Correspondence 0001022408-23-000018 from EPLUS INC (PLUS) (CIK 0001022408) (PLUS)
EPLUS INC (PLUS) (CIK 0001022408)
Date: April 21, 2023 · CIK: 0001022408 · Accession: 0001022408-23-000018
AI Filing Summary & Sentiment
File numbers found in text: 001-34167
Letter
VIA EDGAR Office of Trade and Corporate Services Division of Corporation Finance Securities and Exchange Commission Attention: Ms. Nasreen Mohammed Re: ePlus inc. Form 10-K for the fiscal year ended March 31, 2022 Filed May 26, 2022 File No. 001-34167
Dear Staff:
This letter is submitted by ePlus inc. (the "Company") in response to the comments from the staff (“Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission dated March 24, 2023 with respect to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (the "Form 10-K").
For your reference, the text of the comments contained in your letter have been reproduced herein, followed by the Company's response.
Form 10-K for Fiscal Year Ended March 31, 2022
Key Business Metrics, page 28
1.
On page 31, you define Adjusted gross billings as your 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. To the extent these "costs" were not "included" in GAAP net sales, please revise the definition to state, if true, that the measure "adds" such amounts to net sales. To the extent these "costs" were not "incurred" in your statements of operations, revise to characterize them as other than costs (e.g., expenditures). In addition, you disclose the reason management uses this measure. Please tell us and revise to disclose substantive usefulness to investors. Refer to Item 10(e)(1)(i)(C) of Regulation S-K. Finally, please tell us your consideration of Non-GAAP C&DI 100.04, and specifically bullet point two, in presenting this measure. In this regard, it appears the measure you present as billings includes amounts that will never be recognized as revenue.
ePlus inc. 13595 Dulles Technology Drive Herndon, VA 20171 (703) 984-8400 www.eplus.com
RESPONSE: The costs associated with sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services are for costs incurred that were included in the calculation of net sales, as these transactions are presented within net sales on a net basis. In our prior reconciliation of ‘Adjusted gross billings’ as a non-GAAP metric, we adjusted for these costs by adding them to net sales, as such costs are excluded from net sales.
As the Staff noted in its question, we disclose the meaningfulness of this metric to management in the Form 10-K. In our upcoming Form 10-K for the fiscal year ended March 31, 2023 to be filed next month and on a go-forward basis, we will revise our disclosure to affirmatively indicate our belief that such metric will aid investors in better understanding our business, specifically “as a operational metric 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.”
As noted by the Staff in this comment letter, we reviewed this matter again taking into consideration (i) the Non-GAAP C&DI 100.04, including the second bullet, which in relevant part addresses the situation when an issuer presents a measure of revenue on a gross basis when net presentation is required by GAAP and (ii) the Staff’s comment in its letter regarding ‘Adjusted gross billings’ including amounts that will never be recognized as revenue. As a result of this review and the Staff’s comments, we will change Adjusted gross billings to an operational measure rather than a non-GAAP metric. Accordingly, we will revise this approach based on the Staff’s recent correspondence in our upcoming Form 10-K for the fiscal year ended March 31, 2023, to be filed next month and on a go-forward basis. The Company will further rename “Adjusted gross billings” to “Gross billings”.
The Company will include a definition of how this operational metric is determined, which will be consistent with the definition below:
Gross billings are the total dollar value of customer purchases of goods and services including shipping charges during the period, net of customer returns and credit memos, sales or other taxes.
Due to such non-GAAP metric no longer being presented, the Company will no longer provide a reconciliation between Gross billings and net sales. The Company believes that this updated definition and presentation will further clarify that Gross billings is an operational measure and is not intended or meant to be used as a non-GAAP measure of revenue referred to in bullet point 2 of Non-GAAP C&DI 100.04.
Management’s Discussion and Analysis
Financial Summary, page 31
2.
A significant portion of your results of operations disclosure is dedicated to stating, in narrative text form, dollar and percentage changes in accounts, some of which is already included in tables. In addition, while you discuss certain factors to which changes are attributable, you do not quantify a large number of these factors nor analyze the underlying business reasons for the changes and some of the factors appear non-substantive. For example, on page 31 you state the increase in net sales was driven by higher product and service revenues. On page 36 you state Technology segment net sales increased due to an increase in net sales to your customers in various industries and that gross profit increased due to higher margins. We believe your disclosures could be improved by:
•
relying on the use of tables to present dollar and percentage changes in accounts, rather than including such information in narrative text form;
•
using tables to list, quantify, and sum all of the material individual factors to which changes in accounts are attributable;
•
refocusing the narrative text portion of the disclosure on analysis of the underlying business reasons for the individual factors in the tables above;
•
ensuring that all material factors are quantified and analyzed; and
•
quantifying the effects of changes in both price and volume on revenues and expense categories, where appropriate.
RESPONSE: In response to the first four bullets from the question above, in future filings, beginning with our Form 10-K for the fiscal year ended March 31, 2023 to be filed next month, the Company will revise its results of operations disclosure within its management’s discussion and analysis to address the Staff’s suggested improvements noted above.
Summarized below is a revised results of operations disclosure for the year ended March 31, 2022, compared to the year ended March 31, 2021, which we will include in our Form 10-K for the year ended March 31, 2023.
RESULTS OF OPERATIONS
The Year Ended March 31, 2022, Compared to the Year Ended March 31, 2021
TECHNOLOGY SEGMENT
The results of operations for our technology segment for the years ended March 31, 2022, and 2021 were as follows (in thousands):
Year Ended March 31,
Change
Net sales
Product
$ 1,492,411
$ 1,305,789
$ 186,622
14.3%
Services
240,625
202,165
38,460
19.0%
Total
1,733,036
1,507,954
225,082
14.9%
Cost of sales
Product
1,175,789
1,036,627
139,162
13.4%
Services
149,094
125,092
24,002
19.2%
Total
1,324,883
1,161,719
163,164
14.0%
Gross profit
408,153
346,235
61,918
17.9%
Selling, general, and administrative
283,690
256,210
27,480
10.7%
Depreciation and amortization
14,535
13,839
5.0%
Interest and financing costs
78.1%
Operating expenses
299,153
270,570
28,583
10.6%
Operating income
$ 109,000
$ 75,665
$ 33,335
44.1%
Gross billings
$ 2,625,749
$ 2,271,836
$ 353,913
15.6%
Adjusted EBITDA
$ 131,353
$ 97,219
$ 34,134
35.1%
Year Ended March 31,
Net sales by customer end market:
Change
Telecom, Media & Entertainment
$ 502,405
$ 371,912
$ 130,493
35.1%
Healthcare
270,481
200,067
70,414
35.2%
Technology
250,485
251,683
(1,198)
(0.5%)
SLED
241,769
245,919
(4,150)
(1.7%)
Financial Services
155,160
198,761
(43,601)
(21.9%)
All others
312,733
239,611
73,122
30.5%
Total
$ 1,733,036
$ 1,507,954
$ 225,082
14.9%
Year Ended March 31,
Net sales by vendor:
Change
Cisco Systems
$ 672,821
$ 537,041
$ 135,780
25.3%
Dell EMC
148,782
107,336
41,446
38.6%
Juniper Networks
92,965
91,946
1,019
1.1%
NetApp
91,948
58,020
33,928
58.5%
HP Inc. & HPE
56,171
59,838
(3,667)
(6.1%)
Arista Networks
44,280
51,789
(7,509)
(14.5%)
All others
626,069
601,984
24,085
4.0%
Total
$ 1,733,036
$ 1,507,954
$ 225,082
14.9%
Net sales: Net sales for the year ended March 31, 2022, increased due to an increase in customer demand, primarily from customers in telecom, media and entertainment and healthcare industries, partially offset by a decrease in net sales to customers in the financial services sector. These changes were driven by changes in customer buying cycles, and the timing of specific IT related initiatives by customers during the year, rather than the acquisition or loss of a customer or set of customers.
Our net sales by customer end market have remained consistent with the prior year, with over 80% of our sales being generated from customers within the five end markets specified in the table above. Our net sales by vendor are primarily derived from our top six suppliers, which, when combined, was a fairly constant percentage of 60% or more of our net sales for the years ended March 31, 2022, and 2021.
Gross billings to our customers increased due to organic customer demand as well as our acquisition of Systems Management and Planning, Inc. (“SMP”) in December 2020.
Cost of sales: The increase in cost of sales for the year ended March 31, 2022 was due to the increase in demand for both product and services. Cost of product increased slightly less than the increase in product sales due to a change in product sales mix, as a greater portion of our transaction volume consisted of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, for which the revenues and cost of sales are presented on a net basis. Overall, cost of services generally increased consistent with the increase in sales.
Gross profit: Gross profit increased for the 2022 fiscal year due to the increase in customer demand as well as higher margins. Gross margin on product sales increased 60 basis points to 21.2% due to a shift in product mix to a greater proportion of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services which are presented on a net basis. Also contributing to the increase in gross margin on product sales was higher vendor incentives which as a percentage of net sales for the year ended March 31, 2022 increased by 20 basis points.
Gross margin on services decreased 10 basis points to 38.0% for the year ended March 31, 2022, due to a slight decrease in professional services gross margin from a change in the mix of professional services rendered during the year, as compared to the prior year.
Selling, general, and administrative expenses: Selling, general, and administrative expenses increased for the 2022 fiscal year mainly due to an increase in salaries and benefits.
Salaries and benefits, including variable compensation, increased $24.1 million or 10.9% to $245.9 million, compared to $221.8 million during the prior year, due to $14.2 million of additional variable compensation resulting from the increase in gross profit and $9.9 million due to higher salary and benefits expense. Our technology segment had 1,543 employees as of March 31, 2022, which is an increase of 17, or 1.1%, from 1,526 on March 31, 2021.
General and administrative expenses increased $3.8 million, or 11.1%, to $37.6 million during the year ended March 31, 2022, compared to $33.9 million the prior year. Contributing to the year over year increase in general and administrative expenses were increases in travel and entertainment, and software, subscription, and maintenance expenses of $2.5 million.
Depreciation and amortization expense: Depreciation and amortization expense increased for the year ended March 31, 2022, due to an increase in amortization of customer r
Show Raw Text
CORRESP
1
filename1.htm
Elaine D. Marion
Chief Financial Officer
(O) 703.984.8040
emarion@eplus.com
April 21, 2023
VIA EDGAR
Office of Trade and Corporate Services
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Attention: Ms. Nasreen Mohammed
Mr. Lyn Shenk
Re: ePlus inc.
Form 10-K for the fiscal year ended March 31, 2022
Filed May 26, 2022
File No. 001-34167
Dear Staff:
This letter is submitted by ePlus inc. (the "Company") in response to the comments from the staff (“Staff”) of the
Division of Corporation Finance of the Securities and Exchange Commission dated March 24, 2023 with respect to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (the "Form 10-K").
For your reference, the text of the comments contained in your letter have been reproduced herein, followed by the
Company's response.
Form 10-K for Fiscal Year Ended March 31, 2022
Key Business Metrics, page 28
1.
On page 31, you define Adjusted gross billings as your 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. To the extent these "costs" were not "included" in GAAP net sales, please revise the definition to state, if true, that the measure "adds" such amounts
to net sales. To the extent these "costs" were not "incurred" in your statements of operations, revise to characterize them as other than costs (e.g., expenditures). In addition, you disclose the reason management uses this measure.
Please tell us and revise to disclose substantive usefulness to investors. Refer to Item 10(e)(1)(i)(C) of Regulation S-K. Finally, please tell us your consideration of Non-GAAP C&DI 100.04, and specifically bullet point two, in
presenting this measure. In this regard, it appears the measure you present as billings includes amounts that will never be recognized as revenue.
ePlus inc. 13595 Dulles Technology Drive Herndon, VA 20171 (703) 984-8400 www.eplus.com
RESPONSE: The costs associated with sales of third-party
maintenance, software assurance, subscription/SaaS licenses, and services are for costs incurred that were included in the calculation of net sales, as these transactions are presented within net sales on a net basis. In our prior reconciliation
of ‘Adjusted gross billings’ as a non-GAAP metric, we adjusted for these costs by adding them to net sales, as such costs are excluded from net sales.
As the Staff noted in its question, we disclose the meaningfulness of this metric to management in the Form 10-K. In
our upcoming Form 10-K for the fiscal year ended March 31, 2023 to be filed next month and on a go-forward basis, we will revise our disclosure to affirmatively indicate our belief that such metric will aid investors in better understanding our
business, specifically “as a operational metric 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.”
As noted by the Staff in this comment letter, we reviewed this matter again taking into consideration (i) the Non-GAAP
C&DI 100.04, including the second bullet, which in relevant part addresses the situation when an issuer presents a measure of revenue on a gross basis when net presentation is required by GAAP and (ii) the Staff’s comment in its letter
regarding ‘Adjusted gross billings’ including amounts that will never be recognized as revenue. As a result of this review and the Staff’s comments, we will change Adjusted gross billings to an operational measure rather than a non-GAAP metric. Accordingly, we will revise this approach based on the Staff’s recent correspondence in our upcoming Form 10-K for the fiscal year ended March 31, 2023, to be filed
next month and on a go-forward basis. The Company will further rename “Adjusted gross billings” to “Gross billings”.
The Company will include a definition of how this operational metric is determined, which will be consistent with the
definition below:
Gross billings are the total dollar value of customer purchases of goods and services including shipping charges during
the period, net of customer returns and credit memos, sales or other taxes.
2
Due to such non-GAAP metric no longer being presented, the Company will no longer provide a reconciliation between
Gross billings and net sales. The Company believes that this updated definition and presentation will further clarify that Gross billings is an operational measure and is not intended or meant to be used as a non-GAAP measure of revenue referred to
in bullet point 2 of Non-GAAP C&DI 100.04.
Management’s Discussion and Analysis
Financial Summary, page 31
2.
A significant portion of your results of operations disclosure is dedicated to stating, in narrative text form, dollar and percentage changes in accounts, some of which is already included in
tables. In addition, while you discuss certain factors to which changes are attributable, you do not quantify a large number of these factors nor analyze the underlying business reasons for the changes and some of the factors appear
non-substantive. For example, on page 31 you state the increase in net sales was driven by higher product and service revenues. On page 36 you state Technology segment net sales increased due to an increase in net sales to your customers
in various industries and that gross profit increased due to higher margins. We believe your disclosures could be improved by:
•
relying on the use of tables to present dollar and percentage changes in accounts, rather than including such information in narrative text form;
•
using tables to list, quantify, and sum all of the material individual factors to which changes in accounts are attributable;
•
refocusing the narrative text portion of the disclosure on analysis of the underlying business reasons for the individual factors in the tables above;
•
ensuring that all material factors are quantified and analyzed; and
•
quantifying the effects of changes in both price and volume on revenues and expense categories, where appropriate.
RESPONSE: In response to the first four bullets from the
question above, in future filings, beginning with our Form 10-K for the fiscal year ended March 31, 2023 to be filed next month, the Company will revise its results of operations disclosure within its management’s discussion and analysis to
address the Staff’s suggested improvements noted above.
3
Summarized below is a revised results of operations disclosure for the year ended March 31, 2022, compared to the year
ended March 31, 2021, which we will include in our Form 10-K for the year ended March 31, 2023.
RESULTS OF OPERATIONS
The Year Ended March 31, 2022, Compared to the Year Ended March 31, 2021
TECHNOLOGY SEGMENT
The results of operations for our technology segment for the years ended March 31, 2022, and 2021 were as follows (in
thousands):
Year Ended March 31,
2022
2021
Change
Net sales
Product
$ 1,492,411
$ 1,305,789
$ 186,622
14.3%
Services
240,625
202,165
38,460
19.0%
Total
1,733,036
1,507,954
225,082
14.9%
Cost of sales
Product
1,175,789
1,036,627
139,162
13.4%
Services
149,094
125,092
24,002
19.2%
Total
1,324,883
1,161,719
163,164
14.0%
Gross profit
408,153
346,235
61,918
17.9%
Selling, general, and administrative
283,690
256,210
27,480
10.7%
Depreciation and amortization
14,535
13,839
696
5.0%
Interest and financing costs
928
521
407
78.1%
Operating expenses
299,153
270,570
28,583
10.6%
Operating income
$ 109,000
$ 75,665
$ 33,335
44.1%
Gross billings
$ 2,625,749
$ 2,271,836
$ 353,913
15.6%
Adjusted EBITDA
$ 131,353
$ 97,219
$ 34,134
35.1%
Year Ended March 31,
Net sales by customer end market:
2022
2021
Change
Telecom, Media & Entertainment
$ 502,405
$ 371,912
$ 130,493
35.1%
Healthcare
270,481
200,067
70,414
35.2%
Technology
250,485
251,683
(1,198)
(0.5%)
SLED
241,769
245,919
(4,150)
(1.7%)
Financial Services
155,160
198,761
(43,601)
(21.9%)
All others
312,733
239,611
73,122
30.5%
Total
$ 1,733,036
$ 1,507,954
$ 225,082
14.9%
4
Year Ended March 31,
Net sales by vendor:
2022
2021
Change
Cisco Systems
$ 672,821
$ 537,041
$ 135,780
25.3%
Dell EMC
148,782
107,336
41,446
38.6%
Juniper Networks
92,965
91,946
1,019
1.1%
NetApp
91,948
58,020
33,928
58.5%
HP Inc. & HPE
56,171
59,838
(3,667)
(6.1%)
Arista Networks
44,280
51,789
(7,509)
(14.5%)
All others
626,069
601,984
24,085
4.0%
Total
$ 1,733,036
$ 1,507,954
$ 225,082
14.9%
Net sales: Net sales for the year ended March 31, 2022, increased due to an increase in customer
demand, primarily from customers in telecom, media and entertainment and healthcare industries, partially offset by a decrease in net sales to customers in the financial services sector. These changes
were driven by changes in customer buying cycles, and the timing of specific IT related initiatives by customers during the year, rather than the acquisition or loss of a customer or set of customers.
Our net sales by customer end market have remained consistent with the prior year, with over 80% of our sales being
generated from customers within the five end markets specified in the table above. Our net sales by vendor are primarily derived from our top six suppliers, which, when combined, was a fairly constant percentage of 60% or more of our net sales for
the years ended March 31, 2022, and 2021.
Gross billings to our customers increased due to organic customer demand as well as our acquisition of Systems
Management and Planning, Inc. (“SMP”) in December 2020.
Cost of sales: The increase in cost of sales for the year
ended March 31, 2022 was due to the increase in demand for both product and services. Cost of product increased slightly less than the increase in product sales due to a change in product sales mix, as a greater portion of our transaction volume
consisted of sales of third-party maintenance, software assurance, subscription/SaaS licenses, and services, for which the revenues and cost of sales are presented on a net basis. Overall, cost of services generally increased consistent with the
increase in sales.
Gross profit: Gross profit increased for the 2022 fiscal
year due to the increase in customer demand as well as higher margins. Gross margin on product sales increased 60 basis points to 21.2% due to a shift in product mix to a greater proportion of sales of third-party maintenance, software assurance,
subscription/SaaS licenses, and services which are presented on a net basis. Also contributing to the increase in gross margin on product sales was higher vendor incentives which as a percentage of net sales for the year ended March 31, 2022
increased by 20 basis points.
5
Gross margin on services decreased 10 basis points to 38.0% for the year ended March 31, 2022, due to a slight decrease
in professional services gross margin from a change in the mix of professional services rendered during the year, as compared to the prior year.
Selling, general, and administrative expenses: Selling,
general, and administrative expenses increased for the 2022 fiscal year mainly due to an increase in salaries and benefits.
Salaries and benefits, including variable compensation, increased $24.1 million or 10.9% to $245.9 million, compared to
$221.8 million during the prior year, due to $14.2 million of additional variable compensation resulting from the increase in gross profit and $9.9 million due to higher salary and benefits expense. Our technology segment had 1,543 employees as of
March 31, 2022, which is an increase of 17, or 1.1%, from 1,526 on March 31, 2021.
General and administrative expenses increased $3.8 million, or 11.1%, to $37.6 million during the year ended March 31,
2022, compared to $33.9 million the prior year. Contributing to the year over year increase in general and administrative expenses were increases in travel and entertainment, and software, subscription, and maintenance expenses of $2.5 million.
Depreciation and amortization expense: Depreciation and
amortization expense increased for the year ended March 31, 2022, due to an increase in amortization of customer r