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ePlus Reports Second Quarter and First Half Financial Results


Second Quarter Fiscal Year 2016

  • Net sales increased 13.0% from second quarter fiscal year 2015
  • Gross profit up 12.5% to $71.9 million, with double digit growth in both Technology and Financing segments
  • Consolidated gross margin of 21.4%; gross margin on products and services of 19.4%
  • Adjusted EBITDA increased 30.3% to $27.9 million
  • Diluted earnings per share increased 31.9% to $2.15

First Half Fiscal Year 2016

  • Net sales up 6.4%; technology segment net sales up 6.5%
  • Gross profit increased 8.9% to $131.1 million, led by 9.7% increase in technology segment gross profit
  • Consolidated gross margin increased to 21.6%  from 21.1%; gross margin on products and services expands 70 basis points to 19.7%
  • Adjusted EBITDA increased 19.3% to $44.1 million
  • Diluted earnings per share increased 21.8% to $3.35, as compared to non-GAAP diluted earnings per share of $2.75 in the prior year exclusive of other income

HERNDON, VA - November 4, 2015 - ePlus inc. (NASDAQ NGS: PLUS - news), a leading provider of technology solutions, today announced financial results for the second quarter ended September 30, 2015.

Management Comment

"We are pleased with our strong financial performance in the second quarter and first half of fiscal 2016, further evidence of the success of our go-to-market strategy focused on complex, service-led IT solutions for our commercial,  state and local government and education customers," said Phillip G. Norton, chairman, CEO and president of ePlus.  "We continue to gain market share and expand geographically, while adjusting our sales mix to emphasize higher-margin services. The success of this strategy allowed us to deliver first half gross profit growth of 8.9%, and year-over-year diluted earnings per share growth of 21.8% to $3.35 as compared to non-GAAP earnings per share of $2.75.

"Looking specifically at the second quarter, we saw growth in both net sales and gross profit, up 13.0% and 12.5%, respectively, while we maintained our gross margin on products and services. This performance was driven by broad-based strength in demand for our IT solutions, including fast-growing areas such as professional and annuity services, as well as security products and solutions.  Technology sales also gained additional momentum from customers in the technology and healthcare sectors," Mr. Norton commented.

Second Quarter Fiscal 2016 Results

For the second quarter ended September 30, 2015:

Consolidated net sales increased 13.0% to $336.3 million, from $297.5 million in the second quarter of fiscal 2015.

Technology segment net sales increased 13.0% to $326.0 million from $288.4 million in the second quarter of fiscal 2015. Non-GAAP gross sales of products and services, which are revenues prior to the reclassification to net sales for sales of third-party software assurance, maintenance and services, increased 9.9% to $431.1 million.

Financing segment net sales increased 13.2% to $10.3 million, from $9.1 million in the second quarter of fiscal 2015, due to higher transactional gains.

Consolidated gross profit rose 12.5% to $71.9 million, compared with $63.9 million in the second quarter of fiscal 2015.

Consolidated operating income rose 31.2% to $26.7 million, from $20.3 million in the second quarter of fiscal 2015.

Diluted earnings per share increased 31.9% to $2.15, from $1.63 in the second quarter of fiscal 2015.

Net earnings increased 31.2% to $15.7 million, compared with $12.0 million in the second quarter of fiscal 2015.

Adjusted EBITDA rose 30.3% to $27.9 million, from $21.4 million in the second quarter of fiscal 2015.

First Half Fiscal 2016 Results

For the six months ended September 30, 2015:

Consolidated net sales were up 6.4% to $606.2 million, compared with $569.8 million in the first half of fiscal 2015.

Technology segment net sales rose 6.5% to $587.5 million, from $551.8 million in the first half of fiscal 2015. Non-GAAP gross sales of products and services grew 6.4% to $763.4 million.

Financing segment net sales increased 3.7% to $18.7 million, from $18.0 million in the first half of fiscal 2015, due to higher transactional gains.

Consolidated gross profit rose 8.9% to $131.1 million, compared with $120.4 million in the first half of fiscal 2015.

Consolidated operating income rose 19.0% to $41.7 million, from $35.1 million in the first half of fiscal 2015.

Net earnings rose 14.3% to $24.5 million, as compared to $21.4 million in the first half of fiscal 2015.

Adjusted EBITDA increased 19.3% to $44.1 million, up from $37.0 million in the first half of fiscal 2015.

Diluted earnings per share increased 17.1% to $3.35 from $2.86 in the first half of fiscal 2015, which included a gain on retirement of a liability.  Exclusive of this benefit, non-GAAP diluted earnings per share was $2.75 in the first half of fiscal 2015.

Balance Sheet Highlights

At September 30, 2015, ePlus had cash and cash equivalents of $62.8 million, down from $76.2 million as of March 31, 2015. Total stockholders' equity was $305.0 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

"In the first half of fiscal 2016 we made progress on several fronts, including financial results, vendor awards and certifications, and the ongoing growth of our services business.   The expertise of our sales and engineering staff, our certifications with legacy and emerging vendors, and our focus on the fastest-growing segments of the IT industry, including security, data center, and cloud have allowed us to penetrate wider and deeper into our existing client base, while also adding new customers.  In addition, our balance sheet remains robust, with a healthy cash position, giving us the financial resources to fund organic growth as well as make accretive acquisitions and we believe we are well positioned to continue to outgrow the overall IT market," Mr. Norton concluded.

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

    Three Months Ended September 30,
      2015       2014     Change
Sales of product and services   $  324,259     $  286,584     $  37,675       13.1 %
Fee and other income       1,721         1,782        (61 )     (3.4 %)
Net sales       325,980         288,366       37,614       13.0 %
                 
Cost of sales, product and services       261,208         230,742       30,466       13.2 %
                 
Gross profit     64,772       57,624       7,148       12.4 %
                 
Professional and other fees       1,305         1,321         (16 )     (1.2 %)
Salaries and benefits       33,476         31,963       1,513       4.7 %
General and administrative       7,322         6,703         619       9.2 %
Interest and financing costs       22         19         3        15.8 %
Operating expenses       42,125         40,006         2,119       5.3 %
                 
Segment earnings   $  22,647     $  17,618     $  5,029       28.5 %

Net sales rose 13.0% to $326.0 million, from $288.4 million in the second quarter of fiscal 2015.   The increase reflects a 9.9% increase in non-GAAP gross sales of product and services as well as a higher proportion of sales from products that are not reclassified on a net basis. 

Gross margin on sales of product and services was 19.4%, compared with 19.5% in the second quarter of fiscal 2015.

Operating expenses rose 5.3% to $42.1 million, from $40.0 million in the second quarter of fiscal 2015, reflecting increased salaries and benefits as well as general and administrative expenses.

Segment earnings were $22.6 million, up 28.5% from $17.6 million in the second quarter of fiscal 2015.

Financing Segment

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

    Three Months Ended September 30,
      2015       2014     Change
Financing revenue   $  10,279     $  9,059     $   1,220       13.5 %
Fee and other income     27       47     (20)  (121)2     (42.6 %)
Net sales     10,306         9,106       1,200       13.2 %
                 
Direct lease costs       3,157         2,806        351       12.5 %
                 
Gross profit      7,149       6,300       849        13.5  %
                 
Professional and other fees       208         256         (48 )     (18.8 %)
Salaries and benefits       2,264         2,289       (25 )     (1.1 %)
General and administrative       263         455         (192  )     (42.2 %)
Interest and financing costs       400       592        (192 )     (32.4 %)
Operating expenses       3,135         3,592         (457 )     (12.7 %)
                 
Segment earnings   $  4,014     $  2,708     $  1,306       48.2 %

Net sales were $10.3 million, up 13.2% from $9.1 million in the second quarter of fiscal 2015, as a result of higher transactional gains.

Operating expenses were down 12.7% over the previous year, mainly due to a reserve for credit loss recorded in the previous year that was not replicated in the current quarter, and lower interest expenses as a result of lower debt combined with lower interest rates.

Segment earnings were $4.0 million, compared with $2.7 million in the second quarter of fiscal 2015.

Results of Operations - Six Months Ended September 30, 2015

Technology Segment

The results of operations for the technology segment for the six months ended September 30, 2015 and 2014 were as follows (dollars in thousands):

    Six Months Ended September 30,
      2015       2014     Change
Sales of product and services   $  583,955     $  547,940     $  36,015       6.6 %
Fee and other income       3,532         3,829        (297 )     (7.8 %)
Net sales     587,487         551,769       35,718       6.5 %
                 
Cost of sales, product and services       468,926         443,650         25,276       5.7 %
                 
Gross profit     118,561       108,119       10,442       9.7 %
                 
Professional and other fees     2,567         2,907         (340 )     (11.7 %)
Salaries and benefits       66,428         62,633       3,795       6.1 %
General and administrative       13,851         12,461         1,390       11.2 %
Interest and financing costs       41         58         (17  )     (29.3 %)
Operating expenses     82,887         78,059         4,828       6.2 %
                 
Segment earnings  
$
 35,674      $  30,060     $  5,614       18.7 %

Net sales rose 6.5% to $587.5 million, from $551.8 million in the first half of fiscal 2015. Non-GAAP gross sales of product and services grew 6.4% in the first half of fiscal 2015.

Gross margin on sales of products and services was 19.7%, up from 19.0% in the first half of fiscal 2015.

Operating expenses rose 6.2% to $82.9 million, from $78.1 million in the first half of fiscal 2015. This was primarily due to increased salaries and benefits due to additional personnel as well as increased variable compensation. In addition, the Company incurred incremental amortization expenses associated with the acquisition of Evolve Technology Group in August of 2014.

Segment earnings were $35.7 million, up 18.7% from $30.1 million in the first half 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 September 30, 2015 was as follows:

State & Local Government & Educational Institutions   23 %
Technology   21 %
Telecom, Media, and Entertainment   17 %
Financial Services   10 %
Healthcare    10 %
Other   19 %

Financing Segment

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

    Six Months Ended September 30,
      2015       2014    

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