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ePlus inc.

PLUS US

ePlus inc.United States Composite

Q2 2013 · Earnings Call Transcript

Nov 6, 2012

Operator

Good day, ladies and gentlemen, and welcome to the ePlus Earnings Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to your host for today, Mr. Kley Parkhurst, Senior Vice President.

Please go ahead.

Kley Parkhurst

Thank you, Mary, and thank you, everyone, for joining us today. With me are Phil Norton, Chairman, President and CEO of ePlus; Elaine Marion, our Chief Financial Officer; and Erica Stoecker, our General Counsel.

Kley Parkhurst

I want to take a moment to remind you that the statements we make this afternoon that are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates, and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued yesterday and our periodic filings with the Securities & Exchange Commission, including our Form 10-K for the year ended March 31, 2012, and our Form 10-Q for the 3 months ended September 30, 2012, when filed.

Kley Parkhurst

The company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events.

Kley Parkhurst

I'd now like to turn the call over to Phil Norton. Phil?

Phillip Norton

Thank you, Kley. We are very pleased with our financial results for the quarter.

Revenues for the quarter increased 27.7%, and fully diluted earnings per share improved 49.4% on a year-over-year basis.

Phillip Norton

Despite macroeconomic challenges, we experienced robust revenue growth driven particularly by our largest customers. This growth reflects the fact that large enterprises -- enterprise customers are modernizing their infrastructures with technologies that ePlus is very well positioned to provide, such as Virtualization Security and Bring Your Own Device solutions.

Phillip Norton

Customers are choosing ePlus because we have the capability to provide integrated technology solutions for these critical projects, including architecture, design, project management, implementation and supply chain logistics.

Phillip Norton

Our continuing financial strength and our alignment with top vendors such as Cisco, VMware, NetApp, HP and others make ePlus a trusted resource and a desirable partner for our customers' most crucial projects.

Phillip Norton

Our results are continuing to reflect the investments we have made to position ePlus as a systems integrator able to provide the most in-demand advanced technology solutions, as well as acquisitions and expanded market presence in both new and existing markets, which align with our strategic plan.

Phillip Norton

Accompanying the solid demand from our customers, our gross margin for the quarter remained steady at 18% as compared to 18.1% the prior year. During the quarter, we continue to add our engineering certifications and capabilities and rolled out new solutions.

We announced Virtualization Security and a cloud readiness assessment service, both designed to facilitate customers' on-boarding to the cloud. We also were awarded a health care specialization by VMware.

Phillip Norton

ePlus' success has been driven in part by our ongoing commitment to deliver the most advanced technology offerings. Looking ahead, our strategy remains committed to investing in our people, acquiring new technology, capabilities and expanding geographic locations and in improving our efficiency and delivery capabilities.

Phillip Norton

Along with continuing customer adoption of cloud computing, we see numerous opportunities to continue growing the business and are well positioned to best serve our customers.

Phillip Norton

With that, I would like to turn the call over to Elaine Marion, our CFO, who will discuss financial results.

Elaine Marion

Thank you, Phil. On a consolidated basis, total revenues for the quarter increased $56.4 million, or 27.7%, to $260.1 million as compared to $203.7 million recorded in the prior fiscal year's second quarter.

Elaine Marion

Net earnings increased 42% to $10 million dollars as compared to $7.1 million in the prior year's quarter.

Elaine Marion

Fully diluted earnings per share increased 49.4% to $1.27 per share from $0.85 per share in the prior year.

Elaine Marion

In the technology sales business segment, total revenues increased 28.7% to $251.8 million compared to $195.6 million in the quarter ended September 30, 2011. The increase in revenues was due to increases in customer demand, particularly from Fortune 100 companies, and investments we've made over the last 12 months to improve our product and service offerings and expand our geographical footprint.

Elaine Marion

Gross margin on sales of products and services was 18% and 18.1% during the quarters ended September 30, 2012 and 2011, respectively, and 17% for the quarter ended June 30, 2012. The year-over-year change in gross margin was primarily affected by the amount of vendor incentives earned during the period.

The sequential change in gross margin was primarily due to higher sales of third-party software insurance, maintenance and services during the second quarter of fiscal year 2013, which are presented on a net basis.

Elaine Marion

Total costs and expenses were $236.9 million compared to $186.4 million in the same quarter last year, an increase of 27%. The increase in costs and expenses was primarily driven by increases in cost of sales, products and services, which was consistent with the increase in sales of products and services.

In addition, salaries and benefits increased as a result of our investment in sales and support personnel and strategic acquisitions. Segment earnings before tax increased $5.7 million to $14.9 million.

Elaine Marion

Moving to our financing segment, total revenues were $8.3 million as compared to $8 million in the quarter ended September 30, 2011. Total costs and expenses increased 15.8% to $6.2 million due to increases in direct lease costs, bad debt expense and salaries and benefits, which increased due to higher commissions.

Elaine Marion

Segment earnings before tax were $2 million compared to $2.6 million for the same quarter in the prior year.

Elaine Marion

As of September 30, 2012, the company had $45.9 million of cash and short-term investments as compared to $41.2 million on March 31, 2012.

Elaine Marion

As of September 30, 2012, the company had total shareholders' equity of $238.7 and 8.1 million shares outstanding as compared to $219.6 million in shareholders' equity and 8 million shares outstanding as of March 31, 2012.

Elaine Marion

That concludes our prepared remarks. Mary, would you please open the line for questions?

Operator

[Operator Instructions] We have a question from Gunnar Hansen from Sidoti.

Gunnar Hansen

Just have a few quick question. I guess just in terms of some of the operating expenses.

Obviously, you guys have made some investments on expanding your sales force and geographically as well. I guess just in terms of some of the salaries and benefits, I mean, should that just kind of continue to normalize on a per-dollar basis going forward?

Or how are you guys kind of investing in that -- what's the investment level now?

Elaine Marion

The salaries and benefits is consistent with the increase in gross margin dollars. As those dollars increase obviously the commission expense increases.

That's one of the driving factors as well as the increase in headcount. The technology segment increased in headcount by about 93 on year-over-year basis.

So that also equates to the increase.

Gunnar Hansen

Okay, got you. And then I guess -- I mean, are you guys looking to continue to add more people?

Or what's kind of the outlook there?

Phillip Norton

Well, that's going to depend on the business and how fast it grows. And the one thing that we are continuously looking for is high-level engineers because the business is changing dramatically to -- and the requirement of that for most for our ongoing solutions.

So as those grow, we'll be adding more engineers than any other set of people.

Gunnar Hansen

Okay. And then I guess, just generally speaking, how are things kind of been trending, I guess, in this quarter?

What are you guys been kind of hearing from your customers? How are things looking out there?

Phillip Norton

Well, it's kind -- that's -- a little forward thinking of what they're going to do. We think that there's going to be some ups and downs because of the Northeast, which we have a big presence.

I think the hurricane is going to delay some of the orders that have been placed, and they may pick up before the end of the quarter. Most likely -- we think they will, but we can't be sure that.

And as far as our business, it kind of goes with the economy. As the economy starts to accelerate, we accelerate.

As the economy slows down, then our growth slows down a little bit.

Operator

[Operator Instructions] I show no further questions. I would like to turn the conference back to Mr.

Phil Norton for closing remarks.

Phillip Norton

We'd like to thank you very much for taking the time for our conference call. If you have any questions, please contact Kley Parkhurst.

Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.

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