ePlus Reports Second Quarter and First Half Financial Results
ePlus inc. (NASDAQ:PLUS), a leading provider of technology and financing solutions, today announced financial results for the three and six months ended September 30, 2019.
Management Comment
“Second quarter results demonstrated the continuing benefits of our strategic focus on high growth areas of IT spending and the investments we have made to deliver complex solutions. Revenue growth of 19.3% for the quarter resulted primarily from capturing market share within our middle-market, enterprise, and international customer base, and new logo acquisition. Services revenue increased 35.1% and accounted for 11.7% of net sales. Sales of security products and services accounted for 20.1% of trailing twelve months adjusted gross billings, up 110 basis points year-on-year, and continue to represent a critical need for our entire customer base,” said Mark Marron, CEO and President of ePlus.
“Higher sales and a 20 basis point increase in gross margin helped drive a 20.5% increase in gross profit, and an 18.3% increase in non-GAAP diluted EPS.”
Second Quarter Fiscal 2020 Results
For the second quarter ended September 30, 2019 as compared to the second quarter of the prior fiscal year ended September 30, 2018:
Consolidated net sales increased 19.3% to $411.6 million, from $345.0 million.
Technology segment net sales increased 18.8% to $397.7 million, from $334.8 million primarily from an increase in sales to customers in the telecom, media and entertainment industry. Service revenues increased 35.1% to $48.1 million, from $35.6 million due to increases across all our services offerings including professional and managed and staff augmentation.
Adjusted gross billings increased 19.2% to $579.1 million due, in part, to organic growth and the acquisitions of SLAIT Consulting, LLC in January 2019 and ABS Technology in August 2019.
Financing segment net sales increased 34.8% to $13.8 million, from $10.3 million, primarily due to an increase in transactional gains.
Consolidated gross profit increased 20.5% to $103.0 million, from $85.5 million. Consolidated gross margin increased to 25.0% from 24.8% last year, due to higher service revenues.
Operating expenses increased 22.5% to $74.7 million, from $60.9 million, primarily due to an increase in variable compensation and additional costs associated with the acquisitions and operations of SLAIT Consulting, LLC and ABS Technology.
Consolidated operating income increased 15.5% to $28.4 million.
Our effective tax rate for the current quarter was 29.1%, compared with 27.7% in the prior year quarter, due primarily to an increase in estimated permanent items.
Net earnings increased 11.6% to $20.1 million.
Adjusted EBITDA increased 18.5% to $35.4 million, from $29.9 million.
Diluted earnings per share was $1.51, compared with $1.33 in the prior year quarter. Non-GAAP diluted earnings per share was $1.81, compared with $1.53 last year.
First Half Fiscal 2020 Results
For the six months ended September 30, 2019 as compared to the six months of the prior fiscal year ended September 30, 2018:
Consolidated net sales increased 13.0% to $792.9 million, from $701.6 million.
Technology segment net sales increased 12.4% to $766.3 million, from $681.6 million. Service revenues increased 35.4% to $93.8 million, from $69.3 million.
Adjusted gross billings increased 16.5% to $1,127.4 million due, in part, to organic growth as well as the acquisitions of SLAIT Consulting, LLC in January 2019 and ABS Technology in August 2019.
Financing segment net sales increased 33.8% to $26.7 million, from $19.9 million, primarily due to an increase in transactional gains.
Consolidated gross profit increased 17.7% to $195.7 million, from $166.2 million. Consolidated gross margin improved 100 basis points to 24.7%, compared with 23.7% last year, due to a shift in mix towards third-party maintenance, software assurance, subscription/SaaS licenses, and services as well as higher service revenues.
Operating expenses increased 19.3% to $144.5 million, from $121.2 million, primarily due to an increase in variable compensation and additional costs associated with the acquisitions and operations of SLAIT Consulting, LLC and ABS Technology.
Consolidated operating income increased 13.5% to $51.1 million.
Our effective tax rate for the current period was 28.9%, compared with 26.8% in the prior year. The increase in the rate was primarily due to a decrease in the tax benefit on the vesting of restricted stock and an increase in estimated permanent items.
Net earnings increased 9.0% to $36.3 million.
Adjusted EBITDA increased 15.8% to $64.0 million, from $55.3 million.
Diluted earnings per share was $2.71, compared with $2.45 in the prior year period. Non-GAAP diluted earnings per share was $3.26, compared with $2.81 last year.
Balance Sheet Highlights
As of September 30, 2019, ePlus had cash and cash equivalents of $55.8 million, compared with $79.8 million as of March 31, 2019. The decrease in cash and cash equivalents was primarily due to investments in our financing portfolio, and share repurchases totaling $13.7 million. Total stockholders' equity was $450.3 million, compared with $424.3 million as of March 31, 2019. Total shares outstanding were 13.5 million and 13.6 million on September 30, 2019 and March 31, 2019, respectively.
Summary and Outlook
“Strong first half results affirm ePlus’ strategy of investing in solution areas most in-demand by our customers, and providing industry-leading consultative, advisory, and managed services. Our ability to provide transformative solutions such as cloud migration strategies, integrated cyber security programs and digital business transformation initiatives, along with our core cloud, security and digital infrastructure offerings, is resonating with our middle market, enterprise, and multi-national customers and allowing us to capture market-share.
“We continue to expand our footprint and service offerings by seeking acquisitions to complement our organic growth. In August we acquired ABS Technology, which expanded our position in the mid-Atlantic region, especially in the state, local, and education (SLED) market. With a strong balance sheet and proven track record, we expect to continue to invest organically and through acquisitions to support our future growth,” Mr. Marron concluded.
Recent Corporate Developments/Recognitions
In the month of November: ePlus was awarded Cisco’s Global Transformation & Innovation Partner of the Year and was named as its U.S. Partner of the Year, as well as four regional and vertical awards: Public Sector: SLED Software and Service Partner of the Year, Architectural Excellence Partner of the Year: Enterprise Networks East, Customer Experience Partner of the Year (Central), and Architectural Excellence Partner of the Year: Collaboration (West) In the month of October: ePlus announced that it has extended its Managed Services capabilities to include proactive monitoring and management of switching and wireless solutions from Aruba. ePlus announced it has been awarded a new, five-year contract to provide Cisco technology products and services to the state of Connecticut. In the month of September: ePlus announced the launch of ePlus CyberSmart, an educational campaign spanning the month of October to provide best practices and thought leadership around organizational cyber security considerations. ePlus announced that it has received the Cisco Gold Master Networking Certification, placing it among an elite group of fewer than 30 partners globally. ePlus announced the successful completed its annual SOC 2 Type 2 examination reporting on controls at a service organization relevant to security, availability, and confidentiality for its Cloud Hosted Services. In the month of August: ePlus announced the acquisition of certain assets and liabilities of Innovative Technology Systems & Solutions, Inc. (dba “ABS Technology”). ePlus announced the exclusive presenting sponsorship of a new Golf Digest Schools series entitled: My Game: Tiger Woods.Conference Call Information
ePlus will hold a conference call and webcast at 4:30 p.m. ET on November 6, 2019:
Date:
November 6, 2019
Time:
4:30 p.m. ET
Live Call:
(844) 603-5099, domestic, (825) 312-2246, international
Replay:
(800) 585-8367, domestic, (416) 621-4642, international
Passcode:
2376784 (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 November 13, 2019.
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 1,500 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. OneCloud is a trademark of OneCloud Consulting, 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, 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; 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 vendor’s 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 one or more of our largest volume 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 own and 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; our reliance on third parties to perform some of our service obligations to our customers; 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; maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel and vendor certifications; 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.
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
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; 13,513 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
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 taxes
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
Technology Segment
Three Months Ended September 30,
Six Months Ended September 30,
2019
2018
% Change
2019
2018
% Change
(in thousands)
(in thousands)
Net sales
Product
$349,650
$299,200
16.9%
$672,414
$612,349
9.8%
Services
48,068
35,568
35.1%
93,839
69,283
35.4%
Total
397,718
334,768
18.8%
766,253
681,632
12.4%
Cost of sales
Product
276,475
236,404
17.0%
534,529
490,468
9.0%
Services
29,671
21,409
38.6%
58,341
41,426
40.8%
Total
306,146
257,813
18.7%
592,870
531,894
11.5%
Gross profit
91,572
76,955
19.0%
173,383
149,738
15.8%
Selling, general, and administrative
67,189
55,138
21.9%
129,856
109,592
18.5%
Depreciation and amortization
3,529
2,740
28.8%
6,936
5,529
25.4%
Operating expenses
70,718
57,878
22.2%
136,792
115,121
18.8%
Operating income
$20,854
$19,077
9.3%
$36,591
$34,617
5.7%
Adjusted gross billings
$579,084
$485,856
19.2%
$1,127,447
$968,157
16.5%
Adjusted EBITDA
$27,789
$24,284
14.4%
$49,208
$44,625
10.3%
Technology Segment Net Sales by Customer End Market
Twelve Months Ended September 30,
2019
2018
% Change
Technology
22%
23%
(1%)
SLED
17%
17%
-
Telecom, Media, & Entertainment
16%
13%
3%
Healthcare
15%
15%
-
Financial Services
14%
15%
(1%)
All others
16%
17%
(1%)
Total
100%
100%
Financing Segment
Three Months Ended September 30,
Six Months Ended September 30,
2019
2018
% Change
2019
2018
% Change
(in thousands)
(in thousands)
Net sales
$13,847
$10,275
34.8%
$26,684
$19,943
33.8%
Cost of sales
2,388
1,730
38.0%
4,397
3,478
26.4%
Gross profit
11,459
8,545
34.1%
22,287
16,465
35.4%
Selling, general, and administrative
3,334
2,567
29.9%
6,454
5,079
27.1%
Depreciation and amortization
28
1
2,700.0%
84
2
4,100.0%
Interest and financing costs
576
484
19.0%
1,204
960
25.4%
Operating expenses
3,938
3,052
29.0%
7,742
6,041
28.2%
Operating income
$7,521
$5,493
36.9%
$14,545
$10,424
39.5%
Adjusted EBITDA
$7,616
$5,596
36.1%
$14,764
$10,625
39.0%
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, (iv) non-GAAP Net Earnings and (v) 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.
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 expense, 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.
Non-GAAP net earnings and non-GAAP net earnings per common share – diluted are based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share based compensation, and acquisition related amortization expense, and the related tax effects.
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 non-GAAP adjusted gross billings, adjusted EBITDA, 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
(in thousands)
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
Three Months Ended September 30,
Six Months Ended September 30,
2019
2018
2019
2018
(in thousands)
Consolidated
Net earnings
$20,098
$18,003
$36,286
$33,276
Provision for income taxes
8,237
6,889
14,765
12,184
Depreciation and amortization [1]
3,557
2,741
7,020
5,531
Share based compensation
2,135
1,868
4,077
3,561
Acquisition and integration expense
1,338
701
1,739
1,117
Other (income) expense [2]
40
(322)
85
(419)
Adjusted EBITDA
$35,405
$29,880
$63,972
$55,250
Three Months Ended September 30,
Six Months Ended September 30,
2019
2018
2019
2018
(in thousands)
Technology Segment
Operating income
$20,854
$19,077
$36,591
$34,617
Depreciation and amortization [1]
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 [1]
28
1
84
2
Share based compensation
67
102
135
199
Adjusted EBITDA
$7,616
$5,596
$14,764
$10,625
Three Months Ended September 30,
Six Months Ended September 30,
2019
2018
2019
2018
(in thousands)
GAAP: Earnings before taxes
$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 [3]
2,345
1,719
4,532
3,483
Other (income) expense [2]
40
(322)
85
(419)
Non-GAAP: Earnings before 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 [3]
663
455
1,270
929
Other (income) expense [2]
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
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 [3]
0.12
0.09
0.24
0.19
Other (income) expense [2]
-
(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
[1] Amount consists of depreciation and amortization for assets used internally.
[2] Interest income and foreign currency transaction gains and losses.
[3] Amount consists of amortization of intangible assets from acquired businesses.
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