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ePlus Reports Third Quarter and Nine Month Financial Results


Quarter Ended December 31, 2015

  • Net sales were $298.6 million, a 2.5% decline, due in part to an increase of approximately $7 million of shipments in transit at the end of the quarter, and to a higher percentage of product and services sales recorded on a net basis.
  • Non-GAAP gross sales of product and services were $393.9 million, up 4.4%.
  • Sales of security products and services increased to 17.8% of non-GAAP gross sales of product and services.
  • Gross margin on sales of product and services expanded 20 basis points to 19.6%; consolidated gross margin increased 10 basis points to 21.5%.
  • Operating expenses increased 3.4%, or $1.5 million, due primarily to growth in headcount and incremental acquisition-related costs of $0.3 million.
  • Diluted earnings per share was $1.40 as compared to non-GAAP diluted earnings per share of $1.64.

Nine Months Ended December 31, 2015

  • Net sales increased 3.3% to $904.8 million; technology segment net sales increased 3.2% to $876.9 million.
  • Non-GAAP gross sales of products and services increased 5.7% to $1.16 billion.
  • Gross profit increased 5.0% to $195.1 million, led by a 5.2% increase in technology segment gross profit.
  • Consolidated gross margin increased to 21.6% from 21.2%; gross margin on sales of product and services expanded 50 basis points to 19.7%
  • Diluted earnings per share was $4.74, up 8.2%, as compared to non-GAAP diluted earnings per share of $4.38 in the prior year.

HERNDON, VA - February, 4, 2016 - ePlus inc. (NASDAQ NGS: PLUS - news), a leading provider of technology solutions, today announced financial results for the three and nine months ended December 31, 2015.

Management Comment

"We continued to execute well in the third quarter across several key metrics, achieving mid-single digit growth in non-GAAP gross sales, slightly improved gross margins despite pricing pressures from a few large customer orders, and increasing sales of security products and services.  Lower reported net sales were impacted by an increase of approximately $7 million of shipments in transit at the end of the quarter, and a greater percentage of sales of third-party software assurance, maintenance, and services recorded as net sales.  Additionally, we incurred higher operating expenses year-on-year due to continued investment in customer-facing headcount to accommodate growing customer demand and costs associated with our December acquisition of IGX."

"The acquisition of IGX late in the quarter provides ePlus with a broader set of security solutions, new customers, and expands our presence in New York metro and New England.  It also creates our first international presence with a branch in the UK, which we believe will enable us to better support our global customers internationally.  We have also gained IGX's international customers, which over-time should create additional revenue opportunities to provide ePlus' expanded set of advanced technology solutions both overseas, and for many customers, to their U.S. operations."

"Year-to-date financial performance supports our track record of growing faster than the overall IT market by investing in those areas where technology spending is most critical.  For the first nine months of fiscal 2016, we reported high single-digit growth in diluted earnings per share and adjusted EBITDA that significantly outpaced our net sales growth rate, due to our focus on higher value services and security solutions.  Sales of security products and services represented 16.2% of year-to-date non-GAAP gross sales of product and services, up from 13.2% last year," Mr. Norton said.

Third Quarter Fiscal 2016 Results

For the third quarter ended December 31, 2015 as compared to the third quarter of the prior fiscal year ended December 31, 2014 unless otherwise noted:

Consolidated net sales fell 2.5% to $298.6 million, from $306.2 million.

Technology segment net sales fell 2.8% to $289.4 million, from $297.8 million.

Non-GAAP gross sales of product and services increased 4.4% to $393.9 million.  Non-GAAP gross sales of product and services are sales of product and services adjusted to exclude the costs incurred of applicable third-party software assurance, maintenance, and services.

Financing segment net sales increased 10.2% to $9.3 million, from $8.4 million due to higher post-contract earnings.

Consolidated gross profit fell 2.1% to $64.1 million, compared with $65.4 million.

Total headcount increased 8.1% to 1,060 on December 31, 2015 from a year earlier.  Of the total, 768 were customer facing personnel.

Consolidated operating income fell 14.2% to $17.6 million, from $20.6 million.

Diluted earnings per share was $1.40, compared with $2.13 in the third quarter of fiscal 2015, which included a gain from a claim in a class action suit in other income. Excluding this benefit, non-GAAP diluted earnings per share was $1.64 in the third quarter of fiscal 2015.

Net earnings fell 33.6% to $10.3 million, compared with $15.5 million.

Adjusted EBITDA fell 12.9% to $19.0 million, from $21.8 million.

Fiscal Year to Date Results

For the nine months ended December 31, 2015 as compared to the nine months ended December 31, 2014 unless otherwise noted:

Consolidated net sales were up 3.3% to $904.8 million, compared with $876.0 million.

Technology segment net sales rose 3.2% to $876.9 million, up from $849.6 million. Non-GAAP gross sales of products and services grew 5.7% to $1.16 billion.

Financing segment net sales were $27.9 million, up from $26.4 million, due to higher post-contract earnings and transactional gains.

Consolidated gross profit rose 5.0% to $195.1 million, compared with $185.8 million.

Consolidated operating income rose 6.7% to $59.4 million, up from $55.6 million.

Diluted earnings per share was $4.74, down 4.6% from $4.97 in the first nine months of fiscal 2015, which included a gain on retirement of a liability and a gain from a claim in a class action suit included in other income.  Exclusive of these benefits, non-GAAP diluted earnings per share was $4.38 in the first nine months of fiscal 2015.

Net earnings fell 5.8% to $34.8 million, as compared to $36.9 million.

Adjusted EBITDA rose 7.4% to $63.1 million, up from $58.8 million.

Balance Sheet Highlights

At December 31, 2015, ePlus had cash and cash equivalents of $66.6 million, down from $76.2 million as of March 31, 2015. Total stockholders' equity was $316.7 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

"Looking ahead, we remain confident in our long-term strategy of delivering advanced technology solutions that our customers are looking for in today's market. We believe that our offerings in the fastest growing segments of the market, including security, professional services, and our emerging cloud solutions, position us to grow faster than the overall IT market, increase wallet share with our existing customers, and add new customers organically. At the same time, our strong balance sheet provides us the resources to continue to make acquisitions that bring additional technical expertise, regional recognition, and new customers to ePlus," concluded Mr. Norton.

Results of Operations - Three Months Ended December 31, 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 December 31, 2015 and 2014 were as follows (dollars in thousands):

    Three Months Ended December 31,
      2015       2014     Change
Sales of product and services   $  287,859     $  295,679     $  (7,820 )     (2.6 %)
Fee and other income       1,506         2,140        (634 )     (29.6 %)
Net sales       289,365         297,819       (8,454 )     (2.8 %)
                 
Cost of sales, product and services     231,503         238,202       (6,699 )     (2.8 %)
                 
Gross profit     57,862       59,617       (1,755 )     (2.9 %)
                 
Professional and other fees       1,608         1,158         450       38.9 %
Salaries and benefits       35,043         33,507       1,536       4.6 %
General and administrative       6,530         6,918         (388 )     (5.6 %)
Interest and financing costs       10         19       (9 )     (47.4 %)
Operating expenses       43,191         41,602         1,589       3.8 %
                 
Segment earnings   $  14,671     $  18,015     $  (3,344 )     (18.6 %)

Net sales fell 2.8% to $289.4 million, from $297.8 million in the third quarter of fiscal 2015.  

Non-GAAP gross sales of product and services grew 4.4% to $393.9 million, from $377.3 million in the third quarter of fiscal 2015.

Gross margin on sales of product and services was 19.6%, up from 19.4% in the third quarter of fiscal 2015.

Operating expenses rose 3.8% to $43.2 million, from $41.6 million in the third quarter of fiscal 2015, reflecting increased salaries and benefits due to an 8.5% increase in personnel to 1,006 from 927, of which 80 are customer facing and 48 were from the IGX acquisition, as well as expenses associated with the acquisition of IGX in December 2015.  In addition, professional and other fees included acquisition related expenses of $0.3 million during the current quarter.

Segment earnings were $14.7 million, compared with $18.0 million in the third quarter of fiscal 2015.

Financing Segment

The results of operations for the financing segment for the three months ended December 31, 2015 and 2014 were as follows (dollars in thousands):

    Three Months Ended December 31,
      2015       2014     Change
Financing revenue   $  9,289     $  8,406     $   883       10.5 %
Fee and other income     (10 )     16       (26 )     (162.5 %)
Net sales     9,279       8,422       857       10.2 %
                 
Direct lease costs       3,081         2,601        480       18.5 %
                 
Gross profit      6,198       5,821       377       6.5  %
                 
Professional and other fees       274         278         (4 )     (1.4 %)
Salaries and benefits       2,329         2,125       204       9.6 %
General and administrative       235         315         (80 )     (25.4 %)
Interest and financing costs       386       556        (170 )     (30.6 %)
Operating expenses       3,224         3,274         (50 )     (1.5 %)
                 
Operating income     2,974       2,547       427       16.8 %
                 
Other income     -       6,169       (6,169 )     (100.0 %)
Segment earnings   $  2,974     $  8,716     $  (5,742 )     (65.9 %)

Net sales were $9.3 million, up 10.2% from $8.4 million in the third quarter of fiscal 2015, as a result of higher post-contract earnings.

Operating expenses were down 1.5% over the previous year, mainly due to lower interest expenses as a result of lower debt combined with lower interest rates. Operating income was $3.0 million, an increase of 16.8% from $2.5 million in the previous year.

During the quarter ended December 31, 2014, ePlus recorded a $6.2 million gain from a claim in a class action lawsuit.

Segment earnings were $3.0 million, compared with $8.7 million in the third quarter of fiscal 2015.

Results of Operations - Nine Months Ended December 31, 2015

Technology Segment

The results of operations for the technology segment for the nine months ended December 31, 2015 and 2014 were as follows (dollars in thousands):

    Nine Months Ended December 31,
      2015       2014     Change
Sales of product and services   $  871,814     $  843,619     $  28,195       3.3 %
Fee and other income       5,038         5,969        (931 )     (15.6 %)
Net sales     876,852         849,588       27,264       3.2 %
                 
Cost of sales, product and services       700,429         681,852         18,577       2.7 %
                 
Gross profit     176,423       167,736       8,687       5.2 %
                 
Professional and other fees     4,175         4,065         110       2.7 %
Salaries and benefits     101,471         96,140       5,331       5.5 %
General and administrative     20,381         19,379         1,002       5.2 %
Interest and financing costs       51         77         (26 )     (33.8 %)
Operating expenses     126,078         119,661         6,417       5.4 %
                 
Segment earnings   $  50,345      $  48,075     $  2,270       4.7 %

Net sales rose 3.2% to $876.9 million, from $849.6 million in the first nine months of fiscal 2015. Non-GAAP gross sales of product and services grew 5.7% compared to the first nine months of fiscal 2015.

Gross margin on sales of product and services was 19.7%, up from 19.2% in the prior year period.

Operating expenses rose 5.4% to $126.1 million, from $119.7 million in the first nine months of fiscal 2015. This was primarily due to increased salaries and benefits related to an 8.5% increase of headcount in the technology segment, increased variable compensation, and additional expenses associated with the acquisition of IGX in December of 2015. In addition, the Company incurred incremental amortization expenses associated with the acquisition of Evolve Technology Group in August, 2014.

Segment earnings were $50.3 million, up 4.7% from $48.1 million in the first nine months 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 December 31, 2015 was as follows:

          State & Local Government & Educational Institutions   23 %
          Technology   23 %
          Telecom, Media, and Entertainment   14 %
          Financial Services   12 %
          Healthcare    10 %
          Other   18 %

Financing Segment

The results of operations for the financing segment for the nine months ended December 31, 2015 and 2014 were as follows (dollars in thousands):

    Nine Months Ended December 31,
      2015       2014     Change
Financing revenue   $  27,914     $  26,339     $   1,575       6.0 %
Fee and other income       30       90       (60 )     (66.7 %)
Net sales       27,944       26,429       1,515       5.7 %
                 
Direct lease costs       9,256         8,364       892       10.7 %
                 
Gross profit      18,688       18,065       623       3.4  %
                 
Professional and other fees       738         781         (43 )     (5.5 %)
Salaries and benefits     6,855         6,691       164       2.5 %
General and administrative     748         1,285   &

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