ePlus Reports Fourth Quarter and Fiscal 2017 Financial Results

Fourth Quarter Ended March 31, 2017

 

HERNDON, VA – May 24, 2017 – ePlus inc. (NASDAQ:PLUS - news), a leading provider of technology solutions, today announced financial results for the three months and fiscal year ended March 31, 2017.

Management Comment

"Fourth quarter results represented a solid finish to the year for ePlus," said Mark Marron, President and Chief Executive Officer.  "We achieved double-digit year-on-year increases in both net sales and diluted earnings per share, due primarily to strong organic growth as well as increases attributable to the two acquisitions we completed over the past fifteen months, which have enabled us to bring a broader array of solutions and services to our client base.   Our 23% gross margin for the quarter reflected our ability to provide complex, customized solutions to mid-market and enterprise clients.  For the year, we are pleased that diluted earnings per share growth surpassed revenue growth, while we continued to make ongoing investments in sales and technical personnel to support future growth.

"We experienced positive momentum throughout fiscal 2017, thanks to investments in our key solution areas of security, cloud and digital infrastructure.  Full year growth in our technology segment net sales of 10.8% outpaced predicted growth in IT spending by industry analysts, as we strive to gain market share in three ways: adding new clients, selling more of our core products and services to existing clients, and broadening our solution set in the key focus areas.   Of note, our sales of security products accounted for 16.1% of adjusted gross billings of technology products and services. Full year profitability continued to reflect the benefits of our balanced business model, including  profitable transactions executed in our financing segment," Mr. Marron noted.

Prior Period Reclassifications due to Stock Split

Reclassifications of prior period amounts related to numbers of shares and per share amounts have been made to conform to the current period presentation due to the March 31, 2017 stock split. The effect of the stock split was recognized retroactively in the stockholders' equity and in all share data. The financial statements include the effect of the stock split on per share amounts and weighted average common shares outstanding for each of the three-month periods and fiscal years ended March 31, 2017 and 2016.

Fourth Quarter Fiscal 2017 Results

For the fourth quarter ended March 31, 2017 as compared to the fourth quarter of the prior fiscal year ended March 31, 2016:

Consolidated net sales rose 11.1% to $332.8 million, from $299.4 million.

Technology segment net sales rose 10.4% to $322.5 million, from $292.2 million.

Adjusted gross billings of product and services increased 14.9% to $458.5 million. Adjusted gross billings are sales of product and services adjusted to exclude the costs incurred of applicable third-party software assurance, maintenance, and services.

Financing segment net sales increased 43.4% to $10.3 million, from $7.2 million due to higher transactional gains due to an increase in sales of  financing transactions.

Consolidated gross profit rose 14.1% to $76.4 million, from $66.9 million.

Consolidated operating income rose 14.4% to $18.7 million, from $16.4 million.

Net earnings rose 5.4% to $10.5 million.

Adjusted EBITDA rose 13.2% to $20.6 million, from $18.2 million.

Diluted earnings per share was $0.75, compared with $0.68 in the prior year quarter. Non-GAAP diluted earnings per share was $0.79, compared with $0.73 last year. Our estimated tax rate for the fourth quarter increased to 44.0%.  This increase was due to an adjustment for foreign income earned that was deemed passive income, and taxed at the statutory US federal rate.  Non-GAAP diluted earnings per share is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income and acquisition related amortization expense, net of taxes.

Fiscal Year 2017 Results

For the fiscal year ended March 31, 2017 as compared to the fiscal year ended March 31, 2016:

Consolidated net sales rose 10.4% to $1.33 billion, from $1.20 billion.

Technology segment net sales rose 10.8% to $1.29 billion, from $1.17 billion.

Adjusted gross billings of product and services increased 14.1% to $1.78 billion.

Financing segment net sales decreased 1.9% to $34.5 million, from $35.1 million due to lower portfolio earnings. However, gross profit grew 21.1%, or $5.2 million, to $30.0 million due to lower direct lease costs.

Consolidated gross profit rose 14.4% to $299.8 million, from $262.1 million.

Consolidated operating income rose 13.2% to $85.7 million, from $75.8 million.

During the second quarter of fiscal 2017, we received $0.4 million related to the dynamic random access memory ("DRAM") class action lawsuit, which claimed that manufacturers fixed the price for DRAM (a memory part that is sold as part of electronic devices), which was included in other income.

Net earnings rose 13.0% to $50.6 million, inclusive of non-operating income of $0.4 million relating to the Company's claim in the class action lawsuit mentioned above.  Our effective tax rate for fiscal 2017 was 41.3%, which includes a tax benefit of $0.5 million, or $0.04 per diluted share, related to the adoption of the new share-based compensation accounting standard.

Adjusted EBITDA rose 14.4% to $93.0 million, from $81.3 million.

Diluted earnings per share was $3.60, compared with $3.05 in fiscal 2016. Non-GAAP diluted earnings per share was $3.74, compared with $3.16 last year. Non-GAAP diluted earnings per share is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income and acquisition related amortization expense, net of taxes and the tax benefit of $0.5 million recognized in fiscal 2017.

Balance Sheet Highlights

As of March 31, 2017, ePlus had cash and cash equivalents of $109.8 million, compared with $94.8 million as of March 31, 2016.  Inventories increased $60.2 million to $93.6 million due to inventory committed to customer orders. Deferred revenue increased $47.0 million to $65.3 million due to payments for the committed inventory. Total stockholders' equity was $345.9 million and total shares outstanding were 14.2 million, compared with $318.9 million and shares outstanding of 14.7 million on March 31, 2016. During the fiscal year of 2017, we repurchased $26.8 million of our outstanding common stock and permanently retired all 6.2 million shares of treasury stock on March 31, 2017.

Summary and Outlook

"We believe ePlus is well positioned to take advantage of both organic growth and acquisition opportunities in our fiscal 2018," noted Mr. Marron.  "Once again, we expect ePlus' revenue growth to outpace industry analysts' forecasts of low single digit IT spending growth, as we continue to enhance and expand our offerings around security, cloud and digital infrastructure.

"At the same time, we plan to take advantage of our solid financial position to execute strategic acquisitions that expand our capabilities in our key areas of focus.  Our just-announced acquisition of OneCloud Consulting, Inc., which provides a robust collection of cloud and software-defined infrastructure services, software development and technical training, is emblematic of this strategy.  Completed on May 17, 2017, this transaction expands ePlus' ability to provide clients with cloud-based solutions and infrastructure and enables us to expand OneCloud's services including DevOps, OpenStack and other emerging technologies, to our broad client base," Mr. Marron concluded.

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 entities and state and local governments. The financing segment consists of the financing of equipment, software, and related services to commercial entities, state and local governments, and government contractors.

Technology Segment

The results of operations for the technology segment for the three months ended March 31, 2017 and 2016 were as follows (dollars in thousands):

		Three Months Ended March 31,
		2017		2016		Change
Sales of product and services		$321,429		$291,523		$29,906		10.3%
Fee and other income		1,030		690		340		49.3%
Net sales		322,459		292,213		30,246		10.4%
Cost of sales, product and services		255,408		231,353		24,055		10.4%
Gross profit		67,051		60,860		6,191		10.2%
Selling, general and administrative		52,299		45,691		6,608		14.5%
Depreciation and amortization		1,843		1,805		38		2.1%
Interest and financing costs		-		19		(19)		(100.0%)
Operating expenses		54,142		47,515		6,627		13.9%
Operating income		$12,909		$13,345		($436)		(3.3%)
Adjusted EBITDA		$14,752		$15,150		($398)		(2.6%)

Net sales rose 10.4% to $322.5 million, from $292.2 million in the fourth quarter of fiscal 2016.

Adjusted gross billings of products and services grew 14.9% to $458.5 million, from $399.1 million in the fourth quarter of fiscal 2016. The increase in net sales and adjusted gross billings of products and services was a result of an increase in demand for products and services from our large corporate customers, and the acquisition of Consolidated Communication's IT services and equipment integration business in December 2016.

Gross margin on sales of product and services was 20.5%, compared with 20.6% in the fourth quarter of fiscal 2016.

Operating expenses rose 13.9% to $54.1 million, from $47.5 million in the fourth quarter of fiscal 2016, mainly attributable to an increase of $5.6 million, or 14.6%, in salaries and benefits due to an increase in variable compensation and an increase of 106, or 10.4%, in personnel to 1,126 from 1,020, of which 48 relate to the acquisition of Consolidated Communication's IT services and equipment integration business.  The position additions included 98 sales and engineering positions with the remaining additions being administrative hires. General administrative expenses also increased primarily due to higher software license and maintenance expense, foreign currency transaction losses, and sales and marketing activity related expenses.

Segment operating income was $12.9 million, down 3.3% from $13.3 million in the fourth quarter of fiscal 2016.  Adjusted EBITDA decreased 2.6% to $14.8 million for the quarter, from $15.2 million in the fourth quarter of fiscal 2016.

Financing Segment

The results of operations for the financing segment for the three months ended March 31, 2017 and 2016 were as follows (dollars in thousands):

		Three Months Ended March 31,
		2017		2016		Change
Financing revenue		$10,301		$7,177		$ 3,124		43.5%
Fee and other income		7		13		(6)		(46.2%)
Net sales		10,308		7,190		3,118		43.4%
Direct lease costs		983		1,104		(121)		(11.0%)
Gross profit		9,325		6,086		3,239		53.2%
Selling, general and administrative		3,112		2,660		452		17.0%
Depreciation and amortization		1		4		(3)		(75.0%)
Interest and financing costs		385		388		(3)		(0.8%)
Operating expenses		3,498		3,052		446		14.6%
Operating income		$5,827		$3,034		$2,793		92.1%
Adjusted EBITDA		$5,828		$3,038		$2,790		91.8%

 

Net sales were $10.3 million, up 43.4% from $7.2 million in the fourth quarter of fiscal 2016, as a result of higher transactional gains. Direct lease costs decreased $0.1 million or 11.0% due to a lower depreciation expense from operating leases.

Operating expenses increased 14.6% over the previous year period, mainly due to an increase in variable compensation associated with higher gross profit.

Segment operating income and adjusted EBITDA both increased to $5.8 million from $3.0 million in the fourth quarter of fiscal 2016.

Technology Segment

The results of operations for the technology segment for the fiscal years ended March 31, 2017 and 2016 were as follows (dollars in thousands):

		Years Ended March 31,
		2017		2016		Change
Sales of product and services		$1,290,228		$1,163,337		$126,891		10.9%
Fee and other income		4,709		5,728		(1,019)		(17.8%)
Net sales		1,294,937		1,169,065		125,872		10.8%
Cost of sales, product and services		1,025,188		931,782		93,406		10.0%
Gross profit		269,749		237,283		32,466		13.7%
Selling, general and administrative		193,594		167,992		25,602		15.2%
Depreciation and amortization		7,243		5,532		1,711		30.9%
Interest and financing costs		-		70		(70)		(100.0%)
Operating expenses		200,837		173,594		27,243		15.7%
Operating income		$68,912		$63,689		$5,223		8.2%
Adjusted EBITDA		$76,155		$69,221		$6,934		10.0%

Net sales rose 10.8% to $1.29 billion, from $1.17 billion in fiscal 2016.

Adjusted gross billings grew 14.1% to $1.78 billion, from $1.56 billion in fiscal 2016. The increase in net sales and adjusted gross billings of products and services was a result of an increase in demand for products and services from our large corporate and SLED customers, and the acquisition of IGX in December 2015 and Consolidated Communication's IT services and equipment integration business in December 2016.

Gross margin on sales of product and services was 20.5%, up from 19.9% in fiscal 2016.  The increase in gross margin was due to shifts in our product revenue mix as we sold products with higher margins, an increase in gross profit from services, and a higher proportion of sales of third party software assurance, maintenance and services, which are presented on a net basis.

Operating expenses rose 15.7% to $200.8 million, from $173.6 million in fiscal 2016, reflecting increased amortization expenses associated with the acquisitions of IGX in December 2015 and Consolidated Communication's IT services and equipment integration business in December 2016, as well as increased salaries and benefits due to increased variable compensation and a 10.4% increase in personnel to 1,126 from 1,020.

Segment operating income was $68.9 million, up 8.2% from $63.7 million in fiscal 2016.  Adjusted EBITDA increased 10.0% to $76.2 million, from $69.2 million in the fiscal 2016.

The Company maintained its balanced portfolio of customer-end markets. The breakdown of net sales by customer-end market for the fiscal years ended March 31, 2017 and 2016 were as follows:

	Years Ended March 31,
	2017		2016		Change
Technology	23%		23%		-
State & Local Government & Educational Institutions	21%		22%		(1%)
Telecom, Media, and Entertainment	15%		14%		1%
​Financial Services	13%		12%		1%
​Healthcare	11%		10%		1%
​Other	17%		19%		(2%)
Total	100%		100%

Financing Segment

The results of operations for the financing segment for the fiscal years ended March 31, 2017 and 2016 were as follows (dollars in thousands):

		Years Ended March 31,
		2017		2016		Change
Financing revenue		$34,200		$35,091		$ (891)		(2.5%)
Fee and other income		252		43		209		486.0%
Net sales		34,452		35,134		(682)		(1.9%)
Direct lease costs		4,442		10,360		(5,918)		(57.1%)
Gross profit		30,010		24,774		5,236		21.1%
Selling, general and administrative		11,638		10,988		650		5.9%
Depreciation and amortization		9		16		(7)		(43.8%)
Interest and financing costs		1,543		1,708		(165)		(9.7%)
Operating expenses		13,190		12,712		478		3.8%
Operating income		$16,820		$12,062		4,758		39.4%
Adjusted EBITDA		$16,829		$12,078		$4,751		39.3%

 

Net sales were $34.5 million, compared with $35.1 million in fiscal 2016.  The decrease was a result of lower portfolio earnings, which was offset by higher post-contract earnings. Direct lease costs decreased $5.9 million or 57.1% due to a lower depreciation expense from operating leases.

Operating expenses were $13.2 million, up 3.8% from the prior year due to higher reserve for credit losses and increases in salaries and benefits and software license and maintenance expense, which were offset by lower interest and financing costs.

Segment operating income and adjusted EBITDA both increased to $16.8 million from $12.1 million in fiscal 2016.

Date:	Wednesday, May 24, 2017
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:	47712503 (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 June 7, 2017.

About ePlus inc.

ePlus is an engineering-centric technology solutions provider that helps clients 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 1,200 associates serving a diverse set of clients 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, possible adverse effects resulting from financial market disruption and volatility in the U.S. economy such as our current and potential clients delaying or reducing technology purchases, increasing credit risk associated with our clients 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 acquisitions; disruptions or a security breach in our 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 major clients 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 clients' 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; the possibility of defects in our products or catalog content data; our ability to adapt to changes in the IT industry and/or rapid change in product standards; 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.

 

Contact:
Kleyton Parkhurst, SVP
ePlus inc.
kparkhurst@eplus.com

703-984-8150

We included reconciliations below for the following non-GAAP information: (i) Adjusted Gross Billings of Product and Services, (ii) Adjusted EBITDA, (iii) Segment Adjusted EBITDA, and (iv) non-GAAP Net Earnings per Common Share - Diluted. We define adjusted gross billings 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. Segment Adjusted EBITDA is defined as operating income calculated in accordance with GAAP, adjusted for interest expense, 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 and acquisition related amortization expense, and the related effects on income 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 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.