ePlus Reports Second Quarter and First Half Financial Results

Second Quarter Fiscal Year 2016

  • Net sales increased 13.0% from second quarter fiscal year 2015
  • Gross profit up 12.5% to $71.9 million, with double digit growth in both Technology and Financing segments
  • Consolidated gross margin of 21.4%; gross margin on products and services of 19.4%
  • Adjusted EBITDA increased 30.3% to $27.9 million
  • Diluted earnings per share increased 31.9% to $2.15

First Half Fiscal Year 2016

  • Net sales up 6.4%; technology segment net sales up 6.5%
  • Gross profit increased 8.9% to $131.1 million, led by 9.7% increase in technology segment gross profit
  • Consolidated gross margin increased to 21.6%  from 21.1%; gross margin on products and services expands 70 basis points to 19.7%
  • Adjusted EBITDA increased 19.3% to $44.1 million
  • Diluted earnings per share increased 21.8% to $3.35, as compared to non-GAAP diluted earnings per share of $2.75 in the prior year exclusive of other income

HERNDON, Va., Nov. 04, 2015 (GLOBE NEWSWIRE) — ePlus inc. (NASDAQ:PLUS), a leading provider of technology solutions, today announced financial results for the second quarter ended September 30, 2015.

Management Comment

“We are pleased with our strong financial performance in the second quarter and first half of fiscal 2016, further evidence of the success of our go-to-market strategy focused on complex, service-led IT solutions for our commercial,  state and local government and education customers,” said Phillip G. Norton, chairman, CEO and president of ePlus.  “We continue to gain market share and expand geographically, while adjusting our sales mix to emphasize higher-margin services. The success of this strategy allowed us to deliver first half gross profit growth of 8.9%, and year-over-year diluted earnings per share growth of 21.8% to $3.35 as compared to non-GAAP earnings per share of $2.75.

“Looking specifically at the second quarter, we saw growth in both net sales and gross profit, up 13.0% and 12.5%, respectively, while we maintained our gross margin on products and services. This performance was driven by broad-based strength in demand for our IT solutions, including fast-growing areas such as professional and annuity services, as well as security products and solutions.  Technology sales also gained additional momentum from customers in the technology and healthcare sectors,” Mr. Norton commented.

Second Quarter Fiscal 2016 Results

For the second quarter ended September 30, 2015:

Consolidated net sales increased 13.0% to $336.3 million, from $297.5 million in the second quarter of fiscal 2015.

Technology segment net sales increased 13.0% to $326.0 million from $288.4 million in the second quarter of fiscal 2015. Non-GAAP gross sales of products and services, which are revenues prior to the reclassification to net sales for sales of third-party software assurance, maintenance and services, increased 9.9% to $431.1 million.

Financing segment net sales increased 13.2% to $10.3 million, from $9.1 million in the second quarter of fiscal 2015, due to higher transactional gains.

Consolidated gross profit rose 12.5% to $71.9 million, compared with $63.9 million in the second quarter of fiscal 2015.

Consolidated operating income rose 31.2% to $26.7 million, from $20.3 million in the second quarter of fiscal 2015.

Diluted earnings per share increased 31.9% to $2.15, from $1.63 in the second quarter of fiscal 2015.

Net earnings increased 31.2% to $15.7 million, compared with $12.0 million in the second quarter of fiscal 2015.

Adjusted EBITDA rose 30.3% to $27.9 million, from $21.4 million in the second quarter of fiscal 2015.

First Half Fiscal 2016 Results

For the six months ended September 30, 2015:

Consolidated net sales were up 6.4% to $606.2 million, compared with $569.8 million in the first half of fiscal 2015.

Technology segment net sales rose 6.5% to $587.5 million, from $551.8 million in the first half of fiscal 2015. Non-GAAP gross sales of products and services grew 6.4% to $763.4 million.

Financing segment net sales increased 3.7% to $18.7 million, from $18.0 million in the first half of fiscal 2015, due to higher transactional gains.

Consolidated gross profit rose 8.9% to $131.1 million, compared with $120.4 million in the first half of fiscal 2015.

Consolidated operating income rose 19.0% to $41.7 million, from $35.1 million in the first half of fiscal 2015.

Net earnings rose 14.3% to $24.5 million, as compared to $21.4 million in the first half of fiscal 2015.

Adjusted EBITDA increased 19.3% to $44.1 million, up from $37.0 million in the first half of fiscal 2015.

Diluted earnings per share increased 17.1% to $3.35 from $2.86 in the first half of fiscal 2015, which included a gain on retirement of a liability.  Exclusive of this benefit, non-GAAP diluted earnings per share was $2.75 in the first half of fiscal 2015.

Balance Sheet Highlights

At September 30, 2015, ePlus had cash and cash equivalents of $62.8 million, down from $76.2 million as of March 31, 2015. Total stockholders’ equity was $305.0 million and total shares outstanding were 7.5 million, compared with stockholders’ equity of $279.3 million and shares outstanding of 7.4 million on March 31, 2015.

Summary and Outlook

“In the first half of fiscal 2016 we made progress on several fronts, including financial results, vendor awards and certifications, and the ongoing growth of our services business.   The expertise of our sales and engineering staff, our certifications with legacy and emerging vendors, and our focus on the fastest-growing segments of the IT industry, including security, data center, and cloud have allowed us to penetrate wider and deeper into our existing client base, while also adding new customers.  In addition, our balance sheet remains robust, with a healthy cash position, giving us the financial resources to fund organic growth as well as make accretive acquisitions and we believe we are well positioned to continue to outgrow the overall IT market,” Mr. Norton concluded.

Results of Operations – Three Months Ended September 30, 2015

The Company’s operations are conducted through two business segments. The technology segment includes sales of information technology products, third-party software, third-party maintenance contracts, advanced professional services and managed services, and the Company’s proprietary software, to commercial, and state and local governments. The financing segment consists of the financing of equipment, software and related services to commercial, state and local governments, and government contractors.

Technology Segment

The results of operations for the technology segment for the three months ended September 30, 2015 and 2014 were as follows (dollars in thousands):

    Three Months Ended September 30,
      2015       2014     Change
Sales of product and services   $  324,259     $  286,584     $  37,675       13.1 %
Fee and other income       1,721         1,782        (61 )     (3.4 %)
Net sales       325,980         288,366       37,614       13.0 %
                 
Cost of sales, product and services       261,208         230,742       30,466       13.2 %
                 
Gross profit     64,772       57,624       7,148       12.4 %
                 
Professional and other fees       1,305         1,321         (16 )     (1.2 %)
Salaries and benefits       33,476         31,963       1,513       4.7 %
General and administrative       7,322         6,703         619       9.2 %
Interest and financing costs       22         19         3        15.8 %
Operating expenses       42,125         40,006         2,119       5.3 %
                 
Segment earnings   $  22,647     $  17,618     $  5,029       28.5 %

Net sales rose 13.0% to $326.0 million, from $288.4 million in the second quarter of fiscal 2015.   The increase reflects a 9.9% increase in non-GAAP gross sales of product and services as well as a higher proportion of sales from products that are not reclassified on a net basis. 

Gross margin on sales of product and services was 19.4%, compared with 19.5% in the second quarter of fiscal 2015.

Operating expenses rose 5.3% to $42.1 million, from $40.0 million in the second quarter of fiscal 2015, reflecting increased salaries and benefits as well as general and administrative expenses.

Segment earnings were $22.6 million, up 28.5% from $17.6 million in the second quarter of fiscal 2015.

Financing Segment

The results of operations for the financing segment for the three months ended September 30, 2015 and 2014 were as follows (dollars in thousands):

    Three Months Ended September 30,
      2015       2014     Change
Financing revenue   $  10,279     $  9,059     $   1,220       13.5 %
Fee and other income     27       47     (20)  (121)2     (42.6 %)
Net sales     10,306         9,106       1,200       13.2 %
                 
Direct lease costs       3,157         2,806        351       12.5 %
                 
Gross profit      7,149       6,300       849        13.5  %
                 
Professional and other fees       208         256         (48 )     (18.8 %)
Salaries and benefits       2,264         2,289       (25 )     (1.1 %)
General and administrative       263         455         (192  )     (42.2 %)
Interest and financing costs       400       592        (192 )     (32.4 %)
Operating expenses       3,135         3,592         (457 )     (12.7 %)
                 
Segment earnings   $  4,014     $  2,708     $  1,306       48.2 %

Net sales were $10.3 million, up 13.2% from $9.1 million in the second quarter of fiscal 2015, as a result of higher transactional gains.

Operating expenses were down 12.7% over the previous year, mainly due to a reserve for credit loss recorded in the previous year that was not replicated in the current quarter, and lower interest expenses as a result of lower debt combined with lower interest rates.

Segment earnings were $4.0 million, compared with $2.7 million in the second quarter of fiscal 2015.

Results of Operations – Six Months Ended September 30, 2015

Technology Segment

The results of operations for the technology segment for the six months ended September 30, 2015 and 2014 were as follows (dollars in thousands):

    Six Months Ended September 30,
      2015       2014     Change
Sales of product and services   $  583,955     $  547,940     $  36,015       6.6 %
Fee and other income       3,532         3,829        (297 )     (7.8 %)
Net sales     587,487         551,769       35,718       6.5 %
                 
Cost of sales, product and services       468,926         443,650         25,276       5.7 %
                 
Gross profit     118,561       108,119       10,442       9.7 %
                 
Professional and other fees     2,567         2,907         (340 )     (11.7 %)
Salaries and benefits       66,428         62,633       3,795       6.1 %
General and administrative       13,851         12,461         1,390       11.2 %
Interest and financing costs       41         58         (17  )     (29.3 %)
Operating expenses     82,887         78,059         4,828       6.2 %
                 
Segment earnings   $  35,674      $  30,060     $  5,614       18.7 %

Net sales rose 6.5% to $587.5 million, from $551.8 million in the first half of fiscal 2015. Non-GAAP gross sales of product and services grew 6.4% in the first half of fiscal 2015.

Gross margin on sales of products and services was 19.7%, up from 19.0% in the first half of fiscal 2015.

Operating expenses rose 6.2% to $82.9 million, from $78.1 million in the first half of fiscal 2015. This was primarily due to increased salaries and benefits due to additional personnel as well as increased variable compensation. In addition, the Company incurred incremental amortization expenses associated with the acquisition of Evolve Technology Group in August of 2014.

Segment earnings were $35.7 million, up 18.7% from $30.1 million in the first half of fiscal 2015.

The Company maintained its balanced portfolio of customer-end markets. The breakdown of net sales by customer end market for the twelve months ended September 30, 2015 was as follows:

State & Local Government & Educational Institutions   23 %
Technology   21 %
Telecom, Media, and Entertainment   17 %
​Financial Services   10 %
​Healthcare    10 %
​Other   19 %


Financing Segment

The results of operations for the financing segment for the six months ended September 30, 2015 and 2014 were as follows (dollars in thousands):

    Six Months Ended September 30,
      2015       2014     Change
Financing revenue   $  18,625     $  17,933     $   692       3.9 %
Fee and other income       40       74     (34)  (121)2     (45.9 %)
Net sales       18,665       18,007         658       3.7 %
                 
Direct lease costs       6,175         5,763       412       7.1 %
                 
Gross profit      12,490       12,244       246        2.0  %
                 
Professional and other fees       464         503         (39 )     (7.8 %)
Salaries and benefits     4,526         4,566       (40 )     (0.9 %)
General and administrative     513         970         (457  )     (47.1 %)
Interest and financing costs       934       1,197        (263 )     (22.0 %)
Operating expenses       6,437         7,236         (799 )     (11.0 %)
                 
Operating income     6,053       5,008       1,045       20.9 %
                 
Other income      –       1,434        (1,434 )     (100.0  %)
Segment earnings   $  6,053     $  6,442     $  (389 )     (6.0 %)

Net sales were $18.7 million, up 3.7% from $18.0 million in the first half of fiscal 2015, as a result of higher transactional gains.

Operating expenses were down 11.0% over the previous year, due to a reserve for credit loss recorded in the previous year that was not replicated in the current year, and lower interest expenses as a result of lower debt combined with lower interest rates.

Operating income was $6.1 million, an increase of 20.9% from $5.0 million in the previous year.

During the first quarter of fiscal 2015, ePlus entered into an agreement to repurchase the rights, title, and interest to payments due under a financing arrangement. This financing arrangement was previously assigned to a third party financial institution and accounted for a secured borrowing. In conjunction with this repurchase agreement, ePlus recognized a gain of $1.4 million, which was included in other income.

Segment earnings were $6.1 million, compared with $6.4 million in the first half of fiscal 2015.

Recent Corporate Developments & Recognitions

  • On September 15, 2015, ePlus announced that its subsidiary, ePlus Technology, was named the Palo Alto Networks 2015 Americas Fast Growth Partner of the Year at the Palo Alto Networks Sales Kickoff in Las Vegas, NV.  ePlus was recognized based on its accomplishments and success in criteria including year-over-year growth, technical certifications, and acquisition of net new customers.
  • On August 19, 2015, ePlus announced that its board of directors authorized the Company to repurchase up to 500,000 shares of ePlus’ outstanding common stock over a 12 month period beginning August 17, 2015.
  • On August 11, 2015, ePlus announced that ePlus Technology achieved a Customer Satisfaction Excellence Gold Star from Cisco. The designation recognized ePlus for delivering outstanding customer service in the United States, based on a weighted average of a partner’s pre-and post- sales support over a rolling 12-month period.

Conference Call Information

ePlus will hold a conference call and webcast at 4:30 p.m. ET. on November 4, 2015:

What: ePlus Second Quarter FY16 Financial Results Conference Call
When:  Wednesday, November 4, 2015
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:  48127667 (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 will be available through November 11, 2015.

About ePlus inc.

ePlus is an engineering-centric technology solutions provider that helps organizations 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 975 associates serving commercial, state, municipal, and education customers nationally.  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®, Where Technology Means More, 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, products, and services 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 general slowdown of the U.S. economy such as our current and potential customers’ delaying or reducing technology purchases, increasing credit risk associated with our customers and vendors, reduction of vendor incentive programs, the possibility of additional goodwill impairment charges, and restrictions on our access to capital necessary to fund our operations; significant adverse changes in, reductions in, or losses of relationships with major customers or vendors; our ability to implement comprehensive plans to archive customer account coverage, cost containment, asset rationalization, systems integration and other key strategies; our ability to secure our electronic and other confidential information or that of our customers or partners; changes to our senior management team; 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 adapt to changes in the IT industry and/or rapid change in product standards; our ability to hire and retain sufficient personnel; our ability to realize our investment in leased equipment; our ability to protect our intellectual property; our ability to consummate and integrate acquisitions; the creditworthiness of our customers; our ability to raise capital and obtain non-recourse financing for our transactions; our ability to reserve adequately for credit losses; the impact of competition in our markets; the possibility of defects in our products or catalog content data; 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          
           
    As of   As of
    September 30, 2015   March 31, 2015
ASSETS   (amounts in thousands) 
         
Current assets:        
Cash and cash equivalents   $  62,842     $  76,175  
Accounts receivable—trade, net     259,089       218,458  
Accounts receivable—other, net     31,740       31,345  
Inventories—net     18,773       19,835  
Financing receivables—net, current     64,268       66,909  
Deferred costs     9,087       20,499  
Deferred tax assets     3,643       3,643  
Other current assets     4,718       7,413  
Total current assets     454,160       444,277  
         
Financing receivables and operating leases—net     87,847       76,991  
Property, equipment and other assets     8,969       9,480  
Goodwill and other intangible assets     39,511       40,798  
TOTAL ASSETS   $  590,487     $  571,546  
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
LIABILITIES        
         
Current liabilities:        
Accounts payable—equipment   $  11,369     $  20,330  
Accounts payable—trade     46,707       46,090  
Accounts payable—floor plan     127,053       99,418  
Salaries and commissions payable     13,994       14,860  
Deferred revenue     20,665       34,363  
Recourse notes payable—current     1,204       889  
Non-recourse notes payable—current     28,137       28,560  
Other current liabilities     16,476       13,575  
Total current liabilities     265,605       258,085  
         
Recourse notes payable—long term     2,815       2,801  
Non-recourse notes payable—long term     10,510       24,314  
Deferred tax liability—long term     3,271       3,271  
Other liabilities     3,277       3,813  
TOTAL LIABILITIES      285,478       292,284  
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ EQUITY        
Preferred stock, $.01 per share par value; 2,000 shares authorized; none issued or outstanding            
Common stock, $.01 per share par value; 25,000 shares authorized; 13,237 issued and 7,482 outstanding at September 30, 2015 and 13,114 issued and 7,389 outstanding at March 31, 2015     132       131  
Additional paid-in capital     114,934       111,072  
Treasury stock, at cost, 5,755 and 5,725 shares, at September 30, 2015 and March 31, 2015, respectively      (120,654 )      (118,179 )
Retained earnings     310,970       286,477  
Accumulated other comprehensive income—foreign currency translation adjustment      (373 )      (239 )
Total Stockholders’ Equity     305,009       279,262  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $  590,487     $  571,546  

ePlus inc. AND SUBSIDIARIES                
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              
                 
  Three Months Ended   Six Months Ended
  September 30,   September 30,
    2015       2014       2015       2014  
  (amounts in thousands, except per share data)
               
Net sales $ 336,286     $ 297,472     $ 606,152     $ 569,776  
Cost of sales   264,365       233,548       475,101       449,413  
Gross profit   71,921       63,924       131,051       120,363  
               
Professional and other fees   1,513       1,577       3,031       3,410  
Salaries and benefits   35,740       34,252       70,954       67,199  
General and administrative expenses   7,585       7,158       14,364       13,431  
Interest and financing costs   422       611       975       1,255  
Operating expenses   45,260       43,598       89,324       85,295  
               
OPERATING INCOME   26,661       20,326       41,727       35,068  
               
Other income                     1,434  
               
EARNINGS BEFORE PROVISION FOR INCOME TAXES   26,661       20,326       41,727       36,502  
               
PROVISION FOR INCOME TAXES   10,982       8,374       17,234       15,073  
               
NET EARNINGS $  15,679     $ 11,952     $  24,493     $ 21,429  
               
NET EARNINGS PER COMMON SHARE—BASIC $  2.16     $ 1.63     $  3.38     $ 2.88  
NET EARNINGS PER COMMON SHARE—DILUTED $  2.15     $ 1.63     $  3.35     $ 2.86  
               
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC   7,274       7,320       7,249       7,412  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED   7,297       7,345       7,310       7,461  

ePlus inc. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP INFORMATION

We included reconciliations below for the following non-GAAP information: (i) non-GAAP Gross Sales of Product and Services,  (ii) Adjusted EBITDA, and (iii) non-GAAP Net Earnings per Common Share – Diluted. We define non-GAAP gross sales of product and services as our sales of product and services calculated in accordance with GAAP, adjusted to exclude the costs incurred related to sales of third-party software assurance, maintenance and services.  We define Adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, provision for income taxes, and other income. 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 is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income, net of taxes.

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 Gross Sales of Product and Services, 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 September 30,   Six Months Ended September 30,
    2015       2014       2015       2014  
  (amounts in thousands)
               
GAAP: Sales of product and services $  324,259     $  286,584     $  583,955     $ 547,940  
Plus: Costs incurred related to sales of
  third party software assurance,
  maintenance and services
   

106,837

       

105,654

       

179,449

       

169,756

 
Non-GAAP: Gross sales of product and services $ 431,096     $ 392,238     $  763,404     $ 717,696  
               

  Three Months Ended September 30,   Six Months Ended September 30,  
    2015       2014       2015       2014  
  (amounts in thousands)  
               
GAAP: Net earnings $ 15,679     $ 11,952     $  24,493     $  21,429  
Plus: Provision for income taxes   10,982       8,374         17,234         15,073  
Less: Other income [1]                –        (1,434  )
Plus: Depreciation and amortization [2]   1,200       1,050       2,408       1,921  
Non-GAAP: Adjusted EBITDA $ 27,861     $ 21,376     $  44,135     $  36,989  
Non-GAAP: Adjusted EBITDA margin   8.3 %     7.2 %      7.3 %     6.5   %
     
     
  Six Months Ended September 30,  
  2015 [4]     2014   
         
  (in thousands, except per share data)  
GAAP: Earnings before provision for income taxes $ 41,727    $ 36,502     
Less: Other income [1]   –      (1,434  )  
Non-GAAP: Earnings before provision for income taxes   41,727      35,068     
Non-GAAP: Provision for income taxes [3]   17,234      14,481     
Non-GAAP: Net earnings $ 24,493    $ 20,587     
         
GAAP: Net earnings per common share – diluted $ 3.35    $ 2.86    
Non-GAAP: Net earnings per common share – diluted $ 3.35    $ 2.75     
         
[1] Gain on retirement of a liability.  
[2] Amount consists of depreciation and amortization for assets used internally.  
[3] Non-GAAP tax rate is calculated at the same tax rate as GAAP earnings.  
[4] Amounts for the six months ended September 30, 2015 are GAAP and provided for comparative purposes.  

 

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

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