EPLUS INC. 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 2022 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 2022 Annual Report, as supplemented in subsequently filed reports, and in Part II, Item 1A. "Risk Factors" in this Report.
EXECUTIVE OVERVIEW
BUSINESS DESCRIPTION
We are a leading solutions provider in the areas of security, cloud, networking, data center, collaboration, and emerging technologies. We deliver actionable outcomes for organizations by using information technology ("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 us to craft optimized solutions that take advantage of the cost, scale, and efficiency of private, public and hybrid cloud in an evolving market. As part of our solutions, we provide consulting, professional services, managed services, IT staff augmentation, and complete lifecycle management. Additionally, we offer flexible financing for purchases from us and from third-parties. We have been in the business of selling, leasing, financing, and managing IT and other assets for more than 30 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, and then 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
Our scale and financial resources have enabled us to continue investing in engineering and technology resources to stay on the forefront of 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 and financing, asset management and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a customized customer experience that spans the continuum from fast delivery of competitively priced products and services to subsequent management and maintenance, and through to end-of-life disposal services. This approach permits ePlus to deploy sophisticated solutions enabling our customers' business outcomes.
Our go-to-market strategy focuses primarily on diverse end-markets for middle
market to large enterprises. We serve customers in markets including telecom,
media and entertainment, technology, state and local government and educational
institutions ("SLED"), healthcare, and financial services. We sell to customers
in
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Table of Contents
BUSINESS TRENDS
We believe the following key factors are impacting our business performance and our ability to achieve business results:
• General economic concerns including inflation, rising interest rates, staffing
shortages, COVID variants, and global unrest may impact our customers' willingness to spend on technology and services.
• A worldwide shortage of certain IT products is resulting from, among other
things, shortages in semiconductors and other product components. Like others, we are experiencing ongoing supply constraints that have affected, and could continue to further affect, lead times for delivery of products, the costs of products, vendor return and cancellation policies, and our ability to meet customer demands. We continue to work closely with our suppliers to further mitigate disruptions outside our control. Despite these actions, we believe extended lead times will likely persist for at least the next few quarters.
• We are experiencing increases in prices from our suppliers as well as rising
wages and interest rates. We generally have been able to pass price increases to our customers. Our labor costs related to services we perform will take longer to pass to customers that have services engagements where prices may be set. Our financing quotes are generally indexed to market changes to enable us to change rates from time of quote to funding. Financing transactions funded with our cash flows, not debt, are subject to interest rate risk. If the market interest rate exceeds our internal rate of return, we may not fund the transaction to obtain the proceeds and lock in our profit on the transaction. There can be no assurances that inflation will not have a material impact on our sales, gross profit, or operating costs in the future.
• Customers' top focus areas include security, cloud solutions, hybrid work
environments (work from home and return to office) as well as digital transformation and modernization. We have developed advisory services, solutions, and professional and managed services to meet these priorities and help our customers attain their desired state.
• Modernizing legacy applications, data modernization, reducing operational
complexity, securing workloads, the cost and performance of IT operations, and agility are changing the way companies are purchasing and consuming technology. These are fueling deployments of solutions on cloud, managed services and hybrid platforms and licensing models.
KEY BUSINESS METRICS
Our management monitors several 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 excluded or 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 for the three month periods ended
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