Earnings Conference Call Transcripts

Conference Call Discussing Earnings for Fiscal 2013 Fourth Quarter and Year End

Safe Harbor Statement

This transcript of an earnings call contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact, but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “intend,” “estimate,” “will,” “potential,” “could,” “believe,” “expect,” “anticipate,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:

  • we offer a comprehensive set of solutions—the bundling of information technology (IT) hardware, third-party software, and associated maintenance plans; professional services and financing with our proprietary software -- and may encounter some of the challenges, risks, difficulties and uncertainties frequently faced by similar companies, such as:
    • managing a diverse product set of solutions in highly competitive markets with a key set of vendors;
    • increasing the total number of customers utilizing bundled solutions by up-selling within our customer base and gaining new customers 
    • adapting to meet changes in markets and competitive developments
    • maintaining and increasing advanced professional services by retaining highly skilled personnel and vendor certifications
    • integrating with external IT systems, including those of our customers and vendors;
    • continuing to enhance our proprietary software and update our technology infrastructure to remain competitive in the marketplace; and
  • Reliance on third parties to perform some of our service obligations.
  • our dependence on key personnel, and our ability to hire and retain sufficient qualified personnel;
  • a decrease in the capital spending budgets of our customers or purchases from us;
  • our ability to protect our intellectual property;
  • the creditworthiness of our customers and our ability to reserve adequately for credit losses;
  • the possibility of goodwill impairment charges in the future;
  • uncertainty and volatility in the global economy and financial markets;
  • changes in the IT industry and/or rapid changes in product offerings;
  • our ability to raise capital, maintain or increase as needed our line of credit or floor planning facilities, or obtain non-recourse financing for our transactions;
  • our ability to realize our investment in leased equipment;
  • significant adverse changes in, reductions in, or losses of relationships with major customers or vendors; and
  • significant changes in accounting standards including changes to the financial reporting of leases which could impact the demand for our leasing services, or misclassification of products and services we sell resulting in the misapplication of revenue recognition policies.

We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks and uncertainties. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in the Form 10-K for the year ended March 31, 2013, as well as other reports that we file with the SEC.

June 05, 2013

Prepared Remarks

Operator

Good day, ladies and gentlemen, and welcome to the ePlus Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. Today’s conference is being recorded.

I would now like to turn the call over to Kley Parkhurst.

Kley Parkhurst, Senior Vice President

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

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 and Exchange Commission, including our Form 10-K for the year-ended March 31, 2013, when filed. The company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events.

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

Phillip G. Norton, Chairman, CEO and President

Thank you, Kley. We concluded the fiscal year with solid fourth quarter and year end results, as customers increasingly purchased our multi-vendor, complex advanced technology solutions to fulfill their IT requirements.

For our fiscal year ended March 31, 2013, total revenue increased 19.1% to $983.1 million, an increase of $157.5 million. Net earnings increased 49.1% to $34.8 million for the year, or $4.32 per diluted share, as compared to $23.4 million, or $2.79 per diluted share, during the year ended March 31, 2012.

For the fiscal fourth quarter, total revenues increased 7.9% to $236.3 million, compared to $219.0 million the prior year. Net earnings increased 99.7% to $7.7 million, and fully diluted earnings per common share increased 97.9% to $0.95 per share, as compared to $0.48 per share in the prior period.

In fiscal year 2013, we made significant progress in our long term growth plan, which includes building a national footprint, increasing our ability to sell key solutions by growing our services portfolio, adding to our technical capabilities, and increasing our managed service offerings. While we characterized fiscal year 2012 as a year of investment, in that we acquired three companies and opened two new regions during the year, in fiscal year 2013 we focused on optimizing the acquired operations, integrating our acquired managed services businesses, and expanding our engineering capabilities to improve our services delivery offerings. In addition, we further broadened our geographic presence in New England and Phoenix and expanded our service offerings to better serve our customers.

One of our primary customer focus points in fiscal year 2013 was to provide services and products to help our customers efficiently and cost-effectively navigate the numerous and complex choices available in today’s technology market. Whether cloud, BYOD, security, or the numerous other technologies available on the market, we help customers select the optimal solution for them, independent of manufacturer. During the year, we announced three new ePlus assessment consulting services in fast growing technology areas. These services provide a comprehensive assessment of a customer’s current IT infrastructure, along with a roadmap based on the customer’s needs; whether it be additional capacity or transition to a new environment, the implementation of a new technologies, or a new operational approach. Our new assessment services include a BYOD readiness assessment, an enterprise storage assessment, and most relevant in today’s computing environment, a Cloud readiness assessment. These assessments are a great value to customers and have been well received, and create a solid sales funnel for follow-on product sales and professional services engagements.

In fiscal year 2013, we also announced our virtual and physical demonstration labs. As a component of the ePlus Service Advantage offering, our customers can view the latest solutions in a hands-on environment, physically or virtually, and configured to meet their specifications for proof of concept through simulated production activities. Our facilities are targeted at both full solutions and point product demonstrations, including cloud, and offer both combined and individual solutions from the top vendors across a range of critical technologies such as Data Center, Security, and Collaboration.

We continue to enhance our vendor certifications and expand our product set. For Cisco, which represents approximately 48% of our sales of products and services, we achieved the Advanced Content Security Specialization and the Advanced Collaboration Architecture Specialization, and we became both an Authorized Service Provider Video Partner and an Authorized Digital Media System Partner. Most importantly, we achieved the Cisco CloudBuilder designation, with proven capabilities across cloud infrastructure components which include security, networking, compute, storage, and virtualization solutions, cloud management applications, and the establishment of a formal cloud professional services practice.

Our focus on Cisco resulted in six awards at Cisco’s annual partner summit, including:
SLED Partner of the Year, U.S. Public Sector, 
Area Partner of the Year North America/West, and 
3 architectural excellence awards.

We won numerous other awards and certifications such as becoming a FlexPod Premium Partner and establishing an HP Cloud Center of Excellence.

We continue to focus on expanding our security product line and engineering services. During the year, we announced a security offering for virtualized environments as a component of our security suite. This offering helps customers maintain and enhance security measures as they transition to a virtualized environment, and especially the cloud.

We continue to invest in the most important advanced technology solutions, including cloud, collaboration, security, storage, virtualization, and managed services by hiring top level engineers to enhance our solution set and delivery capabilities. During the year, our engineering staff grew by over 18%.

Our financing business exhibited renewed strength this year, with lease and financing origination volumes increasing 35% to $219.5 million. A significant component of the increase in our lease and finance volume was originated through our technology vendor partners, who appreciate our fast and secure approach to providing financing for their customers.

We continue to review many acquisition opportunities, and given our balance sheet resources, we have the capital resources to execute acquisitions and hire people in new territories. Our strategic growth plan of building a national footprint through a balanced program of acquisitions and new hires, is an optimal way to build the company conservatively.

We are committed to investing in our people, acquiring new technology solution expertise and delivery capabilities, expanding our national footprint, and lowering operating costs. We are working to expand recurring revenues through our managed services, staff aug, and collaboration as a services offerings. Our customers rely on us for the key elements of their IT infrastructure, not only supporting and scaling their current environment, but also planning for the future, whether it is the Cloud, BYOD, or big data. We offer differentiated services as compared to our peer group, including supply chain services in the form of OneSourceIT, and financial services, to help our customers procure and purchase needed goods and services.

In summary, we remain highly focused on executing our growth plans and improving shareholder value. During the year we purchased 19,423 shares of our common stock, and in December, 2012, we paid a special cash dividend of $2.50 per common share. Our stock appreciated more than 45% during the year, and inclusive of the dividend, shareholders realized more than a 50% return for the year.

At the end of this call, I’d be happy to answer any questions, but first, I’d like to introduce Elaine Marion, our CFO.

Elaine?

Elaine D. Marion, Chief Financial Officer

Thank you, Phil.

As Phil mentioned, we continue to drive strong revenue growth as consolidated revenues for our fourth quarter grew 7.9% to $236.3 million, the 13th quarter of revenue growth on a year over year basis. Net earnings also increased 99.7% to $7.7 million for the quarter, and fully diluted earnings per common share increased 97.9% to $0.95 per share.

The growth in quarterly revenues is attributable to increases in both the technology and financing segments. In the technology segment, revenue for the quarter increased 6.7% to $225.7 million compared to $211.5 million in the quarter ended March 31, 2012. The increase in revenue was due to increases in customer demand for products and services, particularly from our Fortune 100 customers. In the financing segment, revenues for the quarter increased 41.1% to $10.6 million compared to $7.5 million in the quarter ended March 31, 2012. The increase in revenues was driven by higher net gains on sales of financial assets, higher portfolio revenue and higher post contract earnings related to the early termination of certain leases. ePlus continues to offer the products and services that customers desire, including financial services, and we are effectively capturing IT spend at a higher rate than the overall market as a result of our unique set of solutions.

On a consolidated basis for the year ended March 31, 2013, total revenue increased 19.1% to $983.1 million. Our technology segment had revenues of $943.2 million, an increase of 19% as compared to the prior year. The increase was due to increases in demand as we captured additional customer spend and focused on faster growing segments within the market, such as virtualization, collaboration, and security. Revenues for the year in our financing segment increased 20.4% to $39.9 million due to an increase net gains associated with the early termination of certain leases as well as increases in net gains on sales of financial assets. For the years ended March 31, 2013 and 2012, we originated lease and financing volumes $219.5 million and $162.3 million, respectively, which increased partly due to our participation in additional vendor financing transactions.

The gross margin on sales of product and services increased 210 basis points to 19.7% for the quarter ended March 31, 2013, from 17.6% for the same quarter last year. The increase in gross margin was primarily due to improved pricing and changes in product mix as we were involved in more advanced integration projects. For the year ended March 31, 2013, the gross margin on sales of product and services increased to 18% from 17.8% in the prior year. Our gross margin on sales of products and services is subject to variability due to changes in the amount of vendor incentives earned and the pricing and product mix of sales to our customers.

Turning to SG&A -- in the technology segment, we were able to hold the percentage increase in SG&A to a lower number than revenue expansion. For the quarter, total overhead expenses increased to $35.3 million compared to $30.7 million in the same quarter last year, which was primarily due to increases in salaries and benefits. We had 835 employees in the technology segment as of March 31, 2013 as compared to 777 a year earlier. Most of the 58 net new employees are sales and engineering personnel as we continue to invest in such personnel in order to build out our geographic footprint and expand our solution offerings. As a result, for the quarter, technology segment earnings before tax increased 34.2% to $10.6 million.

In the financing segment, for the quarter, total costs and expenses were $8.5 million, which was consistent with the same quarter in the prior year. However, general and administrative expenses were lower due to a decrease in our reserves for credit losses offset by increases in direct lease costs due to an increase in depreciation expense for operating leases and an increase in the amortization of capitalized costs due to the sale of financial assets in the quarter. We also had an increase professional and other fees due to higher broker fees associated with the sale of certain financial assets. As a result, segment earnings before tax for the quarter were $2.1 million compared to pre-tax loss of $0.9 million for the same quarter prior year.

For the year, in the technology segment, total overhead expenses increased 12.0% to $129.1 million due to higher salaries and benefits due to the increases in personnel over the last 15 months and as well as higher commissions resulting from higher revenue. In addition, general and administrative expenses increased due to acquisitions and regional expansion as we incurred additional amortization, rent and travel and entertainment expenses. Technology segment earnings before taxes for fiscal year 2013 increased 47.6%, to $46.5 million, as compared to a 19.0% increase in revenues.

In the financing segment for the year, total costs and expenses increased 10.3% to $27.7 million due to increases in depreciation expense for equipment under operating leases and increases in amortization of capitalized costs from terminated leases. Also, professional and other fees increased due to broker fees related to the sale of a portion of our lease investment portfolio. Offsetting these was a decrease in general and administrative expenses due to lower reserves for bad debt. In our financing segment, we had 55 employees at March 31, 2013, virtually flat over the prior year. For the year ended March 31, 2013, financing segment earnings before taxes increased 51.8% to $12.2 million, as compared to a 20.4% increase in revenues.

On a consolidated basis, our earnings increased at a much higher rate than revenues, as we maintained gross margins and held the line on overhead costs. Net earnings were $34.8 million for the year or $4.32 per diluted share, an increase of 49.1%, as compared to $23.4 million, or $2.79 per diluted share, during the year ended March 31, 2012. We have captured IT spend at a higher rate than the overall market and most of our peers, as a result of our focus on providing multi-vendor, complex, advanced technology solutions that customers demand while building a scalable and efficient operational model to enable the absorption of growth.

As of March 31, 2013, we had $53.7 million of cash and cash equivalents and short term investments, as compared to $41.2 million on March 31, 2012. As of March 31, 2013, our total stockholders’ equity was $238.2 million and we had 8.1 million shares outstanding, as compared to $219.6 million and 8.0 million shares last year. In addition, we declared and paid a special cash dividend of $2.50 per share of common stock during the fiscal year 2013. Over the year, shareholder value increased over 50% including the special cash dividend. Our stock price closed at $46.21 at the end our fiscal year and has continued to increase to more than $50 per share.

We are pleased with our fiscal year 2013 results and, as we start a new fiscal year, we believe we have the financial resources and operational capabilities to continue grow our business and build shareholder value through our strategic plans that Phil outlined earlier.

That concludes our prepared remarks. On behalf of all ePlus stakeholders, I’d like to thank you for participating in today’s conference call. Operator, please open the line for questions.

QUESTION AND ANSWER SECTION

Operator:

Operator: The first question comes from Alex Kurtz from Sterne.

<Q – Alex Kurtz – Sterne, Agee & Leach, Inc.>: Yes. Thanks for taking the question and congrats on the solid results. How are you guys gauging the opportunity to roll up small or regional VARs with your cash as opposed to returning cash to shareholders? So what’s that calculation look like for you guys?

<A – Phil Norton – ePlus, Inc.>: Well, I mean first of all, I don’t think that we look at it as roll up, we look at it more as a strategic investment for things that will improve our capabilities, both in technology and in customer acquisition. We are always looking at new opportunities that will make a difference. And we have a plan in which we are trying to expand the – have a national footprint. And we feel at the present time that we will be looking at those opportunities.

<Q – Alex Kurtz – Sterne, Agee & Leach, Inc.>: And then, what’s the calculation about using cash to do that while you have been talking about returning cash to shareholders? How would that work out?

<A – Phil Norton – ePlus, Inc.>: Well, we intend to use cash. We have not borrowed to acquire companies. We think we have enough cash to do that. As far as returning cash to shareholders, I think that’s something that we always consider, but we have no specific direction on that right now.

<Q – Alex Kurtz – Sterne, Agee & Leach, Inc.>: And just my last question. When you look at the competition, again, some of the other national VARs that you are competing against, what’s the timeframe that you have internally there to – where you would like to see yourself three to five years competing against some of those guys who are slightly bigger? Is this 12 months, 24 months, 36 months?

<A – Phil Norton – ePlus, Inc.>: Well, first of all, we don’t believe that there is anyone out there right now that we compete against that has better capabilities than we do. And in most cases, we think that our capabilities are better. We compete head-to-head all the time. We win more than our fair share. And we are able to maintain our customers, and that’s one of the reasons we have had continuous growth. And we believe that in our case that we are very engineering-oriented, and we provide as good or better services than any of the players that you had indicated that are bigger. And I don’t think at this point in time, there is a differentiation between us and them in providing those services.

<Q – Alex Kurtz – Sterne, Agee & Leach, Inc.>: Okay. Thank you very much.

<A – Phil Norton – ePlus, Inc.>: Thank you Alex.

Operator: The next question comes from Gunnar Hansen from Sidoti.

<Q – Gunnar Hansen – Sidoti & Co. LLC>: Hey, guys. Just in terms of staying on topic with the engineering and sales force there. I mean, what are kind of the future plans, I guess, for this upcoming year to expand either one of those groups in terms of magnitude in both the specific geographic regions that you guys are looking to expand into?

<A – Phil Norton – ePlus, Inc.>: Well, for the most part, we’re getting pretty close to having a national footprint. We have the few places we have to go. But we’re always looking for top talent to improve our capabilities, and that includes engineering and sales. I think, in the engineering side, we are up some, I think 18% or some number like that. And most of those people are extremely high talented individuals.

We have had significant success in recruiting more engineers and sales people from vendors, who have had great performances at the companies they are in, which give us a higher degree of technology expertise in different subject matters. And we feel that we’ll continue to recruit from vendors because we think that we have a higher degree of success.

<Q – Gunnar Hansen – Sidoti & Co. LLC>: Okay. And you sort of – in terms of magnitude, any quantity of people that you guys can have a target in terms of hiring for this year in either one of those segments?

<A – Phil Norton – ePlus, Inc.>: Actually, we don’t really have a target, and we try to improve the operation everywhere and improve the capabilities. But on the projection side, we are more focused on finding the best people out there to fill the needs we have and we have no set number.

<Q – Gunnar Hansen – Sidoti & Co. LLC>: All right. And, I guess, Elaine, just trying to get a sense of – particularly, in the fourth quarter, you mentioned some strong growth from some of the Fortune 100 customers. Any sort of indication on how some of the other non-Fortune 100 customers performed and care to give us any breakdown in terms of what percentage of sales each of those groups make?

<A – Elaine Marion – ePlus, Inc.>: The Fortune 100 customers did perform, as we expected, as did the non-Fortune 100 customers. We don’t break that down into percentages per se, but we did not see sales that were below our expectations in terms of either of the group.

<Q – Gunnar Hansen – Sidoti & Co. LLC>: Okay. And I guess, going forward, is it fair to say that the Fortune 100 will still kind of dominate the growth going forward? Or how do some of those budgets break down in terms of what you guys are seeing?

<A – Elaine Marion – ePlus, Inc.>: I would say that we don’t necessarily say that the Fortune 100 would dominate growth. We feel that both of the groups will contribute to our growth, as they have done in the past.

<A – Phil Norton – ePlus, Inc.>: I think it’s also important that we have 2000 customers and by no means do we have all spend in those customers. And we feel like that we can grow at a very high rate by taking more market share away from our competitors and our own customer base, as well as new logos. So we don’t really have a view that the economy is going to have a factor on our growth.

<Q – Gunnar Hansen – Sidoti & Co. LLC>: Great. And I guess just kind of lastly, in terms of transitioning into the cloud, I mean have you guys kind of disclosed what percentage of the sales that is and how you guys kind of target that for the future down the road, one, two years down the road?

<A – Phil Norton – ePlus, Inc.>: If you can find someone that can target that right now, I would like to know that. There’s still a lot of hype, there’s still a lot of changes going on daily. Whether it is VMware or Verizon or AT&T or Amazon, they’re all out there on public and private clouds. And I think right now the best offering that we see for our customer base is to be able to evaluate when and if they can use those and help them develop their own private cloud offerings. And we feel like that will be a significant part of our business for the foreseeable future.

<Q – Gunnar Hansen – Sidoti & Co. LLC>: Any sort of indication as to what percentage of sales that currently is for you guys?

<A – Phil Norton – ePlus, Inc.>: It’s kind of difficult to determine that, because our customer base is so widespread and I don’t really think that I have an answer for that today.

<Q – Gunnar Hansen – Sidoti & Co. LLC>: All right, guys that should be it. Thanks.

<A – Phil Norton – ePlus, Inc.>: Thank you, Gunnar.

Operator: The next question comes from John Lewis from Osmium Partners.

<Q – John Lewis – Osmium Partners LLC>: Hi guys, good morning.

<A – Elaine Marion – ePlus, Inc.>: Good morning.

<A – Phil Norton – ePlus, Inc.>: Hi, John.

<Q – John Lewis – Osmium Partners LLC>: Yeah, just a couple of quick questions. Some of my questions have been answered. But I know over the last year or so, you guys have brought on a number of salespeople over the last couple of years. I guess in terms of productivity and expectations of that sales force, how is that playing out in terms of your expectations?

<A – Phil Norton – ePlus, Inc.>: Our expectations is always higher than our results when you’re looking at sales. And the goals are very difficult to meet, because we do expect a lot. But I think that for the most part, the salespeople that we have, have contributed significantly to our growth. And we are opportunistic in that way. We have good salespeople that we can hire we do that brings new logos. But we feel satisfied with where we are today. But our sales and engineering staff is competitive with anybody in the industry.

<Q – John Lewis – Osmium Partners LLC>: But I’m just looking at one of your old presentations couple of years ago. I think August of 2010 you had 268 sales people, today from your January presentation, you have 354. And then you have the technical support as well. So I guess the question is, in terms of sales force productivity, is it being driven from cross-selling to current customers or bringing on new customers? I know you’ve been around 2,000 customers for a while.

<A – Phil Norton – ePlus, Inc.>: Well, we continue to get new logos every quarter at a high rate. So we have an opportunity and I think our customers are now 2,300 versus 2,000. So, we are growing not only with new logos, but then on – one of our strategic plans for the future is to go wider and deeper in each one of our accounts. We feel like we have relatively small amount of spend when you really look at those accounts in general. And we have invested in telesales to help find new opportunities in those accounts. And we think that we will continue to grow by cross-selling. And I might add one of the things that we look at in acquisitions are what our fits we have today and other opportunities with acquisitions where they may sell to storage, they may sell to servers and we can go in and sell them network and work on data centers and cross-sell our products. And we’ve seen that as a big advantage every time we made an acquisition.

<Q – John Lewis – Osmium Partners LLC>: So when you look at your customer base today and you look at the technology partners that you have in your portfolio, I think you said 48% of your sales comes from Cisco. When you look at the other, VMware and the other partners you have relative to the spends you are getting, how much of an opportunity is there and getting more of the full spend with the customer versus bringing on new customers?

<A – Phil Norton – ePlus, Inc.>: I think that’s something that everyone has a hard time judging, but we have a lot of effort to getting more spend with our customers. We seem to see more of them looking to go with one provider versus several. We think we’re in a good position to do that. And that’s one of the things that we work out every day is to get our sales force out there to call on CFOs and CIOs and higher level people in order to expand our brand.

<Q – John Lewis – Osmium Partners LLC>: Got it. I appreciate that. I guess just one last question on this front – let me just change it for a second. I think last call you talked about with the government -- federal government sequester, the opportunity to make progress on the leasing side with the federal government. Any updates on that?

<A – Phil Norton – ePlus, Inc.>: We still think that’s an opportunity. I think right now the government is adjusting to what they can spend and not spend. But what we’ve seen in the past and we hope will be for the future is that when they have difficulty finding operating budgets in a year, they then start looking to spread those payments out, which increases the opportunity for leasing and also increases the opportunity for us to bring new vendors on board that we can assist in government financing as well as commercial.

<Q – John Lewis – Osmium Partners LLC>: If it hasn’t shown up now, given the difficulties, do you think it shows up sooner than later or how do you think that plays out?

<A – Phil Norton – ePlus, Inc.>: Well, we’ve seen a lot of activity early on in the game. And I think we get our fair share today and maybe a little bit more, and we think that opportunity will increase.

<Q – John Lewis – Osmium Partners LLC>: In terms of the first question in terms of cross-selling versus new customers, how does your proprietary software OneSource play into getting a bigger spend of the company’s budget? Do you find that OneSource is an effective tool to getting – to becoming a single source provider for a company? Or how does that play into your advantage?

<A – Phil Norton – ePlus, Inc.>: Well, I think it’s an advantage for other companies out there too that have similar products. I think ultimately as I kind of mentioned before, customers are looking for OneSource. And being able to provide technology, service, process. Every day process becomes more important. It becomes a bigger requirement as a public company. And it enables vendors to also have information about when in the cycle of products are and what maintenance renewals are and we think that we can capture a significant amount of that business. And our goal so far, we met what we’ve looked to doing as far as gaining every year and having more customers on OneSource.

<Q – John Lewis – Osmium Partners LLC>: Okay. Thank you very much.

<A – Phil Norton – ePlus, Inc.>: Thank you, John.

<A – Elaine Marion – ePlus, Inc.>: Thank you.

Operator: The next question comes from Andrew Fleming from Heartland Advisors.

<Q – Andrew Fleming – Heartland Advisors, Inc.>: Hi, Elaine.

<A – Elaine Marion – ePlus, Inc.>: Hi, Andrew.

<Q – Andrew Fleming – Heartland Advisors, Inc.>: I just had a question on the margin profile. Looks like the gross profit margin ticked up this quarter, and given the improving mix and the operating leverage inherent in your model, I mean, is 7% to 8% operating margin on the horizon?

<A – Elaine Marion – ePlus, Inc.>: That’s difficult to answer. That’s sort of forward-looking. We believe that we can continue to grow our revenue and we can continue to optimize our operating costs. We believe that our margin for the year end are sustainable, but they are subject to variability based on product mix of the types of product and services that we sell to our customers, as well as the rebate that we receive.

<Q – Andrew Fleming – Heartland Advisors, Inc.>: Okay. Great. Thanks.

<A – Elaine Marion – ePlus, Inc.>: Thanks.

Operator: The next question comes from Gregg Hillman from First Wilshire.

<Q – Gregg Hillman – First Wilshire Securities Management, Inc.>: Yeah, hi, good afternoon. I was wondering if you could touch on a couple of points first. One in terms of like the big strategy, does it make sense for you to become more of a systems integrator and buy a software company at some point?

<A – Phil Norton – ePlus, Inc.>: First of all, I think we are well on our way and a good part of our business for being a systems integrator. As far as software side, we do sell and implement certain software solutions and helping to build a cloud. I think one of the things that differentiates us from most of our competitors is we never chose one path, even though we have Cisco as a big provider. We have expertise on different storage vendors, as well as servers and security and other vendors that are required to actually deliver cloud services. And I think that’s what differentiates us between other people and I think we’ll stay on that path.

<Q – Gregg Hillman – First Wilshire Securities Management, Inc.>: Okay. Actually, Phil, you just raised another point about being agnostic in terms of vendor agnostic in terms of what’s the best solution is for your customer. And I was just wondering in the security area, like say for a firewall. I mean, is the solution that you are offering better than let’s say, I don’t know, Palo Alto Network solution right now?

<A – Phil Norton – ePlus, Inc.>: Well, our solutions really are customer dependent. We have relationships with Palo Alto and we have relationships with other security vendors, as well as Cisco and HP. And so, we really are looking for the best solution for that customer and what they’re trying to defend. We believe the opportunity and security as significant. We bought a company two years ago for Chicago that was a security company. We’ve added regional security architects in five major regions. And business development managers to go after that business, and we believe that’s going to be high growth.

You can’t pick up the newspaper today without seeing a cyber security attack by someone or some country on the basic industries in the United States. And so, I think that’s going to be a big path for growth and I think we’re well-positioned.

<Q – Gregg Hillman – First Wilshire Securities Management, Inc.>: Okay. And so finally the whole question of lease versus buy decision for your customers is, are the government agencies budget constraint more inclined to lease now and that’s what your lease business would tend to go up at this point?

<A – Phil Norton – ePlus, Inc.>: Based on past history and we had a long history in government financing, especially, federal government. I will say that that has been the reaction by most organizations in the government space when this occurs, because what happens is technology will change, I mean, to redo their whole security footprint. They may not have enough budget in their – to do that, so they will spread it out over time. And so I do see that being a potential for a large pickup for us in the near future.

<Q – Gregg Hillman – First Wilshire Securities Management, Inc.>: Okay. Thanks very much.

<A – Phil Norton – ePlus, Inc.>: Thank you, Greg.

Operator:

At this time, I am showing no further questions. I would now like to turn the call back over to the presenters for closing remarks.

Phillip G. Norton, Chairman, President & Chief Executive Officer

We’d like to thank you very much for taking the time to join our conference call. If you have any questions, please feel free to contact us. Thank you very much, and have a nice day. Thank you.

Operator: Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.