ePlus Reports Fourth Quarter and Fiscal Year 2020 Financial Results
ePlus inc. (NASDAQ:PLUS), a leading provider of technology and financing solutions, today announced financial results for the three months and fiscal year ended March 31, 2020.
Management Comment
“Fourth quarter results represented a strong finish to fiscal 2020, despite an impact from COVID-19. We achieved double-digit growth in revenue, gross profit and adjusted EBITDA, reflecting our ongoing focus on IT solutions that are in high demand,” said Mark Marron, President and Chief Executive Officer.
“For fiscal 2020, net sales increased by 15.7% year-over-year, with strong contributions from both segments. Services grew by 29% in fiscal 2020, reflecting greater demand for our expertise in assisting customers in designing, configuring, managing, and staffing their IT infrastructures. Adjusted gross billings for security products and services increased over 15% year-on-year, and revenue grew 35% in our financing segment. Gross margin of 24.6% expanded 50 basis points, driving both operating leverage and adjusted EBITDA growth.
“With the onset of the COVID-19 health crisis, we prioritized the health and safety of our employees, customers, and partners, and quickly activated business continuity plans to ensure ePlus remained fully operational. We implemented protocols to support our remote workforce and provided critical on-site staffing and engineering services in conformance with local ordinances and our customers’ COVID-19 requirements. The transition was smooth and accentuates our agile work environment. I am very proud of the tremendous effort and dedication shown by the ePlus team to transition our workforce, and provide exceptional service during a time of need by our customers.
“The financial impact of COVID-19 during the quarter was modest, as delayed or cancelled orders were mostly offset by new pandemic-related revenues, however the future is difficult to predict given the substantial impact of the pandemic on the overall economy. We have minimal exposure to the hardest-hit industries, and a proven ability to pivot to meet customers’ new COVID-19-driven requirements such as enabling remote workers, strengthening network and data center capabilities, and increasing security, especially in the cloud. With a strong balance sheet, we are able to meet our customers’ needs and execute opportunistic initiatives to support our growth strategy.
Fourth Quarter Results
For the fourth quarter ended March 31, 2020 as compared to the fourth quarter of the prior fiscal year ended March 31, 2019:
Consolidated net sales increased 12.6% to $366.5 million, from $325.4 million.
Technology segment net sales increased 12.8% to $353.3 million, from $313.2 million primarily from an increase in sales to customers in the telecom, media and entertainment industry and the healthcare industry. Service revenues increased 8.6% to $48.9 million, from $45.0 million due to increases across all our services offerings including professional and managed services, and staff augmentation.
Adjusted gross billings increased 8.8% to $514.1 million due, in part, to organic growth and the acquisition of ABS Technology in August 2019.
Financing segment net sales increased 7.8% to $13.2 million, from $12.3 million, primarily due to an increase in transactional gains and other financing revenue.
Consolidated gross profit increased 13.0% to $91.8 million, from $81.3 million. Consolidated gross margin increased to 25.1% from 25.0% last year, due to higher product margins.
Operating expenses increased 10.7% to $73.9 million, from $66.8 million, primarily due to an increase in salaries and variable compensation and additional costs associated with the acquisition and operation of ABS Technology. Our headcount increased 42 employees, or 2.7%, primarily from the acquisition.
Consolidated operating income increased 23.6% to $17.9 million.
Other expense of $0.2 million this year consists primarily of foreign currency transaction losses. Last year we had other income of $5.6 million, which includes $5.4 million as a distribution from a legal claim and $0.2 million of interest income and foreign currency gains.
Our effective tax rate for the current quarter was 24.9%, compared with 24.8% in the prior year quarter.
Net earnings decreased 12.0% to $13.2 million.
Adjusted EBITDA increased 20.0% to $23.5 million, from $19.6 million.
Diluted earnings per share was $0.99, compared with $1.12 in the prior year quarter. Non-GAAP diluted earnings per share was $1.24, compared with $1.03 last year.
Fiscal Year 2020 Results
For the fiscal year ended March 31, 2020 as compared to the prior fiscal year ended March 31, 2019:
Consolidated net sales increased 15.7% to $1,588.4 million, from $1,372.7 million.
Technology segment net sales increased 15.1% to $1,530.1 million, from $1,329.5 million, mainly attributable to an increase in sales to customers in the telecom, media and entertainment industry as well as healthcare and technology industries. Service revenues increased 29.2% to $193.1 million, from $149.5 million.
Adjusted gross billings increased 16.1% to $2,227.9 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 35.0% to $58.3 million, from $43.2 million, primarily due to an increase in transactional gains from several large government related transactions.
Consolidated gross profit increased 18.4% to $391.2 million, from $330.4 million. Consolidated gross margin improved 50 basis points to 24.6%, compared with 24.1% last year, due to higher product margins as well as higher service revenues.
Operating expenses increased 18.0% to $295.9 million, from $250.9 million, primarily due to an increase in salaries and variable compensation and additional costs associated with the acquisitions and operations of SLAIT Consulting, LLC and ABS Technology.
Consolidated operating income increased 19.8% to $95.3 million.
Other income was $0.7 million and $6.7 million for the years ended March 31, 2020 and 2019, respectively, primarily due to distributions from various legal claims.
Our effective tax rate for the current period was 28.0%, compared with 26.7% in the prior year. The increase was due to a decrease in the tax benefit from the vesting of restricted stock.
Net earnings increased 9.3% to $69.1 million.
Adjusted EBITDA increased 18.9% to $119.4 million, from $100.4 million.
Diluted earnings per share was $5.15, compared with $4.65 in the prior year period. Non-GAAP diluted earnings per share was $6.13, compared with $5.12 last year.
Balance Sheet Highlights
As of March 31, 2020, ePlus had cash and cash equivalents of $86.2 million, compared with $79.8 million as of March 31, 2019. Total stockholders' equity was $486.1 million, compared with $424.3 million as of March 31, 2019. Total shares outstanding were 13.5 million and 13.6 million on March 31, 2020 and March 31, 2019, respectively.
Summary and Outlook
“Fiscal 2020 was a year of strong growth for ePlus, and we are well positioned in the marketplace to provide the digital infrastructure, cloud, and security solutions required by our customers. We continue to execute on our strategy of expanding services, including our managed and helpdesk services, and our cloud hosted offerings to strengthen our annuity-type revenues. Our industry-leading gross margin demonstrates the value of our service offerings in today’s dynamic marketplace.
“ePlus entered this challenging period with a strong balance sheet and a resilient business model. We continue to innovate and develop our offerings which support remote workforces while securing and optimizing customer’s network, data, cloud, and collaboration infrastructure, and we remain well-positioned to support the next phase of IT evolution,” Mr. Marron concluded.
Recent Corporate Developments/Recognitions
In the month of May: ePlus announced that its Chief Financial Offer, Elaine Marion, was recognized by the Northern Virginia Technology Council as a finalist in the 2020 Greater Washington CFO awards. In the month of April: ePlus was engaged by a large financial institution to address an immediate and unexpected challenge to support 40,000 users to work from home. ePlus provided technical guidance to architect a solution and mobilized a team of engineers to rapidly build, configure, test, and deploy an extension of the organization’s existing CMware Horizon environment into Microsoft Azure. ePlus announced that it is launching a new, informational webinar series, Secure Workforce Awareness Training (SWAT) to help enterprises better understand how to navigate cyber security technology with primarily remote workforces. In the month of March: ePlus announced that CRNâ, a brand of The Channel Company, has named ePlus to its 2020 Tech Elite 250 list. In the month of February: ePlus announced that, ePlus Technology, inc., has been named to the CRNâ 2020 Managed Service Provider (MSP) 500 list in the Elite category. ePlus announced the launch of a freshly designed and updated website, www.eplus.com, that serves as a visual showcase of the company’s broad capabilities across the technology spectrum. ePlus announced the launch of Carrier Expense Management, a managed service that allows organizations to reduce the cost, time, and complexity of managing multiple carriers and telecom/connectivity contracts across the globe.Conference Call Information
ePlus will hold a conference call and webcast at 4:30 p.m. ET on May 21, 2020:
Date: May 21, 2020
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: 7396374 (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 May 28, 2020.
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 lifecycle services expertise across key areas including security, cloud, data center, collaboration, networking and emerging technologies, 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, LinkedIn, Twitter and Instagram.
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, the duration and impact of the COVID-19 pandemic, which could materially adversely affect our financial condition and results of operations and has resulted worldwide in governmental authorities imposing numerous unprecedented measures to try to contain the virus that has impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners; 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
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, 2020
March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$86,231
$79,816
Accounts receivable—trade, net
374,998
299,899
Accounts receivable—other, net
36,570
41,328
Inventories
50,268
50,493
Financing receivables—net, current
70,169
63,767
Deferred costs
22,306
17,301
Other current assets
9,256
7,499
Total current assets
649,798
560,103
Financing receivables and operating leases—net
74,158
59,032
Property, equipment and other assets
32,596
17,328
Goodwill
118,097
110,807
Other intangible assets—net
34,464
38,928
TOTAL ASSETS
$909,113
$786,198
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable
$82,919
$86,801
Accounts payable—floor plan
127,416
116,083
Salaries and commissions payable
30,952
21,286
Deferred revenue
55,480
47,251
Recourse notes payable—current
37,256
28
Non-recourse notes payable—current
29,630
38,117
Other current liabilities
22,986
19,285
Total current liabilities
386,639
328,851
Non-recourse notes payable—long term
5,872
10,502
Deferred tax liability—net
2,730
4,915
Other liabilities
27,727
17,677
TOTAL LIABILITIES
422,968
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; 13,500 outstanding at March 31, 2020 and 13,611 outstanding at March 31, 2019
144
143
Additional paid-in capital
145,197
137,243
Treasury stock, at cost, 896 shares at March 31, 2020 and 693 shares at March 31, 2019
(68,424)
(53,999)
Retained earnings
410,219
341,137
Accumulated other comprehensive income—foreign currency translation adjustment
(991)
(271)
Total Stockholders' Equity
486,145
424,253
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$909,113
$786,198
ePlus inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended March 31,
Year Ended March 31,
2020
2019
2020
2019
Net sales
Product
$317,621
$280,460
$1,395,288
$1,223,195
Services
48,855
44,974
193,116
149,478
Total
366,476
325,434
1,588,404
1,372,673
Cost of sales
Product
244,638
216,662
1,076,773
952,464
Services
30,013
27,500
120,440
89,821
Total
274,651
244,162
1,197,213
1,042,285
Gross profit
91,825
81,272
391,191
330,388
Selling, general, and administrative
69,782
62,683
279,182
237,082
Depreciation and amortization
3,489
3,574
14,156
11,824
Interest and financing costs
676
545
2,574
1,948
Operating expenses
73,947
66,802
295,912
250,854
Operating income
17,878
14,470
95,279
79,534
Other income (expense)
(232)
5,556
680
6,696
Earnings before taxes
17,646
20,026
95,959
86,230
Provision for income taxes
4,400
4,974
26,877
23,038
Net earnings
$13,246
$15,052
$69,082
$63,192
Net earnings per common share—basic
$0.99
$1.12
$5.18
$4.70
Net earnings per common share—diluted
$0.99
$1.12
$5.15
$4.65
Weighted average common shares outstanding—basic
13,318
13,391
13,327
13,448
Weighted average common shares outstanding—diluted
13,390
13,491
13,415
13,578
Technology Segment
Three Months Ended March 31,
Year Ended March 31,
2020
2019
% Change
2020
2019
% Change
(in thousands)
(in thousands)
Net sales
Product
$304,402
$268,203
13.5%
$1,337,022
$1,180,042
13.3%
Services
48,855
44,974
8.6%
193,116
149,478
29.2%
Total
353,257
313,177
12.8%
1,530,138
1,329,520
15.1%
Cost of sales
Product
243,601
214,726
13.4%
1,069,110
945,037
13.1%
Services
30,013
27,500
9.1%
120,440
89,821
34.1%
Total
273,614
242,226
13.0%
1,189,550
1,034,858
14.9%
Gross profit
79,643
70,951
12.3%
340,588
294,662
15.6%
Selling, general, and administrative
66,508
59,913
11.0%
264,123
226,112
16.8%
Depreciation and amortization
3,461
3,569
(3.0%)
14,016
11,812
18.7%
Interest and financing costs
294
-
nm
294
-
nm
Operating expenses
70,263
63,482
10.7%
278,433
237,924
17.0%
Operating income
$9,380
$7,469
25.6%
$62,155
$56,738
9.5%
Adjusted gross billings
$514,130
$472,391
8.8%
$2,227,885
$1,918,995
16.1%
Adjusted EBITDA
$14,945
$12,503
19.5%
$85,840
$77,202
11.2%
Technology Segment Net Sales by Customer End Market
Twelve Months Ended March 31,
2020
2019
% Change
Technology
21%
22%
(1%)
Telecom, Media, & Entertainment
19%
13%
6%
SLED
16%
17%
(1%)
Healthcare
15%
15%
-
Financial Services
13%
15%
(2%)
All others
16%
18%
(2%)
Total
100%
100%
Financing Segment
Three Months Ended March 31,
Year Ended March 31,
2020
2019
% Change
2020
2019
% Change
(in thousands)
(in thousands)
Net sales
$13,219
$12,257
7.8%
$58,266
$43,153
35.0%
Cost of sales
1,037
1,936
(46.4%)
7,663
7,427
3.2%
Gross profit
12,182
10,321
18.0%
50,603
35,726
41.6%
Selling, general, and administrative
3,274
2,770
18.2 %
15,059
10,970
37.3%
Depreciation and amortization
28
5
460.0%
140
12
1,066.7%
Interest and financing costs
382
545
(29.9%)
2,280
1,948
17.0%
Operating expenses
3,684
3,320
11.0%
17,479
12,930
35.2%
Operating income
$8,498
$7,001
21.4%
$33,124
$22,796
45.3%
Adjusted EBITDA
$8,586
$7,108
20.8%
$33,519
$23,213
44.4%
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 March 31,
Year Ended March 31,
2020
2019
2020
2019
(in thousands)
Technology segment net sales
$353,257
$313,177
$1,530,138
$1,329,520
Costs incurred related to sales of third-party
maintenance, software assurance and
subscription / SaaS licenses, and services
160,873
159,214
697,747
589,475
Adjusted gross billings
$514,130
$472,391
$2,227,885
$1,918,995
Three Months Ended March 31,
Year Ended March 31,
2020
2019
2020
2019
(in thousands)
Consolidated
Net earnings
$13,246
$15,052
$69,082
$63,192
Provision for income taxes
4,400
4,974
26,877
23,038
Depreciation and amortization [1]
3,489
3,574
14,156
11,824
Share based compensation
1,933
1,826
7,954
7,244
Acquisition and integration expense
(63)
(259)
1,676
1,813
Interest and financing costs
294
-
294
-
Other (income) expense [2]
232
(5,556)
(680)
(6,696)
Adjusted EBITDA
$23,531
$19,611
$119,359
$100,415
Three Months Ended March 31,
Year Ended March 31,
2020
2019
2020
2019
(in thousands)
Technology Segment
Operating income
$9,380
$7,469
$62,155
$56,738
Depreciation and amortization [1]
3,461
3,569
14,016
11,812
Share based compensation
1,873
1,724
7,699
6,839
Acquisition and integration expense
(63)
(259)
1,676
1,813
Interest and financing costs
294
-
294
-
Adjusted EBITDA
$14,945
$12,503
$85,840
$77,202
Financing Segment
Operating income
$8,498
$7,001
$33,124
$22,796
Depreciation and amortization [1]
28
5
140
12
Share based compensation
60
102
255
405
Adjusted EBITDA
$8,586
$7,108
$33,519
$23,213
Three Months Ended March 31,
Year Ended March 31,
2020
2019
2020
2019
(in thousands)
GAAP: Earnings before taxes
$17,646
$20,026
$95,959
$86,230
Share based compensation
1,933
1,826
7,954
7,244
Acquisition and integration expense
(63)
(259)
1,676
1,813
Acquisition related amortization expense [3]
2,264
2,388
9,217
7,423
Other (income) expense [2]
232
(5,556)
(680)
(6,696)
Non-GAAP: Earnings before taxes
22,012
18,425
114,126
96,014
GAAP: Provision for income taxes
4,400
4,974
26,877
23,038
Share based compensation
482
454
2,218
1,988
Acquisition and integration expense
(16)
(64)
490
522
Acquisition related amortization expense [3]
549
573
2,487
1,916
Other (income) expense [2]
58
(1,380)
(200)
(1,702)
Tax benefit on restricted stock
-
-
87
672
Non-GAAP: Provision for income taxes
5,473
4,557
31,959
26,434
Non-GAAP: Net earnings
$16,539
$13,868
$82,167
$69,580
Three Months Ended March 31,
Year Ended March 31,
2020
2019
2020
2019
GAAP: Net earnings per common share – diluted
$0.99
$1.12
$5.15
$4.65
Share based compensation
0.11
0.10
0.43
0.38
Acquisition and integration expense
-
(0.01)
0.09
0.09
Acquisition related amortization expense [3]
0.13
0.13
0.51
0.40
Other (income) expense [2]
0.01
(0.31)
(0.04)
(0.35)
Tax benefit on restricted stock
-
-
(0.01)
(0.05)
Total non-GAAP adjustments – net of tax
$0.25
($0.09)
$0.98
$0.47
Non-GAAP: Net earnings per common share – diluted
$1.24
$1.03
$6.13
$5.12
[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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