Earnings Conference Call Transcripts

Conference Call Discussing Earnings for Fiscal 2017 Third Quarter Results

Safe Harbor Statement

 

This transcript of the earnings call that occurred on February 2, 2017, 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 of the earnings call, 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, our advanced professional and managed services, our proprietary software, and financing, and encounter the following challenges, risks, difficulties and uncertainties:
  • 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 to maintain certain customer relationships, 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, or allegations that we are impinging upon any third party patents, and the costs associated with those actions, 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;
  • national and international political instability fostering uncertainty and volatility in the global economy and financial markets, fluctuations in foreign currency rates and downward pressure on prices;
  • 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 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 lines of credit with vendors or floor planning facility, or obtain debt for our financing transactions or the effect of those changes on our common stock or its holders;
  • changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;
  • disruptions in our IT systems and data and audio communications networks;
  • ·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 loss of our largest customer or one or more of our large 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, 2016, 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 February 2, 2017, a copy of which is posted on our website at www.eplus.com/presentations.

 


 

February 2, 2017 – FY17Q3

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 for joining us today. On the call with me is Mark Marron, CEO and President, Elaine Marion, 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 this afternoon and our periodic filings with the Securities and Exchange Commission, including our Form 10-K for the year ended March 31, 2016, and our 10-Q for the quarter ended December 31, 2016, 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 the GAAP financial reconciliation on the Shareholder Information section of our website at www.eplus.com.

 

I'd now like to turn the call over to Mark Marron. Mark?

Mark Marron, CEO & President

Thanks, Kley, and thank you for joining us on our call this afternoon to discuss our third quarter and nine-month financial results for our fiscal year 2017. We are pleased to report that this was another solid quarter for ePlus. We succeeded in posting strong year-over-year revenue growth. Specifically, our consolidated net sales increased 9.4% and our technology net sales increased 10%. Our strong performance resulted from a combination of our organic and acquisition initiatives, both of which benefited from our ability to provide transformational solutions that enable positive business outcomes for our customers.

 

Third quarter net earnings increased 22.6% and our adjusted EBITDA increased 22.3%. This growth resulted from gross margin expansion and cost discipline. Both consolidated gross margin and gross margin on sales of products and services expanded by 110 basis points, benefitting from improved product mix of higher margin products and services as well as greater traction with emerging vendors who tend to have higher margin products.

 

The track record we have achieved in gross margin expansion in the third quarter and first nine months of this year has given us the ability to produce EPS growth that exceeded revenue growth by a factor of three. This was accomplished while absorbing the cost of additional customer facing headcount and the expenses related to our latest acquisition of Consolidated IT services.

 

In addition to delivering robust financial results, we have continued to make investments in our business to ensure we are best positioned for future market opportunities and to be a relevant partner for our customers to deliver the IT driven business outcomes they require. Approximately 90% of the head growth in this year's third quarter represented engineering and marketing personnel. Our ability to both attract and retain high quality talent has yielded positive results for us and our clients thanks to our Recruit, Retain and Develop program.

 

As you know, our organic growth strategy has been developed around building market share by offering complex solutions that differentiate ePlus and rolling out new programs and services to help our clients meet today's IT challenges.

 

Our third quarter and nine month results underscore how ePlus positioning in the high growth areas of security, cloud and digital infrastructure have resonated with our client base. Some of these solutions involve providing consultative or advisory services around the cloud. For example, one of our not for profit clients that wanted the benefits of a public cloud-like system that was actually a private cloud in their datacenter. First, we offered an envisioning session that used [Chalk Talks] to help our client understand the optimal cloud strategy and roadmap. This involved an overall architectural design, developing migration and performance metrics, total cost of ownership cloud modeling, and cloud security and risk health checks. Ultimately, a full solution for the client and a margin enhancing project for us.

 

We have continued to expand our security programs and services as well. For example, our cybersecurity strategy workshops help our customers identify and isolate their security issues, prioritize them based on specific needs, and develop a roadmap for security improvement. We have also recently introduced our ePlus Cybersecurity Management program. This program provides security as a service that is a subscription service that continually assesses a client's security posture, offers a proactive catalog of services, and accommodates the new realities of the cloud and mobility by developing a stronger security management framework to better contain and forecast risk. This supports our clients' drive to incorporate security as a culture throughout their enterprises.

 

Year to date, our sales of security products and services increased at a double-digit rate and accounted for 16.7% of the Company's adjusted gross billings of products and services, up from 16.2% in the similar period last year.

 

As you know, acquisitions are an important component of our strategic plan and enable us to effectively expand our footprint by bringing on companies that can strengthen our technical knowledge, broaden our customer base and geographical reach, and give us the ability to provide meaningful cross sell opportunities. In December, we acquired the IT services division of Consolidated Communications, giving us a strong branch in the 16 largest metropolitan area in the US, expanding our footprint in the Upper Midwest, and adding new managed service clients.

 

Similar to all of our recent acquisitions, our Minneapolis branch was integrated into the ePlus infrastructure the day after closing, meaning that new business was conducted using ePlus systems and processes. Immediately prior and for several weeks after closing, we had ePlus employees onsite doing the on-job training and acquisition swat teams in all of our operating areas like purchasing, credit, accounting, engineering and sales to support our new employees and customers to make the transition as seamless and as painless as possible. Given that acquisitions are a key focus of our strategic growth plan, we believe that our acquisition integration methodology is a key competitive factor.

 

Another example of this would be our acquisition of IGX in 2015. IGX has provided us with a deeper domain expertise in advanced security solutions, opened the Connecticut market for us, broadened our customer base in Boston and New York, and gave us a gateway to the UK and the rest of Europe through their London subsidiary. This acquisition has allowed us to support our existing global customers in Europe and also provide support and services to IGX's European customers in the US.

 

In summary, we continue to execute on our strategic growth plans and we believe we are well positioned to capture future market opportunities. We are pleased with our year-to-date results. As we announced, our Board of Directors declared a two for one stock split, the first stock split in our history, and a continuation of our focus on creating shareholder value.

 

With that, I would like to ask our CFO, Elaine Marion, to review our Q3 and nine-month financials. Elaine?

Elaine Marion, CFO

Thank you, Mark, and thank you everyone for joining our call. I am pleased to report that in the third quarter and first nine months of fiscal 2017 we delivered strong financial results. Third quarter year-on-year comparisons were especially strong given that we were comparing against what was a relatively soft quarter for us in the similar period last year. However, as Mark mentioned, we executed very well in both this year's third quarter and nine months and have seen increased demand for our IT solutions offerings.

 

While the latest industry forecast estimates worldwide IT spend growth of approximately 2.7% in calendar year 2017, we believe our strategy to invest in developing solutions, grow our managed and professional services capabilities, and acquire customers organically and through accretive acquisitions positions us to outpace the broader IT market.

 

In the third quarter of fiscal 2017, our consolidated revenues grew by 9.4% year-on-year to $326.7 million. Gross profit increased 15.2% to $73.8 million, which yielded a 110 basis point increase in gross margin to 22.6%. This improvement in gross profit and gross margin was the result of a shift in our product revenue mix as we increased sales of higher margin products.

 

Our operating expenses increased 13% to $52.5 million, representing 16% of net sales. The majority of this increase was driven by the increase in variable compensation, as a result of increased gross profit as well as an increase in headcount. Our headcount grew by nearly 10% [from] 1,164 from 1,060 last year. The acquisition of the IT services business of Consolidated Communications added 48 employees. Of the 104 total new personnel, 95 were sales and engineering professionals with the rest administrative hires.

 

For the third quarter our G&A expenses totaled $6.4 million or 2% of net sales. This is in line with our historical average despite expenses associated with closing and integrating an acquisition. Professional fees were $1.4 million, less than 0.5% of net sales, and significantly lower than fiscal 2016. I'll discuss our expenses in more detail when I get to the technology segment results section of the call.

 

Operating income was $21.3 million, an increase of 20.8% from $17.6 million last year. This was driven by the increasing gross profit I mentioned before. Diluted earnings per share for the quarter were $1.81, up 29.3% from $1.40 in the third quarter of fiscal 2016. Our diluted shares outstanding totaled 7 million for the quarter compared with 7.3 million from the third quarter last year.

 

Adjusted EBITDA increased 22.3% to $23.2 million, while our adjusted EBITDA margin improved 70 basis points to 7.1%. Non-GAAP diluted earnings per share increased 30.8% to $1.91 from $1.46 in the third quarter of fiscal 2016. This non-GAAP metric excludes acquisition-related amortization expenses, other income, and related effects on income taxes.

 

I will now discuss our quarterly results from our technology segment, which accounted for approximately 98% of our net sales. Net sales in the technology segment grew 10% to $318.3 million, while adjusted gross billings of products and services grew 9.8% to $432.4 million. The increases were due to higher demand for our solutions specifically in the telecom, media and entertainment markets as well as an increased contribution from IGX which was acquired in the third quarter of fiscal 2016.

 

Adjusted gross billings are sales of products and services adjusted to exclude the costs incurred in the sale of applicable third-party software assurance, maintenance and services. Gross margin on products and services expanded by 110 basis points to 20.7% in the third quarter. This margin expansion was the result of a shift in our sales mix towards higher margin products and an increase in gross profits from services.

 

Operating expenses in the technology segment increased by 15% to $49.7 million compared to $43.2 million in the third quarter last year. The largest contributor to this increase was salaries and benefits, which increased 14.6% or $5.1 million to $40.2 million. This was due to the increase in headcount and the increase in variable compensation as the result of higher gross profit. In the third quarter of fiscal 2017, we reported an increase of $1.2 million in the general and administrative expenses, $400,000 of which was related to increases in software license and maintenance expense. Adjusted EBITDA for the technology segment increased 17.5% to $18.8 million in the third quarter, mainly the result of increased gross profit.

 

In the third quarter, we maintained our diversified portfolio of customers by end markets. On a trailing 12-month basis, the technology and SLEG markets were our largest, accounting for 22% and 21% of total net sales respectively. Next was telecom, media and entertainment, which accounted for 16%, with the rest of the sales mix split between financial services, healthcare and other.

 

Moving now to our financing segment, revenues were $8.4 million, mainly the result of lower portfolio earnings. However, our gross profit for the third quarter increased 16.3% to $7.2 million as a result of lower direct lease costs, which were down nearly 63% from last year. This significant decline in direct lease cost was driven by lower depreciation expense resulting from our operating lease investments.

 

Operating expenses declined 13.4% to $2.8 million due to lower salaries and benefits as well as a reduction in our reserves for credit losses. Adjusted EBITDA for the financing segment was up significantly, 48.4% to $4.4 million, as a result of the increased gross profit and double digit decline in operating expenses.

 

I will now turn to our consolidated year-to-date results. Net sales for the first nine months of fiscal 2017 increased 10.1% to $996.6 million from $904.8 million. The double-digit sales growth was led by strong performance in our technology segment where net sales increased by 10.9% to $972.5 million. Adjusted gross billings of product and services increased 13.8% to $1.3 billion, while consolidated gross profit increased 14.5% to $223.4 million. Our consolidated gross margin expanded by 80 basis points to 22.4%. Gross margin on products and services also grew by 80 basis points to 20.5%.

 

Net earnings grew 15.2% to $40.1 million and adjusted EBITDA increased 14.7% to $72.4 million. Our first nine months of fiscal 2017 earnings per diluted share increased by 20.5% to $5.71, while non-GAAP diluted earnings per share increased 20.7% to $5.90.

 

Turning now to our balance sheet, we ended the third quarter with cash and cash equivalents of $69.7 million compared with $94.8 million as of March 31, 2016. This decrease was primarily the result of investments in our financing portfolio, an increase in working capital required for the growth in our technology segment, an increase in committed inventory to $111.1 million, and the purchase of 328,481 shares bought under our share repurchase plan.

 

As of December 31, 2016, our cash conversion cycle was 27 days. This increase was the result of an increase in committed inventory I mentioned previously. Deferred revenue also increased $40 million due to payments received for the inventory I mentioned above. Both the increase in inventory and deferred revenue was related to large projects for a high credit quality customer. We expect the majority of this inventory to ship over the next two quarters.

 

We also announced today that our Board of Directors has declared a two for one split of our common stock in the form of a 100% stock dividend payable on March 31, 2017 to shareholders of record at the close of business on February 16, 2017. All share and per share amounts discussed on this call are prior to the stock split.

 

For the remainder of the year, we are committed to executing on our long-term strategy of investing in headcount to develop our IT solutions, growing our managed and professional services, penetrating further into the Fortune 500 customer base, and capturing additional IT spend, identifying and targeting emerging technology trends, and maintaining a robust balance sheet that provides us with the financial flexibility to capitalize on strategic acquisitions. I'll now turn the call back to Mark for closing remarks. Thank you, everyone. Mark?

Mark Marron, CEO & President

Thanks, Elaine. To sum up, Q3 was a strong quarter for us across a range of key metrics and we believe has set the stage for continued progress as we close out fiscal 2017 on March 31st and enter fiscal 2018. We believe our revenue growth reflected market share gains resulting from investments that have positioned ePlus to take advantage of high growth business opportunities and services that are less commoditized and more value add. This has enhanced our gross margin profile and given us the flexibility to build internal engineering expertise that will support future growth.

 

You can expect us to continue to organically build out our footprint in security, cloud and digital infrastructure, and to take advantage of expansion opportunities through an active acquisition strategy.

 

Operator, I would now like to open the call to questions.

QUESTION AND ANSWER

Operator [instructions]

Anil Doradla, William Blair.

Anil Doradla - William Blair - Analyst

Hey, guys, congrats on the good results. A couple of questions. So Mark, as you exit calendar 2016, get into 2017, how would you -- what does your crystal ball say in terms of the demand environment?

Mark Marron - ePlus Inc. - President and CEO

Hey, Anil, how are you? I always love your crystal ball question. So a couple different things, Anil. If you look at our quarter and year-to-date, we're pretty pleased with our results, both topline and bottom line. There's some things that we're seeing that there's opportunities in security, in cloud, some of our services plays that seem to be resounding with our customers. The only thing that I'd temper is one, if you think about it, there's a little uncertainty from a political standpoint to see how things kind of roll out. We've seen some security vendors that have a little bit of saturation in their products, but then there's services opportunities there. And then we always worry about overall, as you look at some of the analysts out there in terms of IT spend projections being in the low single digits, I think Elaine had mentioned in like the 2.7%, so that just gives a little pause just to make sure what goes on. And from a seasonality standpoint for us, Q4 is normally one of our slower quarters. So those are the things that we're looking at right now.

Anil Doradla - William Blair - Analyst

 Great. You talked about 16% coming from security. You also talked about security as a service, right? So can you help us understand kind of the puts and takes as you build up this security as a service platform? Is this a platform that's in place? Do you have proprietary tools? This would be more servicing the customer in terms of kind of material, more like man-hours, right? So help us understand can you how the margin profile is going to look like. And how is it going to shake out in the next couple of years?

Mark Marron - ePlus Inc. - President and CEO

Okay, so a couple different things there, Anil. So first off, in terms of our security, we had some nice growth year-to-date in terms of some of the things that we've talked about in prior calls with trying to become the security go to partner for our customers. A couple of things we've done is one, we've created what we call a Cyber Workshop. And basically, what that does is really sit with the customer for a day. It's a round table at the customer site. We try to identify and isolate some of the security risks that they might have and then kind of build a roadmap of the things that they need to put in place. And that's around everything from user privileges, data loss prevention and things like that.

 

On top of that, what we've added is this managed, effectively security service. And what it is there is, it's always assessing the client's security posture, so give them a feel for where they are. There's a proactive catalog of services that they can pull from. It accommodates some of the new realities that we have in the cloud in the mobility space, and then really, it's building a framework to kind of contain risk, if you will. So it's been fairly well received both internally and externally, but we'll see how it goes.

 

Now with that said, as we've talked about in other calls, we believe we've been able to increase our gross margins over time based on some of the services offerings and capabilities that we're building. And we would hope over time this could positively affect them.

Anil Doradla - William Blair - Analyst

So Mark, how do you price this? Is it the number of people on an hourly rate? Or is it on a transactional basis?

Mark Marron - ePlus Inc. - President and CEO

It's a little bit more than that, Anil. Maybe that's a one-off question if you wouldn't mind that I can reach back out to you and walk you through it? It's a little bit more involved than that.

Anil Doradla - William Blair - Analyst

All right, I'll get back in the queue. Thanks a lot, guys.

Operator [instructions]

Matt Sheerin, Stifel.

Matt Sheerin - Stifel - Analyst

Yes, thank you. Hello, everyone. So just a few questions. Just on that 16% number for your services, I'm sorry, security and services as a percentage of revenue. What was it a year ago?

Mark Marron - ePlus Inc. - President and CEO

It was I believe 16.2% versus 16.7%, Matt.

Elaine Marion - ePlus Inc. - CFO

The percentage is of adjusted gross billings of products and services, not net sales.

Matt Sheerin - Stifel - Analyst

Okay, but on a like for like basis, it would be even a bigger delta or gap?

Elaine Marion - ePlus Inc. - CFO

In terms of dollars? Yes. Percentage of larger dollars, yes.

Matt Sheerin - Stifel - Analyst

And then just -- was that, is that change the biggest driver of the increase in gross margin? Or are there other services beyond or things like third party warranty, or I guess that's perhaps in your services segment. What are the other drivers of your gross margin? You did talk about emerging products, storage, etc., where you do get better margins from the vendor there. Is that part of it? What are the other drivers of the margin growth?

Mark Marron - ePlus Inc. - President and CEO

Hey, Matt, a couple of different things. One, it's coming from some of the solutions and services that we're focused on. So more of the I'll call it value add solutions versus commodity play. And that's something that's been going on, so I'm clear, not just for this quarter, but over the past few years. The other thing as we had talked about was the emerging vendors. So there are some emerging vendors in some key technology areas that we've been working with and the margins have been fairly attractive there.

 

The other thing that's affected our margins positively, as you know, is we've continued to focus on maintenance renewals and providing level one support to our customers. So that's also, with the net to gross calculation that Elaine has talked about in prior calls, has helped our gross margins as well. So it's more than a few things we believe that's kind of helped moving those margins up.

Matt Sheerin - Stifel - Analyst

So what would you characterize in the total services business and not just security, but if you roll it all up as a percentage of your gross profit?

Mark Marron - ePlus Inc. - President and CEO

Hey, Matt, as you know, we don't give guidance on breaking that out. As we've talked about in prior calls, we're continuing to invest in building out our services capabilities, our resources, our offerings. So the security service that we had talked about earlier is just one of the things that we're continuing to roll out in our services, our managed services space. That's the cybersecurity program that Anil had asked about. We've got -- we're rolling out additional plans around what we call enhanced maintenance support 2.0. And then we're going continue to expand our offerings across some of our other key vendors. For example, Palo Alto and a few others.

Matt Sheerin - Stifel - Analyst

Okay. And you've expanded your gross margin year-over-year for several quarters in a row now. Given the mix shift, do you expect to continue that streak?

Mark Marron - ePlus Inc. - President and CEO

I wish I could go back to Anil's crystal ball question, Matt, for that one. Here's what you have. You've got a few things. We believe we're in a pretty good spot meaning based on our size and scale, we're being brought into opportunities both by vendors as well as customer referrals. We're expanding our sales teams. Now with that, we've talked in prior calls about our land and expand. So some of the bigger, larger enterprise customers, we've got plans in place and we're now able to play in some of those spaces with those customers based on our capabilities. But traditionally, the margins are a little bit lighter in that space to start with and then you try to move them up over time. So it's kind of tough to give you a real feel. I will tell you we feel pretty good about what we've done with the gross margins, both for the quarter and year-to-date. But there's a few large deals that can swing that either way at any given time in a quarter.

Matt Sheerin - Stifel - Analyst

Okay, and just skipping around here, on your revenue growth of 9.4%, could you tell me what the organic number is if you back out kind of what you had, not even a month of that Consolidated revenue, but then I know you also did an acquisition a year ago in the December quarter of Q4. So, Elaine, what's the organic growth number?

Elaine Marion  - ePlus Inc. - CFO

So it's about 50% is organic, 50% acquisition related.

Matt Sheerin - Stifel - Analyst

Okay, so call it 5% or so organic growth, okay.

Elaine Marion  - ePlus Inc. - CFO

Exactly.

Matt Sheerin - Stifel - Analyst

Okay. And then just in terms of looking at that Consolidated number, that acquisition of that company up in the Upper Midwest, what was, in terms of going forward, the revenue run rate expectations there?

Elaine Marion  - ePlus Inc. - CFO

The press release had $55 million for calendar year 2015 was their run rate prior to our acquiring them.

Matt Sheerin - Stifel - Analyst

Okay, and you only captured what, probably a third of that? On a quarterly basis, of course in the December quarter, right?

Elaine Marion  - ePlus Inc. - CFO

Yeah, that 25 days. We had them for about 25 days in the quarter.

Matt Sheerin - Stifel - Analyst

Okay. I think that's it -- oh, actually another question. Just in terms of Mark, you talk about emerging vendors, you talk about security. Are there product voids or product areas where you're looking to expand your offerings, whether it be talking to other vendors or looking at acquisitions that would get you there?

Mark Marron - ePlus Inc. - President and CEO

Well in terms of the areas, Matt, we're starting to see a lot more in the analytics space. So if you look at some of the acquisitions that are going on, Cisco with originally Lancope and then just recently with, I'm just drawing a blank on them -- AppDynamics, thank you. I think HP just acquired a small startup that's in the security analytics space, kind of doing machine learning if you will. So I believe there will be an opportunity for us to kind of expand our business a little bit more in the analytics space which in turn should, if you think about it, drive hardware in terms of compute, storage, networking, potentially higher storage, software margins and potentially services.

Matt Sheerin - Stifel - Analyst

Okay, that's helpful. And just lastly for me on Cisco, what was the percentage of revenue there?

Elaine Marion  - ePlus Inc. - CFO

It was 45% for the quarter.

Matt Sheerin - Stifel - Analyst

45%, okay, great. All right, thanks so much, guys.

Operator [instructions]

Matthew Galinko, Sidoti.

Matthew Galinko - Sidoti - Analyst

Hey, congrats on the quarter, guys. So I guess you talked a bit more about your acquisition strategy today than I think you have in the past. So wondering if you're seeing an opportunity to become more active on the M&A front or am I reading into that wrong? And is that a function of just you're scaling up at this point, or are you seeing attractive valuations out there where smaller vendors are less able to compete and you have an opportunity to roll them up more aggressively?

Mark Marron - ePlus Inc. - President and CEO

Do you want to handle that one, Kley?

Kley Parkhurst - ePlus Inc. - SVP

Yeah, hey, Matt, it's Kley. Thank you for the question. We're seeing a little bit of both. There's a lot of activity in the market right now. I anticipate that private owners with anticipated lower tax rates this year will probably bring their companies to market earlier than they might have thought to previously. Also, people are having good growth and now's a good time to sell. And we are also staffing up internally with more of an M&A swat team approach to try and take advantage of the opportunities in the market.

Matthew Galinko - Sidoti - Analyst

Gotcha. Do you feel that today you are capacity constrained at all in terms of integrating additional deals? Or are you well positioned?

Kley Parkhurst - ePlus Inc. - SVP

No, I think we've done about 22 deals since '96 and I think we have a pretty well-oiled machine to take them down. And as Mark mentioned, we have a formula now where we really turn the standard looking acquisition into an ePlus branch almost overnight and they're totally integrated. So the integration question really is not even a question for ePlus like it is for some others.

Matthew Galinko - Sidoti - Analyst

Got it. And maybe last one, maybe just an updated view, if you'd update us on your view of the UK and European market given you've had IGX for about a year now.

Mark Marron - ePlus Inc. - President and CEO

Yeah, Matt, nothing in terms of Brexit or anything affecting business over there. We have seen some progress with our IGX acquisition, meaning both pipeline and revenue growing specifically over in the UK and Europe. It's still somewhat small compared to our overall revenues, but what we're starting to see is the synergies from some of our bigger customers in the US that are now leveraging our UK capabilities and presence across not just the UK, but also across Europe. Then also there's some European customers that we're now actively engaging in the US. The other thing is, I can state is, we're going to try to build up our UK and European capabilities similar to what we have in the US. We've made some investments in some of our key vendors, specifically Cisco and a couple of others, where we're adding additional headcount to be able to support the demand in that market as well as what comes across the Atlantic.

Matthew Galinko - Sidoti - Analyst

Got it. And are you finding that kind of your growth strategies and kind of vendor relationships that you've had in the US are applicable by and large in the European market?

Mark Marron - ePlus Inc. - President and CEO

Yeah, Matt, haven't seen anything that would suggest otherwise.

Matthew Galinko - Sidoti - Analyst

Excellent. All right, thanks, guys.

Operator [instructions]

Anil Doradla

Anil Doradla - William Blair - Analyst

Hey guys, I'm back. Just a couple of clarifications. So obviously you guys are focusing a lot on the Fortune 500 customers. Can you give us a sense of how many logos you have currently? And on the average, how many do you add in a quarter?

Mark Marron - ePlus Inc. - President and CEO

Anil, one thing we do is, we only talk about the customer adds at the end of our fiscal year. So we were over, I think it was over 3,100 customers at that time. To be clear, enterprise is just one of our plays. We kind of focus in what I'd call the mid to the enterprise space and we have what we call account executives throughout the US and over in the UK and Europe that are responsible for accounts in both of those spaces and building relationships and providing the solutions that those customers look for. What we've seen is as we've continued to scale, both in size and capabilities, we're able to play in some of those bigger accounts a lot more than we traditionally would have let's say years ago.

Anil Doradla - William Blair - Analyst

Great. And I'm not sure, Elaine, whether you talked about headcount addition. What was the number of people you added?

Elaine Marion - ePlus Inc. - CFO

On a year-over-year basis it was 104 and about 95 or so were sales and engineering focused.

Anil Doradla - William Blair - Analyst

Very good. Thanks a lot, guys. And congrats once again.

CLOSING COMMENTS [AFTER Q&A)

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Mark Marron for closing remarks.

Mark Marron - ePlus Inc. - President and CEO

Thank you. And everybody, as we noted, we are pleased with our Q3 and year-to-date results. We're going to continue to invest in customer facing headcount to touch more clients as we move forward. We're going to look to enhance and expand our capabilities in terms of from a services as well as solutions standpoint, and look for the right opportunities to expand our footprint with acquisitions. With that said, I'd like to thank everybody for participating in today's call and we look forward to seeing you at upcoming investor meetings and conferences. Thanks, Operator, and have a good day, everybody.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.