ePlus Reports Third Quarter Financial Results
Diluted EPS Increased 18.9% on 10.4% Revenue Growth
HERNDON, VA – February 5, 2014 – ePlus inc. (NASDAQ NGS: PLUS – news) today announced financial results for the three and nine months ending December 31, 2013. For the third quarter of its fiscal year ending March 31, 2014, compared to the same quarter last year:
| · | Total revenues increased 10.4% to $267.2 million. |
| · | Net earnings increased 17.5% to $10.6 million. |
| · | Fully diluted earnings per share increased 18.9% to $1.32 per share. |
| · | Gross margin on sales of products and services increased 140 basis points to 18.9%. |
| · | The company repurchased 82,522 shares of common stock. |
“Third quarter results illustrate our ability to achieve double-digit revenue growth as a provider of complex integrated solutions to a diversified customer base. Gross margin on sales of products and services expanded by 140 basis points, year-on-year and was up 110 basis points sequentially due primarily to a more favorable business mix. As a result, net earnings increased 17.5%, a faster rate than revenues, reflecting our on-going focus on improving productivity and optimizing operations,” stated Phillip G. Norton, chairman, CEO, and president of ePlus. “We are continuing to invest in expanding engineering and sales headcount to address market opportunities.”
Cash and cash equivalents were $40.5 million at December 31, 2013, down from $52.7 million at March 31, 2013, in part due to the repurchase of $7.8 million in stock, the acquisition of AdviStor, Inc., and purchases of equipment or software that are financed for customers through the Company’s financing segment. As of December 31, 2013, the Company had total stockholders’ equity of $259.7 million and 8.1 million shares outstanding, as compared to $238.2 million and 8.1 million shares, respectively, as of March 31, 2013.
Results of Operations – Three Months Ended December 31, 2013
The Company presents its financial results in two segments, the technology and financing segments. The technology segment sells information technology equipment, software, and related services primarily to corporate customers on a nationwide basis, and also provides Internet-based business-to-business supply chain management solutions for information technology and other operating resources. The financing segment offers lease and other financing solutions to commercial and governmental entities nationwide.
Technology Segment
The results of operations for the technology segment for the three months ended December 31, 2013 and 2012 were as follows (in thousands):
| Three Months Ended December 31, |
| | | | | | | |
| | | 2013 | | 2012 | | Change |
| Sales of product and services | | $255,747 | | $228,053 | | $27,694 | | 12.1% |
| Fee and other income | | 2,193 | | 1,360 | | 833 | | 61.3% |
| Total revenues | | 257,940 | | 229,413 | | 28,527 | | 12.4% |
| | | | | | | | | |
| Cost of sales, product and services | | 207,378 | | 188,103 | | 19,275 | | 10.2% |
| Professional and other fees | | 1,770 | | 2,041 | | (271) | | (13.3%) |
| Salaries and benefits | | 28,460 | | 24,330 | | 4,130 | | 17.0% |
| General and administrative expenses | | 5,082 | | 4,733 | | 349 | | 7.4% |
| Interest and financing costs | | 19 | | 19 | | - | | 0.0% |
| Total costs and expenses | | 242,709 | | 219,226 | | 23,483 | | 10.7% |
| | | | | | | | | |
| Segment earnings | | $15,231 | | $10,187 | | $5,044 | | 49.5% |
| | | | | | | | | |
| Gross margin, product and services | | 18.9% | | 17.5% | | | | |
Total revenues. Total revenues increased 12.4% to $257.9 million compared to $229.4 million in the quarter ended December 31, 2012, driven by a combination of higher revenues from the Company’s Fortune 100 customer base and increased professional service revenues.
Total costs and expenses. Total costs and expenses were $242.7 million compared to $219.2 million in the same quarter last year, an increase of 10.7%. The increase in costs and expenses was due primarily to revenue growth as well as the Company’s investments in sales and technical support personnel to provide customers with advanced technology solutions.
Gross margin on sales of product and services increased 140 basis points to 18.9% for the quarter ended December 31, 2013 from 17.5% for the same quarter last year, primarily due to increases in revenues from sales of third-party software assurance, maintenance, and services, which are presented on a net basis, as well as higher vendor incentives earned. Gross margin increased sequentially from 17.8% in the quarter ending September 30, 2013, which was also due to the increase in sales of third-party software assurance, maintenance, and service.
The increase in costs and expenses was also attributable to increases in salaries and benefits, due to increases in personnel, higher commissions, and higher healthcare costs. The technology segment’s headcount increased 11.5% to 903 employees at the end of the third fiscal quarter from the comparable 2012 period. Most of the increased headcount is comprised of sales and engineering personnel, as ePlus continues to build its solutions offerings and expand its geographical footprint.
Segment earnings. Segment earnings increased 49.5% to $15.2 million for the quarter.
Financing Segment
The results of operations for the financing segment for the three months ended December 31, 2013 and 2012 were as follows (in thousands):
Three Months Ended December 31, |
| | | 2013 | | 2012 | | Change |
| Financing revenue | | $9,228 | | $12,510 | | $(3,282) | | (26.2%) |
| Fee and other income | | 14 | | 102 | | (88) | | (86.3%) |
| Total revenues | | 9,242 | | 12,612 | | (3,370) | | (26.7%) |
| | | | | | | | | |
| Direct lease costs | | 3,055 | | 2,934 | | 121 | | 4.1% |
| Professional and other fees | | 238 | | 457 | | (219) | | (47.9%) |
| Salaries and benefits | | 2,335 | | 3,205 | | (870) | | (27.1%) |
| General and administrative expenses | | 315 | | 176 | | 139 | | 79.0% |
| Interest and financing costs | | 477 | | 498 | | (21) | | (4.2%) |
| Total costs and expenses | | 6,420 | | 7,270 | | (850) | | (11.7%) |
| | | | | | | | | |
| Segment earnings | | $2,822 | | $5,342 | | $(2,520) | | (47.2%) |
| | | | | | | | | |
Total revenues. Total revenues decreased 26.7% to $9.2 million from $12.6 million in the comparable year-ago period. Last year’s results included a large amount of net gains from the early termination of certain lease agreements and the buyout of the related equipment. As of December 31, 2013, the Company had $140.1 million of investments in notes and leases compared to $123.1 million at December 31, 2012, an increase of $17.0 million, or 13.8%.
Total costs and expenses. Total costs and expenses were $6.4 million, 11.7% lower than the quarter ended December 31, 2012, due mainly to lower commission expenses. As of December 31, 2013, this segment had 58 employees, down from 59 employed as of December 31, 2012. Professional and other fees decreased $0.2 million, or 47.9% due to lower broker and outside service fees.
Segment earnings. Segment earnings were $2.8 million compared to $5.3 million for the same quarter of the prior year.
Results of Operations – Nine Months Ended December 31, 2013
Technology Segment
The results of operations for the technology segment for the nine months ended December 31, 2013 and 2012 were as follows (in thousands):
| | | Nine Months Ended December 31, | | | |
| | | | | | | | |
| | | 2013 | | 2012 | | Change |
| Sales of product and services | | $764,067 | | $712,513 | | $51,554 | 7.2% |
| Fee and other income | | 5,478 | | 4,953 | | 525 | 10.6% |
| Total revenues | | 769,545 | | 717,466 | | 52,079 | 7.3% |
| | | | | | | | |
| Cost of sales, products and services | | 625,562 | | 587,693 | | 37,869 | 6.4% |
| Professional and other fees | | 6,214 | | 6,804 | | (590) | (8.7%) |
| Salaries and benefits | | 83,603 | | 72,826 | | 10,777 | 14.8% |
| General and administrative | | 15,596 | | 14,183 | | 1,413 | 10.0% |
| Interest and financing costs | | 64 | | 70 | | (6) | (8.6%) |
| Total costs and expenses | | 731,039 | | 681,576 | | 49,463 | 7.3% |
| | | | | | | | |
| Segment earnings | | $38,506 | | $35,890 | | $2,616 | 7.3% |
| | | | | | | | |
| Gross margin, products and services | | 18.1% | | 17.5% | | | |
Total revenues. Total revenues for the nine months ended December 31, 2013 increased by $52.1 million, or 7.3%, to $769.5 million due to increases in demand for products and services primarily from the Company’s Fortune 100 customers and increases in ePlus professional service revenues.
Total costs and expenses. Total costs and expenses for the nine months ended December 31, 2013 increased $49.5 million, or 7.3%, to $731.0 million due to increases in cost of sales, product and services, salaries and benefits and general and administrative expenses. Gross margin on the sale of product and services increased to 18.1% for the nine months ended December 31, 2013, from 17.5% in the prior year from increases in ePlus professional service revenues, as well as sales of third-party software assurance, maintenance, and services, which are recorded on a net basis. These increases were offset by a slight reduction in the amount of vendor incentives earned during the nine months ended December 31, 2013.
Salaries and benefits expense increased $10.8 million to $83.6 million, compared to $72.8 million in the prior year, an increase of 14.8%. This increase was driven by an increase in the number of employees to 903 and the related benefits as well as higher commissions resulting from higher gross profits.
General and administrative expenses increased $1.4 million, or 10.0%, to $15.6 million during the nine months ended December 31, 2013 compared to the prior year, due to higher rent and travel expenses as a result of our continued expansion efforts, as well as an adjustment to increase the fair value of contingent consideration related to a previous acquisition, which was settled and paid during the current fiscal year.
Segment earnings. As a result of the foregoing, segment earnings increased $2.6 million to $38.5 million for the nine months ended December 31, 2013, an increase of 7.3%.
Financing Segment
The results of operations for the financing segment for the nine months ended December 31, 2013 and 2012 were as follows (in thousands):
| | | Nine Months Ended December 31, | | | |
| | | | | | | | |
| | | 2013 | | 2012 | | Change |
| Financing revenue | | $27,989 | | $27,823 | | $166 | 0.6% |
| Fee and other income | | 94 | | 1,511 | | (1,417) | (93.8%) |
| Total revenues | | 28,083 | | 29,334 | | (1,251) | (4.3%) |
| | | | | | | | |
| Direct lease costs | | 9,803 | | 7,638 | | 2,165 | 28.3% |
| Professional and other fees | | 940 | | 1,514 | | (574) | (37.9%) |
| Salaries and benefits | | 7,559 | | 7,982 | | (423) | (5.3%) |
| General and administrative | | 861 | | 792 | | 69 | 8.7% |
| Interest and financing costs | | 1,325 | | 1,298 | | 27 | 2.1% |
| Total costs and expenses | | 20,488 | | 19,224 | | 1,264 | 6.6% |
| Segment earnings | | $7,595 | | $10,110 | | ($2,515) | (24.9%) |
Total revenues. Total revenues decreased by $1.3 million, or 4.3%, to $28.1 million for the nine months ended December 31, 2013 due to decreases in remarketing and broker fee income. Our investments in notes and leases increased as of December 31, 2013 to $140.1 million from $123.1 million in the prior year.
Total costs and expenses. Total costs and expenses increased $1.3 million to $20.5 million. Direct lease costs increased $2.2 million, or 28.3%, to $9.8 million mostly due to increases in depreciation expense for equipment under operating leases. Professional and other fees decreased by $574 thousand, or 37.9%, due to lower broker fees and legal fees. Salary and benefits expenses decreased by $423 thousand, or 5.3% to $7.6 million, due to lower commissions and bonuses as a result of the decrease in revenues during the period. Our financing segment employed 58 people as of December 31, 2013, down slightly from 59 people as of December 31, 2012. Non-recourse and recourse notes payable was $53.4 million at December 31, 2013, as compared to $36.2 million at December 31, 2012. Our weighted average interest rate for notes payable declined to 3.49% as of December 31, 2013, as compared to 4.83% as of December 31, 2012, and as a result, interest and financing costs were flat as compared to the prior year.
Segment earnings. As a result of the foregoing, segment earnings decreased $2.5 million to $7.6 million for the nine months ended December 31, 2013.
Conference Call Information
The Company will host a conference call on Wednesday, February 5, 2014 at 5:00 p.m. Eastern Time to review and discuss the Company’s results for the third quarter ended December 31, 2013. The call can be accessed live over the phone by dialing (877) 870-9226, or for international callers, (973) 890-8320. Passcode 35792296. A live webcast will be available via the Company’s investor relations Web site at www.eplus.com/investors.
A replay will be available shortly after the call and can be accessed by dialing (855) 859-2056, or for international callers, (404) 537-3406. Passcode 68944298. The replay will be available until February 12, 2014, and the webcast will also remain available for replay via the Company’s investor relations page of its Web site.
About ePlus inc.
ePlus is a leading integrator of technology solutions. ePlus enables organizations to optimize their IT infrastructure and supply chain processes by delivering world-class IT products from top manufacturers, managed and professional services, flexible lease financing, proprietary software, and patented business methods and systems. Founded in 1990, ePlus has more than 900 associates serving federal, state, municipal, and commercial customers nationally. The Company is headquartered in Herndon, VA. 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/ePlusinc.
ePlus® and ePlus products referenced herein are either registered trademarks or trademarks of ePlus inc. in the United States and/or other countries.
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; 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 including the Company’s most recent reports on Form 10-Q and Form 10-K. 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 December 31, 2013 | | As of March 31, 2013 |
| ASSETS | (amounts in thousands) | |
| | | | | |
| Cash and cash equivalents | $40,498 | | $52,720 | |
| Short-term investments | - | | 982 | |
| Accounts receivable—trade | 214,123 | | 173,445 | |
| Accounts receivable—other | 27,821 | | 18,809 | |
| Inventories—net | 24,285 | | 14,795 | |
| Notes receivable—net | 43,312 | | 31,893 | |
| Investment in leases and leased equipment—net | 96,760 | | 90,710 | |
| Property and equipment—net | 4,253 | | 2,213 | |
| Deferred costs | 11,473 | | 10,234 | |
| Other assets | 9,238 | | 9,107 | |
| Goodwill and other intangible assets | 35,014 | | 32,964 | |
| TOTAL ASSETS | $506,777 | | $437,872 | |
| | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
| | | | | |
| LIABILITIES | | | | |
| | | | | |
| Accounts payable—equipment | $7,799 | | $5,379 | |
| Accounts payable—trade | 43,313 | | 31,331 | |
| Accounts payable—floor plan | 84,761 | | 66,251 | |
| Salaries and commissions payable | 12,274 | | 12,911 | |
| Deferred revenue | 23,108 | | 16,970 | |
| Accrued expenses and other liabilities | 17,897 | | 20,264 | |
| Recourse notes payable | 2,914 | | 1,484 | |
| Non-recourse notes payable | 50,451 | | 40,255 | |
| Deferred tax liability | 4,516 | | 4,795 | |
| Total Liabilities | 247,033 | | 199,640 | |
| | | | | |
| COMMITMENTS AND CONTINGENCIES | | | | |
| | | | | |
| STOCKHOLDERS' EQUITY | | | | |
| | | | | |
| Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued or outstanding | - | | - | |
| Common stock, $.01 par value; 25,000,000 shares authorized; 13,025,745 issued and 8,088,484 outstanding at December 31, 2013 and 12,899,386 issued and 8,149,706 outstanding at March 31, 2013 | 130 | | 129 | |
| Additional paid-in capital | 104,525 | | 99,641 | |
| Treasury stock, at cost, 4,937,261 and 4,749,680 shares, respectively | (77,614) | | (67,306) | |
| Retained earnings | 232,414 | | 205,358 | |
| Accumulated other comprehensive income—foreign currency translation adjustment | 289 | | 410 | |
| Total Stockholders' Equity | 259,744 | | 238,232 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $506,777 | | $437,872 | |
ePlus inc. AND SUBSIDIARIES | | | | | | | | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |
| | Three Months Ended December 31, | | Nine Months Ended December 31, |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | (amounts in thousands, except shares and per share data) |
| Sales of product and services | $255,747 | | $228,053 | | $764,067 | | $712,513 |
| Financing revenue | 9,228 | | 12,510 | | 27,989 | | 27,823 |
| Fee and other income | 2,207 | | 1,462 | | 5,572 | | 6,464 |
| | | | | | | | |
| TOTAL REVENUES | 267,182 | | 242,025 | | 797,628 | | 746,800 |
| | | | | | | | |
| COSTS AND EXPENSES | | | | | | | |
| | | | | | | | |
| Cost of sales, product and services | 207,378 | | 188,103 | | 625,562 | | 587,693 |
| Direct lease costs | 3,055 | | 2,934 | | 9,803 | | 7,638 |
| | 210,433 | | 191,037 | | 635,365 | | 595,331 |
| | | | | | | | |
| Professional and other fees | 2,008 | | 2,498 | | 7,154 | | 8,318 |
| Salaries and benefits | 30,795 | | 27,535 | | 91,162 | | 80,808 |
| General and administrative expenses | 5,397 | | 4,909 | | 16,457 | | 14,975 |
| Interest and financing costs | 496 | | 517 | | 1,389 | | 1,368 |
| | 38,696 | | 35,459 | | 116,162 | | 105,469 |
| | | | | | | | |
| TOTAL COSTS AND EXPENSES | 249,129 | | 226,496 | | 751,527 | | 700,800 |
| | | | | | | | |
| EARNINGS BEFORE PROVISION FOR INCOME TAXES | 18,053 | | 15,529 | | 46,101 | | 46,000 |
| | | | | | | | |
| PROVISION FOR INCOME TAXES | 7,443 | | 6,496 | | 19,050 | | 18,872 |
| | | | | | | | |
| NET EARNINGS | $10,610 | | $9,033 | | $27,051 | | $27,128 |
| | | | | | | | |
NET EARNINGS PER COMMON SHARE—BASIC | $1.33 | | $1.11 | | $3.37 | | $3.42 |
| NET EARNINGS PER COMMON SHARE—DILUTED | $1.32 | | $1.11 | | $3.34 | | $3.38 |
| | | | | | | | |
| WEIGHTED AVERAGE SHARES OUTSTANDING—BASIC | 7,950,354 | | 7,843,153 | | 7,946,746 | | 7,778,174 |
| WEIGHTED AVERAGE SHARES OUTSTANDING—DILUTED | 7,982,418 | | 7,843,153 | | 8,012,840 | | 7,867,982 |
| | | | | | | | | |
ePlus inc. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF OPERATIONS BY SEGMENT
| | | Three Months Ended December 31, | |
| | | 2013 | | 2012 | |
| | | Technology | | Financing | | Technology | | Financing | |
| | | (amounts in thousands) | |
| Sales of product and services | | $255,747 | | $ - | | $228,053 | | $ - | |
| Financing revenue | | - | | 9,228 | | - | | 12,510 | |
| Fee and other income | | 2,193 | | 14 | | 1,360 | | 102 | |
| TOTAL REVENUE | | 257,940 | | 9,242 | | 229,413 | | 12,612 | |
| | | | | | | | | | |
| Cost of sales, product and services | | 207,378 | | - | | 188,103 | | - | |
| Direct lease costs | | - | | 3,055 | | - | | 2,934 | |
| Professional and other fees | | 1,770 | | 238 | | 2,041 | | 457 | |
| Salaries and benefits | | 28,460 | | 2,335 | | 24,330 | | 3,205 | |
| General and administrative expenses | | 5,082 | | 315 | | 4,733 | | 176 | |
| Interest and financing costs | | 19 | | 477 | | 19 | | 498 | |
| TOTAL COSTS AND EXPENSES | | 242,709 | | 6,420 | | 219,226 | | 7,270 | |
| | | | | | | | | | |
| SEGMENT EARNINGS | | $15,231 | | $2,822 | | $10,187 | | $5,342 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Nine Months Ended December 31, | |
| | | 2013 | | 2012 | |
| | | Technology | | Financing | | Technology | | Financing | |
| | | (amounts in thousands) | |
| Sales of product and services | | $764,067 | | $ - | | $712,513 | | $ - | |
| Financing revenues | | - | | 27,989 | | - | | 27,823 | |
| Fee and other income | | 5,478 | | 94 | | 4,953 | | 1,511 | |
| TOTAL REVENUES | | 769,545 | | 28,083 | | 717,466 | | 29,334 | |
| | | | | | | | | | |
| Cost of sales, product and services | | 625,562 | | - | | 587,693 | | - | |
| Direct lease costs | | - | | 9,803 | | - | | 7,638 | |
| Professional and other fees | | 6,214 | | 940 | | 6,804 | | 1,514 | |
| Salaries and benefits | | 83,603 | | 7,559 | | 72,826 | | 7,982 | |
| General and administrative expenses | | 15,596 | | 861 | | 14,183 | | 792 | |
| Interest and financing costs | | 64 | | 1,325 | | 70 | | 1,298 | |
| TOTAL COSTS AND EXPENSES | | 731,039 | | 20,488 | | 681,576 | | 19,224 | |
| | | | | | | | | | |
| SEGMENT EARNINGS | | $38,506 | | $7,595 | | $35,890 | | $10,110 | |
