Business context and reporting period
ePlus inc. provides IT products, software, professional and managed services, proprietary software, and equipment financing through technology and financing segments. This Form 10-K covers the fiscal year ended March 31, 2021—not a quarter-only period. The technology segment generated 96% of net sales and 71% of operating income; financing generated 4% of net sales and 29% of operating income.
Financial performance and liquidity
| Metric | FY ended Mar. 31, 2021 | FY ended Mar. 31, 2020 |
|---|---|---|
| Net sales | $1,568.3 million | $1,588.4 million |
| Gross profit / margin | $393.6 million / 25.1% | $391.2 million / 24.6% |
| Operating income / margin | $106.3 million / 6.8% | $95.3 million / 6.0% |
| Net earnings / margin | $74.4 million / 4.7% | $69.1 million / 4.3% |
| Diluted EPS | $5.54 | $5.15 |
| Adjusted EBITDA (non-GAAP) | $128.2 million / 8.2% margin | $119.4 million / 7.5% margin |
| Operating cash flow | $129.5 million | $(74.2) million |
| Cash and cash equivalents at year-end | $129.6 million | $86.2 million |
Technology-segment net sales fell 1.4% to $1,508.0 million, while adjusted gross billings, a company-defined non-GAAP measure, rose 1.6% to $2,263.9 million. Product sales declined 2.3%; services revenue grew 4.7%. Management attributed the divergence largely to a greater mix of subscriptions, third-party maintenance and services recorded on a net basis.
At March 31, 2021, current assets were $777.6 million and current liabilities were $459.4 million. Total assets were $1,076.8 million and stockholders’ equity was $562.4 million. Financing-segment borrowings comprised $18.1 million of recourse notes and $56.1 million of non-recourse notes. The technology segment also had $98.7 million outstanding under its floor-plan facility, presented as accounts payable; there was no balance outstanding under the facility’s accounts-receivable component.
Cash from operations was $129.5 million, investing activities used $35.8 million—including $27.0 million for the SMP acquisition—and financing activities used $49.8 million. The company repurchased $6.9 million of stock, including tax-withholding share repurchases. No cash dividends were paid.
Material changes versus the prior year
- Net sales declined 1.3%, but gross profit increased 0.6% and gross margin expanded 50 basis points. Lower operating expenses and higher technology-segment gross profit contributed to operating income growth of 11.6%.
- Net earnings increased 7.7%; diluted EPS rose 7.6%. The effective tax rate increased to 30.4% from 28.0%, primarily due to non-deductible executive compensation.
- Technology-segment operating income rose 21.7% to $75.7 million. Financing-segment operating income fell 7.4% to $30.7 million, reflecting lower transactional gains than in the prior year, partly offset by higher portfolio and post-contract earnings.
- Operating cash flow improved from a $74.2 million use to $129.5 million provided. Cash increased $43.3 million, partly offset by investment in working capital and the financing portfolio, and share repurchases.
- Verizon represented 19% of net sales, compared with 15% in FY2020; Cisco products represented 36% of technology-segment net sales, down from 40%.
Outlook, risks and unusual items
The filing provides no quantitative earnings or revenue guidance. Management said available cash, operating cash generation and credit-facility capacity were expected to fund working capital, capital expenditures and other requirements for at least the next year, while noting uncertainty from COVID-19 and tighter financing markets.
- COVID-19 could affect customer spending and collections, employee operations, supply chains and lenders’ willingness to fund transactions. The company tightened some customer credit lines and transferred certain financing transactions on a non-recourse basis.
- The $275 million Wells Fargo Commercial Distribution Finance facility is important to technology-segment working capital, is secured by subsidiary assets and can be terminated by either party on 90 days’ notice. Its accounts-receivable sublimit is $100 million; borrowing availability depends on eligible receivables and inventory.
- Customer and supplier concentration are notable: Verizon accounted for about 20% of trade receivables at year-end, while Cisco accounted for 36% of technology-segment sales. The filing also identifies reliance on a small group of vendors and distributors.
- Other risks include customer credit losses, vendor incentives and product availability, competition and pricing pressure, cybersecurity, skilled-employee retention, residual values on leased equipment, LIBOR transition, and acquisition integration. The allowance for credit losses increased to $4.4 million from $3.2 million; the FY2021 provision was $1.4 million.
- The $27.0 million SMP acquisition closed December 31, 2020; management said its contribution to reported revenue and earnings was not material. Prior-year financing-segment results included higher gains from sales of financing receivables ($21.8 million versus $14.5 million in FY2021); FY2020 other income also included $1.0 million from legal-claim distributions.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Audit critical matters included gross-versus-net revenue judgments for third-party software and accounting for transfers of financial assets. The filing describes routine legal matters but does not provide a clear value for potential aggregate exposure.
Key facts for investors to verify
- Whether adjusted gross billings growth translates into durable GAAP revenue and profit growth, given the shift toward revenue recorded net.
- Customer and vendor concentration trends, particularly Verizon’s sales and receivables exposure and Cisco’s share of technology sales.
- Credit quality, allowance adequacy, collection performance and financing-portfolio growth, including the effect of non-recourse transfers and realized sale gains.
- Ongoing availability, borrowing-base capacity, covenants and pricing of the Wells Fargo facility, along with the funding capacity of financing-segment lenders.
- Integration and returns from acquisitions, and whether higher services mix and margins can be sustained as pandemic-related conditions and customer demand evolve.