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ePlus Reports Third Quarter and Nine Months Financial Results


ePlus Reports Third Quarter and Nine Months Financial Results
Gross Profit Performance Leads to 22.2% Increase in Operating Income
 

Third Quarter Ended December 31, 2018

  • Net sales increased 0.4% to $345.7 million; technology segment net sales increased 0.8% to $334.7 million.
  • Adjusted gross billings increased 2.8% to $478.4 million.
  • Consolidated gross profit increased 8.1% to $82.9 million.
  • Consolidated gross margin was 24.0%, an increase of 170 basis points.
  • Net earnings decreased 4.6% to $14.9 million.
  • Adjusted EBITDA increased 17.7% to $25.6 million.
  • Diluted earnings per share decreased 0.9% to $1.10. Non-GAAP diluted earnings per share increased 17.3% to $1.29.

Nine Months Ended December 31, 2018

  • Net sales decreased 3.8% to $1,047.2 million; technology segment net sales decreased 3.5% to $1,016.3 million.
  • Adjusted gross billings decreased 0.7% to $1,446.6 million.
  • Consolidated gross profit increased 3.0% to $249.1 million.
  • Consolidated gross margin was 23.8%, an increase of 160 basis points.
  • Net earnings increased 4.1% to $48.1 million.
  • Adjusted EBITDA increased 1.7% to $80.8 million.
  • Diluted earnings per share increased 7.3% to $3.54. Non-GAAP diluted earnings per share increased 3.0% to $4.10.

HERNDON, Va., Feb. 06, 2019 (Corrected)  (GLOBE NEWSWIRE) -- ePlus inc. (NASDAQ:PLUS), a leading provider of technology solutions, today announced financial results for the three and nine months ended December 31, 2018.

Management Comment

“Third quarter operating income increased 22.2%, driven by an 8.1% increase in gross profit and gross margin expansion of 170 basis points,” said Mark Marron, president and chief executive officer.  “We experienced a favorable mix of products and services in high growth areas of the market such as digital, cloud and security solutions areas, and managed our cost structure, while continuing to invest to support future growth.  Our strategy to specialize in those solutions that are critical to our customers’ needs has yielded positive results.  Adjusted gross billings of security solutions increased by 23.6% in the third quarter from year-ago levels and represented 19.9% of our adjusted gross billings for the trailing twelve months.  We expect security to remain a strong driver of growth.

“In mid-January, we completed the acquisition of SLAIT Consulting, LLC, which extends our geographic reach and deepens our presence in central and Tidewater Virginia, a fast-growing corridor in the mid-Atlantic.  The acquisition has added to our portfolio of service offerings, especially in security consulting and security managed services, and has brought additional helpdesk services.  SLAIT also has broadened our customer roster to include the Commonwealth of Virginia and 5 out of 7 of its top public universities, a multinational IT services provider, and several enterprise healthcare organizations. We are pleased to welcome SLAIT to the team,” Mr. Marron noted.

Third Quarter Fiscal Year 2019 Results

For the third quarter ended December 31, 2018 as compared to the third quarter of the prior fiscal year:

Consolidated net sales increased 0.4% to $345.7 million, from $344.2 million.

Technology segment net sales increased 0.8% to $334.7 million, from $332.1 million.

Adjusted gross billings increased 2.8% to $478.4 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 10.0% to $11.0 million, from $12.2 million, due to a decrease in post contract earnings from a large sale of off-lease assets in last year’s quarter.

Consolidated gross profit increased 8.1% to $82.9 million, from $76.7 million. Consolidated gross margin improved 170 basis points to 24.0%, compared with 22.3% 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 4.3% to $62.9 million, from $60.3 million, primarily due to an increase in variable compensation from the increase in gross profit. 

Consolidated operating income increased 22.2% to $20.0 million.

Other income of $0.7 million includes $0.9 million as a distribution from the Cyberco Holdings bankruptcy offset by $0.2 million of foreign currency losses.

Our effective tax rate for the current quarter was 28.3%, compared with 4.2% in the prior year quarter, when we recognized an estimated tax benefit of $5.7 million, related to the provisional adjustment of our deferred tax balance to reflect the new corporate tax rate as well as an adjustment of our tax provision from the beginning of our fiscal year to the new blended rate as a result of the Tax Cuts and Jobs Act.

Net earnings decreased 4.6% to $14.9 million.

Adjusted EBITDA increased 17.7% to $25.6 million, from $21.7 million.

Diluted earnings per share was $1.10, compared with $1.11 in the prior year quarter. Non-GAAP diluted earnings per share was $1.29, compared with $1.10 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% U.S. federal statutory income tax rate for U.S. operations.

Fiscal Year to Date Results

For the nine months ended December 31, 2018 as compared to the nine months of the prior fiscal year:

Consolidated net sales decreased 3.8% to $1,047.2 million, from $1,088.9 million.

Technology segment net sales decreased 3.5% to $1,016.3 million, from $1,053.6 million.

Adjusted gross billings decreased 0.7% to $1,446.6 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 12.5% to $30.9 million, from $35.3 million due to a decrease in post contract earnings from the early termination of several large leases, and the sale of off lease assets in last year’s period.

Consolidated gross profit increased 3.0% to $249.1 million, from $241.9 million. Consolidated gross margin improved 160 basis points to 23.8%, compared with 22.2% 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 4.5% to $184.1 million, from $176.1 million, due in part to an increase in variable compensation and the expenses associated with the acquisition of IDS in September 2017.  Our headcount decreased to 1,265, or 1.5% from 1,284 as of December 31, 2017.

Consolidated operating income decreased 1.0% to $65.1 million.

Our effective tax rate for the first nine months of fiscal year 2019 was 27.3%, compared with 29.7% in the prior year.

Net earnings rose 4.1% to $48.1 million.

Adjusted EBITDA increased 1.7% to $80.8 million, from $79.4 million.

Diluted earnings per share was $3.54, compared with $3.30 in the prior year. Non-GAAP diluted earnings per share was $4.10, compared with $3.98 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% U.S. statutory income tax rate for U.S. operations.

Balance Sheet Highlights

As of December 31, 2018, ePlus had cash and cash equivalents of $84.3 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, investments in our financing portfolio, and share repurchases.  Total stockholders' equity was $409.2 million, compared with $372.6 million as of March 31, 2018. Total shares outstanding were 13.6 million and 13.8 million on December 31, 2018 and March 31, 2018, respectively.

Summary and Outlook

“Third quarter results represented a strong showing across our organization, underscoring our ability to capture demand from mid-market and enterprise customers for complex solutions and services. By investing in top-notch technical talent, we have become a provider of choice for cloud implementation, digital transformation and managing cybersecurity risk amongst a diversified and growing customer base.”

“The SLAIT acquisition fulfilled several of our strategic acquisition goals, including geographic expansion, the addition of potential cross-sell and up-sell opportunities between our customer sets, and a focus on services and security.  With annual revenues of approximately $100 million,  SLAIT brings a complementary customer base, additional service offerings and a group of highly-skilled leadership, sales, and engineering professionals,” Mr. Marron concluded.

The SLAIT Acquisition

On January 22nd, ePlus announced its subsidiary, ePlus Technology, inc. acquired SLAIT Consulting, LLC, a mid-Atlantic IT services provider with emphasis on the SLED and healthcare verticals.  SLAIT builds on ePlus’ security consulting and managed services capabilities and in the areas of GRC (governance, risk management and compliance), as well as staffing, bespoke managed services, and sales of IT products, maintenance, and software.  SLAIT is headquartered in Virginia Beach, VA, with locations in Richmond, VA and Charlotte, NC.

Commenting on the acquisition, Elaine Marion, chief financial officer noted, “As with our other acquisitions, we expect an increase in amortization costs related to the SLAIT acquisition once we finalize our purchase accounting.  Therefore, we do not expect the acquisition to be accretive on a GAAP basis for the next several quarters.”

Other Corporate Developments/Recognitions

  • On January 8th, ePlus announced a new partnership with Intel and Surgical Theater.
  • On December 4th, ePlus announced that its subsidiary, ePlus Technology, has achieved recognition for having certified experts delivering AppDynamics professional services.
  • On November 29th, ePlus announced its participation in the Amazon Web Services, Inc. Marketplace Consulting Partner Offers program.

Conference Call Information

ePlus will hold a conference call and webcast at 4:30 p.m. ET on February 6, 2019:

Date: Wednesday, February 6, 2019
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: 6857789 (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 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, 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, rising interest rates, 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 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 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; 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.

 
ePlus inc. AND SUBSIDIARIES 
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands, except per shares amounts)
         
    December 31, 2018   March 31, 2018
ASSETS     (unaudited)   (as adjusted)
         
Current assets:        
Cash and cash equivalents   $84,334     $118,198  
Accounts receivable—trade, net   324,695     268,287  
Accounts receivable—other, net   34,245     28,401  
Inventories   51,395     39,855  
Financing receivables—net, current   94,023     69,936  
Deferred costs   16,537     16,589  
Other current assets   7,933     23,625  
Total current assets   613,162     564,891  
         
Financing receivables and operating leases—net   68,058     68,511  
Property, equipment and other assets   17,843     19,143  
Goodwill   76,401     76,624  
Other intangible assets—net   22,725     26,302  
TOTAL ASSETS   $798,189     $755,471  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
LIABILITIES        
         
Current liabilities:        
Accounts payable   100,270      106,933  
Accounts payable—floor plan   124,558     112,109  
Salaries and commissions payable   20,456     19,801  
Deferred revenue   39,444     35,648  
Recourse notes payable—current   -     1,343  
Non-recourse notes payable—current   58,106     40,863  
Other current liabilities   18,397     33,370  
Total current liabilities   361,231     350,067  
         
Non-recourse notes payable—long term   8,461     10,072  
Deferred tax liability—net   1,438     1,662  
Other liabilities   17,882     21,067  
TOTAL LIABILITIES    389,012     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; 13,640 outstanding at December 31, 2018 and 13,761 outstanding at March 31, 2018   143     142  
Additional paid-in capital   135,418     130,000  
Treasury stock, at cost, 664 shares at December 31, 2018 and 467 shares at March 31, 2018   (51,899 )   (36,016 )
Retained earnings   326,085     277,945  
Accumulated other comprehensive income—foreign currency translation adjustment    (570 )    532  
Total Stockholders' Equity   409,177     372,603  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $798,189     $755,471  

 


ePlus inc. AND SUBSIDIARIES 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
  
  Three Months Ended   Nine Months Ended
  December 31,   December 31,
  2018   2017     2018   2017  
  (unaudited)   (as adjusted)   (unaudited)   (as adjusted)
               
Net sales $345,664   $344,225     $1,047,239   $1,088,944  
Cost of sales 262,751   267,537     798,123   847,092  
Gross profit 82,913   76,688     249,116   241,852  
               
Selling, general, and administrative expenses 59,728   57,134     174,399   168,138  
Depreciation and amortization 2,719   2,894     8,250   7,086  
Interest and financing costs 443   270     1,403   903  
Operating expenses 62,890   60,298     184,052   176,127  
               
Operating income 20,023   16,390     65,064   65,725  
               
Other income (expense) 721   (131 )   1,140   (1 )
               
Earnings before taxes 20,744   16,259     66,204   65,724  
               
Provision for income taxes 5,880   678     18,064   19,499  
               
Net earnings $14,864   $15,581     $48,140   $46,225  
               
Net earnings per common share—basic $1.10   $1.12     $3.57   $3.34  
Net earnings per common share—diluted $1.10   $1.11     $3.54   $3.30  
               
Weighted average common shares outstanding—basic 13,471   13,851     13,467   13,845  
Weighted average common shares outstanding—diluted 13,544   13,990     13,592   14,022  

 

Technology Segment
  Three Months Ended December 31,   Nine Months Ended December 31, 
  2018   2017   % Change   2018   2017   % Change
  (in thousands) 
                       
Net sales $334,711   $332,061   0.8%     $1,016,343   $1,053,638   (3.5%)  
Cost of sales 260,738   263,917   (1.2%)     792,632   839,012   (5.5%)  
Gross profit 73,973   68,144   8.6%     223,711   214,626   4.2%  
                       
Selling, general, and administrative expenses 56,607   53,836   5.1%     166,199   158,838   4.6%  
Depreciation and amortization 2,714   2,893   (6.2%)     8,243   7,084   16.4%  
Operating expenses 59,321   56,729   4.6%     174,442   165,922   5.1%  
                       
Operating income $14,652   $11,415   28.4%     $49,269   $48,704   1.2%  
                       
Key Business Metrics                      
Adjusted gross billings $478,447   $465,213   2.8%     $1,446,604   $1,457,217   (0.7%)  
Adjusted EBITDA $20,074   $16,632   20.7%     $64,699   $62,133   4.1%  

 

Technology Segment Net Sales by Customer End Market 
  Twelve Months Ended December 31,    
  2018   2017   Change
           

Technology
22%   25%   (3%)
State & Local Government & Educational Institutions 17%   17%   -
Telecom, Media, and Entertainment 14%   14%   -
Financial Services 15%   15%   -
Healthcare  14%   13%   1%
All others 18%   16%   2%
Total 100%   100%    

 

Financing Segment
  Three Months Ended December 31,   Nine Months Ended December 31,
  2018   2017   % Change   2018   2017   % Change
  (in thousands)
                       
Net sales $10,953   $12,164   (10.0%)     $30,896   $35,306   (12.5%)  
Cost of sales 2,013   3,620   (44.4%)     5,491   8,080   (32.0%)  
Gross profit 8,940   8,544   4.6%     25,405   27,226   (6.7%)  
                       
Selling, general, and administrative expenses 3,121   3,298   (5.4%)     8,200   9,300   (11.8%)  
Depreciation and amortization 5   1   400.0%     7   2   250.0%  
Interest and financing costs 443   270   64.1%     1,403   903   55.4%  
Operating expenses 3,569   3,569   0.0%     9,610   10,205   (5.8%)  
                       
Operating income $5,371   $4,975   8.0%     $15,795   $17,021   (7.2%)  
                       
Key Business Metrics                      
Adjusted EBITDA $5,480   $5,071   8.1%     $16,105   $17,296   (6.9%)  

 

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 December 31,   Nine Months Ended December 31,
      2018     2017     2018     2017
    (in thousands)
                 
Technology segment net sales   $334,711   $332,061   $1,016,343   $1,053,638
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services     143,736     133,152     430,261     403,579
Adjusted gross billings   $478,447   $465,213   $1,446,604   $1,457,217

 



 
Three Months Ended December 31,   Nine Months Ended December 31,
  2018   2017   2018    2017
  (in thousands)
Consolidated              
Net earnings $14,864   $15,581   $48,140     $46,225
Provision for income taxes 5,880   678   18,064     19,499
Depreciation and amortization [1] 2,719   2,894   8,250     7,086
Share based compensation 1,857   1,676   5,418     4,856
Acquisition related expenses 955   743   2,072     1,762
Other (income) expense [2] (721   131   (1,140  )  
Adjusted EBITDA $25,554   $21,703   $80,804     $79,429
               
       
  Three Months Ended December 31,   Nine Months Ended December 31,
  2018   2017   2018 2017
  (in thousands)
Technology Segment              
Operating income $14,652   $11,415   $49,269   $48,704
Depreciation and amortization [1] 2,714   2,893   8,243     7,084
Share based compensation 1,753   1,581   5,115   4,583
Acquisition and integration expenses 955   743   2,072   1,762
Segment Adjusted EBITDA $20,074   $16,632   $64,699   $62,133
               
Financing Segment              
Operating income $5,371   $4,975   $15,795   $17,021
Depreciation and amortization [1] 5   1   7     2
Share based compensation 104   95   303   273
Segment Adjusted EBITDA $5,480   $5,071   $16,105   $17,296
               

 

  Three Months Ended December 31,   Nine Months Ended December 31,
  2018   2017   2018   2017
  (in thousands, except per share data)
   
GAAP: Earnings before taxes $20,744     $16,259     $66,204     $65,724  
Share based compensation 1,857     1,676     5,418     4,856  
Acquisition related expenses 955     743     2,072     1,762  
Acquisition related amortization expense [3] 1,552     1,871     5,035     4,178  
Other (income) expense [2] (721 )   131     (1,140 )   1  
Non-GAAP: Earnings before taxes 24,387     20,680     77,589     76,521  
               
GAAP: Provision for income taxes 5,880     678     18,064     19,499  
Share based compensation 526     484     1,534     1,402  
Acquisition related expenses 270     215     586     509  
Acquisition related amortization expense [3] 414     508     1,343     1,108  
Other (income) expense [2] (204 )   38     (322 )   1  
Re-measurement of deferred taxes [4] -     3,407     -     3,407  
Adjustment to US federal tax rate to 21% -     (104 )   -     (6,618 )
Tax benefit on restricted stock -     -     672     1,444  
Non-GAAP: Provision for income taxes 6,886     5,226     21,877     20,752  
               
Non-GAAP: Net earnings $17,501     $15,454     $55,712     $55,769  
               
GAAP: Net earnings per common share – diluted $1.10     $1.11     $3.54     $3.30  
Non-GAAP: Net earnings per common share – diluted $1.29     $1.10     $4.10     $3.98  

 

[1] Amount consists of depreciation and amortization for assets used internally.
[2] Other income, interest income, and foreign currency transaction gains and losses.
[3] Amount consists of amortization of intangible assets from acquired businesses.
[4] Tax benefit (expense) for the re-measurement of U.S. deferred income tax assets and liabilities at 21% federal income tax rate for U.S. operations.

 

 

 

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