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ePlus Reports First Quarter Financial Results


Quarterly Highlights:

  • Consolidated gross margin on products and services expanded 150 basis points to 20%, on a 2.1% increase in non-GAAP gross sales of products and services; net sales fall 0.9% to $269.9 million
  • Consolidated gross profit rises 4.8% to $59.1 million, led by 6.5% increase in technology gross profit; consolidated gross margin increased to 21.9%
  • Adjusted EBITDA increased 4.2% to $16.3 million
  • Diluted earnings per share was $1.21, up 6.1%, as compared to non-GAAP diluted earnings per share of $1.14 in the prior year

HERNDON, VA - August 5, 2015 - ePlus inc. (NASDAQ NGS: PLUS - news), a leading provider of technology solutions, today announced financial results for the first quarter ended June 30, 2015.

Management Comment

"ePlus performed well in the first quarter of fiscal 2016. Gross margin increased 120 basis points, resulting from growth in higher margin services revenue, and continued success selling third-party maintenance and software assurance contracts, which are recorded on a net basis," said Phillip G. Norton, CEO, chairman and president of ePlus. "Non-GAAP gross sales of products and services increased 2.1% as compared to a year ago, based on strength in our state, local government and educational institutions (SLED), financial services, and healthcare end-markets. Net revenues declined about 1% as a higher percentage of our non-GAAP gross revenues were recorded on a net basis compared to first quarter last year."

"For the first quarter of fiscal 2016, we showed positive year-over-year comparisons across key metrics in our technology segment. We saw a lower year-over-year contribution from our financing business, where results tend to be uneven.  We reported higher consolidated gross profit and adjusted EBITDA, while earnings per diluted share grew 6.1% when compared to non-GAAP diluted earnings per share for the prior year period, which excluded a gain on retirement of a liability."

"We believe ePlus remains well positioned to profitably capture market share in the faster growing segments of the IT market, as evidenced by the 6.5% growth in gross profit in our technology business, a thesis supported by both increased non-GAAP gross revenues and increased gross margin. We continue to execute our strategy of providing high value professional and managed services to our customers to help them achieve their business goals. Our services gross profit growth rate for our first quarter exceeded the 14.8% organic growth rate we achieved in fiscal year 2015. As such, we are investing in engineering and sales resources to meet growing client demand for transformative solutions. These  include converged and hyperconverged infrastructure, flash storage, openstack solutions, and security, which is core to most solutions we offer. Our sales of security-related products and services continue to outpace other solutions, and now represent 15% of non-GAAP gross sales of products and services in the first quarter. " 

First Quarter Fiscal 2016 Results

For the first quarter ended June 30, 2015:

Consolidated net sales fell 0.9% to $269.9 million, from $272.3 million in the first quarter of fiscal 2015.

Technology segment net sales fell 0.7% to $261.5 million, compared with $263.4 million in the first quarter of fiscal 2015. Non-GAAP gross sales of products and services increased 2.1% to $332.3 million. This increase in non-GAAP gross sales of products and services, as compared to net sales, was due to a higher proportion of sales comprised of revenues recognized on a net basis, such as third party software assurance, maintenance and services.

Financing segment net sales fell 6.1% to $8.4 million, from $8.9 million in the first quarter of fiscal 2015, due to lower transactional gains.

Consolidated gross profit rose 4.8% to $59.1 million, compared with $56.4 million in the first quarter of fiscal 2015.

Consolidated operating income rose 2.2% to $15.1 million, compared with $14.7 million in the first quarter of fiscal 2015.

Diluted earnings per share were $1.21, down 3.2% from $1.25 in the first quarter of fiscal 2015, which included a gain on retirement of a liability. Excluding this benefit, non-GAAP diluted earnings per share were $1.14 in the first quarter of fiscal 2015. Exclusive of this gain, first quarter 2016 diluted earnings per share rose 6.1% from a year earlier.

Adjusted EBITDA rose 4.2% to $16.3 million, from $15.6 million in the first quarter of fiscal 2015.

Balance Sheet Highlights

At June 30, 2015, ePlus had cash and cash equivalents of $88.8 million, up from $76.2 million as of March 31, 2015. Total stockholders' equity was $287.9 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

"Following a quarter of solid financial results, we remain confident in our strategy of delivering complex, service-led IT solutions.  We have an established base of clients across multiple industries, which rely on us to deliver the technology they need to achieve their business goals.  Our certifications from established and emerging vendors, as well as our in-house expertise, position us to service this client base utilizing a wide range of technologies."

"We continue to work to adjust our sales mix to emphasize profitability, including growing our services business and recurring revenue.  We will continue to invest in sales and engineering resources to meet the demand for transformative and emerging technologies. Finally, we ended the quarter with over $88 million in cash, providing us with ample balance sheet flexibility to pursue both organic growth and growth through acquisition," Mr. Norton concluded.

Results of Operations - Three Months Ended June 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, 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 June 30, 2015 and 2014 were as follows (dollars in thousands):

  Three Months Ended June 30,
  2015 2014 Change
Sales of product and services $259,696 $261,356  $ (1,660) (0.6%)
Fee and other income 1,811 2,047 (236) (11.5%)
Net sales 261,507 263,403 (1,896) (0.7%)
         
Cost of sales, product and services 207,718 212,908 (5,190) (2.4%)
         
Gross profit 53,789 50,495 3,294 6.5%
         
Professional and other fees 1,262 1,586 (324) (20.4%)
Salaries and benefits 32,952 30,670 2,282 7.4%
General and administrative 6,529 5,758 771 13.4%
Interest and financing costs 19 39 (20) (51.3%)
Operating expenses 40,762 38,053 2,709 7.1%
         
Segment earnings $13,027 $12,442 $585 4.7%

Non-GAAP gross sales of product and services grew 2.1% to $332.3 million, from $325.5 million in the first quarter of fiscal 2015.

Net sales fell 0.7% to $261.5 million, from $263.4 million in the first quarter of fiscal 2015.

Gross margin on sales of products and services was 20.0%, up from 18.5% in the first quarter of fiscal 2015, as service revenues grew faster than product revenues, and an increasing proportion of sales were recorded on a net basis.

Operating expenses rose 7.1% to $40.8 million, from $38.1 million in the first quarter of fiscal 2015, reflecting increased salaries and benefits due to additional personnel as well as increased variable compensation as a result of higher gross profit, and non-cash expenses associated with the acquisition of Evolve Technology Group in August of 2014.

Segment earnings were $13.0 million, up 4.7% from $12.4 million in the first quarter 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 June 30, 2015 was as follows:

State & Local Government & Educational Institutions 23%
Technology 20%
Telecom, Media, and Entertainment 18%
Financial Services 10%
Healthcare 10%
Other 19%

Financing Segment

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

  Three Months Ended June 30,
  2015 2014 Change
Financing revenue $8,346 $8,874  $ (528) (5.9%)
Fee and other income 13 27 (14) (51.9%)
Net sales 8,359 8,901 (542) (6.1%)
         
Direct lease costs 3,018 2,957 61 2.1%
         
Gross profit 5,341 5,944 (603) (10.1%)
         
Professional and other fees 256 247 9 3.6%
Salaries and benefits 2,262 2,277 (15) (0.7%)
General and administrative 250 515 (265) (51.5%)
Interest and financing costs 534 605 (71) (11.7%)
Operating expenses 3,302 3,644 (342) (9.4%)
         
Operating income 2,039 2,300 (261) (11.3%)
      &nb

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