ePlus Reports First Quarter Financial Results
ePlus inc. (NASDAQ: PLUS), a leading provider of technology and financing solutions, today announced financial results for the three months ended June 30, 2020.
Management Comment
“Our business performed well across key profitability metrics in the first quarter of fiscal 2020 as we worked closely with customers to support their evolving IT product and service needs during these challenging times. Adjusted gross billings held steady, and gross profit increased 6.4% as consolidated gross margin increased to 27.8%. Diluted earnings per share grew 8.3%. Our performance reflected a favorable mix as higher margin services revenue grew 4.4%, in-line with our strategy of increasing managed and recurring services which mitigated the impact of lower product sales,” said Mark Marron, president and chief executive officer.
“Our focus on critical IT solutions most relevant to customers in this difficult pandemic environment has enabled ePlus to report strong earnings comparisons. During the quarter, we saw a marked increase in third-party maintenance, software assurance, and subscriptions, as customers invested to support remote workforce initiatives.”
First Quarter Fiscal 2021 Results
For the first quarter ended June 30, 2020 as compared to the first quarter of the prior fiscal year ended June 30, 2019:
Consolidated net sales decreased 6.9% to $355.0 million, from $381.4 million.
Technology segment net sales decreased 7.4% to $341.2 million, from $368.5 million primarily due to a larger portion of our sales that were recognized on a net basis. Service revenues increased 4.4% to $47.8 million, from $45.8 million primarily due to an increase in managed services. Adjusted gross billings was $546.4 million, a slight decrease of 0.4% from $548.4 million.
Financing segment net sales increased 7.6% to $13.8 million, from $12.8 million, primarily due to an increase in post-contract earnings.
Consolidated gross profit increased 6.4% to $98.6 million, from $92.6 million. Consolidated gross margin increased to 27.8% from 24.3% last year, due to higher product margins.
Operating expenses increased 5.3% to $73.6 million, from $69.9 million, primarily due to an increase in variable compensation and replacement costs for turnover. Our headcount at the end of the quarter was 1,536, compared with 1,538 a year ago.
Consolidated operating income increased 9.8% to $25.0 million.
Our effective tax rate for the current quarter was 30.8%, higher than the prior year quarter of 28.7%, due to an adjustment to the federal benefit from state taxes.
Net earnings increased 7.2% to $17.4 million.
Adjusted EBITDA increased 7.5% to $30.7 million, from $28.6 million.
Diluted earnings per share was $1.30, compared with $1.20 in the prior year quarter. Non-GAAP diluted earnings per share was $1.51, compared with $1.44 last year.
Balance Sheet Highlights
As of June 30, 2020, ePlus had cash and cash equivalents of $144.4 million, compared with $86.2 million as of March 31, 2020. The increase is primarily the result of a decrease in working capital in the technology segment and an increase in non-recourse debt. Inventory, which represents equipment ordered by customers but not yet delivered, increased 85.7% due to ongoing projects and some delivery delays due to temporary closures at our customer sites related to COVID-19. Total shareholder’s equity was $502.7 million, compared with $486.1 million as of March 31, 2020. Total shares outstanding were 13.6 million and 13.5 million on June 30, 2020 and March 31, 2020, respectively.
Summary and Outlook
“ePlus is effectively managing through difficult business conditions with a strong balance sheet, a favorable mix of products and services and a dedicated team of IT professionals, who have proven their commitment to customer service.
“Our focus on the high demand areas of Cloud, Security and Digital Infrastructure are all the more relevant in today’s business environment. Our diversified customer base, which we believe represents minimal exposure to those industries hardest hit by the economic downturn, depends on ePlus to continue to deliver critical IT solutions that enable them to effectively navigate the current marketplace challenges.
“We appreciate the excellent execution demonstrated by the ePlus team during these unprecedented times, and as a company, we have taken precautions to protect the health and safety of our employees. Our strong financial position provides the resources to continue to make strategic investments opportunistically. In summary, we believe we are well positioned to manage through near-term pandemic-related disruptions to our business and to achieve growth over the long term,” Mr. Marron concluded.
Recent Corporate Developments/Recognitions
In the month of June: ePlus announced that CRN® a brand of The Channel Company, has named ePlus to its 2020 Solution Provider 500 list for the 10th consecutive year. ePlus announced that it has been recognized with four new awards, including three Partner of the Year designations, from its partners Equinix, Juniper Networks, and NetApp. In the month of May: 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 which commenced on May 28, 2020. ePlus announced that it has launched ePlus Public Cloud Managed Services, a portfolio of offerings that enables customers to deliver services cost-effectively and securely in public cloud platforms, including AWS and Azure.Conference Call Information
ePlus will hold a conference call and webcast at 4:30 p.m. ET on August 5, 2020:
Date:
August 5, 2020
Time:
4:30 p.m. ET
Live Call:
(833) 714-0957, domestic; (778) 560-2893, international
Replay:
(800) 585-8367, domestic; (416) 621-4642, international
Passcode:
6879148 (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 August 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 lifecycle services expertise across key areas including security, cloud, data center, collaboration, networking, and emerging technologies, ePlus transforms IT from a cost center to a business enabler. Founded in 1990, ePlus has more than 1,500 associates serving a diverse set of customers in the U.S., Europe, and Asia-Pac. The Company is headquartered at 13595 Dulles Technology Drive, Herndon, VA, 20171. For more information, visit www.eplus.com, call 888-482-1122, or email info@eplus.com. Connect with ePlus on Facebook, LinkedIn, Twitter and Instagram.
ePlus, Where Technology Means More®.
ePlus® and ePlus products referenced herein are either registered trademarks or trademarks of ePlus inc. in the United States and/or other countries. The names of other companies and products mentioned herein may be the trademarks of their respective owners.
Forward-looking statements
Statements in this press release that are not historical facts may be deemed to be “forward-looking statements.” Actual and anticipated future results may vary materially due to certain risks and uncertainties, including, without limitation, the duration and impact of the COVID-19 pandemic, which could materially adversely affect our financial condition and results of operations and has resulted worldwide in governmental authorities imposing numerous unprecedented measures to try to contain the virus that has impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners; national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates and downward pressure on prices; reduction of vendor incentive programs; and restrictions on our access to capital necessary to fund our operations; our ability to successfully perform due diligence and integrate acquired businesses; disruptions or a security breach in our or our vendor’s IT systems and data and audio communication networks; the possibility of goodwill impairment charges in the future; significant adverse changes in, reductions in, or losses of relationships with one or more of our largest volume customers or vendors; the demand for and acceptance of, our products and services; our ability to adapt our services to meet changes in market developments; our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key strategies; our ability to reserve adequately for credit losses; our ability to secure our own and our customers’ electronic and other confidential information and remain secure during a cyber-security attack; future growth rates in our core businesses; the impact of competition in our markets; our reliance on third parties to perform some of our service obligations to our customers; the possibility of defects in our products or catalog content data; our ability to adapt to changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service and software as a service; our ability to realize our investment in leased equipment; maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel and vendor certifications; and other risks or uncertainties detailed in our reports filed with the Securities and Exchange Commission. All information set forth in this press release is current as of the date of this release and ePlus undertakes no duty or obligation to update this information.
ePlus inc. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30, 2020
March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$144,382
$86,231
Accounts receivable—trade, net
393,044
374,998
Accounts receivable—other, net
33,076
36,570
Inventories
93,323
50,268
Financing receivables—net, current
116,120
70,169
Deferred costs
20,785
22,306
Other current assets
6,102
9,256
Total current assets
806,832
649,798
Financing receivables and operating leases—net
68,862
74,158
Property, equipment and other assets
33,025
32,596
Goodwill
118,097
118,097
Other intangible assets—net
32,046
34,464
TOTAL ASSETS
$1,058,862
$909,113
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable
$136,507
$82,919
Accounts payable—floor plan
175,701
127,416
Salaries and commissions payable
26,460
30,952
Deferred revenue
57,271
55,480
Recourse notes payable—current
37,271
37,256
Non-recourse notes payable—current
55,667
29,630
Other current liabilities
30,683
22,986
Total current liabilities
519,560
386,639
Non-recourse notes payable—long term
5,500
5,872
Deferred tax liability—net
2,731
2,730
Other liabilities
28,346
27,727
TOTAL LIABILITIES
556,137
422,968
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; 13,553 outstanding at June 30, 2020 and 13,500
outstanding at March 31, 2020
145
144
Additional paid-in capital
147,082
145,197
Treasury stock, at cost, 934 shares at June 30, 2020 and
(71,127)
(68,424)
Retained earnings
427,579
410,219
Accumulated other comprehensive income—foreign currency translation adjustment
(954)
(991)
Total Stockholders' Equity
502,725
486,145
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$1,058,862
$909,113
ePlus inc. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended June 30,
2020
2019
Net sales
Product
$307,240
$335,601
Services
47,791
45,771
Total
355,031
381,372
Cost of sales
Product
226,634
260,063
Services
29,840
28,670
Total
256,474
288,733
Gross profit
98,557
92,639
Selling, general, and administrative
69,467
65,787
Depreciation and amortization
3,516
3,463
Interest and financing costs
577
628
Operating expenses
73,560
69,878
Operating income
24,997
22,761
Other income (expense)
98
(45)
Earnings before taxes
25,095
22,716
Provision for income taxes
7,735
6,528
Net earnings
$17,360
$16,188
Net earnings per common share—basic
$1.30
$1.21
Net earnings per common share—diluted
$1.30
$1.20
Weighted average common shares outstanding—basic
13,322
13,356
Weighted average common shares outstanding—diluted
13,388
13,457
Technology Segment
Three Months Ended June 30,
2020
2019
% Change
(in thousands)
Net sales
Product
$293,433
$322,764
(9.1%)
Services
47,791
45,771
4.4%
Total
341,224
368,535
(7.4%)
Cost of sales
Product
224,543
258,054
(13.0%)
Services
29,840
28,670
4.1%
Total
254,383
286,724
(11.3%)
Gross profit
86,841
81,811
6.1%
Selling, general, and administrative
65,556
62,667
4.6%
Depreciation and amortization
3,488
3,407
2.4%
Interest and financing costs
265
-
nm
Operating expenses
69,309
66,074
4.9%
Operating income
$17,532
$15,737
11.4%
Adjusted gross billings
$546,394
$548,363
(0.4%)
Adjusted EBITDA
$23,161
$21,419
8.1%
Technology Segment Net Sales by Customer End Market
Twelve Months Ended June 30,
2020
2019
% Change
Technology
21%
21%
-
Telecom, Media, & Entertainment
19%
14%
5%
SLED
16%
17%
(1%)
Healthcare
15%
15%
-
Financial Services
13%
15%
(2%)
All Others
16%
18%
(2%)
Total
100%
100%
Financing Segment
Three Months Ended June 30,
2020
2019
% Change
(in thousands)
Net sales
$13,807
$12,837
7.6%
Cost of sales
2,091
2,009
4.1%
Gross profit
11,716
10,828
8.2%
Selling, general, and administrative
3,911
3,120
25.4 %
Depreciation and amortization
28
56
(50.0%)
Interest and financing costs
312
628
(50.3%)
Operating expenses
4,251
3,804
11.8%
Operating income
$7,465
$7,024
6.3%
Adjusted EBITDA
$7,553
$7,148
5.7%
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 June 30,
2020
2019
(in thousands)
Technology segment net sales
$341,224
$368,535
Costs incurred related to sales of third-party
maintenance, software assurance and
subscription / SaaS licenses, and services
205,170
179,828
Adjusted gross billings
$546,394
$548,363
Three Months Ended June 30,
2020
2019
(in thousands)
Consolidated
Net earnings
$17,360
$16,188
Provision for income taxes
7,735
6,528
Depreciation and amortization [1]
3,516
3,463
Share based compensation
1,907
1,942
Acquisition and integration expense
29
401
Interest and financing costs
265
-
Other (income) expense [2]
(98)
45
Adjusted EBITDA
$30,714
$28,567
Three Months Ended June 30,
2020
2019
(in thousands)
Technology Segment
Operating income
$17,532
$15,737
Depreciation and amortization [1]
3,488
3,407
Share based compensation
1,847
1,874
Acquisition and integration expense
29
401
Interest and financing costs
265
-
Adjusted EBITDA
$23,161
$21,419
Financing Segment
Operating income
$7,465
$7,024
Depreciation and amortization [1]
28
56
Share based compensation
60
68
Adjusted EBITDA
$7,553
$7,148
Three Months Ended June 30,
2020
2019
(in thousands)
GAAP: Earnings before taxes
$25,095
$22,716
Share based compensation
1,907
1,942
Acquisition and integration expense
29
401
Acquisition related amortization expense [3]
2,228
2,187
Other (income) expense [2]
(98)
45
Non-GAAP: Earnings before taxes
29,161
27,291
GAAP: Provision for income taxes
7,735
6,528
Share based compensation
587
559
Acquisition and integration expense
9
115
Acquisition related amortization expense [3]
667
607
Other (income) expense [2]
(30)
13
Tax benefit on restricted stock
(14)
10
Non-GAAP: Provision for income taxes
8,954
7,832
Non-GAAP: Net earnings
$20,207
$19,459
Three Months Ended June 30,
2020
2019
GAAP: Net earnings per common share – diluted
$1.30
$1.20
Share based compensation
0.10
0.10
Acquisition and integration expense
-
0.02
Acquisition related amortization expense [3]
0.12
0.12
Other (income) expense [2]
(0.01)
-
Total non-GAAP adjustments – net of tax
0.21
0.24
Non-GAAP: Net earnings per common share – diluted
$1.51
$1.44
[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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