ePlus(PLUS) - 2022 Q4 - Annual Report

Part I Business ePlus operates technology and financing segments, providing integrated IT solutions and equipment financing, with the technology segment dominating sales and operating income in FY2022 - ePlus operates through two primary business segments: Technology and Financing[17] FY 2022 Segment Contribution | Segment | Net Sales Contribution | Operating Income Contribution | | :--- | :--- | :--- | | Technology | 95% | 74% | | Financing | 5% | 26% | - Sales to Verizon Communications Inc. represented 24% of net sales for the fiscal year ended March 31, 2022[21] FY 2022 Revenue by Customer End Market (Technology Segment) | End Market | Percentage of Revenue | | :--- | :--- | | Telecommunications, Media & Entertainment | 29% | | Healthcare | 16% | | Technology Industry | 14% | | SLED (State, Local Gov & Education) | 14% | | Financial Services | 9% | Industry Background and Market Opportunity Key market opportunities are driven by multi-cloud adoption, advanced cybersecurity threats, disruptive technology complexity, shifting IT decision-making, and resource constraints - Key market opportunities are driven by several industry trends[22] - Multi-Cloud Strategy: Assisting customers in aligning cloud strategy with business objectives across public, private, and hybrid environments[22] - Cybersecurity: Addressing sophisticated cyber-attacks and data privacy concerns with advanced security solutions and services[23] - Disruptive Technologies: Helping customers manage complexity arising from rapid technological evolution and fragmented vendor landscapes[24] - Shifting IT Decision-Making: Adapting to procurement decisions moving from IT departments to lines-of-business personnel, favoring 'as-a-service' models[25] Competition Both IT solutions and financing markets are highly competitive, with rivals ranging from local firms to international resellers, banks, and vendor captive finance companies, some with superior resources - The IT solutions market is highly competitive, with competition from local, regional, national, and international firms, including vendors, consulting firms, and other resellers[29] - The leasing and financing markets are also competitive, with rivals including banks, specialty finance companies, and vendors' captive finance companies, some of whom have access to more capital[30] Our Solutions ePlus delivers integrated IT solutions through its Technology segment and offers diverse financing options, including leases and consumption-based models, via its Financing segment - Technology Segment: Offers integrated IT solutions including hardware, software, and services in areas like data center, cloud, security, and collaboration[34] - Financing Segment: Provides sales-type and operating leases, loans, and consumption-based financing for IT and other equipment, along with asset management and disposal services[35][41] Human Capital As of March 31, 2022, ePlus employed 1,577 individuals, primarily in the US, fostering a culture of development, social responsibility, and flexible work arrangements Employee Headcount by Function | Functional Area | As of March 31, 2022 | As of March 31, 2021 | | :--- | :--- | :--- | | Sales and marketing | 588 | 589 | | Professional services | 666 | 662 | | Administration | 229 | 217 | | Internal IT | 88 | 85 | | Management | 6 | 7 | | Total | 1,577 | 1,560 | - The company's employees collectively hold nearly 5,000 certifications or accreditations, with approximately 375 technical employees holding nearly 3,000 certifications[80] Executive Officers As of March 31, 2022, ePlus inc.'s executive officers included Mark P. Marron (CEO), Elaine D. Marion (CFO), and Darren Raiguel (COO and President of ePlus Technology, inc.) Executive Officers (as of March 31, 2022) | Name | Age | Position | | :--- | :--- | :--- | | Mark P. Marron | 60 | Chief Executive Officer, President, and Director | | Elaine D. Marion | 54 | Chief Financial Officer | | Darren Raiguel | 51 | Chief Operating Officer and ePlus Technology, inc. President | Risk Factors ePlus faces significant risks including customer dependence, supply chain disruptions, talent retention, cybersecurity threats, economic downturns, industry shifts to cloud, regulatory compliance, and intellectual property protection - Business Risks: Dependence on large customers (Verizon accounted for 14% of accounts receivable), supply chain shortages, competition for talent, and the impact of pandemics like COVID-19[89][90][93][95] - Cybersecurity Risks: Potential for breaches of data security, which could lead to liability, reputational damage, and business disruption, with increased risk from remote work[99][100][101] - Vendor Risks: Reliance on a small number of key vendors, with Cisco Systems representing approximately 39% of technology segment net sales in FY2022[107][108] - Economic & Industry Risks: Vulnerability to general economic weakness, rising interest rates, and rapid changes in the IT industry, such as the shift to cloud services (IaaS, SaaS, PaaS)[145][147][152][153] - Regulatory & Legal Risks: Failure to comply with a wide range of laws (data privacy, public-sector contracts), potential for intellectual property infringement claims, and costs to protect its own IP[157][159][162][164] Unresolved Staff Comments The company reports no unresolved staff comments - The company reports no unresolved staff comments[169] Properties As of March 31, 2022, ePlus leased approximately 252,000 square feet across 33 properties in the US, UK, and India, deemed adequate for current operations - As of March 31, 2022, the company leased approximately 252 thousand square feet of space across 33 properties in the US, UK, and India[170] Legal Proceedings Material pending legal proceedings are detailed in Note 9, "Commitments and Contingencies," within the Notes to Consolidated Financial Statements - Information on material pending legal proceedings is available in Note 9, "Commitments and Contingencies" of the financial statements[171] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[172] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ePlus common stock trades on NASDAQ under "PLUS"; no cash dividends were paid in FY2022 or FY2021, with 283,420 shares repurchased in FY2022 - The company's common stock trades on the NASDAQ Global Select Market under the symbol "PLUS"[173] - No cash dividends were paid on common stock during the fiscal years ended March 31, 2022, and 2021, as earnings are retained for business operations and growth[174] FY 2022 Share Repurchases | Metric | Value | | :--- | :--- | | Total shares purchased | 283,420 | | Shares purchased under public plan | 227,990 | | Shares remaining for purchase (as of 3/31/22) | 772,010 | Management's Discussion and Analysis of Financial Condition and Results of Operations FY2022 saw net sales rise 16.1% to $1.82 billion and net earnings increase 41.9% to $105.6 million, driven by strong demand despite supply chain and inflationary pressures FY 2022 vs. FY 2021 Financial Highlights | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,821.0M | $1,568.3M | 16.1% | | Gross Profit | $461.0M | $393.6M | 17.1% | | Operating Income | $147.3M | $106.3M | 38.5% | | Net Earnings | $105.6M | $74.4M | 41.9% | | Diluted EPS | $3.93 | $2.77 | 41.9% | - Adjusted gross billings, a non-GAAP measure, increased 15.8% to $2.62 billion, indicating strong business volume, particularly in services and software recognized on a net basis[204] - The business continues to be impacted by the COVID-19 pandemic, ongoing IT product supply constraints, and inflationary pressures on costs and wages[187][192][193] Results of Operations In FY2022, the Technology segment's net sales grew 14.9% to $1.73 billion, while the Financing segment's net sales increased 45.7% to $88.0 million, contributing to a 41.9% rise in consolidated net earnings - Technology segment net sales increased 14.9% to $1.73 billion, with operating income increasing 44.1% to $109.0 million[243][254] - Financing segment net sales increased 45.7% to $88.0 million, with operating income increasing 24.9% to $38.3 million[256][260] - The consolidated effective income tax rate decreased to 28.1% in FY2022 from 30.4% in the prior year[262] Liquidity and Capital Resources As of March 31, 2022, cash and cash equivalents increased to $155.4 million, despite operating activities using $20.6 million due to higher working capital needs, supported by an expanded $375 million credit facility Cash Flow Summary (in millions) | Cash Flow Activity | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $(20.6) | $129.5 | | Net cash used in investing activities | $(1.3) | $(35.8) | | Net cash from (used in) financing activities | $47.2 | $(49.8) | | Net increase in cash | $25.8 | $43.3 | - The cash conversion cycle for the Technology segment increased from 37 days to 48 days, driven by a 10-day increase in days inventory outstanding (DIO) due to supply chain issues[274][276] - In October 2021, the company's credit facility with WFCDF was increased from $275 million to $375 million[453] Quantitative and Qualitative Disclosures About Market Risk ePlus faces market risks from interest rate fluctuations on variable-rate borrowings and foreign currency exchange rates, though foreign currency impact is deemed immaterial - The company's primary market risks are interest rate risk and foreign currency risk[300] - Interest rate risk stems from variable-rate borrowings under the WFCDF credit facility and from financing transactions funded with company cash[301] - Foreign currency risk is primarily from transactions in British Pounds, Euros, and Indian Rupees, but is not considered material[302] Financial Statements and Supplementary Data This section directs readers to the consolidated financial statements and schedules detailed in the "Index to Financial Statements and Schedules" - This section directs the reader to the full consolidated financial statements and schedules included later in the report[304] Controls and Procedures Management, including the CEO and CFO, affirmed the effectiveness of disclosure controls and internal control over financial reporting as of March 31, 2022, with no material changes reported - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[306] - Management's assessment concluded that the company maintained effective internal control over financial reporting as of March 31, 2022[310] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[312] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement and Item 1 of this Form 10-K - Required information is incorporated by reference from the company's 2022 Proxy Statement[317] Executive Compensation Information on director and executive compensation, including the Compensation Discussion and Analysis, is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement[320] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement[321] Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement[322] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement[323] Part IV Exhibits and Financial Statement Schedules This section enumerates the financial statements, schedules, and exhibits, including auditor consent and executive certifications, filed with the Form 10-K report - The consolidated financial statements are filed as part of this report[325] - Financial Statement Schedule II - Valuation and Qualifying Accounts is included[326] - A list of exhibits, including management contracts and compensatory plans, is provided[327][328]