Earnings Conference Call Transcripts

Conference Call Discussing Earnings for Fiscal 2016 Second Quarter Results

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— integrating information technology (IT) product sales, third-party software assurance and maintenance, advanced professional and managed services, proprietary software, and financing, 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 small number of key 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;
    • increasing the total number of customers who utilize our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
    • maintain 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;
  • our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key strategies;
  • a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
  • our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents, and, when appropriate, license required technology;
  • 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, including the proliferation of the cloud, infrastructure as a service and software as a service, and our dependency on continued innovations in hardware, software and services offerings by our vendors and our ability to partner with them;
  • future growth rates in our core businesses;
  • failure to comply with public sector contracts or applicable laws;
  • our ability to secure our and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;
  • 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 or the effect of those changes on our common stock or its holders;
  • our ability to realize our investment in leased equipment;
  • our ability to successfully integrate acquired businesses;
  • reduction of vendor incentives provided to us;
  • significant adverse changes in, reductions in, or losses of relationships with larger 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, 2015, as well as other reports that we file with the SEC.

This document may also contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes that this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For

a reconciliation of non-GAAP measures presented in this document, see our earnings press release issued November 4, 2015 

November 4, 2015 

Prepared Remarks

Operator

Good day, ladies and gentlemen. Welcome to the ePlus Earnings Results Conference Call. As a reminder, this conference call is being recorded.

I would like to introduce your host for today's conference, Mr. Kley Parkhurst, Senior Vice President. Sir, you may begin.

Kley Parkhurst, SVP

Thank you Tyria, and thank you everyone for joining us today. With me today are Phil Norton, Chairman, President and CEO of ePlus; Mark Marron, Chief Operating Officer and President of ePlus Technology, Elaine Marion, Chief Financial Officer, and Erica Stoecker, 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 this afternoon and our periodic filings with the Securities & Exchange Commission including our form 10-K for the year ended March 31, 2015 and our 10-Q for the quarter ended September 30, 2015, when filed. The Company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events. In addition, during the call we may make reference to non-GAAP financial measures and we have posted a GAAP financial reconciliation on our website at www.eplus.com.

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

Phillip G. Norton, Chairman, CEO and President

Thank you, Kley.

Our results for the second quarter and first half of fiscal 2016 demonstrate the success of our go to market strategy. We are growing our customer count and expanding geographically, tapping into strong customer demand for our services-led, advanced IT solutions. We are steadily taking market share, and are well positioned for continued success.

Results for the first half of fiscal 2016 included net sales growth of 6.4%, and gross margin on products and services of 19.7%, which is a 70 basis point expansion from the first half of fiscal 2015. Revenue growth translated well to the bottom line, with earnings per diluted share increasing 21.8% as compared to non-GAAP diluted earnings per share in the first half of fiscal 2015.

Looking specifically at the results for the second quarter, we posted double-digit revenue growth and positive operating leverage. Net sales grew 13% to $336 million, and non-GAAP gross sales of products and services grew approximately 10%. Fully diluted earnings per share grew from $1.63 to $2.15. This acceleration in revenue performance had several components. First, we’re continuing to sell wider and deeper into our existing client base, capturing wallet share. Second, we are adding new logos through focused demand generation activities. And third, we benefited from increased demand in the technology and healthcare sectors, and a strong close from Cisco’s year end in July. .

We posted double digit growth in key metrics including gross profit, adjusted EBITDA and earnings per diluted share in the second quarter, while we maintained strong margins. We believe we are well positioned to continue to grow revenue at a higher rate than the overall IT market, and we will continue to make the necessary investments in customer facing headcount such as salespeople and engineers, and invest in emerging technologies, to service our customers and meet their complex IT requirements.

With that I will turn the call over to Mark for a more detailed discussion of the business.

Mark Marron, Chief Operating Officer

Thank you Phil.

As Phil said, the second quarter and first half of fiscal 2016 was a period of continued focus and execution on our corporate objectives of expanding our customer base, investing in customer facing sales and engineering personnel, capturing emerging technologies trends, and increasing services penetration. Our ability to provide the advanced IT solutions our diverse customer base demands, helped us deliver positive results across the critical metrics of revenue, adjusted EBITDA, operating income and diluted earnings per share.

We’ve spoken in the past of our strategy to outgrow the overall IT market and expand our gross margin by focusing on some of the highest growth areas of the industry, specifically security, converged and hyperconverged infrastructure, cloud, and mobility. This quarter’s 13% revenue growth demonstrates that we are successfully creating and capturing these opportunities with existing as well as new customers.

Crucial to growth is our ability to execute on our go to market strategies by going wider and deeper with our clients. We’ve successfully developed effective cross-disciplined sales and engineering teams which focus on business development for specific technologies or ePlus solutions within our customer base. These teams are being supported by our subject matter experts that help sell and create solutions in the security, services, software and financing areas. We are continuing to better utilize internal and external analytics to create focused demand generation activities within our more than 3,000 customers nationwide, and are highly focused on adding new customers as well with targeted marketing campaigns focused on specific geographies, verticals and solution areas. We’ve shown in the past that we can capture demand in the faster-growing segments of the market, and we’re confident in our ability to continue growing our client base. Today’s customer is dealing with more IT complexity than ever before, and the range of vendor options continues to grow. Our focus on a comprehensive lifecycle services approach utilizing our plan-build-optimize-support model, provides business outcomes and measurable value, rather than siloed IT solutions, and is proving to resonate with new as well as existing customers and partners.

It’s important to stress the role of our services business – both professional engineering services as well as annuity services such as managed services and staffing -- in this growth. We’ve invested heavily in building up the services business in recent years, including expanding headcount, and increasing our managed services centers from 1 to 3, to provide redundant, 24 hour nationwide coverage. We have built teams that focus on emerging technologies and bringing these solutions to market that leverage our overall lifecycle services model. This helps our customers from the assessment and design phases all the way through to optimizing their IT environments.

In fiscal 2015, gross profit from our services business grew 14.8% from the prior year, and we comfortably exceeded that figure in the first half of fiscal 2016. In addition, our services business can act as the tip of the spear, establishing our expertise with clients and positioning us for future wins that integrate both products and services. In a recent analysis of our managed services client base, we found that the typical client increases their IT spending with ePlus by more than 20% within 12 months of their first managed services engagement, with a significant expansion in gross margin.

I’m going to close by touching on security. This is one of the best examples of an area where clients are under increasing pressure to upgrade their capabilities, and have a wide array of IT options. We identified this trend several years ago, built up our security capabilities and have reaped the benefit in recent quarters. In the second quarter of fiscal 2016, security products, services and solutions represented approximately 15.5% of non-GAAP gross sales of products and services, up from 15.2% in the first quarter, and we believe there is still room for further growth as we continue to invest in the security space and make it part of every solution we sell.

A good example of this is a healthcare win we had recently. The driver for this project was a security audit that highlighted some vulnerabilities, followed by a minor security breach. These factors made security the top priority for the organization. Management adjusted their IT budget to reflect this, and engaged ePlus to provide a comprehensive security plan. Utilizing our Plan-Build-Support and Optimize, or PBSO, approach and our project management office, our first priority was to identify and remedy critical security gaps. From there, we implemented an upgrade to their perimeter security. We are now currently building out the remainder of the plan to provide a comprehensive and integrated security stack that will allow them to operate their IT infrastructure in a secure and regulatory compliant manner. This modular service strategy approach offers customers pervasive threat defense from the edge throughout the interior of their network while providing the visibility and analytics needed to maintain a secure environment.

In summary, we believe we have both the expertise and scale to meet our client’s IT needs and add value to their businesses, and outpace the market. We have identified the key areas of growth, the clients with the greatest demand for our solutions, and the right people and methods to reach them. So we believe we’re well positioned to continue our track record of outgrowing the overall IT market.

I’ll now turn the call over to Elaine for a closer look at our financials.

Elaine D. Marion, Chief Financial Officer

Thank you, Mark and good afternoon everyone.

Results for the second quarter of fiscal 2016 showed strong year-over-year comparisons in key metrics such as operating income, adjusted EBITDA, and earnings per diluted share. Our results were driven by our scale, service-led business model, and our gross margins.

Net sales for the quarter increased 13% to $336.3 million due to demand for our complex IT solutions across our client base. As Phil mentioned, technology segment sales received some additional momentum from customers in the technology and healthcare sectors. Non-GAAP gross sales of products and services rose 9.9% to $431.1 million.

Consolidated gross profit for the quarter was up 12.5% to $71.9 million. Consolidated gross margin and gross margin on products and services were both flat when compared to a year ago, at 21.4% and 19.4% respectively.

Recently, we began reporting Adjusted EBITDA, a metric we believe gives insight into the operating performance of our business. We calculate this metric by taking net earnings and adding back any interest expense, depreciation and amortization for assets used internally and the provision for income taxes and subtracting other income. We consider the interest on notes payable from our financing segment as well as depreciation on assets financed as operating leases to be operating expenses. As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation.

Adjusted EBITDA and operating income for the second quarter both grew significantly faster than revenue, as we maintained a relatively flat cost structure in our technology segment. Adjusted EBITDA rose 30.3% to $27.9 million, while operating income was up 31.2%, to $26.7 million.

Net earnings for the quarter totaled $15.7 million or $2.15 per diluted share for the second quarter of fiscal 2016, representing growth of 31.9% year-on-year.

Now moving to our individual segment results:

Revenues in our technology segment, which accounts for 97% of net sales, grew 13% to $326 million. Our non-GAAP gross sales of products and services increased 9.9% to $431.1 million. We saw a lower proportion of sales derived from third party maintenance and software assurance contracts when compared to a year earlier. These transactions are recorded on a net basis.

In terms of the breakdown of our revenue by end-markets, we maintain a balanced group of clients. For the trailing twelve months, SLED was our largest end-market with 23% of the total, followed by Technology with 21%. Telecom, Media and Entertainment represented 17% of the total, while Financial Services and Healthcare each had 10%. This balanced client base is an important part of our strategy, and we see room for growth in all sectors.

Gross profit in the technology segment increased 12.4% to $64.8 million.

Operating expenses increased 5.3% from a year ago, well below the rate of revenue growth. The key factor in this was limited growth in salaries and benefits, which accounts for more than three quarters of the Technology segment operating expenses. Going forward, we expect this expense category to align more closely with our trailing twelve months metrics. G&A expenses were higher, at $7.3 million, largely due to the amortization of intangible assets as a result of the acquisition of Evolve Technology in 2014.

Technology segment earnings rose 28.5% to $22.6 million.

Moving into the financing segment, we saw revenue rise 13.2% to $10.3 million, from $9.1 million in the second quarter of fiscal 2015. As you know, results from the financing segment tend to be uneven. In this quarter, the increase in revenue was the result of higher transactional gains. Operating expenses declined 12.7%, to $3.1 million, due to a higher reserve for credit losses in the year-ago quarter.

Segment earnings totaled $4.0 million, versus $2.7 million a year earlier.

Now I will briefly address our consolidated year-to-date results. Net sales were up 6.4%, to $606.2 million, compared to $569.8 million a year ago. Non-GAAP gross sales of products and services were up 6.4% to $763.4 million. The strong sales performance was driven by our technology segment, which was up 6.5%, to $587.5 million for the first half of fiscal 2016.

Consolidated gross profit for the first six months of fiscal 2016 increased by 8.9%, to $131.1 million, compared with $120.4 million in the same period last year. Consolidated gross margin was 21.6%, up from 21.1% in the first half of fiscal 2015, while gross margin on products and services was 19.7%, an increase of 70 basis points.

Adjusted EBITDA rose 19.3%, to $44.1 million, up from $37.0 million in the first half of fiscal 2015. Operating income rose 19.0% to $41.7 million, up from $35.1 million in the first half of fiscal 2015. We had earnings per diluted share of $3.35, up 17.1% from $2.86 a year ago. Excluding the gain resulting from the retirement of a liability in the first half of fiscal 2015, earnings per diluted share increased 21.8%.

Turning now to the balance sheet, we ended the quarter with a cash position of $62.8 million, compared with $76.2 million at the end of March. This reduced cash position was the result of working capital needs and investments in our financing portfolio. While we saw an increase in accounts receivable during the quarter, our cash conversion cycle in the technology segment remained consistent with last year at 12 days. As a result, we feel our balance sheet is very strong, with a cash position to support both organic growth and accretive acquisitions.

I’ll now turn the call over to Phil for closing remarks.

Phillip G. Norton, Chairman, CEO and President

Thanks Elaine.

In closing, I would like to reiterate that we believe our long term strategy is proving successful, as evidenced by our strong performance in the first half of fiscal 2016.

The technology landscape continues to evolve, and clients rely on a trusted partner to help them determine, identify and implement the best IT solutions, both for today and for the future. The solid performance of our business, particularly in focus areas like services and security, highlight our competitive advantages. Again this quarter, we received several important recognition awards from key partners including Cisco and Palo Alto networks, among others, as we continue to strengthen our relationships with established and emerging vendors.

Additionally, our balance sheet remains strong, providing the financial flexibility to take advantage of opportunities to build our business. We continue to evaluate strategic acquisitions to expand our business. We also seek to invest in new sales and engineering resources and expand our human capital to better serve our clients. With that, Operator, please open the call to questions.

Operator

Bhavan Suri, William Blair.

Alper Tuken - William Blair & Company, LLC - Analyst

Hi, guys, this is Alper Tuken in for Bhavan. Congrats on the quarter.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Thanks, Al.

Elaine Marion - ePlus inc. - CFO

Thanks.

Alper Tuken - William Blair & Company, LLC - Analyst

I just have a first question. You guys had a nice beat for the gross sales, and I remember last quarter, if I remember correctly, you had more companies that were having contracts on subscription and term-based contracts. And I was just kind of wondering how that activity looked this quarter when looking at the perpetual license deals versus some of those subscription and term-based license deals, and how that affected both net sales and your gross sales.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

So, I'll try to take a shot at that, Al. I don't have anything off the top of my head that I can give you exact percentages. But, as the market continues to evolve and move to more of a subscription model, a consumption model as a service model, we're moving the solutions that we deliver to our customers to accommodate what they're looking for.

I think if you look at our -- if you're looking at our gross margins, we feel like we had a really good quarter for our gross margins. We feel that our gross margins are probably the highest in the industry. And if you noted what Elaine and Phil had talked about, our gross margins were 21.14% for the quarter, which is some of the highest in the industry.

And then, in terms of when we look at the gross margins as well, they were affected a little bit by a lower portion of gross sales that were classified as net. So, that's kind of the pieces that I think would tie back to what you asked there. Did that give what you were looking for, Al?

Alper Tuken - William Blair & Company, LLC - Analyst

Yes, yes. Yes, that's exactly what I was looking for. And then, just one additional question from me. For the tech segment earnings rose 28.5%. You guys are seeing nice leverage from a margin perspective. And outside of gross margins, which you said you're an industry leader, do you think the operating margins that you have today are sustainable throughout the end of the year?

Mark Marron - ePlus inc. - COO, President of ePlus Technology

So, no, I think on that you'd have to really look at our historical results for the operating margins. We're going to continue to invest in what I call customer-facing sales and services headcount to address what I call the four Ss that we're trying to tackle with our customer - services, security, software, and solutions. So, I think, going forward, with investing in net headcount, you'd have to look more at the historical trends as it relates to operating margins.

Alper Tuken - William Blair & Company, LLC - Analyst

Okay. Thank you guys very much, and again, congrats on the quarter.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Thank you.

Elaine Marion - ePlus inc. - CFO

Thank you.

Operator

Prab Gowrisankaran, Canaccord.

Prab Gowrisankaran - Canaccord Genuity - Analyst

Hi, thanks for taking my question, and congrats on a strong quarter.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Thanks, Prab.

Elaine Marion - ePlus inc. - CFO

Thanks.

Prab Gowrisankaran - Canaccord Genuity - Analyst

Yes, the first question I had was just in terms of the strength that you saw in the Cisco practice. I know usually Q2 is a strong quarter, and Q3 is slightly better. You hinted to Cisco being really strong with their year-end finish. Was there a particular area of strength? Was it data center, routing, switching, if you can add more color on the Cisco strength?

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Well, there's a couple of different things, as you know, Prab. Cisco was about 50% of our revenue for this quarter. What's nice about Cisco is they go across a lot of different areas, meaning compute, security, data center, and all the services that go with it. So, as that kind of continues to evolve with some of the converged infrastructure plays that are out there with FlexPod and Vblock and so forth, I think you'll continue to see that grow. We're also actively working with Cisco on building out our software capabilities. So, they're a big part of our strategy. They're about 50% of our revenue, and I think you'll continue to see that in the future based on historical trends.

Prab Gowrisankaran - Canaccord Genuity - Analyst

Great. And then, the other question I had was just in terms of the security practice that you talked about. It looks it expanded. It's still at the 15% level, right? Do you see an inflection there as you're starting to creating it and hiring more people into the security practice?

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Yes, Prab. If you saw, we had 30 basis point bump from Q2 versus Q1, and it's a total of our gross product services, product and services. It's one of the key focus areas. We believe it's a hot market. And with some of the regulatory and compliance issues that are out there for our customers, we think it's a big market that we can continue to grow in and outpace the market.

Prab Gowrisankaran - Canaccord Genuity - Analyst

And then, the other question I had was just in terms of the overall IT spend. I know storage has been soft, but other areas look like they are strong. You can add any color on the macro that you're seeing in terms of what we should expect, going forward.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Sure. I think from what we're seeing and what we're hearing from our customers, that the market is stable, there's a nice demand for services and security in the market. In this quarter, we had a nice uptick in some verticals, such as technology, that made a difference in our numbers for this quarter. And I think cloud is kind of the cooler, more flexible option, if you will, as it continues to involve. So, the hyper-converged and plays like that I think will continue to evolve, as well.

And as it relates to storage, I think a lot of customers are taking a look at both the legacy players in terms of what they have in the flash space, as well as some of the emerging technologies, and trying to make those decisions as they move forward.

Prab Gowrisankaran - Canaccord Genuity - Analyst

The last question I had was just in terms of the receivables. It's at an all-time high. Is it just the linearity in the quarter, and that's why it's high at these levels? If you can provide any color in terms of is this new norm, or how we should think about receivables?

Elaine Marion - ePlus inc. - CFO

Sure. In terms of our total accounts receivable, we have a near investment-grade portfolio of accounts receivable. I talked earlier about our cash conversion cycle this quarter was comparable to the same quarter last year at a 12-day cash conversion cycle, which is pretty good in the industry. In terms of the dollar amount, this particular quarter was a little bit back-ended in terms of the amount that we invoiced. So, I'm not expecting…there's no issues in our AR. We're very pleased with the progress that we're making in the collections process in the AR.

Prab Gowrisankaran - Canaccord Genuity - Analyst

Great. And that's all the questions I had.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Thanks, Prab.

Operator

Matt Sheerin, Stifel.

Matt Sheerin - Stifel Nicolaus and Company - Analyst

Yes, thanks, and good afternoon, everyone. Just a couple of questions from me. Just obviously you had a very, very strong quarter, and last quarter I think you were talking just growing modestly above market, obviously with this double-digit growth here much better. It sounds like it's somewhat back-end loaded. I'm trying to figure out the seasonality of your business, and maybe it's changed because of the focus of the business and the product focus.

But, as we look to the December quarter, which going back years look like it's up a couple of points sequentially, after this very strong quarter, are you still expecting sequential growth in December, or might that be or maybe a little bit more conservative after this very strong quarter here? Just trying to get a sense of the trajectory of your growth, whether it will continue to accelerate or not.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Well, a couple different things, Matt. So, as it relates to the revenue side, we agree with you. We feel we had a very good quarter, and we're happy with the results. The sales and services team did a really nice job of executing on our overall plans as an organization, and we believe we'll continue to outpace the market as it relates to where the industry's going from an industry average standpoint.

There were a couple of things that I think always happened in this quarter. You've got Cisco's fiscal year-end, which was in July. And has been noted a little bit earlier with Prab, in terms of the percentage of our business with Cisco, you have SLED, and then you had a few other verticals, if you will, that contributed to our numbers for this quarter.

So, net-net, we're happy with the results. The team really executed well for the quarter, and we believe we'll continue to outpace the market as we move forward.

Matt Sheerin - Stifel Nicolaus and Company - Analyst

Okay. I appreciate that. It doesn't really answer the question, though, which is do you expect to grow sequentially in December? Which would be or basically, you're coming off of a 13% year-over-year growth, which is very strong. I mean, are you expecting to continue that year-over-year growth rate?

Mark Marron - ePlus inc. - COO, President of ePlus Technology

So in terms of as you know, Matt, from our numerous meetings, we don't give forward-looking statements as it relates to that. So, I think, you're going to have to take a look at the historicals, and that's probably the best way for you to take a look at it.

Matt Sheerin - Stifel Nicolaus and Company - Analyst

Okay. That's fair enough. And on the SG&A, it was up only about $1.5 million or so on very strong revenue growth. And how much of the I know that as I think you said, Elaine, 75% of the SG&A is tied to salaries and comp. Are there variable comps, though, given and the very strong sales in the quarter are variable comps that are either paid out in September or December? Just trying to get a sense of what that SG&A number might look like in the December quarter.

Elaine Marion - ePlus inc. - CFO

Matt, I think as I said in my comments, I think you really should look at our historical norms in order to look at the forward looking at the quarters to come in terms of our SG&A percentage and OpEx percentages, going forward.

Matt Sheerin - Stifel Nicolaus and Company - Analyst

Okay. So, does that mean because SG&A as percentage fell well below where you've been, right? You've been 14% or higher. So, would that mean that you're expecting to go back above that? And then, also I guess related to that, Mark, you talked about some headcount additions. Can you be more specific about what you're looking to do and what the investments might entail in terms of SG&A?

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Well, in terms of the headcount, it's pretty simple. It's what we'd called customer-facing, both sales and services. So, on the sale side, it'd be in the security space, and folks that can sell services as well as software. And on the services side, it's continuing to add both presales, additional MS, managed services headcount, and things along those lines as we go forward.

So, if I could fence it in for you a little bit, Matt, if you kind of think about the four Ss in terms of services, security, software, and solutions, those would be the areas that we're going to continue to invest in headcount to provide the solutions that our customers are looking for. As it relates to the SG&A, I think as Elaine alluded, I think the easiest way is for you to look at the historicals. And as our variable comp, just so you understand, we just have standard comp plans where our reps are paid on gross profit. So, if that helps -- I don't know if that helps around your variable piece.

Matt Sheerin - Stifel Nicolaus and Company - Analyst

Okay. And looking at the markets, the SLED market, it sounds like that was up a lot sequentially. It was up primarily -- because I know you don't play very big in the federal market. Was that primarily state and local, or was the education market also strong? CDW commented this morning that the education was a little bit softer than they expected because of timing of E-Rate funding. I'm not sure what you're seeing there.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Well, there's couple of things. As it relates to E-Rate, you apply for E-Rate. You're then accepted, and then, over time, you have to kind of pull that through to fruition. So, E-Rate was a small part of that, if you will, but it was a part of it. Our SLED business in the higher education space, we're starting to see lot more opportunities as it relates to security and some other areas that's we're starting to see come to fruition based on the security plans that we built in the SLED space.

As it relates to verticals, that we had a big uptick in our technology vertical compared to prior years, but -- and one other thing. We're -- continuing to build out healthcare plans with a lot of the major vendors, and that includes some of the providers like Meditech and Epic. So, we're starting to see that come to fruition as it relates to healthcare. So, those would be the main ones. And quite honestly, our top five verticals are the same five verticals every time, so technology, telecom, SLED, healthcare, and finance.

Matt Sheerin - Stifel Nicolaus and Company - Analyst

Okay. And did you have any 10% customers in the quarter?

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Well we don't do it for the quarter. As you know, we only do that on an annual basis. So, at the end of last -- fiscal 2015, we did not have any customers that were 10% of our revenues.

Matt Sheerin - Stifel Nicolaus and Company - Analyst

Okay. All right. Thanks a lot, Mark, appreciate it.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

No problem, Matt. We'll see you soon.

Operator

Matthew Galinko, Sidoti.

Matthew Galinko - Sidoti & Company - Analyst

Hey, guys. Thanks for taking my question.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Hey, Matt.

Elaine Marion - ePlus inc. - CFO

Hi, Matt.

Matthew Galinko - Sidoti & Company - Analyst

So, I guess you mentioned share gains a couple times on your prepared script, and I'm just wondering how you're measuring it. Is it sort of just comparing your growth rate to the industry, or are you noticing better win rates? Just a little more color on that.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

Yes, I think hey, Matt, a lot of that has to do with how we're going to market and what we're trying to sell. So, part of our overall plans is getting a little tighter in our execution around how we're covering the accounts not only from a rep standpoint, but also from a marketing and social media and things along those lines.

We also have more granular plans in terms of how we're trying to uncover net new accounts and how we expand those into bigger existing accounts, over time. So, those are some of the things that you're seeing. As we noted, we've got over 3,000 customers now that we can go back to and sell across a lot of different areas that's helping us both from a revenue standpoint, as well as from a GP standpoint, gross profit standpoint.

Matthew Galinko - Sidoti & Company - Analyst

Got you. And then, maybe one more on the healthcare. When you highlighted, I think you mentioned started with an audit, progressed to a pretty involved process. So, is that typically how you're seeing security engagements work their way in? And do you have a pipeline of audits that you're performing and hope to expand into larger relationships, or a little bit more about that, as well?

Mark Marron - ePlus inc. - COO, President of ePlus Technology

All right, Matt. Just in case our competitors are listening, I won't talk about our pipeline or forecast. But, what I can tell you on the security side, it's pretty simple, is it's all about kind of keeping the bad guys out in terms of securing the perimeter. It's keeping -- once they're in, if they are in, is keeping the data secure from a secure data-data center standpoint. But, more importantly, it start with our security services, which is a combination of assessments and security health check.

So, what happened with this customer was it was a security health check that we did for the customer and found that they had some unease on an audit that was done. And then from there, we were able to go in and kind of create here's where the security gaps were. We solved that with the perimeter solution that we did. And then, on top of it, we then proposed our security stack, which was really more of a combination not only just on the end point, but also the analytics and intelligence they needed to kind of run their business, going forward.

I think the other thing to note from a security that I wanted to go back to, I wanted to mention that I forgot one Prab has asked, as well, is what we're seeing in the security space. If you look at Cisco's acquisition of Lancope, right, there's a vendor that we're working with as it relates to Sourcefire. They're now expanding their capability into the networking analytics space, which is what we know very well from a networking standpoint. So, we're able to go back and sell security in that space back to our existing customers.

The other thing that's probably important to note, we were just recently named Palo Alto's Growth Partner of the Year, as well. So, we're putting a lot of focus on the key vendors in each of those spaces, and then manning our sales and services teams with the tools they need to go in and sit with our customers, understand what their needs and issues are, and then build solutions to address it. And that's what happened with that customer.

Matthew Galinko - Sidoti & Company - Analyst

Excellent. Thank you.

Mark Marron - ePlus inc. - COO, President of ePlus Technology

No problem. Thanks. Thank you.

Operator

Thank you. And at this time, I would like to turn the call over to Phil Norton for any closing remarks.

Phil Norton - ePlus inc. - Chairman, CEO & President

Thank you for your time and interest today and we look forward to speaking with you again next quarter.

Operator

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone have a great day.