ePlus Reports Third Quarter and First Nine Months Financial Results
ePlus inc. (NASDAQ:PLUS), a leading provider of technology and financing solutions, today announced financial results for the three and nine months ended December 31, 2019.
Management Comment
“ePlus achieved strong double-digit growth across key financial metrics in both the third quarter and first nine months of fiscal 2020, demonstrating the competitive advantages of our portfolio of technology products and services, complemented by our financing capabilities. We continued to gain market share in the third quarter, underscored by 20.3% growth in technology product sales and 43.2% growth in technology services revenue, which combined with strong performance from our financing segment, drove a 31.5% increase in net earnings,” commented Mark Marron, CEO and President of ePlus.
“Growth in gross profit and earnings per share outpaced revenue growth in the third quarter, and consolidated gross margin expanded by 20 basis points to 24.2%. Our continuing investment in customer-facing professionals supports growth in the high demand areas of cloud, security and digital infrastructure.”
Third Quarter Fiscal 2020 Results
For the third quarter ended December 31, 2019 as compared to the third quarter of the prior fiscal year ended December 31, 2018:
Consolidated net sales increased 24.1% to $429.0 million, from $345.7 million.
Technology segment net sales increased 22.7% to $410.6 million, from $334.7 million primarily from an increase in sales to customers in the telecom, media and entertainment industry as well as technology, healthcare, and state and local government and educational institutions. Service revenues increased 43.2% to $50.4 million, from $35.2 million due to increases across all our services offerings including professional and managed services, and staff augmentation.
Adjusted gross billings increased 22.5% to $586.3 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 67.7% to $18.4 million, from $11.0 million, primarily due to an increase in transactional gains.
Consolidated gross profit increased 25.1% to $103.7 million, from $82.9 million. Consolidated gross margin increased to 24.2% from 24.0% last year, due to higher gross profit in our financing segment.
Operating expenses increased 23.1% to $77.4 million, from $62.9 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. Our headcount increased 337 employees primarily from the acquisitions.
Consolidated operating income increased 31.2% to $26.3 million.
Our effective tax rate for the current quarter was 28.3%, consistent with the prior year quarter.
Net earnings increased 31.5% to $19.6 million.
Adjusted EBITDA increased 24.7% to $31.9 million, from $25.6 million.
Diluted earnings per share was $1.46, compared with $1.10 in the prior year quarter. Non-GAAP diluted earnings per share was $1.64, compared with $1.29 last year.
First Nine Months Fiscal 2020 Results
For the nine months ended December 31, 2019 as compared to the nine months of the prior fiscal year ended December 31, 2018:
Consolidated net sales increased 16.7% to $1,221.9 million, from $1,047.2 million.
Technology segment net sales increased 15.8% to $1,176.9 million, from $1,016.3 million. Service revenues increased 38.0% to $144.3 million, from $104.5 million.
Adjusted gross billings increased 18.5% to $1,713.8 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 45.8% to $45.0 million, from $30.9 million, primarily due to an increase in transactional gains from several large government related transactions.
Consolidated gross profit increased 20.2% to $299.4 million, from $249.1 million. Consolidated gross margin improved 70 basis points to 24.5%, compared with 23.8% last year, due to higher service revenues and higher transaction gains from the financing segment.
Operating expenses increased 20.6% to $222.0 million, from $184.1 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 19.0% to $77.4 million.
Our effective tax rate for the current period was 28.7%, compared with 27.3% in the prior year. The increase in the rate was primarily due to a decrease in the tax benefit from the vesting of restricted stock.
Net earnings increased 16.0% to $55.8 million.
Adjusted EBITDA increased 18.6% to $95.8 million, from $80.8 million.
Diluted earnings per share was $4.16, compared with $3.54 in the prior year period. Non-GAAP diluted earnings per share was $4.89, compared with $4.10 last year.
Balance Sheet Highlights
As of December 31, 2019, ePlus had cash and cash equivalents of $59.6 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, acquisition funding, and share repurchases totaling $13.7 million. Total stockholders' equity was $472.5 million, compared with $424.3 million as of March 31, 2019. Total shares outstanding were 13.5 million and 13.6 million on December 31, 2019 and March 31, 2019, respectively.
Summary and Outlook
“Year-to-date results set the stage for fiscal 2020 to be a year of significant growth for ePlus, driven by our ability to capture demand from our growing base of mid-market and enterprise customers for complex solutions that optimize and protect their IT initiatives. In addition to our organic growth, we have successfully integrated the August, 2019 ABS Technology acquisition, and we continue to evaluate additional acquisition opportunities that would expand our technology capabilities and our geographic reach,” Mr. Marron concluded.
Conference Call Information
ePlus will hold a conference call and webcast at 4:30 p.m. ET on February 5, 2020:
Date:
February 5, 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:
9387537 (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 February 12, 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 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 1,600 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, 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)
December 31, 2019
March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$59,555
$79,816
Accounts receivable—trade, net
413,741
299,899
Accounts receivable—other, net
37,187
41,328
Inventories
61,065
50,493
Financing receivables—net, current
89,229
63,767
Deferred costs
20,421
17,301
Other current assets
8,809
7,499
Total current assets
690,007
560,103
Financing receivables and operating leases—net
73,506
59,032
Property, equipment and other assets
34,000
17,328
Goodwill
118,225
110,807
Other intangible assets—net
36,870
38,928
TOTAL ASSETS
$952,608
$786,198
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable
$126,154
$86,801
Accounts payable—floor plan
144,483
116,083
Salaries and commissions payable
27,476
21,286
Deferred revenue
55,128
47,251
Recourse notes payable—current
2,239
28
Non-recourse notes payable—current
59,015
38,117
Other current liabilities
24,995
19,285
Total current liabilities
439,490
328,851
Non-recourse notes payable—long term
7,120
10,502
Deferred tax liability—net
4,924
4,915
Other liabilities
28,588
17,677
TOTAL LIABILITIES
480,122
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 December 31, 2019 and 13,611 outstanding at March 31, 2019
144
143
Additional paid-in capital
143,262
137,243
Treasury stock, at cost, 884 shares at December 31, 2019 and 693 shares at March 31, 2019
(67,691)
(53,999)
Retained earnings
396,973
341,137
Accumulated other comprehensive income—foreign currency translation adjustment
(202)
(271)
Total Stockholders' Equity
472,486
424,253
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$952,608
$786,198
ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended December 31,
Nine Months Ended December 31,
2019
2018
2019
2018
Net sales
Product
$378,569
$310,443
$1,077,667
$942,735
Services
50,422
35,221
144,261
104,504
Total
428,991
345,664
1,221,928
1,047,239
Cost of sales
Product
293,209
241,856
832,135
735,802
Services
32,086
20,895
90,427
62,321
Total
325,295
262,751
922,562
798,123
Gross profit
103,696
82,913
299,366
249,116
Selling, general, and administrative
73,090
59,728
209,400
174,399
Depreciation and amortization
3,647
2,719
10,667
8,250
Interest and financing costs
694
443
1,898
1,403
Operating expenses
77,431
62,890
221,965
184,052
Operating income
26,265
20,023
77,401
65,064
Other income (expense)
997
721
912
1,140
Earnings before taxes
27,262
20,744
78,313
66,204
Provision for income taxes
7,712
5,880
22,477
18,064
Net earnings
$19,550
$14,864
$55,836
$48,140
Net earnings per common share—basic
$1.47
$1.10
$4.19
$3.57
Net earnings per common share—diluted
$1.46
$1.10
$4.16
$3.54
Weighted average common shares outstanding—basic
13,320
13,471
13,329
13,467
Weighted average common shares outstanding—diluted
13,378
13,544
13,410
13,592
Technology Segment
Three Months Ended December 31,
Nine Months Ended December 31,
2019
2018
% Change
2019
2018
% Change
(in thousands)
(in thousands)
Net sales
Product
$360,206
$299,490
20.3%
$1,032,620
$911,839
13.2%
Services
50,422
35,221
43.2%
144,261
104,504
38.0%
Total
410,628
334,711
22.7%
1,176,881
1,016,343
15.8%
Cost of sales
Product
290,980
239,843
21.3%
825,509
730,311
13.0%
Services
32,086
20,895
53.6%
90,427
62,321
45.1%
Total
323,066
260,738
23.9%
915,936
792,632
15.6%
Gross profit
87,562
73,973
18.4%
260,945
223,711
16.6%
Selling, general, and administrative
67,759
56,607
19.7%
197,615
166,199
18.9%
Depreciation and amortization
3,619
2,714
33.3%
10,555
8,243
28.0%
Operating expenses
71,378
59,321
20.3%
208,170
174,442
19.3%
Operating income
$16,184
$14,652
10.5%
$52,775
$49,269
7.1%
Adjusted gross billings
$586,308
$478,447
22.5%
$1,713,755
$1,446,603
18.5%
Adjusted EBITDA
$21,687
$20,074
8.0%
$70,895
$64,699
9.6%
Technology Segment Net Sales by Customer End Market
Twelve Months Ended December 31,
2019
2018
% Change
Technology
22%
22%
-
SLED
17%
17%
-
Telecom, Media, & Entertainment
17%
14%
3%
Healthcare
15%
14%
1%
Financial Services
14%
15%
(1%)
All others
15%
18%
(3%)
Total
100%
100%
Financing Segment
Three Months Ended December 31,
Nine Months Ended December 31,
2019
2018
% Change
2019
2018
% Change
(in thousands)
(in thousands)
Net sales
$18,363
$10,953
67.7%
$45,047
$30,896
45.8%
Cost of sales
2,229
2,013
10.7%
6,626
5,491
20.7%
Gross profit
16,134
8,940
80.5%
38,421
25,405
51.2%
Selling, general, and administrative
5,331
3,121
70.8%
11,785
8,200
43.7%
Depreciation and amortization
28
5
460.0%
112
7
1,500.0%
Interest and financing costs
694
443
56.7%
1,898
1,403
35.3%
Operating expenses
6,053
3,569
69.6%
13,795
9,610
43.5%
Operating income
$10,081
$5,371
87.7%
$24,626
$15,795
55.9%
Adjusted EBITDA
$10,169
$5,480
85.6%
$24,933
$16,105
54.8%
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 December 31,
Nine Months Ended December 31,
2019
2018
2019
2018
(in thousands)
Technology segment net sales
$410,628
$334,711
$1,176,881
$1,016,343
Costs incurred related to sales of third-party maintenance, software assurance and subscription / SaaS licenses, and services
175,680
143,736
536,874
430,260
Adjusted gross billings
$586,308
$478,447
$1,713,755
$1,446,603
Three Months Ended December 31,
Nine Months Ended December 31,
2019
2018
2019
2018
(in thousands)
Consolidated
Net earnings
$19,550
$14,864
55,836
$48,140
Provision for income taxes
7,712
5,880
22,477
18,064
Depreciation and amortization [1]
3,647
2,719
10,667
8,250
Share based compensation
1,944
1,857
6,021
5,418
Acquisition and integration expense
-
955
1,739
2,072
Other (income) expense [2]
(997)
(721)
(912)
(1,140)
Adjusted EBITDA
$31,856
$25,554
$95,828
$80,804
Three Months Ended December 31,
Nine Months Ended December 31,
2019
2018
2019
2018
(in thousands)
Technology Segment
Operating income
$16,184
$14,652
$52,775
$49,269
Depreciation and amortization [1]
3,619
2,714
10,555
8,243
Share based compensation
1,884
1,753
5,826
5,115
Acquisition and integration expense
-
955
1,739
2,072
Adjusted EBITDA
$21,687
$20,074
$70,895
$64,699
Financing Segment
Operating income
$10,081
$5,371
$24,626
$15,795
Depreciation and amortization [1]
28
5
112
7
Share based compensation
60
104
195
303
Adjusted EBITDA
$10,169
$5,480
$24,933
$16,105
Three Months Ended December 31,
Nine Months Ended December 31,
2019
2018
2019
2018
(in thousands)
GAAP: Earnings before taxes
$27,262
$20,744
$78,313
$66,204
Share based compensation
1,944
1,857
6,021
5,418
Acquisition and integration expense
-
955
1,739
2,072
Acquisition related amortization expense [3]
2,421
1,552
6,953
5,035
Other (income) expense [2]
(997)
(721)
(912)
(1,140)
Non-GAAP: Earnings before taxes
30,630
24,387
92,114
77,589
GAAP: Provision for income taxes
7,712
5,880
22,477
18,064
Share based compensation
553
526
1,736
1,534
Acquisition and integration expense
-
270
506
586
Acquisition related amortization expense [3]
668
414
1,938
1,343
Other (income) expense [2]
(283)
(204)
(258)
(322)
Tax benefit on restricted stock
39
-
87
672
Non-GAAP: Provision for income taxes
8,689
6,886
26,486
21,877
Non-GAAP: Net earnings
$21,941
$17,501
$65,628
$55,712
Three Months Ended December 31,
Nine Months Ended December 31,
2019
2018
2019
2018
GAAP: Net earnings per common share – diluted
$1.46
$1.10
$4.16
$3.54
Share based compensation
0.10
0.10
0.32
0.30
Acquisition and integration expense
-
0.05
0.09
0.10
Acquisition related amortization expense [3]
0.14
0.08
0.38
0.27
Other (income) expense [2]
(0.05)
(0.04)
(0.05)
(0.07)
Tax benefit on restricted stock
(0.01)
-
(0.01)
(0.04)
Total non-GAAP adjustments – net of tax
$0.18
$0.19
$0.73
$0.56
Non-GAAP: Net earnings per common share – diluted
$1.64
$1.29
$4.89
$4.10
[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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