Safe Harbor Statement

This transcript of the earnings call that occurred on November 3, 2016 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 November 3, 2016, a copy of which is posted on our website at www.eplus.com/presentations.

November 3, 2016 – FY17Q2

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 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, 2016 and our 10-Q for the quarter ended September 30, 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 a 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 thanks everyone for taking time to join our call this afternoon.

I am pleased to report that ePLUS generated solid financial results in our second quarter and 1st half  of fiscal year 2017 which ended September 30, 2016.  We reported strong quarterly revenue of $371.5 million and six month revenue of $670.0 million, both of which are 10.5% increases over last year’s results.  Our revenue growth is attributable to our keen focus on providing the  solutions our customers need to compete in today’s market along with the professional and managed services they need to optimize and secure their environments.

Growth in our adjusted gross billings of products and services again outpaced the growth we saw in net sales.  Our adjusted gross billings of products and services expanded 13% for the quarter and almost 16 percent for the first half of fiscal year 2017.   Growth in our adjusted gross billings of products and services is a great metric to reflect our overall sales growth in our technology business.

Overall, our revenue increase was pretty consistent among our end-user markets  and we are pleased with our execution overall.

On a consolidated basis, gross profit increased by nearly 14%, to $81.9 million, as a result of both increased revenue and a 70 basis point increase in gross margin to 22.1%.  The improvement in gross margin, already one of the highest among our peer groups, is a testament to our ability to deliver complex solutions and services our customers need to thrive in the current technology environment.  We continue to focus on and drive services, especially managed and annuity services, to create long term customer relationships and provide the reporting and oversight our customers need to leverage their IT environments to enhance their businesses.

For the periods ending September 30, 2016, our GAAP  earnings per share for the quarter  increased 12.6% to $2.42 and our 1st half GAAP earnings per share increased 16.7% to $3.91.  We reported non GAAP EPS of $2.47 and $4.00, which were 12.8% and 16.3% increases, respectively, for the the quarter and six month periods.

Our ability to provide solutions to Fortune 500 companies, which are some of the most demanding customers in the world, is further proof, we believe, that we have the right strategy, delivery capabilities, and financial capacity to drive business and gain new customers in this sophisticated customer set.

Understanding our customers’ IT environment and providing the business outcomes they are looking to achieve is paramount to growing our customer base and expanding our presence within existing accounts.  We strive to provide them the best technology solutions for their needs today while constantly developing new offerings based on the most advanced technologies in the market.

We are particularly focused on new offerings to meet the rapidly changing demand for public, private and hybrid cloud solutions to provide the efficiencies, cost savings and security our customers need to compete in today’s market.  For example, we recently announced our Cloud Aggregated Services offering, which is ideal for customers implementing a cloud-first strategy or seeking to simplify their IT deployments and mitigate risk.  These services target key cloud focus areas including strategic assessments, cloud infrastructure, service-provider connectivity, co-location, and interconnection as well as cloud collaboration. 

Many IT departments are focusing on improving customer experiences by leveraging the power of the cloud.  For example, they are looking to consume their wide area networks, or WAN, as a service similar to telecom services.   A customer recently selected a Unified Communications platform to enable the use of certain technologies and applications, but more WAN bandwidth was required at the branch level. The customer selected ePlus’ Intelligent Branch solution to create a robust network that could support their critical applications.  This solution helped them increase their network bandwidth and reduce complexity amongst multiple business locations while improving application performance and reducing their overall costs.  We also coupled it with ePlus professional and managed services to minimize risk at critical locations.

While revenue and margins have continued to grow, we also continue to invest in our business to facilitate growth.  Success in the business tomorrow requires us to invest in the business today.  Our long term strategy on this front has been to steadily increase our customer facing headcount while anticipating what will be the best of breed technology solutions of the future and investing in them today.  We are also focused on making the right strategic acquisitions to grow geographically and gain technology expertise and customer-facing sales and services personnel to expand our customer base.

Our results are the product of the hard work of the combined ePlus team.  While we are pleased with our financial performance this quarter, we continue to operate in a very competitive market, with customers that are looking for the best value for their technology investment dollar and where new, disruptive technologies can rapidly cause changes in the pace of our customers’ buying patterns.  Every new quarter presents us with these same challenges.  By focusing on our customers and providing them with the most in demand technology solutions for their business needs, we believe we can continue to grow our market share over the long term.

With that I will hand it over to Elaine to discuss our financial results for the quarter in more detail…

Elaine Marion, CFO

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

As Mark mentioned, we continued to execute against our growth strategy in the second quarter and through the first half of fiscal 2017.  Once again this year, we are on track to grow faster than the broader IT market.

In the second quarter of fiscal 2017, our consolidated revenues grew by 10.5% year-on-year to $371.5 million.  Gross profit increased by nearly 14%, to $81.9 million, which provided us with a 70 basis point increase in gross margin to 22.1%. The improvement in gross profit and gross margin was driven by our strategy to shift towards higher margin products and services, and by an increased mix of products and services which are accounted on a net basis.

Our operating expenses increased 18.7% to $53.7 million, representing 14.5% of net sales. The majority of this increase reflects increased variable compensation as a result of the growth in gross profit, as well as additional employees. Our headcount grew by nearly 10% to 1,096 from 997 a year ago. The personnel additions included 95 sales and engineering positions due to internal growth and the acquisition of IGX in December 2015, with the remaining additions being administrative hires.

Our G&A expenses were $7.6 million, or 2% of net sales.  This is in line with or slightly below levels in recent years.  Professional fees were $1.7 million, or 0.5% of net sales, in line with fiscal 2016. I’ll cover our expenses in more detail during the technology segment results section of the call.

Operating income was $28.2 million, or 5.8%, higher than last year. During the current quarter, we received $380 thousand related to the dynamic random access memory class action lawsuit, which was included within other income on our consolidated statement of operations. As a result, earnings before tax increased to $28.6 million which is 7.2% higher than last year. 

Diluted earnings per share for the quarter were $2.42, up 12.6% from $2.15 in the second quarter of fiscal 2016. Our diluted shares outstanding totaled 6.9 million for the quarter, compared with 7.3 million from the second quarter last year. Adjusted EBITDA increased 7.4% to $29.9 million while our adjusted EBITDA margin decreased slightly to 8.1%, mainly the result of the increase in variable compensation expense.

Non-GAAP diluted earnings per share increased 12.8% to $2.47 for the second quarter of fiscal 2017. This non-GAAP metric excludes acquisition-related amortization expenses, other income and the related effects on income taxes.

I’ll now turn to our quarterly results from our Technology segment, which accounted for approximately 98% of our net sales. Net sales in our Technology segment grew 11.3% to $362.7 million, while adjusted gross billings of product and services grew 13% to $487.3 million.  The increases were due to higher customer demand for ePlus’ IT solution offerings as well as revenues from the IGX acquisition. Adjusted gross billings are sales of product and services adjusted to exclude the costs incurred in the sale of applicable third-party software assurance, maintenance and services.

Our gross margin on product and services expanded by 80 basis points to 20.2% in the second quarter. This expansion of margin was due to the strategy of shifting towards products with higher margins, an increase in gross profit from services, and the increase in sales of third party maintenance and services I mentioned earlier.

Operating expenses in the technology segment increased by 18.7% to $50 million, compared to $42.1 million last year. The single largest factor driving this was the increase in salaries and benefits, which was up 20% to $40.2 million. Headcount in our technology segment grew by 10.8% to 1,047 from 945 in September of last year. As I discussed earlier, we also saw an increase in variable compensation which was the result of higher gross profit. In the second quarter, we reported a $600 thousand increase in G&A expenses, $400 thousand of which was related to software license and maintenance expenses.

Adjusted EBITDA for the technology segment increased by roughly 10% to $26.2 million in the second quarter, driven by gross profit but partially offset by increased operating expenses.

Our results by customer end market were little changed and continue to show diversity. On a trailing 12-month basis, the Technology and SLED markets were our largest, accounting for 23% and 22% of total net sales, respectively. Next was Telecom, Media and Entertainment, which accounted for 15% of total sales, with the rest of the sales mix split between Financial Services, Healthcare and Other.

Moving to our financing segment, revenues were $8.7 million, down mainly as a result of lower portfolio earnings.  However, gross profit in the segment increased 3.8% to $7.4 million as a result of lower direct lease costs, which declined approximately 58% from the same quarter in the prior year. This sharp decline in direct lease costs was driven by lower depreciation expense relating to our operating lease investments.  Operating expenses increased $572 thousand primarily due to an increase in our reserve for credit losses, necessitated by portfolio growth.

Adjusted EBITDA was down 7.5% to $3.7 million as a result of the higher operating expenses I just mentioned.

I will now turn to our consolidated year-to-date results. Net sales for the first six months of fiscal 2017 increased 10.5% to $670 million. This strong sales growth was driven by the strong performance in our Technology segment where net sales increased by 11.4% to $654.2 million.

Adjusted gross billings of product and services increased by 15.9% to $884.8 million, while consolidated gross profit increased 14.2% to $149.6 million. Our consolidated gross margin expanded by 70 basis points to 22.3%, while gross margin on product and services grew by 80 basis points to 20.5%.

Net earnings grew 12.1% to $27.4 million and adjusted EBITDA also increased 11.4% to $49.2 million. Our first half of fiscal 2017 earnings per diluted share increased by 16.7% to $3.91, while non-GAAP diluted earnings per share increased 16.3% to $4.00.

Before I turn to the balance sheet, I want to briefly examine results on a trailing twelve months basis, as our results can vary quarter to quarter. We feel that looking at our results in this way provides a clearer picture of ePlus’ financial profile.  On a trailing twelve months basis, net sales rose 7.5% to $1.3 billion. Gross profit rose 9.9% to $280.6 million, with consolidated gross margin of 22.1%. Opex rose 12.9% to $200.9 million, with salaries and benefits rising 13.1% to $160.4 million. Operating income for the trailing twelve months was $79.7 million, an increase of 3% from $77.4 million a year ago.

Turning now to our balance sheet, we ended the quarter and first half of fiscal 2017 with cash and cash equivalents of $48 million, compared with $94.8 million as of March 31, 2016. The decrease is primarily the result of investments in our financing portfolio, working capital required for the growth in our technology segment, an increase in committed inventory to $80.5 million, and the repurchase of 328,481 shares under our share repurchase plan. Our cash conversion cycle for the quarter was within trends of prior periods at 16 days.

For the second half of the year, we remain focused on executing our long term strategy of geographic expansion both organically and through acquisition; expanding our services and solutions portfolio; and investing in current and emerging technologies to capture future customer IT spend.  I’ll now turn the call back to Mark for closing remarks.

Thank you everyone. Mark?

Mark Marron, CEO & President

Thanks Elaine.  In closing I want to reiterate that we remain focused on our long term strategy to service customers and grow our business organically and through selective M&A.  Our disciplined approach to the business has allowed our balance sheet to continually strengthen over time, while our returns on invested capital remain ahead of our competitors.  I’d like to thank our employees for their continued hard work and our customers and vendors for their continued support.  We look forward to providing you another update next quarter.

QUESTION AND ANSWER

Operator [instructions]

 Matt Ramsay, Canaccord Genuity

Matt Ramsey - Canaccord Genuity - Analyst

Mark, congratulations, it's the first full quarter as CEO, really strong results. I guess I have a few questions, and the first being obviously 16% growth in the non-GAAP sales metric in the first half of the year seems to me well ahead of what enterprise IT spending trends have been. So maybe you could kind of walk us through -- obviously your business is doing well, but maybe you can walk us through some of the -- how you see the industry growing on an organic basis and how we should think about -- Elaine mentioned the trailing 12-month sort of, maybe high-single digits growth versus that much larger number in the first half of this year, so just how we should think about the growth overall going forward? Thank you.

Mark Marron - ePlus inc. - CEO

Matt, first off, thanks for the congratulations. A couple of things here. One, we are happy with our results so far through the -- both for this quarter as well as for the first half. We believe that we're executing pretty well on our strategy and our plans as Elaine had mentioned in her closing, really focusing on building out our organic growth with our existing as well as net new accounts, focusing on strategic and accretive M&A and then really building out our services and solution offerings that our customers need in today's market.

As it relates to this quarter, if you look at our revenue growth, there are a couple of things that happened. One, we do believe we are taking market share, we do have a land and expand strategy, which we've discussed on previous call, and this is where we are looking at some of the larger medium to enterprise accounts, working with them on specific projects and then looking to expand the services and the products and the solutions that we sell to them. As it relates to the quarter, we also had a couple of things that affected our revenues positively. It was Cisco's year-end in July, also the SLED year-end gave us a nice uptick there. So overall, we feel good about our plans. We do worry about the market a little bit. It's a little unpredictable. We've got something going on next week called an election that we're not sure how that's going to play out, and what that may mean to the market. But we are cautiously optimistic and believe we will continue to outpace the IT spending market.

Matt Ramsey - Canaccord Genuity - Analyst

And just one little more for you, if I could. When I speak to the heads of the enterprise business at Intel for example, they talk about for the breadth of their server business, roughly a 50/50 split now between cloud-based sales for them and on-prem sales to the enterprise. Obviously in your sort of enterprise focused business, that mix would be different, but any kind of way to ballpark how you're seeing trends of sales into either private cloud or off-prem cloud for your enterprise customers versus that they are still doing on-prem?

Mark Marron - ePlus inc. - CEO

Yes, a couple of different things there, Matt. It's hard to give you percentages. I don't want to just make up anything as it relates to that. One of the things that I mentioned earlier is we're building out our Cloud Aggregated Services. Now that's more for the public play, but we do have what we call cloud readiness assessment that basically sit down with the client, understand their existing environment and then help them analyze what they want to do with their workloads and what applications they want to put out in the public cloud, as well as keep on-prem if you will.

So it's -- I don't have any percentages for you, but I can tell you in both the mid as well as the enterprise market, we're seeing nice traction with customers looking for us to help with, hey, there is a lot of choices out there, what should we be considering? Second is, you get a lot of data that goes back and forth from your private cloud, if you will, to the public cloud, and the security issues that go with that. You've got insider threats that they have to worry about. And then they are all trying to get the cost savings that they're looking for. So we've created these assessments in consultative services to help customers kind of make those decisions on what they want to move to the cloud and what they want to keep on-prem.

Matt Ramsey - Canaccord Genuity - Analyst

Elaine, just a couple of little questions. I guess one, could you maybe talk about the increase in the inventory and the specific reasons and composition to that? And second, you mentioned in your prepared script, salaries and benefits expenses, obviously headcount is up but also you mentioned tied to gross profit, maybe you can talk about how some of those variable comp components are incentivized within the salesforce. That'll be helpful. Thank you.

Elaine Marion - ePlus inc. - CFO

Sure. The inventory rise, it's important to note that it is committed inventory to a group of customers and it's related to configuration that we're performing over time and there was an increase obviously in the need for working capital over the quarter. We do serve large customers that have large rollout within any given quarter. And I would expect that inventory to rollout off the balance sheet over the coming next quarter or two. In terms of the variable comp, when we have such a large increase in gross profit for the quarter, there are some incentives that we put in place, accelerators and things of that nature that were hit last quarter. So that is the explanation really for the increase in comp as it relates to gross profit.

Mark Marron - ePlus inc. - CEO

Hey Matt, if I could just add one quick thing. What's nice about this, the incentives that Elaine put in place is around some of the key focus areas that we've been trying to drive, so this is by design. The other thing is, our commission rates are within our normal range and a lot of the incremental commission had to do with the incremental GP or gross profit growth of 14%. So it's a positive and still within our commission ranges.

Operator [instructions]

Anil Doradla, William Blair.

Maggie Nolan - William Blair – Analyst

This is Maggie Nolan in for Anil. Congrats on the good results. I was wondering, since we're nearing that one-year mark, how the integration of IGX is going. I'm wondering if you feel like those employees are fully ramped up and contributing to the topline perhaps driving some of the success this quarter. I did notice that their salaries and benefits is back, and a little bit more normal range for you all. So it seems like maybe they are driving a little more revenue. And any other color you could give on the integration of the acquisition will be appreciated.

Mark Marron - ePlus inc. - CEO

So far, we're very happy with the integration of the IGX team in terms of the expertise that they brought across from a security perspective, some of the vendor relationships that they had that were a little bit stronger than we had at ePlus. The other thing that we're seeing is, as it relates to the UK or the international part of IGX is, we're now building out our vendor relationships that they did not have that we have at ePlus, so they're leveraging some of our US capabilities and relationships to buildup incremental products and services that they can sell. We're also seeing that we've got some real nice synergies, where we can support customers across the Atlantic, meaning some of our bigger US customers that are looking for international deliveries and then vice versa, where some of the UK customers are looking -- and may have a US presence and we're building plans to go after that. So net-net, we are happy with the integration so far and feel good where we are.

Maggie Nolan - William Blair – Analyst

And then kind of going along with that theme, how is the acquisition pipeline looking for you all and is that geographic footprint expansion that you talked about still kind of the main driver there?

Mark Marron - ePlus inc. - CEO

Yes. Well, a couple of different things. One, there is no lacking of potential opportunities in the market from an M&A perspective. We still have a fairly -- what we believe a fairly disciplined approach looking at M&A. Currently the three we've kind of talked about over time or four really is getting the right -- finding somebody that gives us an incremental territory coverage, maybe has a technical expertise that we may not have or we might be able to leverage across the rest of ePlus.

We also look at the accounts that they have and then the people. And then at a really, I guess at a 20,000 foot view, we think we've done a fairly nice job of what I call tuck-under acquisitions. We're also focusing on some of our key areas, whether it be security services like opportunities or emerging technologies, maybe somebody that has some type of expertise in a technology that's emerging over the next two to three years.

Maggie Nolan - William Blair – Analyst

And if I could just squeeze in one more, since you brought it up, how are the emerging technologies progressing? I think a couple of quarters ago, you did give us security as a percentage of revenue. Have you seen that increase and any color in that area would be great? Thanks guys.

Mark Marron - ePlus inc. - CEO

No problem Maggie. Yes, security is one of our key focus areas. And over the trailing 12 months, I believe we're up about 15% or so, right Elaine? We continue to invest in headcount, both from a, what I call a consultative services or security experts as well as sales headcount to sell our security portfolio and we're expanding our vendor relationships in the security space. So we're bullish on the security market as well as opportunity.

Operator [instructions]

Matt Sheerin, Stifel.

Matt Sheerin - Stifel - Analyst

Just a couple of questions for me. As just off the last question concerning security and then also your services business, how much of that business now is annuity business where you've got contractual agreements with customers. So you've got a pipeline and a backlog of that revenue that's streaming in.

Mark Marron - ePlus inc. - CEO

It's Mark here. One, we don't break that out. What I can tell you is, we are selling the full suite of security solutions that are out in the market. So from the, I'll call it securing the parameter to securing data as well as all the different types of cloud solutions. As you know, some of those are as-a-service or subscription-based, if you will. So we're selling across the full gamut of security, both products, services and solutions, but we don't break that out. We do feel pretty good about the expertise in our go-to-market plans around security. We feel like we're gaining market share. I mentioned on Maggie's question the trailing 12 months we're up 15% and we're going to continue to focus on that area.

Matt Sheerin - Stifel - Analyst

Okay. And then you've been growing the business on a net basis double digits three quarters in a row now with some big quarter-to-quarter swings. And it looks like there is some seasonal trends here, particularly with the September quarter as you talked about the heavy SLED exposure and then the Cisco exposure with their fiscal close. In the last couple of years, your December quarter was down sequentially. I know you don't give guidance, but any sort of visibility that you can give us in terms of what you're seeing at near-term with the business, whether it would be on a sequential basis or year-over-year trends?

Mark Marron - ePlus inc. - CEO

Okay. Let's see. Matt, here is what I can tell you. As we all know at year-end, you have a lot of year-end flush that comes into play. And when I say that, meaning customers that have money within their budgets that they need to spend by the end of the year. Second is, we are going to continue to invest in our customer-facing headcount and building out our solutions and services capabilities. So we're going to continue and invest in those areas to try to touch more customers and grow our market share. And we do believe we're taking market share, some market share away from our competitors.

The hard part is, if you look at some of the analysts that are out there, they are talking about flat-to-down in terms of IT spending. As I mentioned earlier, the overall macro in terms of the market is kind of unpredictable. It's a little bit of a challenging market to kind of forecast what's going to happen with the election. So there's just a few things, but we are going to continue to scale the business and invest in people and offerings. And right now we feel very good about the quarter, the first half and our execution so far.

Matt Sheerin - Stifel - Analyst

And do you plan and do you have a number in mind in terms of expansion of your headcount between now and the end of the year?

Mark Marron - ePlus inc. - CEO

Matt, that's not something that we publicly disclosed, but if you look at the past year, year-over-year, we're up approximately 99 heads; of which, the majority of those are customer-facing.

Matt Sheerin - Stifel - Analyst

Okay. And then have you added any significant vendor lines in the last quarter or see any big shift in your vendor exposure as a percentage of revenue?

Mark Marron - ePlus inc. - CEO

No, nothing, nothing in terms of any major shifts as it relates to our top vendors Matt. Nothing in terms of some of the emerging technologies have some really nice technologies and plans that they're building with us. But it's more on the early stages of what we're trying to do with them. So nothing that I'd say would be game changing as it relates to our vendors and what we're doing with them.

Matt Sheerin - Stifel - Analyst

Okay. And the Cisco exposure, is that something you just give on an annual basis or could you give me as a quarterly number?

Elaine Marion - ePlus inc. - CFO

It's 50% for the quarter and it's the same as it was in the prior period quarter -- prior year quarter.

Operator [instructions]

Matthew Galinko, Sidoti & Company.

Matthew Galinko  - Sidoti & Company - Analyst

Just one quick question for you. Mark, you mentioned disruptive technologies maybe changing customer purchasing patterns. I was wondering that sounded a little new in terms of your prior commentary or compared to your prior commentary. So I was wondering if there is anything stood out this quarter.

Mark Marron - ePlus inc. - CEO

No. Nothing really that stood out. When I talk about some of the technologies, it's some of the newer technologies or solutions that we're building for our customers. I think storage, you still have people trying to make that decision as it relates to flash and the all flash arrays and what's there. But nothing earth-shattering as it relates to new solutions or technologies that are making a dramatic difference either way.

We continue to see a couple of different things though. One, we're trying to leverage our data center capabilities as it relates to the cloud, so we found that our expertise in the old kind of compute storage and networking has played well in our cloud offerings and services. As I mentioned earlier, we're continuing to invest in the security space, both in headcount and expanding the security vendor relationships and then we're building out our services capabilities across those areas. So those are the bigger focus areas and nothing that's dramatically different if you will.

CLOSING COMMENTS [AFTER Q&A)

Operator

Thank you. At this time, I see no other questions in queue. I'll turn it back to management for any closing remarks.

Mark Marron - ePlus inc. - CEO

Okay. Thank you, Vincent. And if I could thank everybody for taking the time to join us for the earnings call and I would like to wish everybody a happy and healthy holiday season. Thank you and we'll see on the next quarterly call. Take care.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This now concludes the program, you may now disconnect.