ePlus inc. — Form 10-Q summary
Business context and reporting period. ePlus provides IT products, professional and managed services, and financing solutions. This unaudited filing covers the quarter and six months ended September 30, 2023—the second quarter and first half of fiscal 2024—and compares results with the corresponding 2022 periods. Unless stated otherwise, amounts below are in millions of dollars.
Financial performance
| Metric | Quarter ended September 30, 2023 | Year-over-year change | Six months ended September 30, 2023 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $587.6 | +19.0% | $1,161.8 | +22.0% |
| Gross profit | $144.4 | +8.3% | $286.6 | +16.1% |
| Gross margin | 24.6% | 27.0% prior year | 24.7% | 25.9% prior year |
| Operating income | $44.9 | +1.7% | $91.2 | +18.0% |
| Operating margin | 7.6% | 8.9% prior year | 7.8% | 8.1% prior year |
| Net earnings | $32.7 | +14.7% | $66.5 | +30.9% |
| Diluted EPS | $1.22 | +$0.15 | $2.49 | +$0.58 |
| Adjusted EBITDA, non-GAAP | $53.6 | +6.5% | $107.4 | +21.3% |
Revenue and margins. Technology-business growth, particularly product sales, drove higher sales; the financing segment declined. Product sales benefited from networking demand, improved product availability, and the NSG acquisition. Managed-services sales also increased, while professional-services sales were affected by softer staff-augmentation demand. Lower product margins—partly reflecting a mix shift toward networking hardware—pressured overall gross margin. Higher employee costs and acquisition-related amortization contributed to increased expenses. The prior-year comparison also benefited from foreign-exchange losses that did not recur at similar levels: other income was $0.1 million for the quarter and $0.3 million for the half-year, versus prior-year expenses of $3.9 million and $6.0 million.
Cash flow and liquidity. First-half operating cash flow was $10.3 million, compared with cash used of $119.7 million in the prior-year period. Accounts receivable increased and absorbed cash; trade receivables were $650.0 million at September 30, versus $504.1 million at March 31. Cash and cash equivalents were $82.5 million, down from $103.1 million at fiscal year-end. Investing used $53.8 million, including $48.6 million for the NSG acquisition; financing provided $22.6 million. Management said cash, operating cash generation, and available credit should meet working-capital and other needs for at least the next year.
Debt and funding. The company reported $168.6 million of accounts-payable floor-plan obligations, $2.0 million of current recourse notes, and $51.5 million of non-recourse notes payable, including $9.7 million long-term. The revolving credit facility had no outstanding balance. The WFCDF facility supports technology-business working capital; its floor-plan capacity is up to $500 million, with a $200 million revolving-facility sublimit. The filing emphasizes reliance on this facility and notes that financing partners have become more selective. Non-recourse notes are generally supported by financing receivables or lease assets.
Material changes and notable items
- On April 30, 2023, ePlus acquired NSG for preliminary consideration of $48.6 million. The acquisition added $22.1 million of goodwill and $30.0 million of identified customer-relationship intangibles. The acquiree’s reported-period contribution was not material, according to the filing.
- Technology net sales increased 21.3% for the quarter and 23.6% for the half-year; financing-segment sales declined. For the half-year, product sales rose to $999.1 million, managed-services sales to $64.7 million, while professional-services sales fell to $73.8 million.
- Cisco products represented 53% of technology-business net sales for the quarter and 49% for the half-year, up from 39% and 37%, respectively, in the comparable prior-year periods.
- The company began reporting product, professional-services, and managed-services as separate technology segments during fiscal 2024; it recast comparative segment information.
- During the six months, ePlus repurchased 109,122 shares under its plan for $5.3 million and acquired another 53,945 shares for $3.0 million to satisfy employee tax withholding. Total cash repurchases were $8.4 million.
Outlook, risks, and contingencies
The filing provides no quantified financial guidance. Management said supply constraints and extended product lead times were likely to persist for at least the next few quarters. It cited inflation, rising interest rates and wages, staffing availability, customer IT-spending decisions, and increasingly selective financing partners as factors that could affect results. The company said it generally has passed supplier price increases to customers, but service contracts with set pricing may delay cost recovery.
Other disclosed risks include dependence on major customers, vendors and vendor incentives; Cisco product concentration; cybersecurity and data-protection threats; ability to recruit and retain qualified staff; product availability and working-capital requirements; interest- and foreign-exchange-rate exposure; and acquisition integration. Management said there was no material change to previously disclosed risk factors. It did not believe a material loss beyond amounts already recognized was reasonably possible for the legal matters described, while noting that outcomes remain uncertain. Management concluded disclosure controls were effective as of September 30, 2023.
Important facts for investors to verify
- Whether the strong product-led sales growth continues and whether lower product margins stabilize or improve.
- Receivables growth, collection performance, and the effect of longer customer payment terms on operating cash flow and liquidity.
- Dependence on Cisco and the WFCDF facility, including facility availability, borrowing-base limits, and variable-rate costs.
- Whether NSG integration produces expected strategic benefits and how acquisition-related amortization and costs affect reported results.
- How much financing-segment earnings depend on asset-sale timing, transactional gains, and post-contract equipment sales.
- Non-GAAP measures are supplemental; compare Adjusted EBITDA and non-GAAP earnings with GAAP results and their stated reconciliations.