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What changed in EPLUS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of EPLUS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+387 added−395 removedSource: 10-K (2023-05-25) vs 10-K (2022-05-26)

Top changes in EPLUS INC's 2023 10-K

387 paragraphs added · 395 removed · 283 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

75 edited+17 added−30 removed42 unchanged
Biggest changeStaff 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. 6 Table of Contents • 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.
Biggest changeStaff 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. • Project management services enhance productivity and collaboration management and enable successful implementations and adoption of solutions for our customers. • Cloud Consulting Services is a global team of architects and consultants focused on assessing customer workloads for cloud, assisting with the selection of the appropriate cloud solution, design and build of cloud platforms, application modernization and migration, automation, and ongoing management and optimization of cloud platforms. • Security solutions help safeguard our customers’ business and information assets, including: o 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. o Technology Introduction and Deployment services help customers rapidly adopt and integrate key security controls and embrace efficiencies across technology types like network, endpoint, data, and cloud. 6 Table of Contents 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.
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.
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. • End-of-life services such as equipment audit, removal, and disposal.
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 e Plus.
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 e Plus.
At the same time the prevalence of security threats, increased use of cloud platforms, software-defined networking, new architectures, 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.
At the same time the prevalence of security threats, increased use of cloud platforms, software-defined networking, new architectures, rapid software development frameworks, the proliferation of mobile devices, dispersed workforces, employees working from anywhere, 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.
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.
SECURITIES AND EXCHANGE COMMISSION (“SEC”) 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 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.
Our cloud/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. These solutions have expanded to include private marketplace experiences to our customers such as those on AWS.
Our cloud/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. These solutions have expanded to include private marketplace experiences to our customers to support platforms such as those on AWS marketplace.
Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay on the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled e Plus to remain a trusted advisor for our customers.
Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled e Plus to remain a trusted advisor for our customers. Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay at the forefront of technology trends.
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.
For example, we currently have patents in the US. 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 +®, e Plus®, Docpak®, Viewmark®, OneSource®, Where Technology Means More® and GRIT: Girls Re-Imagining Tomorrow ®. We also have registered IGXGlobal®, and IGXGlobal an e Plus Technology, inc. Company® and certain variations thereon in the UK and the EU.
In the US, our registered trademarks include e +®, e Plus®, OneSource®, Where Technology Means More® and GRIT: Girls Re-Imagining Tomorrow®. We also have registered IGXGlobal®, and IGXGlobal an e Plus Technology, inc. Company® and certain variations thereon in the UK and the EU.
While developing threats, new regulations and cyber liability insurance premiums continue to increase, putting pressure on stake holders and shareholders, we continue to invest in our service delivery capabilities and align with industry leading cyber security OEMs to help ensure our customers are accelerating their security programs and leveraging the latest capabilities to harden defenses and ensure preparedness against threats to their business.
While developing threats, new regulations and cyber liability insurance premiums continue to increase, putting pressure on stake holders and stockholders, we continue to invest in our service delivery capabilities and align with industry leading cybersecurity OEMs to help ensure our customers are accelerating their security programs and leveraging the latest capabilities to harden defenses and ensure preparedness against threats to their business.
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 8 Table of Contents 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 as a service provider.
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 as a service provider.
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.
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 selecting IT solutions providers that can deliver complex multi-vendor IT solutions.
Our competitors also may have access to more capital to fund more originations than us and may be better able to adapt to a rapidly changing interest rate environment. In all our markets, some of our competitors have longer operating histories and greater financial, technical, marketing, and other resources than we do.
The competitors have access to more capital to fund more originations than we do and may be better able to adapt to a rapidly changing interest rate environment. In all our markets, some of our competitors have longer operating histories and greater financial, technical, marketing, and other resources than we do.
Our systems automatically decrease trade credit lines based on assigned risk ratings. 10 Table of Contents 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.
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.
OUR COMPETITIVE STRENGTHS BROAD SKILLSETS THAT CAN SCALE TO SUPPORT LARGE ADDRESSABLE MARKET We sell IT solutions focusing on the data center, cloud, network, security, virtualization, and mobility segments of the industry, facilitated by our professional and managed service solutions.
OUR COMPETITIVE STRENGTHS BROAD SKILL SETS THAT CAN SCALE TO SUPPORT LARGE ADDRESSABLE MARKET We sell IT solutions focusing on the data center, cloud, network, security, virtualization, and mobility segments of the industry, facilitated by our professional and managed service solutions.
Our partners are also evolving by developing more annuity models through subscription and consumption-based models operating both on-premises and the cloud, which further enables our offerings. 4 Table of Contents 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 business outcomes that rely on emerging technologies but lack the properly-trained staff and the ability to hire personnel with high in-demand disciplines such as security and data analytics.
Our partners are also evolving by developing more annuity models through subscription and consumption-based models operating both on-premise and in the cloud, which further enables our offerings. 4 Table of Contents 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 business outcomes that rely on emerging technologies but lack the professionally trained staff and the ability to hire personnel with high in-demand disciplines such as security, solution architecture and data analytics.
These solutions are comprised of world class leading technologies from partners such as Amazon Web Services, Arista Networks, Check Point, Cisco Systems, Citrix, Commvault, Crowdstrike, 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.
Our solutions are comprised of world class leading technologies from partners such as Amazon Web Services, Arista Networks, Check Point, Cisco Systems, Citrix, Commvault, Crowdstrike, Deepwatch, Dell EMC, F5 Networks, Foresite, Fortinet, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Proficio, Pure Storage, Rubrik, Splunk, Varonis, and VMware, among many others.
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.
PROVEN TRACK RECORD OF SUCCESSFULLY INTEGRATING ACQUISITIONS AND ACCELERATING GROWTH We view acquisitions as a crucial 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.
STRATEGIC INVESTMENTS IN EXPERIENCED CYBER SECURITY PRACTICIONERS TO GUIDE CUSTOMERS RISK MITIGATION STRATEGIES We believe our organizational structure and resources in both security advisory services and technology teams best enable our consulting teams to deliver clear business outcomes for our customers looking to identify and mitigate risk to their organizations.
STRATEGIC INVESTMENTS IN EXPERIENCED CYBERSECURITY PRACTITIONERS TO GUIDE CUSTOMERS RISK MITIGATION STRATEGIES We believe our organizational structure and resources in both security advisory services and technology teams best enable our consulting teams to deliver clear business outcomes for our customers looking to identify and mitigate risk to their organizations.
We are committed to providing a workplace free of unlawful harassment or discrimination based on race, color, religion/religious creed, sex (including pregnancy, childbirth, or related medical conditions), gender, gender expression, gender identity, transgender, sexual orientation, national origin (including ancestry), age, marital status (including same-sex marriages), genetic information/predisposition/carrier status, physical or mental disability or medical condition, military/veteran status, or any other legally protected characteristic.
This includes providing a workplace free of unlawful harassment or discrimination based on race, color, religion/religious creed, sex (including pregnancy, childbirth, or related medical conditions), gender, gender expression, gender identity, transgender, sexual orientation, national origin (including ancestry), age, marital status (including same-sex marriages), genetic information/predisposition/carrier status, physical or mental disability or medical condition, military/veteran status, or any other legally protected characteristic.
We face indirect competition from potential customers’ reluctance to move away from legacy systems, processes, and solutions 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.
We face indirect competition from potential customers’ reluctance to move away from legacy systems, processes, and solutions 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 has continued to shift from an upfront sale to a recurring revenue model.
Disruption also increases the likelihood of security gaps leaving organizations vulnerable to attacks both internal and external. 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.
Disruption also increases the likelihood of security gaps leaving organizations vulnerable to attacks both internally and externally. Moreover, increased budget pressures, fewer internal resources, a fragmented vendor landscape and faster time-to-value expectations make it challenging for customers to design, implement and manage secure, efficient, and cost-effective IT environments.
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, 2022, our sales force consisted of 588 sales, marketing and sales support personnel organized regionally across the US, UK, India, and Singapore.
We market to different areas within a customer’s organization, including business units as well as the IT department, lines of business, or finance department, depending on the solutions. As of March 31, 2023, our sales force consisted of 644 sales, marketing and sales support personnel organized regionally across the US, UK, India, and Singapore.
Using the distribution systems available, we frequently sell products that are shipped from the vendors or distributors directly to our customers’ location, which assists us in reducing inventory and minimizing shipping costs. For the year ended March 31, 2022, our three largest distributors accounted for over 35% of our purchases related to our technology segment net sales.
Using the distribution systems available, we frequently sell products that are shipped from the vendors or distributors directly to our customers’ locations, which assists us in reducing inventory and minimizing shipping costs. For the year ended March 31, 2023, our three largest distributors accounted for over 20% of our purchases related to our technology segment net sales.
The increase in our employee base has largely been in customer facing roles, which represented 91.3% 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 increase in our employee base has largely been in customer facing roles, which represented 81.6% 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. 8 Table of Contents GROWTH STRATEGY Our goal is to continue to grow as a leading provider of technology solutions.
The complex nature of security controls and their consumption opens opportunity for e Plus to engage in recurring subscription models with our customers that include both technology and the operational services designed and executed to help mitigate risk and mature an organizations’ cyber security posture.
The complex nature of security controls and their consumption opens opportunities for e Plus to engage in recurring subscription models with our customers that include both technology and the operational services designed and executed to help mitigate risk and mature an organization’s cybersecurity posture.
Sales to Verizon Communications Inc. represented 24%, 19%, and 15% of our net sales for the years ended March 31, 2022, 2021, and 2020, respectively.
Sales to Verizon Communications Inc. represented 22%, 24%, and 19% of our net sales for the years ended March 31, 2023, 2022, and 2021, respectively.
More than one-third of our employees have a tenure of six or more years, and over 20% have a tenure of more than 10 years. None of our employees are represented by a labor union.
We believe we have a good relationship with our employees. More than one-third of our employees have a tenure of six or more years, and over 20% have a tenure of more than 10 years. None of our employees are represented by a labor union.
For the year ended March 31, 2022, the percentage of revenue by customer end market within our technology segment includes 29% for the telecommunications, media and entertainment industry, 16% for healthcare, 14% for the technology industry, 14% for state and local government, and educational institutions (“SLED”), and 9% for financial services.
For the year ended March 31, 2023, the percentage of revenue by customer end market within our technology segment includes 26% for the telecommunications, media and entertainment industry, 20% for the technology industry, 14% for healthcare, 14% for state and local government, and educational institutions (“SLED”), and 8% for financial services.
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. We value our employees’ growing their career and technical knowledge.
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. We recognize our employee successes in many ways.
BACKLOG We rely on our vendors or distributors to fulfill a large majority of our shipments to our customers. As of March 31, 2022, we recorded customer commitments to purchase products or services that remain open until either executed or canceled (“open orders”) of $973.0 million and deferred revenue of $116.9 million.
BACKLOG We rely on our vendors or distributors to fulfill a large majority of our shipments to our customers. As of March 31, 2023, our technology segment recorded customer commitments to purchase products or services that remain open until either executed or canceled (“open orders”) of $878.3 million and deferred revenue of $160.9 million.
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 Enhanced Maintenance Support (EMS) portfolio, and adding support for additional market leading security solutions.
We continue to increase our breadth and depth of engineering expertise through the integration of recent acquisitions, supplementing our Cisco service offerings, expanding our NetApp and Palo Alto Enhanced Maintenance Support (EMS) portfolio, and adding support for additional market leading security solutions.
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 6.4% on net sales and 9.3% for consolidated gross profit, respectively, from fiscal year 2018 to fiscal year 2022.
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 10.8% on net sales and 11.9% for consolidated gross profit, respectively, from fiscal year 2019 to fiscal year 2023.
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.
Ingram Micro, Arrow Electronics, and TD SYNNEX are our largest distributors. 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.
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.
We target middle-market and large commercial entities and state and local governments, and educational institutions . 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.
We have also enhanced our Managed Services and consolidated all e Plus 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.
Our Managed Services portfolio continues to be enhanced so that e Plus annuity-based service solutions are represented within 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.
We award top performers in our sales and services departments with awards and gifts, including a “President’s Club” trip, which we expect to resume in summer 2022 after a two-year COVID-19-induced hiatus. We also promote employee engagement and recognition through our e Plus Recognition platform where employees can announce and/or thank other employees for their efforts and receive awards.
We award top performers in our sales and services departments with awards and gifts, including a “President’s Club” trip. We also promote employee engagement and recognition through our e Plus Recognition platform where employees can announce and/or thank other employees for their efforts and receive awards.
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 e Plus.
TRAINING AND DEVELOPMENT As our employees are a crucial 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 e Plus.
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 and managed services. We actively engage with emerging vendors to offer their technologies to our customers.
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 and managed 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.
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. Across our company, our employees collectively hold nearly 5,000 certifications or accreditations.
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. Across our company, we have more than 700 employees that collectively hold over 5,500 certifications, including over 3,300 technical certifications.
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.
The SEC maintains an Internet site that contains reports, proxy 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. 12 Table of Contents
Our technology segment accounted for 95% of our net sales, and 74% of our operating income, while our financing segment accounted for 5% of our net sales, and 26% of our operating income for the year ended March 31, 2022. 3 Table of Contents 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 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: 3 Table of Contents 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.
While the current labor market is challenging, part of our growth strategy is to hire purposefully and enhance our technical and skill base through strategic acquisitions. Once recruited, w e believe that that our culture, competitive performance-based compensation, policies, and labor practices contribute to strong relations with our employees.
Part of our growth strategy is to hire purposefully and enhance our technical skill base through strategic acquisitions. Once recruited, w e believe 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.
RESEARCH AND DEVELOPMENT We incur software development costs associated with maintaining, enhancing, or upgrading our proprietary software, which may be performed by internal or external IT development resources or by an offshore software-development company that we use to supplement our internal development team or various US-based consultants. 9 Table of Contents SALES AND MARKETING We focus our sales and marketing efforts on becoming the primary provider of IT solutions for each of our customers.
RESEARCH AND DEVELOPMENT We incur software development costs associated with maintaining, enhancing, or upgrading our proprietary software, which may be performed by internal or external IT development resources or by an offshore software-development company that we use to supplement our internal development team or various US-based consultants.
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 deployments.
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 deployments.
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 31 years.
We also provide consulting, professional, and managed services, IT staff augmentation, and complete lifecycle management services in the areas of security, cloud, networking, data center, collaboration, and emerging technologies.
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.
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.
Through our 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 with respect and equality for all persons consistent with the “Be Safe, Be Smart, and Be Kind” motto.
Through our 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 with respect and equality for all persons consistent with our “Be Safe, Be Smart, and Be Kind” motto. 11 Table of Contents Corporate social responsibility is also an important part of our culture, and we focus efforts around supporting the communities in which we live and work.
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.
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.
In particular, our highly skilled, experienced personnel include account executives, pre-sales and inside-sales staff trained on our broad solutions capabilities and category-focused subject-matter experts.
Our highly skilled, experienced personnel include account executives, pre-sales and inside-sales staff trained on our broad solutions capabilities and category-focused subject-matter experts. We have over 1,600 unique certification titles, with a heavy concentration in our top vendor partners.
Through our organic expansion and acquisitions, we have increased our employee base by 26.7% from March 31, 2018 to March 31, 2022.
Through our organic expansion and acquisitions, we have increased our employee count by 14.1% from March 31, 2019, to March 31, 2023.
We believe our customers are focused on maturing all aspects of cyber security, including information and physical security, data protection, threat management and compliance requirements related to industry and government regulations.
Additional drivers include data privacy concerns of both user data and machine data as companies continue to pursue digital transformation via data science and analytics. We believe our customers are focused on maturing all aspects of cybersecurity, including information and physical security, data protection, threat management and compliance requirements related to industry and government regulations.
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 capabilities to the cloud, and optimizing cloud deployments along with their associated costs and security.
Our strategy is to assist our customers in aligning cloud strategy with business objectives, creating an enterprise cloud foundation, enabling multi-cloud capabilities, accelerating cloud migrations, modernizing the datacenter, and optimizing cloud deployments for cost and security. We focus on being a guide to customers on their Journey to Modernization of applications, data, and platforms.
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. 5 Table of Contents OUR SOLUTIONS TECHNOLOGY SEGMENT • IT sales: Our offerings consist of hardware, perpetual and subscription software, maintenance, software assurance, and internally provided and outsourced services.
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. 5 Table of Contents OUR SOLUTIONS TECHNOLOGY SEGMENT We provide a range of IT products and advanced professional and managed services to help our customers improve productivity, profitability, and revenue growth while reducing operating costs.
Corporate social responsibility is also an important part of our culture and we 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.
A sample of our efforts include participating in One Tree Planted, Habitat for Humanity, Tech in Pink (which raises money to support the Breast Cancer Research Foundation) and Be the Match. Since 2017, we have sponsored GRIT: Girls Re-Imagining Tomorrow® in partnership with Cisco Systems, Inc.
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 Unified Communication Manager (UCM), Hyperflex, Nutanix and Aruba monitoring and management.
Our managed services portfolio expanded this year to include Azure, VMware Cloud on AWS, and Automated Virtual Assistant (AVA) for collaboration in addition to our offerings for Managed SDWAN, Service Desk, Carrier Expense Management, Cloud Cost Optimization, Vulnerability Management as a Service (VMaas), Managed Unified Communication Manager (UCM), Hyperflex, Nutanix, WebEx Calling, WebEx Contact Center, and numerous other managed infrastructure offerings.
We provide upfront assessments, design and configuration capabilities, installation and implementation, and ongoing services to support our customers’ solutions.
We can 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.
Our approximately 375 technical employees hold nearly 3,000 certifications, with over 1,100 different titles, among over 100 vendors, with a heavy concentration in our top vendor partners. 7 Table of Contents 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.
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.
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 Electronics, and TD SYNNEX are our largest distributors.
We purchase inventory at our customer’s request to order products usually from a purchase order from our customer. In addition, 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.
We actively seek to acquire new account relationships through personal relationships, electronic commerce, and 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 institutions .
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, and leveraging our partnerships with vendors and targeted demand-generation activities to increase awareness of our solutions.
In addition, we recognize support staff with our annual Executive Choice Awards, and our CEO Degrees of Excellence award, which recognizes employees who perform an exceptional act of community service. During the most recent fiscal year, each employee (except for our executive officers) received two special cash bonuses.
In addition, we recognize support staff with our annual Executive Choice Awards, and we recognize employees who perform an exceptional act of community service with our CEO Degrees of Excellence award. In addition, we have developed career paths for most functional areas to illustrate the many career paths within e Plus.
GRIT introduces diverse groups of middle school girls to technology-focused career possibilities, with an emphasis on cyber security and artificial intelligence.
GRIT introduces diverse groups of middle school girls to technology-focused career possibilities, with an emphasis on cybersecurity and artificial intelligence. Students have opportunities to learn about the many possibilities in technology-focused companies and participate in hands-on technology-focused learning with top industry representatives and community mentors.
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, security, and automation.
This strategy leverages our strength in deploying private clouds, extending them to public cloud and incorporating the necessary elements of networking, security, and automation. 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.
Our solutions and services include the following: • Managed services proactively monitors and manages a broad range of technologies on-premises and in the cloud with services such as managed infrastructure, service desk, and Managed Power Protection.
Managed Services: • Managed services proactively monitor and manage a broad range of technologies on-premises and in the cloud with services such as managed infrastructure, service desk, Managed Power Protection, and first call lifecycle support (i.e., eLSS), to ensure support of a broad cross-section of technologies spanning multiple Original Equipment Manufacturer (OEM) solutions.
As of March 31, 2021, we had open orders of $476.8 million and deferred revenues of $99.1 million. We expect that most of the open orders and approximately 74% of deferred revenue as of March 31, 2022, will be recognized within the next 12 months.
As of March 31, 2022, we had open orders of $973.0 million and deferred revenues of $116.9 million. We expect that most of the open orders as of March 31, 2023, will be recognized within the next 12 months. Our backlog has decreased year over year due to some improvement in the supply chain.
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.
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 DevOps, application refactoring, and analytics.
INCREASING SOPHISTICATION AND INCIDENCES OF IT SECURITY BREACHES AND CYBER-ATTACKES 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.
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.
These data protection offerings, delivered under SOC 2 Type 2 and HIPAA frameworks, are focused on delivering confidence to our customers in their ability to rapidly recover when incidents such as ransomware occur. • Staff augmentation services provide customers with flexible headcount options, which may range from service desk to infrastructure to software developer skills.
These data protection offerings, delivered under SOC 2 Type 2 and HIPAA frameworks, are focused on delivering confidence to our customers in their ability to rapidly recover when incidents such as ransomware occur. • Cloud Managed Services are focused on helping our customers consume public cloud in a way that reduces time-to-market for new applications, lowers their ongoing cloud costs, and increases security.
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.
BROAD AND DIVERSE CUSTOMER BASE ACROSS A WIDE RANGE OF END MARKETS We have a broad and diverse customer base of 4,300 customers across a wide range of end-markets, including education, financial services, healthcare, media and entertainment, state and local government, technology, and telecommunications. 7 Table of Contents DIFFERENTIATED BUSINESS MODEL SERVING ENTIRE IT LIFECYCLE – PROCUREMENT, SOLUTIONS, SERVICES, SOFTWARE, FINANCING We believe we are a trusted IT advisor to our customers, delivering differentiated products and services to enable our customers to meet increasingly complex IT requirements.
Each new employee receives a welcome box equipped with e Plus branded gifts to jump start their e Plus spirit. We have continued the flexible work from home strategy we adopted during the COVID-19 pandemic, and we anticipate evolving to varied hybrid models for the future of work.
We offer a range of affordable and flexible benefits options to assist with health and well-being, and at the request of our employees, in 2022 we adopted an Employee Stock Purchase Plan. We have continued the flexible work from home strategy we adopted during the COVID-19 pandemic, and we anticipate evolving to varied hybrid models for the future of work.
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.
During our previous fiscal year, our stockholders approved an employee stock purchase program (ESPP) pursuant to which our employees may purchase our common stock at a discount. 9 Table of Contents IMPROVE OPERATIONAL EFFICIENCIES We continue to invest in our internal technology infrastructure and software platforms to scale our infrastructure for growth, while optimizing our operations and engaging in process re-engineering efforts to become more streamlined and cost effective.
Our backlog has increased year over year due to supply chain issues, including a shortage of IT products, that is causing delays in fulfilling some orders. HUMAN CAPITAL Our employees are an important resource for us, and their collective dedication and talent enable us to be a trusted advisor to our customers.
HUMAN CAPITAL Our employees are an important resource for us, and their collective dedication and talent enable us to be a trusted advisor to our customers. As of March 31, 2023, we employed a total of 1,754 employees, including 1,702 in the US, 28 in India, 22 in the UK, and 2 in Singapore.
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.
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.
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.
Our cloud strategy is tightly aligned with all of our key strategic initiatives, including data center, security, networking, collaboration, and emerging technology. INCREASING SOPHISTICATION AND INCIDENCES OF IT SECURITY BREACHES AND CYBERATTACKS Over the last decade, cyberattacks have become more sophisticated, numerous, and invasive.
ATTRACTING TALENT While we operate in a competitive labor environment, we believe that that our culture, policies and labor practices, and our competitive performance-based compensation contribute to strong relations with our employees. We offer a range of affordable and flexible benefits options to assist with health and well-being.
FUNCTIONAL AREAS OF OUR EMPLOYEE BASE The functional areas of our employees are as follows: As of March 31, 2023 2022 Change Sales and marketing 644 588 56 Professional services 750 666 84 Administration 354 317 37 Executive management 6 6 - 1,754 1,577 177 ATTRACTING TALENT While we operate in a competitive labor environment, we believe that that our culture, policies and labor practices, and our competitive performance-based compensation contribute to strong relations with our employees.
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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.
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OUR BUSINESS We are a leading provider of technology solutions across the spectrum spanning security, cloud, data center, networking, collaboration, artificial intelligence, and emerging solutions, to domestic and foreign organizations across all industry segments.
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Our expertise and experience enable e Plus to craft optimized solutions that take advantage of the cost, scale, and efficiency of private, public and hybrid cloud in an evolving market.
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For over 30 years, we have also offered a wide portfolio of technology and other capital asset financing solutions to customers across commercial and government enterprises, designing programs that are tailored to fit their unique processes, structures, and requirements.
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Our primary focus is to deliver secure integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-premise and in the cloud while mitigating risk. Our approach is to lead with advisory consulting to understand our customers’ needs, and then design, deploy, and manage solutions aligned to their objectives.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThis may result in less earnings, use of our own cash, or lesser credit quality in our financing portfolio. 21 Table of Contents 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.
Biggest changeChanges in interest rates, the federal government’s early termination of contracts, or other factors may make it more difficult or impossible for us to find or maintain lenders needed for us to profitably finance leasing solutions where the government is the end-user, which may have an adverse effect on our business, results of operations or cash flows. 20 Table of Contents 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 as well as financing.
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.
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 holdings in our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
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.
ITEM 1A. RISK FACTORS Many factors 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.
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.
We depend heavily upon the accuracy and reliability of our information, telecommunication, cybersecurity, and other platforms 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.
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.
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 solutions because of a power loss at our data center, interruption in internet availability, or defects in our solutions.
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.
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 monitoring service.
Our technology segment, primarily through our subsidiary e Plus 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.
Our technology segment, primarily through our subsidiary e Plus Technology, inc., finances its operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC and its agents or (“WFCDF”). This facility provides short-term capital for our technology segment.
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.
This could result in lost revenues, delays in customer acceptance, security breaches, and unforeseen liabilities that could be detrimental to our reputation and to our business. We rely on the competency of our internal IT personnel.
Over the past several years, we have seen a significant increase in adjusted gross billings recorded on a net basis and a ratable basis due to the industry shift to ‘as a service’ offerings.
Over the past several years, we have seen a significant increase in gross billings recorded on a net basis and a ratable basis due to the industry shift to ‘as a service’ offerings.
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.
In addition, if we are unable to keep up with changes in technology and new hardware, software, and service 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 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.
We have privacy and data security policies in place that are designed to prevent security breaches; however, as newer technologies emerge, and the portfolio of the service providers with whom we share confidential information grows, we could be exposed to increased risk of breaches in data security and other illegal or fraudulent acts, including ransomware attacks and other types of cyberattacks.
Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. 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.
Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. Advances in computer capabilities, new discoveries in the field of cryptography or quantum computing, 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.
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.
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 non-compete and/or non-solicitation 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.
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 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 for any reason, 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.
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.
The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software, and service offerings, such as cloud-based solutions, including IaaS, SaaS, and PaaS. We depend on innovations in hardware, software, and service offerings by our vendors, as well as the acceptance of those innovations by our customers for the offerings we sell.
We may be at risk if a customer cancels an order with us, and we cannot cancel our order with the supplier.
We may be at risk if a customer cancels an order with us, and we cannot cancel our corresponding order with the supplier.
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. 23 Table of Contents We may be unable to protect our intellectual property and costs to protect our intellectual property may affect our earnings.
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. 22 Table of Contents We may be unable to protect our intellectual property and costs to protect our intellectual property may affect our earnings.
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. 16 Table of Contents The loss of a key vendor or changes in its policies could adversely impact our financial results.
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.
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. Our managed services business requires us to monitor our customers’ devices on their networks across varying levels of service.
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. 17 Table of Contents Our managed services business requires us to monitor our customers’ devices on their networks across varying levels of service.
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.
In addition, our lenders may no longer be willing to provide funding under our current terms and conditions and may demand updated terms and conditions that negatively impact our ability to consummate a financing transaction with our customers.
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.
We depend on continued innovations in hardware, software, and service offerings by our vendors, as well as the competitiveness of their offerings and our ability to partner with new and emerging technology providers.
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.
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 notes receivable to us or repayment may be extended by our customers or us.
We are also subject to a vast number of pending laws, such as state privacy laws, and securities laws such as the Securities and Exchange Commissions’ proposed rules on climate-related disclosures and proposed amended rules on cybersecurity risk management. Compliance with these laws, regulations, and similar requirements may be onerous and expensive.
We are also subject to a vast number of pending laws, such as state privacy laws, and securities laws such as the SEC’s proposed rules on climate-related disclosures and proposed amended rules on cybersecurity risk management. Compliance with these laws, regulations, and similar requirements may be onerous and expensive.
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. 13 Table of Contents RISKS SPECIFIC TO OUR BUSINESS If we lost one or more of our large volume customers, our earnings may be affected.
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 If we lost one or more of our large volume customers, our earnings may be affected.
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 may not have adequately designed or maintained our IT platforms for internal use or solutions we offer to our customers or have adequate or competent IT personnel to support our business.
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.
Our failure to hire, develop, retain, and supervise competent IT personnel to secure our data, as well as 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.
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. 19 Table of Contents 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.
If we fail to identify businesses available for purchase or at an acceptable valuation, our growth strategy may be negatively affected and, as such, may negatively affect 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.
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.
The loss of the WFCDF 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 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. 18 Table of Contents In our financing segment, we face competition from many sources including much larger companies with greater financial resources.
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 business involves the storage and/or 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 have adequate security measures in place to protect our operations.
Our business involves the storage and/or 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 maintain appropriate security measures in place to protect our operations.
Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, changes to or the addition of trade laws, duties or tariffs, currency fluctuations, significant labor disputes such as strikes, natural disasters, political or social unrest, international conflicts, such as Russia’s invasion of Ukraine, 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.
Manufacturing interruptions or delays, including as a result of the financial instability or bankruptcy of manufacturers, changes to or the addition of trade laws, duties or tariffs, currency fluctuations, significant labor disputes such as strikes, natural disasters, political or social unrest, international conflicts, such as Russia’s invasion of Ukraine, pandemics, other public health crises, or other adverse events affecting any aspect of our vendors’ business, could disrupt our supply chain.
Various factors including COVID-19, supply chain constraints and staffing challenges 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.
Supply chain constraints and staffing challenges 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.
Illness, including from COVID-19, or insufficient staffing, 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.
Illness or insufficient staffing, 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 solutions or cloud automation solutions can contain unknown and undetected errors, performance problems, or use open-source code.
There can be no assurance that such financing will continue to be available to us in the future on acceptable terms. 17 Table of Contents An economic downturn or recession may negatively impact WFCDF’s willingness to extend credit to us at the current credit limit or an increase in credit limit thus restricting our working capital.
There can be no assurance that such financing will continue to be available to us in the future on acceptable terms. An economic downturn or recession may negatively impact WFCDF’s or its agents’ willingness to extend credit to us at the current credit limit or an increase in credit limit thus restricting our working capital.
As of March 31, 2022, and 2021, our accounts receivable-trade balance included approximately 14% and 20%, respectively, concentration of invoices due from Verizon Communications Inc.
As of March 31, 2023, and 2022, our accounts receivable-trade balance included approximately 13% and 14%, respectively, concentration of invoices due from Verizon Communications Inc.
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 we do not drop ship directly to the customer. We perform services in those configuration centers such as product configuration services, and warehouse and logistics services.
The configuration centers contain inventory owned by us and our customers, which serve as distribution centers for orders we do not drop ship directly to the customer. We perform services in those configuration centers such as product configuration services, and warehouse and logistics services.
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.
Alleged or actual v iolations 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, order cancellations by our customers may result from product constraints, COVID-19, or the economic consequences thereof. While we may mitigate risk through our contracts, if orders are cancelled by our customers, we may have an increased risk of dispute resulting in non-payment.
In addition, order cancellations by our customers may result from product constraints, or other economic concerns. While we may mitigate risk through our contracts, if orders are cancelled by our customers, we may have an increased risk of dispute resulting in non-payment.
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.
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. 21 Table of Contents RISKS RELATED TO LAWS AND REGULATIONS Failure to comply with new laws or changes to existing laws may adversely impact our business.
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.
Our products, or automation solutions, may be inadvertently harmed, such as during a product integration or upgrade, or 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.
Additionally, the loss of senior leaders or the failure to successfully implement a succession plan could adversely affect our ability to manage operations and execute strategies. In addition, changes to immigration laws, prior to, because of, and subsequent to COVID-19 may impact our ability to hire or retain talent.
Additionally, the loss of senior leaders or the failure to successfully implement a succession plan could adversely affect our ability to manage operations and execute strategies. 13 Table of Contents In addition, changes to immigration laws may impact our ability to hire or retain talent.
There are two components of the WFCDF credit facility: (1) a floor plan facility and (2) a revolving credit facility. As of March 31, 2022, the facility agreement had an aggregate limit of the two components of $375 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).
There are two components of the WFCDF credit facility (collectively, the “WFCDF Credit Facility”): (1) a floor plan facility and (2) a revolving credit facility. As of March 31, 2023, the facility agreement had an aggregate limit of the two components of $500 million, together with a sublimit for a revolving credit facility for up to $200 million.
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 our information systems are not operational for reasons which may include cybersecurity attacks, data center failures, failures by telecom providers to provide services to our business and to our employees’ homes, as well as the home offices of our vendors’ and customers’ employees, power failures, or failures of off-premise software such as SaaS based software, our business and financial results may be adversely impacted.
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.
If the credit quality of our customer base materially decreases, or if we experience a material increase in our credit losses, including by the federal government’s actual or attempted termination for convenience or other contract termination, 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.
Integrating acquired operations is a significant challenge particularly if the pandemic requires most tasks be completed remotely, and integration may divert management’s attention from other business concerns, and there is no assurance that we will be able to manage the integrations successfully.
Integrating acquired operations is a significant challenge particularly as the current remote work environment requires at least some tasks be completed remotely, and integration may divert management’s attention from other business concerns, and there is no assurance that we will be able to manage the integrations successfully.
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.
As a high percentage of our employees work from home more often than in our offices, 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.
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.
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.
Products manufactured by Cisco Systems represented approximately 39%, 36%, and 40% of our technology segment net sales for the years ended March 31, 2022, 2021, and 2020, respectively. Products manufactured by NetApp, Hewlett Packard Enterprise, HP Inc., Juniper Networks, Dell/EMC, and Arista Networks, collectively represented approximately 23% - 25% of technology segment net sales for the last three years.
Products manufactured by NetApp, Hewlett Packard Enterprise, HP Inc., Juniper Networks, Dell/EMC, and Arista Networks, collectively represented approximately 23% - 25% of technology segment net sales for the last three years.
We may not be able to realize our entire investment in the equipment we lease. 20 Table of Contents 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.
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.
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.
The risk of any epidemic, pandemic, outbreak or other public health crisis 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.
Risks or regulations related to an epidemic, pandemic, or other health crisis, such as COVID-19, have 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.
Risks or regulations related to an epidemic, pandemic, or other health crisis 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.
We may not properly select or implement software, such as our implementation of a new lease accounting software expected to be completed later this year, which may result in the lack of data integrity in or between systems, increase our costs or impair our control environment or other negative impacts on our business or results.
We may not properly select or implement software which may result in the lack of data integrity within or between systems, increase our costs or impair our control environment or may lead to other negative impacts on our business or results.
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.
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. We face risks of claims from third parties for intellectual property infringement, including counterfeit products, that could harm our business.
Additionally, as our customers and vendors implement policies and processes for their own compliance with current and pending laws and regulations, they may impose requirements on us, which we may not be able to timely and cost-effectively fulfill. 22 Table of Contents In addition, many countries and state and local governments have issued orders to combat COVID-19.
Additionally, as our customers and vendors implement policies and processes for their own compliance with current, anticipated, and pending laws and regulations, they may impose requirements on us, which we may not be able to timely and cost-effectively fulfill.
Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times and the predictability of lead times for delivery of products, the costs of products, and our ability to meet customer demands. As a result of longer lead times, some sales to customers have been deferred and we are carrying more inventory.
Like others in the industry, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times and the predictability of lead times for delivery of products, the cost of products, and our ability to meet customer demands.
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.
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. 14 Table of Contents 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.
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.
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. 16 Table of Contents We may fail to innovate or create new solutions which align with changing market and customer demand, and we face substantial competition from other companies.
We may also be adversely affected by an increase in freight surcharges that may result from economic, supply-chain, geopolitical, or other disruptions. 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.
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.
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.
Sales to SLED customers are highly regulated and SLED customer purchases are subject to availability of funds from taxation, grants, or other sources.
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. 15 Table of Contents 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.
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, as well as that of our customers.
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.
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. 19 Table of Contents If market and economic conditions deteriorate, 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.
In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer requirements.
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.
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.
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 need to sell it to meet liquidity needs or for other reasons outside of the ordinary course of business.
We also have lines of credit with our vendors for the purchase of goods and services for resale or internal use. 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.
We also have lines of credit with our vendors for the purchase of goods and services for resale or internal use.
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.
In addition, the acquisition of third-party companies that we are relying upon to perform certain of our customer obligations, by our competitors may impact our revenue. We rely on independent shipping companies to deliver products from us and our vendors to our customers.
Additionally, in some cases our relationship with a customer may be impacted by turnover in our sales or engineering team. 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.
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 any epidemic, pandemic, outbreak, or other public health crisis.
Such impairment charges could materially adversely affect our net earnings during the period in which the charge is taken. As of March 31, 2022, we had goodwill and other intangible assets of $126.5 million and $27.3 million, respectively.
Such impairment charges could materially adversely affect our net earnings during the period in which the impairment is realized. As of March 31, 2023, we had a carrying value of goodwill and other intangible assets of $136.1 million and $25.0 million, respectively. We may not be able to realize our entire investment in the equipment we lease.
Delays in product shipments may cause a delay in related services as well. We believe extended lead times will likely persist through at least the end of the calendar year. As a result, we may be at risk for customers cancelling orders and we may not be able to cancel our order with the supplier.
As a result of longer lead times, some sales to customers have been deferred and we are carrying more inventory which may result in higher warehouse and interest expenses. Delays in product shipments may delay the completion of related services as well. We believe extended lead times will likely persist through at least the end of the calendar year.
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.
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.
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, inflation, 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.
Global economic weakness, inflation, rising cost and interest rates, and other economic uncertainties may result in decreased sales, gross margin, earnings and/or growth rates from our US based customers and from customers outside the US.
If we fail to accurately estimate our costs, including due to inflation, the profitability of our contracts may be adversely affected.
If we are unable to pass these increases to our customers, our financial results may be adversely affected. We provide certain professional and managed services under fixed price contracts. If we fail to accurately estimate our costs, including due to wage or other inflation, the profitability of our contracts may be adversely affected.
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.
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. 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.
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.
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. 15 Table of Contents 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 inventory availability with our vendors.
The unpredictability of the economic impact of COVID-19 and inflation will also make it difficult to properly value or anticipate the future success of acquisition targets and impact our overall growth strategy. 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.
A natural disaster or other adverse event at one of our primary configuration centers, data center, or a third-party provider location could negatively impact our business. We have configuration centers and data centers in the US and third-party providers in the UK and Netherlands.
Additionally, as 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. 14 Table of Contents Breaches of data security and the failure to protect our information technology systems and confidential information from cybersecurity threats, our ability to maintain compliance with data privacy laws and regulations, or misuse of our customers’ or employees’ information could adversely impact our business.
Breaches of data security and the failure to protect our information technology systems and confidential information from cybersecurity threats, our ability to maintain compliance with data privacy laws and regulations, or misuse of our customers’ or employees’ information could adversely impact our business.
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.
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.
We are currently experiencing an increasingly competitive labor market not only for our sales, marketing, and engineering roles, but for all our roles including support and administrative positions. We are uncertain if the competitive labor environment will continue or if COVID-19 and/or the ongoing “great resignation” occurring in the US economy will impact it in the future.
We are currently experiencing a competitive labor market not only for our sales, marketing, and engineering roles, but for all of our roles including support and administrative positions, and as such are experiencing wage increases. New laws requiring public posting of compensation information may also contribute to wage increases.
Moreover, the COVID-19 pandemic has resulted in a high percentage of our employees working from home, which could adversely affect our ability to adequately staff and manage our businesses.
Moreover, any epidemic, pandemic, outbreak, or other public health crisis could adversely affect our ability to adequately staff and manage our businesses.
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If we are unable to mitigate these disruptions, our financial results may be adversely impacted. In addition, we have experienced some increases in prices from our suppliers and increases in wages. If we are unable to pass along these increases to customers, our financial results may be adversely impacted. We provide certain professional and managed services under fixed price contracts.
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As a result, we may be at risk for customers’ cancelling orders due to delays and we may not be able to cancel our order correspondingly with the supplier. If we are unable to mitigate these disruptions, our financial results may be adversely impacted.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe anticipate no difficulty in retaining occupancy through lease renewals, month-to-month occupancy or replacing the leased properties with equivalent properties.
Biggest changeWe have certain employees that work at customer sites or from their homes. Additionally, we utilize coworking spaces in certain cities. Our largest office space is our headquarters in Herndon, Virginia. Our lease on this space terminates on December 31, 2024. We anticipate no difficulty in retaining occupancy through lease renewals, month-to-month occupancy, or replacing leased properties with equivalent properties.
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ITEM 2. PROPERTIES As of March 31, 2022, we leased approximately 252 thousand square feet of space of office and warehouse space across 33 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.
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ITEM 2. PROPERTIES As of March 31, 2023, we leased a total of 326 thousand square feet of office and warehouse space across 20 properties, primarily in the US, that are used in our technology segment and financing segment. Our leases expire at varying dates over the next 10 years.
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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.
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We believe that suitable additional or substitute leased properties will be available as required. 23 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our material pending legal proceedings, please refer to Note 9 , “Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our material pending legal proceedings, please refer to Note 10 , “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe 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.
Biggest changeAny 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 purchases of our common stock during the three months ended March 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION On March 31, 2022, our common stock traded on the NASDAQ Global Select Market under the symbol “PLUS.” On May 23, 2022, there were 168 stockholders of record of our common stock, although there is a much larger number of beneficial owners.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION On March 31, 2023, our common stock traded on the NASDAQ Global Select Market under the symbol “PLUS.” On May 1, 2023, there were 215 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, 2022, and 2021. 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.
DIVIDEND POLICIES AND RESTRICTIONS We did not pay any cash dividends on our common stock during the fiscal years ended March 31, 2023, and 2022. Holders of our common stock are entitled to dividends if and when declared by our Board of Directors (“Board”), out of funds legally available.
(4) On March 18, 2021, the board of directors authorized the company to repurchase up to 1,000,000 shares of our outstanding common stock commencing on May 28, 2021 and continuing to May 27, 2022. As of May 31, 2021, the remaining authorized shares to be purchased were 1,000,000.
On March 22, 2023, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2023.
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PURCHASES OF OUR COMMON STOCK The following table provides information regarding our total purchases of 283,420 shares of e Plus inc. common stock during the fiscal year ended March 31, 2022, including a total of 227,990 shares purchased as part of the publicly announced share repurchase plans or programs.
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Generally, we have retained our earnings for use in the business and to repurchase our common stock. We currently intend to retain future earnings to fund ongoing operations, finance the growth and development of our business and continue to repurchase our common stock.
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The numbers of shares and price per share for the prior periods presented in the table have been retroactively adjusted to reflect the stock split. See Note 1 “Organization and Summary of Significant Accounting Policies ” and Note 11 “Stockholders’ Equity” in the consolidated financial statements included elsewhere in this report for additional information on the stock split.
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Please refer to Note 12 , “Stockholders’ Equity” in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
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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, 2021 through April 30, 2021 - $ - - 881,798 (2 ) May 1, 2021 through May 27, 2021 1,998 $ 50.40 - 881,798 (3 ) May 28, 2021 through May 31, 2021 - $ - - 1,000,000 (4 ) June 1, 2021 through June 30, 2021 88,690 $ 45.21 35,258 964,742 (5 ) July 1, 2021 through July 31, 2021 62,798 $ 44.00 62,798 901,944 (6 ) August 1, 2021 through August 31, 2021 - $ - - 901,944 (7 ) September 1, 2021 through September 30, 2021 - $ - - 901,944 (8 ) October 1, 2021 through October 31, 2021 - $ - - 901,944 (9 ) November 1, 2021 through November 30, 2021 - $ - - 901,944 (10 ) December 1, 2021 through December 31, 2021 49,943 $ 51.90 49,943 852,001 (11 ) January 1, 2022 through January 31, 2022 79,991 $ 51.78 79,991 772,010 (12 ) February 1, 2022 through February 28, 2022 - $ - - 772,010 (13 ) March 1, 2022 through March 31, 2022 - $ - - 772,010 (14 ) (1) All shares acquired were in open-market purchases, except for 55,430 shares, out of which 1,998 were repurchased in May 2021 and 53,432 in June 2021 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.
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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 of shares that may yet be purchased under the plans or programs (2) January 1, 2023 through January 31, 2023 0 $ - 0 1,000,000 February 1, 2023 through February 28, 2023 0 $ - 0 1,000,000 March 1, 2023 through March 31, 2023 2,500 $ 48.65 2,500 997,500 Total 2,500 2,500 (1) All shares were acquired in open-market purchases.
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(2) The share purchase authorization in place for the month ended April 30, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of April 30, 2021, the remaining authorized shares to be purchased were 881,798. (3) As of May 27, 2021, the authorization under the then-existing share repurchase plan expired.
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(2) The amounts presented in this column are the remaining number of shares that may be repurchased after repurchases during the month. On March 24, 2022, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, over a 12-month period beginning May 28, 2022.
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(5) The share purchase authorization in place for the month ended June 30, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares.
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As of June 30, 2021, the remaining authorized shares to be purchased were 964,742. 25 Table of Contents (6) The share purchase authorization in place for the month ended July 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of July 31, 2021, the remaining authorized shares to be purchased were 901,944.
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(7) The share purchase authorization in place for the month ended August 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of August 31, 2021, the remaining authorized shares to be purchased were 901,944.
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(8) The share purchase authorization in place for the month ended September 30, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of September 30, 2021, the remaining authorized shares to be purchased were 901,944.
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(9) The share purchase authorization in place for the month ended October 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of October 31, 2021, the remaining authorized shares to be purchased were 901,944.
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(10) The share purchase authorization in place for the month ended November 30, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of November 30, 2021, the remaining authorized shares to be purchased were 901,944.
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(11) The share purchase authorization in place for the month ended December 31, 2021, had purchase limitations on the number of shares of up to 1,000,000 shares. As of December 31, 2021, the remaining authorized shares to be purchased were 852,001.
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(12) The share purchase authorization in place for the month ended January 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of January 31, 2022, the remaining authorized shares to be purchased were 772,010.
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(13) The share purchase authorization in place for the month ended February 28, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of February 28, 2022, the remaining authorized shares to be purchased were 772,010.
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(14) The share purchase authorization in place for the month ended March 31, 2022, had purchase limitations on the number of shares of up to 1,000,000 shares. As of March 31, 2022, the remaining authorized shares to be purchased were 772,010.
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The timing and expiration date of the share repurchase authorizations are included in Note 11 , “Stockholders’ Equity” to our consolidated financial statements included elsewhere in this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeChanges in our estimates could significantly impact the value of certain assets and liabilities. 35 Table of Contents RESULTS OF OPERATIONS The Year Ended March 31, 2022, Compared to the Year Ended March 31, 2021 TECHNOLOGY SEGMENT The results of operations for our technology segment for the years ended March 31, 2022, and 2021 were as follows (in thousands): Year Ended March 31, Change 2022 2021 Net sales Product $ 1,492,411 $ 1,305,789 $ 186,622 14.3 % Services 240,625 202,165 38,460 19.0 % Total 1,733,036 1,507,954 225,082 14.9 % Cost of sales Product 1,175,789 1,036,627 139,162 13.4 % Services 149,094 125,092 24,002 19.2 % Total 1,324,883 1,161,719 163,164 14.0 % Gross profit 408,153 346,235 61,918 17.9 % Selling, general, and administrative 283,690 256,210 27,480 10.7 % Depreciation and amortization 14,535 13,839 696 5.0 % Interest and financing costs 928 521 407 78.1 % Operating expenses 299,153 270,570 28,583 10.6 % Operating income $ 109,000 $ 75,665 $ 33,335 44.1 % Adjusted gross billings $ 2,620,614 $ 2,263,865 $ 356,749 15.8 % Adjusted EBITDA $ 131,353 $ 97,219 $ 34,134 35.1 % Net sales: Net sales for the year ended March 31, 2022, increased by $225.1 million, or 14.9%, to $1,733.0 million due to an increase in net sales to our customers in telecom, media and entertainment, healthcare, and smaller other categories of customers, which were offset by a decrease in net sales to customers in the financial services sector.
Biggest changeThe Year Ended March 31, 2022, Compared to the Year Ended March 31, 2021 36 Table of Contents TECHNOLOGY SEGMENT The results of operations for our technology segment for the years ended March 31, 2022, and 2021 were as follows (in thousands): Year Ended March 31, Percent 2022 2021 Change Change Financial Metrics Net sales Product $ 1,492,411 $ 1,305,789 $ 186,622 14.3 % Services 240,625 202,165 38,460 19.0 % Total 1,733,036 1,507,954 225,082 14.9 % Cost of sales Product 1,175,789 1,036,627 139,162 13.4 % Services 149,094 125,092 24,002 19.2 % Total 1,324,883 1,161,719 163,164 14.0 % Gross profit 408,153 346,235 61,918 17.9 % Selling, general, and administrative 283,690 256,210 27,480 10.7 % Depreciation and amortization 14,535 13,839 696 5.0 % Interest and financing costs 928 521 407 78.1 % Operating expenses 299,153 270,570 28,583 10.6 % Operating income $ 109,000 $ 75,665 $ 33,335 44.1 % Key Metrics & Other Information Gross billings $ 2,625,749 $ 2,271,836 $ 353,913 15.6 % Adjusted EBITDA $ 131,353 $ 97,219 $ 34,134 35.1 % Net sales by customer end market: Telecom, Media & Entertainment $ 502,408 $ 371,912 $ 130,496 35.1 % Healthcare 270,481 200,067 70,414 35.2 % Technology 250,485 251,683 (1,198 ) (0.5 %) SLED 241,769 245,919 (4,150 ) (1.7 %) Financial Services 155,160 198,761 (43,601 ) (21.9 %) All others 312,733 239,612 73,121 30.5 % Total $ 1,733,036 $ 1,507,954 $ 225,082 14.9 % Net sales by type: Data Center / Cloud $ 581,113 $ 516,930 $ 64,183 12.4 % Networking 611,488 510,205 101,283 19.9 % Security 158,927 155,186 3,741 2.4 % Collaboration 57,244 47,504 9,740 20.5 % Other 83,639 75,964 7,675 10.1 % ePlus services 240,625 202,165 38,460 19.0 % Total $ 1,733,036 $ 1,507,954 $ 225,082 14.9 % 37 Table of Contents Net sales: Net sales for the year ended March 31, 2022, increased due to an increase in customer demand, primarily from customers in telecom, media and entertainment and healthcare industries, partially offset by a decrease in net sales to customers in the financial services sector.
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 e Plus is intended to help investors understand our company and our operations.
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 (the “financial review”) of e Plus is intended to help investors understand our company and our operations.
Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were 26.6 million and 26.9 million, respectively, for year ended March 31, 2022.
Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were 26.6 million and 26.9 million, respectively, for the year ended and March 31, 2022.
Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were 26.7 million and 26.8 million, respectively, for year ended and March 31, 2021. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY OVERVIEW We finance our operations through funds generated from operations and through borrowings.
Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share were 26.7 million and 26.8 million, respectively, for the year ended March 31, 2021. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY OVERVIEW We finance our operations through funds generated from operations and through borrowings.
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.
Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets.
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.
Segment Adjusted EBITDA is defined as operating income calculated in accordance with US 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.
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.
Financing segment 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. • Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole or buyout fees; and the sale of off-lease (used) equipment.
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.
We believe that the exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted 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.
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.
As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. In the table below, we provide 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.
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.
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 into contracts with customers, we are required to identify the performance obligations in the contract.
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. Income taxes: Our effective income tax rates for the years ended March 31, 2022, and 2021 were 28.1% and 30.4%, respectively.
Other income (expense), net 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. Income taxes: Our effective income tax rates for the years ended March 31, 2022, and 2021 were 28.1% and 30.4%, respectively.
Adjusted gross billings increased year over year at a faster rate than net sales 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.
Gross billings increased year over year at a faster rate than net sales 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.
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.
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 correspondingly not normally excluded or included in the most directly comparable measure calculated and presented in accordance with US GAAP.
We recognize most of our revenues from the sales of third-party products, third-party software, third-party maintenance, software support, and services, e Plus professional and managed services, and hosting e Plus proprietary software. Our recognition of revenue differs for each of these different types of performance obligations and identifying each performance obligation appropriately may require judgment.
We recognize most of our revenues from the sales of third-party products, third-party software, third-party maintenance, software support, and services, e Plus professional and managed services, and hosting e Plus proprietary software. Our recognition of revenue differs for each of these distinct types of performance obligations and identifying each performance obligation appropriately may require judgment.
Our DSOs for the quarters ended March 31, 2022 and 2021 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.
Our DSOs for the quarters ended March 31, 2023, and 2022 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.
Floor plan facility We finance most purchases of products for sale to our customers through the floor plan facility. Once our customer places a purchase order with us and we have approved their credit, we place an order for the desired products with one of our vendors.
Floor plan facility We finance most purchases of products for sale to our customers through the floor plan facility. Once our customers place a purchase order with us and we have approved their credit, we place an order for the desired products with one of our vendors.
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, judgment is required to determine this point in time. We provide e Plus professional services under both time and materials and fixed price contracts.
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, judgment is required to determine this point in time. 44 Table of Contents We provide e Plus professional services under both time and materials and fixed price contracts.
Please refer to Note 4 , “Lessee accounting” and Note 8 , “Notes payable and credit facility” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding the maturities of these obligations.
Please refer to Note 5 , “Lessee Accounting” and Note 9 , “Notes Payable and Credit Facility” in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding the maturities of these obligations.
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance.
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance and performance trends.
We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments. We are implementing a new cloud-based lease accounting application which will provide us with a platform for scalable growth, eliminate inefficient processes, and allow us to retire several legacy applications.
We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments. During the fiscal year 2023, we implemented a new cloud-based lease accounting application to provide us with a platform for scalable growth, eliminate inefficient processes, and allow us to retire several legacy applications.
As of March 31, 2022, and March 31, 2021, we did not have any outstanding balance under the revolving credit facility. The maximum credit limit under this facility was $100.0 million as of both March 31, 2022, and March 31, 2021.
As of March 31, 2023, and March 31, 2022, we did not have any outstanding balance under the revolving credit facility. The maximum credit limit under this facility was $200.0 million as of March 31, 2023, compared to $100.0 million as of March 31, 2022.
Revolving credit facility The outstanding balance under the revolving credit facility is presented as part of recourse notes payable- current on our consolidated balance sheets.
On our balance sheet, our liability under the floor plan facility is presented as part of accounts payable – floor plan. Revolving credit facility The outstanding balance under the revolving credit facility is presented as part of recourse notes payable- current on our consolidated balance sheets.
The following table presents the components of the cash conversion cycle for our Technology segment: As of March 31, 2022 2021 (DSO) Days sales outstanding (1) 69 69 (DIO) Days inventory outstanding (2) 25 15 (DPO) Days payable outstanding (3) (46 ) (47 ) Cash conversion cycle 48 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.
The following table presents the components of the cash conversion cycle for our Technology segment: As of March 31, 2023 2022 (DSO) Days sales outstanding (1) 74 71 (DIO) Days inventory outstanding (2) 38 25 (DPO) Days payable outstanding (3) (53 ) (46 ) Cash conversion cycle 59 50 (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 Gross billings for the same three-month period.
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.
As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include additional debt and equity financing. While the future is uncertain, we do not believe our WFCDF Credit Facility will be terminated by WFCDF or us.
We estimate the fair value of each reporting unit using a combination of the income approach and market approaches. 34 Table of Contents 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.
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.
Cost of sales: Cost of sales increased 169.4%, or $22.1 million, to $35.2 million for the year ended March 31, 2022, as compared to the prior year, due to an increase in the cost of equipment from early lease buyouts and sales of off-lease equipment of $18.2 million and an increase in operating lease depreciation of $3.7 million.
Cost of sales: Cost of sales for the year ended March 31, 2022, increased due to an increase of $18.2 million in the cost of equipment from early lease buyouts and off-lease equipment and an increase in operating lease depreciation of $3.7 million.
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.
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 US GAAP.
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.
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.
We use Non-GAAP Net earnings per common share as a supplemental measure of our performance to gain insight into our operating performance.
We use Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted as supplemental measures of our performance to gain insight into our operating performance and performance trends.
(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.
(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 the direct cost of products and services billed to our customers for the same three-month period.
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.
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.
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. 29 Table of Contents The following table provides our calculation of Non-GAAP Net earnings and Non-GAAP Net earnings per common share – diluted (in thousands, except per share amounts): Year Ended March 31, 2022 2021 2020 GAAP: Earnings before tax $ 146,884 $ 106,906 $ 95,959 Share based compensation 7,114 7,167 7,954 Acquisition and integration expense - 271 1,676 Acquisition related amortization expense 10,072 9,116 9,217 Other (income) expense 432 (571 ) (680 ) Non-GAAP: Earnings before provision for income taxes 164,502 122,889 114,126 GAAP: Provision for income taxes 41,284 32,509 26,877 Share based compensation 2,014 2,188 2,218 Acquisition and integration expense - 78 490 Acquisition related amortization expense 2,803 2,730 2,487 Other (income) expense 120 (143 ) (200 ) Tax benefit (expense) on restricted stock 317 (40 ) 87 Non-GAAP: Provision for income taxes 46,538 37,322 31,959 Non-GAAP: Net earnings $ 117,964 $ 85,567 $ 82,167 Year Ended March 31, 2022 2021 2020 GAAP: Net earnings per common share - diluted $ 3.93 $ 2.77 $ 2.57 Share based compensation 0.20 0.19 0.22 Acquisition and integration expense - 0.01 0.04 Acquisition related amortization expense 0.26 0.24 0.25 Other (income) expense 0.01 (0.02 ) (0.02 ) Tax benefit (expense) on restricted stock (0.01 ) - - Total non-GAAP adjustments - net of tax 0.46 0.42 0.49 Non-GAAP: Net earnings per common share - diluted $ 4.39 $ 3.19 $ 3.06 (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.
In addition, other companies, including companies in our industry, might calculate similar Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted or similarly titled measures differently, which may reduce their usefulness as comparative measures. 28 Table of Contents The following table provides our calculation of Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted (in thousands, except per share amounts): Year Ended March 31, 2023 2022 2021 GAAP: Earnings before tax $ 162,974 $ 146,884 $ 106,906 Share based compensation 7,824 7,114 7,167 Acquisition and integration expense - - 271 Acquisition related amortization expense 9,411 10,072 9,116 Other (income) expense 3,188 432 (571 ) Non-GAAP: Earnings before provision for income taxes 183,397 164,502 122,889 GAAP: Provision for income taxes 43,618 41,284 32,509 Share based compensation 2,104 2,014 2,188 Acquisition and integration expense - - 78 Acquisition related amortization expense 2,527 2,803 2,730 Other (income) expense 950 120 (143 ) Tax benefit (expense) on restricted stock 267 317 (40 ) Non-GAAP: Provision for income taxes 49,466 46,538 37,322 Non-GAAP: Net earnings $ 133,931 $ 117,964 $ 85,567 Year Ended March 31, 2023 2022 2021 GAAP: Net earnings per common share - diluted $ 4.48 $ 3.93 $ 2.77 Share based compensation 0.21 0.20 0.19 Acquisition and integration expense - - 0.01 Acquisition related amortization expense 0.26 0.26 0.24 Other (income) expense 0.08 0.01 (0.02 ) Tax benefit (expense) on restricted stock (0.01 ) (0.01 ) - Total non-GAAP adjustments - net of tax 0.54 0.46 0.42 Non-GAAP: Net earnings per common share - diluted $ 5.02 $ 4.39 $ 3.19 (2) We define Adjusted EBITDA as net earnings calculated in accordance with US GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for income taxes, and other income.
Inventory, which represents equipment ordered by customers but not yet delivered, increased 121.6% to $155.1 million as of March 31, 2022, up from $70.0 million as of March 31, 2021, partially due to ongoing projects with customers.
Inventory, which represents equipment ordered by customers but not yet delivered, increased 56.9% to $243.3 million as of March 31, 2023, up from $155.1 million as of March 31, 2022, partially due to ongoing projects with customers.
Our effective income tax rate for the year ended March 31, 2022, was 28.1%, compared to 30.4% for the prior year. The decrease in our effective income tax rate year over year is primarily due to prior year unfavorable adjustments to the federal benefit from state taxes and non-deductible executive compensation.
The decrease in our effective income tax rate year over year is primarily due to prior year unfavorable adjustments to the federal benefit from state taxes and non-deductible executive compensation.
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.
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.
Additionally, we had cash inflows of $46.7 million from net borrowings on the floor plan facility and cash outflows of $13.6 million from the repurchase of common stock. During the year ended March 31, 2021, we used $49.8 million from financing activities.
Additionally, we had cash inflows of $10.7 million from net borrowings on the floor plan facility and cash outflows of $7.2 million from the repurchase of common stock. During the year ended March 31, 2022, financing activities provided $47.2 million.
Our labor costs related to services we perform will take longer to pass to customers that have services engagements where prices may be set. Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk.
We generally have been able to pass price increases to our customers. Our labor costs related to services we perform will take longer to pass to customers that have service engagements where prices may be set. Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding.
Gross profit: Gross profit increased 17.9%, to $408.2 million, compared to $346.2 million in the prior fiscal year due to higher margins. Gross margin on product sales increased 60 basis points to 21.2% due a shift in product mix to a greater proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services.
Gross margin on product sales increased 60 basis points to 21.2% due to a shift in product mix to a greater proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services. Also contributing to the increase in product margins was higher vendor incentives earned, which increased $9.0 million in fiscal year 2022.
Our valuations of certain assets acquired, including customer relationships and trade names, and certain liabilities assumed, such as performance obligations, involve significant judgment and estimation. Additionally, our determination of the purchase price may include an estimate for the fair value of contingent consideration.
Our valuations of certain assets acquired, including customer relationships and trade names, and certain liabilities assumed, involve significant judgment 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.
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. 40 Table of Contents Cash flows related to investing activities During the year ended March 31, 2022, we used $1.3 million from investing activities, consisting of $23.2 million for purchases of property, equipment, and operating lease equipment, partially offset by $21.9 million of proceeds from the sale of property, equipment, and operating lease equipment.
During the year ended March 31, 2022, our financing segment used $0.3 million from operating activities, primarily due to the issuance of new financing receivables. 41 Table of Contents Cash flows related to investing activities During the year ended March 31, 2023, we used $18.9 million in investing activities, consisting of $9.4 million for purchases of property, equipment, and operating lease equipment and $13.3 million to acquire Future Com, Ltd., partially offset by $3.7 million of proceeds from the sale of operating lease equipment.
(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.
(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 the direct cost of products and services billed to our customers for the same three-month period.
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. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS Our future quarterly operating results and the market price of our common stock may fluctuate.
Additionally, while our lending partners in our financing segment have become more discerning in their approval processes, we currently have funding resources available for our transactions. 43 Table of Contents POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS Our future quarterly operating results and the market price of our common stock may fluctuate.
In the quantitative impairment test, we compare the fair value of a reporting unit with its carrying amount, including goodwill.
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.
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.
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.
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 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.
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. 33 Table of Contents 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 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.
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.
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.
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, inflation, interest rate increases, 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, pricing increases, and other factors.
Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors.
Other financing revenues decreased $4.1 million to $1.5 million, compared to the prior year primarily due to lower profit recognized from signing new lease extensions with customers where the prior lease was classified as an operating lease and the new modified lease was determined to be sales-type lease.
Other financing revenues decreased due to lower profit recognized from signing new lease extensions with customers where the prior lease was classified as an operating lease and the new modified lease was determined to be a sales-type lease. Transactional gains increased due to higher volume of financing receivables sold.
CASH FLOWS The following table summarizes our sources and uses of cash for the years ended March 31, 2022, and 2021 (in thousands): Year Ended March 31, 2022 2021 Net cash provided by (used in) operating activities $ (20,571 ) $ 129,507 Net cash used in investing activities (1,259 ) (35,756 ) Net cash provided by (used in) financing activities 47,176 (49,802 ) Effect of exchange rate changes on cash 470 (618 ) Net increase in cash and cash equivalents $ 25,816 $ 43,331 Cash flows from operating activities Our operating activities used $20.6 million during the year ended March 31, 2022, compared to providing $129.5 million during the year ended March 31, 2021.
CASH FLOWS The following table summarizes our sources and uses of cash for the years ended March 31, 2023, and 2022 (in thousands): Year Ended March 31, 2023 2022 Net cash used in operating activities $ (15,425 ) $ (20,571 ) Net cash used in investing activities (18,926 ) (1,259 ) Net cash provided by (used in) financing activities (20,950 ) 47,176 Effect of exchange rate changes on cash 3,016 470 Net increase in cash and cash equivalents $ (52,285 ) $ 25,816 40 Table of Contents Cash flows from operating activities We used $15.4 million in operating activities during the year ended March 31, 2023, compared to using $20.6 million during the year ended March 31, 2022.
Net earnings for the year ended March 31, 2022, increased 41.9% to $105.6 million, as compared to $74.4 million for the year ended March 31, 2021. Adjusted EBITDA for the year ended March 31, 2022, was $170.0 million, an increase of $41.8 million, or 32.6%, compared to the prior year.
Net earnings: Net earnings were $105.6 million for the year ended March 31, 2022, an increase of 41.9% or $31.2 million as compared to $74.4 million in the prior fiscal year.
Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, the costs of products, vendor return and cancellation policies, and our ability to meet customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control.
Like others in the industry, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, our having to carry more inventory for longer periods, the cost of products, vendor return and cancellation policies, and our ability to meet customer demands.
Segment earnings: As a result of the foregoing, operating income increased $33.3 million, or 44.1%, to $109.0 million for the year ended March 31, 2022, compared to $75.7 million in the prior year and Adjusted EBITDA increased 35.1% to $131.4 million for the year ended March 31, 2022, compared to $97.2 million in the prior year. 37 Table of Contents FINANCING SEGMENT The results of operations for our financing segment for the years ended March 31, 2022, and 2021 were as follows (in thousands): Year Ended March 31, Change 2022 2021 Net sales $ 87,983 $ 60,369 $ 27,614 45.7 % Cost of sales 35,154 13,050 22,104 169.4 % Gross profit 52,829 47,319 5,510 11.6 % Selling, general, and administrative 13,427 15,053 (1,626 ) (10.8 %) Depreciation and amortization 111 112 (1 ) (0.9 %) Interest and financing costs 975 1,484 (509 ) (34.3 %) Operating expenses 14,513 16,649 (2,136 ) (12.8 %) Operating income $ 38,316 $ 30,670 $ 7,646 24.9 % Adjusted EBITDA $ 38,651 $ 31,026 $ 7,625 24.6 % Net sales: Net sales increased by $27.6 million, or 45.7%, to $88.0 million for the year ended March 31, 2022.
Interest and financing costs: Interest and financing costs increased for the year ended March 31, 2022, due to higher borrowings outstanding during the year under our WFCDF Credit Facility. 38 Table of Contents FINANCING SEGMENT The results of operations for our financing segment for the years ended March 31, 2022, and 2021 were as follows (in thousands): Year Ended March 31, Percent 2022 2021 Change Change Financial Metrics Portfolio earnings $ 17,764 $ 16,486 $ 1,278 7.8 % Transactional gains 18,181 14,506 3,675 25.3 % Post-contract earnings 50,495 23,771 26,724 112.4 % Other 1,543 5,606 (4,063 ) (72.5 %) Net sales $ 87,983 $ 60,369 $ 27,614 45.7 % Cost of sales 35,154 13,050 22,104 169.4 % Gross profit 52,829 47,319 5,510 11.6 % Selling, general, and administrative 13,427 15,053 (1,626 ) (10.8 %) Depreciation and amortization 111 112 (1 ) (0.9 %) Interest and financing costs 975 1,484 (509 ) (34.3 %) Operating expenses 14,513 16,649 (2,136 ) (12.8 %) Operating income $ 38,316 $ 30,670 $ 7,646 24.9 % Key Metrics & Other Information Adjusted EBITDA $ 38,651 $ 31,026 $ 7,625 24.6 % Net sales: For the year ended March 31, 2022, net sales increased due to higher post contract earnings and transactional gains, offset slightly by a decrease in other financing revenues.
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.
Non-Cash Activities We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. 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 or financed.
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 believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, and net earnings per common share, in each case based on information prepared in accordance with US GAAP, as well as the non-GAAP financial measures and ratios, including Adjusted EBITDA, Adjusted EBITDA margin, Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share.
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, 2021 compared to the results for the year ended March 31, 2020, see “Item 7.
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.
The financing segment also derives revenues from the financing of third-party software licenses, software assurance, maintenance, and other services.
The financing segment derives revenue from leasing IT, medical equipment and other 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.
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 partially offset by $2.8 million of proceeds from the sale of property, equipment, and operating lease equipment.
During the year ended March 31, 2022, we used $1.3 million from investing activities, consisting of $23.2 million for purchases of property, equipment, and operating lease equipment, partially offset by $21.9 million of proceeds from the sale of property, equipment, and operating lease equipment.
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.
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. Interest rates have been rising and may continue to rise.
The following table provides a breakdown of operating cash flows by segment for the years end March 31, 2022, and 2021 (in thousands): 39 Table of Contents Year Ended March 31, 2022 2021 Technology segment $ (20,243 ) $ 153,332 Financing segment (328 ) (23,825 ) Net cash provided by (used in) operating activities $ (20,571 ) $ 129,507 Technology Segment: During the year ended March 31, 2022, operating cash flows used by our technology segment were $20.2 million due to increases in working capital, primarily increases in inventories and accounts receivable, offset by earnings.
The following table provides a breakdown of operating cash flows by segment for the years ended March 31, 2023, and 2022 (in thousands): Year Ended March 31, 2023 2022 Technology segment $ 17,157 $ (20,243 ) Financing segment (32,582 ) (328 ) Net cash used in operating activities $ (15,425 ) $ (20,571 ) Technology Segment: During the year ended March 31, 2023, our technology segment provided $17.2 million from operating activities primarily due to net earnings and an increase in payables, partially offset by increases in accounts receivables and inventories.
As of March 31, 2022, and 2021, we were not involved in any unconsolidated special purpose entity transactions. 42 Table of Contents ADEQUACY OF CAPITAL RESOURCES The continued implementation of our business strategy will require a significant investment in both resources and managerial focus.
As of March 31, 2023, and 2022, we were not involved in any unconsolidated special purpose entity transactions. ADEQUACY OF CAPITAL RESOURCES The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces.
Cost of sales: The 14.0% increase in cost of sales was due to the increase 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.
Cost of product increased slightly less than the increase in product sales due to a change in product sales mix, as a greater portion of our transaction volume consisted of 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.
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.
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 US 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. 30 Table of Contents The following table provides our calculations of Adjusted EBITDA (in thousands): Year Ended March 31, Consolidated 2022 2021 2020 Net earnings $ 105,600 $ 74,397 $ 69,082 Provision for income taxes 41,284 32,509 26,877 Share based compensation 7,114 7,167 7,954 Interest and financing costs 928 521 294 Acquisition and integration expense - 271 1,676 Depreciation and amortization 14,646 13,951 14,156 Other income (expense) 432 (571 ) (680 ) Adjusted EBITDA $ 170,004 $ 128,245 $ 119,359 Technology Segment Operating income $ 109,000 $ 75,665 $ 62,155 Depreciation and amortization 14,535 13,839 14,016 Share based compensation 6,890 6,923 7,699 Interest and financing costs 928 521 294 Acquisition and integration expense - 271 1,676 Adjusted EBITDA $ 131,353 $ 97,219 $ 85,840 Financing Segment Operating income $ 38,316 $ 30,670 $ 33,124 Depreciation and amortization 111 112 140 Share based compensation 224 244 255 Adjusted EBITDA $ 38,651 $ 31,026 $ 33,519 (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.
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. 29 Table of Contents The following table provides our calculations of Adjusted EBITDA (in thousands): Year Ended March 31, Consolidated 2023 2022 2021 Net earnings $ 119,356 $ 105,600 $ 74,397 Provision for income taxes 43,618 41,284 32,509 Share based compensation 7,824 7,114 7,167 Interest and financing costs 2,897 928 521 Acquisition and integration expense - - 271 Depreciation and amortization 13,709 14,646 13,951 Other (income) expense, net 3,188 432 (571 ) Adjusted EBITDA $ 190,592 $ 170,004 $ 128,245 Technology Segment Operating income $ 140,110 $ 109,000 $ 75,665 Depreciation and amortization 13,598 14,535 13,839 Share based compensation 7,579 6,890 6,923 Interest and financing costs 2,897 928 521 Acquisition and integration expense - - 271 Adjusted EBITDA $ 164,184 $ 131,353 $ 97,219 Financing Segment Operating income $ 26,052 $ 38,316 $ 30,670 Depreciation and amortization 111 111 112 Share based compensation 245 224 244 Adjusted EBITDA $ 26,408 $ 38,651 $ 31,026 (3) Gross billings are the total dollar value of customer purchases of goods and services including shipping charges during the period, net of customer returns and credit memos, sales, or other taxes.
Basic and fully diluted earnings per common share for the year ended March 31, 2022, were $3.96 and $3.93, respectively, and both increased 41.9% over the prior year. Basic and fully diluted earnings per common share were $2.79 and $2.77, respectively, for the year ended March 31, 2021.
Basic and fully diluted earnings per common share for the year ended March 31, 2023, were $4.49 and $4.48, respectively, an increase of 13.3% and 13.9% over the prior year. Basic and fully diluted earnings per common share were $3.96 and $3.93, respectively, for the year ended March 31, 2022.
Salaries and benefits, including variable compensation, increased $24.1 million or 10.9% to $245.9 million, compared to $221.8 million during the prior year, due to higher variable compensation a result of the increase in gross profit. Our technology segment had 1,543 employees as of March 31, 2022, which is an increase of 17, or 1.1%, from 1,526 on March 31, 2021.
Salaries and benefits, including variable compensation, increased $24.1 million or 9.8% to $270.0 million, compared to $245.9 million during the prior year, due to an increase in the number of employees and higher variable compensation as a result of the corresponding increase in gross profit.
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.
We are an authorized reseller of over 1,500 vendors, which have enabled us to provide our customers with new and evolving IT solutions. 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 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.
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.
Financing Segment: During the year ended March 31, 2022, our financing segment used $0.3 million from operating activities, primarily due to an increase in accounts receivable and deferred costs and decreases in accounts payable, partially offset by net earnings.
During the year ended March 31, 2022, our technology segment used $20.2 million from operating activities primarily due to increases in working capital, inventories, and accounts receivable, offset by net earnings.
Cash flows from financing activities During the year ended March 31, 2022, financing activities provided $47.2 million. We had net repayments of notes payable in our technology segment of $6.7 million, offset by net borrowings of notes payable of $20.8 million by our financing segment.
Cash flows from financing activities During the year ended March 31, 2023, we used $21.0 million in financing activities. We had net repayments of notes payable and borrowings on our credit facility in our technology segment of $7.1 million, offset by net borrowings of non-recourse and recourse notes payable of $4.1 million by our financing segment.
Despite these actions, we believe extended lead times will likely persist for at least the next few quarters. Inflation : For the periods presented herein, we have experienced increases in prices from our suppliers as well as rising wages and interest rates. We generally have been able to pass price increases to our customers.
We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters. • We are experiencing increases in prices from our suppliers, as well as rising wages and interest rates.
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 market approach estimates fair value by applying performance metric multiples to the reporting unit’s prior and expected operating performance.
As of March 31, 2022, and March 31, 2021, we had a maximum credit limit of $375.0 million and $275.0 million, respectively, and an outstanding balance on the floor plan facility of $145.3 million and $98.7 million, respectively. On our balance sheet, our liability under the floor plan facility is presented as part of as accounts payable – floor plan.
As of March 31, 2023, we had a maximum credit limit of $500.0 million, and an outstanding balance on the floor plan of $134.6 million. As of March 31, 2022, we had a maximum credit limit of $375.0 million, and the outstanding balance on the floor plan facility was $145.3 million.
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.
In these situations, the portion of the proceeds paid directly to our vendors are non-cash transactions. SECURED BORROWINGS – FINANCING SEGMENT We may finance all or most of the cost of the assets that we finance for customers by transferring all or part of the contractual payments due to us to third-party financial institutions.
Interest and financing costs: Interest and financing costs decreased by $0.5 million, or 34.3%, to $1.0 million for the year ended March 31, 2022, as compared to the prior year. Our total notes payable for the financing segment decreased as of March 31, 2022, to $21.2 million from $56.1 million for the prior year.
Certain support functions for the financing segment are shared resources with the technology segment. Interest and financing costs: Interest and financing costs decreased due to lower borrowings during the year. Our total notes payable for the financing segment decreased as of March 31, 2022, to $21.2 million from $56.1 million for the prior year.
The gross margin on services decreased 10 basis points to 38.0%. for the year ended March 31, 2022, due to a slight decrease in professional services gross margin, as compared to the prior year.
Service margin decreased 10 basis points to 38.0% for the year ended March 31, 2022, due to changes in mix of services provided.
Our cash conversion cycle increased to 48 days for March 31, 2022 compared to 37 days for March 31, 2021 as DIO increased by 10 days and DPO decreased by 1 day from March 31, 2021 to March 2022.
Our cash conversion cycle increased to 59 days for March 31, 2023, compared to 50 days for March 31, 2022, as DIO increased by 13 days, DPO increased by 7 days, and DSO increased by 3 days from March 31, 2022, to March 2023.
Selling, general, and administrative expenses: Selling, general, and administrative expenses of $283.7 million for the year ended March 31, 2022, increased by $27.5 million, or 10.7% compared to the prior year, mainly driven by an increase in salaries and benefits.
Selling, general, and administrative expenses: Selling, general, and administrative expenses for the year ended March 31, 2023, increased mainly due to an increase in salaries and benefits.
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.
Many of these programs extend over one or more quarters’ sales activities. Different programs have different vendor/program specific goals to achieve.
Vendor incentives earned as a percentage of sales for the year ended March 31, 2022 increased by 20 basis points, which has a positive effect on gross margin, as compared to the prior year.
Also contributing to the increase in gross margin on product sales was higher vendor incentives which as a percentage of net sales for the year ended March 31, 2023, increased by 10 basis points.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeINTEREST RATE RISK Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize our lines of credit and other financing facilities which are subject to fluctuations in short-term interest rates.
Biggest changeAdditionally, we have seen an increase in these risks and related uncertainties with increased volatility in the financial markets in the current environment with supply chain shortages. 46 Table of Contents INTEREST RATE RISK Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize our lines of credit and other financing facilities which are subject to fluctuations in short-term interest rates.
These non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and, except for amounts drawn under the WFCDF facility, bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows.
These non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and, except for amounts drawn under the WFCDF Credit Facility, bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows.
Our financing transactions are funded with our cash flows, not debt, and may be subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds.
Our financing transactions are funded with our cash flows, not debt, and may be subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds. Borrowings under the WFCDF Credit Facility bear interest at a market-based variable rate.
Borrowings under the WFCDF facility bear interest at a market-based variable rate. 43 Table of Contents FOREIGN CURRENCY RISK We have transactions in foreign currencies, primarily in British Pounds, Euros, and Indian Rupees. There is a potential for exposure to fluctuations in foreign currency rates resulting primarily from the translation exposure associated with the preparation of our consolidated financial statements.
FOREIGN CURRENCY RISK We have transactions in foreign currencies, primarily in British Pounds, Euros, and Indian Rupees. There is a potential for exposure to fluctuations in foreign currency rates resulting primarily from the translation exposure associated with the preparation of our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our financial position is exposed to a variety of risks, including interest rate risks and foreign currency. Additionally, we have seen an increase in these risks and related uncertainties with increased volatility in the financial markets in the current environment with supply chain shortages.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our financial position is exposed to a variety of risks, including interest rate risks and foreign currency.

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