Safe Harbor Statement

This transcript of the earnings call that occurred on November 6, 2019, 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 exposure to fluctuations in foreign currency rates, interest rates, and downward pressure on prices;
• domestic and international economic regulations uncertainty (e.g. tariffs, North American Free Trade Agreement, and Trans-Pacific Partnership);
• exposure to changes in, interpretation of, or enforcement trends in legislation and regulatory matters;
• managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
• increasing the total number of customers using integrated 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 recruiting and retaining highly skilled, competent personnel and vendor certifications;
• increasing the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
• performing professional and managed services competently;
• maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace;
• 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, train 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 infringing 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;
• ·our contracts may not be adequate to protect us, and we are subject to audit in which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
• future growth rates in our core businesses;
• significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers or vendors;
• reduction of vendor incentives provided to us;
• failure to comply with public sector contracts or applicable laws and regulations;
• ·our ability to secure our own and 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 or a security breach in our or our vendors’ IT systems and data and audio communications networks;
• ·our ability to realize our investment in leased equipment;
• ·our ability to successfully perform due diligence and integrate acquired businesses; 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 or inaccurate costs and completion dates for our services which could affect our estimates.

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, 2019, 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 6, 2019, a copy of which is posted on our website at www.eplus.com/investors.

November 6, 2019 – FY20Q2

Prepared Remarks

Operator:

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

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

Kleyton Parkhurst, SVP

Thank you for joining us today. On the call is Mark Marron, CEO and 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 and Exchange Commission, including our Form 10-K for the year ended March 31, 2019 and our Form 10-Q for the quarter ended September 30, 2019 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 included a GAAP financial reconciliation in our earnings release which is posted on the investor information section of our website at www.eplus.com.

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

Mark Marron, CEO & President

Thank you, Kley, and thank you, everyone for participating in today's call to discuss our second quarter results. Our performance in the second quarter was strong as we achieved double digit growth across key metrics benefiting from solid demand from our customers and execution by our sales, engineering, and support teams. This performance came on the heels of a strong Q1 and demonstrates that our strategy of focusing on the higher growth IT solutions areas that we have identified and prioritized is compelling. 

We believe that our quarterly and year-to-date results support the investments we have made in people, technology, and service offerings to drive long-term growth which Elaine will go over in more detail in her remarks. Our marketplace is dynamic and fast-paced and ePlus has been committed to staying ahead of the curve. This means anticipating and preparing for industry shifts like the migration from one-off transactions to subscription sales and increasing customer needs for Lifecycle Services. 

Today ePlus has the capabilities to provide our customers with end-to-end solutions from assessments through long-term support along with flexible consumption and financing models. This positioning has enabled ePlus to grow our gross profit show strong gross margin growth and build share with existing and new customers. It also clearly shows the advantage we have by leveraging both our technology and finance segments to create full solutions with creative and flexible payment options.

This allows us to provide clients with the solutions they need to run their business today while finding creative ways to reduce their overall spend. In the second quarter, adjusted gross billings increased 19.2% primarily driven by organic growth and reflecting our ability to deliver complex solutions around our key focus areas of cloud, security, and digital infrastructure to our mid-market and enterprise clients. 

Net sales growth of 19.3% and a favorable business mix drove a 20.5% increase in gross profit dollars over last year and our gross margin was 25%, an increase of 20 basis points. The key component of this strong performance is our services business which increased by 35% for the second consecutive quarter. 

As you know, we have made significant investments to build out our offerings in professional, managed, and staffing services by adding headcount with engineering and technical sales backgrounds, who can advise clients on the most effective IT strategy and then design, implement, and optimize those solutions to enable that strategy. 

Additionally, the recent acquisitions we have completed brought on capabilities that have complemented our existing offerings. This strengthened our ability to upsell across our customer set to drive incremental growth, a cornerstone of our corporate strategy.

At the same time, sales of enhanced maintenance and managed services which represent annuity-like revenues increased considerably in the second quarter and first half of this year providing us with revenues that are additive to gross profit and enhance the quality and predictability of our revenues over time. Our broad services capabilities remain a key differentiator for ePlus.

Another key area of focus is sales of security products and services. On a trailing 12-month basis security increased 17.5% year-on-year and today accounts for over one fifth of our adjusted gross billings, up 110 basis points from the prior year. We expect this to continue to be an important growth driver for ePlus as corporate spend in this area continues to increase. 

We continue to see customers in our market space struggle with ransom ware and disruptive security events. A customer was recently hit with multiple families of malware. After providing a full security health check, we entered into a long-term service engagement that will help them govern which devices and users can access system resources. 

I'm pleased to report that we were also able to convert strong second quarter sales and gross profit performance into significant year-on-year growth in operating income and earnings per share. Our operating income increased by 15.5% after absorbing increased variable compensation expenses and acquisition-related costs, and GAAP EPS and non-GAAP EPS were up 13.5% and 18.3% respectively.

In the second quarter, while we continue to build out additional solutions and service offerings organically through investments in people and technology, we also expanded inorganically through the acquisition of ABS Technology. Aligned with our broader acquisition strategy, the ABS transaction increases our market share in the state local and education vertical which traditionally has been a strong market for ePlus and it strengthens our positioning in the Mid-Atlantic region. We will continue to supplement existing growth with acquisitions that expand our footprint, our solutions portfolio, and our customer base.

To sum up this was a solid quarter for ePlus. In addition to strong financial performance, we are pleased to note that ePlus was just named Cisco's global transformation and innovation partner of the year as well as its U.S. partner of the year. We appreciate this tremendous recognition of ePlus for our commitment to innovation and achieving positive outcomes for clients. In addition, ePlus won four complementary awards recognizing excellence across specific regional and vertical U.S. market.

I will now turn the call over to our CFO Elaine Marion for a detailed review of our second quarter results. Elaine?

Elaine Marion, CFO

Thank you, Mark, and thank you, everyone for joining us today. We are very pleased with our Fiscal 2020 second quarter results. Net sales were $411.6 million, an increase of 19.3% from the prior year second quarter. Net sales in the technology segment increased 18.8% year-over-year to $397.7 million reflecting a 16.9% growth in product sales and a 35.1% increase in service revenue. 

The increase in sales was derived from customers in the Technology SLED, Healthcare and Telecom Media and Entertainment industries. The increase in services revenue was across the board in professional services, managed services, and staff augmentation. Revenue from the financing segment of $13.8 million increased 34.8% year-over-year mainly due to gains from several large transactions. 

Results from our financing segment tend to be uneven from period to period. Looking at our end markets in the technology segment, on a trailing 12-month basis, Technology and SLED continue to be our largest customer end markets, accounting for 22% and 17% respectively, followed by Telecom Media & Entertainment with 16%, and healthcare and financial services accounting for 15% and 14% respectively. The remaining 16% were distributed among several other client types. 

Adjusted gross billings in the technology segment of $579.1 million increased 19.2% compared to $485.9 million in the same period a year ago, mainly driven by strong demand from larger customers as well as some contribution from our recent acquisitions SLAIT and ABS Technology. 

The adjustment from adjusted gross billings to net sales was 31.3% in the second quarter of Fiscal 2020, a 20 basis point increase from a year ago quarter reflecting a higher proportion of sales of third-party subscription-based software and maintenance.

Consolidated gross profit increased 20.5% to $103 million from $85.5 million in the prior year. Consolidated gross margin of 25% expanded 20 basis points versus last year. Gross profit for the technology segment increased 19% to $91.6 million while gross margin was 23% in line with last year's third quarter. 

Service gross margin was 38.3%, down 150 basis points year-to-year due to a larger proportion of services from staff augmentation. In the financing segment, gross profit increased 34.1% to $11.5 million primarily due to an increase in transactional gains. 

Consolidated operating expenses increased 22.5% to $74.7 million reflecting increases in salaries, variable compensation, and healthcare costs. We also had higher G&A primarily due to theSLAITand ABS Technology acquisitions. It's also worth noting that in the second quarter, our G&A includes an accelerated final expense of contingent consideration of $1.1 million from a prior acquisition. 

Our consolidated headcount at quarter end was 1,629 compared to 1,255 in the year ago quarter. Most of the additions came from SLAIT and ABS Technology which brought on 336 employees. Consolidated operating income increased 15.5% to $28.4 million. Our consolidated net income amounted to $20.1 million or $1.51 per diluted share compared to $18 million or $1.33 per diluted share. These metrics increased 11.6% and 13.5% respectively year-over-year. 

Our effective tax rate for the quarter was 29.1% compared to 27.7% in the year ago quarter. In the second half of Fiscal 2020, we expect our tax rate to be approximately 29%. Adjusted EBITDA increased 18.5% year-over-year to $35.4 million. Our adjusted EBITDA margin was 8.6% compared to 8.7% in the second quarter of Fiscal 2019. Non-GAAP diluted earnings per share were $1.81, up 18.3% from the second quarter of Fiscal 2019. Our diluted shares outstanding totaled $13.4 million down 1.7% from the year ago quarter.

I will now turn to our consolidated year-to-date results. Net sales for the first six months of fiscal 2020 increased 13% to $792.9 million. Net sales in the technology segment increased 12.4% to $766.3 million and adjusted gross billings increased 16.5% to $1.1 billion.

Consolidated gross profit amounted to $195.7 million reflecting a 17.7% increase. Our consolidated gross margin expanded by 100 basis points to 24.7% and our technology segment gross margin increased by 60 basis points to 22.6%. Net income grew 9% to $36.3 million. Diluted earnings per share were $2.71, 10.6% ahead of last year. Adjusted EBITDA increased 15.8% to $64 million, and non-GAAP diluted earnings per share increased 16% to $3.26. 

Moving to the balance sheet, we ended the quarter with cash and cash equivalents of $55.8 million compared to $79.8 million at March 31, 2019. The decrease in cash and cash equivalents was due to share repurchases of $13.7 million and acquisitions. Inventory levels increased 13.3% to $57.2 million compared to the end of Fiscal 2019. As we've said before, our inventory levels vary depending on specific customer projects under way. 

Our cash conversion cycle at the end of the quarter was 23 days compared to 25 days in the year ago quarter and 24 days in the first quarter of Fiscal 2020. As for capital allocation, we will continue to take a balanced approach between acquisitions, financing portfolio investments, share repurchases, and investment in our business to drive growth.

Thank you for your time today, and I will turn the call back over to Mark.

Mark Marron, CEO & President

Thanks Elaine. Our year-to-date results have positioned ePlus for continued growth in Fiscal 2020. We continue to see strong demand for our differentiated solutions across our expanding roster of middle market and enterprise customers. Thanks to our ongoing investments in talent and technology, we were able to customize solutions that are enabling our customers to meet their business needs, whether this means driving their cloud strategies, implementing their cyber security programs or supporting their digital business initiatives, or a combination of all three. At the same time, we were staffed to provide the lifecycle of their services requirements from advisory and consultative, to staffing, and all the way to managing their IT infrastructure. 

These lifecycle services resonate especially well with our middle market customers, who are able to outsource a large portion of their IT requirements to ePlus. Our position with both enterprise and mid-market customers gives us confidence in our long-term outlook and in our ability to continue to upsell existing customers and gain new ones. 

In addition, we will continue to look for ways to expand our reach and footprint both organically and through acquisitions that enhance and expand the solutions and services we provide and grow our customer base.

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

QUESTION AND ANSWER

Operator

Thank you. At this time, if you would like to ask a question, please press star, one on your telephone.  Again, that is star, one on your telephone to ask a question.

Your first question comes from Maggie Nolan from William Blair. Your line is open. Please go ahead.

Maggie Nolan – William Blair

Hi, Mark and Elaine. I'm wondering if you can give us a little more granularity on the strengths in the quarter. Was there new logo additions, existing customers, a particular vertical of strength? Just something to help us understand what really drove this?

Mark Marron – ePlus inc. – CEO & President

Okay. Hey, Maggie. How are you? So, first off it was a strong quarter for ePlus across a lot of different areas. As noted on our—in the press release and on the call, both our adjusted gross billings, our net sales, our gross profit, and operating income will increase nicely. The areas that I think affected that services was up again 35% this quarter similar to Q1. 

We had another strong quarter with our financing team and we're continuing to find ways to leverage the capabilities and the relationships between our financing teams and technology teams to drive incremental revenue. We saw a nice growth. 

There were nice metrics across all of our top five verticals, not only for the quarter but year-to-date as well as the trailing 12 months. We've seen growth in those top five verticals. We also saw a nice uptick with some of our enterprise customers, based on some of the land and expand program that we've talked about previously.

Maggie Nolan – William Blair

So, is it fair to characterize it as more broad-based? If so, does that mean there was a particularly positive environment this quarter, or is there something that was driving the more broad-based positive environment?

Mark Marron – ePlus inc. – CEO & President

Yes, I think there were a few things. One I think it was a positive market for us. Enterprise we saw a nice uptick in our enterprise, but I will note, from 100 employees all the way up to enterprise customers, we saw growth. We had one segment that was actually down, but I never worry about the segment's quarter. Quarter is not a trend. 

But we saw some nice growth with our enterprise customers, but also across our mid-market as well in certain areas. But the key thing Maggie too is the verticals. Across both telecom, technology, finance, healthcare, and SLED, we saw growth year-over-year, first half as well and then the trailing 12 months. So, we're seeing it across all the verticals right now.

Maggie Nolan – William Blair

And then in terms of the type of revenue we're seeing here, would you characterize a lot of this as kind of those one-off transactions or subscription revenue? How can we think about the sustainability of some of the projects that were hitting this quarter?

Mark Marron – ePlus inc. – CEO & President

Okay. So, that's a tough one overall Maggie. As we always talk about, we've got the gross-to-net factor. This was kind of first quarter that it seemed to flatten out a little and I don't know if that's a trend yet. We're still seeing a lot of subscription deals. So our—I think we noted the security trailing 12 months were up 110 basis points, so a lot of that is subscription-related. 

There's also some other solutions we sell that are subscription-related. But we did see, one of the first times in a long time that the gross-to-net actually kind of flattened out. So, I don't know if that's the trend yet or that just was a quarterly thing. We did have a strong services quarter again, which was up 35% year-over-year. So, there were more than a few things that kind of affected that.

Maggie Nolan – William Blair

Okay. Thanks Mark. And then Elaine, can you help us understand how much in the quarter of both rev growth and adjusted gross billings growth was inorganic? That's all for me. Thanks guys.

Elaine Marion, CFO

About 75% was organic in adjusted gross billings.

Mark Marron – ePlus inc. – CEO & President

It was a strong quarter Maggie for organic, and what we're seeing is with some of the acquisitions, we're picking up some nice customers that we're going to be able to go back and to sell to, as well as some really nice service offerings that we're going to be able to leverage over time. But as Elaine noted about three quarters of our adjusted gross billings was organic, which was a nice quarter for us.

Maggie Nolan – William Blair

Great, Congratulations guys.

Mark Marron – ePlus inc. – CEO & President

All right. Thanks, Maggie. We'll see you soon.

Operator

Your next question comes from Greg Burns from Sidoti & Company. Your line is open. Please go ahead.

Greg Burns – Sidoti & Company

Good afternoon. So, I just wanted to touch again on that dynamic between revenue and adjusted gross billings. More recently, we've seen adjusted gross billings outpacing revenue. 

So, did you see a shift in the mix where you had higher percentage of product sales as opposed to maybe maintenance and software-type sales? Was there a shift in mix this quarter that drove that dynamic?

Elaine Marion, CFO

Yes. I don't think of the shift and mix. It was a 20 basis point difference quarter-over-quarter. But on a six-month basis, we are still up. We're at—32% was reclassed versus last year at 29.6%. So, I think it's a quarter-over-quarter comparison like Mark said, that kind of flattened out for us. But the mix didn't really change in terms of what was—what's recognized growth and what was recognized in that.

Greg Burns – Sidoti & Company

Okay. And some really nice leverage—operating leverage this quarter. How should we think about this going forward? Is the current level of Opex kind of a good run rate? Just how should we think about the amount of leverage to expect going forward? Thanks.

Mark Marron – ePlus inc. – CEO & President

Yes. Hey, Greg, good question. I think, yes, this quarter is probably a good metric. The thing I just want to note—realize the variable comp. So, there—our GP—if you look at our gross profit, it was up 20.5%. So that's the—obviously the variable and the variable comp for your Opex models. But I do believe this is a good quarter. 

We've made some significant investments that—we're starting to see some benefits in in our operating income. If you look at over trailing 12 months versus this quarter, trailing 12 months our operating income is up about 7%. This quarter it was up 15.5%, with some one-time earn-out fees as well. So, it would have been a little bit higher. So, we're starting to see some nice movement there.

Greg Burns – Sidoti & Company

Okay. So, I'm assuming you're going to continue to invest. But do you expect to—from revenue to outpace kind of incremental operating expense growth?

Mark Marron – ePlus inc. – CEO & President

That's a tough one Greg. Here's the easier thing. We will continue to invest because we're seeing where we believe we're grabbing some market share. So, we built out the solutions and services that a lot of our customers need, whether it be in the cloud or security or digital space, and then all the services that go with it. 

So, we're going to be opportunistic both in terms of organic hires as well as M&A. So, I think you'll still continue to see that. What I'm trying to say to you is we're—our gross margins are probably some of the highest in the industry. So it's going to be tough to continue to drive that. Now driving our service numbers up will help drive that blended margin up. But, overall, Opex is probably—where we're at is probably a good starting point.

Greg Burns – Sidoti & Company

Okay. And then if you—with what you did with SLAIT and maybe ABS in the Mid-Atlantic region, are there other geographies where maybe you don't have—what other geographies are out there where you don't have a footprint yet that you are looking to expand?

Mark Marron – ePlus inc. – CEO & President

Okay. Yes. Good question Greg. So, if you know ePlus we pretty much have both coasts covered pretty tightly. I would think the Great Lakes area would be one. We've got a presence in Indie, in Chicago, and Minneapolis. I think we can probably build out at Ohio-Michigan area. I think the south of the southeast I think we can do a little bit more to build that out. 

We've got a presence in Texas as well, but probably can build that out a little bit. Those would be the ones off the top of my head. We've also got some opportunities as we talked about on other calls about some global expansion. But that's going to be done—we're really going to do that methodically and really kind of analyze where it makes the most sense where we can build some size and scales to make—size and scale to make a difference.

Greg Burns – Sidoti & Company

Okay, thank you. 

Mark Marron – ePlus inc. – CEO & President

All right, Greg. We'll see you.

Operator

Your next question comes from Matt Sheerin from Stifel. Your line is open. Please go ahead.

Kurt Swartz - Stifel

Yes. Hello. This is Kurt Swartz on for Matt Sheerin. Good afternoon. Just a question—another follow-up question on the recent acquisitions looking at ABS Technology in particular. Hoping you can maybe shed some more light on what the contribution might be in the coming quarters, and any sort of insight we can gain on Opex impact for the coming quarters as well?

Mark Marron – ePlus inc. – CEO & President

Yes. I think easiest thing I can tell you, ABS we think is a really good acquisition for us. It rounds out our capabilities in what I would call at Southern Virginia territory of the Mid-Atlantic, but it was a tuck under acquisition. So, I wouldn't expect anything big to start. 

Now, over time what you'll see hopefully is that as the ABS team understands all the different types of offerings that ePlus has, we'll be able to add that to their portfolio that they can go back to their customer base. But normally it takes a couple of quarters for the acquisition to kind of get up to speed and then understand all the different offerings we have and then kind of build from there. 

But it was kind of a—it was more of a tuck-under acquisition to build out some capabilities and pick up some really good state local and education, as well as healthcare customers, as well as a really good team. We're pretty excited about what we picked up with the ABS team.

Kurt Swartz - Stifel

Understood, and then shifting gears a little bit. Just sort of looking at—we continue to hear news about deal timing issues and some deal—large deal push outs. Just wondering if that's anything you have been seeing. Whether that's been affecting the deal—the timing of deals closing, or any other color you could offer on just general customer sentiment?

Mark Marron – ePlus inc. – CEO & President

Yes. Haven't seen any of that to be honest, and I want this to come out the right way. Based on the quarter, we have a pretty solid quarter where our adjusted gross billings as well as net sales were both up over 19% and GP over 20.5%. 

So, didn't see deals being pushed out. Now some of the bigger deals obviously take time, but that's been the case for a long period of time here at ePlus. So, not seeing anything where customers are moving slower yet or pushing things out just yet.

Kurt Swartz - Stifel

Great, thank you very much.

Mark Marron – ePlus inc. – CEO & President

All right, thanks. We'll see you soon.

Operator

Again, if you would like to ask a question, please press star, one on your telephone. Your next question comes from Brett Knoblauch from Berenberg Capital Markets. Your line is open. Go—please go ahead.

Brett Knoblauch – Berenberg Capital Markets

Hi, guys, thanks for taking my question. Maybe just one for Elaine on that tax guidance you gave. Is there any particular reason why—that its effective tax rate looks to be increasing a bit year-over-year?

Elaine Marion, CFO

Yes. On a year-over-year basis—year-to-date basis, there were some benefits that we received in the prior year for stock vesting. Counteracting that is an increase in some permanent differences that we're seeing. So, we're actually expecting the tax rate to be about 29% for the remainder of the year.

Brett Knoblauch – Berenberg Capital Markets

And then maybe just directionally for 2020, do you see that kind of falling in the same general area?

Elaine Marion, CFO

Yes. I would say it's probably going to be in that general area.

Brett Knoblauch – Berenberg Capital Markets

Okay, and that's it for me. Thanks guys.

Elaine Marion, CFO

Okay. Great.

Mark Marron – ePlus inc. – CEO & President

Hey, take care.

Operator

There are no further questions at this time. I'd like to turn the call back to theCEO and President.

Mark Marron – ePlus inc. – CEO & President

Okay. Thank you. Hey everybody, thanks for joining the call today. We appreciate you spending the time with us. As we stated, we thought it was a solid quarter and first half for ePlus, and we believe we'll continue to outpace the overall IT spend market, based on some of the execution on our strategy. 

With that, I hope all of you enjoy your Thanksgiving, and I wish you the best for the holiday season as well. Thanks for joining us today. Take care.

Operator

Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.