Home + Investor Relations + Earnings Conference Call Transcripts


Earnings Conference Call Transcripts

 

Conference Call Discussing Earnings for Fiscal 2014 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—the bundling of information technology (IT) hardware, third-party software, and associated maintenance plans; professional services and financing with our proprietary software -- and may encounter some of the challenges, risks, difficulties and uncertainties frequently faced by similar companies, such as:
    • managing a diverse product set of solutions in highly competitive markets with a key set of vendors;
    • increasing the total number of customers utilizing bundled solutions by up-selling within our customer base and gaining new customers
    • adapting to meet changes in markets and competitive developments
    • maintaining and increasing advanced professional services by retaining highly skilled personnel and vendor certifications
    • integrating with external IT systems, including those of our customers and vendors;
    • continuing to enhance our proprietary software and update our technology infrastructure to remain competitive in the marketplace; and
  • Reliance on third parties to perform some of our service obligations.
  • our dependence on key personnel, and our ability to hire and retain sufficient qualified personnel;
  • a decrease in the capital spending budgets of our customers or purchases from us;
  • our ability to protect our intellectual property;
  • the creditworthiness of our customers and our ability to reserve adequately for credit losses;
  • the possibility of goodwill impairment charges in the future;
  • uncertainty and volatility in the global economy and financial markets;
  • changes in the IT industry and/or rapid changes in product offerings;
  • our ability to raise capital, maintain or increase as needed our line of credit or floor planning facilities, or obtain non-recourse financing for our transactions;
  • our ability to realize our investment in leased equipment;
  • significant adverse changes in, reductions in, or losses of relationships with major customers or vendors; and
  • significant changes in accounting standards including changes to the financial reporting of leases which could impact the demand for our leasing services, or misclassification of products and services we sell resulting in the misapplication of revenue recognition policies.
We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks and uncertainties. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in the Form 10-K for the year ended March 31, 2013, as well as other reports that we file with the SEC.

November 07, 2013
 
Prepared Remarks
 
Operator
 
Operator:  Good day, ladies and gentlemen, and welcome to the ePlus Second Quarter Fiscal 2014 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, today’s program is being recorded.
 
I would now like to introduce your host for today’s program Kley Parkhurst, Senior Vice President. Please go ahead
 
Kley Parkhurst, Senior Vice President
 
Thank you, Jonathan, and thank you, everyone for joining us today. With me are Phil Norton, Chairman, President and CEO of ePlus; Mark Marron, COO 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 and Exchange Commission, including our Form 10-K for the year-ended March 31, 2013 and subsequent Form 10-Q. 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.
Revenues in our fiscal second quarter ended September 30, 2013 increased 4.3% to $271.1 million, the 15th consecutive quarter of increased revenues.  For the trailing twelve months, revenue topped $1B for the first time ever. This is a significant accomplishment for ePlus, and reflects the high value that our complex, integrated solutions provide to our customers, vendors, and partners.  I would like to thank our employees, customers, and partners for helping us get to this important milestone in our corporate history.
During the quarter, we experienced some variability, with revenues trending lower in the last two months of the quarter.  We believe political events, and general economic uncertainty, negatively affected IT spending and caused some customers to delay purchasing and implementing projects.  On a positive note, with these events behind us, we believe IT spending will stabilize as customers resume purchasing.
Our gross margin percentage for sales of product and services of 17.8% is one of the highest in the industry.  We continue to focus on this metric by increasing professional services as a percentage of total revenue, ensuring we are maximizing incentive programs with partners, and optimizing our product mix when possible to focus on higher margin sales.  In our technology segment, gross margins on product and services decreased about 20 basis points for the quarter, but if we compare the six-month period year over year, we had a 20 basis point improvement in the gross margin. 
Our SG&A costs were up year over year, partially as a result of 89 new employees, about 75% of whom are customer facing.  We are investing in the most important resource for our long term success – people -- by scaling our professional services and sales staff to capture customer and market opportunities.  Pursuant to our strategic plan, we are continuing to transform the company by building and executing strategies to address rapidly advancing technologies such as cloud, big data, mobile device management (MDM), and software defined networking (SDN). Each of these offers significant future growth opportunities.  For example, SDN is expected to increase sixfold over the next five years according to the Dell’Oro Group, an industry research firm.  We have an advantageous combination of engineering capabilities and vendor relationships – especially Cisco, which is expected to be the dominant player -- to capture growth in this rapidly expanding technology. In all of these technologies, we need to make investments now to be best positioned for these future opportunities, and meet our customers’ expectations of being a technology leader.
While investments in additional headcount over the past year contributed to our SG&A increase of $2.6 million or 7.4%,  we have executed our plan to reduce our annual SG&A run rate by approximately $2.9 million without affecting revenue or gross margin production.  The cost savings from our completed plan should flow through the income statement in our fiscal fourth quarter.  We will continue to find ways to further reduce costs by constantly evaluating all of our expense areas,product lines and types of business to ensure they are aligned with our strategic goals.
In order to be a leader in complex integrated solutions, it is critical that we continue to invest in transforming ePlus by hiring and training the best people, and strategically aligning ourselves with key vendors and partners.  We’ve built ePlus by employing the strongest and most experienced sales professionals, solution architects, implementation engineers, and project managers available.  We have aligned ourselves with the fastest growing and most important vendors and technologies, such as Cisco, VMware, HP, EMC, and NetApp.  Using insights gained daily from some of our enterprise customers, combined with insights from our best engineers, we are singularly focused on driving value for our customers.  Our goal is to engage our customers at the architectural level and provide a comprehensive solution set to plan, build, optimize, and manage their advanced technology environments.
We believe the emerging market for Cloud continues to provide us with numerous opportunities in consulting and enablement.  A number of these have developed into significant opportunities for private cloud consulting, enablement, and implementation, and should lead to future public/hybrid cloud sales.  Our strategy is to provide our customers with a consultative approach that helps them realize the promise of cloud computing whether it is in a private, public, or hybrid solution.
During the last six months we have been focused on developing our engineering skills in software defined networking and Big Data.  We see both of these areas as having great potential for future revenue growth.  A number of our customers are pursuing Big Data efforts and we are developing strategic partnerships to facilitate delivery of analytic programming skills that complement and augment our infrastructure expertise.  We are actively pursuing opportunities in next generation equipment that support SDN programming and architecture. 
Over the past year, ePlus has invested heavily in our security practice by hiring regional security architects and business development executives to provide nationwide coverage by working closely with our regional personnel. Security is expected to be one of the highest growth areas in IT.  While Gartner predicts an 8.7% annual growth rate in 2013, others predict a ten times increase over ten years.    Security is a growing concern for all of our customers, whether big or small, public or private.  Further, it touches almost every one of our advanced technology, complex, integrated solutions, including data center, networking, and infrastructure, giving us a broad array of products and services on which we can leverage security sales.
Turning to the financing segment, origination volume increased 40% during the quarter as compared to the prior year’s quarter, reflecting better sales execution through our direct and indirect channels.  Customers are continuing to value our process automation, responsiveness, and ability to offer customized financing solutions that are tailored to their unique requirements.  In this segment, our manufacturer partners are relying on us more than ever to meet their requirements for rapid turnaround on financing transactions. 
For the quarter, pre-tax earnings in the segment were down about $1 million on slightly lower revenues.  Earnings were affected by a decrease in revenues from our portfolio and an increase in direct lease costs.  We remain focused on increasing volumes to increase profitability through gain on sale transactions, and build our on-balance sheet portfolio for the long term, to create recurring portfolio earnings and increased earnings from post-contract transactions.
We continue to review many acquisition opportunities, and given our balance sheet resources, we have the capital resources to execute acquisitions and expand in new territories.  Our strategic growth plan of building a national footprint through a balanced program of acquisitions and new hires is an optimal way to build the company effectively. We are also looking for acquisitions that can accelerate our growth in key technologies and solutions areas.
In summary, we remain highly focused on executing our growth plans and improving shareholder value.  At the end of this call, I’d be happy to answer any questions, but first, I’d like to introduce Elaine Marion, our CFO.
Thank you, Phil.

Elaine D. Marion, Chief Financial Officer
As Phil mentioned, for the quarter ended September 30, 2013, consolidated revenues grew 4.3% to $271.1 million, the 15th quarter of consolidated revenue growth on a year over year basis, despite challenging economic conditions experienced during the second half of the quarter. 
In the technology segment, revenue for the quarter increased 4.5% to $263.1 million compared to the same quarter last year, as demand for products and services continue to increase.  We experienced stronger growth from our small- and mid-market customers, and a slight tapering among our largest corporate customers. 
In the financing segment, revenues for the quarter decreased 3.2% to $8.0 million compared to $8.3 million in the quarter ended September 30, 2012, due to a decrease in remarketing income offset by higher net gains on sales of financial assets. We are seeing an increase in demand for financing by our customer base, as well as through the vendor financing programs that we have established over the last few years.
For the six months ended September 30, 2013, consolidated revenues increased 5.1% to $530.4 million, compared to $504.8 million in the six months ended September 30, 2012. The growth in revenues was attributable to increases in both the technology and financing segments. Our technology segment had revenues of $511.6 million, an increase of 4.8% as compared to the prior year. Revenues in our financing segment increased 12.7% to $18.8 million, due to higher net gains on sales of financial assets as a result of higher volume of transactions sold.
In the technology segment, the gross margin on sales of product and services decreased 20 basis points to 17.8% for the quarter ended September 30, 2013, from 18.0% for the same quarter last year. The decrease in gross margin was impacted by the amount of vendor incentives earned as well as the amount of revenues from third party software assurance, maintenance and services, which are presented on a net basis. For the six months ended September 30, 2013, our gross margin on sales of product and services increased 20 basis points to 17.7% from 17.5% in the prior year. The increase was primarily due to higher service revenue.
For the quarter, net earnings were $8.6 million, and fully diluted earnings per common share were $1.06 with 8.2 million shares outstanding, compared to $10.0 million in net earnings and $1.25 per share in the quarter ended September 30, 2012 with 8.1 million shares outstanding.  Both segments reported lower earnings which I will discuss. 
In our largest business segment, Technology, segment earnings before tax was $13.7 million for the quarter, compared to $14.9 million in the same quarter last year. Total overhead expenses increased to $34.5 million for the quarter compared to $31.7 million in the same quarter last year.  We had 88 net new employees, for a total of 881 employees in the technology segment as of September 30, 2013.  Most of the new employees are salespeople and engineers, as we continue to invest in customer facing personnel in order to build out our geographic footprint and expand our solution offerings.  In addition, we experienced higher commission costs as a result of higher gross profit on expanded sales. 
We have been actively working on bringing our expenses into line.  As stated in our press release, we have already executed a plan to reduce approximately $2.9 million of annualized overhead expenses, to better adjust our expense base to revenue, and we will continue to look for efficiencies to reduce costs while still investing in the necessary resources to capture advanced technology opportunities.
In the financing segment total costs and expenses were $7.0 million for the quarter, compared to $6.2 million in the same quarter last year. The increase was driven by higher direct lease costs due to an increase in depreciation expense for operating leases, as our investments in operating leases increased 16.3% to $25.2 million as of September 30, 2013 from $21.7 million as of September 30, 2012. As a result, segment earnings before tax for the quarter were $1.0 million, compared to $2.0 million for the same quarter prior year.
For the six months ended September 30, 2013, net earnings were $16.4 million, and fully diluted earnings per common share were $2.03, compared to $18.1 million in net earnings and earnings per common share of $2.25 in the six months ended September 30, 2012.
In the technology segment, total overhead costs increased 11.8% to $70.1 million due to increases in salaries and benefits, and general and administrative expenses. The increase in salaries and benefits was driven by increases in the number of employees as well as commission expenses due to the increase in gross profit during the period. The increase in general and administrative expenses was due to increases in office locations and expenses related to a larger workforce.  In addition, general and administrative expenses increased as a result of an adjustment to the value of contingent consideration related to a previous acquisition, which was settled and paid during the quarter.
As a result, segment earnings before taxes for the six months ended September 30, 2013 decreased $2.4 million to $23.3 million, compared to $25.7 million for the six months ended September 30, 2012.
In the financing segment, total costs and expenses in the six months ended September 30, 2013 increased 17.7% to $14.1 million, driven by the increase in direct lease costs, due to higher depreciation expense related to operating leases, as well as the increase in commissions and bonuses as a result of the increase in revenues during the period. Segment earnings before taxes increased slightly to $4.8 million for the six months ended September 30, 2013.
As of September 30, 2013, we had $53.7 million of cash and cash equivalents, as compared to $52.7 million on March 31, 2013.  Our total stockholders’ equity was $252.8 million as of September 30, 2013, compared to $238.2 million as of March 31, 2013. We continue to identify investment opportunities to expand the business, such as acquisitions and the build out of our national footprint, and our liquidity and strong balance sheet provide us with the resources to execute quickly when the appropriate opportunities arise.  That concludes our prepared remarks. Jonathan, please open the line for questions?

QUESTION AND ANSWER SECTION
Operator:  Certainly. [Operator Instructions] Our first question comes from the line of Gregg Hillman from First Wilshire. Your question please.
 
<Q – Gregg Hillman>: First of all, Phil, could you explain software defined networking more succinctly for me, please.
 
<A – Phillip Norton>: Well, I’ll let Mark Marron do that. He is more familiar with it.
 
<A – Mark Marron>: Easiest way to define software defined networking is basically a new approach to how you design, how you build and how you operate your networks that really delivers business agility and cost savings to the customers. So the immediate revenue opportunities for companies like ourselves is some of the Nexus switches that Cisco has going from originally 1 gig, to 10 gig to now 40 gigs, so provides better throughput and speed for customers.
 
<Q – Gregg Hillman>: Okay. So it’s like a meta software management system for networks that you can somehow optimize it to make it better. So it’s a software product, is that correct?
 
<A>: That’s correct. Its software defined network is what SDN stands for. And basically, it’s kind of taking the traffic from the different systems, importing that traffic to selected destinations in a quicker and speedier format.
 
<Q – Gregg Hillman>: Okay. And then just a question about acquisitions you’re going for. Do you need to make any acquisitions like a technology acquisition for your company as opposed to expanding your footprint, or just increasing the size of the company.
 
<A – Phil Norton>: What do you mean by technology company?
 
<Q – Gregg Hillman>: Well, to acquire some capabilities that you currently don’t have maybe technologically.
 
<A – Phil Norton> : We always looking for things that will help us get better and we are always looking at out in the future to see what technologies are needed to be prevalent and for us to be the leaders. So our acquisition process we’re looking at companies like that in the security field and in the cloud field and continue to move in those directions as the market change.
 
<A – Mark Marron>: One other thing if you don’t mind.  If you look at acquisition the way we look at it, its not just building out our national footprint and our reach within markets we are not in. There are four things we look at, not just only four things but four key components of what we look at from acquisition standpoint. One is territory coverage so either expanded and existing region and give us a bigger presence within that region and/or to get us into a new market.   Second as we look at technical expertise so like Phil has just mentioned for example two years ago we acquired company called NCC based about a half hour out of Chicago. It give us a footprint in the Midwest that we didn’t have that we think now continue to extend out but more importantly it gave us the security expertise that we never had that we were able to build out and replicate across all the other regions within ePlus. The other two things that we look at is the accounts that company has, is that something that is an overlap with accounts we have or is it net new accounts we can then pick up and sell all the solutions that we have and then the last piece is the people. At the end of the day, that’s really what makes it work so with the acquisitions we look at the management team, we look at the sales team, services team and to see if there is a good fit not only culturally but also from a technology standpoint.
 
<Q – Gregg Hillman>: Okay. Fine. And then, I think you claim that you have better technical people than other value-added resellers or better engineers, how are your engineers better than the engineers at other VARs?
 
<A – Mark Marron>: How are they better? Well, once again, we’re pretty proud of our engineers. They have – I don’t know the exact numbers in terms of certification, but with all of our key partners when we make an investment in a vendor so whether it Cisco, HP, NetApp, EMC, VMWare, we make a commitment that we’re going send our systems engineers through their training and get the highest level of certifications with those vendors.
 
So to give you a couple of examples, why we feel, we’re some of the best. The SDN stuff that you’d asked a question about earlier, there was a – Cisco just rollout application centric infrastructure. We were one of only four partners that were asked to be part of that. We put about 30 or so of our engineers with this training already and the only reason we were asked is based on the business that we build with Cisco in terms of our technical capabilities and what they know that we can do as it relates to the network and everything that hangs off of the network.
 
Another example might be five or six years ago we got about 30 to 35 systems engineers trained on VMWare. And a year later we were the VMWare solution provider of the year. So it’s really one, making a commitment to the vendors for the solutions that we want to focus on and then investing in the training that you need to be confident and capable of not only selling the products, but providing the services and support that our customers look for. And we are pretty proud of our systems and services team. We do believe we have the best-in-class.
 
Operator:  Thank you. Our next question comes from the line of John Lewis from Osmium. Your question, please.
 
<Q – John Lewis>: Good afternoon, guys. How are you doing?
 
<A>: How are you, John.
 
<A>: Hey, John.
 
<Q – John Lewis>: I’m doing great. Just a couple of questions on the business strategy. It sounds like you guys are continuing to move up the kind of the value added food chain with managed services, big data, and security. And so if you look out at the business model and where you are taking it in terms of what an investor might expect as you scale this business. Do you see a long term impact? I know these are small businesses, but I believe it gives much better margins than the core VAR services business.  In terms of this business today, do you see this business going from like 6% EBITDA margins to 9% or 10% in three to five years or how do you see your growth trajectory playing out overtime?
 
<A – Phil Norton>: John, it’s hard to forecast what we’re going to have in the future. We think there is a couple of things in our business strategy; one, we want to make sure that we are providing our customers the highest level of engineering technology capabilities for them to run their business. I think it’s very important for us to stay up with the leading technologies that are out there and for us to turn our business model somewhat into a consultative approach, which overtime should give us much more recurring business as well as higher level of margins than we have today something like an Accenture, and we are hoping to be closer to that in the next three to five years.
 
<Q – John Lewis>: Thanks.
 
<A – Mark Marron>: Hey, John if I could add something is part of what we are doing, you know its all about growth and long-term sustainability. So our corporate objectives revolve around a few things, one growing out of our footprint which we talked about previously.  Selling focused solutions that are margin rich, meaning both from a product standpoint and from a services standpoint.  Improving operational efficiency and recruiting, retaining and development of our employees. And part of what we are doing here is a change moving from just selling solutions to more of a consultant approach. So everything from assessments through optimization and really helping customers in terms how they can reduce costs, how they can track and procure products and basically given a one throat to choked approach to procure products, track products and have all the services that they are looking for whether from a assessments to professional services to managed services.  And one other thing just to know as part of what one of our initiatives is we building out our staffing capabilities, being able to provide bodies to our customers as they need them, which seems to be prevalent in the market that we are in. We are building out our staffing capabilities.  Just recently we brought on a client where we were able to provide 20 to 25 bodies within a two week timeframe. We are starting to provide that kind of value add that our customers are looking for that will one give us the long-term stickiness that we are looking for from our clients.
 
<Q – John Lewis>: That’s really helpful. I appreciate that and as you can 14% operating margins like Accenture would be obviously thrilled over time. So thanks again.
 
<A>: Thanks John.
 
<A>: Thanks John.
 
Operator:  Thank you. Our next question comes from the line of Matthew Galinko from Sidoti and Company. Your question please.
 
<Q – Matthew Galinko>: Thanks for taking my question. Just a couple of here, first did you have any 10% customers in the quarter?
 
<A – Elaine Marion>: No. We didn’t.
 
<Q – Matthew Galinko>: Got you. Okay, and then in terms of the macro, you mentioned slower purchasing some headwinds at the quarter, can you point any verticals that you thought were trouble in or was it broad based, and then also to the extent there you could talk about what you see so far post the end of the quarter and has that deviated at all or we’re still seeing the same source of skitishness?
 
<A – Mark Marron>: On a vertical standpoint, we really didn’t think much of a difference. So for example, the bigger verticals that we sold into this quarter as well as in the first half would be SLED, technology, healthcare, financial services and telecommunications.
 
<Q – Matthew Galinko>: Got you. And then in terms of post quarter, has that eased up at all?
 
<A – Mark Marron>: I’m sorry. I am not sure I follow the question when you say ease up, what ease up? The pressure never eases up, but that’s a different story.
 
<Q – Matthew Galinko>: Fair enough. Then just one other question, you mentioned sort of investments in some of your core areas going forward in particularly, and then serving more future areas at the end, is there a meaningful financial investment there or is this sort of business focus that blends into the rest of it?
 
<A – Phil Norton>: I don’t really think you can go with anything new or change in technology without making some investments in better personnel and a better trained workforce. So I think there will be some differences of people that we have or either they’re able to make the grade or we have to have new personnel.
 
<Q – Matthew Galinko>: Got you. And then sorry, one last quick one, can you now be able to feel any impact, there is sort of revolt or whatever you would call it, against spying, sorry government spying. There has been some theory that could have an impact on cloud related services. Have you felt any impact that you can see from year end?
 
<A – Mark Marron>: So for cloud – I’m not sure – this may cover it I believe, here is what you have with cloud as people try to make decisions on whether public, private, hybrid.  There are still a few things that every company kind of looks through, they look through – one is in terms of – trying to get the benefits of cloud is there are still security and compliance issues they have to worry about. There is still SLAs so there is still alot well publicized outages that are out there that everybody is aware of that I don’t need to rehash here.  So there is alot of confusion, so as we and try and help our clients make the move to the cloud if you will, so a lot of confusion about the different offerings out there, the pricing from an ROI standpoint what’s the right way to do it. So from our end we have what we call a cloud readiness assessment. So we’ll actually walk a client through from their legacy systems to this new cloud offering that they are moving towards. And try to give them the feedback that they need to make that decision.
 
We also have the ability to provide security managed services and we also have the ability to do some other things as it relates to the cloud that make that move that much easier for them.
 
I’m not sure if that addresses in total but you have a lot of people that are trying to make that decision of what they have and what they need and we’re doing everything from the discovery and the analysis and implementation to help move them there.
 
<Q – Matthew Galinko>: Got it. And so you wouldn’t perceive any decrease in interest as it still continues to be a driver for you?
 
<A – Mark Marron>: And once again it fits within our sweet spot in terms of it all entails server, storage and networking and virtualization on the private clouds and then we’re also tightly aligned with a lot of other different cloud providers like Verizon and Teramark to provide solutions to our client if they are looking to go that route. The other thing is I saw something the other day the public cloud services, I think it is expected to grow like 18% this year, so there is no less interest I think it’s just a matter of a lot of our customers trying to figure out both the security issues they have to get past and then try and understand all the offerings and what’s right for their organization.
 
<Q – Matthew Galinko>: Great. All right, thanks.
 
<A– Mark Marron>: No problem.
 
Operator:  Thank you. Our next question comes from the line of Dominic Marshall from Pacific Ridge Capital. Your question please.
 
<Q – Dominic Marshall>: Good afternoon.
 
<A>: Good afternoon.
 
<Q – Dominic Marshall>: I just had a couple of quick balance sheet cash flow sort of items. Do you guys have the number for cash flow from operations in the quarter?
 
<A – Elaine Marion>: We haven’t published in the Q yet, probably going to come out this evening.
 
<Q – Dominic Marshall>: With what you are looking, well you are looking at it look like inventory was up quite a bit last quarter and then down a little bit this quarter. So I was just kind of wondering is that – if you would say that’s at a normalize level or there is typical seasonal patterns that we should be looking for?
 
<A – Elaine Marion>: I would say inventories are at a fairly normal level right now at the end of the quarter.
 
<Q – Dominic Marshall>: And any buybacks – stock buyback in the quarter and how much do you guys have authorized under the buyback at this point?
 
<A – Elaine Marion>: The authorization expired on September 15 and we did buyback 40 – it is not handy right now. It was about 19,000.
 
<Q – Dominic Marshall>: Well. 19,000. Okay. And then on the 2.9 million in SG&A savings, forgive me if I miss this, but how does that rollout over the September, December, March quarters and if you give me a little bit of feeling of where that’s coming from, because it sounds like you guys are adding as you said, customer facing employees, so where is that savings coming from?
 
<A – Mark Marron>: We’re adding customer facing in the areas, in some of the bigger areas that we kind of discussed in the some of the previous questions. So as it relates to the cloud, security our service offerings in terms of managed services and staffing and as Phil noted in this original opening its approximately 75% of the headcounts we added in that space. Some of the head count we still look at is reorganization of some of our management team and also some of our underperforming sales reps.
 
<Q – Dominic Marshall>: And how were that 2.9 million rollout over the – how much it was September and how much it will be in the December and March quarters?
 
<A – Phil Norton>: Most of it will be starting next quarter.
 
<Q – Dominic Marshall>: So on an annualized basis the full 2.9 million and cost savings will be felt in the fourth quarter or December quarter?
 
<A – Phil Norton>: Well its an annual number so it’s fourth quarter, yes.
 
<Q – Dominic Marshall>: On an annualized basis, so the cost savings will be taken out fully by early this quarter?
 
<A – Elaine Marion>: I would say by next quarter or by fourth quarter.
 
<Q – Dominic Marshall>: Okay. Great. And then, just last question on the – you guys talked a little bit about M&A, but could you kind of characterize what you’re seeing out there in terms of pipeline opportunities, valuations of companies that you might be looking at especially given valuations in the public markets been up as much as there?
 
<A – Phil Norton>: Well Kley is head of M&A and will answer.
 
<A – Kley Parkhurst>: Yeah the pipeline is pretty robust for smaller companies -- and there is disconnect between public company valuations and private company valuations that have become I think wider overtime as a number of strategic acquirors as been reduced by there own acquisition overtime. So there are lot of opportunities, lot of activity in the marketplace.
 
<Q – Dominic Marshall>: Okay, thank you.
 
<A>: Thank you.
 
 
Operator:  Thank you. Our next question is a follow up from the line of John Lewis from Osmium. Your question please.
 
<Q – John Lewis>: Thank you. I was just curious as there been any schedule hearings on the litigation front with Lawson anytime soon?
 
<A – Phil Norton>: Erica.
 
<A – Erica Stoecker>: Yeah this is Erica Stoecker.  Tthe most recent go forward opinions are your appeal by to the federal circuit . There is briefing that is schedule through January there is not an oral argument in that case.  So here we anticipate the schedule that some time after the briefing.
 
<Q – John Lewis>: Okay, great. Thanks.
 
<A>: Thank you John.
 
Operator:  Thank you. This does conclude the question and answer session. We did get a follow up question from the line of Gregg Hillman. Your question please.
 
<Q – Gregg Hillman>: Yeah I was just wondering if you could kind of characterize the work that you do for clients I guess on a technology side.  What kind of solutions I mean what percentage the workers did telecom and networking is close to something else.  So how would you characterize the work you are doing for your clients by the type the solution you are giving if you get – get  my question.
 
<A – Mark Marron>: Yeah. Well, let me -- may be I’ll try to tell you where we focus. And I’m not sure if that will answer for you. I don’t have a breakdown of this on top of my head in breaking down servers versus storage versus networking, cloud, security and what have you. But if you look at ePlus, there’s basically three parts to our business. One is the technology resell portion. And the main focus is really kind of data center virtualization cloud, UC collaboration and infrastructure management.
 
And then what overlays all that is having the services that our clients look for.  For example, as I’ve talked a little bit early on the cloud scenario, having the ability to do the upfront assessment of looking at their legacy systems and helping them move to whatever cloud architecture they are moving to. And then the ongoing optimization services that they have like managed services and things like that, all right.
 
The other piece would be, as it relates to security is that we have all the security that our customers are looking for, secure the data center, BYODs or the mobile device management that I think a lot of people hear about, the people bring their own devices to work. The two supporting arms that we have is we have a leasing arm, so we give our clients the ability and flexibility they look for in terms of how they want to procure the product from us. And then on top of that we have our own proprietary procurement software.  So we have the ability for our clients to use our portal that kind of source and search and compare products, but then also give them the reporting that they are looking for from an asset management standpoint to kind of track their asset and understand what’s end of life, end of support, whether they should be paying maintenance or not on a product, and then also spend management, actually breaking out for them where their spend is coming from, whether its by a particular product or by a particular vender. So I’m not sure if that broke it out, but big focus datacenter, virtualization, cloud, UC in collaboration, infrastructure management well overlaid by services and security.
 
Operator:  Thank you. I would now like to hand the call back to Elaine for closing comments.
 
Elaine D. Marion, Chief Financial Officer
 
Hi, Jonathan. I just wanted to correct the last year that we did buyback for the six to three months period as of September 30 were 63,000 shares approximately.
 
Kleyton L. Parkhurst, Senior Vice President
 
Jonathan. Thank you very much and everyone for joining us on the call. If you have any follow up questions. We will available today and all day tomorrow for additional questions. Thank you.
 
Operator:  Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.



Ready to learn more?

Preparation and success go hand in hand.
Connect with us or use the form.
+1 888-482-1122