-out of LIBOR may negatively impact our operating results.

LIBOR, the interest rate benchmark used as a reference rate on our credit facility variable rate debt is expected to cease publication as of June 30, 2023. The US Federal Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large US financial institutions, announced the replacement of the US dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”). SOFR is a new index calculated by short-term repurchase agreements, backed by US Treasury securities. Whether or not SOFR attains market traction as a LIBOR replacement for US dollar denominated instruments, and whether other benchmarks will attain traction in other markets, remains in question and the future of LIBOR at this time is uncertain. We will also need to consider new contracts and whether the contracts should reference an alternative benchmark rate or include suggested fallback language, as published by the Alternative Reference Rates Committee. The consequences of these developments with respect to LIBOR cannot be entirely predicted and span multiple future periods but could result in an increase in the cost of our variable rate debt which may be detrimental to our financial position or operating results.

We face risks of claims from third-parties for intellectual property infringement, including counterfeit products, that could harm our business.

We may be subject to claims that our products and services, or products that we resell, infringe on the intellectual property rights of third parties and/or are counterfeit products. The vendor of certain products or services we resell may not provide us with indemnification for infringement or indemnification; however, our customers may seek indemnification from us. We could incur substantial costs in defending infringement claims against ourselves and our customers. In the event of such claims, we and our customers may be required to obtain one or more licenses from third parties. We may not be able to obtain such licenses from third parties at a reasonable cost or at all. Defense of any lawsuit or failure to obtain any such required license could significantly increase our expenses and/or adversely affect our ability to offer one or more of our services.

We may be unable to protect our intellectual property and costs to protect our intellectual property may affect our earnings.

The success of our business strategy depends, in part, upon proprietary technology and other intellectual property rights. To date, we have relied primarily on a combination of copyright, trademark, and trade secret laws, and contractual provisions with our customers, subcontractors, and employees to protect our proprietary technology. It may be possible for unauthorized third parties to copy certain portions of our products or reverse engineer or obtain and use information that we regard as proprietary. Some of our agreements with our customers and technology licensors contain residual clauses regarding confidentiality and the rights of third parties to obtain the source code for our products. These provisions may limit our ability to protect our intellectual property rights in the future that could seriously harm our business and operating results. Our means of protecting our intellectual property rights may not be adequate.

The legal and associated costs to protect our intellectual property may significantly increase our expenses and have a material adverse effect on our operating results. We may deem it necessary to protect our intellectual property rights and significant expenses could be incurred with no certainty of the results of these potential actions. Costs relative to lawsuits are usually expensed in the periods incurred and there is no certainty in recouping any of the amounts expended regardless of the outcome of any action.

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Risks Related to Ownership of Our Stock

If securities analysts do not publish research or reports about our company, or if they issue unfavorable commentary about us or our industry or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock depends in part on the research and reports that third-party securities analysts publish about us and our industry. One or more analysts could downgrade our common stock, or issue other negative commentary about us or our industry. If one or more of the analysts that publish research about us cease coverage, we could lose visibility in the market or such discontinuance may be viewed negatively by the market. As a result of one or more of these factors, the trading price of our common stock could decline.

Future offerings of debt or equity securities, which would rank senior to our common stock, may adversely affect the market price of our common stock.

If, in the future, we decide to issue debt or equity securities that rank senior to our common stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences, and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings, if any. Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in our common stock.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.

ITEM 2.
PROPERTIES

As of March 31, 2021, we leased approximately 316 thousand square feet of space of office and warehouse space across 37 different properties in the US, UK, and India . Some of our subsidiaries operate in shared office space to support sales, marketing activities and produce cost efficiency. Some sales and technical service personnel work from either home offices or at customer sites. Our largest office location is our headquarters in Herndon, Virginia. The lease contract on this space terminates on December 31, 2022. We believe that our office and warehouse spaces are suitable and adequate for our present needs. We anticipate no difficulty in retaining occupancy through lease renewals, month-to-month occupancy or replacing the leased properties with equivalent properties.

ITEM 3.
LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, please refer to Note 10, “ Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 4.
MINE SAFETY DISCLOSURES

Not Applicable

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PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

At March 31, 2021, our common stock traded on the NASDAQ Global Select Market under the symbol “PLUS.”

On May 20, 2021, there were approximately 150 stockholders of record of our common stock, although there is a much larger number of beneficial owners.

DIVIDEND POLICIES AND RESTRICTIONS

We did not pay any cash dividends on our common stock during the fiscal years ended March 31, 2021, and 2020. Holders of our common stock are entitled to dividends if and when declared by our Board of Directors (“Board”), out of funds legally available. Generally, we have retained our earnings for use in the business. We currently intend to retain future earnings to fund ongoing operations and finance the growth and development of our business. Any future determination concerning the payment of dividends will depend upon our financial condition, results of operations, capital requirements and any other factors deemed relevant by our Board.

PURCHASES OF OUR COMMON STOCK

The following table provides information regarding our total purchases of 96,741 shares of ePlus inc. common stock during the fiscal year ended March 31, 2021, including a total of 59,101 shares purchased as part of the publicly announced share repurchase plans or programs.

Period
 
Total
number of
shares
purchased
(1)
   
Average
Price
paid per
share
   
Total number of
shares
purchased as
part of publicly
announced plans
or programs
   
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs
 
April 1, 2020 through April 30, 2020
   
-
   
$
-
     
-
     
339,324
     
(2
)
May 1, 2020 through May 27, 2020
   
996
   
$
66.75
     
-
     
339,324
     
(3
)
May 28, 2020 through May 31, 2020
   
-
   
$
-
     
-
     
500,000
     
(4
)
June 1, 2020 through June 30, 2020
   
36,644
   
$
71.94
     
-
     
500,000
     
(5
)
July 1, 2020 through July 31, 2020
   
-
   
$
-
     
-
     
500,000
     
(6
)
August 1, 2020 through August 31, 2020
   
-
   
$
-
     
-
     
500,000
     
(7
)
September 1, 2020 through September 30, 2020
   
24,318
   
$
73.37
     
24,318
     
475,682
     
(8
)
October 1, 2020 through October 31, 2020
   
25,455
   
$
70.67
     
25,455
     
450,227
     
(9
)
November 1, 2020 through November 30, 2020
   
9,328
   
$
70.99
     
9,328
     
440,899
     
(10
)
December 1, 2020 through December 31, 2020
   
-
   
$
-
     
-
     
440,899
     
(11
)
January 1, 2021 through January 31, 2021
   
-
   
$
-
     
-
     
440,899
     
(12
)
February 1, 2021 through February 29, 2021
   
-
   
$
-
     
-
     
440,899
     
(13
)
March 1, 2021 through March 31, 2021
   
-
   
$
-
     
-
     
440,899
     
(14
)

(1)
Any shares acquired were in open-market purchases, except for 37,640 shares, out of which 996 were repurchased in May 2020 and 36,644 in June 2020 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.
(2)
The share purchase authorization in place for the month ended April 30, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of April 30, 2020, the remaining authorized shares to be purchased were 339,324.
(3)
As of May 27, 2020, the authorization under the then existing share repurchase plan expired.
(4)
On May 20, 2020, the board of directors authorized the company to repurchase up to 500,000 shares of our outstanding common stock commencing on May 28, 2020 and continuing to May 27, 2021. As of May 31, 2020, the remaining authorized shares to be purchased were 500,000.
(5)
The share purchase authorization in place for the month ended June 30, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of June 30, 2020, the remaining authorized shares to be purchased were 500,000.
(6)
The share purchase authorization in place for the month ended July 31, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of July 31, 2020, the remaining authorized shares to be purchased were 500,000.

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(7)
The share purchase authorization in place for the month ended August 31, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of August 31, 2020, the remaining authorized shares to be purchased were 500,000.
(8)
The share purchase authorization in place for the month ended September 30, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of September 30, 2020, the remaining authorized shares to be purchased were 475,682.
(9)
The share purchase authorization in place for the month ended October 31, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of October 31, 2020, the remaining authorized shares to be purchased were 450,227.
(10)
The share purchase authorization in place for the month ended November 30, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of November 30, 2020, the remaining authorized shares to be purchased were 440,899.
(11)
The share purchase authorization in place for the month ended December 31, 2020, had purchase limitations on the number of shares of up to 500,000 shares. As of December 31, 2020, the remaining authorized shares to be purchased were 440,899.
(12)
The share purchase authorization in place for the month ended January 31, 2021 had purchase limitations on the number of shares of up to 500,000 shares. As of January 31, 2021, the remaining authorized shares to be purchased were 440,899.
(13)
The share purchase authorization in place for the month ended February 28, 2021 had purchase limitations on the number of shares of up to 500,000 shares. As of February 28, 2021, the remaining authorized shares to be purchased were 440,899.
(14)
The share purchase authorization in place for the month ended March 31, 2021, had purchase limitations on the number of shares of up to 500,000 shares. As of March 31, 2021, the remaining authorized shares to be purchased were 440,899.

The timing and expiration date of the share repurchase authorizations are included in Note 12, “Stockholders’ Equity” to our consolidated financial statements included elsewhere in this report.

ITEM 6.
SELECTED FINANCIAL DATA

Not Applicable

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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations (“financial review”) of ePlus is intended to help investors understand our company and our operations. The financial review is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the related notes included elsewhere in this report.

For a discussion of results for the year ended March 31, 2020 compared to the results for the year ended March 31, 2019, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the Securities and Exchange Commission on May 22, 2020.

EXECUTIVE OVERVIEW

Business Description

ePlus and its consolidated subsidiaries provide leading IT products and services, flexible leasing and financing solutions, and enterprise supply management to enable our customers to optimize their IT infrastructure and supply chain processes.

We design, implement and provide IT solutions for our customers. We are focused primarily on specialized IT segments including data center infrastructure, networking, security, cloud and collaboration. Our solutions incorporate hardware and software products from multiple leading IT vendors. As our customers’ IT requirements have grown increasingly complex, we have evolved our offerings by investing in our professional and managed services capabilities and by expanding our relationships with existing and emerging key vendors.

We continue to strengthen our relationships with vendors focused on emerging technologies, which have enabled us to provide our customers with new and evolving IT solutions. We are an authorized reseller of over 1,000 vendors, but primarily of approximately 100 vendors, including Arista Networks, Check Point, Cisco Systems, Dell EMC, F5 Networks, FireEye, Fortinet, Gigamon, Hewlett Packard Enterprise, HP Inc., Juniper, Lenovo, McAfee, NetApp, Nutanix, Oracle, Palo Alto Networks, Pure Storage, Splunk, VMware, among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer IT solutions that are optimized for each of our customers’ specific requirements. Our proprietary software solutions allow our customers to procure, control and automate their IT solutions environment.

COVID-19

The novel coronavirus (“COVID-19”) pandemic continues to have widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal, state and local governments and public health authorities have required and may in the future require measures to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, safety-related modifications to workplaces, supply chain logistical changes, and closure of non-essential businesses.

As COVID-19 impacts continue to expand across the country and globe, we have been adjusting our business activities for the safety of our employees and to best serve our customers in this rapidly evolving environment. We have implemented a flexible work from home strategy applicable to all offices and operational continuity plans to provide sufficient resources to continue supporting our customers. For employees who wish to return to the office, we have reopened our headquarters along with other sales offices with limited capacity and with required health and safety protocols in place. We plan to reopen our other offices using a phased approach. Our configuration centers have remained open with our employees working in them following required health and safety protocols. In addition, we also have a procedure to review and approve employees’ business-related travel. Our managed service teams are distributed across the US with the ability to leverage technology to provide coverage while working from home. While we and many of our customers and vendor partners have restricted travel, we are leveraging video and other collaborative tools to continue to be responsive.

Our account relationship teams are actively engaging with our customers, to ensure they have the support needed in adjusting to changes in the business environment and government directives. Also, we are working closely with our vendor partners to address varying impacts on their supply chain to satisfy infrastructure needs. Certain of our vendor partners extended payment terms to us and our competitors.

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We continue to execute against and adjust our business continuity plans to maximize our ability to support our employees and customers in concert with our partners. We have an internal resource page to support specific customer inquiries from security to collaboration to financing options. We remain committed to driving positive business outcomes.

The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic including the impact of various mutations; governmental, business, and individuals’ actions in response to the pandemic; the efficacy of the vaccine, duration of the vaccination distribution, and demand by people to be inoculated; and the impact on economic activity including the possibility of recession or financial market instability. These factors may adversely impact business, and government spending on technology as well as our customers’ ability to pay for our products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions. Refer to Part I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K.

Key Business Metrics

Our management monitors several financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, net earnings per common share, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross billings, and Non-GAAP Net earnings per share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets.

These key indicators include financial information that is prepared in accordance with US GAAP and presented in our consolidated financial statements, as well as Non-GAAP performance measurement tools. Generally, a Non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

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

 
Year Ended March 31,
 
Consolidated
 
2021
   
2020
   
2019
 
Net sales
 
$
1,568,323
   
$
1,588,404
   
$
1,372,673
 
                         
Gross profit
 
$
393,554
   
$
391,191
   
$
330,388
 
Gross margin
   
25.1
%
   
24.6
%
   
24.1
%
Operating income margin
   
6.8
%
   
6.0
%
   
5.8
%
                         
Net earnings
 
$
74,397
   
$
69,082
   
$
63,192
 
Net earnings margin
   
4.7
%
   
4.3
%
   
4.6
%
Net earnings per common share - diluted
 
$
5.54
   
$
5.15
   
$
4.65
 
                         
Non-GAAP: Net earnings (1)
 
$
85,567
   
$
82,167
   
$
69,580
 
Non-GAAP: Net earnings per common share - diluted (1)
 
$
6.38
   
$
6.13
   
$
5.12
 
                         
Adjusted EBITDA (2)
 
$
128,245
   
$
119,359
   
$
100,415
 
Adjusted EBITDA margin
   
8.2
%
   
7.5
%
   
7.3
%
                         
Technology Segment
                       
Net sales
 
$
1,507,954
   
$
1,530,138
   
$
1,329,520
 
Adjusted gross billings (3)
 
$
2,263,865
   
$
2,227,885
   
$
1,918,995
 
                         
Gross profit
 
$
346,235
   
$
340,588
   
$
294,662
 
Gross margin
   
23.0
%
   
22.3
%
   
22.2
%
                         
Operating income
 
$
75,665
   
$
62,155
   
$
56,738
 
Adjusted EBITDA (2)
 
$
97,219
   
$
85,840
   
$
77,202
 
                         
Financing Segment
                       
Net sales
 
$
60,369
   
$
58,266
   
$
43,153
 
                         
Gross profit
 
$
47,319
   
$
50,603
   
$
35,726
 
                         
Operating income
 
$
30,670
   
$
33,124
   
$
22,796
 
Adjusted EBITDA (2)
 
$
31,026
   
$
33,519
   
$
23,213
 

(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.

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Year Ended March 31,
 
   
2021
   
2020
   
2019
 
GAAP: Earnings before tax
 
$
106,906
   
$
95,959
   
$
86,230
 
Share based compensation
   
7,167
     
7,954
     
7,244
 
Acquisition and integration expense
   
271
     
1,676
     
1,813
 
Acquisition related amortization expense
   
9,116
     
9,217
     
7,423
 
Other income
   
(571
)
   
(680
)
   
(6,696
)
Non-GAAP: Earnings before provision for income taxes
   
122,889
     
114,126
     
96,014
 
                         
GAAP: Provision for income taxes
   
32,509
     
26,877
     
23,038
 
Share based compensation
   
2,188
     
2,218
     
1,988
 
Acquisition and integration expense
   
78
     
490
     
522
 
Acquisition related amortization expense
   
2,730
     
2,487
     
1,916
 
Other income
   
(143
)
   
(200
)
   
(1,702
)
Tax benefit on restricted stock
   
(40
)
   
87
     
672
 
Non-GAAP: Provision for income taxes
   
37,322
     
31,959
     
26,434
 
                         
Non-GAAP: Net earnings
 
$
85,567
   
$
82,167
   
$
69,580
 

 
Year Ended March 31,
 
   
2021
   
2020
   
2019
 
GAAP: Net earnings per common share - diluted
 
$
5.54
   
$
5.15
   
$
4.65
 
                         
Share based compensation
   
0.38
     
0.43
     
0.38
 
Acquisition and integration expense
   
0.01
     
0.09
     
0.09
 
Acquisition related amortization expense
   
0.48
     
0.51
     
0.40
 
Other income
   
(0.03
)
   
(0.04
)
   
(0.35
)
Tax benefit on restricted stock
   
-
     
(0.01
)
   
(0.05
)
Total non-GAAP adjustments - net of tax
 
$
0.84
   
$
0.98
   
$
0.47
 
Non-GAAP: Net earnings per common share - diluted
 
$
6.38
   
$
6.13
   
$
5.12
 

(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.

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Year Ended March 31,
 
Consolidated
 
2021
   
2020
   
2019
 
Net earnings
 
$
74,397
   
$
69,082
   
$
63,192
 
Provision for income taxes
   
32,509
     
26,877
     
23,038
 
Share based compensation
   
7,167
     
7,954
     
7,244
 
Interest and financing costs
   
521
     
294
     
-
 
Acquisition and integration expense
   
271
     
1,676
     
1,813
 
Depreciation and amortization
   
13,951
     
14,156
     
11,824
 
Other income
   
(571
)
   
(680
)
   
(6,696
)
Adjusted EBITDA
 
$
128,245
   
$
119,359
   
$
100,415
 
                         
Technology Segment
                       
Operating income
 
$
75,665
   
$
62,155
   
$
56,738
 
Depreciation and amortization
   
13,839
     
14,016
     
11,812
 
Share based compensation
   
6,923
     
7,699
     
6,839
 
Interest and financing costs
   
521
     
294
     
-
 
Acquisition and integration expense
   
271
     
1,676
     
1,813
 
Adjusted EBITDA
 
$
97,219
   
$
85,840
   
$
77,202
 
                         
Financing Segment
                       
Operating income
 
$
30,670
   
$
33,124
   
$
22,796
 
Depreciation and amortization
   
112
     
140
     
12
 
Share based compensation
   
244
     
255
     
405
 
Adjusted EBITDA
 
$
31,026
   
$
33,519
   
$
23,213
 

(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.

 
Year Ended March 31,
 
   
2021
   
2020
   
2019
 
Technology segment net sales
 
$
1,507,954
   
$
1,530,138
   
$
1,329,520
 
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services
   
755,911
     
697,747
     
589,475
 
Adjusted gross billings
 
$
2,263,865
   
$
2,227,885
   
$
1,918,995
 

We use Adjusted gross billings as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment, and to analyze the changes to our accounts receivable and accounts payable. Our use of Adjusted gross billings as an analytical tool has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under US GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted gross billings or a similarly titled measure differently, which may reduce its usefulness as a comparative measure.

Financial Summary

During the year ended March 31, 2021, net sales decreased 1.3% to $1,568.3 million, or a decrease of $20.1 million compared to $1,588.4 million in the prior fiscal year. Product sales for the year ended March 31, 2021, decreased 2.1% to $1,366.2 million, or a decrease of $29.1 million compared to $1,395.3 million in the prior year. Services sales during the year ended March 31, 2021, increased 4.7% to $202.2 million, or an increase of $9.1 million, over prior year services sales of $193.1 million. The decrease in net sales was mostly due a change in product sales mix, with a greater portion in sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, for which the revenues and cost of sales are presented on a net basis. We had decreases in net sales to customers in the technology and healthcare markets, which were almost entirely offset by increases in net sales to customers in the telecom, media and entertainment, financial services, and a few smaller other categories of customers, during the year ended March 31, 2021, compared to the prior year.

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Adjusted gross billings increased by 1.6%, or $36.0 million, to $2,263.9 million for the year ended March 31, 2021, compared to $2,227.9 million in the prior fiscal year. The increase in Adjusted gross billings was due to higher demand from our current customers, as well as from our acquisitions. Adjusted gross billings increased year over year while net sales decreased slightly due to a shift in mix to a higher proportion of third-party maintenance, software assurance, subscriptions/SaaS licenses, and services which we recognize revenue on a net basis.

Consolidated gross profit increased 0.6%, to $393.6 million, compared to $391.2 million in the prior fiscal year due to higher margins. Consolidated gross margin increased 50 basis points to 25.1% for the year ended March 31, 2021, compared to 24.6% for the year ended March 31, 2020. The increase in gross margin was due to expanded gross profit and margins of our technology segment, due to a shift in revenue mix resulting from our continued focus on value added services for our customers, including the increase in sales of our professional and managed services, and sales of third-party maintenance agreements, software assurance, subscriptions/SaaS licenses, and services. The increase in gross margin was partially offset by lower margins in our finance segment due to gains on several large transactions in the prior year.

For the year ended March 31, 2021, operating expenses decreased $8.7 million, or 2.9%, to $287.2 million, as compared to $295.9 million in the prior year. The decrease in operating expenses for the year ended March 31, 2021, was due to reductions in selling, general and administrative expenses, interest and financing costs, and depreciation and amortization expense.

Selling, general, and administrative expense for the year, decreased $7.9 million, or 2.8%, to $271.3 million, due to decreases in travel and entertainment, advertising and marketing, employee fringe benefits, a reduction in acquisition related expense, general office related expenses, and salary expense, partially offset by an increase in variable compensation, and our provision for credit losses. As of March 31, 2021, we had 1,560 employees, a decrease of 1.1% from 1,579 as of March 31, 2020. Depreciation and amortization expense decreased by $0.2 million and interest and financing costs decreased $0.6 million, due to a decrease in the average balance of non-recourse and recourse notes payable outstanding during the year.

Operating income increased $11.1 million, or 11.6%, to $106.3 million and operating margin increased by 80 basis points to 6.8%, as compared to the year ended March 31, 2020. The increase in operating earnings was due to a year over year reductions in selling, general and administrative expense and an increase in gross profit.

Our effective tax rate for the year ended March 31, 2021, was 30.4%, compared to 28.0% for the same period in the prior year primarily due to non-deductible executive compensation. The higher effective tax rate had a negative effect on earnings for the year ended March 31, 2021.

Net earnings for the year ended March 31, 2021, increased 7.7% to $74.4 million, as compared to $69.1 million for the year ended March 31, 2020. Net earnings for the year ended March 31, 2020 included other income of $1.0 million from payments received from distributions from various legal claims.

Adjusted EBITDA for the year ended March 31, 2021, was $128.2 million, an increase of $8.9 million, or 7.4%, compared to the prior year. Adjusted EBITDA margin was 8.2% for the year ended March 31, 2021 an increase of 70 basis points over the prior year.

For the year ended March 31, 2021, diluted earnings per share were $5.54, an increase of $0.39, or 7.6%, compared to the prior year of $5.15 per diluted share. Non-GAAP diluted earnings per share was $6.38 for fiscal year 2021, an increase of $0.25, or 4.1%, from $6.13 per diluted share in the prior year.

Cash and cash equivalents increased $43.3 million, or 50.2%, to $129.6 million at March 31, 2021, compared to March 31, 2020. The increase is primarily the result of cash flows from operations, which was partially offset by an increase in working capital required for the growth in our technology segment, and an increase in our cash conversion cycle, investments in our financing portfolio, and the repurchase of shares of our common stock for $6.9 million. Our cash on hand, funds generated from operations, amounts available under our credit facility and the possible monetization of our investment portfolio have provided sufficient liquidity for our business.

Segment Overview

Our operations are conducted through two segments: technology and financing.

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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.

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

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements have been prepared in accordance with US GAAP. Our significant accounting policies are described in Note 1 of the Notes to the Consolidated Financial Statements under “Organization and Summary of Significant Accounting Policies.” The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require significant judgments, assumptions, and estimates, and actual results could differ materially from the amounts reported based on these policies.

REVENUE RECOGNITION — When we enter contracts with customers, we are required to identify the performance obligations in the contract. We recognize most of our revenues from the sales of third-party products, third-party software, third-party maintenance, software support, and services, ePlus professional and managed services, and hosting ePlus proprietary software. Our recognition of revenue differs for each of these different types of performance obligations and identifying each performance obligation appropriately may require judgement.

When a contract contains multiple distinct performance obligations, we allocate the transaction price to each performance obligation based on its relative standalone selling price. We determine standalone selling prices using expected cost-plus margin. When we finance sales of third-party software and third-party maintenance, software support, and services, we reduce the transaction price by the financing component.

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We recognize revenue from sales of third-party products and third-party software at the point in time that control passes to the customer, which is typically upon delivery of the product to the customer. We perform an analysis to estimate the amount of sales in-transit at the end of the period and adjust revenue and the related costs to reflect only what has been delivered to the customer. This analysis is based upon an analysis of current quarter and historical delivery dates.

We recognize revenue from sales of third-party maintenance, software support, and services when our customer and vendor accept the terms and conditions of the arrangement. On occasion, judgement is required to determine this point in time.

We provide ePlus professional services under both time and materials and fixed price contracts. When services are provided on a time and materials basis, we recognize sales at agreed-upon billing rates as services are performed. When services are provided on a fixed fee basis, we recognize sales over time in proportion to our progress toward complete satisfaction of the performance obligation. Using this method requires a determination of the appropriate input or output method to measure progress. We most often measure progress based on costs incurred in proportion to total estimated costs, commonly referred to as the “cost-to-cost” method. When using this method, significant judgement may be required to estimate the total costs to complete the performance obligation. We typically recognize sales of ePlus managed services on a straight-line basis over the period services are provided.

We recognize financing revenues from our investments in leases and notes receivable. We recognize interest income on our notes-receivable using the effective interest method.

We classify our leases as either sales-type leases or operating leases. For sales-type leases, upon lease commencement, we recognize the present value of the lease payments and the residual asset discounted using the rate implicit in the lease. When we are financing equipment provided by another dealer, we typically do not have any selling profit or loss arising from the lease. When we are the dealer of the equipment being leased, we typically recognize revenue in the amount of the lease receivable and cost of sales in the amount of the carrying value of the underlying asset minus the unguaranteed residual asset. We may need to use judgement to determine the fair value of the equipment. After the commencement date, we recognize interest income as part of net sales using the effective interest method. For operating leases, we recognize the underlying asset as an operating lease asset. We depreciate the asset on a straight-line basis to its estimated residual value over its estimated useful life. We recognize the lease payments over the lease term on a straight-line basis as part of net sales.

We account for the transfer of financial assets as sales or secured borrowings. When a transfer meets all the requirements for sale accounting, we derecognize the financial asset and record a net gain or loss that is included in net sales. We utilize qualified attorneys to provide a true-sale-at-law opinion to support the conclusion that transferred financial assets have been legally isolated.

RESIDUAL ASSETS — Our estimate for the residual asset in a lease is the amount we expect to derive from the underlying asset following the end of the lease term. Our estimates vary, both in amount and as a percentage of the original equipment cost, and depend upon several factors, including the equipment type, vendor’s discount, market conditions, lease term, equipment supply and demand, and new product announcements by vendors. We evaluate residual values for impairment on a quarterly basis. We do not recognize upward adjustments due to changes in estimates of residual values.

GOODWILL — We test goodwill for impairment on an annual basis, as of October 1, 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 amount. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit.

In a qualitative assessment, we assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. A significant amount of judgment is involved in determining if an event representing an indicator of impairment has occurred between annual test dates. Such indicators may include: a significant decline in expected future cash flows; a sustained, significant decline in stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and reductions in revenue or profitability growth rates.

In the quantitative impairment test, we compare the fair value of a reporting unit with its carrying amount, including goodwill. We estimate the fair value of each reporting unit using a combination of the income approach and market approaches.

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The income approach incorporates the use of a discounted cash flow method in which the estimated future cash flows and terminal values for each reporting unit are discounted to a present value using a discount rate. Cash flow projections are based on management’s estimates of economic and market conditions which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The discount rate in turn is based on the specific risk characteristics of each reporting unit, the weighted average cost of capital and its underlying forecast.

The market approach estimates fair value by applying performance metric multiples to the reporting unit’s prior and expected operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.

The fair values determined by the market approach and income approach, as described above, are weighted to determine the fair value for each reporting unit. Although we have consistently used the same methods in developing the assumptions and estimates underlying the fair value calculations, such estimates are uncertain and may vary from actual results.

VENDOR CONSIDERATION — We receive payments and credits from vendors and distributors, including consideration pursuant to volume incentive programs, and shared marketing expense programs. Many of these programs extend over one or more quarters’ sales activities. Different programs have different vendor/program specific goals to achieve. We recognize the rebates pursuant to volume incentive programs, when the rebate is probable and reasonably estimable, based on a systematic and rational allocation of the cash consideration offered to each of the underlying transactions that results in our progress towards earning the rebate. Should our actual performance be different from our estimates, we may be required to adjust our receivables.

ALLOWANCE FOR CREDIT LOSSES — We maintain an allowance for credit losses related to our accounts receivable and financing receivables. We measure expected credit losses on a collective (pool) basis when similar risk characteristics exist. Prior to providing credit, we assign an internal rating for each customer’s credit quality based on the customer’s financial status, rating agency reports and other financial information. We review our internal ratings for each customer at least annually or when there is an indicator of a change in credit quality, such as a delinquency or bankruptcy. We estimate a loss rate for each pool using the historical loss rate as a basis and adjust for differences in asset specific risk and current conditions. Since the onset of COVID-19, we have recognized an increase in the allowance to reflect forecasted credit deterioration. Should our actual credit losses be different from our estimates, this will result in adjustments to credit losses that could adversely affect our operating results.

INCOME TAXES — We make certain estimates and judgments in determining income tax expense for financial statement reporting purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which principally arise from differences in the timing of recognition of revenue and expense for tax and financial statement reporting purposes. We also must analyze income tax reserves, as well as determine the likelihood of recoverability of deferred tax assets and adjust any valuation allowances accordingly.

Considerations with respect to the recoverability of deferred tax assets include the period of expiration of the tax asset, planned use of the tax asset, and historical and projected taxable income as well as tax liabilities for the tax jurisdiction to which the tax asset relates. Valuation allowances are evaluated periodically and will be subject to change in each future reporting period as a result of changes in one or more of these factors. The calculation of our tax liabilities also involves considering uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain income tax positions based on our estimate of whether, and the extent to which, additional taxes will be required.

BUSINESS COMBINATIONS — We account for business combinations using the acquisition method. For each acquisition, we recognize most assets acquired, and liabilities assumed at their fair values at the acquisition date. Our valuations of certain assets acquired, including customer relationships and trade names, and certain liabilities assumed, such as performance obligations, involve significant judgement and estimation. Additionally, our determination of the purchase price may include an estimate for the fair value of contingent consideration. We utilize independent valuation specialists to assist us in determining the fair value of certain assets and liabilities. Our valuations utilize significant estimates, such as forecasted revenues and profits. Changes in our estimates could significantly impact the value of certain assets and liabilities.

RECENT ACCOUNTING PRONOUNCEMENTS

The information set forth in Note 2, “Recent Accounting Pronouncements” to the accompanying Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K is incorporated herein by reference.

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RESULTS OF OPERATIONS

The Year Ended March 31, 2021 Compared to the Year Ended March 31, 2020

Technology Segment

The results of operations for our technology segment for the years ended March 31, 2021 and 2020 were as follows (in thousands):

 
Year Ended March 31,
             
   
2021
   
2020
   
Change
 
Net sales
                       
Product
 
$
1,305,789
   
$
1,337,022
   
$
(31,233
)
   
(2.3
%)
Services
   
202,165
     
193,116
     
9,049
     
4.7
%
Total
   
1,507,954
     
1,530,138
     
(22,184
)
   
(1.4
%)
                                 
Cost of sales
                               
Product
   
1,036,627
     
1,069,110
     
(32,483
)
   
(3.0
%)
Services
   
125,092
     
120,440
     
4,652
     
3.9
%
Total
   
1,161,719
     
1,189,550
     
(27,831
)
   
(2.3
%)
                                 
Gross profit
   
346,235
     
340,588
     
5,647
     
1.7
%
                                 
Selling, general, and administrative
   
256,210
     
264,123
     
(7,913
)
   
(3.0
%)
Depreciation and amortization
   
13,839
     
14,016
     
(177
)
   
(1.3
%)
Interest and financing costs
   
521
     
294
     
227
     
77.2
%
Operating expenses
   
270,570
     
278,433
     
(7,863
)
   
(2.8
%)
                                 
Operating income
 
$
75,665
   
$
62,155
   
$
13,510
     
21.7
%
                                 
Adjusted gross billings
 
$
2,263,865
   
$
2,227,885
   
$
35,980
     
1.6
%
Adjusted EBITDA
 
$
97,219
   
$
85,840
   
$
11,379
     
13.3
%

Net sales: Net sales for the year ended March 31, 2021, decreased by $22.2 million, or 1.4%, to $1,508.0 million due to a decrease in net sales to our customers in technology, healthcare, and all the other category of customers, partially offset by increases in net sales to our customers in the telecom, media and entertainment, financial services, and SLED sectors. Product sales decreased 2.3%, or $31.2 million, to $1,305.8 million and services revenues increased 4.7%, or $9.0 million, to $202.2 million due to an increase in managed services for the year ended March 31, 2021, as compared to the prior year.

Adjusted gross billings increased to $2,263.9 million, or 1.6%, from $2,227.9 million in the prior year. The increase in Adjusted gross billings was due to our acquisition of Systems Management and Planning, Inc. (“SMP”) and an increase in organic demand from our customers in the telecom, media and entertainment, SLED, financial services, and smaller other categories of customers. Despite the increase in Adjusted gross billings, we had a decrease in net sales due a shift in mix to more third-party maintenance, software assurance, subscriptions/SaaS licenses, and services for which we recognize revenue on a net basis.

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We analyze sales by customer end market and by manufacturer. The percentage of net sales by industry and vendor are summarized below:

 
Twelve Months Ended
March 31,
       
   
2021
   
2020
   
Change
 
Revenue by customer end market:
                 
Technology
   
17
%
   
21
%
   
(4
%)
Telecom, Media & Entertainment
   
25
%
   
19
%
   
6
%
SLED
   
16
%
   
16
%
   
0
%
Healthcare
   
13
%
   
15
%
   
(2
%)
Financial Services
   
13
%
   
13
%
   
0
%
All others
   
16
%
   
16
%
   
0
%
Total
   
100
%
   
100
%
       

 
Twelve Months Ended
March 31,
       
   
2021
   
2020
   
Change
 
Revenue by vendor:
                 
Cisco Systems
   
36
%
   
40
%
   
(4
%)
NetApp
   
4
%
   
4
%
   
0
%
HP Inc. & HPE
   
4
%
   
5
%
   
(1
%)
Dell/EMC
   
7
%
   
6
%
   
1
%
Juniper Networks
   
6
%
   
4
%
   
2
%
Arista Networks
   
3
%
   
5
%
   
(2
%)
All others
   
40
%
   
36
%
   
4
%
Total
   
100
%
   
100
%
       

Our revenues by customer end market have remained consistent over the prior year, with over 80% of our sales being generated from customers within the five end markets specified above. In fiscal year 2021, we had an increase in the percentage total revenues from customers in the telecom, media and entertainment industry, and decreases in the percentage of total revenues in the technology, and, healthcare industry. These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers. The percentage of sales revenues for SLED, financial services, and the all other category remained constant year over year

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

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

Gross profit: Gross profit increased 1.7%, to $346.2 million, compared to $340.6 million in the prior fiscal year due to higher margins. Gross margin on product sales increased 60 basis points to 20.6% due a shift in product mix to a greater proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services. The gross margin on services increased 50 basis points to 38.1%. for the year ended March 31, 2021, due to the increase in managed services, as compared to the prior year. Vendor incentives earned as a percentage of sales for the year ended March 31, 2021 declined by 30 basis points, which has a negative effect on gross margin, as compared to the prior year.

Selling, general, and administrative expenses: Selling, general, and administrative expenses of $256.2 million for the year ended March 31, 2021, decreased by $7.9 million, or 3.0% compared to the prior year, due to decreases in travel and entertainment, advertising and marketing, acquisition related expense, and general office related expenses, partially offset by an increase in variable compensation. Salaries and benefits, including variable compensation, increased $2.8 million or 1.3% to $221.8 million, compared to $219.0 million during the prior year, due to higher variable compensation a result of the increase in gross profit.

Our technology segment had 1,526 employees as of March 31, 2021, which is a decrease of 17, or 1.1%, from 1,543 at March 31, 2020. We added 102 employees on December 31, 2020 due to our acquisition of SMP. Our overall decrease of 17 employees from March 31, 2020 to March 31, 2021 was primarily attributable to an overall decrease of 14 positions in sales and marketing.

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General and administrative expenses, excluding acquisition related expense and provision for credit losses, decreased $9.3 million, or 21.7%, to $33.6 million during the year ended March 31, 2021, compared to $42.9 million the prior year. Contributing to the year over year decrease in general and administrative expense were reductions in travel and entertainment, advertising and marketing, and general office related expenses. Some of the reduction in general and administrative expense was driven by changes as a result of the COVID-19 pandemic and management cost reduction efforts. Acquisition related expenses in the year ended March 31, 2021 were $1.4 million lower than the prior year expense which included adjustments to contingent consideration related to a previous acquisition of $1.4 million.

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

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

Segment earnings: As a result of the foregoing, operating income increased $13.5 million, or 21.7%, to $75.7 million for the year ended March 31, 2021, compared to $62.2 million in the prior year and Adjusted EBITDA increased 13.3% to $97.2 million for the year ended March 31, 2021, compared to $85.8 million in the prior year.

Financing Segment

The results of operations for our financing segment for the years ended March 31, 2021, and 2020 were as follows (in thousands):

 
Year Ended March 31,
             
   
2021
   
2020
   
Change
 
Net sales
 
$
60,369
   
$
58,266
   
$
2,103
     
3.6
%
                                 
Cost of sales
   
13,050
     
7,663
     
5,387
     
70.3
%
                                 
Gross profit
   
47,319
     
50,603
     
(3,284
)
   
(6.5
%)
                                 
Selling, general, and administrative
   
15,053
     
15,059
     
(6
)
   
(0.0
%)
Depreciation and amortization
   
112
     
140
     
(28
)
   
(20.0
%)
Interest and financing costs
   
1,484
     
2,280
     
(796
)
   
(34.9
%)
Operating expenses
   
16,649
     
17,479
     
(830
)
   
(4.7
%)
                                 
Operating income
 
$
30,670
   
$
33,124
   
$
(2,454
)
   
(7.4
%)
                                 
Adjusted EBITDA
 
$
31,026
   
$
33,519
   
$
(2,493
)
   
(7.4
%)

Net sales: Net sales increased by $2.1 million, or 3.6%, to $60.4 million for the year ended March 31, 2021. The increase was due to higher post contract earnings, portfolio earnings, and other financing revenues, partially offset by gains on several significant transactions in the prior year. Post-contract earnings increased by $4.4 million to $23.8 million as compared to $19.4 million in the prior year due to gain on the sale of equipment at the end of leases. Portfolio earnings increased $1.8 million to $16.5 million, due to increases in sales-type lease earnings and notes receivable earnings over the prior fiscal year. Other financing revenues increased $3.2 million to $5.6 million, compared to the prior year primarily due to higher profit being recognized upon the extension of certain operating leases where the modified leases were determined to be sales-type leases. Transactional gains decreased $7.3 million to $14.5 million compared to the prior year which had a high volume of sales of financing receivables, particularly with government-related customers. Total proceeds from sales of financing receivables were $364.0 million and $593.7 million for the years ended March 31, 2021, and 2020, respectively.

Cost of sales: Cost of sales, which consists of depreciation expense from operating leases and cost of off-lease equipment sales, increased 70.3%, or $5.4 million, to $13.1 million for the year ended March 31, 2021, as compared to the prior year, due to an increase in the cost of off-lease equipment sales of $4.4 million and increase in operating lease depreciation of $0.9 million. Gross profit decreased 6.5%, or $3.3 million, to $47.3 million primarily due to gains on several significant transactions in the prior year.

Selling, general, and administrative expenses: Selling, general, and administrative expenses were $15.1 million for both the years ended March 31, 2021 and 2020. Increases in our provision for credit losses of $0.4 million and variable compensation of $0.3 million, were offset by reductions in general and administrative expense of $0.6 million and salaries and benefits of $0.1 million, for the year ended March 31, 2021 as compared to the prior year. Our financing segment employed 34 people as of March 31, 2021, compared to 36 employees as of March 31, 2020, a decrease of 5.6%. Certain support functions for the financing segment are outsourced to the technology segment.

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Interest and financing costs: Interest and financing costs decreased by $0.8 million, or 34.9%, to $1.5 million for the year ended March 31, 2021, as compared to the prior year. Our total notes payable for the financing segment increased as of March 31, 2021, to $56.1 million from $37.8 million for the prior year, although our average balance of notes payable outstanding during the year was lower than during the year ended March 31, 2020. Our weighted average interest rate for our non-recourse notes payable was 3.35% as of March 31, 2021, compared to 3.84% for March 31, 2020.

Segment earnings: As a result of the foregoing, operating income decreased $2.5 million, or 7.4%, to $30.7 million for the year ended March 31, 2021, as compared to the prior year. Adjusted EBITDA decreased $2.5 million, or 7.4%, to $31.0 million for the year ended March 31, 2021, as compared to the prior year.

Consolidated

Other income: Other income and expense during the year ended March 31, 2021, was income of $0.6 million and included foreign exchange rate gain of $0.5 million and interest income of $0.1 million. Other non-operating income of $0.7 million for the prior year included $1.0 million from payments received from distributions from various legal claims and interest income of $0.1 million, partially offset by foreign exchange rate loss of $0.4 million.

Income taxes: Our effective income tax rates for the years ended March 31, 2021, and 2020 were 30.4% and 28.0%, respectively. The increase in our effective income tax rate is primarily due to non-deductible executive compensation.

Net earnings: Net earnings were $74.4 million for the year ended March 31, 2021, an increase of 7.7% or $5.3 million as compared to $69.1 million in the prior fiscal year. The net earnings increase was due primarily to the increase in operating profits from our technology segment, partially offset by lower financing segment profits and the higher tax rate in the current year compared to the year ended March 31, 2020.

Basic and fully diluted earnings per common share for the year ended March 31, 2021, were $5.58 and $5.54, and increased 7.7% and 7.6% over the prior year, respectively. Basic and fully diluted earnings per common share were $5.18 and $5.15, respectively, for the year ended March 31, 2020.

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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Overview

Our primary source of funding is cash from operations and borrowings which are accounted for as non-recourse and recourse notes payable. We used those funds to meet our capital requirements, which have historically consisted primarily of working capital for operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock.

ePlus Technology, inc. and certain subsidiaries, which are part of our technology segment, finance their operations with funds generated from operations, and with a credit facility with WFCDF. This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component.

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, to borrow, or from 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.

The extent of the impact of COVID-19 is uncertain and may impact our liquidity position over the longer term. As credit markets have tightened as a result of COVID-19, we may have difficulty funding our financing transactions with lenders which may result in the use of our cash or a decrease in financing originations.

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Cash Flows

The following table summarizes our sources and uses of cash for the years ended March 31, 2021, and 2020 (in thousands):

 
Year Ended March 31,
 
   
2021
   
2020
 
Net cash provided by (used in) operating activities
 
$
129,507
   
$
(74,174
)
Net cash used in investing activities
   
(35,756
)
   
(20,339
)
Net cash provided by (used in) financing activities
   
(49,802
)
   
100,634
 
Effect of exchange rate changes on cash
   
(617
)
   
294
 
Net increase in cash and cash equivalents
 
$
43,332
   
$
6,415
 

Cash flows from operating activities

Our operating activities provided $129.5 million during the year ended March 31, 2021, compared to using $74.2 million during the year ended March 31, 2020. The following table provides a breakdown of operating cash flows by segment for the years end March 31, 2021, and 2020 (in thousands):

 
Year Ended March 31,
 
   
2021
   
2020
 
Technology segment
 
$
153,332
   
$
(15,812
)
Financing segment
   
(23,825
)
   
(58,362
)
Net cash provided by (used in) operating activities
 
$
129,507
   
$
(74,174
)

Technology Segment: During the year ended March 31, 2021, operating cash flows provided by our technology segment were $153.3 million due to cash generated from earnings and changes in working capital. Cash used by the accounts payable – floor plan facility was $34.4 million. Accounts payable – floor plan is a facility used to manage working capital needs and we are required to present changes in this balance as financing activity in our consolidated statement of cash flows.

During the year ended March 31, 2020, operating cash flows used by our technology segment was $15.8 million as cash generated from earnings were exceeded by changes in working capital. In addition, cash provided by the accounts payable – floor plan facility was $11.3 million.

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 March 31,
 
   
2021
   
2020
 
             
(DSO) Days sales outstanding (1)
   
69
     
71
 
(DIO) Days inventory outstanding (2)
   
15
     
11
 
(DPO) Days payable outstanding (3)
   
(47
)
   
(45
)
Cash conversion cycle
   
37
     
37
 

(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.

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(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, product and services for the same three-month period.

Our standard payment term for customers is between 30-60 days; however, certain customers or orders may be approved for extended payment terms. Our DSOs for the quarters ended March 31, 2021 and 2020 were greater than our standard payment terms primarily due to a significant proportion of sales in those quarters to customers with payment terms greater than or equal to net 60 days. Invoices processed through our credit facility, or the A/P-floor plan balance, are typically paid within 45-60 days from the invoice date, while A/P trade invoices are typically paid within 30 days from the invoice date.

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

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

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

Cash flows related to investing activities

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

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

Cash flows from financing activities

During the year ended March 31, 2021, we used $49.8 million from financing activities. We had net repayments on the accounts receivable component of our credit facility of $35.0 million, offset by net borrowings of non-recourse and recourse notes payable of $27.1 million by our financing segment. Contributing to cash outflows was net repayments on floor plan facility of $34.4 million, repurchase of common stock of $6.9 million, and payments to payoff contingent consideration agreements and hold backs from prior fiscal year acquisitions of $0.6 million.

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

Our borrowing of non-recourse and recourse notes payable primarily arises from our financing segment when we transfer contractual payments due to us under financing agreements to third-party financial institutions. When the transfers do not meet the requirements for a sale, the proceeds paid to us represent borrowings of non-recourse and 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.

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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. As a result of COVID-19, credit markets have tightened. Our lenders are more discerning and are taking longer to approve transactions. In addition, certain lenders have narrowed their demand to certain types of transactions and/or credit quality and excluding others. For example, some lenders have declined transactions that have longer terms or transactions with certain market segments. Therefore, we may no longer be able to transfer certain receivables to financial institutions which may result in investing our capital or declining the transaction.

Credit facility — Technology segment

Within our technology segment, ePlus Technology, inc., and certain of its subsidiaries have a financing facility from WFCDF to finance their working capital requirements for inventories and accounts receivable. There are two components of this facility: (1) a floor plan component; and (2) an accounts receivable component.

On March 31, 2020, we executed an additional amendment to the WFCDF credit facility that temporarily increased the aggregate limit of the two components from $250.0 million to $300.0 million through May 5, 2020. Similarly, the amendment temporarily increased the limit on the accounts receivable component of the WFCDF credit facility to $75.0 million through April 14, 2020.

On May 15, 2020, we executed an amendment to the WFCDF credit facility that increased the aggregate limit of the two components, except during a temporary uplift, to $275.0 million. Additionally, we have an election to temporarily increase the aggregate limit to $350.0 million for a period of not less than 30 days, provided that all such periods shall not exceed 150 days in the aggregate in any calendar year. Further, the amendment increased the limit on the accounts receivable component of the WFCDF credit facility to $100.0 million, changed the interest rate to two percent (2.00%) plus the greater of one month LIBOR or seventy-five hundredths of one percent (0.75%), and modified certain restrictions on ePlus Technology, inc.’s ability to pay dividends to ePlus inc.

As of March 31, 2021, the limit of the two components of the credit facility was $275 million, and the accounts receivable component had a sub-limit of $100 million. Our borrowing availability under the credit facility varies based upon the value of the receivables and inventory of ePlus Technology, inc. and certain of its subsidiaries.

The WFCDF credit facility is secured by the assets of ePlus Technology, inc. and certain of its subsidiaries. Additionally, the credit facility requires a guaranty of $10.5 million by ePlus inc.

The credit facility restricts the ability of ePlus Technology, inc. and certain of its subsidiaries to pay dividends to ePlus inc. unless their available borrowing meets certain thresholds. As of March 31, 2021, their available borrowing met the threshold such that there were no restricted net assets of ePlus Technology, inc.

The credit facility requires that financial statements of ePlus Technology, inc. and certain of its subsidiaries be provided within 45 days of each quarter and 90 days of each fiscal year end and requires that other operational reports be provided on a regular basis. Either party may terminate with 90 days’ advance notice.

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

Floor plan component

After a customer places a purchase order with us and after we have completed our credit review of the customer, we place an order for the equipment with one of our vendors. Generally, most purchase orders from us to our vendors are first financed under the floor plan component and reflected in “accounts payable—floor plan” in our consolidated balance sheets.

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Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date. In addition, certain suppliers have temporarily extended their repayment terms to us due to COVID-19. Most customer payments in our technology segment are remitted to our lockboxes. Once payments are cleared, the monies in the lockbox accounts are automatically and daily transferred to our operating account. On the due dates of the floor plan component, we make cash payments to WFCDF.

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.

The respective floor plan component credit limits and actual outstanding balance payables for the dates indicated were as follows (in thousands):

Maximum Credit Limit
at March 31, 2021
   
Balance as of
March 31, 2021
   
Maximum Credit Limit
at March 31, 2020
   
Balance as of
March 31, 2020
 
$
275,000
   
$
98,653
   
$
300,000
   
$
127,416
 

Accounts receivable component

ePlus Technology, inc. and certain of its subsidiaries have an accounts receivable component included within the WFCDF credit facility, which has a revolving line of credit. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets.

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

As of March 31, 2021, we did not have any outstanding balance under the accounts receivable component of the WFCDF credit facility. The maximum credit limit under this facility was $100.0 million. As of March 31, 2020, we had $35.0 million outstanding under the accounts receivable component of the WFCDF credit facility and a maximum credit limit of $75.0 million. We may from time to time maintain a balance on the accounts receivable component to assist in mitigating risk arising from COVID-19.

Performance Guarantees

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 the 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.

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 as defined in Item 303(a)(4)(ii) of Regulation S-K or other contractually narrow or limited purposes. As of March 31, 2021, and 2020, 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 forces. We may also start offices or warehouses 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. As a result, we may require additional financing to fund our strategy, implementation and potential future acquisitions, 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 the lender or us. Our lending partners in our financial segment have tightened credit availability and are more discerning in their approval process. However, currently we have funding resources available for our transactions.

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Inflation

For the periods presented herein, inflation has been relatively low, and we believe that inflation has not had a material effect on our results of operations.

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, major customers or vendors of ours.

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, 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, pricing discounts offered by manufacturers at their year ends, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio at the expiration of a lease term or prior to such expiration, to a lessee or to a third-party 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” herein.

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.

Contractual Obligations

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

       
Payments Due by Period