|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
Consolidated
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
Net sales
|
|
$
|
623,476
|
|
|
$
|
494,834
|
|
|
$
|
1,575,541
|
|
|
$
|
1,369,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
138,372
|
|
|
$
|
117,117
|
|
|
$
|
385,199
|
|
|
$
|
345,631
|
|
Gross margin
|
|
|
22.2
|
%
|
|
|
23.7
|
%
|
|
|
24.4
|
%
|
|
|
25.2
|
%
|
Operating income margin
|
|
|
7.5
|
%
|
|
|
7.3
|
%
|
|
|
7.9
|
%
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
35,694
|
|
|
$
|
26,424
|
|
|
$
|
86,502
|
|
|
$
|
81,355
|
|
Net earnings margin
|
|
|
5.7
|
%
|
|
|
5.3
|
%
|
|
|
5.5
|
%
|
|
|
5.9
|
%
|
Net earnings per common share - diluted
|
|
$
|
1.34
|
|
|
$
|
0.98
|
|
|
$
|
3.24
|
|
|
$
|
3.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP: Net earnings (1)
|
|
$
|
36,714
|
|
|
$
|
29,711
|
|
|
$
|
97,623
|
|
|
$
|
90,870
|
|
Non-GAAP: Net earnings per common share - diluted (1)
|
|
$
|
1.38
|
|
|
$
|
1.10
|
|
|
$
|
3.66
|
|
|
$
|
3.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (2)
|
|
$
|
53,325
|
|
|
$
|
41,797
|
|
|
$
|
141,933
|
|
|
$
|
130,264
|
|
Adjusted EBITDA margin
|
|
|
8.6
|
%
|
|
|
8.4
|
%
|
|
|
9.0
|
%
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
611,774
|
|
|
$
|
476,975
|
|
|
$
|
1,532,037
|
|
|
$
|
1,313,634
|
|
Adjusted gross billings (3)
|
|
$
|
888,621
|
|
|
$
|
685,031
|
|
|
$
|
2,356,326
|
|
|
$
|
1,982,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
127,854
|
|
|
$
|
104,483
|
|
|
$
|
349,780
|
|
|
$
|
304,994
|
|
Gross margin
|
|
|
20.9
|
%
|
|
|
21.9
|
%
|
|
|
22.8
|
%
|
|
|
23.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
41,090
|
|
|
$
|
27,166
|
|
|
$
|
102,212
|
|
|
$
|
82,640
|
|
Adjusted EBITDA (2)
|
|
$
|
47,869
|
|
|
$
|
32,794
|
|
|
$
|
120,135
|
|
|
$
|
99,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
11,702
|
|
|
$
|
17,859
|
|
|
$
|
43,504
|
|
|
$
|
55,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
10,518
|
|
|
$
|
12,634
|
|
|
$
|
35,419
|
|
|
$
|
40,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
5,368
|
|
|
$
|
8,919
|
|
|
$
|
21,536
|
|
|
$
|
30,200
|
|
Adjusted EBITDA (2)
|
|
$
|
5,456
|
|
|
$
|
9,003
|
|
|
$
|
21,798
|
|
|
$
|
30,453
|
|
(1) |
Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share – diluted are based on net earnings calculated in accordance with US 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 and Non-GAAP: Net earnings per common share diluted as supplemental measures of our performance to gain insight into our operating performance and performance trends. We believe that the
exclusion of other income and acquisition-related amortization expense in calculating Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share diluted provides management and investors a useful measure for period-to-period comparisons of
our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Non-GAAP: Net earnings and Non-GAAP: Net earnings per common share diluted
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 US 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,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
GAAP: Earnings before tax
|
|
$
|
49,365
|
|
|
$
|
35,910
|
|
|
$
|
120,636
|
|
|
$
|
112,463
|
|
Share based compensation
|
|
|
1,950
|
|
|
|
1,780
|
|
|
|
5,681
|
|
|
|
5,355
|
|
Acquisition related amortization expense
|
|
|
2,505
|
|
|
|
2,497
|
|
|
|
7,182
|
|
|
|
7,854
|
|
Other (income) expense
|
|
|
(2,907
|
)
|
|
|
175
|
|
|
|
3,112
|
|
|
|
377
|
|
Non-GAAP: Earnings before provision for income taxes
|
|
|
50,913
|
|
|
|
40,362
|
|
|
|
136,611
|
|
|
|
126,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP: Provision for income taxes
|
|
|
13,671
|
|
|
|
9,486
|
|
|
|
34,134
|
|
|
|
31,108
|
|
Share based compensation
|
|
|
544
|
|
|
|
470
|
|
|
|
1,624
|
|
|
|
1,494
|
|
Acquisition related amortization expense
|
|
|
693
|
|
|
|
649
|
|
|
|
2,030
|
|
|
|
2,156
|
|
Other (income) expense
|
|
|
(811
|
)
|
|
|
46
|
|
|
|
933
|
|
|
|
104
|
|
Tax benefit (expense) on restricted stock
|
|
|
102
|
|
|
|
-
|
|
|
|
267
|
|
|
|
317
|
|
Non-GAAP: Provision for income taxes
|
|
|
14,199
|
|
|
|
10,651
|
|
|
|
38,988
|
|
|
|
35,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP: Net earnings
|
|
$
|
36,714
|
|
|
$
|
29,711
|
|
|
$
|
97,623
|
|
|
$
|
90,870
|
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
GAAP: Net earnings per common share - diluted
|
|
$
|
1.34
|
|
|
$
|
0.98
|
|
|
$
|
3.24
|
|
|
$
|
3.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.15
|
|
|
|
0.14
|
|
Acquisition related amortization expense
|
|
|
0.07
|
|
|
|
0.07
|
|
|
|
0.20
|
|
|
|
0.21
|
|
Other (income) expense
|
|
|
(0.08
|
)
|
|
|
-
|
|
|
|
0.08
|
|
|
|
0.01
|
|
Tax benefit (expense) on restricted stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Total non-GAAP adjustments - net of tax
|
|
|
0.04
|
|
|
|
0.12
|
|
|
|
0.42
|
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP: Net earnings per common share - diluted
|
|
$
|
1.38
|
|
|
$
|
1.10
|
|
|
$
|
3.66
|
|
|
$
|
3.38
|
|
(2) |
We define Adjusted EBITDA as net earnings calculated in accordance with US GAAP, adjusted for the following: interest expense, depreciation and amortization, share-based compensation, acquisition and integration expenses, provision for
income taxes, and other income. Segment Adjusted EBITDA is defined as operating income calculated in accordance with US GAAP, adjusted for interest expense, share-based compensation, acquisition and integration expenses, and depreciation
and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As
such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. In the table below, we provide a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial
measure to this non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales.
|
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance and performance trends. 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 US GAAP. In addition, other companies, including companies in our industry, might
calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
Consolidated
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
Net earnings
|
|
$
|
35,694
|
|
|
$
|
26,424
|
|
|
$
|
86,502
|
|
|
$
|
81,355
|
|
Provision for income taxes
|
|
|
13,671
|
|
|
|
9,486
|
|
|
|
34,134
|
|
|
|
31,108
|
|
Share based compensation
|
|
|
1,950
|
|
|
|
1,780
|
|
|
|
5,681
|
|
|
|
5,355
|
|
Interest and financing costs
|
|
|
1,308
|
|
|
|
335
|
|
|
|
2,117
|
|
|
|
693
|
|
Depreciation and amortization
|
|
|
3,609
|
|
|
|
3,597
|
|
|
|
10,387
|
|
|
|
11,376
|
|
Other income (expense)
|
|
|
(2,907
|
)
|
|
|
175
|
|
|
|
3,112
|
|
|
|
377
|
|
Adjusted EBITDA
|
|
$
|
53,325
|
|
|
$
|
41,797
|
|
|
$
|
141,933
|
|
|
$
|
130,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
41,090
|
|
|
$
|
27,166
|
|
|
$
|
102,212
|
|
|
$
|
82,640
|
|
Depreciation and amortization
|
|
|
3,582
|
|
|
|
3,569
|
|
|
|
10,304
|
|
|
|
11,292
|
|
Share based compensation
|
|
|
1,889
|
|
|
|
1,724
|
|
|
|
5,502
|
|
|
|
5,186
|
|
Interest and financing costs
|
|
|
1,308
|
|
|
|
335
|
|
|
|
2,117
|
|
|
|
693
|
|
Adjusted EBITDA
|
|
$
|
47,869
|
|
|
$
|
32,794
|
|
|
$
|
120,135
|
|
|
$
|
99,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
5,368
|
|
|
$
|
8,919
|
|
|
$
|
21,536
|
|
|
$
|
30,200
|
|
Depreciation and amortization
|
|
|
27
|
|
|
|
28
|
|
|
|
83
|
|
|
|
84
|
|
Share based compensation
|
|
|
61
|
|
|
|
56
|
|
|
|
179
|
|
|
|
169
|
|
Adjusted EBITDA
|
|
$
|
5,456
|
|
|
$
|
9,003
|
|
|
$
|
21,798
|
|
|
$
|
30,453
|
|
(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.
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
Technology segment net sales
|
|
$
|
611,774
|
|
|
$
|
476,975
|
|
|
$
|
1,532,037
|
|
|
$
|
1,313,634
|
|
Costs incurred related to sales of third party maintenance, software assurance and subscription/SaaS licenses, and services
|
|
|
276,847
|
|
|
|
208,056
|
|
|
|
824,289
|
|
|
$
|
668,528
|
|
Adjusted gross billings
|
|
$
|
888,621
|
|
|
$
|
685,031
|
|
|
$
|
2,356,326
|
|
|
$
|
1,982,162
|
|
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
Net sales: Net sales for the three months ended December 31, 2022, increased $128.7 million, or 26.0%, to $623.5 million, as compared to $494.8 million for the
same period in the prior year. Product sales for the three months ended December 31, 2022, increased $123.7 million, or 28.6% to $556.0 million, as compared to $432.3 million for the same period in the prior year, due to increased demand and higher prices for some products in our technology segment. Service sales for the three months ended December 31, 2022, increased $5.0 million, or 7.9%, to $67.5 million,
as compared to $62.5 million for the same period in the prior year, primarily due to growth in managed services volume. In the technology segment, we had increases in net sales to customers in technology,
telecom, media, and entertainment, professional services, financial services, SLED, and healthcare due to increases in demand from existing customers.
Net sales for the nine months ended December 31, 2022, increased $206.0 million, or 15.0%, to $1,575.5 million, as compared to $1,369.5 million for the same period in
the prior year. Product sales for the nine months ended December 31, 2022, increased $189.3 million, or 15.9%, to $1,379.8 million, as compared to $1,190.5 million for the same period in the prior year,
due to increased demand and higher prices for some products in our technology segment. Service sales for the nine months ended December 31, 2022, increased $16.7 million, or 9.4%, to $195.7 million, as
compared to $179.0 million for the same period in the prior year, primarily due to growth in managed services volume and increases in professional services volume and rates. In the technology segment, we
had increases in net sales to customers in technology, telecom, media, and entertainment, professional services, financial services, and SLED due to increases in demand and the timing of fulfilling orders from existing customers, which were
partially offset by decreases in net sales to customers in manufacturing due to the timing of fulfilling orders from existing customers during the nine months ended December 31, 2022, compared to the same period in the prior year.
Withing our technology segment, Adjusted gross billings for the three months for the three months ended December 31, 2022, increased $203.6 million, or 29.7%, to $888.6 million, as compared to $685.0 million for the
same period in the prior year. We had increases in adjusted gross billings to customers in technology, telecom, media, and entertainment, professional services, financial services, SLED, and healthcare.
Adjusted gross billings for the nine months ended December 31, 2022, increased $374.1 million, or 18.9%, to $2,356.3 million, as compared to $1,982.2 million for the same period in the prior year. We had increases in
adjusted gross billings to customers in technology, telecom, media and entertainment, professional services, financial services, SLED, and healthcare, which were partially offset by decreases in adjusted gross billings to customers in the
manufacturing market.
Gross profit: Consolidated gross profit for the three months ended December 31, 2022, increased $21.3 million, or 18.1%, to $138.4 million, as compared to $117.1 million for the same period in the prior year. While
gross profit increased during the three month period ended December 31, 2022, our overall gross margin decreased, primarily due to lower service margins. We also had a decrease in product margins during this period, driven by a lower volume of
sales of third party maintenance, software assurance and subscription/SaaS licenses, and services. Consolidated gross margins for the three months ended December 31, 2022, decreased 150 basis points to 22.2%, as compared to 23.7% for the same
period in the prior year.
Consolidated gross profit for the nine months ended December 31, 2022, increased $39.6 million, or 11.4%, to $385.2 million, as compared to $345.6 million for the same period in the prior year. While gross profit
increased during the nine month period ended December 31, 2022, our overall gross margin decreased, primarily due to lower service margins. We also had a decrease in product margins during this period, driven by a lower volume of sales of third
party maintenance, software assurance and subscription/SaaS licenses, and services. Consolidated gross margins for the nine months ended December 31, 2022, decreased 80 basis points to 24.4%, as compared to 25.2% for the same period in the prior
year.
Operating expenses: Operating expenses for the three months ended December 31, 2022, increased $10.9 million, or 13.4%, to $91.9 million, as compared to $81.0 million for the same period in the
prior year. Our increase in operating expenses was primarily due to an increase in salaries and benefits of $6.8 million, an increase in general and administrative expenses of $2.0 million including higher software, subscription, and maintenance
fees, professional service fees, and travel and entertainment costs, an increase in our provision for credit losses of $1.1 million caused by an increase in our receivables over this period compared to the same period in the prior year, and an
increase in interest and financing costs of $1.0 million. As of December 31, 2022, we had 1,745 employees, an increase of 191 from 1,554 as of December 31, 2021.
Operating expenses for the nine months ended December 31, 2022, increased $28.7 million, or 12.3%, to $261.5 million, as compared to $232.8 million for the same period in the prior year. Our increase in
operating expenses was primarily due to an increase of $16.5 million in salaries and benefits, an increase of $8.8 million in general and administrative expenses including higher advertising and marketing fees, software, subscription and
maintenance fees, professional service fees, and travel and entertainment costs, an increase of $2.8 million in our provision for credit losses caused by an increase in our receivables over this period compared to the same period in the prior year,
an increase of $1.6 million in interest and financing costs, and partially offset by a $1.0 million decrease in depreciation and amortization.
Operating income: As a result of the foregoing, operating income for the three months ended December 31, 2022, increased $10.4 million, or 28.7%, to $46.5
million, as compared to $36.1 million for the same period in the prior year. Operating income for the nine months ended December 31, 2022, increased $10.9 million, or 9.7%,
to $123.7 million, as compared to $112.8 million for the same period in the prior year.
Provision for income taxes: Our effective tax rate for the three and nine months ended December 31, 2022, was 27.7% and 28.3% respectively, compared with 26.4% and 27.7%, respectively, for
the same periods in the prior year. Our effective tax rate was higher for the three months ended December 31, 2022, than for the same period in the prior year due to a tax benefit from restricted stock in the prior year. Our effective tax rate was
higher for the nine months ended December 31, 2022, than for the same period in the prior year due to foreign currency transaction losses incurred in lower tax jurisdictions.
Net earnings: Consolidated net earnings for the three months ended December 31, 2022, increased $9.3 million, or 35.1%, to $35.7 million, as compared to $26.4 million for the same period in the prior year, due to an increase in gross profit and other income (expense), net. The increase in other income (expense),
net was driven by the receipt of $1.9 million related to our claim in a class action lawsuit, which was received in December 2022, and foreign exchange gains. These increases were partially offset by an increase in operating expenses.
Consolidated net earnings for the nine months ended December 31, 2022, increased $5.1 million, or 6.3%, to $86.5 million,
as compared to $81.4 million for the same period in the prior year, due to an increase in gross profit, offset by an increase in operating expenses and foreign exchange losses.
Adjusted EBITDA for the three months ended December 31, 2022, increased $11.5 million, or 27.6%, to $53.3 million, as compared to $41.8 million for the same period in the prior year. Adjusted EBITDA margin for
the three months ended December 31, 2022, increased 20 basis points to 8.6%, as compared to the prior year period of 8.4%.
Adjusted EBITDA for the nine months ended December 31, 2022, increased $11.7 million, or 9.0%, to $142.0 million, as compared to $130.3 million for the same period in the prior year. Adjusted EBITDA margin for
the nine months ended December 31, 2022, decreased 50 basis points to 9.0%, as compared to the prior year period of 9.5%.
Net earnings per common share diluted for the three months ended December 31, 2022, increased $0.36, or 36.7%, to $1.34 per share, as compared to $0.98 per share for the same period in the prior year.
Non-GAAP net earnings per common share diluted for the three months ended December 31, 2022, increased $0.28, or 25.5%, to $1.38, as compared to $1.10 for the same period in the prior year.
Net earnings per common share diluted for the nine months ended December 31, 2022, increased $0.21, or 6.9%, to $3.24 per share, as compared to $3.03 per share for the same period in the prior year.
Non-GAAP net earnings per common share diluted for the nine months ended December 31, 2022, increased $0.28, or 8.3%, to $3.66 per share, as compared to $3.38 per share for the same period in the prior
year.
SEGMENT OVERVIEW
Our operations are conducted through two segments: technology and financing.
TECHNOLOGY SEGMENT
Our technology segment earns revenues from sales of IT products, professional services, managed services, and staff augmentation. Our technology segment sells primarily to corporations, state and local governments, and
higher education institutions. We sell across the US, which accounts for most of our sales, and in select international markets. Our technology segment also provides business-to-business supply chain management solutions for IT products.
Our customers generally purchase IT products and services from us under the terms and conditions of a customer master agreement (“CMA”). Our customers generally place orders for IT products using purchase orders.
Customer orders from state and local governments may involve public bids and our written bid responses. Our customers generally purchase services from us under the terms of statements of work. Our charges for services may be fixed price or
determined on time and materials.
We purchase IT products for resale from vendors and distributors. Our relationships with vendors are generally governed by our reseller authorization level. We achieve these authorization levels through purchase
volume, certifications held by sales executives or engineers, and though contractual commitments. Our authorization level determines the types of products we can resell, variable discounts applied against the list price, funds provided for the
marketing, and other special promotions.
We endeavor to minimize our cost of sales through vendor incentive programs. Our benefit from these programs is also determined by our reseller authorization level. These authorization levels are costly to maintain
and vendors often change their incentive programs. As such, our ability to continue to reduce our costs of sales through participating in these programs is not guaranteed.
FINANCING SEGMENT
Our financing segment offers financing solutions to corporations, state and local governments, and higher education institutions. We provide financing across the US,
which accounts for most of our sales, and in select international markets. Our financing segment earns revenues from leasing IT equipment, from financing purchases of third-party software licenses, software assurance, maintenance, and
other services, and from selling IT equipment at the end of a lease.
Our financing revenue is generally earned from the following three sources:
|
• |
Portfolio income: Interest income from financing receivables and rents due under operating leases
|
|
• |
Transactional gains: Net gains on the sale of financial assets; and
|
|
• |
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and sales of off-lease equipment
|
FLUCTUATIONS IN OPERATING RESULTS
Our operating results may fluctuate due to customer demand for our products and services, supplier costs, wage costs, product availability, changes in vendor incentive programs, interest rate fluctuations, the timing
of sales of financial assets, general economic conditions, and differences between estimated residual values and actual amounts realized for leased equipment. We expect to continue to expand by hiring additional staff for specific targeted market
areas and roles whenever we can find both experienced personnel and desirable geographic areas over the longer term, which may impact our operating results.
SEGMENT RESULTS OF OPERATIONS
The three and nine months ended December 31, 2022, compared to the three and nine months ended December 31, 2021
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,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
544,316
|
|
|
$
|
414,448
|
|
|
$
|
1,336,309
|
|
|
$
|
1,134,658
|
|
Services
|
|
|
67,458
|
|
|
|
62,527
|
|
|
|
195,728
|
|
|
|
178,976
|
|
Total
|
|
|
611,774
|
|
|
|
476,975
|
|
|
|
1,532,037
|
|
|
|
1,313,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
439,831
|
|
|
|
334,585
|
|
|
|
1,054,267
|
|
|
|
899,437
|
|
Services
|
|
|
44,089
|
|
|
|
37,907
|
|
|
|
127,990
|
|
|
|
109,203
|
|
Total
|
|
|
483,920
|
|
|
|
372,492
|
|
|
|
1,182,257
|
|
|
|
1,008,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
127,854
|
|
|
|
104,483
|
|
|
|
349,780
|
|
|
|
304,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
81,874
|
|
|
|
73,413
|
|
|
|
235,147
|
|
|
|
210,369
|
|
Depreciation and amortization
|
|
|
3,582
|
|
|
|
3,569
|
|
|
|
10,304
|
|
|
|
11,292
|
|
Interest and financing costs
|
|
|
1,308
|
|
|
|
335
|
|
|
|
2,117
|
|
|
|
693
|
|
Operating expenses
|
|
|
86,764
|
|
|
|
77,317
|
|
|
|
247,568
|
|
|
|
222,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
41,090
|
|
|
$
|
27,166
|
|
|
$
|
102,212
|
|
|
$
|
82,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross billings
|
|
$
|
888,621
|
|
|
$
|
685,031
|
|
|
$
|
2,356,326
|
|
|
$
|
1,982,162
|
|
Adjusted EBITDA
|
|
$
|
47,869
|
|
|
$
|
32,794
|
|
|
$
|
120,135
|
|
|
$
|
99,811
|
|
Net sales: Net sales for the three months ended December 31, 2022, increased $134.8 million, or 28.3%, to $611.8 million, as compared to $477.0 million for the
same period in the prior year, due to increases in net sales from customers in technology, telecom, media, and entertainment, financial services, SLED, and healthcare. Product sales for the three months ended December 31, 2022, increased
$129.9 million, or 31.3%, to $544.3 million, as compared to $414.4 million for the same period in the prior year. Service sales for the three months ended December 31, 2022, increased $5.0 million, or 7.9%,
to $67.5 million, as compared to $62.5 million for the same period in the prior year, due to an increase in managed services.
Net sales for the nine months ended December 31, 2022, increased $218.4 million, or 16.6%, to $1,532.0 million, as compared to $1,313.6 million for the same period in
the prior year, due to increases in net sales from customers in technology, telecom, media, and entertainment, financial services, SLED, and healthcare. Product sales for the nine months ended December 31, 2022, increased 17.8%, or $201.7 million
to $1,336.3 million, as compared to $1,134.7 million for the same period in the prior year, and service revenue increased by 9.4%, or $16.7 million, to $195.7 million, as compared to $179.0 million during the same period in the prior year.
Adjusted gross billings for the three months ended December 31, 2022, increased $203.6 million, or 29.7%, to $888.6 million, as compared to $685.0 million for the same period in the prior year. Our increase in adjusted gross billings was due to higher demand from our current customers and higher prices for some products.
Adjusted gross billings for the nine months ended December 31, 2022, increased $374.2 million, or 18.9%, to $2,356.3 million, as compared to $1,982.2 million 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, 2022, we had open orders of $957.3 million and deferred revenue of $168.6 million. As of December 31, 2021,
we had open orders of $852.9 million and deferred revenue of $121.0 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, 2022, and 2021 are summarized below:
|
|
Twelve Months Ended
December 31,
|
|
|
|
|
Net sales by customer end market:
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
Telecom, Media & Entertainment
|
|
|
28
|
%
|
|
|
29
|
%
|
|
|
(1
|
%)
|
Technology
|
|
|
18
|
%
|
|
|
15
|
%
|
|
|
3
|
%
|
Healthcare
|
|
|
14
|
%
|
|
|
16
|
%
|
|
|
(2
|
%)
|
SLED
|
|
|
13
|
%
|
|
|
15
|
%
|
|
|
(2
|
%)
|
Financial Services
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
0
|
%
|
All others
|
|
|
18
|
%
|
|
|
16
|
%
|
|
|
2
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
Twelve Months Ended
December 31,
|
|
|
|
|
Net sales by vendor:
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
Cisco Systems
|
|
|
37
|
%
|
|
|
38
|
%
|
|
|
(1
|
%)
|
Dell EMC
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
0
|
%
|
Juniper Networks
|
|
|
7
|
%
|
|
|
6
|
%
|
|
|
1
|
%
|
NetApp
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
(1
|
%)
|
HPE
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Arista Networks
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
0
|
%
|
All others
|
|
|
37
|
%
|
|
|
38
|
%
|
|
|
(1
|
%)
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
Our revenues by customer end market have remained consistent over the twelve-month period, 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, 2022, we had an increase in the percentage of total revenues from customers in the technology industry, and decreases in the percentage of total revenues in the telecom, media and
entertainment, healthcare, and SLED, industries. 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 “All others” category individually exceeded 5% of total net sales.
Cost of sales: Cost of sales for the three months ended December 31, 2022, increased $111.4 million, or 29.9%, to $483.9 million, as compared to $372.5
million for the same period in the prior year. Our gross margin decreased 100 basis points to 20.9% for the three months ended December
31, 2022, compared to 21.9% for the same period in the prior year. Our decrease in gross margins was primarily due to lower service gross margin from a change in services mix. We also had a decrease in
product margins, of 10 basis points to 19.2%.
Cost of sales for the nine months ended December 31, 2022, increased $173.6 million, or 17.2%, to $1,182.3 million, as compared to $1,008.6 million, which is in-line with the increase in net sales that occurred
during the prior year period. Our gross margin decreased 40 basis points to 22.8% for the nine months ended December 31, 2022, compared to 23.2% for the same period in the prior year, primarily due to lower service margins offset by higher product margins.
Selling, general, and administrative: Selling, general, and administrative expenses for the three months ended December 31, 2022, increased $8.5 million,
or 11.5%, to $81.9 million, as compared to $73.4 million for the same period in the prior year. Salaries and benefits for the three months ended December 31, 2022, increased $7.2 million, or 11.4% to $70.5 million, as compared to $63.3 million for the same period in the prior
year, primarily due to an increase in salaries driven by increases in headcount and an increase in variable compensation driven by increases in gross profit. Our technology segment had 1,709 employees as of December 31, 2022, an increase of 188 from 1,521 as of December 31, 2021, driven by increased demand for our services and the acquisition of
Future Com, Ltd. We added 157 additional customer-facing employees, of which 101 were professional services and technical support personnel. General and administrative expenses for the three months ended December
31, 2022, increased $1.0 million, or 10.0%, to $11.0 million, as compared to $10.0 million for the same period in the prior year, due to higher professional service fees, and higher travel and
entertainment costs.
Selling, general, and administrative expenses for the nine months ended December 31, 2022, increased by $24.8 million, or 11.8%, to $235.1 million, as compared to $210.4 million for the same period in
the prior year. Salaries and benefits for the nine months ended December 31, 2022, increased $16.4 million, or 9.0% to $198.5 million, compared to $182.1 million during the same period in the prior year, mainly due to an increase in salaries driven by increases in headcount and an increase in variable compensation driven by increases in gross profit. General and administrative expenses for the nine months
ended December 31, 2022, increased $7.1 million, or 25.4%, to $35.3 million, as compared to $28.2 million for the same period in the prior year, due to higher
advertising and marketing fees, professional service fees, software license and maintenance fees, and higher travel and entertainment costs.
Depreciation and amortization: Depreciation and amortization for the three months ended December 31, 2022, remained flat at $3.6 million, as compared to
the same period in the prior year. Depreciation and amortization for the nine months ended December 31, 2022, decreased $1.0 million, or 8.7%, to $10.3 million, as compared
to $11.3 million for the same period in the prior year.
Interest and financing costs: Interest and financing costs for the three and nine months ended December 31, 2022, were $1.3 million and $2.1 million, respectively, an
increase of $1.0 million and $1.4 million, respectively, as compared to $0.3 million and $0.7 million, respectively, for the same periods in the prior year. The increase in interest expense for the three and nine month periods is primarily due to
an increase in borrowings from our revolving credit facility. We had $103.0 million of recourse debt in our technology segment as of December 31, 2022, compared to $58.8 million as of December 31, 2021.
Segment operating income: As a result of the foregoing, operating income for the three
months ended December 31, 2022, increased $13.9 million, or 51.3%, to $41.1 million, as compared to $27.2 million for the same period in the prior year. Operating income
for the nine months ended December 31, 2022, increased $19.6 million, or 23.7%, to $102.2 million, as compared to $82.6 million for the same period in the prior
year.
Adjusted EBITDA for the three months ended December 31, 2022, increased $15.1 million, or 46.0%, to $47.9 million, as compared to $32.8 million for the same period in the prior year. Adjusted EBITDA for the nine months ended December 31, 2022, increased $20.3 million, or 20.4%, to $120.1 million, as compared to $99.8 million for the same period in the prior year.
FINANCING SEGMENT
The results of operations for our financing segment were as follows (dollars in thousands):
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
Net sales
|
|
$
|
11,702
|
|
|
$
|
17,859
|
|
|
$
|
43,504
|
|
|
$
|
55,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,184
|
|
|
|
5,225
|
|
|
|
8,085
|
|
|
|
15,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
10,518
|
|
|
|
12,634
|
|
|
|
35,419
|
|
|
|
40,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
4,856
|
|
|
|
3,461
|
|
|
|
13,054
|
|
|
|
9,784
|
|
Depreciation and amortization
|
|
|
27
|
|
|
|
28
|
|
|
|
83
|
|
|
|
84
|
|
Interest and financing costs
|
|
|
267
|
|
|
|
226
|
|
|
|
746
|
|
|
|
569
|
|
Operating expenses
|
|
|
5,150
|
|
|
|
3,715
|
|
|
|
13,883
|
|
|
|
10,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
5,368
|
|
|
$
|
8,919
|
|
|
$
|
21,536
|
|
|
$
|
30,200
|
|
Adjusted EBITDA
|
|
$
|
5,456
|
|
|
$
|
9,003
|
|
|
$
|
21,798
|
|
|
$
|
30,453
|
|
Net sales: Net sales for the three months ended December 31, 2022, decreased $6.2 million, or 34.5%, to $11.7 million,
as compared to $17.9 million for the same period in the prior year. The decrease in net sales was due to lower post- contract and portfolio earnings, partially offset by higher transactional gains. For the three months ended December 31, 2022, we
recognized net gains on sales of financial assets of $5.2 million and proceeds from these sales were $157.2 million. For the three months ended December 31, 2021, net gains on the sale of financial assets
were $2.3 million and the proceeds from these sales were $63.5 million.
Net sales for the nine months ended December 31, 2022, decreased $12.4 million, or 22.1%, to $43.5 million, as compared to
$55.9 million for the same period in the prior year. The decrease in net sales was due to lower post-contract and portfolio earnings and transactional gains. For the nine months ended December 31, 2022, we recognized net gains on sales of
financial assets of $15.1 million and proceeds from these sales were $586.1 million. For the nine months ended December 31, 2021, net gains on the sale of financial assets were $15.6 million and
the proceeds from these sales were $753.9 million.
As of December 31, 2022, our financing segment had $174.4 million in financing receivables and operating leases, compared to $171.1 million as of December 31, 2021, an increase of $3.3 million, or 1.9%.
Cost of sales: Cost of sales for the three months ended December 31, 2022, decreased $4.0 million, or 77.3%, to $1.2 million, as compared to $5.2 million for the same period in the prior year, due to
lower cost of sales on off-lease equipment and depreciation expense from operating leases. Gross profit for the three months ended December 31, 2022, decreased by 16.8% to $10.5 million, as compared to the same period in the prior year.
Cost of sales for the nine months ended December 31, 2022, decreased $7.1 million, or 46.9%, to $8.1 million, as compared to $15.2 million for the same period in the prior year, due to lower cost of sales of off-lease
equipment and depreciation expense from operating leases. Gross profit for the nine months ended December 31, 2022, decreased by 12.8% to $35.4 million, as compared to the same period in the prior year.
Selling, general and administrative: Selling, general, and administrative expenses for the three months ended December 31, 2022, increased $1.4 million, or 40.3%, to $4.9 million, as compared to $3.5 million for the same period in the prior year, due to higher general and administrative expenses
consisting mostly of higher professional service fees, higher software, license and maintenance fees driven by the deployment of newly hosted software in August 2022, and a higher reserve for credit losses caused by changes in our net credit
exposure.
Selling, general, and administrative expenses for the nine months ended December 31, 2022, increased $3.3 million, or 33.4%, to $13.1 million, as compared to $9.8 million for the same period in the
prior year, due to higher general and administrative expenses consisting mostly of higher professional service fees, higher software, license and maintenance fees driven by the deployment of newly hosted software
in August 2022, and a higher reserve for credit losses caused by changes in our net credit exposure.
In August 2022, we completed the deployment of a new hosted software to manage our financing portfolio. As a result, we anticipate higher general and administrative costs of approximately $1.5 million per year
related to amortizing the cost to implement the hosted software and annual fees paid to license the hosted software.
Interest and financing costs: Interest and financing costs for the three months ended December 31, 2022, increased by 18.1% to $0.3 million, and increased by 31.1% to $0.7 million for the nine months
ended December 31, 2022, compared to the prior year. As of December 31, 2022, our notes payable was $48.5 million, an increase of $4.9 million, or 11.2% compared to notes payable of $43.6 million as of December 31, 2021. As of December 31, 2022,
and 2021, our notes payable consisted entirely of non-recourse notes payable. Our weighted average interest rate for non-recourse notes payable was 5.05% and 3.68%, as of December 31, 2022, and 2021,
respectively.
Segment operating income: As a result of the foregoing, operating income for the three months ended December 31, 2022, decreased by $3.6 million to $5.4 million and Adjusted EBITDA decreased by
$3.5 million to $5.5 million, as compared to the prior year period. Operating income and Adjusted EBITDA for the nine months ended December 31, 2022, decreased by $8.7 million to $21.5 million and $21.8 million,
respectively, as compared to the same period in the prior year.
CONSOLIDATED
Other income (expense), net: Other income (expense), net for the three and nine months ended December 31, 2022 was a net gain of $2.9 million and a net expense of $3.1 million, respectively,
compared to a net expense of $0.2 million and a net expense of $0.4 million, respectively, for the same periods in the prior year. Our higher net gain for the three months ended December 31, 2022, was due to higher net foreign exchange gains in the
current period and $1.9 million we received in December 2022 related to our claim in a class action lawsuit. Our higher net expense for the nine months ended December 31, 2022, was due to higher exchange losses that were only partially offset by
the gain related to our claim in a class action lawsuit.
Provision for income taxes: Our provision for income tax expense was $13.7 million and $34.1
million for the three and nine months ended December 31, 2022, as compared to $9.5 million and $31.1 million for the same periods in the prior year. Our effective tax rate for the three and nine months ended December 31, 2022, was 27.7% and 28.3%
respectively, compared with 26.4% and 27.7%, respectively, for the same periods in the prior year. Our effective tax rate was higher for the three months ended December 31, 2022, than for the same period in the prior year due to a tax
benefit from restricted stock in the prior year. Our effective tax rate was higher for the nine months ended December 31, 2022, than for the same period in the prior year due to foreign currency transaction losses incurred in lower tax
jurisdictions.
Net earnings: As a result of the foregoing, our net earnings for the three months ended December 31, 2022, increased $9.3 million, or 35.1%, to $35.7 million, as compared to $26.4 million during the same period in
the prior year. Net earnings for the nine months ended December 31, 2022, increased $5.1 million, or 6.3%, to $86.5 million, as compared to $81.4 million during the same period in the prior year.
Basic and fully diluted earnings per common share were both $1.34 for the three months ended December 31, 2022, an increase of 35.4% and 36.7%, respectively, as compared to $0.99 and $0.98, respectively, for the three
months ended December 31, 2021. Basic and fully diluted earnings per common share were $3.26 and $3.24, respectively, for the nine months ended December 31, 2022, an increase of 6.9%, as compared to $3.05 and $3.03, respectively, for the nine
months ended December 31, 2021.
Non-GAAP net earnings per common share diluted for the three months ended December 31, 2022, increased $0.28, or 25.5%, to $1.38, as compared to $1.10 for the three months ended December 31, 2021. Non-GAAP net earnings
per common share diluted for the nine months ended December 31, 2022, increased $0.28, or 8.3%, to $3.66, as compared to $3.38 for the nine months ended December 31, 2021.
Weighted average common shares outstanding was 26.6 million in the calculation of both basic earnings per common share and diluted earnings per common share for the three months ending December 31, 2022. Weighted
average common shares outstanding was 26.6 million in the calculation of basic earnings per common share for the nine months ending December 31, 2022, and 26.7 million in the calculation of diluted earnings per common share for the nine months
ending December 31, 2022. 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 ending December 31, 2021, and 26.9 million in the calculation of
diluted earnings per common share for both the three and nine months ending December 31, 2021.
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 a credit facility with Wells Fargo Commercial Distribution Finance, LLC (the “WFCDF Credit Facility”). The WFCDF Credit Facility has an accounts payable
floor plan facility component and a revolving credit facility component. 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 WFCDF Credit Facility, will be enough to finance our working capital, capital expenditures, and other
standard business 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.
CASH FLOWS
The following table summarizes our sources and uses of cash over the periods indicated (in thousands):
|
|
Nine Months Ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Net cash used in operating activities
|
|
$
|
(147,038
|
)
|
|
$
|
(121,542
|
)
|
Net cash used in investing activities
|
|
|
(15,624
|
)
|
|
|
(18,448
|
)
|
Net cash provided by financing activities
|
|
|
103,555
|
|
|
|
115,996
|
|
Effect of exchange rate changes on cash
|
|
|
3,124
|
|
|
|
(2
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(55,983
|
)
|
|
$
|
(23,996
|
)
|
Cash flows from operating activities: We used $147.0 million in operating activities during the nine months ended December 31, 2022, compared to $121.5 million used by operating activities for the nine months ended
December 31, 2021. See below for a breakdown of operating cash flows by segment (in thousands):
|
|
Nine Months Ended December 31,
|
|
|
|
2022
|
|
|
2021
|
|
Technology segment
|
|
$
|
(115,811
|
)
|
|
$
|
(112,740
|
)
|
Financing segment
|
|
|
(31,227
|
)
|
|
|
(8,802
|
)
|
Net cash used in operating activities
|
|
$
|
(147,038
|
)
|
|
$
|
(121,542
|
)
|
Technology segment: For the nine months ended December 31, 2022, our technology segment used $115.8 million from operating activities primarily due to increases
in our accounts receivable and inventories, partially offset by net earnings.
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.
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,
|
|
|
|
2022
|
|
|
2021
|
|
(DSO) Days sales outstanding (1)
|
|
|
62
|
|
|
|
67
|
|
(DIO) Days inventory outstanding (2)
|
|
|
30
|
|
|
|
21
|
|
(DPO) Days payable outstanding (3)
|
|
|
(41
|
)
|
|
|
(41
|
)
|
Cash conversion cycle
|
|
|
51
|
|
|
|
47
|
|
(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.
|
Our cash conversion cycle increased to 51 days as of December 31, 2022, as compared to 47 days as of December 31, 2021. Our standard payment term for customers is between 30-60 days; however, certain customer orders may be approved for extended
payment terms. Our DPO remained the same at 41 days. Invoices processed through the accounts payable floor plan facility are typically paid within 45-60 days from the invoice date, while accounts payable trade invoices are typically paid within 30
days from the invoice date. Our DSO decreased by 5 days to 62 days. The DSO for both December 31, 2022, and 2021, reflects higher sales to customers with terms greater than or equal to net 60 days. Our DIO increased to 30 days due to higher
inventory balance. Inventory, which represents equipment ordered by customers but not yet delivered, increased 57.9% to $244.8 million as of December 31, 2022, up from $155.1 million as of March 31, 2022, due to ongoing projects with customers and
supply constraints that lengthen the time over which we receive all the parts in an order for a completed delivery to our customers.
Financing segment: For the nine months ended December 31, 2022, our financing segment used $31.2 million in operating activities, primarily due to increases in financing receivables-net, offset by net
earnings.
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.
Cash flows related to investing activities: For the nine months ended December 31, 2022, we used $15.6 million in investing activities, consisting of $13.3
million in cash used in acquiring Future Com, Ltd. and $5.7 million for purchases of property, equipment, and operating lease equipment, and partially offset by $3.3 million of proceeds from the sale of
property, equipment, and operating lease equipment.
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.
Cash flows from financing activities: For the nine months ended December 31, 2022, cash provided by financing activities was $103.6 million, consisting of net borrowings of non-recourse and recourse
notes payable of $101.6 million, partially offset by $7.2 million in cash used to repurchase outstanding shares of our common stock and $9.2 million in net repayments on the accounts payable floor plan facility.
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.
Our borrowing of non-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. 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.
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 the WFCDF Credit Facility. The WFCDF Credit Facility has an accounts payable floor plan facility component and a revolving credit facility component.
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 WFCDF Credit Facility.
Accounts payable floor plan facility: We finance most purchases of products for sale to our customers through the accounts payable 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, 2022, we had a maximum credit limit of $425.0 million, and an outstanding balance on the floor plan of $154.5 million. As of March 31, 2022, we had a maximum credit limit of $375.0 million, and the
outstanding balance on the floor plan facility was $145.3 million. On our balance sheet, our liability under the floor plan facility is presented as part of accounts payable – floor plan.
Revolving credit facility: The outstanding balance under the revolving credit facility is presented as part of recourse notes payable- current on our consolidated balance sheets. 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, 2022, the outstanding balance under the revolving credit facility was $95.0 million. As of March 31, 2022, we did not have any outstanding balance under the revolving credit facility. The maximum credit limit under this
facility was $150.0 million as of December 31, 2022, and $100.0 million as of March 31, 2022.
The loss of the WFCDF 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.
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.
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, 2022, we were not involved in any unconsolidated
special purpose entity transactions.
ADEQUACY OF CAPITAL RESOURCES
The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive
customer relationships and skilled sales and/or engineering forces. We may also open facilities 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. While the future is uncertain, we do not believe our WFCDF 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 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 2022 Annual Report, as well as in our other filings with the SEC.
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.
CRITICAL ACCOUNTING ESTIMATES
As disclosed in Note 2, “Recent Accounting Pronouncements,” we adopted a new standard on accounting for contract assets and contract liabilities from contracts with customers in a business combination
in the second quarter of our fiscal year 2023. Under this new standard, we apply Accounting Standards Codification Topic 606, Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers. Other than this change, 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 2022 Annual Report.