Safe Harbor Statement

This transcript of the earnings call that occurred on November 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:

• national and international political instability fostering uncertainty and volatility in the global economy including fluctuations in foreign currency rates and downward pressure on prices;
• 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;
• maintaining 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 to our customers.
• 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;
• 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;
• reduction of vendor incentives provided to us;
• 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;
• 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, 2017, as well as other reports that we file with the SEC.

This document may also contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes that this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of non-GAAP measures presented in this document, see our earnings press release issued November 2, 2017, a copy of which is posted on our website at www.eplus.com/investors.

November 2, 2017 – FY18Q2

Prepared Remarks

Operator

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

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

Kleyton L. Parkhurst, SVP

Thank you for joining us today.  On the call is Mark Marron, CEO & President, Elaine Marion, Chief Financial Officer, and Erica Stoecker, General Counsel.

I want to take a moment to remind you that the statements we make this afternoon that are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates, and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued this afternoon and our periodic filings with the Securities & Exchange Commission including our form 10-K for the year ended March 31, 2017 and our form 10-Q for the quarter ended September 30,  2017, when filed. The Company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events.  In addition, during the call we may make reference to non-GAAP financial measures and we have posted a GAAP financial reconciliation on the Shareholder Information section of our website at www.eplus.com.

Reclassifications of prior period amounts related to numbers of shares and per share amounts have been made to conform to the current period presentation due to the March 31, 2017 stock split. The effect of the stock split was recognized retroactively in the stockholders’ equity and in all share data. The financial statements include the effect of the stock split on per share amounts and weighted average common shares outstanding for each of the three-month periods ended September 30, 2017 and 2016.

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

Mark Marron, CEO & President

Thanks Kley, and thank you for participating in today’s call to discuss our second quarter 2018 results.

This was a quarter of a solid performance across key profitability metrics.  Consolidated gross profit grew 6.9% to $87.6 million, and gross margin increased 150 basis points to 23.6%.  Following the strong 23% sales growth that we achieved in the first quarter of this year, our second quarter sales were flat as compared to the year-ago period, in part because the current quarter reflected a higher proportion of sales that were reported on a net basis while adjusted gross billings of products and services increased 3.3% for the quarter.

We continue to benefit from our investments in the high growth areas of Security, Cloud and Digital Infrastructure.  We are pleased to report that Security products and services represented 17.5% of adjusted gross billings in the second quarter, and this metric increased 170 basis points year on year and 40 basis points sequentially.  In the first half of 2018, adjusted gross billings of security products and services grew 30% compared to the first half of 2017, as security continues to be top of mind for our customers.   Another high point of the quarter and last six months is our progress in growing services, as measured by revenue growth, expanded offerings and human capital.  Our OneCloud acquisition, completed in May, significantly expanded our cloud service and training offerings by moving us to the forefront of IT automation and orchestration, DevOps, Openstack and other related technologies.  We are continuing to train and expand our sales and engineering teams in these new disciplines, and utilizing OneCloud’s highly trained technology consultants, architects, developers and trainers to deliver the ePlus/OneCloud value proposition to our customers.  We believe that OneCloud’s unique skillsets will also help increase sales of traditional ePlus products and services, as we continue to drive the penetration of their services to our over 3,200 enterprise and mid-market customers.  We continue to view consultative and annuity services as a key differentiator and a long-term growth driver for ePlus.

An example of how we are leveraging OneCloud’s capability is how were able to help a global enterprise customer move from on-prem to cloud with their Microsoft Office 365 migration for a significant number of email accounts.  We leveraged resources from our OneCloud team in both the US and India, and local ePlus resources, to give us the scalability and ability to provide round the clock work for this project at an effective price.  We are selling both a software subscription and services, while creating a methodology and toolset to facilitate the migration which can be replicated for other customers.

We are also seeing the benefits of our Enhanced Maintenance Services program, which is a service that combines our leading managed-services capabilities with vendor assurance programs.  This program provides our customers with transparency, efficiency and higher service levels to ensure their IT investments are protected without lapses in coverage or downtime.  It results in higher margins, albeit over time, than traditional third-party maintenance sales, expands our managed services platform to reduce marginal costs, and gives us better visibility into the customer's IT estate and strategy so we can properly leverage resources to drive cross-sell and up-sell opportunities.  A recent example of this was a healthcare client that was looking for a higher service level than standard maintenance.  We provided a bundled services offering that added real time monitoring and 24 X 7 call center support.   Alerting them to a problem before they encounter it and helping to provide faster resolution and thus better patient outcomes.  For ePlus, it also locked the client in to a 3 year deal at higher margins.

In mid-September, we again executed on our M&A strategy of expanding professional services, managed services, and geographic reach with the acquisition of Integrated Data Storage, or IDS.  This transaction expands our Midwest presence with a strong customer base, engineers, and salesforce, and also bolsters our managed services offerings with new-to-ePlus cloud hosting services, disaster recovery and backup as a service.  Over time, we see significant opportunities to scale these annuity service offerings into our broader customer base, and also, as is typical for acquisitions, bring our broader linecard of traditional products and services to their customers to drive revenue growth.

ePlus’ investments in highly credentialed engineering and sales and marketing personnel have been a critical element in enabling us to support our customers through every phase of the IT lifecycle.  In fact, just yesterday, we announced that ePlus received Cisco’s Global Award for Lifecycle Management Partner of the Year.  This award highlights the services which ePlus brings to help ensure customers realize the value of their technology investments over the entire lifecycle of their purchase, activation and adoption.  The award also reinforces the investments that ePlus has made to assist our customers across our lifecycle practices including software, security, cloud and digital infrastructure.

While we remain focused on holding the line on costs, it’s worth emphasizing that roughly 85% of the 17% increase in headcount in the second quarter is client facing; which is a necessary investment for our future success and we believe positions us well for future growth.  We are scaling our human capital to meet the growth requirements of the marketplace, in terms of geographic coverage as well as broadening our portfolio to meet the demand for emerging and cloud technologies. Our Financing segment net sales increased 38% this quarter, due in part to early terminations of financing agreements. Our Financing business tends to be somewhat lumpy, and post-contract earnings can create sizeable, revenue bumps relating to specific transactions.

We are pleased with our first half revenue performance.  Sales increased 10.2% year-on year, significantly outpacing overall IT spending growth and demonstrating strong demand for ePlus solutions across our enterprise and mid-market customer base.  We plan to continue to supplement organic growth with acquisitions that increase our service offerings and solutions, expand our geographic reach and allow us to cross-sell our services to acquired customers and acquired services to our existing customers. Our strong balance sheet provides substantial capital for strategic transactions, and our scale and culture positions ePlus as an excellent platform for acquisition growth.

To sum up, this was a good quarter for ePlus with positive results achieved on key profitability metrics, and continued progress made in expanding our solution portfolio.  First half momentum together with the demand we are seeing from our customers around emerging and rapidly growing solutions, supports our confidence in ePlus’ positioning moving into the second half of our fiscal year.

I will now ask Elaine to review our second quarter 2018 financial results in more detail.

Elaine Marion, CFO

Thank you Mark, and thank you everyone for joining our call.

We are pleased with the gross margin and gross profit improvement we experienced in the second quarter. Our year-to-date results with double-digit growth across the board show the benefits of our investments in high growth areas and position us to grow ahead of overall IT spending for Fiscal Year 2018.

Let’s start with our consolidated quarterly overview.  In the second quarter of fiscal 2018, our consolidated revenues were essentially flat at $370.8 million when compared to last year’s second quarter growth in net sales of 10.5%.  Our adjusted gross billings of products and services grew 3.3%.  This quarter the adjustment from adjusted gross billings to net sales of product and services was 29% as compared to the prior year of 26%, reflecting a higher proportion of sales of third party software assurance, maintenance and services.   We have built a team which specializes in these services and find that customers value the transparency and efficiency we bring to the process of making sure their technology investments continue to be covered without lapse by manufacturer support agreements. Gross profit was up 6.9% to $87.6 million, and our gross margin widened 150 basis points year over year to 23.6%. The improvement in gross margin was driven by an increased mix of products and services which are accounted for on a net basis as well as higher service revenues. 

Our operating expenses increased 9.3% to $58.7 million. The majority of this increase reflects higher salaries and benefits due to the increase in personnel. Our total headcount grew by 17% to 1,282 from 1,096 a year ago, with a majority from acquisitions and primarily for customer-facing positions including 162 sales and engineering personnel. The increase in salaries and benefits was also attributable to higher healthcare cost.   Operating income of $28.8 million increased 2.2% year-over-year.  Net earnings increased to $17.2 million, 2.7% higher than last year.  Adjusted EBITDA increased 3.4% to $31.0 million, and our adjusted EBITDA margin increased 20 basis points to 8.3%.

Diluted earnings per share for the quarter were $1.23, up 1.7% from $1.21 in the comparable quarter of 2017.  Non-GAAP diluted earnings per share increased 3.3% to $1.27 for the second quarter of fiscal 2018. This non-GAAP metric excludes acquisition-related amortization expenses, other income and expense and the related effects on income taxes, and the tax benefit associated with the vesting of share based compensation during the quarter. Our diluted shares outstanding totaled 14 million for the quarter compared with 13.9 million in the second quarter of last year, after adjusting for the 2-for-1 stock split on March 31, 2017.

I'd now like to discuss the quarterly results from our technology segment, which accounted for roughly 97% of our net sales. Technology adjusted gross billings of products and services grew 3.3% to $503.6 million, while net sales in our Technology segment declined 1% to $358.8 million.  Our net sales were impacted this quarter by a higher proportion of sales of third party software assurance, maintenance and services which are presented on a net basis as we continue to focus on this area. As a reminder, 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.   On a trailing 12-month basis, the Technology and SLED markets were our largest, accounting for 24% and 18% of Technology net sales, respectively. Next was Telecom, Media and Entertainment, which accounted for 15% of net sales, followed by Financial Services at 14% and Healthcare at 12%. The remaining 17% was from several other customer types.  We continue to have a diversified customer base by industry, size, and geography.  Our gross margin on sales of products and services expanded by 100 basis points to 21.2% in the second quarter. The margin expansion was related to a shift in product mix as we sold more third party maintenance and services, which are presented on a net basis, and an increase in service revenue. Operating expenses in the technology segment increased 11.2% to $55.6 million compared to $50.0 million last year which related to an increase of $2.8 million in salaries and benefits due to an increase of 186 technology professionals, or 17.8%, of which 50 related to the acquisition of IDS in September 2017, 57 related to the acquisition of OneCloud Consulting in May 2017 and 48 related to the acquisition of Consolidated Communications IT services business in December 2016.   In addition, general and administrative expenses increased $2.0 million primarily due to increases in marketing expense, and expenses related to the acquisitions.  Operating income and adjusted EBITDA for the technology segment decreased 13.4% and 10.9%, respectively, due to higher operating expenses.

Moving to our financing segment, revenues were $12.0 million, up $3.3 million, or 37.7%. This top line growth was mainly attributable to an increase in post-contract earnings of $3.4 million due to early terminations of certain financing agreements as well as an increase in revenue from consumption structured agreements, offset somewhat by lower transactional gains.  While the early terminations benefitted our second quarter results, they will eliminate the potential for future earnings related to the equipment originally financed.  As I have mentioned in the past, revenues from our financing segment fluctuate, often due to customer specific events.  As a result, financing gross profit increased 44.5% to $10.7 million. Operating expenses decreased by $595,000, or 16.1%, mainly due to changes in reserves for credit losses. Operating income and Adjusted EBITDA more than doubled to $7.6 million reflecting the high margin revenue and to a lesser extent, the lower operating expenses.

I will now turn to our consolidated year-to-date results. Net sales for the first six months of fiscal 2018 increased 10.2% to $738 million. This strong sales growth was driven by robust performance in our technology segment where net sales increased 9.6% to $716.9 million. Adjusted gross billings of product and services increased by 11.4% to $985.3 million, while consolidated gross profit increased 10.4% to $165.2 million. Our consolidated gross margin expanded by 10 basis points to 22.4%, while gross margin on products and services decreased by 30 basis points to 20.2%.   Net earnings grew 11.7% to $30.6 million and adjusted EBITDA increased 8.8% to $53.5 million. Our first half of fiscal 2018 earnings per diluted share increased 12.3% to $2.19 while non-GAAP diluted earnings per share increased 8.5% to $2.17.

Turning now to our balance sheet, we ended the quarter and first half of fiscal 2018 with cash and cash equivalents of $60.2 million compared with $109.8 million as of March 31, 2017.  The decrease was primarily due to cash used to acquire OneCloud Consulting and IDS. Our inventory and deferred revenue decreased from March 31^st as a large competitively bid project was partially delivered in the first half. Our cash conversion cycle for the quarter was at 23 days, down from 26 days for the first quarter of fiscal 2018, and up from 16 days a year ago.  Despite the year-over-year increase, we're moving in the right direction sequentially.  Our cash position remains strong and can be used to fund acquisitions, hiring of additional personnel and share repurchases. We constantly evaluate all of these opportunities. For the second half of fiscal 2018, we remain focused on developing IT solutions for new and existing customers, with an emphasis on Cloud, Security and Digital Infrastructure. We remain confident that we are well positioned to outpace the low single digit overall IT market growth for the foreseeable future.

I'll now turn the call back over to Mark for closing remarks. Thank you, everyone. Mark?

Mark Marron, CEO & President

Thanks Elaine.

We are pleased with year-to-date net sales growth of 10.2% and gross margin of 22.4%.  We believe that as we continue to move toward being a higher-end IT provider, focusing on products and the consultative and annuity services our customers need around security, cloud and digital infrastructure positions us well to profitably capture market share in the faster growing segments of the IT market.  We have an established and growing base of over 3,200 enterprise and mid-market customers across multiple industries, who rely on us to deliver the outcomes they need to achieve their business goals. 

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

QUESTION AND ANSWER

Operator

Our first question comes from Anil Doradla with William Blair.

Anil Doradla – William Blair

So Mark, on the technology sales front, you know the flattish revenues, you did provide a little bit of color, but just revisiting it again, is it fair to say some of those revenues were pulled in the previous quarter? Is that what really happened? Or was there something else?

Mark Marron - ePlus Inc. - President and CEO

Yes, well, so there's a couple of things that I think happened in terms of sales. One, we had a very large gross to net adjustment that Elaine noted on the call. As we've talked about in all of our calls, we also have our land and expand program, where we did have a large project that wound down, if you will. But the thing that we always talk about, it's cyclical, it's opportunistic, it's lumpy in nature but we do believe we will have other opportunities as we go forward. So I would take a look at our numbers on the first half or trailing 12 months to get a better feel of where we think we are.

Anil Doradla – William Blair

And going forward, this netting effect on some of these revenues, is that -- is this going to be something that we'll see more often? Or is this something more like a seasonal one-off thing now and then?

Mark Marron - ePlus Inc. - President and CEO

Well, I don't know if I can call it a seasonal one-off thing. We've seen it for a while in terms of the gross to net. Now some of this is by design, Anil. So we've got teams that focus on doing these types of renewals with our customers. But more importantly, upgrading them to some of our enhanced maintenance service programs as well as managed service programs. So what happens in a lot of cases with these customers, we lock them in for 3 years and then we have a recurring revenue and increased margins as we go forward as well. So it depends on the customer and depends on the deal.

Anil Doradla – William Blair

Mark, I wasn't sure whether you guys talked about the contribution of security applications in your revenue? Did you point that out?

Mark Marron - ePlus Inc. - President and CEO

Yes, we did, Anil. We actually -- if I look at the quarter, if I were going to give you snapshot. One of the strong points was our security. In terms of our security, adjusted gross billings for security products and services was 17.5%. That's up 170 basis points year-on-year, and we're actually up 30% for the first half of this year versus last year in security.

Anil Doradla – William Blair

And Elaine, on the financing revenues, I mean, nice bump there. Again, we always see these perturbations and movements on this front. But again, can you again remind us what your strategy is on this financing revenue component line? Is this something that you guys are emphasizing? Or the pop that we just saw, is this one-off quarter? We should not be expecting -- this is not a new norm, any color on that front?

Elaine Marion  - ePlus Inc. - CFO

Sure, Anil. The financing segment this quarter benefited from some early termination of leases. So essentially, we're -- we negotiated the back end of the residual value disposition of certain leases that early terminated in the quarter. So we're eliminating the potential for that profitability down the road at the end of the term. But it did get negotiated in this particular quarter per the customer's request.

Anil Doradla – William Blair

Going forward, can we see more of these? Or this is, again, a one-off thing?

Elaine Marion  - ePlus Inc. - CFO

Well, we always have fluctuating earnings in this particular segment, whether it's related to transactional gains where we would sell the lease stream or whether it's related to some sort of event that occurs at the termination of the lease, whether it's a buyout, could be an early buyout, or an early termination. So those are really customer specific, and term specific relating to the financing transaction, in particular.

Operator

Our next question comes from Matt Sheerin with Stifel.

Matthew Sheerin, Stifel

Just a couple of questions from me. On the revenue growth and then, maybe on the gross billings. What was the organic number if you exclude the acquisitions that you've done in the last year?

Mark Marron - ePlus Inc. - President and CEO

Do you know what they are?

Elaine Marion  - ePlus Inc. - CFO

For the first half, it's roughly 50% organic and 50% acquisition.

Mark Marron - ePlus Inc. - President and CEO

Here you go.

Matthew Sheerin, Stifel

In terms of growth, okay. And in the quarter? For the quarter, do you have the number?

Elaine Marion  - ePlus Inc. - CFO

Yes, I don't have the quarterly number, Matt.

Matthew Sheerin, Stifel

Okay. And then I'm just looking, I mean, you talked about the netted down effect impacting the revenue growth. But if you look at the gross profit dollars in the technology segment, they were up just 3% year-over-year. And that looks like the lowest number in terms of percentage growth in gross profit dollars in several quarters. And I'm just trying to figure out how much of that is a function of seasonality or perhaps that one big program that's winding down and having a negative impact on that.

Mark Marron - ePlus Inc. - President and CEO

Well, let me try and take a shot at it Matt, I'll touch on a couple of different things and then maybe it'll will answer what you're looking for. So if we look at the quarter, I don't think we're satisfied with our quarter. But we really executed well on a lot of the probability metrics. So our gross margins were up 150 basis points, our gross profit was up 6.9%. We had a strong quarter for our security as well as services, which I noted earlier on that for Anil. And we kind of executed on a lot of our M&A plans in terms of really building out our solutions and portfolio. The gross to net had a big effect. This was one of our larger gross to net. So that definitely had a factor on the net to sale, our sales. The other thing I'd ask you to just kind of keep in mind a little bit is remember in Q1, we had a 23% growth in Q1. So when we look at the first half, we're actually very pleased with where we are through the first half. So we've got a double-digit growth in net sales as well as net earnings. And then when I look at it, we've continued to invest in headcount. So Elaine noted we've added a 186 heads, of which 85% are in the customer-facing sales and services. So to give you a feel, in March of this fiscal year -- I'm sorry, March of 2017, we had 400 systems engineers. As of the end of September, we've got 467 SEs. So we continue to kind of invest in the engineering talent we need to be competitive in today's market.

Elaine Marion  - ePlus Inc. - CFO

Yes, Matt, just to add to that, we -- our gross margin on product and services increased from 21.2% to 20 -- to 21.2% from 20.2%. That's 100 basis points. So the GP growth was 3.1% on basically flat sales. So I would say that we executed pretty well in driving more profitability this quarter in the tech segment, in particular.

Matthew Sheerin, Stifel

Okay. And that 10% customer that you had in the last fiscal year, you talked about the winding down of that program. Is that pretty much complete at this point?

Mark Marron - ePlus Inc. - President and CEO

I would say that project is towards the end for sure. But that's a customer that we continue to work with on multiple projects. So as it relates to the big project we've mentioned in prior quarters, yes, it's towards the end of that project life cycle, Matt.

Matthew Sheerin, Stifel

Okay. And I appreciate that you don't give a forward guidance. But if you look at the last 3 or 4 years typically in the December quarter, your technology segment is down in the 10% plus range sequentially, and I know that it's seasonal. And obviously, the business is changing somewhat. You've got acquisitions, et cetera. Anything you can help us there in terms of directionally in the December quarter?

Mark Marron - ePlus Inc. - President and CEO

Yes, let me -- maybe a few things and I'll see if I could give it -- where -- it's always tough with the forward-looking, Matt. So in terms of customer demand, in terms of pipelines, in terms of forecast there, nothing has changed in terms of downward trends or anything like that. We're continuing to expand some of our offerings and capabilities. I talked about a few deals in my earlier notes, if you will, and those were opportunities that a year or 2 ago we wouldn't have had. So there are new income streams for us as we go forward. The other thing that I'd highlight that we didn't talk about in the release or during our notes that we went through. If you look at our number sequentially, so at a -- on a consolidated basis, if you look at our operating income sequentially from Q1 to Q2, our operating income was actually up $7.5 million. So that may give you a feel of some of the things that are happening within the business.

Matthew Sheerin, Stifel

From Q1 to Q2?

Mark Marron - ePlus Inc. - President and CEO

Yes, sequentially.

Matthew Sheerin, Stifel

I'm not sure what that has to do with the December quarter.

Mark Marron - ePlus Inc. - President and CEO

Well, it gives you a trend from Q1 to Q2 is what I was trying to give you, since I can't give you -- we don't give forward guidance on December. So here's what I'd always tell you about this quarter. There's always a lot of the year-end spend. That's always out there, that come in. Those deals are tough to forecast and predict. But what I was trying to tell you earlier is the customer demand is still there, the pipeline is there and our management team is very confident, comfortable in their forecast.

Matthew Sheerin, Stifel

Okay. You are going to have tough comps, so obviously, all for that one program, that's rolling off right?

Mark Marron - ePlus Inc. - President and CEO

Well, you always have tough comps. But what I'd mentioned to Anil is, I would always look at it, whether you at our first half or you look at our trailing 12 months that gives you a true feel of what's happening within our business. You're always going to have large deals or opportunities that kind of come in and out. We're opportunistic. They're cyclical. A lot of times we'll -- like we talk about with the land and expand, we'll get the foot in the door and then grow the profitability over time. And so they yield great opportunities and they normally pop in from time to time. So it's tough to kind of give you an exact answer there.

Matthew Sheerin, Stifel

Okay. And the SG&A percentage was up and the OpEx was up for reasons you stated in terms of the investments. And as we think about the December quarter, is that sort of a flattish number to think about? I know a part of that OpEx cost is variable expenses tied to the sales and commissions. But I would imagine, it will be a flat at best, right?

Elaine Marion  - ePlus Inc. - CFO

In terms of the SG&A, we did have some specific expenses, obviously related to the acquisitions this quarter as well as some specific expenses related to the quarter itself, which are marketing expenses and some contingent consideration adjustments that will replicate in the following quarter. We're not unpleased with the SG&A. We added, like Mark said, 186 heads year-over-year. We picked up several new offices with the OneCloud acquisition as well as the IDS acquisition. So those expenses will roll through as well.

Matthew Sheerin, Stifel

Okay. And just following up the earlier question on the financing segment, which is very lumpy and without that extra $3 million or so incremental revenue from that -- or the gross profit from that acquisition year, the results would have been down year-over-year. So definitely helped you. Do you have any -- in terms of the events that happened last quarter, did you have any visibility going into the quarter that, that would play out like that?

Elaine Marion  - ePlus Inc. - CFO

Well, I think we -- we were having conversations with our customers but in terms of an early termination, that's something that's brought about by the client. So whether it occurs or doesn't occur and they contact us 6 months in advance or 3 months in advance, sometimes we do and sometimes we do not have visibility to that.

Operator

Thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. Mark Marron for any closing remarks.

Mark Marron - ePlus Inc. - President and CEO

Okay. Thanks, operator. So if I could first off, I'd like to wish everyone a happy and healthy holiday season. We look forward to speaking with you come February. And I want to thank you for joining us on today's call. Have a great day.