Market Overview

ePlus Reports First Quarter Financial Results

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Quarterly Highlights:

  • Net sales decreased 4.5% to $356.5 million; technology segment net sales decreased 4.4% to $346.9 million.
  • Adjusted gross billings decreased 1.1% to $482.3 million.
  • Consolidated gross profit increased 4.0% to $80.7 million; consolidated gross margin was 22.6%, an increase of 180 basis points.
  • Net earnings increased 13.8% to $15.3 million.
  • Adjusted EBITDA increased 3.9% to $25.4 million.
  • Diluted earnings per share increased 16.7% to $1.12. Non-GAAP diluted earnings per share increased 6.7% to $1.28.

HERNDON, Va., Aug. 08, 2018 (GLOBE NEWSWIRE) -- ePlus inc. (NASDAQ:PLUS), a leading provider of technology solutions, today announced financial results for the three months ended June 30, 2018.

Management Comment

"First quarter results reflected higher gross profit performance due primarily to product mix and the expansion of our consultative and annuity services.  Our focus on providing customers with solutions around the high growth areas of Cloud, Security and Digital Infrastructure enabled us to report 4% growth in gross profit and a 180-basis point expansion in gross margin to 22.6%.  This growth was achieved despite lower year-on-year sales comparisons, due to a large project that benefitted sales primarily in last fiscal year's first and second quarters.  On a sequential basis, sales increased by approximately 8%, reflecting broad-based demand across our customer set, particularly within the mid-market, where we are offering a full range of services and focusing on generating annuity revenue streams," said Mark Marron, Chief Executive Officer and President.

"We delivered a strong quarter of profitability, while continuing to invest in our future to support our key strategic areas.  This includes investing in emerging technologies, while realigning and retraining existing sales and technical personnel to address the technology demands of today and the future."

First Quarter Fiscal 2018 Results

For the first quarter ended June 30, 2018 as compared to the first quarter of the prior fiscal year ended June 30, 2017:

Consolidated net sales decreased 4.5% to $356.5 million, from $373.4 million.

Technology segment net sales decreased 4.4% to $346.9 million, from $362.9 million.

Adjusted gross billings decreased 1.1% to $482.3 million. Adjusted gross billings are technology segment net sales adjusted to exclude the costs incurred of applicable third-party maintenance, software assurance and subscription/Saas licenses, and services.

Financing segment net sales decreased 7.5% to $9.7 million, from $10.5 million.

Consolidated gross profit rose 4.0% to $80.7 million, from $77.6 million. Consolidated gross margin improved 180 basis points to 22.6%, compared with 20.8% last year, due to a shift in mix towards third-party maintenance, software assurance and subscription/SaaS licenses, and services. Also contributing were higher product margins and service revenues.

Operating expenses increased 5.5% to $60.2 million, from $57.1 million, due, in part to an increase in variable compensation as a result of the increase in gross profit, as well as an increase of 26 personnel, or 2.1%, to 1,249 from 1,223 as of June 30, 2017. 

Consolidated operating income decreased 0.2% to $20.5 million.

Our effective tax rate for the current quarter was 25.7%, compared with 35.4% in the prior year quarter. The lower effective tax rate was due to the change in the U.S federal statutory rate to 21% from legislation that was enacted on December 22, 2017. As a result, the U.S. statutory tax rate for the quarter ended June 30, 2018 was 21.0%, as compared to 35.0% for the same period last year. 

Net earnings rose 13.8% to $15.3 million.

Adjusted EBITDA rose 3.9% to $25.4 million, from $24.4 million.

Diluted earnings per share was $1.12, compared with $0.96 in the prior year quarter. Non-GAAP diluted earnings per share was $1.28, compared with $1.20 last year. Non-GAAP diluted earnings per share 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, and an adjustment to our tax expense in the prior year assuming a 21.0% statutory income tax rate for U.S. operations.

Balance Sheet Highlights

As of June 30, 2018, ePlus had cash and cash equivalents of $57.5 million, compared with $118.2 million as of March 31, 2018.  The decrease in cash and cash equivalents was primarily due to increases in working capital in the technology segment and share repurchases.  Total stockholders' equity was $379.9 million, compared with $372.6 million as of March 31, 2018. Total shares outstanding were 13.7 million and 13.8 million on June 30, 2018 and March 31, 2018, respectively.

Summary and Outlook

"Market dynamics remain favorable, and our customers continue to look for solutions and service offerings in our key focus areas of Cloud, Security and Digital Infrastructure.  Sales of security products and services increased to 18.6% of adjusted gross billings, a 160-basis point increase, for the trailing twelve months ended June 30, 2018. Our go-to-market strategy has been effective in differentiating ePlus as a provider of complex solutions to a broad and increasingly diversified customer base.  Additionally, the shift toward ratably recognized revenue over time will provide us with improved visibility and create opportunities to upsell and cross-sell products and services to existing clients.

"We continue to optimize our cost structure while making investments in customer-facing headcount which are aligned with our strategic focus areas. Given our strong balance sheet, we will continue to seek out strategic acquisitions that can expand our solutions offerings and geographic footprint.  All of this sets the stage for another year of progress for ePlus in fiscal 2019," Mr. Marron concluded.    

Recent Corporate Developments/Recognitions

  • On July 31, ePlus announced that Douglas King has joined as its Chief Information Officer.
  • On June 14, ePlus announced Maureen F. Morrison had been appointed to the Board of Directors, filling a newly created board seat.
  • On June 5, ePlus announced that its subsidiary, ePlus Technology, inc. had been promoted to the Elite Level as a Deep Learning Partner with NVIDIA. Additionally, ePlus announced that it was named to CRN®'s 2018 Solution Provider 500 list. The list is CRN's annual ranking of the largest technology integrators, solution providers and IT consultants in North America by revenue.
  • On May 9, ePlus announced that Darren Raiguel had been promoted to Chief Operating Officer of ePlus inc. and President of ePlus Technology, inc.

Conference Call Information

ePlus will hold a conference call and webcast at 4:30 p.m. ET on August 8, 2018:

Date:         Wednesday, August 8, 2018
Time:         4:30 p.m. ET
Live Call:         (877) 870-9226, domestic, (973) 890-8320, international
Replay:          (855) 859-2056, domestic, (404) 537-3406, international
Passcode:         7483596 (live and replay)
Webcast:         http://www.eplus.com/investors (live and replay)

The replay of this webcast will be available approximately two hours after the call and be available through August 16, 2018.

About ePlus inc.

ePlus is a leading consultative technology solutions provider that helps customers imagine, implement, and achieve more from their technology.  With the highest certifications from top technology partners and expertise in key technologies from data center to security, cloud, and collaboration, ePlus transforms IT from a cost center to a business enabler.  Founded in 1990, ePlus has more than 1,200 associates serving a diverse set of customers in the U.S., Europe, and Asia-Pac.  The Company is headquartered at 13595 Dulles Technology Drive, Herndon, VA, 20171.  For more information, visit www.eplus.com, call 888-482-1122, or email info@eplus.com.  Connect with ePlus on Facebook at www.facebook.com/ePlusinc and on Twitter at www.twitter.com/ePlus

ePlus. Where Technology Means More®.

ePlus® and ePlus products referenced herein are either registered trademarks or trademarks of ePlus inc. in the United States and/or other countries.  The names of other companies and products mentioned herein may be the trademarks of their respective owners.

Forward-looking statements

Statements in this press release that are not historical facts may be deemed to be "forward-looking statements."  Actual and anticipated future results may vary materially due to certain risks and uncertainties, including, without limitation, possible adverse effects resulting from financial market disruption and volatility in the U.S. economy such as our current and potential customers delaying or reducing technology purchases, increasing credit risk associated with our customers and vendors, reduction of vendor incentive programs, and restrictions on our access to capital necessary to fund our operations; our ability to successfully perform due diligence and integrate acquired businesses; disruptions or a security breach in our or our vendors IT systems and data and audio communication networks; the possibility of goodwill impairment charges in the future; significant adverse changes in, reductions in, or losses of relationships with major customers or vendors; the demand for and acceptance of, our products and services; our ability to adapt our services to meet changes in market developments; our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key strategies; our ability to reserve adequately for credit losses; our ability to secure our customers' electronic and other confidential information and remain secure during a cyber-security attack; future growth rates in our core businesses; the impact of competition in our markets; the possibility of defects in our products or catalog content data; our ability to adapt to changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service and software as a service; our ability to realize our investment in leased equipment; our ability to hire and retain sufficient qualified personnel; and other risks or uncertainties detailed in our reports filed with the Securities and Exchange Commission.  All information set forth in this press release is current as of the date of this release and ePlus undertakes no duty or obligation to update this information.

Contact:
Kleyton Parkhurst, SVP
ePlus inc.
kparkhurst@eplus.com
703-984-8150

     
ePlus inc. AND SUBSIDIARIES    
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS          
(in thousands, except per shares amounts)          
         
    June 30, 2018   March 31, 2018
ASSETS   (unaudited)      (as adjusted)  
         
Current assets:        
Cash and cash equivalents   $ 57,480     $ 118,198  
Accounts receivable—trade, net     321,033       268,287  
Accounts receivable—other, net     37,628       28,401  
Inventories     52,127       39,855  
Financing receivables—net, current     70,619       69,936  
Deferred costs     14,389       16,589  
Other current assets     18,319       23,625  
Total current assets     571,595       564,891  
         
Financing receivables and operating leases—net     70,054       68,511  
Property, equipment and other assets     17,592       19,143  
Goodwill     76,484       76,624  
Other intangible assets—net     24,674       26,302  
TOTAL ASSETS   $ 760,399     $ 755,471  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
LIABILITIES        
         
Current liabilities:        
Accounts payable   $ 98,672     $ 106,933  
Accounts payable—floor plan     129,577       112,109  
Salaries and commissions payable     17,528       19,801  
Deferred revenue     36,012       35,648  
Recourse notes payable—current     -       1,343  
Non-recourse notes payable—current     42,121       40,863  
Other current liabilities     22,480       33,370  
Total current liabilities     346,390       350,067  
         
Non-recourse notes payable—long term     12,477       10,072  
Deferred tax liability—net     1,648       1,662  
Other liabilities     20,030       21,067  
TOTAL LIABILITIES     380,545       382,868  
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS' EQUITY        
Preferred stock, $.01 per share par value; 2,000 shares authorized; none outstanding     -       -  
Common stock, $.01 per share par value; 25,000 shares authorized; 13,723 outstanding at June 30, 2018 and  13,761 outstanding at March 31, 2018     143       142  
Additional paid-in capital     131,693       130,000  
Treasury stock, at cost, 575 shares at June 30, 2018 and 467 shares at March 31, 2018     (45,075)       (36,016)  
Retained earnings     293,218       277,945  
Accumulated other comprehensive income—foreign currency translation adjustment     (125)       532  
Total Stockholders' Equity     379,854       372,603  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 760,399     $ 755,471  


                 

ePlus inc. AND SUBSIDIARIES
               
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)    
    Three Months Ended June 30,
    2018   2017
    (unaudited)   (as adjusted)
         
Net sales   $ 356,532   $ 373,356
Cost of sales     275,829     295,763
Gross profit     80,703     77,593
         
Selling, general and administrative expenses     56,966     54,664
Depreciation and amortization     2,790     2,063
Interest and financing costs     476     359
Operating expenses     60,232     57,086
         
OPERATING INCOME     20,471     20,507
         
Other income     97     271
         
EARNINGS BEFORE PROVISION FOR INCOME TAXES     20,568     20,778
         
PROVISION FOR INCOME TAXES     5,295     7,355
         
NET EARNINGS   $ 15,273   $ 13,423
         
NET EARNINGS PER COMMON SHARE—BASIC   $ 1.14   $ 0.97
NET EARNINGS PER COMMON SHARE—DILUTED   $ 1.12   $ 0.96
         
         
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC     13,434     13,806
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED     13,597     14,019


           

Technology Segment
         
  Three months ended June 30,    
  2018   2017   % Change
  (in thousands)    
           
Net sales $ 346,864   $ 362,899   (4.4%)  
Cost of sales   274,081     293,266   (6.5%)  
Gross profit   72,783     69,633   4.5%  
           
Selling, general and administrative   54,454     51,501   5.7%  
Depreciation and amortization   2,789     2,062   35.3%  
Operating expenses   57,243     53,563   6.9%  
           
Operating income $ 15,540   $ 16,070   (3.3%)  
           
Key Business Metrics          
Adjusted gross billings $ 482,301   $ 487,504   (1.1%)  
Adjusted EBITDA $ 20,341   $ 19,886   2.3%  


       
Technology Segment Net Sales by Customer-end Market      
  Twelve Months Ended June 30,    
  2018   2017   Change

Technology
24%   25%   (1%)
State & Local Government & Educational Institutions 17%   19%   (2%)
Telecom, Media, and Entertainment 14%   15%   (1%)
Financial Services 15%   13%   2%
​Healthcare 14%   11%   3%
​All others 16%   17%   (1%)
Total 100%   100%    


           
Financing Segment          
  Three months ended June 30,    
  2018   2017   % Change
  (in thousands)    
           
Net sales $ 9,668   $ 10,457   (7.5%)  
Cost of sales   1,748     2,497   (30.0%)  
Gross profit   7,920     7,960   (0.5%)  
           
Selling, general and administrative   2,512     3,163   (20.6%)  
Depreciation and amortization   1     1   0.0%  
Interest and financing costs   476     359   32.6  
Operating expenses   2,989     3,523   (15.2%)  
           
Operating income $ 4,931   $ 4,437   11.1%  
           
Key Business Metrics          
Adjusted EBITDA $ 5,029   $ 4,521   11.2%  
                 

ePlus inc. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP INFORMATION

We included reconciliations below for the following non-GAAP information: (i) Adjusted Gross Billings, (ii) Adjusted EBITDA, (iii) Segment Adjusted EBITDA, and (iv) non-GAAP Net Earnings per Common Share - Diluted.

We define adjusted gross billings as our technology segment net sales calculated in accordance with GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance, software assurance and subscription/SaaS licenses, and services.  The presentation of adjusted gross billings has been updated from prior period presentations to align with net sales within our technology segment.    

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. 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.  

Non-GAAP net earnings per common share are based on net earnings calculated in accordance with GAAP, adjusted to exclude other income, share based compensation, and acquisition related amortization expense, and the related tax effects. The presentation of non-GAAP net earnings and non-GAAP net earnings per common share – diluted have been changed from prior period presentations to adjust our tax expense assuming a statutory income tax rate of 21.0% for U.S. operations. 

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 Adjusted Gross Billings, Adjusted EBITDA, and non-GAAP Net Earnings per Common Share - Diluted or similarly titled measures differently, which may reduce their usefulness as comparative measures.

   
  Three Months Ended June 30,
  2018   2017
  (in thousands)
       
Technology segment net sales $ 346,864   $ 362,899
Costs incurred related to sales of third party software assurance, maintenance and services  

135,437
   

124,605
Adjusted gross billings $ 482,301   $ 487,504


   
  Three Months Ended June 30,
  2018     2017  
  (in thousands)
Consolidated      
       
Net earnings $ 15,273     $ 13,423  
Provision for income taxes   5,295       7,355  
Share based compensation   1,693       1,507  
Acquisition related expenses   416       330  
Depreciation and amortization [1]   2,790       2,063  
Other (income) expense [2]   (97)       (271)  
Adjusted EBITDA $ 25,370     $ 24,407  
       
       
       
  Three Months Ended June 30,
  2018     2017  
  (in thousands)
Technology Segment      
Operating income $ 15,540     $ 16,070  
Depreciation and amortization [1]   2,789       2,062  
Share based compensation   1,596       1,424  
Acquisition and integration expenses   416       330  
Segment Adjusted EBITDA $ 20,341     $ 19,886  
       
Financing Segment      
Operating income $ 4,931     $ 4,437  
Depreciation and amortization [1]   1       1  
Share based compensation   97       83  
Segment Adjusted EBITDA $ 5,029     $ 4,521  


     
    Three Months Ended June 30,
     2018      2017  
    (in thousands, except per share data)
   
GAAP: Earnings before provision for income taxes   $ 20,568     $ 20,778  
Share based compensation     1,693       1,507  
Acquisition related expenses     416       330  
Acquisition related amortization expense [3]     1,764       1,121  
Other (income) expense [2]     (97)       (271)  
Non-GAAP: Earnings before provision for income taxes     24,344       23,465  
         
GAAP: Provision for income taxes     5,295       7,355  
Share based compensation     483       435  
Acquisition related expenses     119       95  
Acquisition related amortization expense [3]     474       291  
Other (income) expense [2]     (28)       (78)  
Adjustment to US Federal tax rate to 21%     -       (2,722)  
Tax benefit on restricted stock     569       1,255  
Non-GAAP: Provision for income taxes     6,912       6,631  
         
Non-GAAP: Net earnings   $ 17,432     $ 16,834  
         
GAAP: Net earnings per common share – diluted   $  1.12     $  0.96  
Non-GAAP: Net earnings per common share – diluted   $ 1.28     $ 1.20  


[1] Amount consists of depreciation and amortization for assets used internally.
[2] Interest income and foreign currency transaction gain.
[3] Amount consists of amortization of intangible assets from acquired businesses.

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