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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____ to ____ .
Commission file number: 1-34167
ePlus inc.
(Exact name of registrant as specified in its charter)

Delaware |  | 54-1817218
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

13595 Dulles Technology Drive, Herndon, VA 20171-3413
(Address, including zip code, of principal executive offices)
Registrant’s telephone number, including area code: (703) 984-8400
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $.01 par value | PLUS | NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☒ | Accelerated filer ☐
Non-accelerated filer ☐ | Smaller reporting company ☐
| Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of common stock outstanding as of November 1, 2019 was 13,513,470.

Table of Contents
TABLE OF CONTENTS
ePlus inc. AND SUBSIDIARIES

Part I. Financial Information: |
Item 1. |  | Financial Statements |
|  | Unaudited Consolidated Balance Sheets as of September 30, 2019 and March 31, 2019 | 5
|  | Unaudited Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2019 and 2018 | 6
|  | Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2019 and 2018 | 7
|  | Unaudited Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2019 and 2018 | 8
|  | Unaudited Consolidated Statements of Stockholders’ Equity for the Six Months Ended September 30, 2019 and 2018 | 10
|  | Notes to Unaudited Consolidated Financial Statements | 11
Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29
Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk | 45
Item 4. |  | Controls and Procedures | 45
Part II. Other Information: |
Item 1. |  | Legal Proceedings | 46
Item 1A. |  | Risk Factors | 46
Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds | 47
Item 3. |  | Defaults Upon Senior Securities | 47
Item 4. |  | Mine Safety Disclosures | 47
Item 5. |  | Other Information | 47
Item 6. |  | Exhibits | 48
Signatures & Certifications | 49

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact; but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:

| • | national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates, and downward pressure on prices;

| • | domestic and international economic regulations uncertainty (e.g., tariffs, North American Free Trade Agreement, and Trans-Pacific Partnership).

| • | significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers, or vendors;

| • | exposure to changes in, interpretations of, or enforcement trends in legislation and regulatory matters;

| • | the creditworthiness of our customers and our ability to reserve adequately for credit losses;

| • | reduction of vendor incentives provided to us;

| • | managing a diverse product set of solutions in highly competitive markets with a number of key vendors;

| • | increasing the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;

| • | adapting to meet changes in markets and competitive developments;

| • | maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel, and vendor certifications;

| • | increasing the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;

| • | performing professional and managed services competently;

| • | maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace;

| • | reliance on third-parties to perform some of our service obligations to our customers;

| • | changes in the Information Technology (“IT”) industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), and software as a service (“SaaS”);

| • | our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;

| • | future growth rates in our core businesses;

| • | failure to comply with public sector contracts, or applicable laws or regulations;

| • | changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;

| • | our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;

| • | our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies;

| • | a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;

| • | our contracts may not be adequate to protect us, and we are subject to audit in which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;

| • | disruptions or a security breach in our or our vendors’ IT systems and data and audio communication networks;

3

Table of Contents

| • | our ability to secure our own and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;

| • | our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, obtain debt for our financing transactions, or the effect of those changes on our common stock or its holders;

| • | our ability to realize our investment in leased equipment;

| • | our ability to successfully perform due diligence and integrate acquired businesses;

| • | the possibility of goodwill impairment charges in the future;

| • | our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, license required technology; and

| • | significant changes in accounting standards including changes to the financial reporting of leases, which could impact the demand for our leasing services, or misclassification of products and services we sell resulting in the misapplication of revenue recognition policies or inaccurate costs and completion dates for our services, which could affect our estimates.

We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks, and uncertainties. For a further list and description of various risks, relevant factors, and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see Item 1A, “Risk Factors” and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).
4

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. | Financial Statements

ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

|  | September 30, 2019 |  |  | March 31, 2019 |
ASSETS |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 55,832 |  |  | $ | 79,816 |
Accounts receivable—trade, net |  |  | 355,178 |  |  |  | 299,899 |
Accounts receivable—other, net |  |  | 38,613 |  |  |  | 41,328 |
Inventories |  |  | 57,198 |  |  |  | 50,493 |
Financing receivables—net, current |  |  | 108,646 |  |  |  | 63,767 |
Deferred costs |  |  | 19,225 |  |  |  | 17,301 |
Other current assets |  |  | 6,867 |  |  |  | 7,499 |
Total current assets |  |  | 641,559 |  |  |  | 560,103 |
Financing receivables and operating leases—net |  |  | 79,512 |  |  |  | 59,032 |
Property, equipment and other assets |  |  | 35,304 |  |  |  | 17,328 |
Goodwill |  |  | 118,097 |  |  |  | 110,807 |
Other intangible assets—net |  |  | 39,794 |  |  |  | 38,928 |
TOTAL ASSETS |  | $ | 914,266 |  |  | $ | 786,198 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
LIABILITIES |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 107,336 |  |  | $ | 86,801 |
Accounts payable—floor plan |  |  | 129,668 |  |  |  | 116,083 |
Salaries and commissions payable |  |  | 23,679 |  |  |  | 21,286 |
Deferred revenue |  |  | 50,284 |  |  |  | 47,251 |
Recourse notes payable—current |  |  | - |  |  |  | 28 |
Non-recourse notes payable—current |  |  | 77,608 |  |  |  | 38,117 |
Other current liabilities |  |  | 32,924 |  |  |  | 19,285 |
Total current liabilities |  |  | 421,499 |  |  |  | 328,851 |
Non-recourse notes payable—long term |  |  | 8,404 |  |  |  | 10,502 |
Deferred tax liability—net |  |  | 4,927 |  |  |  | 4,915 |
Other liabilities |  |  | 29,147 |  |  |  | 17,677 |
TOTAL LIABILITIES |  |  | 463,977 |  |  |  | 361,945 |
COMMITMENTS AND CONTINGENCIES (Note 10) |  |  |  |  |  |  |  |
STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Preferred stock, $0.01 per share par value; 2,000 shares authorized; none outstanding |  |  | - |  |  |  | - |
Common stock, $0.01 per share par value; 25,000 shares authorized; 13,513 outstanding at September 30, 2019 and 13,611 outstanding at March 31, 2019 |  |  | 144 |  |  |  | 143 |
Additional paid-in capital |  |  | 141,297 |  |  |  | 137,243 |
Treasury stock, at cost, 884 shares at September 30, 2019 and 693 shares at March 31, 2019 |  |  | (67,691 | ) |  |  | (53,999 | )
Retained earnings |  |  | 377,423 |  |  |  | 341,137 |
Accumulated other comprehensive income—foreign currency translation adjustment |  |  | (884 | ) |  |  | (271 | )
Total Stockholders' Equity |  |  | 450,289 |  |  |  | 424,253 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |  | $ | 914,266 |  |  | $ | 786,198 |

See Notes to Unaudited Consolidated Financial Statements.
5

Table of Contents
ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net sales |  |  |  |  |  |  |  |  |  |  |  |
Product |  | $ | 363,497 |  |  | $ | 309,475 |  |  | $ | 699,098 |  |  | $ | 632,292 |
Services |  |  | 48,068 |  |  |  | 35,568 |  |  |  | 93,839 |  |  |  | 69,283 |
Total |  |  | 411,565 |  |  |  | 345,043 |  |  |  | 792,937 |  |  |  | 701,575 |
Cost of sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  |  | 278,863 |  |  |  | 238,134 |  |  |  | 538,926 |  |  |  | 493,946 |
Services |  |  | 29,671 |  |  |  | 21,409 |  |  |  | 58,341 |  |  |  | 41,426 |
Total |  |  | 308,534 |  |  |  | 259,543 |  |  |  | 597,267 |  |  |  | 535,372 |
Gross profit |  |  | 103,031 |  |  |  | 85,500 |  |  |  | 195,670 |  |  |  | 166,203 |
Selling, general, and administrative |  |  | 70,523 |  |  |  | 57,705 |  |  |  | 136,310 |  |  |  | 114,671 |
Depreciation and amortization |  |  | 3,557 |  |  |  | 2,741 |  |  |  | 7,020 |  |  |  | 5,531 |
Interest and financing costs |  |  | 576 |  |  |  | 484 |  |  |  | 1,204 |  |  |  | 960 |
Operating expenses |  |  | 74,656 |  |  |  | 60,930 |  |  |  | 144,534 |  |  |  | 121,162 |
Operating income |  |  | 28,375 |  |  |  | 24,570 |  |  |  | 51,136 |  |  |  | 45,041 |
Other income (expense) |  |  | (40 | ) |  |  | 322 |  |  |  | (85 | ) |  |  | 419 |
Earnings before tax |  |  | 28,335 |  |  |  | 24,892 |  |  |  | 51,051 |  |  |  | 45,460 |
Provision for income taxes |  |  | 8,237 |  |  |  | 6,889 |  |  |  | 14,765 |  |  |  | 12,184 |
Net earnings |  | $ | 20,098 |  |  | $ | 18,003 |  |  | $ | 36,286 |  |  | $ | 33,276 |
Net earnings per common share—basic |  | $ | 1.51 |  |  | $ | 1.33 |  |  | $ | 2.72 |  |  | $ | 2.47 |
Net earnings per common share—diluted |  | $ | 1.51 |  |  | $ | 1.33 |  |  | $ | 2.71 |  |  | $ | 2.45 |
Weighted average common shares outstanding—basic |  |  | 13,312 |  |  |  | 13,494 |  |  |  | 13,334 |  |  |  | 13,464 |
Weighted average common shares outstanding—diluted |  |  | 13,350 |  |  |  | 13,586 |  |  |  | 13,408 |  |  |  | 13,597 |

See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents
ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
NET EARNINGS |  | $ | 20,098 |  |  | $ | 18,003 |  |  | $ | 36,286 |  |  | $ | 33,276 |
OTHER COMPREHENSIVE INCOME, NET OF TAX: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | (350 | ) |  |  | (143 | ) |  |  | (613 | ) |  |  | (800 | )
Other comprehensive income (loss) |  |  | (350 | ) |  |  | (143 | ) |  |  | (613 | ) |  |  | (800 | )
TOTAL COMPREHENSIVE INCOME |  | $ | 19,748 |  |  | $ | 17,860 |  |  | $ | 35,673 |  |  | $ | 32,476 |

See Notes to Unaudited Consolidated Financial Statements.
7

Table of Contents
ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

|  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |
Cash Flows From Operating Activities: |  |  |  |  |  |
Net earnings |  | $ | 36,286 |  |  | $ | 33,276 |
Adjustments to reconcile net earnings to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 10,077 |  |  |  | 8,867 |
Reserve for credit losses, inventory obsolescence, and sales returns |  |  | 631 |  |  |  | 178 |
Share-based compensation expense |  |  | 4,054 |  |  |  | 3,561 |
Deferred taxes |  |  | (3 | ) |  |  | - |
Payments from lessees directly to lenders—operating leases |  |  | (34 | ) |  |  | (75 | )
Gain on disposal of property, equipment, and leased equipment |  |  | (436 | ) |  |  | (939 | )
Gain on sale of financing receivables |  |  | - |  |  |  | (2,584 | )
Other |  |  | - |  |  |  | 2 |
Changes in: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (46,100 | ) |  |  | (29,287 | )
Inventories-net |  |  | (5,301 | ) |  |  | (16,688 | )
Financing receivables—net |  |  | (76,423 | ) |  |  | (5,922 | )
Deferred costs and other assets |  |  | (18,826 | ) |  |  | 4,920 |
Accounts payable-trade |  |  | 15,585 |  |  |  | 2,375 |
Salaries and commissions payable, deferred revenue, and other liabilities |  |  | 26,086 |  |  |  | (14,769 | )
Net cash used in operating activities |  | $ | (54,404 | ) |  | $ | (17,085 | )
Cash Flows From Investing Activities: |  |  |  |  |  |  |  |
Proceeds from sale of property, equipment, and leased equipment |  | $ | 653 |  |  | $ | 1,764 |
Purchases of property, equipment, and operating lease equipment |  |  | (4,888 | ) |  |  | (6,451 | )
Purchases of assets to be leased or financed |  |  | - |  |  |  | (8,620 | )
Issuance of financing receivables |  |  | - |  |  |  | (88,442 | )
Repayments of financing receivables |  |  | - |  |  |  | 33,349 |
Proceeds from sale of financing receivables |  |  | - |  |  |  | 30,463 |
Cash used in acquisitions, net of cash acquired |  |  | (13,815 | ) |  |  | - |
Net cash used in investing activities |  | $ | (18,050 | ) |  | $ | (37,937 | )

8

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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

|  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |
Cash Flows From Financing Activities: |  |  |  |  |  |
Borrowings of non-recourse and recourse notes payable |  | $ | 54,877 |  |  | $ | 27,157 |
Repayments of non-recourse and recourse notes payable |  |  | (5,629 | ) |  |  | (11,229 | )
Repurchase of common stock |  |  | (13,692 | ) |  |  | (10,135 | )
Repayments of financing of acquisitions |  |  | (785 | ) |  |  | (2,134 | )
Net borrowings (repayments) on floor plan facility |  |  | 13,585 |  |  |  | 8,662 |
Net cash provided by financing activities |  |  | 48,356 |  |  |  | 12,321 |
Effect of exchange rate changes on cash |  |  | 114 |  |  |  | 150 |
Net Decrease in Cash and Cash Equivalents |  |  | (23,984 | ) |  |  | (42,551 | )
Cash and Cash Equivalents, Beginning of Period |  |  | 79,816 |  |  |  | 118,198 |
Cash and Cash Equivalents, End of Period |  | $ | 55,832 |  |  | $ | 75,647 |
Supplemental Disclosures of Cash Flow Information: |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 1,115 |  |  | $ | 945 |
Cash paid for income taxes |  | $ | 12,471 |  |  | $ | 11,221 |
Cash paid for amounts included in the measurement of lease liabilities |  | $ | 2,566 |  |  | $ | - |
Schedule of Non-Cash Investing and Financing Activities: |  |  |  |  |  |  |  |
Proceeds from sale of property, equipment, and leased equipment |  | $ | - |  |  | $ | 461 |
Purchases of property, equipment, and operating lease equipment |  | $ | (396 | ) |  | $ | (934 | )
Purchases of assets to be leased or financed |  | $ | - |  |  | $ | 1,010 |
Issuance of financing receivables |  | $ | - |  |  | $ | (36,655 | )
Proceeds from sale of financing receivables |  | $ | - |  |  | $ | 40,265 |
Financing of acquisitions |  | $ | (1,464 | ) |  | $ | - |
Borrowing of non-recourse and recourse notes payable |  | $ | 82,462 |  |  | $ | 37,688 |
Repayments of non-recourse and recourse notes payable |  | $ | (34 | ) |  | $ | (63 | )
Vesting of share-based compensation |  | $ | 8,972 |  |  | $ | 12,769 |
New operating lease assets obtained in exchange for lease obligations |  | $ | 5,225 |  |  | $ | - |

See Notes to Unaudited Consolidated Financial Statements.
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ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

|  | Six Months Ended September 30, 2019 |
|  | Common Stock |  |  | Additional Paid-In |  |  | Treasury |  |  | Retained |  |  | Accumulated Other Comprehensive |  |  |  |
|  | Shares |  |  | Par Value |  |  | Capital |  |  | Stock |  |  | Earnings |  |  | Income |  |  | Total |
Balance, March 31, 2019 |  |  | 13,611 |  |  | $ | 143 |  |  | $ | 137,243 |  |  | $ | (53,999 | ) |  | $ | 341,137 |  |  | $ | (271 | ) |  | $ | 424,253 |
Issuance of restricted stock awards |  |  | 86 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,919 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,919 |
Repurchase of common stock |  |  | (188 | ) |  |  | - |  |  |  | - |  |  |  | (13,455 | ) |  |  | - |  |  |  | - |  |  |  | (13,455 | )
Net earnings |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 16,188 |  |  |  | - |  |  |  | 16,188 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (263 | ) |  |  | (263 | )
Balance, June 30, 2019 |  |  | 13,509 |  |  | $ | 144 |  |  | $ | 139,162 |  |  | $ | (67,454 | ) |  | $ | 357,325 |  |  | $ | (534 | ) |  | $ | 428,643 |
Issuance of restricted stock awards |  |  | 7 |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Share-based compensation |  |  | (3 | ) |  |  | - |  |  |  | 2,135 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,135 |
Repurchase of common stock |  |  |  |  |  |  | - |  |  |  | - |  |  |  | (237 | ) |  |  | - |  |  |  | - |  |  |  | (237 | )
Net earnings |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20,098 |  |  |  | - |  |  |  | 20,098 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (350 | ) |  |  | (350 | )
Balance, September 30, 2019 |  |  | 13,513 |  |  | $ | 144 |  |  | $ | 141,297 |  |  | $ | (67,691 | ) |  | $ | 377,423 |  |  | $ | (884 | ) |  | $ | 450,289 |

|  | Six Months Ended September 30, 2018 |
|  | Common Stock |  |  | Additional Paid-In |  |  | Treasury |  |  | Retained |  |  | Accumulated Other Comprehensive |  |  |  |
|  | Shares |  |  | Par Value |  |  | Capital |  |  | Stock |  |  | Earnings |  |  | Income |  |  | Total |
Balance, March 31, 2018 |  |  | 13,761 |  |  | $ | 142 |  |  | $ | 130,000 |  |  | $ | (36,016 | ) |  | $ | 277,945 |  |  | $ | 532 |  |  | $ | 372,603 |
Issuance of restricted stock awards |  |  | 70 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,693 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,693 |
Repurchase of common stock |  |  | (108 | ) |  |  | - |  |  |  | - |  |  |  | (9,059 | ) |  |  | - |  |  |  | - |  |  |  | (9,059 | )
Dividends declared |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net earnings |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 15,273 |  |  |  | - |  |  |  | 15,273 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (657 | ) |  |  | (657 | )
Balance, June 30, 2018 |  |  | 13,723 |  |  | $ | 143 |  |  | $ | 131,693 |  |  | $ | (45,075 | ) |  | $ | 293,218 |  |  | $ | (125 | ) |  | $ | 379,854 |
Issuance of restricted stock awards |  |  | 7 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,868 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,868 |
Repurchase of common stock |  |  | (3 | ) |  |  | - |  |  |  | - |  |  |  | (305 | ) |  |  | - |  |  |  | - |  |  |  | (305 | )
Dividends declared |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Net earnings |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 18,003 |  |  |  | - |  |  |  | 18,003 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (143 | ) |  |  | (143 | )
Balance, September 30, 2018 |  |  | 13,727 |  |  | $ | 143 |  |  | $ | 133,561 |  |  | $ | (45,380 | ) |  | $ | 311,221 |  |  | $ | (268 | ) |  | $ | 399,277 |

See Notes to Unaudited Consolidated Financial Statements.
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ePlus inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as "we," "our," "us," "ourselves," or "ePlus." ePlus inc. is a holding company that through its subsidiaries provides IT solutions that enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, staffing, professional and managed services and complete lifecycle management services, including flexible financing solutions. We focus on state and local governments, middle market and large enterprises in North America and the United Kingdom (“UK”).
BASIS OF PRESENTATION — The unaudited consolidated financial statements include the accounts of e Plus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited consolidated financial statements from the dates of acquisition.
INTERIM FINANCIAL STATEMENTS — The unaudited consolidated financial statements for the six months ended September 30, 2019 and 2018 were prepared by us, without audit, and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income, and cash flows for such periods. Operating results for the six months ended September 30, 2019 and 2018 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2020 or any other future period. These unaudited consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“US GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 2019 (“2019 Annual Report”), which should be read in conjunction with these interim consolidated financial statements.
USE OF ESTIMATES — The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, lease classification, goodwill and intangible assets, reserves for credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
CONCENTRATIONS OF RISK — A substantial portion of our sales are products from Cisco Systems, which were 43% of our technology segment’s net sales for the three months ended September 30, 2019 and 45% for the three months ended September 30, 2018, and 42% and 43% of our technology segment’s net sales for the six months ended September 30, 2019 and 2018, respectively.
SIGNIFICANT ACCOUNTING POLICIES — The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in our Consolidated Financial Statements for the year ended March 31, 2019, except for changes from the adoption of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”). This update establishes Codification Topic 842, Leases (“Codification Topic 842”) within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”). The updates to our accounting policies from adopting ASU 2016-02 are provided below.
FINANCING REVENUE — We account for leases to customers in accordance with Codification Topic 842. We utilize a portfolio approach by grouping many similar assets being leased to one customer together.
We classify our leases as either sales-type leases or operating leases. We classify leases as sales-type leases if any one of five criteria are met, each of which indicate that the lease transfers control of the underlying asset to the lessee. We classify our other leases as operating leases.
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For sales-type leases, upon lease commencement, we recognize the present value of the lease payments and the residual asset discounted using the rate implicit in the lease. When we are financing equipment provided by another dealer, we typically do not have any selling profit or loss arising from the lease. When we are the dealer of the equipment being leased, we typically recognize revenue in the amount of the lease receivable and cost of sales in the amount of the carrying value of the underlying asset minus the unguaranteed residual asset. After the commencement date, we recognize interest income as part of net sales using the effective interest method.
For operating leases, we recognize the underlying asset as an operating lease asset. We depreciate the asset on a straight-line basis to its estimated residual value over its estimated useful life. We recognized the lease payments over the lease term on a straight-line basis as part of net sales.
In all our leases, we recognize variable lease payments, primarily reimbursement for property taxes associated with the leased asset, as part of net sales in the period in which the changes in facts and circumstances on which the variable lease payments are based occur. We exclude from revenues and expenses any sales taxes reimbursed by the lessee.
We also finance third-party software and third-party services for our customers, which we classify as notes-receivable. We recognize interest income on our notes-receivable using the effective interest method.
We account for transfers of our financial assets, including our lease receivables and notes receivable, under Codification Topic 860 Transfers and Servicing (“Codification Topic 860”). When a transfer meets all the requirements for sale accounting, we derecognize the financial asset and record a net gain or loss that is included in net sales.
LESSEE ACCOUNTING — We lease office space over initial terms typically between 3 and 6 years. At the lease commencement date, we recognize operating lease liabilities based on the present value of the future minimum lease payments. In determining the present value of future minimum lease payments, we use our incremental borrowing rate based on the information available at the commencement date. When the future minimum payments encompass non-lease components, we account for the lease and non-lease components as a single lease component. We elected not to recognize right-of-use assets and lease liabilities for leases with an initial term of 12 months or less. We recognize lease expense on a straight-line basis over the lease term beginning on the commencement date.

2. | RECENT ACCOUNTING PRONOUNCEMENTS

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS —We adopted ASU 2016-02 in our quarter ended June 30, 2019 using a transition option that allows entities to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this transition option, we do not update the financial information and disclosures for comparative periods.
Additionally, we elected a package of practical expedients to not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any expired or existing leases, and not reassess initial direct costs for any existing leases. As a result of our adoption, we recorded an initial impact to our consolidated balance sheets of establishing right-of-use assets of $12.7 million and lease liabilities of $12.3 million and a reduction in prepaid assets of $0.4 million at the beginning of our quarter ending June 30, 2019.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED —In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update requires adoption under a modified retrospective approach and will become effective for us in the quarter ending June 30, 2020. We are currently evaluating the impact of this update on our financial statements.
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3. REVENUES
Contract balances
Accounts receivable – trade represents amounts due from contracts with customers. In addition, we had $22.1 million and $16.2 million of receivables from contracts with customers included within financing receivables as of September 30, 2019 and March 31, 2019, respectively. The following table provides the balance of contract liabilities from contracts with customers (in thousands):

Contract liabilities |  | September 30, 2019 |  |  | March 31, 2019 |
Current (included in deferred revenue) |  | $ | 49,416 |  |  | $ | 46,356 |
Non-current (included in other liabilities) |  | $ | 17,133 |  |  | $ | 13,593 |

Revenue recognized from the beginning contract liability balance was $13.6 million and $29.4 million for the three and six months ended September 30, 2019 respectively, and $8.1 million and $20.9 million for the three and six months ended September 30, 2018, respectively.
Performance obligations
The following table includes revenue expected to be recognized in the future related to performance obligations, primarily non-cancelable contracts for ePlus managed services, that are unsatisfied or partially unsatisfied at the end of the reporting period, in thousands. The table does not include the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts where we recognize revenue at the amount that we have the right to invoice for services performed.

Remainder of Year ending March 31, 2020 |  | $ | 15,118 |
Year ending March 31, 2021 |  |  | 15,940 |
Year ending March 31, 2022 |  |  | 7,817 |
Year ending March 31, 2023 |  |  | 2,124 |
Year ending March 31, 2024 |  |  | 404 |
Year ending March 31, 2025 and thereafter |  |  | 423 |
Total remaining performance obligations |  | $ | 41,826 |

4. | FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Occasionally, our leases provide the lessee a bargain purchase option. We classify leases as either sales-type or operating leases in accordance with Codification Topic 842.
The following table provides the profit recognized for sales-type leases at their commencement date for the three and six months ended September 30, 2019 (in thousands):

|  | Three months ended September 30, 2019 |  |  | Six months ended September 30, 2019 |
Net sales |  | $ | 3,133 |  |  | $ | 7,987 |
Cost of sales |  |  | 2,702 |  |  |  | 6,652 |
Gross Profit |  | $ | 431 |  |  | $ | 1,335 |

The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and six months ended September 30, 2019 (in thousands):

|  | Three months ended September 30, 2019 |  |  | Six months ended September 30, 2019 |
Interest income on sales-type leases |  | $ | 1,495 |  |  | $ | 3,590 |
Lease income on operating leases |  | $ | 5,059 |  |  | $ | 10,418 |

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FINANCING RECEIVABLES—NET
Our financing receivables-net consist of the following (in thousands):

September 30, 2019 |  | Notes Receivables |  |  | Lease-Related Receivables |  |  | Total Financing Receivables |
Minimum payments |  | $ | 78,483 |  |  | $ | 87,989 |  |  | $ | 166,472 |
Estimated unguaranteed residual value (1) |  |  | - |  |  |  | 20,640 |  |  |  | 20,640 |
Initial direct costs, net of amortization (2) |  |  | 644 |  |  |  | 284 |  |  |  | 928 |
Unearned income |  |  | - |  |  |  | (11,327 | ) |  |  | (11,327 | )
Reserve for credit losses (3) |  |  | (520 | ) |  |  | (500 | ) |  |  | (1,020 | )
Total, net |  | $ | 78,607 |  |  | $ | 97,086 |  |  | $ | 175,693 |
Reported as: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 59,603 |  |  | $ | 49,043 |  |  | $ | 108,646 |
Long-term |  |  | 19,004 |  |  |  | 48,043 |  |  |  | 67,047 |
Total, net |  | $ | 78,607 |  |  | $ | 97,086 |  |  | $ | 175,693 |

| (1) | Includes estimated unguaranteed residual values of $14,211 thousand for sales type leases, which have been sold and accounted for as sales.

| (2) | Initial direct costs are shown net of amortization of $393 thousand.

| (3) | For details on reserve for credit losses, refer to Note 7, “Reserves for Credit Losses.”

March 31, 2019 |  | Notes Receivables |  |  | Lease-Related Receivables |  |  | Total Financing Receivables |
Minimum payments |  | $ | 40,563 |  |  | $ | 64,201 |  |  | $ | 104,764 |
Estimated unguaranteed residual value (1) |  |  | - |  |  |  | 14,639 |  |  |  | 14,639 |
Initial direct costs, net of amortization (2) |  |  | 377 |  |  |  | 332 |  |  |  | 709 |
Unearned income |  |  | - |  |  |  | (7,671 | ) |  |  | (7,671 | )
Reserve for credit losses (3) |  |  | (505 | ) |  |  | (530 | ) |  |  | (1,035 | )
Total, net |  | $ | 40,435 |  |  | $ | 70,971 |  |  | $ | 111,406 |
Reported as: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 30,852 |  |  | $ | 32,914 |  |  | $ | 63,766 |
Long-term |  |  | 9,583 |  |  |  | 38,057 |  |  |  | 47,640 |
Total, net |  | $ | 40,435 |  |  | $ | 70,971 |  |  | $ | 111,406 |

| (1) | Includes $8,996 thousand for the estimated residual values of sales type leases and direct financing leases for which we sold the financing assets.

| (2) | Initial direct costs are shown net of amortization of $275 thousand.

| (3) | For details on reserve for credit losses, refer to Note 7, “Reserves for Credit Losses.”

Future scheduled minimum lease payments for investments in sales-type leases as of September 30, 2019 are as follows (in thousands):

Remainder of Year ending March 31, 2020 |  | $ | 43,732 |
Year ending March 31, 2021 |  |  | 22,787 |
Year ending March 31, 2022 |  |  | 14,038 |
Year ending March 31, 2023 |  |  | 4,979 |
Year ending March 31, 2024 and thereafter |  |  | 2,453 |
Total |  | $ | 87,989 |

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OPERATING LEASES—NET
Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands):

|  | September 30, 2019 |  |  | March 31, 2019 |
Cost of equipment under operating leases |  | $ | 23,927 |  |  | $ | 21,532 |
Accumulated depreciation |  |  | (11,462 | ) |  |  | (10,139 | )
Investment in operating lease equipment—net (1) |  | $ | 12,465 |  |  | $ | 11,393 |

| (1) | These totals include estimated unguaranteed residual values of $3,006 thousand and $2,906 thousand as of September 30, 2019 and March 31, 2019, respectively.

Future scheduled minimum lease rental payments as of September 30, 2019 are as follows (in thousands):

Remainder of Year ending March 31, 2020 |  | $ | 2,507 |
Year ending March 31, 2021 |  |  | 3,815 |
Year ending March 31, 2022 |  |  | 2,555 |
Year ending March 31, 2023 |  |  | 1,455 |
Year ending March 31, 2024 and thereafter |  |  | 443 |
Total |  | $ | 10,775 |

TRANSFERS OF FINANCIAL ASSETS
We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings in accordance with Codification Topic 860.
For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of September 30, 2019, and March 31, 2019, we had financing receivables of $85.2 million and $50.2 million, respectively, and operating leases of $8.4 million and $7.8 million, respectively, which were collateral for non-recourse notes payable. See Note 9, "Notes Payable and Credit Facility."
For transfers accounted for as sales, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended September 30, 2019 and 2018, we recognized net gains of $4.1 million and $1.2 million, and total proceeds from these sales were $95.1 million and $47.2 million, respectively. For the year to date periods ended September 30, 2019 and 2018, we recognized net gains of $7.5 million and $2.5 million, respectively, and total proceeds from these sales were $172.0 million and $94.0 million, respectively.
When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenues, which is recognized as we perform the services. As of both September 30, 2019 and March 31, 2019, we had deferred revenue of $0.4 million for servicing obligations.
In a limited number of transfers accounted for as sales, we indemnified the assignee in the event that the lessee elected to early terminate the lease. As of September 30, 2019, our maximum potential future payments related to such guarantees is $0.3 million. We believe the likelihood of making any such payments to be remote.

5. | LESSEE ACCOUNTING

We lease office space for periods up to 6 years. We recognize our right-of-use assets as part of property, equipment and other assets. We recognize the current and long-term portions of our lease liability as part of other current liabilities and other liabilities, respectively. We recognized rent expense of $1.5 million and $3.1 million as part of selling, general, and administrative expenses during the three and six months ended September 30, 2019.
Supplemental information about the remaining lease terms and discount rates applied as of September 30, 2019:

Lease term and Discount Rate |  | September 30, 2019 |
Weighted average remaining lease term (months) |  |  | 41 |
Weighted average discount rate |  |  | 4.0 | %

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Future lease payments under our operating leases as of September 30, 2019 (in thousands):

|  | September 30, 2019 |
Remainder of year ending March 31, 2020 |  | $ | 2,609 |
Year ending March 31, 2021 |  |  | 5,341 |
Year ending March 31, 2022 |  |  | 3,783 |
Year ending March 31, 2023 |  |  | 2,804 |
Year ending March 31, 2024 |  |  | 1,053 |
Thereafter |  |  | 632 |
Total lease payments |  | $ | 16,221 |
Less: Interest |  |  | (1,035 | )
Present value of lease liabilities |  | $ | 15,186 |

As of September 30, 2019, the Company has one additional office lease in Limerick, PA that had not yet commenced with a total commitment of $592 thousand.

6. | GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL
The following table summarizes the changes in the carrying amount of goodwill for the six months ended September 30, 2019 (in thousands):

|  | September 30, 2019 |
|  | Goodwill |  |  | Accumulated Impairment Loss |  |  | Net Carrying Amount |
Beginning balance |  | $ | 119,480 |  |  | $ | (8,673 | ) |  | $ | 110,807 |
Acquisitions |  |  | 7,412 |  |  |  | - |  |  |  | 7,412 |
Foreign currency translations |  |  | (122 | ) |  |  | - |  |  |  | (122 | )
Ending balance |  | $ | 126,770 |  |  | $ | (8,673 | ) |  | $ | 118,097 |

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. Our entire balance as of September 30, 2019 relates to our technology reportable segment, which we also determined to be one reporting unit. The change in our goodwill balance during the six months ended September 30, 2019 relates to our acquisition of certain assets and liabilities of Innovative Technology Systems & Solutions, Inc. (“ABS Technology”), which is partially offset by adjustments related to our acquisition of SLAIT Consulting, LLC (“SLAIT”) and foreign exchange translations. See Note 16, “Business Combinations”.
We test goodwill for impairment on an annual basis, as of the first day of our third fiscal quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value.
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OTHER INTANGIBLE ASSETS
Our other intangible assets consist of the following at September 30, 2019 and March 31, 2019 (in thousands):

|  | September 30, 2019 |  |  | March 31, 2019 |
|  | Gross Carrying Amount |  |  | Accumulated Amortization / Impairment Loss |  |  | Net Carrying Amount |  |  | Gross Carrying Amount |  |  | Accumulated Amortization / Impairment Loss |  |  | Net Carrying Amount |
Customer relationships & other intangibles |  | $ | 62,989 |  |  | $ | (28,308 | ) |  | $ | 34,681 |  |  | $ | 57,407 |  |  | $ | (23,865 | ) |  | $ | 33,542 |
Capitalized software development |  |  | 10,474 |  |  |  | (5,361 | ) |  |  | 5,113 |  |  |  | 10,188 |  |  |  | (4,802 | ) |  |  | 5,386 |
Total |  | $ | 73,463 |  |  | $ | (33,669 | ) |  | $ | 39,794 |  |  | $ | 67,595 |  |  | $ | (28,667 | ) |  | $ | 38,928 |

Customer relationships and other intangibles are generally amortized between 5 to 10 years. Capitalized software development is generally amortized over 5 years.
Total amortization expense for other intangible assets was $2.5 million and $1.8 million for the three months and $4.9 million and $3.1 million for the six months ended September 30, 2019 and 2018, respectively. The change in the gross carrying amount of other intangible assets is due to the acquisition of ABS Technology of $5.7 million.

7. | RESERVES FOR CREDIT LOSSES

Activity in our reserves for credit losses for the six months ended September 30, 2019 and 2018 were as follows (in thousands):

|  | Accounts Receivable |  |  | Notes Receivable |  |  | Lease- Related Receivables |  |  | Total |
Balance April 1, 2019 |  | $ | 1,579 |  |  | $ | 505 |  |  | $ | 530 |  |  | $ | 2,614 |
Provision for credit losses |  |  | 311 |  |  |  | 15 |  |  |  | (27 | ) |  |  | 299 |
Write-offs and other |  |  | (42 | ) |  |  | - |  |  |  | (3 | ) |  |  | (45 | )
Balance September 30, 2019 |  | $ | 1,848 |  |  | $ | 520 |  |  | $ | 500 |  |  | $ | 2,868 |

|  | Accounts Receivable |  |  | Notes Receivable |  |  | Lease- Related Receivables |  |  | Total |
Balance April 1, 2018 |  | $ | 1,538 |  |  | $ | 486 |  |  | $ | 640 |  |  | $ | 2,664 |
Provision for credit losses |  |  | 127 |  |  |  | (3 | ) |  |  | (42 | ) |  |  | 82 |
Write-offs and other |  |  | (1 | ) |  |  | - |  |  |  | - |  |  |  | (1 | )
Balance September 30, 2018 |  | $ | 1,664 |  |  | $ | 483 |  |  | $ | 598 |  |  | $ | 2,745 |

Our reserves for credit losses and minimum payments associated with our notes receivables and lease-related receivables disaggregated based on of our impairment method were as follows (in thousands):

|  | September 30, 2019 |  |  | March 31, 2019 |
|  | Notes Receivable |  |  | Lease- Related Receivables |  |  | Notes Receivable |  |  | Lease- Related Receivables |
Reserves for credit losses: |  |  |  |  |  |  |  |  |  |  |  |
Ending balance: collectively evaluated for impairment |  | $ | 455 |  |  | $ | 500 |  |  | $ | 443 |  |  | $ | 530 |
Ending balance: individually evaluated for impairment |  |  | 65 |  |  |  | - |  |  |  | 62 |  |  |  | - |
Ending balance |  | $ | 520 |  |  | $ | 500 |  |  | $ | 505 |  |  | $ | 530 |
Minimum payments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance: collectively evaluated for impairment |  | $ | 78,394 |  |  | $ | 87,989 |  |  | $ | 40,501 |  |  | $ | 64,201 |
Ending balance: individually evaluated for impairment |  |  | 89 |  |  |  | - |  |  |  | 62 |  |  |  | - |
Ending balance |  | $ | 78,483 |  |  | $ | 87,989 |  |  | $ | 40,563 |  |  | $ | 64,201 |

We place receivables on non-accrual status when events, such as a customer’s declaring bankruptcy, occur that indicate a receivable will not be collectable. We charge off uncollectable financing receivables when we stop pursuing collection.
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The age of the recorded minimum lease payments and net credit exposure associated with our investment in direct financing and sales-type leases that are past due disaggregated based on our internally assigned credit quality rating (“CQR”) were as follows as of September 30, 2019 and March 31, 2019 (in thousands):

|  | 31-60 Days Past Due |  |  | 61-90 Days Past Due |  |  | Greater than 90 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Unbilled Minimum Lease Payments |  |  | Total Minimum Lease Payments |  |  | Unearned Income |  |  | Non- Recourse Notes Payable |  |  | Net Credit Exposure |
September 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
High CQR |  | $ | 213 |  |  | $ | 354 |  |  | $ | 126 |  |  | $ | 693 |  |  | $ | 190 |  |  | $ | 56,065 |  |  | $ | 56,948 |  |  | $ | (5,285 | ) |  | $ | (24,765 | ) |  | $ | 26,898 |
Average CQR |  |  | 65 |  |  |  | 36 |  |  |  | 41 |  |  |  | 142 |  |  |  | 283 |  |  |  | 30,616 |  |  |  | 31,041 |  |  |  | (2,368 | ) |  |  | (9,839 | ) |  |  | 18,834 |
Low CQR |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 278 |  |  | $ | 390 |  |  | $ | 167 |  |  | $ | 835 |  |  | $ | 473 |  |  | $ | 86,681 |  |  | $ | 87,989 |  |  | $ | (7,653 | ) |  | $ | (34,604 | ) |  | $ | 45,732 |
March 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
High CQR |  | $ | 325 |  |  | $ | 41 |  |  | $ | 10 |  |  | $ | 376 |  |  | $ | 543 |  |  | $ | 29,503 |  |  | $ | 30,422 |  |  | $ | (2,799 | ) |  | $ | (11,044 | ) |  | $ | 16,579 |
Average CQR |  |  | 22 |  |  |  | 54 |  |  |  | 15 |  |  |  | 91 |  |  |  | 125 |  |  |  | 33,563 |  |  |  | 33,779 |  |  |  | (2,508 | ) |  |  | (20,848 | ) |  |  | 10,423 |
Low CQR |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 347 |  |  | $ | 95 |  |  | $ | 25 |  |  | $ | 467 |  |  | $ | 668 |  |  | $ | 63,066 |  |  | $ | 64,201 |  |  | $ | (5,307 | ) |  | $ | (31,892 | ) |  | $ | 27,002 |

The age of the recorded notes receivable balance disaggregated based on our internally assigned CQR were as follows as of September 30, 2019 and March 31, 2019 (in thousands):

|  | 31-60 Days Past Due |  |  | 61-90 Days Past Due |  |  | Greater than 90 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Unbilled Notes Receivable |  |  | Total Notes Receivable |  |  | Non- Recourse Notes Payable |  |  | Net Credit Exposure |
September 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
High CQR |  | $ | 105 |  |  | $ | 1,367 |  |  | $ | 152 |  |  | $ | 1,624 |  |  | $ | 2,066 |  |  | $ | 65,225 |  |  | $ | 68,915 |  |  | $ | (44,447 | ) |  | $ | 24,468 |
Average CQR |  |  | 70 |  |  |  | 38 |  |  |  | 11 |  |  |  | 119 |  |  |  | 684 |  |  |  | 8,676 |  |  |  | 9,479 |  |  |  | (684 | ) |  |  | 8,795 |
Low CQR |  |  | - |  |  |  | - |  |  |  | 89 |  |  |  | 89 |  |  |  | - |  |  |  | - |  |  |  | 89 |  |  |  | - |  |  |  | 89 |
Total |  | $ | 175 |  |  | $ | 1,405 |  |  | $ | 252 |  |  | $ | 1,832 |  |  | $ | 2,750 |  |  | $ | 73,901 |  |  | $ | 78,483 |  |  | $ | (45,131 | ) |  | $ | 33,352 |
March 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
High CQR |  | $ | 990 |  |  | $ | 40 |  |  | $ | 30 |  |  | $ | 1,060 |  |  | $ | 3,813 |  |  | $ | 28,113 |  |  | $ | 32,986 |  |  | $ | (18,245 | ) |  | $ | 14,741 |
Average CQR |  |  | 105 |  |  |  | 34 |  |  |  | 7 |  |  |  | 146 |  |  |  | 137 |  |  |  | 7,232 |  |  |  | 7,515 |  |  |  | (1,507 | ) |  |  | 6,008 |
Low CQR |  |  | - |  |  |  | - |  |  |  | 62 |  |  |  | 62 |  |  |  | - |  |  |  | - |  |  |  | 62 |  |  |  | - |  |  |  | 62 |
Total |  | $ | 1,095 |  |  | $ | 74 |  |  | $ | 99 |  |  | $ | 1,268 |  |  | $ | 3,950 |  |  | $ | 35,345 |  |  | $ | 40,563 |  |  | $ | (19,752 | ) |  | $ | 20,811 |

We estimate losses on our net credit exposure to be between 0% - 5% for customers with the highest CQR, as these customers are investment grade or the equivalent of investment grade. We estimate losses on our net credit exposure to be between 2% - 15% for customers with average CQR, and between 15% - 100% for customers with low CQR, which includes customers in bankruptcy.
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8. | PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES

Our property, equipment, other assets and liabilities consist of the following (in thousands):

|  | September 30, 2019 |  |  | March 31, 2019 |
Other current assets: |  |  |  |  |  |
Deposits & funds held in escrow |  | $ | 211 |  |  | $ | 438 |
Prepaid assets |  |  | 6,285 |  |  |  | 6,425 |
Other |  |  | 371 |  |  |  | 636 |
Total other current assets |  | $ | 6,867 |  |  | $ | 7,499 |
Property, equipment and other assets |  |  |  |  |  |  |  |
Property and equipment, net |  | $ | 7,236 |  |  | $ | 7,314 |
Deferred costs - non-current |  |  | 11,303 |  |  |  | 8,856 |
Right-of-use assets |  |  | 15,141 |  |  |  | - |
Other |  |  | 1,624 |  |  |  | 1,158 |
Total other assets - long term |  | $ | 35,304 |  |  | $ | 17,328 |
Other current liabilities: |  |  |  |  |  |  |  |
Accrued expenses |  | $ | 8,846 |  |  | $ | 7,813 |
Accrued income taxes payable |  |  | 216 |  |  |  | 181 |
Contingent consideration - current |  |  | 283 |  |  |  | 5,162 |
Short-term lease liability |  |  | 5,396 |  |  |  | - |
Other |  |  | 18,183 |  |  |  | 6,129 |
Total other current liabilities |  | $ | 32,924 |  |  | $ | 19,285 |
Other liabilities: |  |  |  |  |  |  |  |
Deferred revenue |  | $ | 17,333 |  |  | $ | 13,789 |
Contingent consideration - long-term |  |  | - |  |  |  | 3,780 |
Long-term lease liability |  |  | 9,790 |  |  |  | - |
Other |  |  | 2,024 |  |  |  | 108 |
Total other liabilities - long term |  | $ | 29,147 |  |  | $ | 17,677 |

In the above table, deposits and funds held in escrow relate to financial assets that were sold to third-party banks. In conjunction with those sales, a portion of the proceeds was placed in escrow and will be released to us upon payment of outstanding invoices related to the underlying financing arrangements that were sold.
In September 2019, we reached a settlement in full for one of our contingent consideration arrangements in the amount of $9.6 million, that was paid in October 2019. This settlement is the primary factor behind the decrease in short-term and long-term contingent consideration and the increase in the other category in other current liabilities.

9. | NOTES PAYABLE AND CREDIT FACILITY

Non-recourse and recourse obligations consist of the following (in thousands):

|  | September 30, 2019 |  |  | March 31, 2019 |
Recourse notes payable with interest rates of 4.00% at March 31, 2019. |  |  |  |  |  |
Current |  | $ | - |  |  | $ | 28 |
Non-recourse notes payable secured by financing receivables and investments in operating leases with interest rates ranging from 2.90% to 8.45% as of September 30, 2019 and 3.23% to 8.45% as of March 31, 2019. |  |  |  |  |  |  |  |
Current |  | $ | 77,608 |  |  | $ | 38,117 |
Long-term |  |  | 8,404 |  |  |  | 10,502 |
Total non-recourse notes payable |  | $ | 86,012 |  |  | $ | 48,619 |

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Principal and interest payments on non-recourse notes payable are generally due monthly in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 3.98% and 4.68%, as of September 30, 2019 and March 31, 2019, respectively. The weighted average interest rate for our recourse notes payable was 4.00% as of March 31, 2019. and we had no recourse notes payable as of September 30, 2019. Under recourse financing, if a customer defaults, the lender has recourse to the customer, the assets serving as collateral, and us. Under non-recourse financing, if a customer defaults, the lender generally only has recourse against the customer and the assets serving as collateral, but not us.
Our technology segment, through our subsidiary ePlus Technology, inc., finances its operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC or (“WFCDF”). This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component. Under the floor plan component, we had outstanding balances of $129.7 million and $116.1 million as of September 30, 2019 and March 31, 2019, respectively. Under the accounts receivable component, we had no outstanding balances as of September 30, 2019 and March 31, 2019.
As of September 30, 2019, the facility had an aggregate limit of $325 million for the two components, and the accounts receivable component had a sub-limit of $50 million, which bears interest assessed at a rate of the One Month LIBOR plus two and one-half percent. We have an election beginning July 1 in each year to temporarily increase the aggregate limit of the two components from $250 million to $325 million ending the earlier of 90 days following the election or October 31 of that same year. On July 31, 2019, we elected to temporarily increase the aggregate limit to $325 million.
The credit facility has full recourse to ePlus Technology, inc. and certain subsidiaries and is secured by a blanket lien against all its assets, such as receivables and inventory. Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and a minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) of ePlus Technology, inc. and certain subsidiaries. We were in compliance with these covenants as of September 30, 2019. In addition, the facility restricts the ability of ePlus Technology, inc. and certain subsidiaries to transfer funds to its affiliates in the form of dividends, loans, or advances with certain exceptions for dividends to ePlus inc. The facility also requires that financial statements of ePlus Technology, inc. and certain subsidiaries. be provided within 45 days at the end of each quarter and 90 days of each fiscal year end, and that other operational reports be provided on a regular basis. Either party may terminate the credit facility with 90 days’ advance written notice. We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility. In addition, we do not believe that the covenants of the WFCDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, ePlus Technology, inc. and certain subsidiaries. This credit facility is secured by the assets of only ePlus Technology, inc. and certain subsidiaries. and the guaranty as described below.
The WFCDF facility requires a guaranty of $10.5 million by ePlus inc. The guaranty requires ePlus inc. to deliver its annual audited financial statements by certain dates. We have delivered the annual audited financial statements for the year ended March 31, 2019, as required. 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.
Fair Value
As of September 30, 2019, and March 31, 2019, the fair value of our long-term recourse and non-recourse notes payable approximated their carrying value.
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10. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, we may be subject to legal proceedings that arise in the ordinary course of business. In the opinion of management, there was not at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

11. | EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding plus common stock equivalents during each period.
The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our unaudited consolidated statements of operations for the three and six months ended September 30, 2019 and 2018, respectively (in thousands, except per share data).

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net earnings attributable to common shareholders - basic and diluted |  | $ | 20,098 |  |  | $ | 18,003 |  |  | $ | 36,286 |  |  | $ | 33,276 |
Basic and diluted common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares outstanding — basic |  |  | 13,312 |  |  |  | 13,494 |  |  |  | 13,334 |  |  |  | 13,464 |
Effect of dilutive shares |  |  | 38 |  |  |  | 92 |  |  |  | 74 |  |  |  | 133 |
Weighted average shares common outstanding — diluted |  |  | 13,350 |  |  |  | 13,586 |  |  |  | 13,408 |  |  |  | 13,597 |
Earnings per common share - basic |  | $ | 1.51 |  |  | $ | 1.33 |  |  | $ | 2.72 |  |  | $ | 2.47 |
Earnings per common share - diluted |  | $ | 1.51 |  |  | $ | 1.33 |  |  | $ | 2.71 |  |  | $ | 2.45 |

12. | STOCKHOLDERS’ EQUITY

Share Repurchase Plan
On April 26, 2018, our board of directors authorized the repurchase up to 500,000 shares of our outstanding common stock over a 12-month period beginning on May 28, 2018 through May 27, 2019. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.
On May 24, 2019, our board of directors authorized the repurchase up to 500,000 shares of our outstanding common stock over a 12-month period beginning on May 28, 2019 through May 27, 2020. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes.
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During the six months ended September 30, 2019, we purchased 149,044 shares of our outstanding common stock at a value of $10.7 million under the share repurchase plan; we also purchased 41,817 shares of common stock at a value of $3.0 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.
During the six months ended September 30, 2018, we purchased 70,445 shares of our outstanding common stock at a value of $5.5 million under the share repurchase plan; we also purchased 40,092 shares of common stock at a value of $3.9 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

13. | SHARE-BASED COMPENSATION

Share-Based Plans
As of September 30, 2019, we had share-based awards outstanding under the following plans: (1) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”), and (2) the 2012 Employee Long-Term Incentive Plan ("2012 Employee LTIP"). These share-based plans define fair market value as the previous trading day's closing price when the grant date falls on a date the stock was not traded.
Restricted Stock Activity
For the six months ended September 30, 2019, we granted 8,132 restricted shares under the 2017 Director LTIP, and 85,132 restricted shares under the 2012 Employee LTIP. For the six months ended September 30, 2018, we granted 8,322 restricted shares under the 2017 Director LTIP, and 69,847 restricted shares under the 2012 Employee LTIP. A summary of the restricted shares is as follows:

|  | Number of Shares |  |  | Weighted Average Grant- date Fair Value |
Nonvested April 1, 2019 |  |  | 224,000 |  |  | $ | 67.70 |
Granted |  |  | 93,264 |  |  | $ | 72.89 |
Vested |  |  | (123,011 | ) |  | $ | 62.04 |
Forfeited |  |  | (293 | ) |  | $ | 87.18 |
Nonvested September 30, 2019 |  |  | 193,960 |  |  | $ | 70.98 |

Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we may purchase a sufficient number of shares due to the participant to satisfy their minimum tax withholding on employee stock awards. For the six months ended September 30, 2019, the Company had withheld 41,817 shares of common stock at a value of $3.0 million, which was included in treasury stock.
Compensation Expense
We recognize compensation cost for awards of restricted stock with graded vesting on a straight-line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. During the three months ended September 30, 2019 and 2018, we recognized $2.1 million and $1.9 million, respectively, of total share-based compensation expense. During the six months ended September 30, 2019 and 2018, we recognized $4.1 million and $3.6 million of total share-based compensation expense, respectively. Unrecognized compensation expense related to non-vested restricted stock was $12.0 million as of September 30, 2019, which will be fully recognized over the next 33 months.
We also provide our employees with a contributory 401(k) profit sharing plan, to which we may contribute from time to time at our sole discretion. Employer contributions to the plan are fully vested at all times. For the three months ended September 30, 2019 and 2018, our estimated contribution expense for the plan was $0.7 million and $0.5 million, respectively. For the six months ended September 30, 2019 and 2018, our estimated contribution expense for the plan was $1.4 million and $1.0 million, respectively.
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14. INCOME TAXES
We account for our tax positions in accordance with Codification Topic 740, Income Taxes. Under the guidance, we evaluate uncertain tax positions based on the two-step approach. The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. For tax positions that are not likely to be sustained upon audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.
Our total gross unrecognized tax benefits recorded for uncertain income tax, and interest and penalties thereon, were negligible as of September 30, 2019 and September 30, 2018. We had no additions or reductions to our gross unrecognized tax benefits during the six months ended September 30, 2019. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

15. | FAIR VALUE OF FINANCIAL INSTRUMENTS

We account for the fair values of our assets and liabilities in accordance with Codification Topic 820, Fair Value Measurement and Disclosure. The following table summarizes the fair value hierarchy of our financial instruments as of September 30, 2019 and March 31, 2019 (in thousands):

|  |  |  |  | Fair Value Measurement Using |
|  | Recorded Amount |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
September 30, 2019 |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 127 |  |  | $ | 127 |  |  | $ | - |  |  | $ | - |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 283 |  |  | $ | - |  |  | $ | - |  |  | $ | 283 |
March 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 50 |  |  | $ | 50 |  |  | $ | - |  |  | $ | - |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 8,942 |  |  | $ | - |  |  | $ | - |  |  | $ | 8,942 |

For the three and six months ended September 30, 2019, we recorded adjustments to operating expenses of $1.1 million and $1.5 million, respectively, that increased our liability for contingent consideration arising from our past business combinations. In September 2019, we reached a settlement in full of one of our contingent consideration arrangements in the amount of $9.6 million, that was paid in October 2019. Additionally, in September 2019, we paid $0.5 million to satisfy certain current obligations in another of these arrangements.
For the three and six months ended September 30, 2018, we recorded adjustments to operating expenses that increased the fair value of our liability for contingent consideration by $0.7 million and $1.1 million, respectively. For both the three and six months ended September 30, 2018, we made payments of $1.1 million to satisfy the current obligations of the contingent consideration arrangements.
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16. BUSINESS COMBINATIONS
ABS Technology
On August 23, 2019, our subsidiary, ePlus Technology, inc., acquired certain assets and liabilities of ABS Technology, a Virginia Beach-headquartered solutions provider with deep expertise in managed services, networking, collaboration, and security solutions, will provide a strong strategic enhancement to ePlus’ existing solutions portfolio, which includes cloud, data center, security and Artificial Intelligence (“AI”)/emerging solutions, along with a comprehensive set of managed, professional and staffing services.
Our preliminary sum of consideration transferred is $15.3 million consisting of $13.8 million paid in cash at closing plus a $1.7 million payable that is being held back and will be released primarily upon the collection of certain accounts receivable and less $0.2 million that is receivable from a working capital adjustment. Our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

|  | Acquisition Date Amount |
Accounts receivable |  | $ | 9,208 |
Other assets |  |  | 743 |
Identified intangible assets |  |  | 5,720 |
Accounts payable and other current liabilities |  |  | (6,715 | )
Performance obligation |  |  | (1,140 | )
Total identifiable net assets |  |  | 7,816 |
Goodwill |  |  | 7,463 |
Total purchase consideration |  | $ | 15,279 |

As of our filing date the initial accounting for the business combination is incomplete in respect to determining the final consideration transferred and the amount of assets acquired, and liabilities assumed.
The identified intangible assets of $5.7 million consist of customer relationships with an estimated useful life of 7 years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.
We recognized goodwill related to this transaction of $7.5 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period as though the acquisition date had been April 1, 2019, is not material.
SLAIT Consulting, LLC
On January 18, 2019, our subsidiary, e Plus Technology, inc., acquired 100% of the stock of SLAIT an IT consulting and solutions provider with a focus on security advisory and managed services, managed help desk, specialized IT, staffing, and data center solutions. SLAIT is headquartered in Virginia Beach, Virginia and has locations in Richmond, Virginia, and Charlotte, North Carolina. SLAIT provides consultative services in governance, risk management and compliance; bespoke help desk and managed services solutions; and has relationships with fast-growing emerging vendors and related sales and engineering capabilities.
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Our sum of consideration transferred is $50.0 million consisting of $50.7 million paid in cash at closing, less $1.0 million cash acquired, and plus a working capital adjustment of $0.3 million that we paid in May 2019. Our allocation of the final purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

|  | Acquisition Date Amount |
Accounts receivable |  | $ | 10,209 |
Other assets |  |  | 1,050 |
Identified intangible assets |  |  | 18,190 |
Accounts payable and other current liabilities |  |  | (8,611 | )
Performance obligation |  |  | (5,110 | )
Total identifiable net assets |  |  | 15,728 |
Goodwill |  |  | 34,301 |
Total purchase consideration |  | $ | 50,029 |

The identified intangible assets of $18.2 million consist of customer relationships with an estimated useful life of 10 years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.
We recognized goodwill related to this transaction of $34.3 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the reporting period ending March 31, 2019 as though the acquisition date had been April 1, 2018, is not material.
The amounts above reflect a measurement period adjustment recorded in our quarter ended September 30, 2019 that increased the purchase consideration related to a working capital adjustment by $8 thousand, increased identifiable net assets by $59 thousand and decreased goodwill by $51 thousand.

17. | SEGMENT REPORTING

Our operations are conducted through two operating segments that are also both reportable segments. Our technology segment includes sales of IT products, third-party software, third-party maintenance, advanced professional and managed services, and our proprietary software to commercial enterprises, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software, and related services to commercial enterprises, state and local governments, and government contractors. We measure the performance of the segments based on operating income.
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Our reportable segment information was as follows (in thousands):

|  | Three Months Ended |
|  | September 30, 2019 |  |  | September 30, 2018 |
|  | Technology |  |  | Financing |  |  | Total |  |  | Technology |  |  | Financing |  |  | Total |
Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  | $ | 349,650 |  |  | $ | 13,847 |  |  | $ | 363,497 |  |  | $ | 299,200 |  |  | $ | 10,275 |  |  | $ | 309,475 |
Service |  |  | 48,068 |  |  |  | - |  |  |  | 48,068 |  |  |  | 35,568 |  |  |  | - |  |  |  | 35,568 |
Net sales |  | $ | 397,718 |  |  | $ | 13,847 |  |  | $ | 411,565 |  |  | $ | 334,768 |  |  | $ | 10,275 |  |  | $ | 345,043 |
Cost of Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  |  | 276,475 |  |  |  | 2,388 |  |  |  | 278,863 |  |  |  | 236,404 |  |  |  | 1,730 |  |  |  | 238,134 |
Service |  |  | 29,671 |  |  |  | - |  |  |  | 29,671 |  |  |  | 21,409 |  |  |  | - |  |  |  | 21,409 |
Total cost of sales |  |  | 306,146 |  |  |  | 2,388 |  |  |  | 308,534 |  |  |  | 257,813 |  |  |  | 1,730 |  |  |  | 259,543 |
Gross Profit |  |  | 91,572 |  |  |  | 11,459 |  |  |  | 103,031 |  |  |  | 76,955 |  |  |  | 8,545 |  |  |  | 85,500 |
Selling, general, and administrative |  |  | 67,189 |  |  |  | 3,334 |  |  |  | 70,523 |  |  |  | 55,138 |  |  |  | 2,567 |  |  |  | 57,705 |
Depreciation and amortization |  |  | 3,529 |  |  |  | 28 |  |  |  | 3,557 |  |  |  | 2,740 |  |  |  | 1 |  |  |  | 2,741 |
Interest and financing costs |  |  | - |  |  |  | 576 |  |  |  | 576 |  |  |  | - |  |  |  | 484 |  |  |  | 484 |
Operating expenses |  |  | 70,718 |  |  |  | 3,938 |  |  |  | 74,656 |  |  |  | 57,878 |  |  |  | 3,052 |  |  |  | 60,930 |
Operating income |  |  | 20,854 |  |  |  | 7,521 |  |  |  | 28,375 |  |  |  | 19,077 |  |  |  | 5,493 |  |  |  | 24,570 |
Other income (expense) |  |  |  |  |  |  |  |  |  |  | (40 | ) |  |  |  |  |  |  |  |  |  |  | 322 |
Earnings before tax |  |  |  |  |  |  |  |  |  | $ | 28,335 |  |  |  |  |  |  |  |  |  |  | $ | 24,892 |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contracts with customers |  | $ | 394,585 |  |  | $ | 1,411 |  |  | $ | 395,996 |  |  | $ | 329,682 |  |  | $ | 1,060 |  |  | $ | 330,742 |
Financing and other |  |  | 3,133 |  |  |  | 12,436 |  |  |  | 15,569 |  |  |  | 5,086 |  |  |  | 9,215 |  |  |  | 14,301 |
Net Sales |  | $ | 397,718 |  |  | $ | 13,847 |  |  | $ | 411,565 |  |  | $ | 334,768 |  |  | $ | 10,275 |  |  | $ | 345,043 |
Selected Financial Data - Statement of Cash Flow |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | $ | 3,658 |  |  | $ | 1,455 |  |  | $ | 5,113 |  |  | $ | 2,970 |  |  | $ | 1,397 |  |  | $ | 4,367 |
Purchases of property, equipment and operating lease equipment |  | $ | 1,426 |  |  | $ | 1,944 |  |  | $ | 3,370 |  |  | $ | 1,796 |  |  | $ | 3,025 |  |  | $ | 4,821 |
Selected Financial Data - Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 690,648 |  |  | $ | 223,618 |  |  | $ | 914,266 |  |  | $ | 565,771 |  |  | $ | 209,425 |  |  | $ | 775,196 |

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|  | Six Months Ended |
|  | September 30, 2019 |  |  | September 30, 2018 |
|  | Technology |  |  | Financing |  |  | Total |  |  | Technology |  |  | Financing |  |  | Total |
Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  | $ | 672,414 |  |  | $ | 26,684 |  |  | $ | 699,098 |  |  | $ | 612,349 |  |  | $ | 19,943 |  |  | $ | 632,292 |
Service |  |  | 93,839 |  |  |  | - |  |  |  | 93,839 |  |  |  | 69,283 |  |  |  | - |  |  |  | 69,283 |
Net sales |  |  | 766,253 |  |  |  | 26,684 |  |  |  | 792,937 |  |  |  | 681,632 |  |  |  | 19,943 |  |  |  | 701,575 |
Cost of Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  |  | 534,529 |  |  |  | 4,397 |  |  |  | 538,926 |  |  |  | 490,468 |  |  |  | 3,478 |  |  |  | 493,946 |
Service |  |  | 58,341 |  |  |  | - |  |  |  | 58,341 |  |  |  | 41,426 |  |  |  | - |  |  |  | 41,426 |
Cost of sales |  |  | 592,870 |  |  |  | 4,397 |  |  |  | 597,267 |  |  |  | 531,894 |  |  |  | 3,478 |  |  |  | 535,372 |
Gross Profit |  |  | 173,383 |  |  |  | 22,287 |  |  |  | 195,670 |  |  |  | 149,738 |  |  |  | 16,465 |  |  |  | 166,203 |
Selling, general, and administrative |  |  | 129,856 |  |  |  | 6,454 |  |  |  | 136,310 |  |  |  | 109,592 |  |  |  | 5,079 |  |  |  | 114,671 |
Depreciation and amortization |  |  | 6,936 |  |  |  | 84 |  |  |  | 7,020 |  |  |  | 5,529 |  |  |  | 2 |  |  |  | 5,531 |
Interest and financing costs |  |  | - |  |  |  | 1,204 |  |  |  | 1,204 |  |  |  | - |  |  |  | 960 |  |  |  | 960 |
Operating expenses |  |  | 136,792 |  |  |  | 7,742 |  |  |  | 144,534 |  |  |  | 115,121 |  |  |  | 6,041 |  |  |  | 121,162 |
Operating income |  |  | 36,591 |  |  |  | 14,545 |  |  |  | 51,136 |  |  |  | 34,617 |  |  |  | 10,424 |  |  |  | 45,041 |
Other income (expense) |  |  |  |  |  |  |  |  |  |  | (85 | ) |  |  |  |  |  |  |  |  |  |  | 419 |
Earnings before tax |  |  |  |  |  |  |  |  |  | $ | 51,051 |  |  |  |  |  |  |  |  |  |  | $ | 45,460 |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contracts with customers |  | $ | 758,266 |  |  | $ | 2,200 |  |  | $ | 760,466 |  |  | $ | 671,141 |  |  | $ | 1,656 |  |  | $ | 672,797 |
Financing and other |  |  | 7,987 |  |  |  | 24,484 |  |  |  | 32,471 |  |  |  | 10,491 |  |  |  | 18,287 |  |  |  | 28,778 |
Net sales |  | $ | 766,253 |  |  | $ | 26,684 |  |  | $ | 792,937 |  |  | $ | 681,632 |  |  | $ | 19,943 |  |  | $ | 701,575 |
Selected Financial Data - Statement of Cash Flow |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | $ | 7,283 |  |  | $ | 2,794 |  |  | $ | 10,077 |  |  | $ | 5,985 |  |  | $ | 2,882 |  |  | $ | 8,867 |
Purchases of property, equipment and operating lease equipment |  | $ | 2,675 |  |  | $ | 2,213 |  |  | $ | 4,888 |  |  | $ | 2,976 |  |  | $ | 3,475 |  |  | $ | 6,451 |
Selected Financial Data - Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 690,648 |  |  | $ | 223,618 |  |  | $ | 914,266 |  |  | $ | 565,771 |  |  | $ | 209,425 |  |  | $ | 775,196 |

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Technology Segment Disaggregation of Revenue
We analyze net sales for our technology segment by customer end market and by vendor, as opposed to discrete product and service categories, which are summarized below (in thousands):

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Customer end market: |  |  |  |  |  |  |  |  |  |  |  |
Technology |  | $ | 97,502 |  |  | $ | 75,417 |  |  | $ | 173,682 |  |  | $ | 158,234 |
Telecom, Media & Entertainment |  |  | 71,044 |  |  |  | 39,412 |  |  |  | 133,510 |  |  |  | 86,280 |
Financial Services |  |  | 44,605 |  |  |  | 47,412 |  |  |  | 92,847 |  |  |  | 92,638 |
SLED |  |  | 71,866 |  |  |  | 61,391 |  |  |  | 143,057 |  |  |  | 129,596 |
Healthcare |  |  | 59,818 |  |  |  | 51,081 |  |  |  | 115,926 |  |  |  | 97,531 |
All others |  |  | 52,883 |  |  |  | 60,055 |  |  |  | 107,231 |  |  |  | 117,353 |
Net sales |  |  | 397,718 |  |  |  | 334,768 |  |  |  | 766,253 |  |  |  | 681,632 |
Financing and other |  |  | (3,133 | ) |  |  | (5,086 | ) |  |  | (7,987 | ) |  |  | (10,491 | )
Revenue from contracts with customers |  | $ | 394,585 |  |  | $ | 329,682 |  |  | $ | 758,266 |  |  | $ | 671,141 |

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Vendor |  |  |  |  |  |  |  |  |  |  |  |
Cisco Systems |  | $ | 172,605 |  |  | $ | 152,063 |  |  | $ | 318,786 |  |  | $ | 291,300 |
NetApp |  |  | 9,771 |  |  |  | 9,477 |  |  |  | 23,198 |  |  |  | 25,039 |
HP Inc. & HPE |  |  | 18,986 |  |  |  | 16,658 |  |  |  | 42,099 |  |  |  | 36,977 |
Dell EMC |  |  | 12,494 |  |  |  | 19,895 |  |  |  | 26,275 |  |  |  | 32,398 |
Arista Networks |  |  | 26,766 |  |  |  | 10,673 |  |  |  | 47,716 |  |  |  | 30,471 |
Juniper Networks |  |  | 24,370 |  |  |  | 11,262 |  |  |  | 31,424 |  |  |  | 21,660 |
All others |  |  | 132,726 |  |  |  | 114,740 |  |  |  | 276,755 |  |  |  | 243,787 |
Net sales |  |  | 397,718 |  |  |  | 334,768 |  |  |  | 766,253 |  |  |  | 681,632 |
Financing and other |  |  | (3,133 | ) |  |  | (5,086 | ) |  |  | (7,987 | ) |  |  | (10,491 | )
Revenue from contracts with customers |  | $ | 394,585 |  |  | $ | 329,682 |  |  | $ | 758,266 |  |  | $ | 671,141 |

Financing Segment Disaggregation of Revenue
We analyze our revenues within our financing segment based on the nature of the arrangement, and our revenues from contracts with customers consist of proceeds from the sale of off-lease equipment.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our 2019 Annual Report. These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in Part I, Item 1A, “Risk Factors,” in our 2019 Annual Report., and in Part II, Item 1A. “Risk Factors” in this Report.
EXECUTIVE OVERVIEW
Business Description
We are a leading solutions provider that delivers actionable outcomes for organizations by using IT and consulting solutions to drive business agility and innovation. Leveraging our engineering talent, we assess, plan, deliver, and secure solutions comprised of leading technologies and consumption models aligned with our customers’ needs. Our expertise and experience enable ePlus to craft optimized solutions that take advantage of the cost, scale and efficiency of private, public and hybrid cloud in an evolving market. We also provide consulting, staffing, professional, managed, IT staff augmentation, and complete lifecycle management services including flexible financing and solutions in the areas of security, cloud, networking, data center, collaboration and emerging technologies. We have been in the business of selling, leasing, financing, and managing IT and other assets for more than 29 years.
Our primary focus is to deliver integrated solutions that address our customers’ business needs, leveraging the appropriate technologies, both on-premise and in the cloud. Our approach is to lead with advisory consulting to understand our customers’ needs, design, deploy and manage solutions aligned to their objectives. Underpinning the broader areas of cloud, security, networking, data center and collaboration are specific skills in orchestration and automation, application modernization, DevOps, data management, data visualization, analytics, network modernization, edge compute and other advanced and emerging technologies. These solutions are comprised of class leading technologies from partners such as Amazon Web Services, Arista Networks, Check Point, Cisco Systems, Citrix, Commvault, Dell EMC, F5 Networks, Gigamon, HPE, Juniper Networks, Lenovo, Microsoft, NetApp, Nutanix, NVIDIA, Oracle, Palo Alto Networks, Pure Storage, Rubrik, Splunk, and VMware, among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized for each of our customers’ specific requirements. Our hosted, proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their owned, leased, and consumption-based assets.
Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay current with emerging technology trends. Our expertise in core and emerging technologies, buttressed by our robust portfolio of consulting, professional, and managed services, has enabled ePlus to remain a trusted advisor for our customers. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We believe our lifecycle approach offering of integrated solutions, services, financing, and our proprietary supply chain software, are unique in the industry. This broad portfolio enables us to deliver a unique customer experience that spans the continuum from fast delivery of competitively priced products, services, subsequent management and upkeep, through to end-of-life disposal services. This approach permits ePlus to deploy ever-more-sophisticated solutions enabling our customers’ business outcomes.
Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. For the trailing twelve-month period ended September 30, 2019, the percentage of revenue by customer end market within our technology segment includes technology industry 22%, state and local government and educational institutions (“SLED”) 17%, telecommunications, media and entertainment 16%, healthcare 15%, and financial services 14%. The majority of our sales were generated within the United States (“US”); however, we have the ability to support our customers nationally and internationally, including physical locations in the United Kingdom (“UK”) and India. Our technology segment accounts for 97% of our net sales, and 72% of our operating income, while our financing segment accounts for 3% of our net sales, and 28% of our operating income for the six months ended September 30, 2019.
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Key Business Metrics
Our management monitors a number of financial and non-financial measures and ratios on a regular basis to track the progress of our business. We believe that the most important of these measures and ratios include net sales, gross margin, operating income margin, net earnings, net earnings per common share, adjusted EBITDA, adjusted EBITDA margin, adjusted gross billings, and non-GAAP net earnings per share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets.
These key indicators include financial information that is prepared in accordance with US GAAP and presented in our unaudited consolidated financial statements as well as non-GAAP performance measurement tools. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally included in the most directly comparable measure calculated and presented in accordance with US GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.
Our key business metrics are as follows (dollars in thousands):

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
Consolidated |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net sales |  | $ | 411,565 |  |  | $ | 345,043 |  |  | $ | 792,937 |  |  | $ | 701,575 |
Gross profit |  | $ | 103,031 |  |  | $ | 85,500 |  |  | $ | 195,670 |  |  | $ | 166,203 |
Gross margin |  |  | 25.0 | % |  |  | 24.8 | % |  |  | 24.7 | % |  |  | 23.7 | %
Operating income margin |  |  | 6.9 | % |  |  | 7.1 | % |  |  | 6.4 | % |  |  | 6.4 | %
Net earnings |  | $ | 20,098 |  |  | $ | 18,003 |  |  | $ | 36,286 |  |  | $ | 33,276 |
Net earnings margin |  |  | 4.9 | % |  |  | 5.2 | % |  |  | 4.6 | % |  |  | 4.7 | %
Net earnings per common share - diluted |  | $ | 1.51 |  |  | $ | 1.33 |  |  | $ | 2.71 |  |  | $ | 2.45 |
Non-GAAP: Net earnings (1) |  | $ | 24,228 |  |  | $ | 20,779 |  |  | $ | 43,687 |  |  | $ | 38,211 |
Non-GAAP: Net earnings per common share - diluted (1) |  | $ | 1.81 |  |  | $ | 1.53 |  |  | $ | 3.26 |  |  | $ | 2.81 |
Adjusted EBITDA (2) |  | $ | 35,405 |  |  | $ | 29,880 |  |  | $ | 63,972 |  |  | $ | 55,250 |
Adjusted EBITDA margin |  |  | 8.6 | % |  |  | 8.7 | % |  |  | 8.1 | % |  |  | 7.9 | %
Purchases of property and equipment used internally |  | $ | 1,426 |  |  | $ | 1,796 |  |  | $ | 2,675 |  |  | $ | 2,976 |
Purchases of equipment under operating leases |  |  | 1,944 |  |  |  | 3,025 |  |  |  | 2,213 |  |  |  | 3,475 |
Total capital expenditures |  | $ | 3,370 |  |  | $ | 4,821 |  |  | $ | 4,888 |  |  | $ | 6,451 |
Technology Segment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net sales |  | $ | 397,718 |  |  | $ | 334,768 |  |  | $ | 766,253 |  |  | $ | 681,632 |
Adjusted gross billings (3) |  | $ | 579,084 |  |  | $ | 485,856 |  |  | $ | 1,127,447 |  |  | $ | 968,157 |
Gross profit |  | $ | 91,572 |  |  | $ | 76,955 |  |  | $ | 173,383 |  |  | $ | 149,738 |
Gross margin |  |  | 23.0 | % |  |  | 23.0 | % |  |  | 22.6 | % |  |  | 22.0 | %
Operating income |  | $ | 20,854 |  |  | $ | 19,077 |  |  | $ | 36,591 |  |  | $ | 34,617 |
Adjusted EBITDA (2) |  | $ | 27,789 |  |  | $ | 24,284 |  |  | $ | 49,208 |  |  | $ | 44,625 |
Financing Segment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net sales |  | $ | 13,847 |  |  | $ | 10,275 |  |  | $ | 26,684 |  |  | $ | 19,943 |
Gross profit |  | $ | 11,459 |  |  | $ | 8,545 |  |  | $ | 22,287 |  |  | $ | 16,465 |
Operating Income |  | $ | 7,521 |  |  | $ | 5,493 |  |  | $ | 14,545 |  |  | $ | 10,424 |
Adjusted EBITDA (2) |  | $ | 7,616 |  |  | $ | 5,596 |  |  | $ | 14,764 |  |  | $ | 10,625 |

(1) | Non-GAAP net earnings and non-GAAP net earnings per common share – diluted is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share based compensation, and acquisition and integration expenses, and the related tax effects.

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We use non-GAAP net earnings per common share as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income (expense), share-based compensation, and acquisition-related amortization expense in calculating non-GAAP net earnings per common share 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 per common share provide useful information to investors and others to understand and evaluate 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 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 September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
GAAP: Earnings before tax |  | $ | 28,335 |  |  | $ | 24,892 |  |  | $ | 51,051 |  |  | $ | 45,460 |
Share based compensation |  |  | 2,135 |  |  |  | 1,868 |  |  |  | 4,077 |  |  |  | 3,561 |
Acquisition and integration expense |  |  | 1,338 |  |  |  | 701 |  |  |  | 1,739 |  |  |  | 1,117 |
Acquisition related amortization expense |  |  | 2,345 |  |  |  | 1,719 |  |  |  | 4,532 |  |  |  | 3,483 |
Other (income) expense |  |  | 40 |  |  |  | (322 | ) |  |  | 85 |  |  |  | (419 | )
Non-GAAP: Earnings before provision for income taxes |  |  | 34,193 |  |  |  | 28,858 |  |  |  | 61,484 |  |  |  | 53,202 |
GAAP: Provision for income taxes |  |  | 8,237 |  |  |  | 6,889 |  |  |  | 14,765 |  |  |  | 12,184 |
Share based compensation |  |  | 624 |  |  |  | 525 |  |  |  | 1,183 |  |  |  | 1,008 |
Acquisition and integration expense |  |  | 391 |  |  |  | 197 |  |  |  | 506 |  |  |  | 316 |
Acquisition related amortization expense |  |  | 663 |  |  |  | 455 |  |  |  | 1,270 |  |  |  | 929 |
Other (income) expense |  |  | 12 |  |  |  | (90 | ) |  |  | 25 |  |  |  | (118 | )
Tax benefit on restricted stock |  |  | 38 |  |  |  | 103 |  |  |  | 48 |  |  |  | 672 |
Non-GAAP: Provision for income taxes |  |  | 9,965 |  |  |  | 8,079 |  |  |  | 17,797 |  |  |  | 14,991 |
Non-GAAP: Net earnings |  | $ | 24,228 |  |  | $ | 20,779 |  |  | $ | 43,687 |  |  | $ | 38,211 |
GAAP: Net earnings per common share - diluted |  | $ | 1.51 |  |  | $ | 1.33 |  |  | $ | 2.71 |  |  | $ | 2.45 |
Non-GAAP: Net earnings per common share - diluted |  | $ | 1.81 |  |  | $ | 1.53 |  |  | $ | 3.26 |  |  | $ | 2.81 |

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
GAAP: Net earnings per common share - diluted |  | $ | 1.51 |  |  | $ | 1.33 |  |  | $ | 2.71 |  |  | $ | 2.45 |
Share based compensation |  |  | 0.11 |  |  |  | 0.10 |  |  |  | 0.22 |  |  |  | 0.19 |
Acquisition and integration expense |  |  | 0.07 |  |  |  | 0.04 |  |  |  | 0.09 |  |  |  | 0.06 |
Acquisition related amortization expense |  |  | 0.12 |  |  |  | 0.09 |  |  |  | 0.24 |  |  |  | 0.19 |
Other (income) expense |  |  | - |  |  |  | (0.02 | ) |  |  | - |  |  |  | (0.03 | )
Tax benefit on restricted stock |  |  | - |  |  |  | (0.01 | ) |  |  | - |  |  |  | (0.05 | )
Total non-GAAP adjustments - net of tax |  |  | 0.30 |  |  |  | 0.20 |  |  |  | 0.55 |  |  |  | 0.36 |
Non-GAAP: Net earnings per common share - diluted |  | $ | 1.81 |  |  | $ | 1.53 |  |  | $ | 3.26 |  |  | $ | 2.81 |

(2) | We define adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, share based compensation, acquisition and integration expenses, provision for income taxes, and other income (expense). Segment adjusted EBITDA is defined as operating income calculated in accordance with 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. We provide below 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.

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We use adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance. 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 to understand and evaluate 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 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 a comparative measure.

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
Consolidated |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net earnings |  | $ | 20,098 |  |  | $ | 18,003 |  |  | $ | 36,286 |  |  | $ | 33,276 |
Provision for income taxes |  |  | 8,237 |  |  |  | 6,889 |  |  |  | 14,765 |  |  |  | 12,184 |
Share based compensation |  |  | 2,135 |  |  |  | 1,868 |  |  |  | 4,077 |  |  |  | 3,561 |
Acquisition and integration expense |  |  | 1,338 |  |  |  | 701 |  |  |  | 1,739 |  |  |  | 1,117 |
Depreciation and amortization |  |  | 3,557 |  |  |  | 2,741 |  |  |  | 7,020 |  |  |  | 5,531 |
Other (income) expense |  |  | 40 |  |  |  | (322 | ) |  |  | 85 |  |  |  | (419 | )
Adjusted EBITDA |  | $ | 35,405 |  |  | $ | 29,880 |  |  | $ | 63,972 |  |  | $ | 55,250 |
Technology Segment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating income |  | $ | 20,854 |  |  | $ | 19,077 |  |  | $ | 36,591 |  |  | $ | 34,617 |
Depreciation and amortization |  |  | 3,529 |  |  |  | 2,740 |  |  |  | 6,936 |  |  |  | 5,529 |
Share based compensation |  |  | 2,068 |  |  |  | 1,766 |  |  |  | 3,942 |  |  |  | 3,362 |
Acquisition and integration expense |  |  | 1,338 |  |  |  | 701 |  |  |  | 1,739 |  |  |  | 1,117 |
Adjusted EBITDA |  | $ | 27,789 |  |  | $ | 24,284 |  |  | $ | 49,208 |  |  | $ | 44,625 |
Financing Segment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating income |  | $ | 7,521 |  |  | $ | 5,493 |  |  | $ | 14,545 |  |  | $ | 10,424 |
Depreciation and amortization |  |  | 28 |  |  |  | 1 |  |  |  | 84 |  |  |  | 2 |
Share based compensation |  |  | 67 |  |  |  | 102 |  |  |  | 135 |  |  |  | 199 |
Adjusted EBITDA |  | $ | 7,616 |  |  | $ | 5,596 |  |  | $ | 14,764 |  |  | $ | 10,625 |

(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 and 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. The presentation of adjusted gross billings has been updated to align with net sales for our technology segment.

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.

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Technology segment net sales |  | $ | 397,718 |  |  | $ | 334,768 |  |  | $ | 766,253 |  |  | $ | 681,632 |
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services |  |  | 181,366 |  |  |  | 151,088 |  |  |  | 361,194 |  |  | $ | 286,525 |
Adjusted gross billings |  | $ | 579,084 |  |  | $ | 485,856 |  |  | $ | 1,127,447 |  |  | $ | 968,157 |

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Consolidated Results of Operations
During the three months ended September 30, 2019, net sales increased 19.3%, or $66.5 million, to $411.6 million, compared to $345.0 million for the same period in the prior fiscal year. Product sales for the three months ended September 30, 2019 increased 17.5%, or $54.0 million, to $363.5 million compared to $309.5 million in the prior year. Services sales during the three months ended September 30, 2019 increased 35.1%, or $12.5 million, to $48.1 million compared to prior year services sales of $35.6 million. The increase in net sales was due to the acquisition of SLAIT in January 2019 as well as organic growth. The greatest increase in demand for products was from our customers in the telecom, media and entertainment, technology, SLED, and healthcare industries, which was partially offset by reductions in demand from financial services and the all other customer category, during the three months ended September 30, 2019 compared to the prior year.
For the six months ended September 30, 2019, net sales increased 13.0%, or $91.4 million, to $792.9 million, compared to $701.6 million in the same period in the prior fiscal year. Product sales for the six months ended September 30, 2019 increased 10.6%, or $66.8 million, to $699.1 million compared to $632.3 million in the prior year. Services sales during the six months ended September 30, 2019 increased 35.4%, or $24.6 million, to $93.8 million compared to prior year services sales of $69.3 million. The increase in net sales was due to organic growth and the acquisition of SLAIT in January 2019 as well as the acquisition of ABS Technology in August 2019. The greatest increase in demand for products was from our customers in the telecom, media and entertainment, healthcare, technology, and SLED customers, which was partially offset by reductions the all other category of customers, during the six months ended September 30, 2019 compared to the prior year.
Adjusted gross billings increased 19.2%, or $93.2 million, to $579.1 million for the three months ended September 30, 2019 from $485.9 million for the same period in the prior fiscal year. For the six months ended September 30, 2019, adjusted gross billings increased 16.5%, or $159.3 million, to $1,127.4 million, from $968.2 million for the same period in the prior fiscal 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 and the acquisitions of SLAIT and ABS Technology.
Consolidated gross profit increased 20.5%, or $17.5 million to $103.0 million, compared with $85.5 million for the three months ended September 30, 2018. Consolidated gross margins were 25.0% for the three months ended September 30, 2019, which is an increase of 20 basis points compared to 24.8% for the same period in the prior fiscal year. The gross margin improvement was higher product margins and service revenues. For the six months ended September 30, 2019, consolidated gross profit rose 17.7% to $195.7 million, compared with $166.2 million for the same period in the prior fiscal year. Consolidated gross margins were 24.7% for the six months ended September 30, 2019, an increase of 100 basis points compared to 23.7% for the same period in the prior fiscal year. The increase in margins for the six-month period was due to a shift in product mix, as we sold a higher proportion of third-party maintenance, software assurance and subscription/SaaS licenses, and services. Also contributing to the gross margin improvement was higher product margins and service revenues.
Our operating expenses for the three months ended September 30, 2019 increased 22.5%, or $13.7 million, to $74.7 million, as compared to $60.9 million for the prior year period. The majority of this increase for the three months ended September 30, 2019, is due to the increase in selling, general, and administrative expense of 22.2% or $12.8 million, due, in part to increases in variable compensation, as well as the operating expenses associated with the acquisitions of SLAIT and ABS Technology. As of September 30, 2019, we had 1,629 e Plus employees, which includes employees joining ePlus as a result of our recent acquisition of ABS Technology, an increase of 374, or 29.8%, from 1,255 last year. This increase also includes 235 employees as of September 30, 2019 from our acquisition of SLAIT, including the employees performing our staffing services. For the six months ended September 30, 2019, operating expenses increased 19.3%, or $23.4 million, to $144.5 million, as compared to $121.2 million in the prior year period. The majority of this increase for the six months ended September 30, 2019, is due to the increase in selling, general, and administrative expense of 18.9% or $21.6 million, due in part to increases in variable compensation, software license and maintenance, and the operating expenses associated with the acquisitions of SLAIT and ABS. Depreciation and amortization expense increased $0.8 million and $1.5 million for the three and six months ended September 30, 2019, respectively, due to the SLAIT and ABS Technology acquisitions. Interest and financing costs increased $0.1 million and $0.2 million, for the three and six months ended September 30, 2019, respectively due to an increase in the average balance of non-recourse notes payable outstanding during the six months ended September 30, 2019, as compared to the prior year.
As a result, operating income for the three months ended September 30, 2019 increased $3.8 million, or 15.5%, to $28.4 million as compared to $24.6 for the same period in the prior year period. For the six months ended September 30, 2019, operating income increased $6.1 million, or 13.5%, to $51.1 million, as compared to $45.0 million for the same period in the prior year.
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Our effective tax rate for the current quarter was 29.1%, compared to 27.7%, in the prior year quarter. Consolidated net earnings for the three months ended September 30, 2019, were $20.1 million, an increase of 11.6%, or $2.1 million, over the prior year’s results. Our effective tax rate for the six months ended September 30, 2019 was 28.9%, compared to 26.8%, for the same period in the prior year, during which time the consolidated net earnings were $36.3 million, an increase of 9.0%, or $3.0 million, compared to the prior year’s results. The increase in our effective income tax rate is due to a decrease in the tax benefit on the vesting of restricted stock and an increase in estimated permanent items.
Consolidated net earnings for the three months ended September 30, 2019 were $20.1 million, an increase of 11.6%, or $2.1 million, over the prior year’s results, due to the increase in revenues and gross profit, partially offset by increased operating expenses. For the six months ended September 30, 2019, net earnings were $36.3 million, an increase of $3.0 million, or 9.0%, over the prior year’s results, due to the increase in revenues and gross profit, partially offset by increased operating expenses and acquisition related expenses.
Adjusted EBITDA increased $5.5 million, or 18.5%, to $35.4 million and adjusted EBITDA margin decreased 10 basis points to 8.6% for the three months ended September 30, 2019, as compared to prior year period of 8.7%. For the six months ended September 30, 2019, adjusted EBITDA increased $8.7 million, or 15.8%, to $64.0 million and the adjusted EBITDA margin increased 20 basis points to 8.1% as compared to the prior year period of 7.9% for the six months ended September 30, 2019, compared to the prior year period.
Diluted earnings per share increased 13.5%, or $0.18, to $1.51 per share for the three months ended September 30, 2019, as compared to $1.33 per share for the same period in the prior year. Non-GAAP diluted earnings per share increased 18.3%, or $0.28, to $1.81 for the three months ended September 30, 2019. For the six months ended September 30, 2019, diluted earnings per share increased 10.6%, or $0.26, to $2.71 per share, as compared to $2.45 per share compared to the prior year period. Non-GAAP diluted earnings per share increased 16.0%, or $0.45, to $3.26 for the six months ended September 30, 2019, as compared to $2.81 for the six months ended September 30, 2018.
Cash and cash equivalents decreased $24.0 million or 30.0% to $55.8 million at September 30, 2019, as compared to $79.8 million as of March 31, 2019. The decrease is primarily the result of share repurchases, investments in our financing portfolio, working capital required for the growth in our technology segment, and an increase in our cash conversion cycle, partially offset by cash flows from operations. Our cash on hand, funds generated from operations, amounts available under our credit facility and the possible monetization of our investment portfolio have provided sufficient liquidity for our business.
Segment Overview
Our operations are conducted through two segments: technology and financing.
Technology Segment
The technology segment sells IT equipment and software and related services primarily to corporate customers, state and local governments, and higher education institutions on a nationwide basis, with geographic concentrations relating to our physical locations. The technology segment also provides Internet-based business-to-business supply chain management solutions for IT products.
Our technology segment derives revenue from the sales of new equipment and service engagements. Included in net sales are revenues derived from performing advanced IT professional and managed services that may be sold together with and integral to third-party products and software. Our service engagements are generally governed by statements of work and are primarily fixed price (with allowance for changes); however, some service agreements are based on time and materials.
Customers who purchase IT equipment and services from us may have customer master agreements, or CMAs, with our company, which stipulate the terms and conditions of the relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers place orders using purchase orders without a CMA in place or with other documentation customary for the business. Often, our work with state and local governments is based on public bids and our written bid responses.
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We endeavor to minimize our cost of sales through incentive programs provided by vendors and distributors. The programs for which we qualify are generally set by our reseller authorization level with the vendor. The authorization level we achieve and maintain governs the types of products we can resell as well as such items as pricing received, funds provided for the marketing of these products and other special promotions. These authorization levels are achieved by us through purchase volume, certifications held by sales executives or engineers and/or contractual commitments by us. The authorization levels are costly to maintain, and these programs continually change; therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs.
Financing Segment
Our financing segment offers financing solutions to corporations, governmental entities, and educational institutions nationwide, as well as internationally in the UK, Canada, Iceland, and Spain. The financing segment derives revenue from leasing IT and medical equipment and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing of third-party software licenses, software assurance, maintenance and other services.
Financing revenue generally falls into the following three categories:

| • | Portfolio income: Interest income from financing receivables and rents due under operating leases;

| • | Transactional gains: Net gains or losses on the sale of financial assets; and

| • | Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and net gains on the sale of off-lease (used) equipment.

Our financing segment sells the equipment underlying a lease to the lessee or a third-party other than the lessee. These sales occur at the end of the lease term and revenues from the sales of such equipment are recognized at the date of sale. We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.
Fluctuations in Revenues
Our results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, customer demand for our products and services, supplier costs, changes in vendor incentive programs, interest rate fluctuations, general economic conditions, and differences between estimated residual values and actual amounts realized related to the equipment we lease. Operating results could also fluctuate as a result of a sale prior to the expiration of the lease term to the lessee or to a third-party or from post-term events.
We expect to continue to expand by opening new sales locations and hiring additional staff for specific targeted market areas in the near future whenever we can find both experienced personnel and desirable geographic areas. These investments may reduce our results from operations in the short term.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with US GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that alternative accounting policies would have been applied, resulting in a change in financial results. On an ongoing basis, we reevaluate our estimates, including those related to revenue recognition, residual values, vendor incentives, lease classification, goodwill and intangibles, and reserves for credit losses and income taxes specifically relating to uncertain tax positions. We base estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. For all such estimates, we caution that future events rarely develop exactly as forecasted, and therefore, these estimates may require adjustment.
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 2019 Annual Report.
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SEGMENT RESULTS OF OPERATIONS
The three and six months ended September 30, 2019, compared to the three and six months ended September 30, 2018
Technology Segment
The results of operations for our technology segment were as follows (dollars in thousands):

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net sales |  |  |  |  |  |  |  |  |  |  |  |
Product |  | $ | 349,650 |  |  | $ | 299,200 |  |  | $ | 672,414 |  |  | $ | 612,349 |
Services |  |  | 48,068 |  |  |  | 35,568 |  |  |  | 93,839 |  |  |  | 69,283 |
Total |  |  | 397,718 |  |  |  | 334,768 |  |  |  | 766,253 |  |  |  | 681,632 |
Cost of sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product |  |  | 276,475 |  |  |  | 236,404 |  |  |  | 534,529 |  |  |  | 490,468 |
Services |  |  | 29,671 |  |  |  | 21,409 |  |  |  | 58,341 |  |  |  | 41,426 |
Total |  |  | 306,146 |  |  |  | 257,813 |  |  |  | 592,870 |  |  |  | 531,894 |
Gross profit |  |  | 91,572 |  |  |  | 76,955 |  |  |  | 173,383 |  |  |  | 149,738 |
Selling, general, and administrative |  |  | 67,189 |  |  |  | 55,138 |  |  |  | 129,856 |  |  |  | 109,592 |
Depreciation and amortization |  |  | 3,529 |  |  |  | 2,740 |  |  |  | 6,936 |  |  |  | 5,529 |
Operating expenses |  |  | 70,718 |  |  |  | 57,878 |  |  |  | 136,792 |  |  |  | 115,121 |
Operating income |  | $ | 20,854 |  |  | $ | 19,077 |  |  | $ | 36,591 |  |  | $ | 34,617 |
Adjusted gross billings |  | $ | 579,084 |  |  | $ | 485,856 |  |  | $ | 1,127,447 |  |  | $ | 968,157 |
Adjusted EBITDA |  | $ | 27,789 |  |  | $ | 24,284 |  |  | $ | 49,208 |  |  | $ | 44,625 |

Net sales: Net sales for the three months ended September 30, 2019, were $397.7 million compared to $334.8 million during the three months ended September 30, 2018, an increase of 18.8% or $62.9 million, due to increases from customers in the telecom, media and entertainment, technology, SLED, and healthcare industries, which was partially offset by a decrease in demand from financial services. Product sales for the three months ended September 30, 2019 increased 16.9%, or $50.5 million due to higher demand from our customers. Service revenues increased 35.1%, or $12.5 million, to $48.1 million due to an increase in staffing and professional and managed services primarily from the SLAIT acquisition. For the six months ended September 30, 2019, net sales increased 12.4%, or $84.6 million to $766.3 million compared to $681.6 million during the same period in the prior year. Product sales for the six months ended September 30, 2019 increased 9.8%, or $60.1 million to $672.4 million due to higher demand from our customers; and services revenues increased 35.4%, or $24.6 million, to $93.8 million, due to increases from customers in the telecom, media and entertainment, technology, SLED, and healthcare industries.
Adjusted gross billings for the three months ended September 30, 2019 increased to $579.1 million, or 19.2%, from $485.9 million during the three months ended September 30, 2018. The increase in adjusted gross billings was due, in part, to the SLAIT and ABS Technology acquisitions as well as higher demand from our current customers. For the six months ended September 30, 2019, adjusted gross billings increased by 16.5% to $1,127.4 million compared to $968.2 million during the same period in the prior year. As of September 30, 2019, we had open orders of $210.7 million and deferred revenue of $66.5 million. As of September 30, 2018, we had open orders of $150.3 million and deferred revenues of $48.5 million.
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We analyze net sales by customer end market and by vendor, as opposed to discrete product and service categories. Our revenues by customer end market have remained consistent over the year with over 80% of our revenues generated from customers within the five end markets identified below. These changes in revenue by customer end market were driven by changes in customer buying cycles and specific IT related initiatives. The percentage of net sales by industry are summarized below:

|  | Twelve Months Ended September 30, |  |  |  |
|  | 2019 |  |  | 2018 |  |  | Change |
Revenue by customer end market: |  |  |  |  |  |  |  |  |
Technology |  |  | 22 | % |  |  | 23 | % |  |  | (1 | %)
SLED |  |  | 17 | % |  |  | 17 | % |  |  | - |
Financial Services |  |  | 14 | % |  |  | 15 | % |  |  | (1 | %)
Healthcare |  |  | 15 | % |  |  | 15 | % |  |  | - |
Telecom, Media & Entertainment |  |  | 16 | % |  |  | 13 | % |  |  | 3 | %
All others |  |  | 16 | % |  |  | 17 | % |  |  | (1 | %)
Total |  |  | 100 | % |  |  | 100 | % |  |  |  |

Cisco systems and HP companies, combined, produced the majority of our revenues by vendor, at 47% and 45% of revenues for the twelve-month period ended September 30, 2019 and 2018, respectively. None of the vendors included within the “other” category exceeded 5% of revenues. The percentage of net sales by vendor are summarized below:

|  | Twelve Months Ended September 30, |  |  |  |
|  | 2019 |  |  | 2018 |  |  | Change |
Revenue by vendor: |  |  |  |  |  |  |  |  |
Cisco Systems |  |  | 41 | % |  |  | 40 | % |  |  | 1 | %
NetApp |  |  | 3 | % |  |  | 4 | % |  |  | (1 | %)
HP Inc. & HPE |  |  | 6 | % |  |  | 5 | % |  |  | 1 | %
Dell/EMC |  |  | 4 | % |  |  | 4 | % |  |  | - |
Juniper Networks |  |  | 4 | % |  |  | 3 | % |  |  | 1 | %
Arista Networks |  |  | 5 | % |  |  | 4 | % |  |  | 1 | %
All others |  |  | 37 | % |  |  | 40 | % |  |  | (3 | %)
Total |  |  | 100 | % |  |  | 100 | % |  |  |  |

Cost of sales: The 18.7% increase in cost of sales was due to the increase in sales. Our gross margin remained constant at 23.0% for the three months ended September 30, 2019 and 2018. A higher proportional increase in service sales offset a 10-basis point decline in product margin to 20.9%, and a 150-basis point decline in service margin to 38.3% for the three months ended September 30, 2019. For the six months ended September 30, 2019, gross margin increased by 60 basis points of the prior year period; product margin also increased by 60 basis points to 20.5%, compared to 19.9% in the prior year period. Gross margin was not affected by a reduction in service margin, due to an offsetting increase in service sales. Vendor incentives earned as a percentage of sales decreased 10 basis points and 30 basis points for the three and six months ended September 30, 2019, respectively, as compared to same period in the prior year.
Selling, general, and administrative: Selling, general, and administrative expenses of $67.2 million for the three months ended September 30, 2019 increased by $12.1 million, or 21.9% from $55.1 million the prior year. Salaries and benefits increased $10.0 million, or 22.4% to $54.6 million, compared to $44.6 million during the prior year. The increase is due to increased employment levels with approximately 43.1% of this increase due to higher variable compensation related to the increase in gross profit. Our technology segment had 1,595 employees as of September 30, 2019, an increase of 382, or 31.5%, from 1,213 at September 30, 2018. This increase includes 91 employees joining ePlus as a result of our recent acquisition of ABS Technology, and 235 employees as of September 30, 2019 from our acquisition of SLAIT, including the employees performing our staffing services.
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For the six months ended September 30, 2019, selling, general, and administrative expenses increased by $20.3 million, or 18.5%, to $129.9 million compared to $109.6 million the prior year. Salaries and benefits increased $16.2 million, or 18.0% to $106.1 million, compared to $89.9 million during the prior year due to increased employment levels. Approximately 37.9% of this increase is due to higher variable compensation related to the increase in gross profit.
General and administrative expenses increased $2.1 million, or 20.3%, to $12.7 million during the three months ended September 30, 2019, compared to $10.5 million the prior year. For the six months ended September 30, 2019, general and administrative expenses increased $4.1 million, or 21.0%, to $23.6 million. The increase in selling, general and administrative expenses was primarily due to the acquisition of SLAIT and ABS Technology, as well as other acquisition related expenses.
Depreciation and amortization: Depreciation and amortization increased $0.8 million, or 28.8%, to $3.5 million during the three months ended September 30, 2019 as compared to $2.7 million in the prior year, due to the acquisition of SLAIT in January 2019 and ABS Technology in August 2019, and increased $1.4 million, or 25.4%, to $6.9 million the six months ended September 30, 2019, compared to the prior year periods.
Segment operating income: As a result of the foregoing, operating income was $20.9 million, an increase of $1.8 million, or 9.3%, for the three months ended September 30, 2019 as compared to $19.1 million in the prior year period. For the six months ended September 30, 2019, operating income was $36.6 million, compared to $34.6 million in the prior year, an increase of $2.0 million, or 5.7%. For the three months ended September 30, 2019, adjusted EBITDA was $27.8 million, an increase of $3.5 million, or 14.4%, compared to $24.3 million in the prior year period. Adjusted EBITDA was $49.2 million, an increase of $4.6 million, or 10.3%, for the six months ended September 30, 2019, compared to $44.6 million in the prior year period.
Financing Segment
The results of operations for our financing segment were as follows (dollars in thousands):

|  | Three Months Ended September 30, |  |  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Net product sales |  | $ | 13,847 |  |  | $ | 10,275 |  |  | $ | 26,684 |  |  | $ | 19,943 |
Cost of product sales |  |  | 2,388 |  |  |  | 1,730 |  |  |  | 4,397 |  |  |  | 3,478 |
Gross profit |  |  | 11,459 |  |  |  | 8,545 |  |  |  | 22,287 |  |  |  | 16,465 |
Selling, general, and administrative |  |  | 3,334 |  |  |  | 2,567 |  |  |  | 6,454 |  |  |  | 5,079 |
Depreciation and amortization |  |  | 28 |  |  |  | 1 |  |  |  | 84 |  |  |  | 2 |
Interest and financing costs |  |  | 576 |  |  |  | 484 |  |  |  | 1,204 |  |  |  | 960 |
Operating expenses |  |  | 3,938 |  |  |  | 3,052 |  |  |  | 7,742 |  |  |  | 6,041 |
Operating income |  | $ | 7,521 |  |  | $ | 5,493 |  |  | $ | 14,545 |  |  | $ | 10,424 |
Adjusted EBITDA |  | $ | 7,616 |  |  | $ | 5,596 |  |  | $ | 14,764 |  |  | $ | 10,625 |

Net sales: Net sales increased by $3.6 million, or 34.8%, to $13.8 million for the three months ended September 30, 2019, as compared to prior year results due to higher transactional gains, portfolio earnings, and post contract earnings. During the three months ended September 30, 2019 and 2018, we recognized net gains on sales of financial assets of $4.1 million and $1.2 million, respectively, and the fair value of assets received from these sales were $95.1 million and $47.2 million, respectively. For the six months ended September 30, 2019, net sales increased to $26.7 million, an increase of $6.7 million, or 33.8% as compared to prior year of $19.9 million. During the six months ended September 30, 2019 and 2018, we recognized net gains on sales of financial assets of $7.5 million and $2.5 million, respectively, and the fair value of assets received from these sales were $172.0 million and $94.0 million, respectively. At September 30, 2019, we had $188.2 million in financing receivables and operating leases, compared to $165.4 million as of September 30, 2018, an increase of $22.8 million, or 13.8%.
Cost of sales: Cost of sales increased $0.7 million and $0.9 million for the three and six months ended September 30, 2019, compared to the same periods in the prior year, respectively, which consists of depreciation expense from operating leases. Gross profit increased by 34.1% to $11.5 million, for the three months ended September 30, 2019, and increased by 35.4% to $22.3 million, for the six months ended September 30, 2019 as compared to the prior year.
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Selling, general and administrative: For the three and six months ended September 30, 2019, selling, general, and administrative expenses increased by $0.8 million, or 29.9%, and $1.4 million, or 27.1%, respectively, which was due primarily to an increase variable compensation due to higher gross profit.
Interest and financing costs increased by 19.0% to $0.6 million for the three months ended September 30, 2019 and increased by 25.4% to $1.2 million for the six months ended September 30, 2019, compared to the prior year, due to an increase in the average total notes payable outstanding over the same periods for the prior year. Total notes payable were $86.0 million as of September 30, 2019, an increase of $20.7 million, or 31.7%, as compared to $65.3 million as of September 30, 2018. Our weighted average interest rate for non-recourse notes payable was 3.98% and 4.31%, as of September 30, 2019 and 2018, respectively.
Segment operating income: As a result of the foregoing, operating income and adjusted EBITDA both increased $2.0 million, or 36.9% and 36.1%, to $7.5 million and $7.6 million, for the three months ended September 30, 2019, over the prior year period. For the six months ended September 30, 2019, operating income and adjusted EBITDA both increased $4.1 million, respectively, or 39.5% and 39.0%, to $14.5 million and $14.8 million, respectively.
Consolidated
Other income: Other income (expense) during the three months ended September 30, 2019, was an expense of $40 thousand, compared to income of $322 thousand in the prior year. For the six months ended September 30, 2019 and 2018, other income (expense) was $85 thousand expense and $419 thousand income, respectively.
Income taxes: Our provision for income tax expense was $8.2 million and $14.8 million for the three and six months ended September 30, 2019, as compared to $6.9 million and $12.2 million for the same periods in the prior year. Our effective income tax rates for the three and six months ended September 30, 2019 was 29.1% and 28.9%, compared to 27.7% and 26.8% for the three and six months ended September 30, 2018. The increase in our effective income tax rate is due to a decrease in the tax benefit on the vesting of restricted stock and an increase in estimated permanent items.
Net earnings: The foregoing resulted in net earnings of $20.1 million for the three months ended September 30, 2019, an increase of 11.6%, as compared to $18.0 million during the three months ended September 30, 2018. For the six months ended September 30, 2019, net earnings were $36.3 million, an increase of $3.0 million, or 9.0%, over the same period in the prior year.
Basic and fully diluted earnings per common share were both $1.51 for the three months ended September 30, 2019, an increase of 13.5% as compared to $1.33 for both the basic and fully diluted earnings per common share for the same period in the prior year. For the six months ended September 30, 2019, basic and fully diluted earnings per common share were $2.72 and $2.71, an increase of 10.1% and 10.6%, as compared to $2.47 and $2.45 for the same period in the prior year, respectively.
Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for both the three and six months ended September 30, 2019 was 13.3 million and 13.4 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Overview
Our primary sources of liquidity have historically been cash and cash equivalents, internally generated funds from operations, and borrowings, both non-recourse and recourse. We have used 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.
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ePlus Technology, inc. and certain subsidiaries, part of our technology segment, finance their operations with funds generated from operations, and with a credit facility with WFCDF. This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component.
As of September 30, 2019, the facility had an aggregate limit of $325 million for the two components, and the accounts receivable component had a sub-limit of $50 million, which bears interest assessed at a rate of the One Month LIBOR plus two- and one-half percent. We have an election beginning July 1 in each year to temporarily increase the aggregate limit of the two components to $325 million ending the earlier of 90 days following the election or October 31 of that same year.
After a customer places a purchase order with us and we have completed our credit review, we place an order for the equipment with one of our vendors. Generally, most purchase orders from us to our vendors are first financed under the floor plan component and reflected in “accounts payable—floor plan” in our consolidated balance sheets. Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no outstanding balance at September 30, 2019 or September 30, 2018, while the maximum credit limit was $50 million and $30 million, respectively. The borrowings and repayments under the floor plan component are reflected as “net borrowings (repayments) on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows.
Most customer payments in our technology segment are remitted to our lockboxes. Once payments are cleared, the monies in the lockbox accounts are automatically transferred to our operating account on a daily basis. On the due dates of the floor plan component, we make cash payments to WFCDF. These payments from the accounts receivable component to the floor plan component and repayments from our cash are reflected as “net borrowings on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows. We engage in this payment structure to minimize our interest expense and bank fees in connection with financing the operations of our technology segment.
We believe that cash on hand and funds generated from operations, together with available credit under our credit facility, will be sufficient to finance our working capital, capital expenditures, and other requirements for at least the next twelve calendar months.
Our ability to continue to fund our planned growth, both internally and externally, is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing, or from other sources of financing, as may be required. While at this time we do not anticipate requiring any additional sources of financing to fund operations, if demand for IT products declines, or if our supply of products is delayed or interrupted, our cash flows from operations may be substantially affected.
Cash Flows
The following table summarizes our sources and uses of cash over the periods indicated (in thousands):

|  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |
Net cash used in operating activities |  | $ | (54,404 | ) |  | $ | (17,085 | )
Net cash used in investing activities |  |  | (18,050 | ) |  |  | (37,937 | )
Net cash provided by financing activities |  |  | 48,356 |  |  |  | 12,321 |
Effect of exchange rate changes on cash |  |  | 114 |  |  |  | 150 |
Net Decrease in Cash and Cash Equivalents |  | $ | (23,984 | ) |  | $ | (42,551 | )

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Cash flows from operating activities. We used $54.4 million from operating activities during the six months ended September 30, 2019, compared to $17.1 million for the six months ended September 30, 2018. See below for a breakdown of operating cash flows by segment (in thousands):

|  | Six Months Ended September 30, |
|  | 2019 |  |  | 2018 |
Technology segment |  | $ | 3,833 |  |  | $ | (13,125 | )
Financing segment |  |  | (58,237 | ) |  |  | (3,960 | )
Net cash used in operating activities |  | $ | (54,404 | ) |  | $ | (17,085 | )

Technology Segment: In the six months ended September 30, 2019, operating cash flows provided by our technology segment was $3.8 million as cash generated from earnings exceeding changes in working capital. In addition, cash provided by the accounts payable – floor plan facility was $13.6 million. Accounts payable – floor plan is a facility used to manage working capital needs and we are required to present changes in this balance as financing activity in our consolidated statement of cash flows.
In the six months ended September 30, 2018, our technology segment used $13.1 million from operating activities due to changes in working capital exceeding cash generated from earnings. Partially offsetting the cash used in operations were changes in the accounts payable - floor plan balance of $8.7 million.
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 September 30, |
|  | 2019 |  |  | 2018 |
(DSO) Days sales outstanding (1) |  |  | 59 |  |  |  | 60 |
(DIO) Days inventory outstanding (2) |  |  | 10 |  |  |  | 11 |
(DPO) Days payable outstanding (3) |  |  | (46 | ) |  |  | (46 | )
Cash conversion cycle |  |  | 23 |  |  |  | 25 |

(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 decreased to 23 days at September 30, 2019, compared to 25 days at September 30, 2018, resulting from a 1 day decrease in DSO and a 1 day decrease in DIO. Our DSO was impacted by an improvement in accounts receivable turnover; while our DIO as of September 30, 2019 was primarily impacted by an increase in average inventory balances of 7.5% while adjusted gross cost of goods sold for the same period increased 19.2% compared to the same period in the prior year.
Financing Segment: In the six months ended September 30, 2019, our financing segment used $58.2 million from operating activities, primarily due to changes in financing receivables- net of $76.4 million. In the six months ended September 30, 2018, our financing segment used $4.0 million from operating activities, primarily due to changes in working capital. In this period, which we elected not to update our cash flow using the transition option available when we adopted ASC 842, changes in financing receivables not sourced through us are reflected in cash flows from investing activities. With the adoption of ASC 842, for periods beginning after April 1, 2019, we recognize the change in financing receivables, including the issuance of financing receivables offset by repayments of financing receivables and the proceeds from the transfer of financing receivables when we account for the transfer as a sale, as part of operating activities.
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Cash flows related to investing activities. In the six months ended September 30, 2019, we used $18.1 million from investing activities, consisting of $13.8 million for acquisitions, $4.9 million for purchases of property, equipment and operating lease equipment offset by $0.7 million of proceeds from the sale of property, equipment, and operating lease equipment.
In the six months ended September 30, 2018, we used $37.9 million from investing activities, including $6.5 million for purchases of property, equipment and operating lease equipment. In this period, which we elected not to update our cash flows using the transition option available when we adopted ASC 842. Therefore, cash used in investing activities also included net cash outflows related to financing receivables of $33.3 million, consisting of the issuance of financing receivables of $88.4 million, purchases of assets to be leased or financed of $8.6 million, and was partially offset by cash proceeds from the repayment of financing receivables of $33.3 million, and the sale of financing receivables of $30.5 million.
Cash flows from financing activities. In the six months ended September 30, 2019, cash provided by financing activities was $48.4 million, consisting of net borrowings of non-recourse and recourse notes payable of $49.2 million, net borrowings on floor plan facility of $13.6 million, and offset by $13.7 million in repurchase of common stock and $0.8 million paid to sellers of SLAIT as part of a working capital adjustment.
Cash provided by financing activities was $12.3 million during the six months ended September 30, 2018, which was primarily due to net borrowings of non-recourse and recourse notes payable of $15.9 million, and net borrowing on floor plan facility of $8.7 million, partially offset by cash used for the repurchase of common stock of $10.1 million, and repayment of financing of acquisitions of $2.1 million
Our borrowing of non-recourse and 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 and recourse notes payable.
Non-Cash Activities
We assign contractual payments due to us under lease and financing agreements to third-party financial institutions. As a condition to the assignment agreement, certain financial institutions may request that the customer remit their contractual payments to a trust, rather than to us, and the trust pays the financial institution. Alternatively, the customer will make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender. However, when our customer makes payments through a trust, such payments represent non-cash transactions.
In addition, 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.
Liquidity and Capital Resources
We may utilize non-recourse notes payable to finance approximately 80% to 100% of the purchase price of the assets being leased or financed by our customers. Any balance of the purchase price remaining after non-recourse funding and any upfront payments received from the customer (our equity investment in the equipment) must generally be financed by cash flows from our operations, the sale of the equipment leased to third-parties, or other internal means. Although 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.
The financing necessary to support our lease and financing activities has been provided by our cash and non-recourse borrowings. We monitor our exposure closely. We are able to obtain financing through our traditional lending sources using primarily non-recourse borrowings from third-party banks and finance companies. Non-recourse financings are loans whose repayment is the responsibility of a specific customer, although we may make representations and warranties to the lender regarding the specific contract or have ongoing loan servicing obligations. Under a non-recourse loan, we borrow from a lender an amount based on the present value of the contractually committed payments at a fixed rate of interest, and the lender secures a lien on the financed assets. When the lender is fully repaid, the lien is released, and all further proceeds are ours. 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 the lender’s only recourse, upon default, is against the customer and the specific equipment.
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At September 30, 2019, our non-recourse notes payable increased 76.8% to $86.0 million, as compared to $48.6 million at March 31, 2019. There were no recourse notes payable as of September 30, 2019, compared to $28 thousand as of March 31, 2019.
Whenever desirable, we arrange for equity investment financing, which includes selling lease payments, including the residual portions, to third-parties and financing the equity investment on a non-recourse basis. We generally retain customer control and operational services and have minimal residual risk. We usually reserve the right to share in remarketing proceeds of the equipment on a subordinated basis after the investor has received an agreed-to return on its investment.
Credit Facility — Technology
Our subsidiary, ePlus Technology, inc., and certain of its subsidiaries. have a financing facility from WFCDF to finance its working capital requirements for inventories and accounts receivable. There are two components of this facility: (1) a floor plan component; and (2) an accounts receivable component. This facility has full recourse to ePlus Technology, inc. and certain subsidiaries. and is secured by a blanket lien against all its assets, such as chattel paper, receivables and inventory. As of September 30, 2019, the facility had an aggregate limit of the two components of $325 million with an accounts receivable sub-limit of $50 million.
On July 27, 2017, we executed an amendment to the WFCDF credit facility that temporarily increased the aggregate limit of the two components from $250 million to $325 million from the date of the agreement through October 31, 2017 and provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325 million ending the earlier of 90 days following the date of election and October 31 of that same year. On July 31, 2019, we elected to temporarily increase the aggregate limit to $325 million.
Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and ePlus Technology, inc.’s minimum earnings before interest, taxes, depreciation and amortization. We were in compliance with these covenants as of September 30, 2019. Interest on the facility is assessed at a rate of the One Month LIBOR plus two- and one-half percent if the payments are not made on the three specified dates each month. The facility also requires that financial statements of ePlus Technology, inc. and certain subsidiaries. be provided within 45 days of the end of each quarter and 90 days of each fiscal year end and other operational reports be provided on a regular basis. Either party may terminate the credit facility with 90 days advance written notice.
We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility. In addition, we do not believe that the covenants of the WFCDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, ePlus Technology, inc. and certain of its subsidiaries. This credit facility is secured by the assets of only ePlus Technology, inc. and certain of its subsidiaries and the guaranty as described below.
The WFCDF credit facility requires a guaranty of $10.5 million by ePlus inc. The guaranty requires ePlus inc. to deliver its annual audited financial statements by a certain date. We have delivered the annual audited financial statements for the year ended March 31, 2019, as required. 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.
Floor Plan Component
Purchases by ePlus Technology, inc. and certain subsidiaries. including computer technology products, software, maintenance and services are in part financed through a floor plan component in which interest expense for the first thirty to sixty days, in general, is not charged. The floor plan liabilities are recorded as accounts payable—floor plan on our consolidated balance sheets, as they are normally repaid within the fifteen to sixty-day time frame and represent assigned accounts payable originally generated with the manufacturer/distributor. In some cases, we are able to pay invoices early and receive a discount, but if the fifteen to sixty-day obligation is not paid timely, interest is then assessed at stated contractual rates.
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The respective floor plan component credit limits and actual outstanding balance payables for the dates indicated were as follows (in thousands):

Maximum Credit Limit at September 30, 2019 |  |  | Balance as of September 30, 2019 |  |  | Maximum Credit Limit at March 31, 2019 |  |  | Balance as of March 31, 2019 |
$ | 325,000 |  |  | $ | 129,668 |  |  | $ | 250,000 |  |  | $ | 116,083 |

Accounts Receivable Component
ePlus Technology, inc. and certain subsidiaries. have an accounts receivable component included within the WFCDF credit facility, which has a revolving line of credit. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no balance outstanding for the accounts receivable component at September 30, 2019, or March 31, 2019, while the maximum credit limit was $50 million for both periods.
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 the amount of these guarantees in the event of default in the performance of our obligations. We are in compliance with the 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 as defined in Item 303(a)(4)(ii) of Regulation S-K, or other contractually narrow or limited purposes. As of September 30, 2019, 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 offices 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.
Inflation
For the periods presented herein, inflation has been relatively low, and we believe that inflation has not had a material effect on our results of operations.
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.
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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, 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 2019 Annual Report.
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.

Item 3. | Quantitative and Qualitative Disclosures About Market Risk

A substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, which were aligned with the customer financing rate creating an interest rate spread that is our profit. Should we not fund these transactions with debt at inception and interest rates rise above our interest rate with our customer, we may not be able to fund the transaction without reduced profit or a loss, thus inhibiting our ability to generate proceeds from the transaction. We utilize our lines of credit and other financing facilities that are subject to fluctuations in short-term interest rates. These instruments, which are generally denominated in US dollars, were entered into for other than trading purposes and, with the exception of amounts drawn under the WFCDF facility, bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Borrowings under the WFCDF facility bear interest at a market-based variable rate. As of September 30, 2019, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.
We have transactions in foreign currencies, primarily in British Pounds, Euros, and Indian Rupees. There is a potential for exposure to fluctuations in foreign currency rates resulting primarily from the translation exposure associated with the preparation of our consolidated financial statements. In addition, we have foreign currency exposure when transactions are not denominated in our subsidiary’s functional currency. To date, our foreign operations are insignificant in relation to total consolidated operations, and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.
The UK referendum to leave the European Union (“Brexit”) could impact revenue items, cost items, tax, immigration, trade, goodwill impairments and liquidity, among others. The most obvious immediate impact is the effect of foreign exchange fluctuations on revenue and cost items. We evaluate Brexit-related developments on a regular basis to determine if such developments are anticipated to have a material impact on the Company’s results on operations and financial position.
We have determined that our foreign currency exposure for our UK operations is insignificant in relation to total consolidated operations and we believe those potential fluctuations in currency exchange rates and other Brexit-related economic and operational risks will not have a material effect on our results of operations and financial position.
We have assets in the UK, Canada, Iceland, and Spain. As a lessor, we have entered into lease contracts and non-recourse, fixed-interest-rate financing denominated in British Pounds, Canadian Dollars, Icelandic Krona, and Euros. To date, our foreign operations have been insignificant, and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

Item 4. | Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2019.
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Changes in Internal Control Over Financial Reporting.
There have not been any changes in our internal control over financial reporting during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process; therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
PART II. OTHER INFORMATION

Item 1. | Legal Proceedings

From time to time, we may be subject to legal proceedings that arise in the ordinary course of business. Legal proceedings which may arise in the ordinary course of business include, but are not limited to, preference payment claims asserted in customer bankruptcy proceedings; tax audits; claims of alleged infringement of patents, trademarks, copyrights, and other intellectual property rights; claims of alleged non-compliance with contract provisions; employment-related claims; claims by competitors, vendors, or customers; claims related to alleged violations of laws and regulations; and claims relating to alleged security or privacy breaches. We attempt to ameliorate the effect of potential litigation through insurance coverage and contractual protections such as rights to indemnifications and limitations of liability. Additionally, we proactively seek to recover funds to which we may be entitled. From time to time, we are successful in obtaining recoveries by filing a claim in class action suits, however, we have limited insight into the timing or amount of those recoveries.
We provide for costs relating to contingencies when a loss is probable, and the amount is reasonably determinable. In the opinion of management, there was not at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
determinable.

Item 1A. | Risk Factors

There has not been any material change in the risk factors previously disclosed in Part I, Item 1A of our 2019 Annual Report.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding our purchases of ePlus inc. common stock during the six months ended September 30, 2019.

Period |  | Total number of shares purchased (1) |  |  | Average price paid per share |  |  | Total number of shares purchased as part of publicly announced plans or programs |  |  | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
April 1, 2019 through April 30, 2019 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 385,419 |  |  |  | (2 | )
May 1, 2019 through May 27, 2019 |  |  | 2,301 |  |  | $ | 83.38 |  |  |  | 1,300 |  |  |  | 0 |  |  |  | (3 | )
May 28, 2019 through May 31, 2019 |  |  | 68,207 |  |  | $ | 72.32 |  |  |  | 68,207 |  |  |  | 431,793 |  |  |  | (4 | )
June 1, 2019 through June 30, 2019 |  |  | 117,093 |  |  | $ | 71.15 |  |  |  | 79,283 |  |  |  | 352,510 |  |  |  | (5 | )
July 1, 2019 through July 31, 2019 |  |  | 3,260 |  |  | $ | 72.87 |  |  |  | 254 |  |  |  | 352,256 |  |  |  | (6 | )
August 1, 2019 through August 31, 2019 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 352,256 |  |  |  | (7 | )
September 1, 2019 through September 30, 2019 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 352,256 |  |  |  | (8 | )

| (1) | Any shares acquired were in open-market purchases, except for 38,811 shares, out of which 1,001 were repurchased in May 2019 and 37,810 in June 2019 to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.

| (2) | The share purchase authorization in place for the month ended April 30, 2019 had purchase limitations on the number of shares of up to 500,000 shares. As of April 30, 2019, the remaining authorized shares to be purchased were 385,419.

| (3) | As of May 27, 2019, the authorization under the then existing share repurchase plan expired.

| (4) | On May 24, 2019, the board of directors authorized the company to repurchase up to 500,000 shares of our outstanding common stock commencing on May 28, 2019 and continuing to May 27, 2020. As of May 31, 2019, the remaining authorized shares to be purchased were 431,793.

| (5) | The share purchase authorization in place for the month ended June 30, 2019 had purchase limitations on the number of shares of up to 500,000 shares. As of June 30, 2019, the remaining authorized shares to be purchased were 352,510.

| (6) | The share purchase authorization in place for the month ended July 31, 2019 had purchase limitations on the number of shares of up to 500,000 shares. As of July 31, 2019, the remaining authorized shares to be purchased were 352,256.

| (7) | The share purchase authorization in place for the month ended August 31, 2019 had purchase limitations on the number of shares of up to 500,000 shares. As of August 31, 2019, the remaining authorized shares to be purchased were 352,256.

| (8) | The share purchase authorization in place for the month ended September 30, 2019 had purchase limitations on the number of shares of up to 500,000 shares. As of September 30, 2019, the remaining authorized shares to be purchased were 352,256.

The timing and expiration date of the current stock repurchase authorizations are included in Note 12, “Stockholders’ Equity” to our unaudited consolidated financial statements included elsewhere in this report.

Item 3. | Defaults Upon Senior Securities

Not Applicable.

Item 4. | Mine Safety Disclosures

Not Applicable.

Item 5. | Other Information

None.
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Item 6. | Exhibits

3.1 | ePlus inc. Amended and Restated Certificate of Incorporation as amended September 15, 2008 (Incorporated herein by reference as Exhibit 3.1 to our Current Report on Form 8-K filed on September 19, 2008)
3.2 | Amended and Restated Bylaws of ePlus inc., as amended February 15, 2018 (Incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 20, 2018)
31.1 | Certification of the Chief Executive Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2 | Certification of the Chief Financial Officer of ePlus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32 | Certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc. pursuant to 18 U.S.C. § 1350.
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH | Inline XBRL Taxonomy Extension Schema Document
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| ePlus inc. |
Date: November 6, 2019 | /s/ MARK P. MARRON |
| By: Mark P. Marron,
| Chief Executive Officer and President |
| (Principal Executive Officer) |
Date: November 6, 2019 | /s/ ELAINE D. MARION |
| By: Elaine D. Marion |
| Chief Financial Officer |
| (Principal Financial Officer)

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