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 our direct IT sales, 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;
- 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; and continuing to enhance our proprietary software and update our technology infrastructure to remain competitive in the marketplace.
- 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;
- 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;
- Our ability to successfully integrate acquired businesses;
- Our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;
- reduction of manufacturer incentive programs; and
- significant changes in accounting guidance related to the financial reporting of leases; which could impact the demand for our leasing services.
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, 2012, as well as other reports that we file with the SEC.
August 7, 2012
Good day, ladies and gentlemen, and welcome to the ePlus Earnings Call for the three months ended June 30, 2012, which is the company’s first quarter for its fiscal year 2013. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce our host for today's conference Kley Parkhurst, Senior Vice President.
Kley Parkhurst, Senior Vice President
Thank you Allie, 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 & Exchange Commission including our form 10-K for the year ended March 31, 2012, and our Form 10-Q for the three months ended June 30, 2012, 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 are very pleased with our financial results for the quarter. Revenues increased 36.8%, and fully diluted earnings-per-share improved 131.8%.
Our significant first quarter revenue and earnings growth, despite macroeconomic challenges, resulted from our commitment over the past year to invest in advanced technology solutions that are in high demand from customers. Our solution set and engineering delivery capabilities continue to differentiate ePlus from the competition, as we capture the growing demand for IT equipment and services within our customer base, and for new organic and acquired customers. In particular, our focus on cloud, data center, collaboration, and solutions is resonating in the marketplace, and resulted in attracting new customers, penetrating existing customers and increasing market share.
Accompanying the solid demand from our customers, our gross margin slightly improved as compared to the prior year, and we expanded our staff by 81 people, part of our strategy to capture market opportunities in key advanced technology solutions areas, and to increase our geographic footprint.
We have invested in highly skilled technical personnel which allows us to engage customers at an architectural level. As a result, we can further fulfill our customers’ needs for collaboration, audio/visual, security, and staff augmentation, and can provide a full array of managed services including a Security Operations Center.
As compared to many of our peers, we offer a full range of services, including logistics and supply chain software, and our strong balance sheet is another competitive differentiator as customers assess the strengths and weaknesses of their trading partners, a significant factor in today’s challenging economic environment. We believe that is one of the reasons that our customer base includes a number of Fortune 100 companies. Furthermore, our strong financial position allows us to take advantage of shareholder enhancing opportunities, such as the stock buyback. For the June quarter, we repurchased approximately 19,400 shares at an average cost of $29.46 per share, for a total purchase price of $572 thousand.
During the quarter, we continued to add to our numerous awards, engineering certifications and capabilities, as we achieved the FlexPod Premium Partner Standing, recognizing ePlus for our advanced competencies and certification in implementing virtualized data center solutions based on the Cisco UCS™ server, Cisco network switches, and NetApp® unified storage systems. Furthermore, we introduced the ePlus Advantage Portable Video Conferencing offering, a modular, low-cost alternative based on Cisco solutions for whole-room video conferencing, as compared to fixed installations. Finally, we commenced our eCloud Readiness Consultation service, where we identify the best cloud adoption strategy, and create a prioritized roadmap tailored to the customer’s unique requirements.
ePlus’ success has been driven by our ongoing commitment to deliver the most advanced technology offerings. Looking ahead, our strategy remains committed to investing in our people, acquiring new technology capabilities and geographic locations, and improving our efficiency and delivery capabilities. Along with continuing customer adoption of cloud computing, we see numerous opportunities to continue growing the business and are well positioned to best serve our customers.
With that, I would like to turn the call over to Elaine Marion, our CFO, who will discuss financial results.
Elaine D. Marion, Chief Financial Officer
Thank you, Phil.
On a consolidated basis, total revenues for the quarter increased $65.8 million, or 36.8%, to $244.7 million, as compared to $178.9 million recorded in the prior fiscal year’s first quarter. Net earnings increased 117.7% to $8.1 million, as compared to $3.7 million in the prior year’s quarter. Fully diluted earnings per share increased 131.8% to $1.02 per share from $0.44 per share.
In the technology business segment, total revenues increased 38.0% to $236.3 million compared to $171.2 million in the quarter ended June 30, 2011. The increase in revenues was due to increases in customer demand, particularly from Fortune 100 companies, and investments we made over the last twelve months to improve our product and service offerings and expand our geographical footprint. Gross margin on sales of products and services was 17.0% and 16.9% during the quarters ended June 30, 2012 and 2011, respectively. The increase in gross margin was affected by an increase in the amount of vendor incentives earned, and product mix, during the period.
Total costs and expenses were $225.4 million compared to $167.2 million in the same quarter last year, an increase of $34.8%. The increase in costs and expenses was primarily driven by increases in cost of sales, products and services, which was consistent with the increase in sales of products and services. In addition, salaries and benefits increased as a result of our investment in sales and support personnel and strategic acquisitions. Segment earnings before tax increased $6.8 million to $10.8 million.
Moving to our financing business segment, total revenues increased 10.1% to $8.4 million, as compared to $7.7 million in the quarter ended June 30, 2011, due to an increase in the net gain on sales of financial assets. Total costs and expenses increased 5.5% to $5.7 million, due to increases in direct lease costs and professional and other fees. Segment earnings before tax were $2.7 million compared to $2.3 million for the same quarter in the prior year.
As of June 30, 2012, the Company had $59.1 million of cash and cash equivalents and short term investments, as compared to $41.2 million on March 31, 2012. During the quarter, the Company increased the sales of certain financial assets as part of its working capital and portfolio management process which generated additional cash and cash equivalents. As of June 30, 2012, the Company had total shareholders’ equity of $227.4 million and 8.1 million shares outstanding, as compared to $219.6 million in shareholders’ equity and 8.0 million shares outstanding, as of March 31, 2012.
That concludes our prepared remarks. Operator, could you please open the line for questions.
QUESTION AND ANSWER SECTION
Operator: We'd like to open the call to questions.At this time I'm showing no questions. And I'd like to turn over to our speakers for any closing remarks.
Phil Norton, ePlus inc - President, CEO, Chairman
We'd like to thank you very much for taking the time for our conference call. If you have any questions, you can contact Kley Parkhurst. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.