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

FORM 10-Q

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____ to ____.

Commission file number: 1-34167

ePlus inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒   No ☐

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐  No ☒
The number of shares of common stock outstanding as of February 1, 2022, was 26,887,216.


TABLE OF CONTENTS
ePlus inc. AND SUBSIDIARIES
 
Part I. Financial Information:
 
       
Item 1.
 
Financial Statements
 
       
   
5
       
   
6
       
   
7
       
   
8
       
   
10
       
   
11
       
Item 2.
 
27
       
Item 3.
 
44
       
Item 4.
 
45
       
Part II. Other Information:
 
       
Item 1.
 
46
       
Item 1A.
 
46
       
Item 2.
 
46
       
Item 3.
 
47
       
Item 4.
 
47
       
Item 5.
 
47
       
Item 6.
 
48
       
49

2
Table of Contents
CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS

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

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

3
Table of Contents
•
our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;
•
changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;
•
exposure to changes in, interpretations of, or enforcement trends in legislation and regulatory matters;
•
domestic and international economic regulations uncertainty (e.g., tariffs, and trade agreements);
•
our contracts may not be adequate to protect us, and we are subject to audit which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
•
failure to comply with public sector contracts, or applicable laws or regulations;
•
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
•
maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace;
•
disruptions or a security breach in our or our vendors’ IT systems and data and audio communication networks;
•
our ability to realize our investment in leased equipment;
•
our ability to successfully perform due diligence and integrate acquired businesses;
•
our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, license required technology.

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

4
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

e Plus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

 
December 31, 2021
   
March 31, 2021
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
105,566
   
$
129,562
 
Accounts receivable—trade, net
   
520,629
     
391,567
 
Accounts receivable—other, net
   
40,818
     
41,053
 
Inventories
   
147,739
     
69,963
 
Financing receivables—net, current
   
98,183
     
106,272
 
Deferred costs
   
34,684
     
28,201
 
Other current assets
   
12,932
     
10,976
 
Total current assets
   
960,551
     
777,594
 
                 
Financing receivables and operating leases—net
   
90,026
     
90,165
 
Deferred tax asset—net
   
1,972
     
1,468
 
Property, equipment and other assets
   
46,215
     
42,289
 
Goodwill
   
126,604
     
126,645
 
Other intangible assets—net
   
29,778
     
38,614
 
TOTAL ASSETS
 
$
1,255,146
   
$
1,076,775
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
LIABILITIES
               
                 
Current liabilities:
               
Accounts payable
 
$
162,670
   
$
165,162
 
Accounts payable—floor plan
   
157,667
     
98,653
 
Salaries and commissions payable
   
39,184
     
36,839
 
Deferred revenue
   
93,319
     
72,802
 
Recourse notes payable—current
   
51,104
     
5,450
 
Non-recourse notes payable—current
   
37,245
     
50,397
 
Other current liabilities
   
26,224
     
30,061
 
Total current liabilities
   
567,413
     
459,364
 
                 
Recourse notes payable - long-term
   
7,689
     
12,658
 
Non-recourse notes payable - long-term
   
6,340
     
5,664
 
Other liabilities
   
34,408
     
36,679
 
TOTAL LIABILITIES
   
615,850
     
514,365
 
                 
COMMITMENTS AND CONTINGENCIES (Note 9)
   
     
 
                 
STOCKHOLDERS’ EQUITY
               
                 
Preferred stock, $0.01 per share par value; 2,000 shares authorized; none outstanding
   
-
     
-
 
Common stock, $0.01 per share par value; 50,000 shares authorized; 26,966 outstanding at December 31, 2021 and 27,006 outstanding at March 31, 2021
   
270
     
145
 
Additional paid-in capital
   
157,721
     
152,366
 
Treasury stock, at cost, 50 shares at December 31, 2021 and 1,987 shares at March 31, 2021
   
(2,592
)
   
(75,372
)
Retained earnings
   
483,601
     
484,616
 
Accumulated other comprehensive income—foreign currency translation adjustment
   
296
     
655
 
Total Stockholders’ Equity
   
639,296
     
562,410
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
1,255,146
   
$
1,076,775
 

See Notes to Unaudited Consolidated Financial Statements.

5

ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

 
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Net sales
                       
Product
 
$
432,307
   
$
375,512
   
$
1,190,524
   
$
1,066,408
 
Services
   
62,527
     
52,092
     
178,976
     
149,308
 
Total
   
494,834
     
427,604
     
1,369,500
     
1,215,716
 
Cost of sales
                               
Product
   
339,810
     
297,514
     
914,666
     
827,111
 
Services
   
37,907
     
31,939
     
109,203
     
92,935
 
Total
   
377,717
     
329,453
     
1,023,869
     
920,046
 
                                 
Gross profit
   
117,117
     
98,151
     
345,631
     
295,670
 
                                 
Selling, general, and administrative
   
76,874
     
65,390
     
220,153
     
201,746
 
Depreciation and amortization
   
3,597
     
3,143
     
11,376
     
10,000
 
Interest and financing costs
   
561
     
355
     
1,262
     
1,179
 
Operating expenses
   
81,032
     
68,888
     
232,791
     
212,925
 
                                 
Operating income
   
36,085
     
29,263
     
112,840
     
82,745
 
                                 
Other income (expense)
   
(175
)
   
813
     
(377
)
   
1,095
 
                                 
Earnings before tax
   
35,910
     
30,076
     
112,463
     
83,840
 
                                 
Provision for income taxes
   
9,486
     
8,438
     
31,108
     
24,996
 
                                 
Net earnings
 
$
26,424
   
$
21,638
   
$
81,355
   
$
58,844
 
Net earnings per common share—basic
 
$
0.99
   
$
0.81
   
$
3.05
   
$
2.21
 
Net earnings per common share—diluted
 
$
0.98
   
$
0.81
   
$
3.03
   
$
2.20
 
                                 
Weighted average common shares outstanding—basic
   
26,668
     
26,664
     
26,666
     
26,684
 
Weighted average common shares outstanding—diluted
   
26,930
     
26,756
     
26,887
     
26,804
 

See Notes to Unaudited Consolidated Financial Statements.

6

ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2021
   
2020
   
2021
   
2020
 
                         
NET EARNINGS
 
$
26,424
   
$
21,638
   
$
81,355
   
$
58,844
 
                                 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                               
                                 
Foreign currency translation adjustments
   
81
   
983
     
(359
)
   
1,540
 
                                 
Other comprehensive income (loss)
   
81
   
983
     
(359
)
   
1,540
 
                                 
TOTAL COMPREHENSIVE INCOME
 
$
26,505
   
$
22,621
   
$
80,996
   
$
60,384
 

See Notes to Unaudited Consolidated Financial Statements.

7

ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
Nine Months Ended December 31,
 
   
2021
   
2020
 
Cash flows from operating activities:
           
Net earnings
 
$
81,355
   
$
58,844
 
                 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
               
Depreciation and amortization
   
18,620
     
13,762
 
Provision for credit losses
   
77
     
1,920
 
Share-based compensation expense
   
5,355
     
5,427
 
Deferred taxes
   
(504
)
   
1,033
 
Payments from lessees directly to lenders—operating leases
   
(32
)
   
(25
)
Gain on disposal of property, equipment, and operaing lease equipment
   
(855
)
   
(408
)
Changes in:
               
Accounts receivable
   
(132,228
)
   
(67,989
)
Inventories-net
   
(77,921
)
   
(28,340
)
Financing receivables—net
   
(20,296
)
   
(67,112
)
Deferred costs and other assets
   
(12,432
)
   
(15,865
)
Accounts payable-trade
   
526
     
70,726
 
Salaries and commissions payable, deferred revenue, and other liabilities
   
16,793
     
33,271
 
Net cash provided by (used in) operating activities
   
(121,542
)
   
5,244
 
                 
Cash flows from investing activities:
               
Proceeds from sale of property, equipment, and operating lease equipment
   
2,927
     
670
 
Purchases of property, equipment and operating lease equipment
   
(21,375
)
   
(4,227
)
Cash used in acquisitions, net of cash acquired
    -       (27,102 )
Net cash used in investing activities
   
(18,448
)
   
(30,659
)
                 
Cash flows from financing activities:
               
Borrowings of non-recourse and recourse notes payable
   
98,547
     
31,698
 
Repayments of non-recourse and recourse notes payable
   
(32,099
)
   
(41,870
)
Repurchase of common stock
   
(9,466
)
   
(6,948
)
Repayments of financing of acquisitions
   
-
     
(556
)
Net borrowings on floor plan facility
   
59,014
     
44,058
 
Net cash provided by financing activities
   
115,996
     
26,382
 
                 
Effect of exchange rate changes on cash
   
(2
)
   
(735
)
                 
Net increase (decrease) in cash and cash equivalents
   
(23,996
)
   
232
 
                 
Cash and cash equivalents, beginning of period
   
129,562
     
86,231
 
                 
Cash and cash equivalents, end of period
 
$
105,566
   
$
86,463
 

See Notes to Unaudited Consolidated Financial Statements.

8
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(in thousands)

 
Nine Months Ended December 31,
 
   
2021
   
2020
 
Supplemental disclosures of cash flow information:
           
Cash paid for interest
 
$
1,182
   
$
929
 
Cash paid for income taxes
 
$
35,676
   
$
21,257
 
Cash paid for amounts included in the measurement of lease liabilities
 
$
3,420
   
$
4,460
 
                 
Schedule of non-cash investing and financing activities:
               
Proceeds from sale of property, equipment, and leased equipment
 
$
87
   
$
-
 
Purchases of property, equipment, and operating lease equipment
 
$
(16
)
 
$
(221
)
Borrowing of non-recourse and recourse notes payable
 
$
56,240
   
$
77,289
 
Repayments of non-recourse and recourse notes payable
 
$
(32
)
 
$
(25
)
Vesting of share-based compensation
 
$
8,439
   
$
7,926
 
New operating lease assets obtained in exchange for lease obligations
 
$
2,489
   
$
1,097
 

See Notes to Unaudited Consolidated Financial Statements.

9

ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

 
Nine Months Ended December 31, 2021
 
   
Common Stock
   
Additional
Paid-In
   
Treasury
   
Retained
   
Accumulated
Other
Comprehensive
       
   
Shares
   
Par Value
   
Capital
   
Stock
   
Earnings
   
Income
   
Total
 
Balance, March 31, 2021
   
27,006
   
$
145
   
$
152,366
   
$
(75,372
)
 
$
484,616
   
$
655
   
$
562,410
 
Issuance of restricted stock awards
   
156
     
1
     
-
     
-
     
-
     
-
     
1
 
Share-based compensation
   
-
     
-
     
1,735
     
-
     
-
     
-
     
1,735
 
Repurchase of common stock
   
(90
)
   
-
     
-
     
(4,111
)
   
-
     
-
     
(4,111
)
Net earnings
   
-
     
-
     
-
     
-
     
23,518
     
-
     
23,518
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
66
     
66
 
                                                         
Balance, June 30, 2021
   
27,072
   
$
146
   
$
154,101
   
$
(79,483
)
 
$
508,134
   
$
721
   
$
583,619
 
Issuance of restricted stock awards
   
12
     
-
     
-
     
-
     
-
     
-
     
-
 
Share-based compensation
   
-
     
-
     
1,840
     
-
     
-
     
-
     
1,840
 
Repurchase of common stock
   
(63
)
   
-
     
-
     
(2,763
)
   
-
     
-
     
(2,763
)
Net earnings
   
-
     
-
     
-
     
-
     
31,413
     
-
     
31,413
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(506
)
   
(506
)
                                                         
Balance, September 30, 2021
   
27,021
   
$
146
   
$
155,941
   
$
(82,246
)
 
$
539,547
   
$
215
   
$
613,603
 
Issuance of restricted stock awards     (5 )     -       -       -       -       -       -  
Share-based compensation     -       -       1,780       -       -       -       1,780  
Repurchase of common stock     (50 )     -       -       (2,592 )     -       -       (2,592 )
Stock split effected in the form of a dividend
    -       135       -       -       (135 )     -       -  
Retirement of treasury stock     -       (11 )     -       82,246       (82,235 )     -       -  
Net earnings     -       -       -       -       26,424       -       26,424  
Foreign currency translation adjustment     -       -       -       -       -       81       81  
                                                         
Balance, December 31, 2021     26,966     $ 270     $ 157,721     $ (2,592 )   $ 483,601     $ 296     $ 639,296  

 
 
Nine Months Ended December 31, 2020
 
   
Common Stock
   
Additional
Paid-In
   
Treasury
   
Retained
   
Accumulated
Other
Comprehensive
       
 
 
 
Shares
   
Par Value
   
Capital
   
Stock
   
Earnings
   
Income
   
Total
 
Balance, March 31, 2020
   
27,000
   
$
144
   
$
145,197
   
$
(68,424
)
 
$
410,219
   
$
(991
)
 
$
486,145
 
Issuance of restricted stock awards
   
182
     
1
     
-
     
-
     
-
     
-
     
1
 
Share-based compensation
   
-
     
-
     
1,885
     
-
     
-
     
-
     
1,885
 
Repurchase of common stock
   
(76
)
   
-
     
-
     
(2,703
)
   
-
     
-
     
(2,703
)
Net earnings
   
-
     
-
     
-
     
-
     
17,360
     
-
     
17,360
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
37
     
37
 
 
                                                       
Balance, June 30, 2020
   
27,106
   
$
145
   
$
147,082
   
$
(71,127
)
 
$
427,579
   
$
(954
)
 
$
502,725
 
Issuance of restricted stock awards
   
16
     
-
     
-
     
-
     
-
     
-
     
-
 
Share-based compensation
   
-
     
-
     
1,763
     
-
     
-
     
-
     
1,763
 
Repurchase of common stock
   
(48
)
   
-
     
-
     
(1,784
)
   
-
     
-
     
(1,784
)
Net earnings
   
-
     
-
     
-
     
-
     
19,846
     
-
     
19,846
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
520
     
520
 
                                                         
Balance, September 30, 2020
   
27,074
   
$
145
   
$
148,845
   
$
(72,911
)
 
$
447,425
   
$
(434
)
 
$
523,070
 
Issuance of restricted stock awards     2       -       -       -       -       -       -  
Share-based compensation     -       -       1,779       -       -       -       1,779  
Repurchase of common stock     (70 )     -       -       (2,461 )     -       -       (2,461 )
Net earnings     -       -       -       -       21,638       -       21,638  
Foreign currency translation adjustment     -       -       -       -       -       983       983  
                                                         
Balance, December 31, 2020     27,006     $ 145     $ 150,624     $ (75,372 )   $ 469,063     $ 549     $ 545,009  

See Notes to Unaudited Consolidated Financial Statements.

10

ePlus inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” or “ePlus.” ePlus inc. is a holding company that through its subsidiaries provides information technology solutions that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, professional and managed services and complete lifecycle management services including flexible financing solutions. We focus on selling to medium and large enterprises in North America, the United Kingdom (“UK”), and other European countries.

BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of ePlus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited consolidated financial statements from the dates of acquisition.

INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the nine months ended December 31, 2021, and 2020, were prepared by us and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the nine months ended December 31, 2021, and 2020, are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ended March 31, 2022, or any other future period. These unaudited consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 2021 (“2021 Annual Report”), which should be read in conjunction with these interim consolidated financial statements.

USE OF ESTIMATES — The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, lease classification, goodwill and intangible assets, allowance for credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 38% and 32% of our technology segment’s net sales for the three months ended December 31, 2021, and 2020, respectively, and 40% and 37% of our technology segment’s net sales for the nine months ended December 31, 2021, and 2020, respectively.

SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2021.

STOCK SPLIT — On December 13, 2021, we completed a two-for-one stock split in the form of a stock dividend. References made to outstanding shares or per share amounts in the accompanying financial statements and disclosures have been retroactively adjusted for this stock split.

11
2.
REVENUES

CONTRACT BALANCES

Accounts receivable – trade consists entirely of amounts due from contracts with customers. In addition, we had $62.7 million and $54.6 million of receivables from contracts with customers included within financing receivables as of December 31, 2021, and March 31, 2021, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):

 
December 31, 2021
   
March 31, 2021
 
Current (included in deferred revenue)
 
$
92,662
   
$
72,299
 
Non-current (included in other liabilities)
 
$
28,335
   
$
26,042
 

Revenue recognized from the beginning contract liability balance was $11.7 million and $47.9 million for the three and nine months ended December 31, 2021, respectively, and $9.6 million and $36.5 million for the three and nine months ended December 31, 2020, respectively.

PERFORMANCE OBLIGATIONS

The following table includes revenue expected to be recognized in the future related to performance obligations, primarily non-cancelable contracts for ePlus managed services, that are unsatisfied or partially unsatisfied at the end of the reporting period (in thousands):

Remainder of the year ending March 31, 2022
 
$
17,884
 
Year ending March 31, 2023
   
34,059
 
Year ending March 31, 2024
   
15,388
 
Year ending March 31, 2025
   
4,626
 
Year ending March 31, 2026 and thereafter
   
1,742
 
Total remaining performance obligations
 
$
73,699
 

The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed.

3.
FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option.

The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and nine months ended December 31, 2021, and 2020 (in thousands):

   
Three months ended December 31,
   
Nine months ended December 31,
 
 
2021
   
2020
   
2021
   
2020
 
Net sales
 
$
3,212
   
$
4,182
   
$
12,991
   
$
22,000
 
Cost of sales
   
2,645
     
3,362
     
10,936
     
14,091
 
Gross profit
 
$
567
   
$
820
   
$
2,055
   
$
7,909
 

12
The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and nine months ended December 31, 2021, and 2020 (in thousands):

   
Three months ended December 31,
   
Nine months ended December 31,
 
 
2021
   
2020
   
2021
   
2020
 
Interest income on sales-type leases
 
$
786
   
$
1,956
   
$
3,076
   
$
6,059
 
Lease income on operating leases
 
$
7,356
   
$
3,623
   
$
19,200
   
$
11,361
 

FINANCING RECEIVABLES—NET

The following tables provide a disaggregation of our financing receivables – net (in thousands):

December 31, 2021
 
Notes
Receivable
   
Lease
Receivables
   
Financing
Receivables
 
Gross receivables
 
$
115,446
   
$
46,509
   
$
161,955
 
Unguaranteed residual value (1)
   
-
     
11,522
     
11,522
 
Initial direct costs, net of amortization
   
234
     
-
     
234
 
Unearned income
   
-
     
(5,988
)
   
(5,988
)
Allowance for credit losses (2)
   
(1,160
)
   
(646
)
   
(1,806
)
Total, net
 
$
114,520
   
$
51,397
   
$
165,917
 
Reported as:
                       
Current
 
$
78,426
   
$
19,757
   
$
98,183
 
Long-term
   
36,094
     
31,640
     
67,734
 
Total, net
 
$
114,520
   
$
51,397
   
$
165,917
 

(1)
Includes unguaranteed residual values of $7,176 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 6, “Allowance for Credit Losses” for details.

March 31, 2021
 
Notes
Receivable
   
Lease
Receivables
   
Financing
Receivables
 
Gross receivables
 
$
112,641
   
$
68,393
   
$
181,034
 
Unguaranteed residual value (1)
   
-
     
14,876
     
14,876
 
Initial direct costs, net of amortization
   
425
     
-
     
425
 
Unearned income
   
-
     
(8,393
)
   
(8,393
)
Allowance for credit losses (2)
   
(1,212
)
   
(1,171
)
   
(2,383
)
Total, net
 
$
111,854
   
$
73,705
   
$
185,559
 
Reported as:
                       
Current
 
$
73,175
   
$
33,097
   
$
106,272
 
Long-term
   
38,679
     
40,608
     
79,287
 
Total, net
 
$
111,854
   
$
73,705
   
$
185,559
 

(1)
Includes unguaranteed residual values of $9,453 thousand that we retained after selling the related lease receivable.
(2)
Refer to Note 6, “Allowance for Credit Losses” for details.

13
OPERATING LEASES—NET

Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands):

 
December 31,
2021
   
March 31,
2021
 
Cost of equipment under operating leases
 
$
34,893
   
$
18,748
 
Accumulated depreciation
   
(12,601
)
   
(7,870
)
Investment in operating lease equipment—net (1)
 
$
22,292
   
$
10,878
 

(1)
Amounts include estimated unguaranteed residual values of $5.0 million and $2.5 million as of December 31, 2021, and March 31, 2021, respectively.

TRANSFERS OF FINANCIAL ASSETS

We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings.

For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of  December 31, 2021, and March 31, 2021, we had financing receivables of $33.3 million and $60.5 million, respectively, and operating leases of $8.6 million and $3.3 million, respectively, which were collateral for non-recourse notes payable. See Note 8, ‘‘Credit Facility and Notes Payable.’’

For transfers accounted for as sales, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended December 31, 2021, and 2020, we recognized net gains of $2.3 million and $3.0 million, respectively, and total proceeds from these sales were $63.5 million and $67.5 million, respectively. For the year to date periods ended December 31, 2021, and 2020, we recognized net gains of $15.6 million and $10.1 million, respectively, and total proceeds from these sales were $753.9 million and $259.2 million, respectively.

When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform the services. As of December 31, 2021, and March 31, 2021, we had deferred revenue of $0.5 million and $0.3 million, respectively, for servicing obligations.

In a limited number of transfers accounted for as sales, we indemnified the assignee if the lessee elects to early terminate the lease. As of December 31, 2021, and March 31, 2021, the total potential payments that could result from these indemnities is immaterial.

4.
LESSEE ACCOUNTING

We lease office space for periods up to six years. We recognize our right-of-use assets as part of property, equipment, and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent expense as part of selling, general and administrative expenses. We recognized rent expense of $1.4 million and $1.5 million for the three months ended December 31, 2021, and 2020, respectively. We recognized rent expense of $4.0 million and $4.6 million for the nine months ended December 31, 2021, and 2020, respectively.

14
5.
GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

The following table summarizes the changes in the carrying amount of goodwill for the nine months ended December 31, 2021 (in thousands):

 
Nine months ended December 31, 2021
 
   
Goodwill
   
Accumulated
Impairment
Loss
   
Net
Carrying
Amount
 
Beginning balance
 
$
135,318
   
$
(8,673
)
 
$
126,645
 
Foreign currency translations
   
(41
)
   
-
     
(41
)
Ending balance
 
$
135,277
   
$
(8,673
)
 
$
126,604
 

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. Our entire balance as of December 31, 2021, relates to our technology segment, which we also determined to be one reporting unit. The change in our goodwill balance during the nine months ended December 31, 2021, is due solely to foreign currency translation.

We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our annual test as of October 1, 2021, we performed a qualitative assessment of goodwill and concluded that, more likely than not, the fair value of our technology reporting unit continued to substantially exceed its carrying value.

OTHER INTANGIBLE ASSETS

Our other intangible assets consist of the following on December 31, 2021, and March 31, 2021 (in thousands):

 
December 31, 2021
   
March 31, 2021
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
Carrying
Amount
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
Carrying
Amount
 
Customer relationships & other intangibles
 
$
77,290
   
$
(49,929
)
 
$
27,361
   
$
77,335
   
$
(42,115
)
 
$
35,220
 
Capitalized software development
   
10,515
     
(8,098
)
   
2,417
     
10,553
     
(7,159
)
   
3,394
 
Total
 
$
87,805
   
$
(58,027
)
 
$
29,778
   
$
87,888
   
$
(49,274
)
 
$
38,614
 

Customer relationships and other intangibles are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years.

Total amortization expense for customer relationships and other intangible assets was $2.8 million and $2.3 million for the three months ended December 31, 2021, and December 31, 2020, respectively, and $8.8 million and $7.3 million for the nine months ended December 31, 2021, and December 31, 2020, respectively.

15
6.
ALLOWANCE FOR CREDIT LOSSES

The following table provides the activity in our allowance for credit losses for the nine months ended December 31, 2021, and 2020 (in thousands):

   
Accounts
Receivable
   
Notes
Receivable
   
Lease
Receivables
   
Total
 
Balance April 1, 2021
 
$
2,064
   
$
1,212
   
$
1,171
   
$
4,447
 
Provision for credit losses
   
330
     
60
     
(313
)
   
77
 
Write-offs and other
   
(129
)
   
(112
)
   
(212
)
   
(453
)
Balance December 31, 2021
 
$
2,265
   
$
1,160
   
$
646
   
$
4,071
 

   
Accounts
Receivable
   
Notes
Receivable
   
Lease
Receivables
   
Total
 
Balance April 1, 2020
 
$
1,781
   
$
798
   
$
610
   
$
3,189
 
Provision for credit losses
   
866
     
570
     
484
     
1,920
 
Write-offs and other
   
(46
)
   
(88
)
   
(6
)
   
(140
)
Balance December 31, 2020
 
$
2,601
   
$
1,280
   
$
1,088
   
$
4,969
 

We evaluate our customers using an internally assigned credit quality rating “CQR”. The CQR categories of our financing receivables are:

•
High CQR: This rating includes accounts with excellent to good business credit, asset quality and capacity to meet financial obligations. Loss rates in this category are generally less than 1%.

•
Average CQR: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. Loss rates in this category are generally in the range of 2% to 10%.

•
Low CQR: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. The loss rates in this category in the normal course are generally in the range of 10% to 100%.
 
The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of December 31, 2021 (in thousands):

   
Amortized cost basis by origination year ending March 31,
                   
 
2022
   
2021
   
2020
   
2019
   
2018
   
2017
   
Total
   
Transfers
(2)
   
Net credit
exposure
 
Notes receivable:
                                                     
High CQR
 
$
57,295
   
$
32,657
   
$
1,952
   
$
285
   
$
110
   
$
6
   
$
92,305
   
$
(46,939
)
 
$
45,366
 
Average CQR
   
17,762
     
3,724
     
1,337
     
316
     
2
     
-
     
23,141
     
(10,759
)
   
12,382
 
Low CQR
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total
 
$
75,057
   
$
36,381
   
$
3,289
   
$
601
   
$
112
   
$
6
   
$
115,446
   
$
(57,698
)
 
$
57,748
 
                                                                         
Lease receivables:
                                                                       
High CQR
 
$
16,273
   
$
5,671
   
$
3,047
   
$
1,241
   
$
103
   
$
14
   
$
26,349
   
$
(3,194
)
 
$
23,155
 
Average CQR
   
10,250
     
5,579
     
1,330
     
124
     
110
     
10
     
17,403
     
(2,234
)
   
15,169
 
Low CQR
   
267
     
848
     
-
     
-
     
-
     
-
     
1,115
     
-
     
1,115
 
Total
 
$
26,790
   
$
12,098
   
$
4,377
   
$
1,365
   
$
213
   
$
24
   
$
44,867
   
$
(5,428
)
 
$
39,439
 
                                                                         
Total amortized cost (1)
 
$
101,847
   
$
48,479
   
$
7,666
   
$
1,966
   
$
325
   
$
30
   
$
160,313
   
$
(63,126
)
 
$
97,187
 

(1)
Unguaranteed residual values of $7,176 thousand that we retained after selling the related lease receivable and initial direct costs of notes receivable of $234 thousand are excluded from amortized cost.
(2)
Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis and receivables that are in the process of being transferred to third-party financial institutions.

16

The following table provides the amortized cost basis of our financing receivables by CQR and by credit origination year as of March 31, 2021 (in thousands):

   
Amortized cost basis by origination year ending March 31,
                   
 
2021
   
2020
   
2019
   
2018
   
2017
   
Total
   
Transfers
(2)
   
Net credit
exposure
 
                                                 
Notes receivable:
                                               
High CQR
 
$
93,793
   
$
6,250
   
$
769
   
$
771
   
$
19
   
$
101,602
   
$
(63,471
)
 
$
38,131
 
Average CQR
   
7,689
     
2,468
     
550
     
8
     
-
     
10,715
     
(2,896
)
   
7,819
 
Low CQR
   
-
     
-
     
324
     
-
     
-
     
324
     
-
     
324
 
Total
 
$
101,482
   
$
8,718
   
$
1,643
   
$
779
   
$
19
   
$
112,641
   
$
(66,367
)
 
$
46,274
 
                                                                 
Lease receivables:
                                                               
High CQR
 
$
28,898
   
$
5,885
   
$
1,798
   
$
463
   
$
125
   
$
37,169
   
$
(7,468
)
 
$
29,701
 
Average CQR
   
23,445
     
3,482
     
1,017
     
270
     
40
     
28,254
     
(4,592
)
   
23,662
 
Low CQR
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total
 
$
52,343
   
$
9,367
   
$
2,815
   
$
733
   
$
165
   
$
65,423
   
$
(12,060
)
 
$
53,363
 
                                                                 
Total amortized cost (1)
 
$
153,825
   
$
18,085
   
$
4,458
   
$
1,512
   
$
184
   
$
178,064
   
$
(78,427
)
 
$
99,637
 

(1)
Unguaranteed residual values of $9,453 thousand that we retained after selling the related lease receivable and initial direct costs of notes receivable of $425 thousand are excluded from amortized cost.
(2)
Transfers consist of receivables that have been transferred to third-party financial institutions on a non-recourse basis and receivables that are in the process of being transferred to third-party financial institutions.

The following table provides an aging analysis of our financing receivables as of December 31, 2021 (in thousands):

 
31-60
Days Past
Due
   
61-90
Days Past
Due
   
> 90
Days Past
Due
   
Total
Past Due
   
Current
   
Total
Billed
   
Unbilled
   
Amortized
Cost
 
Notes receivable
 
$
945
   
$
87
   
$
866
   
$
1,898
   
$
6,112
   
$
8,010
   
$
107,436
   
$
115,446
 
Lease receivables
   
256
     
208
     
482
     
946
     
2,578
     
3,524
     
41,343
     
44,867
 
Total
 
$
1,201
   
$
295
   
$
1,348
   
$
2,844
   
$
8,690
   
$
11,534
   
$
148,779
   
$
160,313
 

The following table provides an aging analysis of our financing receivables as of March 31, 2021 (in thousands):

 
31-60
Days Past
Due
   
61-90
Days Past
Due
   
> 90
Days Past
Due
   
Total
Past Due
   
Current
   
Total
Billed
   
Unbilled
   
Amortized
Cost
 
Notes receivable
 
$
648
   
$
910
   
$
673
   
$
2,231
   
$
3,240
   
$
5,471
   
$
107,170
   
$
112,641
 
Lease receivables
   
804
     
132
     
643
     
1,579
     
2,566
     
4,145
     
61,278
     
65,423
 
Total
 
$
1,452
   
$
1,042
   
$
1,316
   
$
3,810
   
$
5,806
   
$
9,616
   
$
168,448
   
$
178,064
 

Our financial assets on nonaccrual status were not significant as of December 31, 2021, and March 31, 2021.

17
7.
PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES

Our property, equipment, other assets and liabilities consist of the following (in thousands):

 
December 31,
2021
   
March 31,
2021
 
Other current assets:
           
Deposits & funds held in escrow
 
$
459
   
$
759
 
Prepaid assets
   
12,063
     
9,939
 
Other
   
410
     
278
 
Total
 
$
12,932
   
$
10,976
 
                 
Property, equipment and other assets
               
Property and equipment, net
 
$
7,644
   
$
7,388
 
Deferred costs - non-current
   
19,734
     
19,063
 
Right-of-use assets
   
7,935
     
8,763
 
Other
   
10,902
     
7,075
 
Total
 
$
46,215
   
$
42,289
 
                 
Other current liabilities:
               
Accrued expenses
 
$
13,663
   
$
13,598
 
Accrued income taxes payable
   
905
     
4,439
 
Short-term lease liability
   
4,114
     
3,934
 
Other
   
7,542
     
8,090
 
Total
 
$
26,224
   
$
30,061
 
                 
Other liabilities:
               
Deferred revenue - non-current
 
$
28,691
   
$
26,309
 
Long-term lease liability
   
3,833
     
5,040
 
Other
   
1,884
     
5,330
 
Total
 
$
34,408
   
$
36,679
 

In the above table, deposits and funds held in escrow relate to financial assets that were sold to third-party banks. In conjunction with those sales, a portion of the proceeds was placed in escrow and will be released to us upon payment of outstanding invoices related to the underlying financing arrangements that were sold.

8.
CREDIT FACILITY AND NOTES PAYABLE

CREDIT FACILITY

We finance the operations of our subsidiaries ePlus Technology, inc., ePlus Technology Services, inc., and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology segment through a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). The WFCDF credit facility has a floor plan facility and a revolving credit facility.

Under the floor plan facility, we had an outstanding balance of $157.7 million and $98.7 million as of December 31, 2021, and March 31, 2021, respectively. On our balance sheet, our liability under the floor plan facility is presented as accounts payable – floor plan.

Under the revolving credit facility, we had $44.0 million outstanding as of December 31, 2021, and no balance outstanding as of March 31, 2021. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current.

18
The fair value of the outstanding balances under the WFCDF credit facility were approximately equal to their carrying value as of December 31, 2021, and March 31, 2021.

On October 13, 2021, the Borrowers amended, restated, and replaced in entirety their then-existing credit agreements with WFCDF. The new credit facility is established by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the aggregate principal amount of up to $375 million, an increase from $275 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).

The amount of principal available is subject to a borrowing base determined by, among other things, the Borrowers’ accounts receivable and inventory, each pursuant to a formula and subject to certain reserves. Loans accrue interest at a rate per annum equal to LIBOR plus 1.75%. The LIBOR rate is based upon one-month, three-month, six-month and 12-month LIBOR periods, as selected by the Borrowers, and subject to a floor of 0.00%.

Our borrowings under the 2021 Credit Facility are secured by the assets of the Borrowers. Additionally, the 2021 Credit Facility requires a guaranty of $10.5 million by ePlus inc.

Under the 2021 Credit Facility, and under the predecessor WFCDF credit facility, the Borrowers are restricted in their ability to pay dividends to ePlus inc. unless their available borrowing meets or met certain thresholds. As of December 31, 2021, and March 31, 2021, their available borrowing met the thresholds such that there were no restrictions on their ability to pay dividends.

The 2021 Credit Facility has an initial one-year term, which automatically renews for successive one-year terms thereafter. However, either the Borrowers or WFCDF may terminate by providing a written termination notice to the other party no less than 90 days prior to such termination.

RECOURSE NOTES PAYABLE

Recourse notes payable consist of borrowings that, in the event of default, the lender has recourse against us. As of December 31, 2021, we had $58.8 million in recourse borrowings consisting of $44.0 million outstanding under our revolving WFCDF credit facility, and $14.8 million arising from one installment payment arrangement within our technology segment. Our payments under this installment agreement are due quarterly in amounts that are correlated to the payments due to us from a customer under a related notes receivable. We discounted our payments due under this installment agreement to calculate our payable balance using an interest rate of 3.50% as of both December 31, 2021, and March 31, 2021.

NON-RECOURSE NOTES PAYABLE

Non-recourse notes payable consists of borrowings that, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us. As of December 31, 2021, and March 31, 2021, we had $43.6 million and $56.1 million, respectively, of non-recourse borrowings that were collateralized by investments in notes and leases. Principal and interest payments are generally due in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 3.68% and 3.35%, as of December 31, 2021, and March 31, 2021, respectively.

9.
COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

We are subject to various legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business and have not been fully resolved. The ultimate outcome of any litigation or any other legal dispute is uncertain. When a loss related to a legal proceeding or claim is probable and reasonably estimable, we accrue our best estimate for the ultimate resolution of the matter. If one or more legal matters are resolved against us in a reporting period for amounts above management’s expectations, our financial condition and operating results for that period could be adversely affected. Any outcome, whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the us in the future, and these matters could relate to prior, current or future transactions or events.

19
10.
EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding plus common stock equivalents during each period.

The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations for the three and nine months ended December 31, 2021, and 2020, respectively (in thousands, except per share data). The numbers of shares and per share amounts for the prior periods presented in the table have been retroactively restated 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.
 
 
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Net earnings attributable to common shareholders - basic and diluted
 
$
26,424
   
$
21,638
   
$
81,355
   
$
58,844
 
                                 
Basic and diluted common shares outstanding:
                               
Weighted average common shares outstanding — basic
   
26,668
     
26,664
     
26,666
     
26,684
 
Effect of dilutive shares
   
262
     
92
     
221
     
120
 
Weighted average shares common outstanding — diluted
   
26,930
     
26,756
     
26,887
     
26,804
 
                                 
Earnings per common share - basic
 
$
0.99
   
$
0.81
   
$
3.05
   
$
2.21
 
                                 
Earnings per common share - diluted
 
$
0.98
   
$
0.81
   
$
3.03
   
$
2.20
 

11.
STOCKHOLDERS’ EQUITY

STOCK SPLIT AND TREASURY STOCK
 
On November 9, 2021, our Board of Directors (“Board”) approved a two-for-one stock split of our common stock in the form of a stock dividend paid on December 13, 2021, to shareholders of record as of close of business on November 29, 2021. All share and per share information have been retroactively adjusted to reflect the stock split and the incremental par value of the newly issued shares was recorded with the offset to additional paid-in capital.
 
On November 10, 2021, we retired 2,139,918 shares of treasury stock, adjusted for the stock split, with a carrying value of $82.2 million, which was deducted from common stock, for the par value of the retired shares, and from retained earnings, for the excess of cost over the par value.
 
SHARE REPURCHASE PLAN

On March 18, 2021, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, adjusted for the stock split, over a 12-month period beginning May 28, 2021. On May 20, 2020, our board of directors authorized the repurchase of up to 1,000,000 shares of our outstanding common stock, retroactively restated for the split, over a 12-month period beginning May 28, 2020. Under both authorized programs, purchases may be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.

20
During the nine months ended December 31, 2021, we purchased 147,999 shares of our outstanding common stock at a value of $6.9 million under the share repurchase plan; we also purchased 55,430 shares of common stock at a value of $2.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the nine months ended December 31, 2020, we purchased 118,202 shares of our outstanding common stock at a value of $4.2 million under the share repurchase plan; we also purchased 75,280 shares of common stock at a value of $2.7 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

12.
SHARE-BASED COMPENSATION

SHARE-BASED PLANS

ePlus’ 2021 Employee Long-Term Incentive Plan (“2021 Employee LTIP”) was approved by our shareholders on September 16, 2021. The 2021 Employee LTIP is effective October 1, 2021 and replaces the ePlus inc. 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”), as approved by our stockholders on September 13, 2012. Beginning September 15, 2021, we permanently ceased issuing any additional shares under the 2012 Employee LTIP.

As of December 31, 2021, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), and (2) the 2012 Employee LTIP.

These share-based plans define fair market value as the closing sales price of a share of common stock as quoted on any established stock exchange for such date or the most recent trading day preceding such date if there were no trades on such date.

RESTRICTED STOCK ACTIVITY

For the nine months ended December 31, 2021, adjusted for the stock split, we granted 13,562 shares under the 2017 Director LTIP, and 155,722 restricted shares under the 2012 Employee LTIP. For the nine months ended December 31, 2020, retroactively restated for the stock split, we granted 19,742 shares under the 2017 Director LTIP, and 179,746 restricted shares under the 2012 Employee LTIP. A summary of our restricted stock activity, reflecting the stock split, is as follows:

 
Number of
Shares
   
Weighted Average
Grant-date Fair Value
 
             
Nonvested April 1, 2021
   
366,756
   
$
37.49
 
Granted
   
169,284
   
$
46.52
 
Vested
   
(184,962
)
 
$
39.12
 
Forfeited     (6,106 )   $ 40.57  
Nonvested December 31, 2021
   
344,972
   


 

Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we purchased enough shares due to participants to satisfy the minimum tax withholding requirements on employee stock awards. For the nine months ended December 31, 2021, adjusted for the stock split, we withheld 55,430 shares of common stock at a value of $2.6 million, which was included in treasury stock and retired on November 10, 2021.

21
COMPENSATION EXPENSE

We recognize compensation cost for awards of restricted stock with graded vesting on a straight-line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. Share-based compensation expense for both the three and nine months ended December 31, 2021, and 2020, were $1.8 million and $5.4 million, respectively. Unrecognized compensation expense related to unvested restricted stock was $10.4 million as of December 31, 2021, which will be fully recognized over the next 30 months.

We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are always fully vested. Our estimated contribution expense for the plan for the three months ended December 31, 2021, and 2020, was $0.8 million and $0.9 million, respectively. For the nine months ended December 31, 2021, and 2020, our estimated contribution expense for the plan was $2.6 million and $2.2 million, respectively.

13.
INCOME TAXES

Our provision for income tax expense was $9.5 million and $31.1 million for the three and nine months ended December 31, 2021, as compared to $8.4 million and $25.0 million for the same periods in the prior year. Our effective income tax rate for the three and nine months ended December 31, 2021, was 26.4% and 27.7%, compared to 28.1% and 29.8% for the three and nine months ended December 31, 2020. The change in our effective income tax rate for the nine months ended December 31, 2021 compared to the same period in the prior year was primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes.

14.
FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table summarizes the fair value hierarchy of our financial instruments as of December 31, 2021, and March 31, 2021 (in thousands):

       
Fair Value Measurement Using
 
   
Recorded
Amount
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
December 31, 2021
                       
Assets:
                       
Money market funds
 
$
5,136
   
$
5,136
   
$
-
   
$
-
 
                                 
March 31, 2021
                               
Assets:
                               
Money market funds
 
$
45,134
   
$
45,134
   
$
-
   
$
-
 

15.
BUSINESS COMBINATIONS

SYSTEMS MANAGEMENT PLANNING, INC. (“SMP”)

On December 31, 2020, our subsidiary, ePlus Technology, inc., acquired certain assets and liabilities of SMP, an established provider of technology solutions and services in upstate New York and the Northeast. The acquisition enhances ePlus’ footprint across the region, broadens our technology solution offerings especially in the areas of collaboration and supporting virtual employees, and adds to ePlus’ set of commercial, enterprise and state, local, and education customers.

22
Our sum of consideration transferred was $27.0 million consisting of $29.0 million paid in cash at closing less $2.0 million that was paid back to us in our quarter ended March 31, 2021, related to a working capital adjustment. Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

 
Acquisition
Date Amount
 
Accounts receivable
 
$
14,526
 
Other assets
   
3,344
 
Identified intangible assets
   
14,280
 
Accounts payable and other current liabilities
   
(11,424
)
Performance obligations
   
(2,020
)
Total identifiable net assets
   
18,706
 
Goodwill
   
8,328
 
Total purchase consideration
 
$
27,034
 

The identified intangible assets of $14.3 million consists of customer relationships with an estimated useful life of seven years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.

We recognized goodwill related to this transaction of $8.3 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2020, is not material.

16.
SEGMENT REPORTING

Our operations are conducted through two operating segments that are also both reportable segments. Our technology segment includes sales of IT products, third-party software, third-party maintenance, advanced professional and managed services, and our proprietary software to commercial enterprises, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software, and related services to commercial enterprises, state and local governments, and government contractors. We measure the performance of the segments based on operating income.

23
Our reportable segment information for the three-and nine-month periods ended December 31, 2021, and 2020 are summarized in the following table (in thousands):

 
Three Months Ended
 
   
December 31, 2021
   
December 31, 2020
 
   
Technology
   
Financing
   
Total
   
Technology
   
Financing
   
Total
 
                                     
Net Sales
                                   
Product
 
$
414,448
   
$
17,859
   
$
432,307
   
$
363,478
   
$
12,034
   
$
375,512
 
Service
   
62,527
     
-
     
62,527
     
52,092
     
-
     
52,092
 
Total
   
476,975
     
17,859
     
494,834
     
415,570
     
12,034
     
427,604
 
                                                 
Cost of Sales
                                               
Product
   
334,585
     
5,225
     
339,810
     
295,310
     
2,204
     
297,514
 
Service
   
37,907
     
-
     
37,907
     
31,939
     
-
     
31,939
 
Total
   
372,492
     
5,225
     
377,717
     
327,249
     
2,204
     
329,453
 
                                                 
Gross Profit
   
104,483
     
12,634
     
117,117
     
88,321
     
9,830
     
98,151
 
                                                 
Selling, general, and administrative
   
73,413
     
3,461
     
76,874
     
62,377
     
3,013
     
65,390
 
Depreciation and amortization
   
3,569
     
28
     
3,597
     
3,115
     
28
     
3,143
 
Interest and financing costs
   
335
     
226
     
561
     
-
     
355
     
355
 
Operating expenses
   
77,317
     
3,715
     
81,032
     
65,492
     
3,396
     
68,888
 
                                                 
Operating income
   
27,166
     
8,919
     
36,085
     
22,829
     
6,434
     
29,263
 
                                                 
Other income (expense)
                   
(175
)
                   
813
 
                                                 
Earnings before tax
                 
$
35,910
                   
$
30,076
 
                                                 
Net Sales
                                               
Contracts with customers
 
$
473,763
   
$
5,840
   
$
479,603
   
$
411,175
   
$
1,904
   
$
413,079
 
Financing and other
   
3,212
     
12,019
     
15,231
     
4,395
     
10,130
     
14,525
 
Total
 
$
476,975
   
$
17,859
   
$
494,834
   
$
415,570
   
$
12,034
   
$
427,604
 
                                                 
Selected Financial Data - Statement of Cash Flow
                                               
                                                 
Depreciation and amortization
 
$
3,846
   
$
2,730
   
$
6,576
   
$
3,311
   
$
991
   
$
4,302
 
Purchases of property, equipment and operating lease equipment
 
$
1,339
   
$
3,793
   
$
5,132
   
$
959
   
$
1
   
$
960
 
                                                 
Selected Financial Data - Balance Sheet
                                               
                                                 
Total assets
 
$
998,594
   
$
256,552
   
$
1,255,146
   
$
887,684
   
$
238,270
   
$
1,125,954
 

24
 
Nine Months Ended
 
   
December 31, 2021
   
December 31, 2020
 
   
Technology
   
Financing
   
Total
   
Technology
   
Financing
   
Total
 
                                     
Net Sales
                                   
Product
 
$
1,134,658
   
$
55,866
   
$
1,190,524
   
$
1,026,845
   
$
39,563
   
$
1,066,408
 
Service
   
178,976
     
-
     
178,976
     
149,308
     
-
     
149,308
 
Total
   
1,313,634
     
55,866
     
1,369,500
     
1,176,153
     
39,563
     
1,215,716
 
                                                 
Cost of Sales
                                               
Product
   
899,437
     
15,229
     
914,666
     
820,859
     
6,252
     
827,111
 
Service
   
109,203
     
-
     
109,203
     
92,935
     
-
     
92,935
 
Total
   
1,008,640
     
15,229
     
1,023,869
     
913,794
     
6,252
     
920,046
 
                                                 
Gross Profit
   
304,994
     
40,637
     
345,631
     
262,359
     
33,311
     
295,670
 
                                                 
Selling, general, and administrative
   
210,369
     
9,784
     
220,153
     
190,519
     
11,227
     
201,746
 
Depreciation and amortization
   
11,292
     
84
     
11,376
     
9,916
     
84
     
10,000
 
Interest and financing costs
   
693
     
569
     
1,262
     
266
     
913
     
1,179
 
Operating expenses
   
222,354
     
10,437
     
232,791
     
200,701
     
12,224
     
212,925
 
                                                 
Operating income
   
82,640
     
30,200
     
112,840
     
61,658
     
21,087
     
82,745
 
                                                 
Other income (expense)
                   
(377
)
                   
1,095
 
                                                 
Earnings before tax
                 
$
112,463
                   
$
83,840
 
                                                 
Net Sales
                                               
Contracts with customers
 
$
1,300,643
   
$
13,034
   
$
1,313,677
   
$
1,157,519
   
$
3,892
   
$
1,161,411
 
Financing and other
   
12,991
     
42,832
     
55,823
     
18,634
     
35,671
     
54,305
 
Total
 
$
1,313,634
   
$
55,866
   
$
1,369,500
   
$
1,176,153
   
$
39,563
   
$
1,215,716
 
                                                 
Selected Financial Data - Statement of Cash Flow
                                               
                                                 
Depreciation and amortization
 
$
12,023
   
$
6,597
   
$
18,620
   
$
10,444
   
$
3,318
   
$
13,762
 
Purchases of property, equipment and operating lease equipment
 
$
3,594
   
$
17,781
   
$
21,375
   
$
4,060
   
$
167
   
$
4,227
 
                                                 
Selected Financial Data - Balance Sheet
                                               
                                                 
Total assets
 
$
998,594
   
$
256,552
   
$
1,255,146
   
$
887,684
   
$
238,270
   
$
1,125,954
 

25
TECHNOLOGY SEGMENT DISAGGREGATION OF REVENUE

We analyze net sales for our technology segment by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized for the three and nine month periods ended December 31, 2021, and 2020 in the tables below (in thousands):

 
Three Months Ended December 31,
   
Nine Months Ended December 31,
 
   
2021
   
2020
   
2021
   
2020
 
Customer end market:
                       
Telecom, Media & Entertainment
 
$
152,584
   
$
123,441
   
$
380,560
   
$
277,020
 
Technology
   
67,959
     
57,346
     
190,851
     
203,634
 
State and local government and educational institutions
   
59,449
     
50,703
     
193,526
     
197,758
 
Healthcare
   
64,775
     
44,706
     
207,700
     
150,494
 
Financial Services
   
39,182
     
60,610
     
106,229
     
154,763
 
All others
   
93,026
     
78,764
     
234,768
     
192,484
 
Net sales
   
476,975
     
415,570
     
1,313,634
     
1,176,153
 
                                 
Less: Revenue from financing and other
   
(3,212
)
   
(4,395
)
   
(12,991
)
   
(18,634
)
                                 
Revenue from contracts with customers
 
$
473,763
   
$
411,175
   
$
1,300,643
   
$
1,157,519
 

 
Three Months Ended December 31,
   
Nine Months Ended December 31,
 
   
2021
   
2020
   
2021
   
2020
 
Vendor
                       
Cisco Systems
 
$
183,195
   
$
132,290
   
$
524,169
   
$
433,388
 
Dell / EMC
   
40,254
     
34,027
     
110,092
     
80,457
 
Juniper Networks
   
28,792
     
29,781
     
71,944
     
68,076
 
HP Inc. & HPE
   
12,568
     
14,100
     
43,808
     
47,533
 
Arista Networks
   
13,484
     
22,157
     
33,029
     
42,420
 
NetApp
   
30,261
     
13,861
     
70,254
     
39,196
 
All others
   
168,421
     
169,354
     
460,338
     
465,083
 
Net sales
   
476,975
     
415,570
     
1,313,634
     
1,176,153
 
                                 
Less: Revenue from financing and other
   
(3,212
)
   
(4,395
)
   
(12,991
)
   
(18,634
)
                                 
Revenue from contracts with customers
 
$
473,763
   
$
411,175
   
$
1,300,643
   
$
1,157,519
 

FINANCING SEGMENT DISAGGREGATION OF REVENUE

We analyze our revenues within our financing segment based on the nature of the arrangement. Our financing revenue generally consists of portfolio income, transactional gains, and post-contract earnings including month-to-month rents and the sales of off-lease equipment. All of our revenues from contracts with customers within our financing segment is from the sales of off-lease equipment.
26

Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our 2021 Annual Report. These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in Part I, Item 1A, “Risk Factors,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.

On December 13, 2021, we completed a two-for-one stock split in the form of a stock dividend. References made to outstanding shares or per share amounts have been retroactively adjusted for this stock split.

EXECUTIVE OVERVIEW

BUSINESS DESCRIPTION

We are a leading solutions provider that delivers actionable outcomes for organizations by using IT and consulting solutions to drive business agility and innovation. Leveraging our engineering talent, we assess, plan, deliver, and secure solutions comprised of leading technologies and consumption models aligned with our customers’ needs. Our expertise and experience enable us to craft optimized solutions that take advantage of the cost, scale and efficiency of private, public and hybrid cloud in an evolving market. We also provide consulting, staffing, professional, managed, IT staff augmentation, and complete lifecycle management services including flexible financing and solutions in the areas of security, cloud, networking, data center, collaboration and emerging technologies. We have been in the business of selling, leasing, financing, and managing IT and other assets for more than 30 years.

Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-premise and in the cloud. Our approach is to lead with advisory consulting to understand our customers’ needs, and then design, deploy and manage solutions aligned to their objectives. Underpinning the broader areas of Cloud, Security, Networking, Data Center and Collaboration are specific skills in orchestration and automation, application modernization, DevOps, data management, data visualization, analytics, network modernization, edge compute and other advanced and emerging technologies. These solutions are comprised of class-leading technologies from partners such as Amazon Web Services, Arista Networks, Check Point, Cisco Systems, Citrix, Commvault, Dell EMC, F5 Networks, Fortinet, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Pure Storage, Rubrik, Splunk, Varonis, and VMware, among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized for each of our customers’ specific requirements. Our hosted, proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their owned, leased, and consumption-based assets.

Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay on the forefront of technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled ePlus to remain a trusted advisor for our customers. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We believe our lifecycle approach offering of integrated solutions, services and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a customized customer experience that spans the continuum from fast delivery of competitively priced products, services, subsequent management and upkeep, through to end-of-life disposal services. This approach permits ePlus to deploy sophisticated solutions enabling our customers’ business outcomes.

Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. We serve customers in markets including telecom, media and entertainment, technology, state and local government and educational institutions (“SLED”), healthcare, and financial services. We sell to customers in the United States (“US”), which accounts for most of our sales, and to customers in select international markets including the United Kingdom (“UK”), the European Union (“EU”), India, and Singapore. Our technology segment accounts for 96% of our net sales, and 73% of our operating income, while our financing segment accounts for 4% of our net sales, and 27% of our operating income, for the nine months ended December 31, 2021.

27
BUSINESS TRENDS

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

As COVID-19 impacts continue across the country and globe, we have been adjusting our business activities for the safety of our employees and to best serve our customers in this rapidly evolving environment. Most of our offices are open, with required health and safety protocols in place. However, we have implemented a flexible work from home strategy applicable to all offices and operational continuity plans to provide sufficient resources to continue supporting our customers, and we will continue to evaluate returning to the office on an ongoing basis. Our configuration centers have remained open with our employees working in them following required health and safety protocols. In addition, we also have a procedure to review our employees’ business-related travel in accordance with health regulations and guidance. Our managed service teams are distributed across the US with the ability to leverage technology to provide coverage while working from home. While we and many of our customers and vendor partners have restricted in-person meetings, we are leveraging video and other collaborative tools to continue to be responsive.

Our account relationship teams are actively engaging with our customers to ensure they have the support needed in adjusting to changes in the business environment and government directives. Also, we are working closely with our vendor partners to address varying impacts on their supply chains, which have been impacted by materials shortages.

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

The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic including the impact of variants; governmental, business, and individuals’ actions in response to the pandemic; the efficacy of vaccines and boosters; the willingness of people to be inoculated; potential vaccine-related regulations; court rulings; and the impact on economic activity including the possibility of recession, inflation, or financial market instability. These factors may adversely impact business and government spending on technology as well as our customers’ ability to pay for our products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions. Refer to Part I, Item 1A, “Risk Factors,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.

Supply constraints: A worldwide shortage of certain IT products is resulting from, among other things, shortages in semiconductors and other product components. Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, the costs of products, vendor return and cancellation policies, and our ability to meet customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters.

Inflation: For the periods presented herein, inflation has not had a material effect on our results of operations. We have experienced increases in prices from our suppliers as well as rising wages and interest rates. We generally have been able to pass price increases to our customers. Our labor costs related to services we perform will take longer to pass to customers that have services engagements where prices may be set.  Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding.  Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds and lock in our profit on the transaction.  There can be no assurances, however, that inflation would not have a material impact on our sales, gross profit or operating costs in the future.

28
KEY BUSINESS METRICS

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

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

Our key business metrics for the three- and nine-month periods ended December 31, 2021, and 2020 are summarized in the following tables (dollars in thousands):

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
Consolidated
 
2021
   
2020
   
2021
   
2020
 
Net sales
 
$
494,834
   
$
427,604
   
$
1,369,500
   
$
1,215,716
 
 
                               
Gross profit
 
$
117,117
   
$
98,151
   
$
345,631
   
$
295,670
 
Gross margin
   
23.7
%
   
23.0
%
   
25.2
%
   
24.3
%
Operating income margin
   
7.3
%
   
6.8
%
   
8.2
%
   
6.8
%
 
                               
Net earnings
 
$
26,424
   
$
21,638
   
$
81,355
   
$
58,844
 
Net earnings margin
   
5.3
%
   
5.1
%
   
5.9
%
   
4.8
%
Net earnings per common share - diluted
 
$
0.98
   
$
0.81
   
$
3.03
   
$
2.20
 
 
                               
Non-GAAP: Net earnings (1)
 
$
29,711
   
$
23,929
   
$
90,870
   
$
66,606
 
Non-GAAP: Net earnings per common share - diluted (1)
 
$
1.10
   
$
0.89
   
$
3.38
   
$
2.48
 
 
                               
Adjusted EBITDA (2)
 
$
41,797
   
$
34,395
   
$
130,264
   
$
98,670
 
Adjusted EBITDA margin
   
8.4
%
   
8.0
%
   
9.5
%
   
8.1
%
 
                               
Purchases of property and equipment used internally
 
$
1,339
   
$
959
   
$
3,594
   
$
4,060
 
Purchases of equipment under operating leases
   
3,793
     
1
     
17,781
     
167
 
Total capital expenditures
 
$
5,132
   
$
960
   
$
21,375
   
$
4,227
 
                                 
Technology Segment
                               
Net sales
 
$
476,975
   
$
415,570
   
$
1,313,634
   
$
1,176,153
 
Adjusted gross billings (3)
 
$
685,031
   
$
587,825
   
$
1,982,162
   
$
1,735,283
 
 
                               
Gross profit
 
$
104,483
   
$
88,321
   
$
304,994
   
$
262,359
 
Gross margin
   
21.9
%
   
21.3
%
   
23.2
%
   
22.3
%
 
                               
Operating income
 
$
27,166
   
$
22,829
   
$
82,640
   
$
61,658
 
Adjusted EBITDA (2)
 
$
32,794
   
$
27,876
   
$
99,811
   
$
77,312
 
                                 
Financing Segment
                               
Net sales
 
$
17,859
   
$
12,034
   
$
55,866
   
$
39,563
 
 
                               
Gross profit
 
$
12,634
   
$
9,830
   
$
40,637
   
$
33,311
 
 
                               
Operating income
 
$
8,919
   
$
6,434
   
$
30,200
   
$
21,087
 
Adjusted EBITDA (2)
 
$
9,003
   
$
6,519
   
$
30,453
   
$
21,358
 

29
(1)
Non-GAAP Net earnings and Non-GAAP Net earnings per common share – diluted is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share-based compensation, and acquisition and integration expenses, and the related tax effects.

We use Non-GAAP Net earnings per common share as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP Net earnings per common share provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAP Net earnings per common share provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate similar Non-GAAP Net earnings and Non-GAAP Net earnings per common share or similarly titled measures differently, which may reduce their usefulness as comparative measures.

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2021
   
2020
   
2021
   
2020
 
GAAP: Earnings before tax
 
$
35,910
   
$
30,076
   
$
112,463
   
$
83,840
 
Share based compensation
   
1,780
     
1,756
     
5,355
     
5,427
 
Acquisition and integration expense
   
-
     
233
     
-
     
232
 
Acquisition related amortization expense
   
2,497
     
1,986
     
7,854
     
6,386
 
Other (income) expense
   
175
     
(813
)
   
377
     
(1,095
)
Non-GAAP: Earnings before provision for income taxes
   
40,362
     
33,238
     
126,049
     
94,790
 
                                 
GAAP: Provision for income taxes
   
9,486
     
8,438
     
31,108
     
24,996
 
Share based compensation
   
470
     
493
     
1,494
     
1,621
 
Acquisition and integration expense
   
-
     
65
     
-
     
65
 
Acquisition related amortization expense
   
649
     
541
     
2,156
     
1,856
 
Other (income) expense
   
46
     
(228
)
   
104
     
(314
)
Tax benefit (expense) on restricted stock
   
-
     
-
     
317
     
(40
)
Non-GAAP: Provision for income taxes
   
10,651
     
9,309
     
35,179
     
28,184
 
                                 
Non-GAAP: Net earnings
 
$
29,711
   
$
23,929
   
$
90,870
   
$
66,606
 
                                 
GAAP: Net earnings per common share - diluted
 
$
0.98
   
$
0.81
   
$
3.03
   
$
2.20
 
                                 
Non-GAAP: Net earnings per common share - diluted
 
$
1.10
   
$
0.89
   
$
3.38
   
$
2.48
 

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2021
   
2020
   
2021
   
2020
 
GAAP: Net earnings per common share - diluted
 
$
0.98
   
$
0.81
   
$
3.03
   
$
2.20
 
                                 
Share based compensation
   
0.05
     
0.05
     
0.14
     
0.14
 
Acquisition related amortization expense
   
0.07
     
0.05
     
0.21
     
0.16
 
Other (income) expense
   
-
     
(0.02
)
   
0.01
     
(0.02
)
Tax benefit (expense) on restricted stock
   
-
     
-
     
(0.01
)
   
-
 
Total non-GAAP adjustments - net of tax
   
0.12
     
0.08
     
0.35
     
0.28
 
                                 
Non-GAAP: Net earnings per common share - diluted
 
$
1.10
   
$
0.89
   
$
3.38
   
$
2.48
 

30
(2)
We define Adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for income taxes, and other income. Segment Adjusted EBITDA is defined as operating income calculated in accordance with GAAP, adjusted for interest expense, share-based compensation, acquisition and integration expenses, and depreciation and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. We provide below a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial measure to this Non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales. The presentation of Adjusted EBITDA has been changed from prior period presentations to include adjustments for expenses related to acquisitions such as legal, accounting, tax, and adjustments to the fair value of contingent purchase price consideration as well as stock compensation.

We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
Consolidated
 
2021
   
2020
   
2021
   
2020
 
Net earnings
 
$
26,424
   
$
21,638
   
$
81,355
   
$
58,844
 
Provision for income taxes
   
9,486
     
8,438
     
31,108
     
24,996
 
Share based compensation
   
1,780
     
1,756
     
5,355
     
5,427
 
Interest and financing costs
   
335
     
-
     
693
     
266
 
Acquisition and integration expense
   
-
     
233
     
-
     
232
 
Depreciation and amortization
   
3,597
     
3,143
     
11,376
     
10,000
 
Other income (expense)
   
175
     
(813
)
   
377
     
(1,095
)
Adjusted EBITDA
 
$
41,797
   
$
34,395
   
$
130,264
   
$
98,670
 
                                 
Technology Segment
                               
Operating income
 
$
27,166
   
$
22,829
   
$
82,640
   
$
61,658
 
Depreciation and amortization
   
3,569
     
3,115
     
11,292
     
9,916
 
Share based compensation
   
1,724
     
1,699
     
5,186
     
5,240
 
Interest and financing costs
   
335
     
-
     
693
     
266
 
Acquisition and integration expense
   
-
     
233
     
-
     
232
 
Adjusted EBITDA
 
$
32,794
   
$
27,876
   
$
99,811
   
$
77,312
 
                                 
Financing Segment
                               
Operating income
 
$
8,919
   
$
6,434
   
$
30,200
   
$
21,087
 
Depreciation and amortization
   
28
     
28
     
84
     
84
 
Share based compensation
   
56
     
57
     
169
     
187
 
Adjusted EBITDA
 
$
9,003
   
$
6,519
   
$
30,453
   
$
21,358
 

(3)
We define Adjusted gross billings as our technology segment net sales calculated in accordance with US GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services. We have provided below a reconciliation of Adjusted gross billings to technology segment net sales, which is the most directly comparable financial measure to this Non-GAAP financial measure.

31

 
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 

 
2021
   
2020
   
2021
   
2020
 
Technology segment net sales
 
$
476,975
   
$
415,570
   
$
1,313,634
   
$
1,176,153
 
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services
   
208,056
     
172,255
     
668,528
   
$
559,130
 
Adjusted gross billings
 
$
685,031
   
$
587,825
   
$
1,982,162
   
$
1,735,283
 

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

CONSOLIDATED RESULTS OF OPERATIONS

During the three months ended December 31, 2021, net sales increased 15.7%, or $67.2 million, to $494.8 million, as compared to $427.6 million for the same period in the prior year. Product sales for the three months ended December 31, 2021, increased 15.1% to $432.3 million, an increase of $56.8 million from $375.5 million for the same period in the prior year, due to increased demand from our technology segment customers as well as higher financing revenue. Service sales during the three months ended December 31, 2021, increased 20.0% to $62.5 million, an increase of $10.4 million over prior year services sales of $52.1 million due to increases in both managed services and professional services. In the technology segment, we saw increases in net sales from customers in the telecom, media and entertainment, healthcare, technology, and SLED, which was partially offset by decreases in net sales from customers in financial services, during the three months ended December 31, 2021, compared to the same period in the prior year.

For the nine months ended December 31, 2021, net sales increased 12.6%, or $153.8 million, to $1.370 billion, compared to $1.216 billion for the same period in the prior year. Product sales for the nine months ended December 31, 2021, increased 11.6%, or $124.1 million, to $1.191 billion, compared to $1.066 billion for the same period in the prior year. Services sales during the nine months ended December 31, 2021, increased 19.9%, or $29.7 million, to $179.0 million compared to prior year services sales of $149.3 million. The increase in net sales was due, in part, to the Systems Management Planning Inc. (“SMP”) acquisition as well as increased demand from our customers in healthcare, telecom, media and entertainment and all other categories of customers, which were partially offset by decreases in demand from our customers in financial services, technology and SLED, during the nine months ended December 31, 2021, compared to the prior year.

Adjusted gross billings increased 16.5%, or $97.2 million, to $685.0 million for the three months ended December 31, 2021, from $587.8 million for the same period in the prior year. There was an increase in adjusted gross billings from our customers in telecom, media and entertainment, healthcare, technology, and SLED, which was partially offset by decreases in demand from our customers in the financial service market. For the nine months ended December 31, 2021, adjusted gross billings increased 14.2%, or $246.9 million, to $1.982 billion, from $1.735 billion for the same period in the prior year. The increase in adjusted gross billings is due, in part, to the SMP acquisition as well as higher demand from our customers in telecom, media and entertainment, healthcare and all other categories of customers, which was partially offset by decreases in demand from our customers in the financial services market and SLED.

Consolidated gross profit for the three months ended December 31, 2021, increased $19.0 million, or 19.3%, to $117.1 million, compared with $98.2 million for the same period in the prior year. Consolidated gross margins were 23.7% for the three months ended December 31, 2021, which is an increase of 70 basis points compared to 23.0% for the same period in the prior year. The increase in margins was primarily due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which was recognized on a net basis, as well as higher service revenue and service margin, and higher gross profit from our financing segment.

32
For the nine months ended December 31, 2021, consolidated gross profit increased $50.0 million, or 16.9%, to $345.6 million, compared with $295.7 million for the same period in the prior year. Consolidated gross margins were 25.2% for the nine months ended December 31, 2021, an increase of 90 basis points compared to 24.3% for the same period in the prior year. The increase in gross margin for the nine-month period was due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, which is recognized on a net basis, as well as higher service revenue and service margins, and higher gross profit from our financing segment.

Our operating expenses for the three months ended December 31, 2021, increased $12.1 million, or 17.6%, to $81.0 million, as compared to $68.9 million for the prior year period. This increase is primarily due to an increase in general and administrative expenses including higher travel and entertainment costs as travel restrictions from COVID-19 have started to ease, higher software license and maintenance costs, higher property taxes, and an increase in salaries and benefits driven by an increase in variable compensation and fringe benefits. These increases are partially offset by a decrease in our provision for credit losses. As of December 31, 2021, we had 1,554 employees, a decrease of 32 from 1,586 as of December 31, 2020, which included 102 employees from the SMP acquisition on December 31, 2020.

For the nine months ended December 31, 2021, operating expenses increased $19.9 million, or 9.3%, to $232.8 million, as compared to $212.9 million for the same period in the prior year. The increase in operating expenses for the nine months ended December 31, 2021, is due to increase in general and administrative expense due to higher travel and entertainment expenses as travel restriction from COVID-19 have started to ease, software license and maintenance, sales, property and other taxes, and the increase in salaries and benefits due to increase in fringe benefits and variable compensation. These increases are partially offset by a decrease in our provision for credit losses.

Depreciation and amortization expense increased $0.5 million and $1.4 million for the three and nine months ended December 31, 2021, respectively, primarily due to our December 31, 2020, acquisition of SMP. Interest and financing costs increased $0.2 million and $0.1 million for the three and nine months ended December 31, 2021, respectively, primarily driven by the timing of borrowings from our credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”) offset by a decrease in interest and financing costs in our financing segment.

As a result, operating income for the three months ended December 31, 2021, increased $6.8 million, or 23.3%, to $36.1 million as compared to $29.3 million for the same period in the prior year. For the nine months ended December 31, 2021, operating income increased $30.1 million, or 36.4%, to $112.8 million, as compared to $82.7 million for the same period in the prior year.

Consolidated net earnings for the three months ended December 31, 2021, were $26.4 million, an increase of 22.1%, or $4.8 million, over the prior year’s results, due to the increase in gross profit and offset by increased operating expenses and the provision for income taxes. For the nine months ended December 31, 2021, the consolidated net earnings were $81.4 million, an increase of 38.3%, or $22.5 million, compared to the prior year’s results, due to the increase in revenues and gross profit mostly offset by an increase in operating expenses and the provision for income taxes.

Our effective tax rate for the three and nine months ended December 31, 2021, was 26.4% and 27.7% respectively, compared with 28.1% and 29.8%, respectively, for the same periods in the prior year. The change in our effective income tax rate for the nine months ended December 31, 2021 compared to the same period in the prior year was primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes.

Adjusted EBITDA increased $7.4 million, or 21.5%, to $41.8 million and Adjusted EBITDA margin increased 40 basis points to 8.4% for the three months ended December 31, 2021, as compared to the prior year period of 8.0%. For the nine months ended December 31, 2021, adjusted EBITDA increased $31.6 million, or 32.0%, to $130.3 million and the adjusted EBITDA margin increased 140 basis points to 9.5% as compared to the prior year period of 8.1%.

Diluted earnings per share increased 21.0%, or $0.17, to $0.98 per share for the three months ended December 31, 2021, as compared to $0.81 per share for the three months ended December 31, 2020, retroactively restated for the stock split. Non-GAAP diluted earnings per share increased 23.6%, or $0.21, to $1.10 for the three months ended December 31, 2021, as compared to $0.89 for the three months ended December 30, 2020, retroactively restated for the stock split. For the nine months ended December 31, 2021, diluted earnings per share increased 37.7%, or $0.83, to $3.03 per share, as compared to $2.20 per share in the prior year period, retroactively restated for the stock split. Non-GAAP diluted earnings per share increased 36.3%, or $0.90, to $3.38 for the nine months ended December 31, 2021, as compared to $2.48 for the nine months ended December 31, 2020, retroactively restated for the stock split.

33
Cash and cash equivalents decreased by 18.5% to $105.6 million as of December 31, 2021, as compared to $129.6 million as of March 31, 2021, primarily due to increases in our accounts receivable and inventory, partially offset by net borrowings on the floor plan component of our credit facility. Additional uses of cash during the nine months ended December 31, 2021, included cash paid of $9.5 million to repurchase outstanding shares of our common stock. Our cash on hand, funds generated from operations, amounts available under our credit facility, and the ability to monetize our investment portfolio provide sufficient liquidity for our business.

SEGMENT OVERVIEW

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

TECHNOLOGY SEGMENT

The technology segment derives revenue from sales of product, project-related advanced professional services, managed services and staff augmentation. The technology segment sells primarily to corporate customers, state and local governments, and higher education institutions on a nationwide basis, with geographic concentrations relating to our physical locations. The technology segment also provides Internet-based business-to-business supply chain management solutions for information technology products.

Customers who purchase IT equipment and services from us may have a customer master agreement (“CMA”) with our company, which stipulates the terms and conditions of the relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers place orders using purchase orders without a CMA in place, or with other documentation customary for the business. Often, our work with state and local governments is based on public bids and our written bid responses. Our service engagements are generally governed by statements of work and are primarily fixed price (with allowance for changes); however, some service agreements are based on time and materials.

We endeavor to minimize the cost of sales through incentive programs provided by vendors and distributors. The programs we qualify for are generally set by our reseller authorization level with the vendor. The authorization level we achieve and maintain governs the types of products we can resell as well as such items as variable discounts applied against the list price, funds provided for the marketing of these products and other special promotions. These authorization levels are achieved by us through purchase volume, certifications held by sales executives or engineers and/or contractual commitments by us. The authorization levels are costly to maintain, and these programs continually change and, therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs.

FINANCING SEGMENT

Our financing segment offers financing solutions to corporations, governmental entities, and educational institutions nationwide and in Canada, the UK, and several other European countries. The financing segment derives revenue from leasing IT and medical equipment and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing of third-party software licenses, software assurance, maintenance and other services.

Financing revenue generally falls into the following three categories:


•
Portfolio income: Interest income from financing receivables and rents due under operating leases;

•
Transactional gains: Net gains or losses on the sale of financial assets; and

•
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and the sale of off-lease (used) equipment.

34
FLUCTUATIONS IN OPERATING RESULTS

Our results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, customer demand for our products and services, supplier costs, product availability, changes in vendor incentive programs, interest rate fluctuations, decision to sell financial assets, general economic conditions, and differences between estimated residual values and actual amounts realized related to the equipment we lease. Operating results could also fluctuate as a result of a sale prior to the expiration of the lease term to the lessee or to a third-party or from other post-term events.

We expect to continue to expand by opening new offices and warehouses and by hiring additional staff for specific targeted market areas whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may reduce our results from operations. COVID-19 may negatively affect market supply and demand, which will likely lower our financial results, and may adversely impact our ability to expand. We are uncertain as to the extent and duration of COVID-19’s impact to demand in the IT market for our products and services.

CRITICAL ACCOUNTING ESTIMATES

Our critical accounting estimates have not changed from those reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report.

35
SEGMENT RESULTS OF OPERATIONS

The three and nine months ended December 31, 2021, compared to the three and nine months ended December 31, 2020

TECHNOLOGY SEGMENT

The results of operations for our technology segment were as follows (dollars in thousands):

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2021
   
2020
   
2021
   
2020
 
Net sales
                       
Product
 
$
414,448
   
$
363,478
   
$
1,134,658
   
$
1,026,845
 
Services
   
62,527
     
52,092
     
178,976
     
149,308
 
Total
   
476,975
     
415,570
     
1,313,634
     
1,176,153
 
                                 
Cost of sales
                               
Product
   
334,585
     
295,310
     
899,437
     
820,859
 
Services
   
37,907
     
31,939
     
109,203
     
92,935
 
Total
   
372,492
     
327,249
     
1,008,640
     
913,794
 
                                 
Gross profit
   
104,483
     
88,321
     
304,994
     
262,359
 
                                 
Selling, general, and administrative
   
73,413
     
62,377
     
210,369
     
190,519
 
Depreciation and amortization
   
3,569
     
3,115
     
11,292
     
9,916
 
Interest and financing costs
   
335
     
-
     
693
     
266
 
Operating expenses
   
77,317
     
65,492
     
222,354
     
200,701
 
                                 
Operating income
 
$
27,166
   
$
22,829
   
$
82,640
   
$
61,658
 
                                 
Adjusted gross billings
 
$
685,031
   
$
587,825
   
$
1,982,162
   
$
1,735,283
 
Adjusted EBITDA
 
$
32,794
   
$
27,876
   
$
99,811
   
$
77,312
 

Net sales: Net sales for the three months ended December 31, 2021, were $477.0 million compared to $415.6 million for the same period in the prior year, an increase of 14.8% or $61.4 million, due to increases in net sales from customers in the telecom, media and entertainment, healthcare, technology, and SLED, which was partially offset by decreases in net sales from customers in financial services. Product sales increased 14.0%, or $51.0 million, to $414.4 million. Services revenues increased 20.0%, or $10.4 million to $62.5 million compared to the same period in the prior year of $52.1 million due to increase in professional and managed services for the three months ended December 31, 2021.

For the nine months ended December 31, 2021, net sales increased 11.7%, or $137.5 million to $1.314 billion compared to $1.176 billion during the same period in the prior year. Product sales for the nine months ended December 31, 2021, increased 10.5%, or $107.8 million to $1.135 billion, and service revenue increased by 19.9%, or $29.7 million, to $179.0 million compared to $149.3 million during the same period in the prior year.

Adjusted gross billings increased 16.5%, or $97.2 million, to $685.0 million for the three months ended December 31, 2021, from $587.8 million for the same period in the prior year. The increase in adjusted gross billings was due, in part, to the SMP acquisition as well as higher demand from our current customers. For the nine months ended December 31, 2021, adjusted gross billings increased 14.2%, or $246.9 million, to $1.982 billion, from $1.735 billion for the same period in the prior year. The increase in adjusted gross billings is due to higher demand from the same customer end markets that were previously identified for the increase in net sales.

We rely on our vendors to fulfill a large majority of shipments to our customers. As of December 31, 2021, we had open orders of $852.9 million and deferred revenue of $121.0 million. As of December 31, 2020, we had open orders of $413.9 million and deferred revenue of $96.3 million.

We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. The percentage of net sales by industry and vendor for the twelve-month periods ended December 31, 2021, and 2020 are summarized below:

36
   
Twelve Months Ended
December 31,
     
Change
  
Revenue by customer end market:
 
2021
   
2020
Telecom, Media & Entertainment
   
29
%
   
23
%
   
6
%
Healthcare
   
16
%
   
14
%
   
2
%
SLED
   
15
%
   
16
%
   
(1
%)
Technology
   
15
%
   
18
%
   
(3
%)
Financial Services
   
9
%
   
13
%
   
(4
%)
All others
   
16
%
   
16
%
   
0
%
Total
   
100
%
   
100
%
       

   
Twelve Months Ended
December 31,
     
Change
  
Revenue by vendor:
 
2021
   
2020
Cisco Systems
   
38
%
   
36
%
   
2
%
Dell EMC
   
8
%
   
8
%
   
0
%
Juniper Networks
   
6
%
   
5
%
   
1
%
NetApp
   
5
%
   
4
%
   
1
%
HP Inc. & HPE
   
3
%
   
4
%
   
(1
%)
Arista Networks
   
3
%
   
4
%
   
(1
%)
All others
   
37
%
   
39
%
   
(2
%)
Total
   
100
%
   
100
%
       

Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve-month period ended December 31, 2021, we had an increase in the percentage of total revenues from customers in the telecom, media and entertainment and healthcare industry, and decreases in the percentage of total revenues in the financial services, technology, and SLED markets. These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.

The majority of our revenues by vendor is derived from our top six suppliers. None of the vendors included within the “other” category exceeded 5% of total revenues.

Cost of sales: Cost of sales for the three months ended December 31, 2021, increased 13.8% or $45.2 million to $372.5 million compared to $327.2 million for the same period in the prior year. Our gross margin increased 60 basis points to 21.9% for the three months ended December 31, 2021, compared to 21.3% for the same period in the prior year. The increase in gross margin was driven by higher product margin, where a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services are recognized on a net basis, and higher service margin. Cost of sales for the nine months ended December 31, 2021, increased 10.4% or $94.8 million which is in line with the increase in net sales. For the nine months ended December 31, 2021, gross margin increased by 90 basis points to 23.2%, as compared to 22.3% for the prior year period, primarily due to higher service margin, and a higher proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, which are recognized on a net basis.

Selling, general, and administrative: Selling, general, and administrative expenses of $73.4 million for the three months ended December 31, 2021, increased by $11.0 million, or 17.7% from $62.4 million for the same period in the prior year. Salaries and benefits increased $9.6 million, or 17.8% to $63.3 million, compared to $53.7 million during the prior year mainly due to an increase in variable compensation. Our technology segment had 1,521 employees as of December 31, 2021, a decrease of 30 from 1,551 as of December 31, 2020. Our headcount as of December 31, 2020, incorporates the addition of 102 employees from the December 31, 2020, acquisition of SMP. For the nine months ended December 31, 2021, selling, general, and administrative expenses increased by $19.9 million, or 10.4%, to $210.4 million compared to $190.5 million for the same period in the prior year. Salaries and benefits increased $17.5 million, or 10.6% to $182.1 million, compared to $164.6 million during the same period in the prior year.

37
General and administrative expenses increased $1.9 million, or 24.0%, to $10.0 million during the three months ended December 31, 2021, compared to the same period in the prior year, due to higher software license and maintenance fees, travel and entertainment as travel restrictions from COVID-19 have started to ease, and sales, property and other tax expenses. For the nine months ended December 31, 2021, general and administrative expenses increased $3.3 million, or 13.3%, to $28.2 million. The increase in general and administrative expenses was primarily due to an increase in travel and entertainment expenses, legal and professional fees and software license and maintenance. The provision for credit losses was $0.7 million lower than for the same period in the prior year.

Depreciation and amortization: Depreciation and amortization increased $0.5 million, or 14.6%, to $3.6 million during the three months ended December 31, 2021, as compared to $3.1 million in the prior year period primarily due to the amortization of the intangible assets acquired in our acquisition of SMP. For the nine months ended December 31, 2021, depreciation and amortization increased $1.4 million, or 13.9%, to $11.3 million as compared to $9.9 million for the same period in the prior year.

Interest and financing costs: Interest and financing costs were $0.3 million, and $0.7 million for the three and nine months ended December 31, 2021, an increase of $0.3 million and $0.4 million, respectively, as compared to the same periods in the prior year. The increase is primarily due to timing and amount of our borrowings from our WFCDF credit facility and borrowings on an installment payment arrangement. We had $58.8 million of recourse debt in our technology segment as of December 31, 2021, compared to no recourse debt as of December 31, 2020.

Segment operating income: As a result of the foregoing, operating income was $27.2 million, an increase of $4.3 million, or 19.0%, for the three months ended December 31, 2021, as compared to $22.8 million for the same period in the prior year. For the nine months ended December 31, 2021, operating income was $82.6 million, compared to $61.7 million for the same period in the prior year, an increase of $21.0 million, or 34.0%.

For the three months ended December 31, 2021, Adjusted EBITDA was $32.8 million, an increase of $4.9 million, or 17.6%, compared to $27.9 million for the same period in the prior year. Adjusted EBITDA was $99.8 million, an increase of $22.5 million, or 29.1%, for the nine months ended December 31, 2021, compared to $77.3 million for the same period in the prior year.

FINANCING SEGEMENT

The results of operations for our financing segment were as follows (dollars in thousands):

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2021
   
2020
   
2021
   
2020
 
Net sales
 
$
17,859
   
$
12,034
   
$
55,866
   
$
39,563
 
                                 
Cost of sales
   
5,225
     
2,204
     
15,229
     
6,252
 
                                 
Gross profit
   
12,634
     
9,830
     
40,637
     
33,311
 
                                 
Selling, general, and administrative
   
3,461
     
3,013
     
9,784
     
11,227
 
Depreciation and amortization
   
28
     
28
     
84
     
84
 
Interest and financing costs
   
226
     
355
     
569
     
913
 
Operating expenses
   
3,715
     
3,396
     
10,437
     
12,224
 
                                 
Operating income
 
$
8,919
   
$
6,434
   
$
30,200
   
$
21,087
 
                                 
Adjusted EBITDA
 
$
9,003
   
$
6,519
   
$
30,453
   
$
21,358
 

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Net sales: Net sales increased by $5.8 million, or 48.4%, to $17.9 million for the three months ended December 31, 2021, as compared to prior year results due to higher post contract sales from several early buyouts of assets under lease and higher month to month rents, which were partially offset by lower transaction gains. During the quarter ended December 31, 2021, we recognized net gains on sales of financial assets of $2.3 million. Net gains on the sale of financial assets for the quarter ended December 31, 2020, was $3.0 million and the proceeds from these sales were $67.5 million.

For the nine months ended December 31, 2021, net sales increased to $55.9 million, an increase of $16.3 million, or 41.2% as compared to the same period in the prior year of $39.6 million due to higher proceeds from sales of equipment, transactional gains, and month to month rents. During the nine months ended December 31, 2021, we recognized net gains on sales of financial assets of $15.6 million, which included several large transactions that closed in July 2021, and the proceeds received from these sales were $753.9 million. For the nine months ended December 31, 2020, we recognized net gains on sales of financial assets of $10.1 million, and the proceeds from these sales were $259.2 million.

At December 31, 2021, we had $171.1 million in financing receivables and operating leases, compared to $214.0 million as of December 31, 2020, a decrease of $43.0 million, or 20.1%.

Cost of sales: Cost of sales increased $3.0 million and $9.0 million for the three and nine months ended December 31, 2021, respectively, compared to the prior year results due to higher cost of sales on off-lease equipment and higher depreciation expense from operating leases. Gross profit increased by 28.5% to $12.6 million for the three months ended December 31, 2021, and increased by 22.0% to $40.6 million, for the nine months ended December 31, 2021, as compared to the prior year periods.

Selling, general and administrative: For the three months ended December 31, 2021, selling, general and administrative expenses increased $0.4 million or 14.9% to $3.5 million due to higher variable compensation. For the nine months ended December 31, 2021, selling, general and administrative expenses decreased $1.4 million or 12.9% compared to the prior year period, primarily due to decrease in the provision for credit losses and decrease in salaries and benefits, partially offset by a slight increase to general and administrative cost.

Interest and financing costs: Interest and financing costs decreased by 36.3% to $0.2 million for the three months ended December 31, 2021, and decreased by 37.7% to $0.6 million for the nine months ended December 31, 2021, compared to the prior year, due to a decrease in the average balance on total notes payable outstanding. Total notes payable for the financing segment comprised entirely of non-recourse debt was $43.6 million as of December 31, 2021, a decrease of $24.7 million, or 36.2%, as compared to $68.3 million as of December 31, 2020. Our weighted average interest rate for non-recourse notes payable was 3.68% and 3.57%, as of December 31, 2021, and 2020, respectively.

Segment operating income: As a result of the foregoing, both operating income and Adjusted EBITDA increased $2.5 million to $8.9 million and $9.0 million, respectively, for the three months ended December 31, 2021, as compared to the prior year period. For the nine months ended December 31, 2021, both operating income and Adjusted EBITDA increased by $9.1 million to $30.2 million and $30.5 million, respectively, for the nine months ended December 31, 2021, as compared to the same period in the prior year.

CONSOLIDATED

Other income: Other income and expense for both the three and nine months ended December 31, 2021, was an expense of $0.2 million and $0.4 million, respectively, due to unfavorable foreign exchange rates, compared to an income of $0.8 million and $1.1 million in the three and nine month periods in the prior year, respectively.

Income taxes: Our provision for income tax expense was $9.5 million and $31.1 million for the three and nine months ended December 31, 2021, as compared to $8.4 million and $25.0 million for the same periods in the prior year. Our effective income tax rates for the three and nine months ended December 31, 2021, were 26.4% and 27.7%, compared to 28.1% and 29.8% for the three and nine months ended December 31, 2020, respectively. The change in our effective income tax rate for the nine months ended December 31, 2021 compared to the same period in the prior year was primarily due to a prior year unfavorable adjustment to the federal benefit from state taxes.

39
Net earnings: The foregoing resulted in net earnings of $26.4 million for the three months ended December 31, 2021, an increase of $4.8 million, or 22.1%, as compared to $21.6 million during the three months ended December 31, 2020. For the nine months ended December 31, 2021, net earnings were $81.4 million, an increase of $22.5 million, or 38.3%, as compared to $58.8 million for the same period in the prior year.

Basic and fully diluted earnings per common share was $0.99 and $0.98, respectively, for the three months ended December 31, 2021, an increase of 22.2% and 21.0% as compared to $0.81 for both basic and fully diluted earnings per common share, for the three months ended December 31, 2020. For the nine months ended December 31, 2021, basic and fully diluted earnings per common share were $3.05 and $3.03, an increase of 38.0% and 37.7%, as compared to $2.21 and $2.20, respectively, for nine months ended December 31, 2020.

Non-GAAP diluted earnings per share increased 23.6% to $1.10 for the three months ended December 31, 2021, as compared to $0.89 for the three months ended December 31, 2020. Non-GAAP diluted earnings per share increased 36.2% to $3.38 for the nine months ended December 31, 2021, as compared to $2.48 for the nine months ended December 31, 2020.

Weighted average common shares outstanding was 26.7 million in the calculation of basic earnings per common share for both the three- and nine-months ended December 31, 2021, and 26.9 million in the calculation of diluted earnings per common share for both the three- and nine-months ended December 31, 2021. Weighted average common shares outstanding used in the calculation of basic earnings per common share, was 26.7 million for both the three- and nine-months ended December 31, 2020, and 26.8 million in the calculation of diluted earnings per common share for both the three- and nine-months ended December 31, 2020.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY OVERVIEW

We finance our operations through funds generated from operations and through borrowings. We use those funds to meet our capital requirements, which have historically consisted primarily of working capital for operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock.

Our borrowings in our technology segment are primarily through our WFCDF credit facility. Our borrowings in our financing segment are primarily through secured borrowings that involve transferring all or part of the contractual payments due to us to third-party financing institutions.

We believe that cash on hand and funds generated from operations, together with available credit under our credit facility, will be enough to finance our working capital, capital expenditures, and other requirements for at least the next year.

Our ability to continue to expand, both organically and through acquisitions, is dependent upon our ability to generate enough cash flow from operations or from borrowing or other sources of financing as may be required. While at this time we do not anticipate requiring any additional sources of financing to fund operations, if demand for IT products declines, or if our supply of products is delayed or interrupted, our cash flows from operations may be substantially affected.

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CASH FLOWS

The following table summarizes our sources and uses of cash over the periods indicated (in thousands):

   
Nine Months Ended December 31,
 
   
2021
   
2020
 
Net cash provided by (used in) operating activities
 
$
(121,542
)
 
$
5,244
 
Net cash used in investing activities
   
(18,448
)
   
(30,659
)
Net cash provided by financing activities
   
115,996
     
26,382
 
Effect of exchange rate changes on cash
   
(2
)
   
(735
)
Net increase (decrease) in cash and cash equivalents
 
$
(23,996
)
 
$
232
 

Cash flows from operating activities: We used $121.5 million in operating activities during the nine months ended December 31, 2021, compared to $5.2 million provided by operating activities for the nine months ended December 31, 2020. See below for a breakdown of operating cash flows by segment (in thousands):

   
Nine Months Ended December 31,
 
   
2021
   
2020
 
Technology segment
 
$
(112,740
)
 
$
43,694
 
Financing segment
   
(8,802
)
   
(38,450
)
Net cash provided by (used in) operating activities
 
$
(121,542
)
 
$
5,244
 

Technology segment: In the nine months ended December 31, 2021, our technology segment used $112.7 million from operating activities primarily due to increases in our accounts receivable of $123.4 million and inventories of $77.9 million, offset by net earnings. Additionally, we had net borrowing on the floor plan component of our credit facility of $59.0 million. We use this facility to manage working capital needs. We present changes in this balance as financing activity in our consolidated statement of cash flows.

In the nine months ended December 31, 2020, our technology segment provided $43.7 million from operating activities primarily due to cash generated from earnings. Additionally, we had net borrowing on the floor plan component of our credit facility of $44.1 million.

To manage our working capital, we monitor our cash conversion cycle for our technology segment, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases outstanding in accounts payable (“DPO”).

The following table presents the components of the cash conversion cycle for our technology segment:

   
As of December 31,
 
   
2021
   
2020
 
(DSO) Days sales outstanding (1)
   
67
     
62
 
(DIO) Days inventory outstanding (2)
   
21
     
13
 
(DPO) Days payable outstanding (3)
   
(41
)
   
(51
)
Cash conversion cycle
   
47
     
24
 

(1)
Represents the rolling three month average of the balance of trade accounts receivable-trade, net for our technology segment at the end of the period divided by adjusted gross billings for the same three month period.
(2)
Represents the rolling three month average of the balance of inventory, net for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three month period.
(3)
Represents the rolling three month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our technology segment at the end of the period divided by cost of adjusted gross billings for the same three month period.

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Our cash conversion cycle increased to 47 days at December 31, 2021, compared to 24 days at December 31, 2020. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended payment terms. Our DPO decreased 10 days. Invoices processed through our credit facility, or the A/P-floor plan balance, are typically paid within 45-60 days from the invoice date, while A/P trade invoices are typically paid within 30 days from the invoice date. Our DSO increased to 67 days, which reflects higher sales to customers with terms greater than or equal to net 60 days for the period ended December 31, 2021, as compared to the same period in the prior year. Our DIO increased to 21 days due to higher inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 111.2% to $147.7 million as of December 31, 2021, up from $70.0 million as of March 31, 2021, partially due to ongoing projects with customers.

Financing segment: In the nine months ended December 31, 2021, our financing segment used $8.8 million from operating activities, primarily due to increases in accounts receivable of $8.8 million and financing receivables-net of $23.4 million, offset by net earnings. In the nine months ended December 31, 2020, our financing segment used $38.5 million from operating activities, primarily due to changes in financing receivables- net of $67.1 million, partially offset by earnings of $15.4 million and an increase in accounts payable trade of $12.5 million.

Cash flows related to investing activities: In the nine months ended December 31, 2021, we used $18.4 million from investing activities, consisting of $21.4 million for purchases of property, equipment and operating lease equipment offset by $2.9 million of proceeds from the sale of property, equipment, and operating lease equipment. In the nine months ended December 31, 2020, we used $30.7 million from investing activities, consisting of $27.1 million for the acquisition of SMP, $4.2 million for purchases of property, equipment and operating lease equipment offset by $0.7 million of proceeds from the sale of property, equipment, and operating lease equipment.

Cash flows from financing activities: In the nine months ended December 31, 2021, cash provided by financing activities was $116.0 million, consisting of net borrowings on the floor plan component of our credit facility of $59.0 million and net repayments of non-recourse and recourse notes payable of $66.4 million, partially offset by $9.5 million in cash used to repurchase outstanding shares of our common stock. In the nine months ended December 31, 2020, cash provided by financing activities was $26.4 million consisting of net borrowings on floor plan facility of $44.1 million, net borrowings of non-recourse and recourse notes payable of $24.8 million, which was partially offset by repayment of $35.0 million in borrowings under the accounts receivable component of our Technology segment credit facility, $6.9 million in repurchase of common stock, and $0.6 million paid to the sellers of a prior acquisition.

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

Non-cash activities: We transfer contractual payments due to us under lease and financing agreements to third-party financial institutions. As a condition of these agreements, certain financial institutions may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, the customer will make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender. However, when our customer makes payments through a trust, such payments represent non-cash transactions. Also, in certain assignment agreements, we may direct the third-party financial institution to pay some of the proceeds from the assignment directly to the vendor or vendors that have supplied the assets being leased and or financed. In these situations, the portion of the proceeds paid directly to our vendors are non-cash transactions.

SECURED BORROWINGS – FINANCING SEGMENT

We may finance all or most of the cost of the assets that we finance for customers by transferring all or part of the contractual payments due to us to third-party financing institutions. When we account for the transfer as a secured borrowing, we recognize the proceeds as either recourse or non-recourse notes payable. Our customers are responsible for repaying the debt from a secured borrowing. The lender typically secures a lien on the financed assets at the time the financial assets are transferred and releases it upon collecting all the transferred payments. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The lender assumes the credit risk and their only recourse, upon default by the customer, is against the customer and the specific equipment under lease. While we expect that the credit quality of our financing arrangements and our residual return history will continue to allow us to obtain such financing, such financing may not be available on acceptable terms, or at all.

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CREDIT FACILITY – TECHNOLOGY SEGMENT

We finance the operations of our subsidiaries ePlus Technology, inc., ePlus Technology Services, inc. and SLAIT Consulting, LLC (collectively, the “Borrowers”) in our technology segment through a credit facility with WFCDF. The WFCDF credit facility has a floor plan facility and a revolving credit facility.

On October 13, 2021, the Borrowers amended, restated and replaced in their entirety their then-existing credit agreements with WFCDF. The new credit facility is established by a syndicate of banks for which WFCDF acts as administrative agent and consists of a discretionary senior secured floorplan facility in favor of the Borrowers in the aggregate principal amount of up to $375 million, together with a sublimit for a revolving credit facility for up to $100 million (collectively, the “2021 Credit Facility”).

Please refer to Note 8 “Credit Facility and Notes Payable” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements” for additional information concerning our 2021 Credit Facility.

The loss of the 2021 Credit Facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process.

Floor plan facility: We finance most purchases of products for sale to our customers through the floor plan facility. Once our customer places a purchase order with us and we have approved their credit, we place an order for the desired products with one of our vendors. Our vendors are generally paid by the floor plan facility and our liability is reflected in “accounts payable—floor plan” in our consolidated balance sheets.

Most customer payments to us are remitted to our lockbox accounts. Once payments are cleared, the monies in the lockbox accounts are automatically and daily transferred to our operating account. We pay down the floor plan facility on three specified dates each month, generally 30-60 days from the invoice date. Our borrowings and repayments under the floor plan component are included in “net borrowings (repayments) on floor plan facility” within cash flows from the financing activities in our consolidated statements of cash flows.

As of December 31, 2021, and March 31, 2021, we had a maximum credit limit of $375.0 million and $275.0 million, respectively, and an outstanding balance on the floor plan facility of $157.7 million and $98.7 million, respectively. On our balance sheet, our liability under the floor plan facility is presented as part of as accounts payable – floor plan.

Revolving credit facility: The outstanding balance under the revolving credit facility is presented as part of as recourse notes payable- current on our consolidated balance sheets. Our borrowings and repayments under the revolving credit facility are included in “borrowings of non-recourse and recourse notes payable” and “repayments of non-recourse and recourse notes payable,” respectively, within cash flows from the financing activities in our consolidated statements of cash flows.

As of December 31, 2021, we had an outstanding balance under the revolving credit facility of $44.0 million. We did not have any outstanding balance under the revolving credit facility as of March 31, 2021. The maximum credit limit under this facility was $100.0 million as of both December 31, 2021, and March 31, 2021. On our balance sheet, our liability under the revolving credit facility is presented as part of recourse notes payable – current.

PERFORMANCE GUARANTEES

In the normal course of business, we may provide certain customers with performance guarantees, which are generally backed by surety bonds. In general, we would only be liable for these guarantees in the event of default in the performance of our obligations. We are in compliance with material performance obligations under all service contracts for which there is a performance guarantee, and we believe that any liability incurred in connection with these guarantees would not have a material adverse effect on our consolidated statements of operations.

43
OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements, or other contractually narrow or limited purposes. As of December 31, 2021, we were not involved in any unconsolidated special purpose entity transactions.

ADEQUACY OF CAPITAL RESOURCES

The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also open offices in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance the platform of bundled solutions to provide additional functionality and value-added services. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivables due from our customers. These actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs, which may include additional debt and equity financing. The impacts of COVID-19 may limit or eliminate our access to capital. While the future is uncertain, we do not believe our credit facility will be terminated by WFCDF or us. Additionally, while our lending partners in our financing segment have become more discerning in their approval processes, we currently have funding resources available for our transactions.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

Our future quarterly operating results and the market price of our common stock may fluctuate. In the event our revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing and financing companies, IT resellers, software competitors, or our major customers or vendors.

Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to the worldwide impacts from COVID-19, currency fluctuations, reduction in IT spending, shortages of product from our vendors due to material shortages, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio to a lessee or third-party at the expiration of a lease term or prior to such expiration, and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk Factors,” in our 2021 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. “Risk Factors” in this Report.

We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance.

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our cash flow may be adversely affected by the risks related to the COVID-19 pandemic, which may result in delays in the collections of our accounts receivables or non-payment.

44
Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize lines of credit and other financing facilities that are subject to fluctuations in short-term interest rates. Our non-recourse instruments, which are denominated in US dollars, were entered for other than trading purposes and 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. Financing transactions 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. As of December 31, 2021, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.

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. In addition, we have foreign currency exposure when transactions are not denominated in our subsidiary’s functional currency. To date, our foreign operations are insignificant in relation to total consolidated operations, and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

We evaluate developments related to the UK leaving the European Union on a regular basis to determine if such developments will have a material impact on our results on operations and financial position. Our assessment is that foreign currency exposure for our UK operations is insignificant in relation to total consolidated operations, and we believe those potential fluctuations in currency exchange rates and other economic and operational risks will not have a material effect on our results of operations and financial position.

We lease assets in foreign countries, including Canada, the UK and several other European countries. As a lessor, we lease assets for amounts denominated in British Pounds, Euros, and Canadian dollars. As our foreign operations have been smaller compared to our domestic operations, we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

Item 4.
CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2021.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

LIMITATIONS AND EFFECTIVENESS OF CONTROLS

Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process; therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

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PART II. OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS

Please refer to Note 9, “Commitment and Contingencies” to the accompanying Consolidated Financial Statements included in “Part I, Item 1. Financial Statements”.

Item 1A.
RISK FACTORS

There has not been any material change in the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as supplemented in Part II, Item 1A of our Quarterly Report for the period ended June 30, 2021.

Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding our total purchases of 203,429 shares of ePlus inc. common stock during the nine months ended December 31, 2021, including a total of 147,999 shares purchased as part of the publicly announced share repurchase plans or programs. The numbers of shares and price per share for the prior periods presented in the table have been retroactively restated to reflect the stock split. See Note 11 “Stockholders’ Equity” in the consolidated financial statements included elsewhere in this report for additional information on the stock split.

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
)


(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.

(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.

(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.

(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. As of June 30, 2021, the remaining authorized shares to be purchased were 964,742.

46

(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.

(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.

(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.

(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.

(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.

(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.
 
The timing and expiration date of the current stock repurchase authorizations are included in Note 11, “Stockholders’ Equity” to our unaudited consolidated financial statements included elsewhere in this report.

Item 3.
DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

Item 4.
MINE SAFETY DISCLOSURES

Not Applicable.

Item 5.
OTHER INFORMATION

None.

47
Item 6.
EXHIBITS

Exhibit
Number

Exhibit Description
 

 
3.1

ePlus inc. Amended and Restated Certificate of Incorporation, as last amended November 9, 2021.
 

 
3.2

Amended and Restated Bylaws of ePlus inc., as of September 1, 2021. (Incorporated herein by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q for the period ended September 30, 2021)
 

 

ePlus 2021 Employee Long-Term Incentive Plan (updated to reflect the stock split effected December 13, 2021) as amended.
 

 

First Amended and Restated Credit Agreement, dated as of October 13, 2021, by and among ePlus Technology, inc., ePlus Technology Services, inc., SLAIT Consulting, LLC, certain of ePlus inc. subsidiaries as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent and the Lenders party thereto (Incorporated herein by reference to Exhibit 10.1 to our Current Report in Form 8-K filed on October 19, 2021).
 

 

Guaranty and Security Agreement, dated as of October 13, 2021, by and among ePlus Technology, inc., ePlus Technology Services, inc., SLAIT Consulting, LLC, certain future subsidiaries of ePlus inc., as guarantors, Wells Fargo Commercial Distribution Finance, LLC as administrative agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on October 19, 2021).
 

 

First Amended and Restated Collateralized Guaranty, dated as of October 13, 2021, by and among ePlus Group, inc. and Wells Fargo Commercial Distribution Finance, LLC as agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on October 19, 2021).
 

 

First Amended and Restated Limited Guaranty, dated as of October 13, 2021, by and between ePlus inc. and Wells Fargo Commercial Distribution Finance, LLC as agent for the benefit of Secured Parties (Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on October 19, 2021).
 

 

ePlus inc. 2017 Non-Employee Director Long-Term Incentive Plan (updated to reflect the stock split effected December 13, 2021) as amended.
 

 

Certification of the Chief Executive Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
 
 

Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
 
 
32

Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350.
 

 
101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
 

 
101.SCH

Inline XBRL Taxonomy Extension Schema Document
 
 
101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document
 

 
101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document
 

 
101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document
 

 
101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document
 

 
104

Cover Page Interactive Data File (embedded within the Exhibit 101 Inline XBRL document)

48
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


ePlus inc.


 
Date:  February 3, 2022
/s/ MARK P. MARRON


By: Mark P. Marron

Chief Executive Officer and
President


(Principal Executive Officer)


 
Date:  February 3, 2022
/s/ ELAINE D. MARION


By: Elaine D. Marion


Chief Financial Officer


(Principal Financial Officer)


49
Exhibit 3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
EPLUS INC.

The present name of the corporation is ePlus inc. (the “Corporation”).  The Corporation was incorporated under the name “MLC Holdings, Inc.” by filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on August 27, 1996.  This Amended and Restated Certificate of Incorporation of the Corporation, which restates and integrates and also further amends the provisions of the Corporation’s Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code, as amended, and referred to as the “Delaware General Corporation Law”).  The Certificate of Incorporation of the Corporation is hereby amended, integrated and restated to read in its entirety as follows:

FIRST

The name of the Corporation is ePlus inc.

SECOND

The address of the registered office of the Corporation in the State of Delaware is 3411 Silverside Road Tatnall Building #104, City of Wilmington, County of New Castle, 19810, and the name of the Corporation’s registered agent in the State of Delaware is United Agent Group Inc.

THIRD

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.

FOURTH

The total number of shares of all classes of stock which the Corporation shall have authority to issue is fifty-two million (52,000,000) shares consisting of fifty 50 million (50,000,000) shares of common stock having a par value of $.01 per share (the “Common Stock”) and two million (2,000,000) shares of preferred stock having a par value of $.01 per share (the “Preferred Stock”).

The Board of Directors of the Corporation is authorized, subject to limitations prescribed by law, to provide by resolution or resolutions for the issuance of shares of the Preferred Stock as a class or in series, and, by filing a certificate of designations, pursuant to the Delaware General Corporation Law, setting forth a copy of such resolution or resolutions to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of the class or of each such series and the qualifications, limitations, and restrictions thereof. The authority of the Board of Directors with respect to the class or each series shall include, but not be limited to, determination of the following:

a)          the number of shares constituting any series and the distinctive designation of that series;
 
b)          the dividend rate of the shares of the class or of any series, whether dividends shall be cumulative, and if so, from which date or dates, and the relative rights of priority, if any of payment of dividends on shares of the class or of that series;
 
c)          whether the class or any series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights;
 
d)          whether the class or any series shall have conversion privileges and, if so, the terms and conditions of conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
 
e)          whether or not the shares of the class or of any series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates;
 
f)          whether the class or any series shall have a sinking fund for the redemption or purchase of shares of the class or of that series, and if so, the terms and amount of such sinking fund;
 
g)          the rights of the shares of the class or of any series in the event of voluntary or involuntary dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of the class or of that series; and
 
h)          any other powers, preferences, rights, qualifications, limitations and restrictions of the class or of that series.

All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein or in any certificate of designation shall be vested exclusively in the Common Stock.

FIFTH

The Corporation is to have perpetual existence.

SIXTH

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, alter, or repeal the Bylaws of the Corporation.

SEVENTH

No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.

EIGHTH

The Corporation shall indemnify, in the manner and to the fullest extent permitted by the Delaware General Corporation Law (and in the case of any amendment thereto, to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), any person (or the estate of any person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan.  The corporation may, to the fullest extent permitted by the Delaware General Corporation Law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person.  To the fullest extent permitted by the Delaware General Corporation Law, the indemnification provided herein may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and any such expenses may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person seeking indemnification to repay such amounts if it is ultimately determined that he or she is not entitled to be indemnified.  The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent permitted by the Delaware General Corporation Law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Corporation’s Bylaws, vote of stockholders or disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.  The Corporation may, but only to the extent that the Board of Directors may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article Eighth as they apply to the indemnification and advancement of expenses of directors and officers of the Corporation.

NINTH

From time to time any of the provisions of this Certificate of Incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this Article Ninth.

IN WITNESS WHEREOF, ePlus inc. has caused this Amended and Restated Certificate of Incorporation to be executed by its duly authorized officer on this 15th day of September, 2008.


EPLUS INC.



Signature:
/s/ Erica S. Stoecker





Name:
Erica S. Stoecker



 

Title:
Secretary



Exhibit 10.1
 
2021 EMPLOYEE LONG‐TERM INCENTIVE PLAN

Section 1. Establishment and Purpose

(a) Purpose. The purposes of this ePlus inc. 2021 Long‐Term Incentive Plan (the “Employee Plan”) are to encourage Employees of ePlus inc. (together with any successor thereto, the “Company”) and its Affiliates (as defined below) to acquire a proprietary interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company’s future success and prosperity, thus enhancing the value of the Company for the benefit of its stockholders, and to enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom, in large measure, the sustained progress, growth and profitability of the Company depend.

(b) Effective Date; Shareholder Approval. The Plan is effective October 1, 2021, subject to approval by the Company’s shareholders.

Section 2. Definitions

As used in the Employee Plan, the following terms shall have the meanings set forth below:

(a) “Affiliate” shall mean (i) any entity that, directly or through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has no less than a 50% equity interest, as determined by the Committee. With respect to Incentive Stock Options, “Affiliate” means any entity, domestic or foreign, whether or not such entity now exists or is hereafter organized or acquired by the Company or by an Affiliate that is a “subsidiary corporation” within the meaning of Code Section 424(d) and the rules thereunder.

(b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, or Other Stock‐Based Award granted under the Employee Plan.

(c) “Award Agreement” shall mean any written agreement, contract, or other instrument or document, including an electronic communication, evidencing any Award granted under the Employee Plan.

(d) “Board” shall mean the Board of Directors of the Company.

(e) “Cause” shall (except as otherwise provided in an Award Agreement) mean any of the following acts by the Participant, as determined by the Committee in its reasonable and good faith discretion: (i) failure to substantially perform his or her duties (other than as a result of Disability), after the Board or the executive to which the Participant reports delivers to the Participant a written demand for substantial performance that specifically identifies the manner in which the Participant has not substantially performed his or her duties; (ii) willful misconduct or gross negligence that is materially injurious to the Company or a subsidiary; (iii) prolonged absence from duty without consent by the Board or the executive to which the Participant reports (iv) breach of his or her duty of loyalty to the Company or a subsidiary; (v) Participant has made any material unauthorized disclosure of any of the secrets or confidential information of the Company; (vi) breach of any confidentiality and/or non‐compete agreement between him or her and the Company; (vii) commission of a felony or a serious crime involving moral turpitude; or (viii) a material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct.

(f) “Change in Control” means an event that is “a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” within the meaning of Section 409A and that also falls within one of the following events with respect to the Company:

1
(i)          the consummation of any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of Common Stock immediately prior to the merger own more than fifty percent (50%) of the outstanding common stock of the surviving corporation immediately after the merger; or

(ii)          the consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, other than to a subsidiary or affiliate; or

(iii)        any action pursuant to which any person (which term may include two or more persons consistent with Section 13(d)(3) of the Exchange Act), corporation or other entity shall become the “beneficial owner” (as such term is defined in Rule 13d‐3 under the Exchange Act), directly or indirectly, of shares of capital stock entitled to vote generally for the election of directors of the Company (“Voting Securities”) representing more than fifty (50%) percent of the combined voting power of the Company’s then outstanding Voting Securities (calculated as provided in Rule 13d‐3(d) in the case of rights to acquire any such securities); or
 
(iv)         the individuals (x) who, as of the Effective Date, constitute the Board (the “Original Directors”) and (y) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of a majority of the Original Directors then still in office (such Directors being called “Additional Original Directors”) and (z) who thereafter are elected to the Board and whose election or nomination for election to the Board was approved by a vote of a majority of the Original Directors and Additional Original Directors then still in office, cease for any reason to constitute a majority of the members of the Board; or
 
(v)          the date of a complete dissolution or liquidation of the Company.

(g) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(h) “Committee” shall mean the Compensation Committee of the Board of Directors of the Company, or such other committee as may be designated by the Board. However, if a member of the Compensation Committee is not a “non‐employee director” as defined in Rule 16b‐3 under the Exchange Act, the Compensation Committee may from time to time delegate some or all of its functions under the Employee Plan to a committee or subcommittee composed of members that meet the relevant requirements but shall be no fewer than two (2) individuals or any other number that Rule 16b‐3 may require from time to time. The term “Committee” includes any such committee or subcommittee, to the extent of the Compensation Committee’s delegation.
 
(i) “Common Stock” shall mean shares of the Company’s common stock, par value $0.01 per share.
 
(j) “Disability” shall (except as otherwise provided in an Award Agreement) mean 1) any illness or other physical or mental condition of a Participant which renders the Participant incapable of performing his or her customary and usual duties for the Company (with or without a reasonable accommodation as required by law) and that in the judgment of the Committee is permanent and continuous in nature, and (2) the Committee or the Company or relevant Affiliate has provided written notice to the Participant that the Participant’s employment is terminated due to a permanent “Disability” pursuant to this section. Notwithstanding the above, with respect to an Incentive Stock Option (and if and to the extent required by Code Section 409A with respect to other Awards), Disability shall mean Permanent and Total Disability as defined in Section 22(e)(3) of the Code. The Committee may establish any process or procedure it deems appropriate for determining whether a Participant has a “Disability”.

(k) “Dividend Equivalent” shall mean any right granted under Section 6(e) of the Employee Plan.
 
(l)  “Employee” means any person who is in the employ of the Company or any Affiliate, subject to the control and direction of the Company or any Affiliate as to both the work to be performed and the manner and method of performance.

2
(m)  “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(n)  “Fair Market Value” shall mean, as of any date, the value of Common Stock determined as follows:
 
(i)           if the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq Global Select Market, Nasdaq Global Market or The Nasdaq Capital Market of The Nasdaq Stock Market, the Fair Market Value of a share of Common Stock shall be the closing sales price of a share of Common Stock as quoted on such exchange or system for such date (or the most recent trading day preceding such date if there were no trades on such date), as reported in The Wall Street Journal or such other source as the Committee deems reliable;
 
(ii)          if the Common Stock is regularly quoted by a recognized securities dealer but is not listed in the manner contemplated by clause (i) above, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
 
(iii)          if neither clause (i) above nor clause (ii) above applies, the Fair Market Value of a share of a share of Common Stock shall be determined in good faith by the Committee based on the reasonable application of a reasonable valuation method that complies with Code Section 409A and Code Section 422 if and to the extent required.
 
(o) “Incentive Stock Option” shall mean an option granted under Section 6(a) of the Employee Plan that is intended to meet the requirements of Sections 422 of the Code, or any successor provision thereto.
 
(p) “Non‐Qualified Stock Option” shall mean an option granted under Section 6(a) of the Employee Plan that is not an Incentive Stock Option.

(q) “Option” shall mean an Incentive Stock Option or a Non‐Qualified Stock Option.

(r) “Other Stock‐Based Award” shall mean any right granted under Section 6(f) of the Employee Plan.
 
(s) “Participant” shall mean an Employee of the Company or of any Affiliate designated to be granted an Award under the Employee Plan.

(t) “Performance Award” shall mean any right granted under Section 6(d) of the Employee Plan.

(u) “Performance Criteria” shall mean any quantitative and/or qualitative measures, as determined by the Committee in its discretion, which may be used to measure the level of performance of the Company or any individual Participant during a Performance Period.
 
(v) “Performance Period” shall mean any period as determined by the Committee in its sole discretion.

(w) “Person” shall mean any individual, corporation, partnership, association, joint‐stock company, trust, unincorporated organization, or government or political subdivision thereof.

(x) “Restricted Securities” shall mean Awards of Restricted Stock or other Awards under which issued and outstanding Shares are held subject to certain restrictions.
 
(y) “Restricted Stock” shall mean any award of Shares granted under Section 6(c) of the Employee Plan.

3
(z) “Restricted Stock Unit” shall mean any right granted under Section 6(c) of the Employee Plan that is denominated in Shares.
 
(aa) “Retirement” means retirement (i) at or after age 55 with ten years of service or (ii) at or after age 65.

(bb) “Section 409A” means Section 409A of Code, and the Treasury regulations and other authoritative guidance issued thereunder.

(cc) “Shares” shall mean the Shares of Common Stock, and such other securities as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 7 of the Employee Plan.
 
(dd) “Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Employee Plan.

Section 3. Administration

Except as otherwise provided herein, the Employee Plan shall be administered by the Committee, which shall have the power to interpret the Employee Plan and to adopt such rules and guidelines for implementing the terms of the Employee Plan as it may deem appropriate. The Committee shall have the ability to modify the Employee Plan provisions, to the extent necessary, to accommodate any changes in laws and regulations in jurisdictions in which Participants will receive Awards.

(a) Subject to the terms of the Employee Plan and applicable law, the Committee shall have full power and authority to:


(i)
designate Participants;


(ii)
determine the type or types of Awards to be granted to each Participant under the Employee Plan;


(iii)
determine the number of Shares to be covered by (or with respect to which payments, rights, or other matters are to be calculated in connection with) Awards;


(iv)
determine the terms and conditions of any Award;


(v)
Determine the effect of termination of employment on any Award;


(vi)
determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, or other Awards, or canceled, forfeited, or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended;


(vii)
determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, and other amounts payable with respect to an Award under the Employee Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee;


(viii)
interpret and administer the Employee Plan and any instrument or agreement relating to, or Award made under, the Employee Plan;


(ix)
establish, amend, suspend, or waive such rules and guidelines;


(x)
reduce, eliminate or accelerate any restriction or vesting requirement, applicable to an Award at any time after the grant of an Award or to extend the time for exercising any Option (but not beyond the original ten‐year term), Restricted Stock Awards or Restricted Stock Units;

4

(xi)
to determine the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination of their employment for purposes of the Employee Plan, which periods shall be no shorter than the periods generally applicable to Employees under the Company’s employment policies;


(xii)
to amend any Award Agreement or waive any provision, condition or limitation thereof; provided, however, that if any such amendment impairs a Participant’s rights or increases a Participant’s obligations under his or her Award or creates or increases a Participant’s federal income tax liability with respect to an Award, such amendment shall also be subject to the Participant’s consent;


(xiii)
make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Employee Plan; and


(xiv)
correct any defect, supply any omission, or reconcile any inconsistency in the Employee Plan or any Award in the manner and to the extent it shall deem desirable to carry the Employee Plan into effect.

(b) Unless otherwise expressly provided in the Employee Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Employee Plan or any Award shall be within the sole discretion of the Committee, may be made at any time, and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any stockholder, and any employee of the Company or of any Affiliate. Any determinations and other actions of the Committee with respect to any of the matters referred to in this Section 3 or elsewhere in the Employee Plan or in any Award Agreement need not be consistent, even among Participants who are similarly situated and/or who have previously received similar or other Awards, except as may be specifically provided to the contrary in the Employee Plan or in the applicable Award Agreement. In addition, actions of the Committee may be taken by the Committee but with one or more members abstaining or recusing himself or herself from acting on the matter, so long as two or more members remain to act on the matter. Such action, authorized by the Committee upon the abstention or recusal of such members, shall be the action of the Committee for purposes of the Employee Plan. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration and operation of the Employee Plan and may direct such persons to execute documents on behalf of the Committee.

Section 4. Shares Available for Awards

Shares Available. Subject to adjustment as provided in Section 7, the total number of shares of Common Stock reserved and available for delivery pursuant to Awards granted under the Employee Plan shall be Three Million (3,000,000). If any Shares covered by an Award granted under the Employee Plan, or to which such an Award relates, are forfeited, or if an Award otherwise terminates without the delivery of Shares or of other consideration, then the Shares covered by such Award, or to which such Award relates, or the number of Shares otherwise counted against the aggregate number of Shares available under the Employee Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Employee Plan. Notwithstanding the foregoing but subject to adjustment as provided in Section 7, no more than Three Million (3,000,000). Shares shall be available for delivery pursuant to the exercise of Incentive Stock Options.

Any Award made under a previous ePlus incentive plan shall continue to be subject to the terms and conditions of the plan under which it was awarded and the applicable Award Agreement.

(a)
Accounting for Awards. For purposes of this Section 4,

5

(i)
if an Award (other than a Dividend Equivalent) is denominated in Shares, the number of Shares covered by such Award, or to which such Award relates, shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Employee Plan; and


(ii)
Dividend Equivalents denominated in Shares and Awards not denominated in Shares but potentially payable in Shares shall be counted against the aggregate number of Shares available for granting Awards under the Employee Plan in such amount and at such time as the Dividend Equivalents and such Awards are settled in Shares, provided, however, that Awards that operate in tandem with (whether granted simultaneously with or at a different time from), or that are substituted for, other Awards may only be counted once against the aggregate number of Shares available, and the Committee shall adopt procedures, as it deems appropriate, in order to avoid double counting. Any Shares that are delivered by the Company, and any Awards that are granted by, or become obligations of, the Company through the assumption by the Company or an Affiliate of, or in substitution for, outstanding awards previously granted by an acquired company, shall not be counted against the Shares available for granting Awards under this Plan.


(iii)
Notwithstanding anything herein to the contrary, any Shares related to Awards which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged with the Committee’s permission, prior to the issuance of Shares, for Awards not involving Shares, or shares withheld from an Award, or delivered by a Participant to satisfy minimum tax withholding requirements, shall be available again for grant under this Plan. Shares subject to an Award under the Employee Plan may not again be made available for issuance under the Employee Plan if such Shares are: (x) Shares that were subject to an Option or a stock‐settled Stock Appreciation Right and were not issued upon the net settlement or net exercise of such Option or Stock Appreciation Right, (y) Shares delivered to or withheld by the Company to pay the exercise price under Options or Stock Appreciation Rights, or (z) Shares repurchased on the open market with the proceeds of an Option exercise.

(b)          Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized but unissued Shares, treasury Shares or Shares reacquired by the Company in any manner.

(c)         Substitute Awards. Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines (“Substitute Awards”). Substitute Awards shall not be counted against the total share reserve; provided, that, Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as Incentive Stock Options shall be counted against the ISO limit. Subject to applicable stock exchange requirements, available shares under a shareholder‐approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect such acquisition or transaction) may be used for Awards under the Employee Plan and shall not count toward the total share limit.

Section 5. Eligibility

Any Employee of the Company or of any Affiliate shall be eligible to be designated a Participant.

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Section 6. Awards

(a) Options. Options granted under the Employee Plan may, at the discretion of the Committee, be in the form of either Non‐Qualified Stock Options, Incentive Stock Options or a combination of the two. Where both a Non‐ Qualified Stock Option and an Incentive Stock Option are granted to a Participant at the same time, such Awards shall be deemed to have been granted in separate grants, shall be clearly identified, and in no event will the exercise of one such Award affect the right to exercise the other Award. Unless otherwise specified, an Option shall be a Non‐Qualified Stock Option. Notwithstanding the foregoing, the Company shall have no liability to any Participant or any other person if an Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code. Subject to Section 3, the Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Employee Plan, as the Committee shall determine:


(i)
Amount of Shares. The Committee may grant Options to a Participant in such amounts as the Committee may determine, subject to the limitations set forth in Section 6(g)(v) of the Employee Plan. The number of Shares subject to an Option shall be set forth in the applicable Award Agreement.


(ii)
Exercise Price. The exercise price per Share under an Option shall be determined by the Committee; provided, however, and except as provided in Section 4(d), that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. The exercise price of an Option, as determined by the Committee pursuant to this Section 6(a)(ii), shall be set forth in the applicable Award Agreement.


(iii)
Option Term. Except as set forth in Section 6(a)(vii) below, the term of each Option shall not exceed ten (10) years from the date of grant.


(iv)
Timing of Exercise. Except as may otherwise be provided in the Award Agreement or as the Committee may otherwise determine, and subject to the Committee’s authority under Section 3(a) to accelerate the vesting of an Award and to waive or amend any terms, conditions, limitations or restrictions of an Award, each Option granted under the Employee Plan shall be exercisable in whole or in part, subject to the following conditions, limitations and restrictions:


(A)
20% of the Shares subject to an Option shall first become exercisable on the one‐year anniversary of the date of grant, 30% shall first become exercisable on the two‐year anniversary of the date of grant and the remainder shall first become exercisable on the three‐year anniversary of the date of grant;


(B)
All Options subject to the Award shall become immediately exercisable upon a Change in Control;


(C)
All Options granted to a Participant shall become immediately exercisable upon the death or Disability of the Participant and must be exercised, if at all, within one year after such Participant’s death or Disability, but in no event after the date such Options would otherwise lapse. Options of a deceased Participant may be exercised only by the estate of the Participant or by the person given authority to exercise such Options by the Participant’s will or by operation of law. In the event an Option is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the Option has been transferred by the Participant’s will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver Shares thereunder unless and until the Company is satisfied that the person or persons exercising the Option is or are the duly appointed executor(s) or administrator(s) of the deceased Participant or the person to whom the Option has been transferred by the Participant’s will or by the applicable laws of descent and distribution;

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(D)
Upon an Employee’s Retirement, all Options that have not become exercisable as of the date of Retirement shall be forfeited and to the extent that Options have become exercisable as of such date, such Options must be exercised, if at all, within one year after Retirement, but in no event after the date such Options would otherwise lapse; and


(E)
The Option shall lapse upon termination of employment for Cause. Except as otherwise provided in Section 6(a)(vii) or Section 6(g)(xii), upon an Employee’s termination of employment, for any reason other than death, Disability, Retirement or Cause, all Options that have not become exercisable as of the date of termination shall be forfeited and to the extent that Options have become exercisable as of such date, such Options must be exercised, if at all, within 90 days after such termination of employment.


(v)
Payment of Exercise Price. The exercise price shall be paid in full when the Option is exercised and stock certificates shall be registered and delivered only upon receipt of such payment. Unless otherwise provided by the Committee, payment of the exercise price may be made in cash or by certified check, bank draft, wire transfer, or postal or express money order or any other form of consideration approved by the Committee. In addition, at the discretion of the Committee, payment of all or a portion of the exercise price may be made by


(A)
Delivering a properly executed exercise notice to the Company, or its agent, together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale proceeds with respect to the portion of the Shares to be acquired upon exercise having a Fair Market Value on the date of exercise equal to the sum of the applicable portion of the exercise price being so paid and appropriate tax withholding;


(B)
Tendering (actually or by attestation) to the Company previously acquired Shares that have been held by the Participant for at least six months having a Fair Market Value on the day prior to the date of exercise equal to the applicable portion of the exercise price being so paid; or


(C)
any combination of the foregoing.


(vi)
Incentive Stock Options. The terms of any Incentive Stock Option granted under the Employee Plan shall be designed to comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder which are hereby incorporated by reference. In the event that any provision of the Employee Plan would contravene the Code rules that apply to Incentive Stock Options, such Plan provision shall not apply to Incentive Stock Options. Incentive Stock Options granted under the Employee Plan shall be subject to the following additional conditions, limitations and restrictions:


(A)
Timing of Grant. No Incentive Stock Option shall be granted under the Employee Plan after the 10‐year anniversary of the date the Employee Plan is adopted by the Board.


(B)
Amount of Award. The aggregate Fair Market Value of Shares (determined as of the time of grant) with respect to which such Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any subsidiary) may not exceed $100,000, taking Incentive Stock Option into account in the order in which they were granted. To the extent an Option initially designated as an Incentive Stock Option exceeds the value limit of this Section or otherwise fails to satisfy the requirements applicable to Incentive Stock Options, it shall be deemed a Non‐ Qualified Stock Option and shall otherwise remain in full force and effect.

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(C)
Timing of Exercise. In the event that the Committee exercises its discretion to permit an Incentive Stock Option to be exercised by a Participant more than three months after the Participant’s termination of employment and such exercise occurs more than three months after such Participant has ceased being an Employee (or more than 12 months after the Participant is Disabled or dies), such Incentive Stock Option shall thereafter be treated as a Non‐Qualified Stock Option for all purposes.


(D)
Transfer Restrictions. In no event shall the Committee permit an Incentive Stock Option to be transferred by a Participant other than by will or the laws of descent and distribution, and any Incentive Stock Option granted hereunder shall be exercisable, during his or her lifetime, only by the Participant.


(E)
Ten Percent Owners. No Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Affiliate unless the exercise price per share of such Option is at least 110% of the Fair Market Value per Share at the date of grant and the Option expires no later than five years after the date of grant.


(vii)
Extension of Option Term for Blackouts. At its discretion, the Committee may extend the term of any Option beyond its earlier termination pursuant to Section 6(a)(iii),(iv)(C), (iv)(D) or (iv)(E) if the Company had prohibited the participant from exercising the Option prior to termination or expiration in order to comply with applicable Federal, state, local or foreign law, provided that such extension may not exceed the earlier of 30 days from the date such prohibition is lifted or ten years after the Option grant date.


(viii)
No Deferral Feature. No Option shall provide for any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or disposition of the Option.

(b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Employee Plan and any applicable Award Agreement, a Stock Appreciation Right Award granted under the Employee Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, multiplied by the number of Stock Appreciation Rights granted. As determined by the Committee, the payment upon exercise may be paid in cash, Shares to be valued at their Fair Market Value on the date of exercise, any other mode of payment deemed appropriate by the Committee or any combination thereof. The Committee may establish a maximum appreciation value payable for stock appreciation rights.


(i)
Grant Price. Shall be determined by the Committee, provided, however, and except as provided in Section 7, that such price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right, except that if a Stock Appreciation Right is at any time granted in tandem with an Option, the grant price of the Stock Appreciation Right shall not be less than the exercise price of such Option.


(ii)
Term. The term of each Stock Appreciation Right shall not exceed ten (10) years from the date of grant.


(iii)
Time and Method of Exercise. The Committee shall establish in the applicable Award Agreement the time or times at which a Stock Appreciation Right may be exercised in whole or in part.

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(iv)
No Deferral Feature. No Stock Appreciation Right shall provide for any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or disposition of the Stock Appreciation Right.


(v)
Reduction in the Underlying Option Shares. Upon any exercise of a tandem Stock Appreciation Right, the number of shares of Common Stock for which any related Option shall be exercisable shall be reduced by the number of shares for which the Stock Appreciation Right has been exercised. The number of shares of Common Stock for which a tandem Stock Appreciation Right shall be exercisable shall be reduced upon any exercise of any related Option by the number of shares of Common Stock for which such Option has been exercised.

(c)  Restricted Stock and Restricted Stock Units. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants.


(i)
Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such vesting conditions and other restrictions as the Committee may establish in the applicable Award Agreement (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. The Committee may remove any vesting condition or other restriction or reduce any restriction period applicable to a particular Restricted Stock Award or, subject to compliance with Code Section 409A, a particular grant of Restricted Stock Units. Unrestricted Shares, evidenced in such manner as the Committee shall deem appropriate, shall be delivered to the holder of Restricted Stock promptly after such restrictions have lapsed. Except as otherwise provided in an Award Agreement or any special Plan document governing an Award, the Participant shall have all of the rights of a shareholder with respect to the Restricted Stock, and the Participant shall have none of the rights of a stockholder with respect to Restricted Stock Units until such time as Shares are paid in settlement of the Restricted Stock Units. Unless otherwise provided in the applicable Award Agreement, Awards of Restricted Stock will be entitled to full dividend rights and any dividends paid thereon will be paid or distributed to the holder no later than the end of the calendar year in which the dividends are paid to shareholders or, if later, the 15th day of the third month following the date the dividends are paid to shareholders (or shall otherwise be in compliance with, or exempt from, Code Section 409A).


(ii)
Registration. Any Restricted Stock or Restricted Stock Units granted under the Employee Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book‐entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Shares of Restricted Stock granted under the Employee Plan, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.


(iii)
Forfeiture. Upon termination of employment during the applicable restriction period for any reason other than death or Disability, except as determined otherwise by the Committee, all Shares of Restricted Stock and all Restricted Stock Units still, in either case, subject to restriction shall be forfeited and reacquired by the Company.


(iv)
Compliance with Section 409A. Each Restricted Stock Unit shall comply with the requirements of subsection (a) of Section 409A (to constitute either a short‐term deferral or otherwise be excluded from Section 409A, or to meet the requirements of Section 409A applicable to a deferral of compensation) and be implemented in accordance with such requirements.

10
(d) Performance Awards. The Committee is hereby authorized to grant Performance Awards to Participants. Performance Awards include arrangements under which the grant, issuance, retention, vesting and/or transferability of any Award is subject to such Performance Criteria and such additional conditions or terms as the Committee may designate. The Committee may establish a maximum Performance Award. Subject to the terms of the Employee Plan and any applicable Award Agreement, a Performance Award granted under the Employee Plan:


(i)
may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, or other Awards; and


(ii)
shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such Performance Periods as the Committee shall establish.

(e) Dividend Equivalents. The Committee is hereby authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Employee Plan and any applicable Award Agreement, such Awards may have such terms and conditions as the Committee shall determine.

(f) Other Stock‐Based Awards. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purposes of the Employee Plan, provided, however, that such grants must comply with applicable law. Subject to the terms of the Employee Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, or other Awards, or any combination thereof, as the Committee shall determine, the value of which consideration, as established by the Committee, and except as provided in Section 7, shall not be less than the Fair Market Value of such Shares or other securities as of the date such purchase right is exercised.

(g) General.


(i)
No Cash Consideration for Awards. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.


(ii)
Awards may be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards; provided, however, that any tandem Stock Appreciation Right that relates to an Incentive Stock Option must be granted at the same time the Incentive Stock Option is granted.


(iii)
Forms of Payment under Awards. Subject to the terms of the Employee Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, rights in or to Shares issuable under the Award or other Awards, other securities, or other Awards, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.

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(iv)
Limits on Transfer of Awards. Except as provided by the Committee, no Award and no right under any such Award, shall be assignable, alienable, saleable, or transferable by a Participant otherwise than by will or by the laws of descent and distribution provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant with respect to any Award upon the death of the Participant. Each designation will revoke all prior designations by the same Participant and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. Each Award, and each right under any Award, shall be exercisable, during the Participant’s lifetime, only by the Participant or, in the case of Participant’s Disability, by the Participant’s guardian or legal representative. No Award and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge, alienation, attachment, or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.


(v)
Per‐Person Limitation on Options and SARs. The number of Shares with respect to which Options and Stock Appreciation Rights may be granted under the Employee Plan during any calendar year to an individual Participant shall not exceed two hundred thousand (200,000) Shares, subject to adjustment as provided in Section 7.


(vi)
Per‐Person Limitation on Certain Awards. Other than Options and Stock Appreciation Rights, the aggregate number of Shares with respect to which Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock‐Based Awards may be granted under the Employee Plan during any calendar year to an individual Participant shall not exceed two hundred thousand (200,000) Shares, subject to adjustment as provided in Section 7.


(vii)
Conditions and Restrictions upon Securities Subject to Awards. The Committee may provide that the Shares issued upon exercise of an Option or Stock Appreciation Right or otherwise subject to or issued under an Award shall be subject to such further agreements, restrictions, conditions or limitations as the Committee in its discretion may specify prior to the exercise of such Option or Stock Appreciation Right or the grant, vesting or settlement of such Award, including without limitation, conditions on vesting or transferability and forfeiture or repurchase provisions or provisions on payment of taxes arising in connection with an Award. Without limiting the foregoing, such restrictions may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Shares issued under an Award, including without limitation: (A) restrictions under an insider trading policy or pursuant to applicable law, (B) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and holders of other Company equity compensation arrangements, (C) restrictions as to the use of a specified brokerage firm for such resales or other transfers and (D) provisions requiring Shares to be sold on the open market or to the Company in order to satisfy tax withholding or other obligations.


(viii)
Share Certificates. All Shares or other securities delivered under the Employee Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Employee Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or automated quotation system upon which such Shares or other securities are then listed, quoted, or traded, and any applicable Federal, state, or local securities laws, and the Committee may cause a legend or legends to be put on any such certificates or issue instructions to the transfer agent to make appropriate reference to such restrictions.

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(ix)
Suspension of Exercise. The Company reserves the right from time to time to suspend the exercise of any stock option or stock appreciation right where such suspension is deemed by the Company as necessary or appropriate for corporate purposes.


(x)
Change in Control. Notwithstanding anything to the contrary in the Employee Plan, any conditions or restrictions on Restricted Stock shall lapse upon a Change in Control.


(xi)
Award Agreement. Each grant of an Award under the Employee Plan will be evidenced by an Award Agreement. Such document will contain such provisions as the Committee may in its discretion deem advisable, provided that such provisions are not inconsistent with any of the provisions of the Employee Plan. An Award Agreement may provide that if a Participant fails to execute it within a specified period, then the Award shall be null and void.


(xii)
Special Forfeiture Provision. If the Committee, in its discretion, determines and the applicable Award Agreement so provides, a Participant who, without prior written approval of the Company, enters into any employment or consultation arrangement (including service as an agent, partner, stockholder, consultant, officer or director) to any entity or person engaged in any business in which the Company or its affiliates is engaged which, in the sole judgment of the Company, is competitive with the Company or any Affiliate, (i) shall forfeit all rights under any outstanding Option or Stock Appreciation Right and shall return to the Company the amount of any profit realized upon the exercise, within such period as the Committee may determine, of any Option or Stock Appreciation Right, and (ii) shall forfeit and return to the Company all Shares of Restricted Stock and other Awards which are not then vested or which vested but remain subject to the restrictions imposed by this Section 6(g)(xii), as provided in the Award Agreement.


(xiii)
No Repricing. Repricing of Options or Stock Appreciation Rights shall not be permitted without stockholder approval. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (A) changing the terms of an Option or Stock Appreciation Right to lower its exercise price (other than pursuant to Section 7); (B) any other action that is treated as a “repricing” under generally accepted accounting principles; and (C) repurchasing for cash or canceling an Option or Stock Appreciation Right at a time when its exercise price is greater than the Fair Market Value of the underlying stock in exchange for another Award, unless the cancellation and exchange occurs in connection with an event set forth in Section 7. Such cancellation and exchange would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.


(xiv)
Employment with Affiliate or Successor. Employment by the Company, any Affiliate or a successor to the Company shall be considered employment by the Company for all purposes of any Award. If the Award is assumed or a new award is substituted therefore in any corporate reorganization (including, but not limited to, any transaction of the type referred to in Section 424(a) of the Code), employment by such assuming or substituting corporation or by a parent corporation or subsidiary thereof shall be considered for all purposes of the Award to be employment by the Company.

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Section 7. Changes in Capital Structure

(a) Mandatory Adjustments. In the event that the Committee shall determine that any stock dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split‐up, spin‐off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event constitutes an equity restructuring transaction, as that term is defined in Statement of Financial Accounting Standards No. 123 (revised) or otherwise affects the Shares, then the Committee shall adjust the following in a manner that is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Employee Plan:


(i)
the number and type of Shares or other securities which thereafter may be made the subject of Awards including the limit specified in Section 4(a) regarding the number of shares that may be granted in the form of Restricted Stock, Restricted Stock Units, Performance Awards, or Other Stock‐Based Awards;


(ii)
the number and type of Shares or other securities subject to outstanding Awards;


(iii)
the number and type of Shares or other securities specified as the annual per‐participant limitation under Section 6(g)(v) and (vi);


(iv)
the grant, purchase, or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; and


(v)
other value determinations applicable to outstanding awards.

Provided, however, in each case, that with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Employee Plan to violate Sections 422(b)(1) of the Code or any successor provision thereto; and provided further, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. Notwithstanding the foregoing, no adjustment shall be required if the Committee determines that such action could cause an Award to fail to satisfy the conditions of an applicable exception from the requirements of Section 409A of the Code or otherwise could subject a Participant to the additional tax imposed under Section 409A in respect of an outstanding Award.

(b) Discretionary Adjustments. Upon the occurrence of (i) a merger, consolidation, acquisition of property or stock, reorganization or otherwise involving the Company in which the Company is not to be the surviving corporation, (ii) a merger, consolidation, acquisition of property or stock, reorganization or otherwise involving the Company in which the Company is the surviving corporation but holders of Shares receive securities of another corporation, or (iii) a sale of all or substantially all of the Company’s assets (as an entirety) or capital stock to another person, any Award granted hereunder shall be deemed to apply to the securities, cash or other property (subject to adjustment by cash payment in lieu of fractional interests) to which a holder of the number of Shares equal to the number of Shares the Participant would have been entitled, and proper provisions shall be made to ensure that this clause is a condition to any such transaction; provided, however, that for an Award that is not subject to Section 409A the Committee (or, if applicable, the board of directors of the entity assuming the Company’s obligations under the Employee Plan) shall, in its discretion, have the power to either:


(i)
provide that Awards will be settled in cash rather than Stock;


(ii)
provide that Awards will be assumed by another party to a transaction or otherwise be equitably converted or substituted in connection with such transaction;


(iii)
provide that performance targets and performance periods for Performance Awards will be modified;


(iv)
provide, upon written notice to Participants, that all Awards that are currently exercisable must be exercised within the time period specified in the notice and that all Awards not exercised as of the expiration of such period shall be terminated without consideration; provided, however, that the Committee (or successor board of directors) may provide, in its discretion, that, for purposes of this subsection, all outstanding Awards are currently exercisable, whether or not vested;

14

(v)
cancel any or all Awards and, in consideration of such cancellation, pay to each Participant an amount in cash with respect to each Share issuable under an Award equal to the difference between the Fair Market Value of such Share on such date (or, if greater, the value per Share of the consideration received by holders of Shares as a result of such merger, consolidation, reorganization or sale) and the Exercise Price; or


(vi)
any combination of the foregoing.

The Committee’s determination may not be uniform and may be different for different Participants whether or not such Participants are similarly situated.:

Section 8. Amendment and Termination

Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Employee Plan:

(a) Amendments to the Employee Plan. The Board of Directors of the Company may amend, alter, suspend, discontinue, or terminate the Employee Plan, in whole or in part; provided, however, that without the prior approval of the Company’s stockholders, no material amendment shall be made if stockholder approval is required by applicable law, rule or regulation, and; provided, further, that, notwithstanding any other provision of the Employee Plan or any Award Agreement, no such amendment, alteration, suspension, discontinuation, or termination shall be made without the approval of the stockholders of the Company that would:


(i)
increase the total number of Shares available for Awards under the Employee Plan, except as provided in Section 7 hereof; or


(ii)
except as provided in Section 7, permit Options, Stock Appreciation Rights, or other Stock‐Based Awards encompassing rights to purchase Shares to be repriced, replaced, or regranted through cancellation, or by lowering the exercise price of a previously granted Option or the grant price of a previously granted Stock Appreciation Right, or the purchase price of a previously granted Other Stock‐Based Award.

(b) Amendments to Awards. The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue, or terminate, any Awards theretofore granted, prospectively or retroactively. No such amendment or alteration shall be made which would impair the rights of any Participant, without such Participant’s consent, under any Award theretofore granted, provided that no such consent shall be required with respect to any amendment or alteration if the Committee determines in its sole discretion that such amendment or alteration either (i) is required or advisable in order for the Company, the Employee Plan or the Award to satisfy or conform to any law or regulation or to meet the requirements of any accounting standard, or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award.

Section 9. General Provisions

(a) No Rights to Awards. No Employee, Participant or other Person shall have any claim to be granted any Award under the Employee Plan, or, having been selected to receive an Award under this Plan, to be selected to receive a future Award, and further there is no obligation for uniformity of treatment of Employees, Participants, or holders or beneficiaries of Awards under the Employee Plan. The terms and conditions of Awards need not be the same with respect to each recipient.

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(b) Withholding. The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Employee Plan the amount (in cash, Shares, other securities, or other Awards) of withholding taxes due in respect of an Award, its exercise, or any payment or transfer under such Award or under the Employee Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy statutory withholding obligations for the payment of such taxes. The Participant may satisfy, totally or in part, his obligations pursuant to this section by electing to have Shares withheld, to redeliver Shares acquired under an Award, or to deliver previously owned Shares, provided that the election is made in writing on or prior to (i) the date of exercise, in the case of Options and SAR’s (ii) the date of payment, in respect of Restricted Stock Units, or Performance Awards, and (iii) the expiration of the period of restriction, in respect of Restricted Stock. Any election made under this section shall be irrevocable by the Participant and may be disapproved by the Committee at any time in its sole discretion. If an election is disapproved by the Committee, the Participant must satisfy his obligations pursuant to this paragraph in cash.

(c) Other Company Benefit and Compensation Arrangements. Payments and other benefits received by a Participant under an Award made pursuant to the Employee Plan shall not be deemed a part of a Participant’s regular, recurring compensation for purposes of any termination, indemnity or severance pay law and shall not be included in, nor have any effect on, the determination of benefits under any pension or other employee benefit plan or similar arrangement provided by the Company or Affiliate, unless (i) expressly so provided by such other plan or arrangement or (ii) the Committee expressly determines that an Award or a portion thereof should be included as recurring compensation. Nothing contained in the Employee Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

(d) No Right to Employment. The grant of an Award shall not constitute an employment contract nor be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability, or any claim under the Employee Plan, unless otherwise expressly provided in the Employee Plan or in any Award Agreement.

(e) Governing Law. The validity, construction, and effect of the Employee Plan and any rules and regulations relating to the Employee Plan shall be determined in accordance with the laws of the State of Delaware and applicable Federal law without regard to conflict of law.

(f) Severability. If any provision of the Employee Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Employee Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Employee Plan or the Award, such provision shall be stricken as to such jurisdiction, Person, or Award, and the remainder of the Employee Plan and any such Award shall remain in full force and effect.

(g) No Trust or Fund Created. Neither the Employee Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

(h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Employee Plan or any Award, and the Committee shall determine whether cash or other securities shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

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(i) Headings. Headings are given to the Sections and subsections of the Employee Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Employee Plan or any provision thereof, and, in the event of any conflict, the text of the Employee Plan, rather than such headings, shall control.

(j) Indemnification. Subject to requirements of Delaware State law, each individual who is or shall have been a member of the Board, or a Committee appointed by the Board or a delegate of the Committee so acting, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his/her own behalf, unless such loss, cost, liability, or expense is a result of his/her own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

(k) Compliance with Section 409A. Except to the extent specifically provided otherwise by the Committee, Awards under the Employee Plan are intended to either be exempt from Section 409A or structured to comply with the requirements of Section so as to avoid the imposition of any additional taxes or penalties under Section 409A. If the Committee determines that an Award, Award Agreement, payment, distribution, deferral election, transaction or any other action or arrangement contemplated by the provisions of the Employee Plan would, if undertaken, cause a Participant to become subject to any additional taxes or other penalties under Section 409A, then unless the Committee specifically provides otherwise, such Award, Award Agreement, payment, distribution, deferral election, transaction or other action or arrangement shall not be given effect to the extent it causes such result and the related provisions of the Employee Plan and/or Award Agreement will be deemed modified, or, if necessary, suspended in order to comply with the requirements of Section 409A to the extent determined appropriate by the Committee, in each case without the consent of or notice to the Participant. For any Award that is subject to Section 409A, all rights to amend, terminate or modify the Employee Plan or such Award are subject to the requirements and limitations of Section 409A. Notwithstanding any provision in the Employee Plan to the contrary, with respect to any Award that is subject to Section 409A, distributions on account of a separation from service may not be made to a “specified employee” (as defined by Section 409A) before the date which is six (6) months after the date of separation from service (or, if earlier, the date of death of the employee). A Participant who is subject to the restriction described in the previous sentence shall be paid on the first payroll date after the six‐month anniversary of the Participant’s separation from service an amount equal to the benefit that the Participant would have received during such six month period absent the restriction.

(l) No Representations or Covenants with Respect to Tax Qualification. Although the Company may endeavor to (i) qualify an Award for favorable U.S. tax provisions (e.g., incentive stock options under Section 422 of the Code) or (ii) avoid adverse tax treatment (e.g., under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment. The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on holders of Awards under the Employee Plan. Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A of the Code and neither the Company nor the Committee will have any liability to any Participant for such tax or penalty.

(m) Compliance with Laws. The granting of Awards and the issuance of Shares under the Employee Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges or automated quotation systems on which the Company is listed, quoted or traded as may be required.

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The Company shall have no obligation to issue or deliver evidence of title for Shares issued under the Employee Plan prior to:


(i)
obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and


(ii)
completion of any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable or at a time when any such registration or qualification is not current, has been suspended or otherwise has ceased to be effective.

The inability or impracticability of the Company to obtain or maintain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

(n) Code Section 83(b) Elections. Neither the Company, any Affiliate, nor the Committee shall have any responsibility in connection with a Participant’s election, or attempt to elect, under Code section 83(b) to include the value of a Restricted Stock Award in the Participant’s gross income for the year of payment. Any Participant who makes a Code section 83(b) election with respect to any such Award shall promptly notify the Committee of such election and provide the Committee with a copy thereof.

(o) Shareholder Rights. Except as provided in the Employee Plan or an Award Agreement, no Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Award unless and until such Participant has satisfied all requirements for exercise of the Award pursuant to its terms and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such Common Stock certificate is issued, except as provided in Section 7 hereof.

(p) Disqualifying Dispositions. Any Participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years from the Grant Date of such Incentive Stock Option or within one year after the issuance of the shares of Common Stock acquired upon exercise of such Incentive Stock Option (a “Disqualifying Disposition”) shall be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Common Stock.

(q) Recoupment or Clawback. Awards under the Plan shall be subject to such Company policies or such applicable statutes, rules, or regulations regarding recoupment or clawback as may be in effect from time‐to‐time, regardless of whether the Participant is in the service of the Company or an Affiliate at the time the events giving rise to the recoupment or clawback occur or are discovered. In particular, and not in limitation of the foregoing, if for any reason the Company’s financial statements must be restated for any part of a Performance Period, as a result of material noncompliance with accounting requirements, and the vesting or amount of an Award for a Participant would be materially affected by information changed in such financial statements, then such Award will be forfeited, and be repaid to the Company, in such amount or to such extent as the Committee shall determine.

(r) Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business, stock and/or assets of the Company.

Section 10. Term of the Employee Plan

The Plan shall remain in full force and effect through the tenth (10th) anniversary of the Effective Date, unless sooner terminated by the Board. After the Employee Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Employee Plan’s terms and conditions.


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Exhibit 10.6

2017 NON-EMPLOYEE DIRECTOR LONG-TERM INCENTIVE PLAN

Section 1           Establishment and Purposes of the Plan.

(a)          Purpose.  The purposes of this ePlus inc. 2017 Non-Employee Director Long-Term Incentive Plan (the “Plan”) are to attract, retain and compensate for service as members of the Board of Directors of ePlus inc.  (the “Company”) highly qualified individuals who are not current employees of the Company and to enable them to increase their ownership in the Company’s Common Stock.  The Plan will be beneficial to the Company and its stockholders since it will allow these Directors to have a greater personal financial stake in the Company through the ownership of Common Stock, in addition to underscoring their common interest with stockholders in increasing the long-term value of the Common Stock.

(b)          Effective Date; Shareholder Approval.  The Plan is effective September 12, 2017, subject to the approval by the Company’s shareholders.

Section 2           Definitions.

As used herein, the following definitions shall apply:

“Affiliate” shall mean (i) any entity that, directly or through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee.

“Applicable Laws” means the requirements relating to the administration of equity plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Restricted Shares are, or will be, granted under the Plan.

“Board” means the Board of Directors of the Company.

“Change in Control” means the occurrence of any of the following events with respect to the Company:

(i)        the consummation of any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of Common Stock immediately prior to the merger own more than fifty percent (50%) of the outstanding common stock of the surviving corporation immediately after the merger; or

(ii)       the consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, other than to a subsidiary or affiliate; or

(iii)     any action pursuant to which any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of shares of capital stock entitled to vote generally for the election of directors of the Company (“Voting Securities”) representing more than fifty (50%) percent of the combined voting power of the Company’s then outstanding Voting Securities (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities); or

(iv)      the individuals (x) who, as of the Effective Date, constitute the Board (the “Original Directors”) and (y) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of a majority of the Original Directors then still in office (such Directors being called “Additional Original Directors”) and (z) who thereafter are elected to the Board and whose election or nomination for election to the Board was approved by a vote of a majority of the Original Directors and Additional Original Directors then still in office, cease for any reason to constitute a majority of the members of the Board; or

(v)       the dissolution or liquidation of the Company.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means a committee designated by the Board and composed of not less than two “Non-Employee Directors” as defined in Rule 16b-3 under the Exchange Act, or any successor rule or definition adopted by the Securities and Exchange Commission.

“Common Stock” means the common stock, par value $0.01 per share, of the Company.

“Director” means a member of the Board.

“Disability” means any illness or other physical or mental condition of a Participant that renders the Participant incapable of performing his or her customary and usual duties for the Company (with or without a reasonable accommodation as required by law) and that in the judgment of the Committee is permanent and continuous in nature.  The Committee may establish any process or procedure it deems appropriate for determining whether a Participant has a “Disability”.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i)        if the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq Global Select Market, Nasdaq Global Market or The Nasdaq Capital Market of The Nasdaq Stock Market, the fair market value of a share of Common Stock shall be the closing sales price of a share of Common Stock as quoted on such exchange or system for such date (or the most recent trading day preceding such date if there were no trades on such date), as reported in The Wall Street Journal or such other source as the Committee deems reliable;

(ii)      if the Common Stock is regularly quoted by a recognized securities dealer but is not listed in the manner contemplated by clause (i) above, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

(iii)      if neither clause (i) above nor clause (ii) above applies, the fair market value of a share of Common Stock shall be determined in good faith by the Committee based on the reasonable application of a reasonable valuation method that complies with Code Section 409A and Code Section 422 if and to the extent required.

“Outside Director” means any Director who, on the date such person is to receive a grant of Restricted Shares hereunder is not a current employee of the Company or any of the Company’s subsidiaries.

“Participant” shall mean any Outside Director who holds a Restricted Stock Award granted or issued pursuant to the Plan.

“Plan” means this ePlus inc. 2017 Non-Employee Director Long-Term Incentive Plan.

“Restricted Shares” means Shares subject to a Restricted Stock Award.

“Restricted Stock Agreement” means any written agreement, contract, or other instrument or document, including an electronic communication, evidencing the terms and conditions of a Restricted Stock Award.

“Restricted Stock Award” means a grant of Restricted Shares pursuant to Section 7 of the Plan.

“Share” means a share of Common Stock, as adjusted in accordance with Section 9 of the Plan.

Section 3           Share Limits.

(a)          Aggregate Share Limit.  Subject to the provisions of Section 9 of the Plan, the maximum aggregate number of Shares that may be issued as Restricted Shares under the Plan is Three Hundred Thousand (300,000) Shares.  The Shares may be authorized, but unissued, or treasury Shares.  Restricted Shares that have been transferred back to the Company shall be available for future grants of Restricted Shares under the Plan.

(b)          Individual Share Limit.  In no event shall any one Outside Director receive Restricted Stock Awards under Sections 7(a) or 7(b) of this Plan totaling in excess of One Hundred Fifty Thousand Dollars ($150,000) in any one calendar year.

Section 4           Administration of the Plan.

(a)          Administration.  The Plan shall be administered by the Committee.  The Committee shall have the authority, in its discretion:

(i)        to determine the Fair Market Value of Common Stock;

(ii)       to approve forms of agreement for use under the Plan;

(iii)      to determine the number of Shares that may be issued as Restricted Shares and the terms and conditions of such Restricted Shares;

(iv)      to construe and interpret the terms of the Plan;

(v)       to prescribe, amend and rescind rules and regulations that it deems necessary for the proper operation and administration of the Plan;

(vi)      to waive or amend any terms, conditions, restrictions or limitations on an Award, to the extent permissible under applicable law.

(vii)     to allow Participants to satisfy withholding tax obligations by having the Company withhold from the shares of Common Stock to be issued upon vesting of Restricted Shares that number of Shares having a Fair Market Value equal to the amount required to be withheld, provided that withholding is calculated at the minimum statutory withholding level.  The Fair Market Value of the Shares to be withheld shalt be determined on the date that the amount of tax to be withheld is to be determined.  All determinations to have Shares withheld for this purpose shall be made by the Committee in its discretion;

(viii)    to instruct a corporate officer to execute on behalf of the Company any instrument required to effect the grant of a Restricted Stock Award granted by the Committee; and

(ix)      to make all other determinations deemed necessary or advisable for administering the Plan.

(b)          Effect of Committee’s Decision.  The Committee’s decisions, determinations and interpretations shall be final and binding on all Participants and anyone else who may claim an interest in Restricted Shares.

(c)          No Liability.  No member of the Committee shall be liable for any losses resulting from any action, interpretation or construction made in good faith with respect to the Plan, any Restricted Stock Agreement, or any Award granted under the Plan. The Company shall indemnify, to the fullest extent permitted by law, each person made or threatened to be made a party to any civil or criminal action or proceeding by reason of the fact that the person, or the executor or administrator of the person’s estate, is or was a member of the Committee or a delegate of the Committee.

Section 5           Eligibility.

The only persons who shall be eligible to receive Restricted Stock Awards under the Plan shall be persons who, on the date such Awards are granted, are Outside Directors.

Section 6           Term of the Plan.

No Restricted Stock Award may be granted under the Plan after September 12, 2027.

Section 7           Grants of Restricted Stock Awards.

(a)          Initial Grant.  Each individual who first becomes an Outside Director on or after the date of the approval of this Plan by the stockholders of the Company shall, upon first qualifying as an Outside Director, automatically be granted a number of Restricted Shares, on the terms and conditions set forth in Section 8 below, having a Fair Market Value on the date of grant (determined without regard to the restrictions applicable thereto) equal to the product of the amount of cash compensation earned by an individual Outside Director during the twelve months immediately prior to his becoming an Outside Director multiplied by the quotient of the number of days until the next Annual Grant Date (as defined below) divided by 365; provided, however, that grants of Restricted Shares under this Plan shall not be made until a Form S-8 registration statement in respect of the Shares is filed with, and declared effective by, the Securities and Exchange Commission.

(b)          Annual Grant.  On September 25th of each year (the “Annual Grant Date”), beginning with September 25, 2017, or the next following business day if September 25th is not a business day, each Outside Director shall automatically be granted a number of Restricted Shares, on the terms and conditions set forth in Section 8 below, having a Fair Market Value on the date of grant (determined without regard to the restrictions applicable thereto) equal to the aggregate dollar amount of cash compensation  earned by an individual Outside Director who served on the board during the Company’s entire fiscal year ended immediately prior to the respective Annual Grant Date; provided, however, that grants of Restricted Shares under this Plan shall not be made until a Form S-8 registration statement in respect of the Shares is filed with, and declared effective by, the Securities and Exchange Commission.

(c)          Stock Fee Election.  An Outside Director may make an election (a “Stock Fee Election”) to receive Shares in lieu of all or any part of the cash compensation payable to him or her for service on the Board for a calendar year.  Any Stock Fee Election and any change or revocation thereof shall be made by delivering written notice thereof to the Committee prior to the end of the calendar year preceding the calendar year of service for which it is to be effective.  Such Stock Fee Election shall remain in effect for each subsequent calendar year of service unless changed.  An Outside Director may not elect to change his or her Stock Fee Election for a calendar year after the last day of the calendar year preceding the calendar year of service for which the election is made.  Any Shares that relate to a Stock Fee Election shall be treated as a Restricted Stock Award for purposes of this Plan, provided that such Shares shall not be subject to any Restrictions provided under Section 8 of the Plan.  The number of shares shall be determined by dividing the cash compensation deferred for a calendar quarter of service by the Fair Market Value on the date of grant (determined without regard to the restrictions applicable thereto) and the first trading day of the following calendar quarter shall be considered the grant date of the Restricted Stock Award.

Section 8           Terms of Restricted Stock Awards.

Except as provided herein, Restricted Shares granted pursuant to Sections 7(a) and 7(b) of the Plan shall be subject to restrictions (“Restrictions”) prohibiting such Restricted Shares from being sold, transferred, assigned, pledged or otherwise encumbered or disposed of.  The Restrictions with respect to each award of Restricted Shares shall lapse as to one-half of such Restricted Shares on each of the one-year and second-year anniversary date of the grant of such award; provided, however, that the Restrictions with respect to such Restricted Shares shall lapse immediately in the event that (i) the Participant is nominated for a new term as an Outside Director but is not elected by stockholders of the Company, or (ii) the Participant ceases to be a member of the Board due to death, disability or mandatory retirement (if any).  Notwithstanding the foregoing, the Restrictions with respect to all of a Participant’s Restricted Shares shall lapse immediately prior to a Change in Control provided that the Participant is a member of the Board immediately prior to such Change in Control.

The Company shall issue, in the name of each Participant to whom Restricted Shares have been granted, stock certificates (in tangible or electronic form) representing the total number of Restricted Shares granted to such Participant as soon as reasonably practicable after the grant.  However, the Company or its transfer agent shall hold such certificates, properly endorsed for transfer, for the Participant’s benefit until such time as the Restriction Period applicable to such Restricted Shares lapses.  Upon the expiration or termination of the Restricted Period, the restrictions applicable to the Restricted Shares shall lapse and a stock certificate for the number of Restricted Shares with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions, to the Participant or his or her beneficiary or estate, as the case may be.  Except as described in the above paragraph, in the event that a Participant ceases to be a member of the Board before the applicable Restriction Period has expired or under circumstances in which the Restriction Period does not otherwise lapse, the Restricted Shares granted to such Participant shall thereupon be forfeited and transferred back to the Company.

During the Restriction Period, a Participant shall have the right to vote his or her Restricted Shares.  At the end of the Restriction Period, the Participant shall have the right to receive any cash dividends, with respect to such Restricted Shares, that were paid during the Restriction Period.  All distributions, if any, received by a Participant with respect to Restricted Shares as a result of any stock split, stock distribution, combination of shares, or other similar transaction shall be subject to the same restrictions as are applicable to the Restricted Shares to which such distributions relate.

Section 9           Adjustments Upon Changes in Capitalization.

Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Restricted Stock Award, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Restricted Stock Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of a Restricted Stock Award, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to a Restricted Stock Award.

Section 10         Grant Agreement.

Each grant of a Restricted Stock Award under the Plan will be evidenced by a Restricted Stock Agreement.  Such document will contain such provisions as the Committee may in its discretion deem advisable, provided that such provisions are not inconsistent with any of the provisions of the Plan.

Section 11         Amendment and Termination of the Plan.

(a)          Amendment and Termination.  The Board may at any time amend, alter, suspend or terminate the Plan.

(b)          Shareholder Approval.  The Company shall obtain shareholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.

(c)          Effect of Amendment or Termination.  No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Committee, which agreement must be in writing and signed by the Participant and the Company.  After the termination of the Plan, any previously granted Awards shall remain in effect and shall continue to be governed by the terms of the Plan and the applicable Restricted Stock Agreement.  Termination of the Plan shall not affect the Committee’s ability to exercise the powers granted to it hereunder with respect to Restricted Shares granted under the Plan prior to the date of such termination.

Section 12         Conditions Upon Issuance of Shares.

(a)          Legal Compliance.  Shares shall not be issued pursuant to a Restricted Stock Award unless the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b)          Investment Representations.  As a condition to the issuance of Restricted Shares, the Company may require the Participant to represent and warrant at the time of any such issuance that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.  Not in limitation of any of the foregoing, in any such case referred to in the preceding sentence the Committee may also require the Participant to execute and deliver documents containing such representations (including the investment representations described in this Section 12(b) of the Plan), warranties and agreements as the Committee or counsel to the Company shall deem necessary or advisable to comply with any exemption from registration under the Securities Act of 1933, as amended, any applicable State securities laws, and any other applicable law, regulation or rule.

(c)          Additional Conditions.  The Committee shall have the authority to condition the grant of any Restricted Shares in such other manner that the Committee determines to be appropriate, provided that such condition is not inconsistent with the terms of the Plan.

Section 13         Inability to Obtain Authority.

The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

Section 14         Reservation of Shares.

The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

Section 15         Stockholder Approval.

The Plan shall be subject to approval by the stockholders of the Company.  Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws.

Section 16         Withholding; Notice of Sale.

Each Participant shall, no later than the date as of which the value of a Restricted Stock Award or of any Shares or other amounts received thereunder first becomes includable in the gross income of the Participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income.  The Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant.  The Company’s obligation to deliver stock certificates to any Participant is subject to and conditioned on any such tax obligations being satisfied by the Participant.  Subject to approval by the Committee, a Participant may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from Shares to be issued pursuant to any Restricted Stock Award a number of Shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company Shares owned by the Participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum withholding amount due.

Section 17         Code Section 83(b) Elections.

Neither the Company, any Affiliate, nor the Committee shall have any responsibility in connection with a Participant’s election, or attempt to elect, under Code section 83(b) to include the value of a Restricted Stock Award in the Participant’s gross income for the year of payment.  Any Participant who makes a Code section 83(b) election with respect to any such Restricted Stock Award shall promptly notify the Committee of such election and provide the Committee with a copy thereof.

Section 18         No Right to Continue as a Director.

Neither this Plan, nor the granting of a Restricted Stock Award under this Plan, nor any other action taken pursuant to this Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain a director for any period of time, or at any particular rate of compensation.

Section 19         Successors.

All obligations of the Company under the Plan with respect to Restricted Stock Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business, stock and/or assets of the Company.

Section 20         Governing Law.

This Plan shall be governed by the laws of the State of Delaware.


Exhibit 31.1

 CERTIFICATION

I, Mark P. Marron, certify that:


1.
I have reviewed this quarterly report on Form 10-Q of ePlus inc.;


2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:


a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 3, 2022

/s/ MARK P. MARRON

Mark P. Marron

Chief Executive Officer and President

(Principal Executive Officer)



Exhibit 31.2

CERTIFICATION

I, Elaine D. Marion, certify that:


1.
I have reviewed this quarterly report on Form 10-Q of ePlus inc.;


2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:


a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 3, 2022

/s/ ELAINE D. MARION

Elaine D. Marion

Chief Financial Officer

(Principal Financial Officer)



Exhibit 32

CERTIFICATION

PURSUANT TO 18 USC. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ePlus inc. on Form 10-Q for the quarter ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify, pursuant to 18 USC. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigned’s best knowledge and belief:


a)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


b)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ePlus inc.

Date:  February 3, 2022

/s/ MARK P. MARRON

Mark P. Marron, Chief Executive Officer
and President

(Principal Executive Officer)



/s/ ELAINE D. MARION

Elaine D. Marion, Chief Financial Officer

(Principal Financial Officer)


A signed original of this written statement required by Section 906 has been provided to ePlus and will be retained by us and furnished to the Securities and Exchange Commission or its staff upon request.