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ePlus Reports Fourth Quarter and Fiscal Year 2019 Financial Results


ePlus Reports Fourth Quarter and Fiscal Year 2019 Financial Results
Full Year Consolidated Gross Margin Increased 130-basis points to 24.1%
 

Fourth Quarter Ended March 31, 2019

  • Net sales decreased 1.3% to $325.4 million; service revenues increased 22.8% to $45.0 million; technology segment net sales decreased 1.9% to $313.2 million.
  • Adjusted gross billings increased 6.8% to $472.4 million.
  • Consolidated gross profit decreased 0.4% to $81.3 million.
  • Consolidated gross margin was 25.0%, an increase of 30 basis points.
  • Net earnings increased 69.2% to $15.1 million.
  • Adjusted EBITDA decreased 16.0% to $19.6 million.
  • Diluted earnings per share increased 72.3% to $1.12. Non-GAAP diluted earnings per share decreased 2.8% to $1.03.

Fiscal Year Ended March 31, 2019

  • Net sales decreased 3.3% to $1,372.7 million; service revenues increased 15.4% to $149.5 million; technology segment net sales decreased 3.2% to $1,329.5 million.
  • Adjusted gross billings increased 1.0% to $1,919.0 million.
  • Consolidated gross profit increased 2.1% to $330.4 million.
  • Consolidated gross margin was 24.1%, an increase of 130 basis points.
  • Net earnings increased 14.6% to $63.2 million.
  • Adjusted EBITDA decreased 2.3% to $100.4 million.
  • Diluted earnings per share increased 17.7% to $4.65. Non-GAAP diluted earnings per share increased 1.6% to $5.12.

HERNDON, Va., May 22, 2019 (GLOBE NEWSWIRE) -- ePlus inc. (NASDAQ:PLUS), a leading provider of technology solutions, today announced financial results for the three months and fiscal year ended March 31, 2019.

Management Comment

“Strong growth in adjusted gross billings and an industry-leading gross margin of 25% were the highlights of this year’s fourth quarter.  While product mix was not optimal and impacted gross profit in the fourth quarter, we closed the fiscal year well positioned for future growth in our key solution areas of cloud, security, and digital infrastructure.  We also continue to build an annuity-quality revenue base to support consistent revenue growth,” said Mark Marron, President and Chief Executive Officer. 

“For fiscal 2019, consolidated gross margin increased 130-basis points to 24.1%, primarily reflecting a 15.4% increase in higher-margin services revenues, which accounted for 10.9% of total annual revenue. Services have increased at a CAGR of 24% over the last three years, reflecting the success of our strategy to provide innovative IT solutions to middle market and enterprise customers.

“To support customer demand for our solutions, we continue to make focused investments on consultative, technical and client facing resources, as well through strategic acquisitions,” noted Mr. Marron. 

Fourth Quarter Results

For the fourth quarter ended March 31, 2019 as compared to the fourth quarter of the prior fiscal year:

Consolidated net sales decreased 1.3% to $325.4 million, from $329.9 million primarily due to a larger portion of our sales that were recognized on a net basis.

Technology segment net sales decreased 1.9% to $313.2 million, from $319.1 million. Service revenues increased 22.8% to $45.0 million, from $36.6 million.  Service revenues includes revenues from professional services, managed services, and staff augmentation.

Adjusted gross billings increased 6.8% to $472.4 million due, in part, to the acquisition of SLAIT Consulting, LLC in January 2019 as well as organic growth.

Financing segment net sales increased 14.2% to $12.3 million, from $10.7 million, due to an increase in transactional gains.

Consolidated gross profit decreased 0.4% to $81.3 million, from $81.6 million. Consolidated gross margin improved 30 basis points to 25.0%, compared with 24.7% last year, due to a shift in mix towards third-party maintenance, and software subscriptions, and higher services revenues.

Operating expenses increased 5.8% to $66.8 million, from $63.1 million, primarily due to an increase in healthcare costs and additional expenses associated with the acquisition and operation of SLAIT Consulting, LLC in January 2019. 

Consolidated operating income decreased 21.8% to $14.5 million.

Other income of $5.6 million includes receipt of distributions of $5.4 million from a customer’s bankruptcy case and $0.2 million of interest income and foreign currency gains.

Our effective tax rate for the current quarter was 24.8%, compared with 51.0% in the prior year quarter.  The higher effective tax rate in the prior year quarter was due to and adjustment to the remeasurement of our deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act.

Net earnings increased 69.2% to $15.1 million.

Adjusted EBITDA decreased 16.0% to $19.6 million, from $23.3 million.

Diluted earnings per share was $1.12, compared with $0.65 in the prior year quarter. Non-GAAP diluted earnings per share was $1.03, compared with $1.06 last year.

Fiscal Year 2019 Results

For the fiscal year ended March 31, 2019 as compared to the fiscal year ended March 31, 2018:

Consolidated net sales decreased 3.3% to $1,372.7 million, from $1,418.8 million.

Technology segment net sales decreased 3.2% to $1,329.5 million, from $1,372.8 million primarily due to an increase in sales reported on a net basis. Service revenues increased 15.4% to $149.5 million, from $129.5 million, due to an increase in managed services and staff augmentation.

Adjusted gross billings increased 1.0% to $1,919.0 million due, in part, to acquisitions completed during the year.

Financing segment net sales decreased 6.3% to $43.2 million, from $46.0 million due to a decrease in post contract earnings from the prior year’s early termination of several large leases, and the sale of off lease assets.

Consolidated gross profit increased 2.1% to $330.4 million, from $323.5 million. Consolidated gross margin improved 130 basis points to 24.1%, compared with 22.8% last year, due to a shift in mix towards third-party maintenance, software subscriptions, and services. Also contributing were higher product margins and service revenues.

Operating expenses increased 4.9% to $250.9 million, from $239.2 million, due, in part to increases in variable compensation, healthcare costs and software license and maintenance, as well as the expenses associated with the acquisitions of IDS in September 2017 and SLAIT Consulting in January 2019. Our headcount was 1,537, an increase of 277 or 22.0%, from 1,260 as of March 31, 2018, of which 256 was related to the acquisition of SLAIT Consulting, LLC. 

Consolidated operating income decreased 5.6% to $79.5 million.

Our effective tax rate for fiscal year 2019 was 26.7%, compared with 34.3% in the prior year.  Our effective tax rate for fiscal year 2018 included a partial year of the lower U.S. federal statutory rate from the Tax Cuts and Jobs Act.

Net earnings rose 14.6% to $63.2 million.

Adjusted EBITDA decreased 2.3% to $100.4 million, from $102.8 million.

Diluted earnings per share was $4.65, compared with $3.95 in the prior year. Non-GAAP diluted earnings per share was $5.12, compared with $5.04 last year.

Balance Sheet Highlights

As of March 31, 2019, ePlus had cash and cash equivalents of $79.8 million, compared with $118.2 million as of March 31, 2018.  The decrease in cash and cash equivalents was primarily due to the purchase of SLAIT Consulting, LLC, increases in working capital in the technology segment, investments in our financing portfolio, and share repurchases.  Total stockholders' equity was $424.3 million, compared with $372.6 million as of March 31, 2018. Total shares outstanding were 13.6 million and 13.8 million on March 31, 2019 and March 31, 2018, respectively.

Summary and Outlook

“Looking ahead, market conditions remain favorable, and ePlus is entering our fiscal 2020 with many strategic and operational advantages,” noted Mr. Marron. “The industry continues to transition toward different types of consumption, subscription, and ratable revenue models, , and within that environment, ePlus is well positioned to benefit, given our investment in these areas and our overall size and scale.  Additionally, we believe we are aligned closely with the solutions and services our customers need in today’s IT environment.  For example, security products and services represented 19.5% of adjusted gross billings, up from 18.6% in fiscal year 2018 and 16.1% in fiscal year 2017.  We expect security to continue to be an important growth driver for us. 

“The January acquisition of SLAIT Consulting boosted our geographic footprint in the Mid-Atlantic and extended our security consulting, staff augmentation, and managed services capabilities.  We continue to be disciplined in seeking out acquisitions to drive our strategy, and expand our reach,” Mr. Marron concluded.

Recent Corporate Developments/Recognitions

  • On May 6-9th, ePlus hosted its 14th annual Transform sales and services meeting in Nashville, TN, with over 776 attendees including 79 vendor partners. 
  • On May 7th, ePlus announced its Multi-Cloud Architecture Framework to help organizations design and optimize their enterprise architecture to support multi-cloud solutions.
  • On May 6th, ePlus announced that it expanded its Managed Services capabilities to support the Cisco Viptela SD-WAN Solution.
  • On March 13th, ePlus announced its wholly owned subsidiary, ePlus Technology inc., was named to the CRN ® 2019 Managed Service Provider (MSP) 500 list in the Elite 150 Category.
  • On February 19th, ePlus announced the completion of the Type 2 SSAE 18 exam for managed services and the OneSource family of software products. 
  • On January 22nd, ePlus announced the acquisition of SLAIT Consulting, a Mid-Atlantic IT services provider.

Conference Call Information

ePlus will hold a conference call and webcast at 4:30 p.m. ET on May 22, 2019:

Date: Wednesday, May 22, 2019
Time: 4:30 p.m. ET
Live Call: (877) 870-9226, domestic, (973) 890-8320, international
Replay: (855) 859-2056, domestic, (404) 537-3406, international
Passcode: 2767069 (live and replay)
Webcast: http://www.eplus.com/investors (live and replay)

The replay of this webcast will be available approximately two hours after the call and be available through May 29, 2019.

About ePlus inc.

ePlus is a leading consultative technology solutions provider that helps customers imagine, implement, and achieve more from their technology.  With the highest certifications from top technology partners and expertise in key technologies from data center to security, cloud, and collaboration, ePlus transforms IT from a cost center to a business enabler.  Founded in 1990, ePlus has more than 1,500 associates serving a diverse set of customers in the U.S., Europe, and Asia-Pac.  The Company is headquartered at 13595 Dulles Technology Drive, Herndon, VA, 20171.  For more information, visit www.eplus.com, call 888-482-1122, or email info@eplus.com.  Connect with ePlus on Facebook at www.facebook.com/ePlusinc and on Twitter at www.twitter.com/ePlus

ePlus. Where Technology Means More®.

ePlus® and ePlus products referenced herein are either registered trademarks or trademarks of ePlus inc. in the United States and/or other countries.  OneCloud is a trademark of OneCloud Consulting, Inc. in the United States and/or other countries.  The names of other companies and products mentioned herein may be the trademarks of their respective owners.

Forward-looking statements

Statements in this press release that are not historical facts may be deemed to be “forward-looking statements.”  Actual and anticipated future results may vary materially due to certain risks and uncertainties, including, without limitation, national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, interest rates and downward pressure on prices; reduction of vendor incentive programs; and restrictions on our access to capital necessary to fund our operations; our ability to successfully perform due diligence and integrate acquired businesses; disruptions or a security breach in our or our vendor’s IT systems and data and audio communication networks; the possibility of goodwill impairment charges in the future; significant adverse changes in, reductions in, or losses of relationships with one or more of our largest volume customers or vendors; the demand for and acceptance of, our products and services; our ability to adapt our services to meet changes in market developments; our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key strategies; our ability to reserve adequately for credit losses; our ability to secure our own and our customers’ electronic and other confidential information and remain secure during a cyber-security attack; future growth rates in our core businesses; the impact of competition in our markets; our reliance on third parties to perform some of our service obligations to our customers; the possibility of defects in our products or catalog content data; our ability to adapt to 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; our ability to realize our investment in leased equipment; maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel and vendor certifications; and other risks or uncertainties detailed in our reports filed with the Securities and Exchange Commission.  All information set forth in this press release is current as of the date of this release and ePlus undertakes no duty or obligation to update this information.

 
       
ePlus inc. AND SUBSIDIARIES      
CONSOLIDATED BALANCE SHEETS      
(in thousands, except per share amounts)      
       
  March 31, 2019
  March 31, 2018
ASSETS     (as adjusted)
       
Current assets:      
Cash and cash equivalents $79,816   $118,198
Accounts receivable—trade, net 299,899   268,287
Accounts receivable—other, net 41,328   28,401
Inventories 50,493   39,855
Financing receivables—net, current 63,767   69,936
Deferred costs 17,301   16,589
Other current assets 7,499   23,625
Total current assets 560,103   564,891
       
Financing receivables and operating leases—net 59,032   68,511
Property, equipment and other assets 17,328   19,143
Goodwill 110,807   76,624
Other intangible assets—net 38,928   26,302
TOTAL ASSETS $786,198   $755,471
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
       
LIABILITIES      
       
Current liabilities:      
Accounts payable $86,801   $106,933
Accounts payable—floor plan 116,083   112,109
Salaries and commissions payable 21,286   19,801
Deferred revenue 47,251   35,648
Recourse notes payable—current 28   1,343
Non-recourse notes payable—current 38,117   40,863
Other current liabilities 19,285   33,370
Total current liabilities 328,851   350,067
       
Non-recourse notes payable—long term 10,502   10,072
Deferred tax liability—net 4,919   1,662
Other liabilities 17,673   21,067
TOTAL LIABILITIES 361,945   382,868
       
COMMITMENTS AND CONTINGENCIES      
       
STOCKHOLDERS' EQUITY      
Preferred stock, $.01 per share par value; 2,000 shares authorized; none outstanding -   -
Common stock, $.01 per share par value; 25,000 shares authorized; 13,611 outstanding at March 31, 2019 and 13,761 outstanding at March 31, 2018 143   142
Additional paid-in capital 137,243   130,000
Treasury stock, at cost, 693 shares at March 31, 2019 and 467 shares at March 31, 2018 (53,999)   (36,016)
Retained earnings 341,137   277,945
Accumulated other comprehensive income—foreign currency 
(271)   532
Total Stockholders' Equity 424,253   372,603
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $786,198   $755,471
       

 

 
ePlus inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
  Three Months Ended March 31,
  Year Ended March 31,
  2019   2018
  2019   2018
      (as adjusted)
      (as adjusted)
               
Net sales              
Product $280,460   $293,232   $1,223,195   $1,289,307
Services 44,974   36,625   149,478   129,495
Total 325,434   329,857   1,372,673   1,418,802
               
Cost of sales              
Product 216,662   228,212   952,464   1,023,590
Services 27,500   20,015   89,821   71,730
Total 244,162   248,227   1,042,285   1,095,320
               
Gross profit 81,272   81,630   330,388   323,482
               
Selling, general, and administrative expenses 62,683   59,989   237,082   228,127
Depreciation and amortization 3,574   2,835   11,824   9,921
Interest and financing costs 545   292   1,948   1,195
Operating expenses 66,802   63,116   250,854   239,243
               
Operating income 14,470   18,514   79,534   84,239
               
Other income (expense) 5,556   (347)   6,696   (348)
               
Earnings before taxes 20,026   18,167   86,230   83,891
               
Provision for income taxes 4,974   9,270   23,038   28,769
               
Net earnings $ 15,052   $8,897   $ 63,192   $55,122
               
Net earnings per common share—basic $ 1.12   $0.65   $ 4.70   $4.00
Net earnings per common share—diluted $ 1.12   $0.65   $ 4.65   $3.95
               
Weighted average common shares outstanding—basic 13,391   13,620   13,448   13,790
Weighted average common shares outstanding—diluted 13,491   13,767   13,578   13,967
               

 

 
Technology Segment
  Three Months Ended March 31,
      Year Ended March 31,
   
  2019   2018   % Change
  2019   2018   % Change
   
  (in thousands)
                       
Net sales                      
Product $268,203   $282,502   (5.1%)   $1,180,042   $1,243,270   (5.1%)
Services 44,974   36,625   22.8%   149,478   129,495   15.4%
Total 313,177   319,127   (1.9%)   1,329,520   1,372,765   (3.2%)
Cost of sales                      
Product 214,726   226,451   (5.2%)   945,037   1,013,748   (6.8%)
Services 27,500   20,015   37.4%   89,821   71,730   25.2%
Total 242,226   246,466   (1.7%)   1,034,858   1,085,478   (4.7%)
                       
Gross profit 70,951   72,661   (2.4%)   294,662   287,287   2.6%
                       
Selling, general, and administrative expenses 59,913   56,142   6.7%   226,112   214,980   5.2%
Depreciation and amortization 3,569   2,834   25.9%   11,812   9,918   19.1%
Operating expenses 63,482   58,976   7.6%   237,924   224,898   5.8%
                       
Operating income $7,469   $13,685   (45.4%)   $56,738   $62,389   (9.1%)
                       
Key Business Metrics                      
Adjusted gross billings $472,391   $442,468   6.8%   $1,918,995   $1,899,685   1.0%
Adjusted EBITDA $12,503   $18,422   (32.1%)   $77,202   $80,555   (4.2%)
                       

 

 
Technology Segment Net Sales by Customer End Market
  Year Ended March 31,
   
  2019   2018   Change
           

Technology
22%   24%   (2%)
State & Local Government & Educational Institutions 17%   17%   -
Telecom, Media, and Entertainment 13%   14%   (1%)
Financial Services 15%   15%   -
Healthcare 15%   14%   1%
All others 18%   16%   2%
Total 100%   100%    
           

 

 
Financing Segment
  Three Months Ended March 31,
      Year Ended March 31,
   
  2019   2018   % Change   2019   2018   % Change
   
  (in thousands)
                       
Net sales $12,257   $10,730   14.2%   $43,153   $46,037   (6.3%)
Cost of sales 1,936   1,761   9.9%   7,427   9,842   (24.5%)
Gross profit 10,321   8,969   15.1%   35,726   36,195   (1.3%)
                       
Selling, general, and administrative expenses 2,770   3,847   (28.0%)   10,970   13,147   (16.6%)
Depreciation and amortization 5   1   400.0%   12   3   300.0%
Interest and financing costs 545   292   86.6%   1,948   1,195   63.0%
Operating expenses 3,320   4,140   (19.8%)   12,930   14,345   (9.9%)
                       
Operating income $7,001   $4,829   45.0%   $22,796   $21,850   4.3%
                       
Key Business Metrics                      
Adjusted EBITDA $7,108   $4,923   44.4%   $23,213   $22,219   4.5%
                       

ePlus inc. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP INFORMATION

We included reconciliations below for the following non-GAAP information: (i) Adjusted Gross Billings, (ii) Adjusted EBITDA, (iii) Segment Adjusted EBITDA, (iv) non-GAAP Net Earnings and (v) Non-GAAP Net Earnings per Common Share - Diluted.

We define adjusted gross billings as our technology segment net sales calculated in accordance with GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance, software assurance and subscription/SaaS licenses, and services.

We define Adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, share based compensation, acquisition and integration expenses, provision for income taxes, and other income. Segment Adjusted EBITDA is defined as operating income calculated in accordance with GAAP, adjusted for interest expense, share based compensation, acquisition and integration expenses, and depreciation and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses.

Non-GAAP net earnings and Non-GAAP net earnings per common share – diluted are based on net earnings calculated in accordance with GAAP, adjusted to exclude other income, share based compensation, and acquisition related amortization expense, and the related tax effects. The presentation of non-GAAP net earnings and non-GAAP net earnings per common share – diluted have been changed from prior period presentations to adjust our tax expense assuming a statutory income tax rate of 21.0% for U.S. operations.

Our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate similar non-GAAP Adjusted Gross Billings, Adjusted EBITDA, non-GAAP Net Earnings and non-GAAP Net Earnings per Common Share - Diluted or similarly titled measures differently, which may reduce their usefulness as comparative measures.

       
  Three Months Ended March 31,   Year Ended March 31,
  2019   2018   2019   2018
   
  (in thousands)
               
Technology segment net sales $313,177   $319,127   $1,329,520   $1,372,765
Costs incurred related to sales of third party maintenance, software assurance and subscription/Saas licenses, and services 159,214   123,341   589,475   526,920
Adjusted gross billings $472,391   $442,468   $1,918,995   $1,899,685
               

 

       
  Three Months Ended March 31,   Year Ended March 31,
  2019   2018   2019   2018
   
  (in thousands)
Consolidated              
               
Net earnings $15,052   $8,897   $63,192   $55,122
Provision for income taxes 4,974   9,270   23,038   28,769
Depreciation and amortization [1] 3,574   2,835   11,824   9,921
Share based compensation 1,826   1,608   7,244   6,464
Acquisition related expenses (259)   388   1,813   2,150
Other (income) expense [2] (5,556)   347   (6,696)   348
Adjusted EBITDA $19,611   $23,345   $100,415   $102,774
               
       
  Three Months Ended March 31,   Year Ended March 31,
  2019   2018   2019   2018
   
  (in thousands)
Technology Segment              
Operating income $7,469   $13,685   $56,738   $62,389
Depreciation and amortization [1] 3,569   2,834   11,812   9,918
Share based compensation 1,724   1,515   6,839   6,098
Acquisition and integration expenses (259)   388   1,813   2,150
Segment Adjusted EBITDA $12,503   $18,422   $77,202   $80,555
               
Financing Segment              
Operating income $7,001   $4,829   $22,796   $21,850
Depreciation and amortization [1] 5   1   12   3
Share based compensation 102   93   405   366
Segment Adjusted EBITDA $7,108   $4,923   $23,213   $22,219
               

 

 
  Three Months Ended March 31,   Year Ended March 31,
  2019   2018   2019   2018
   
  (in thousands)
GAAP: Earnings before taxes $20,026   $18,167   $86,230   $83,891
Share based compensation 1,826   1,608   7,244   6,464
Acquisition and integration expense (259)   388   1,813   2,150
Acquisition related amortization expense [3] 2,388   1,800   7,423   5,978
Other (income) expense [2] (5,556)   347   (6,696)   348
Non-GAAP: Earnings before taxes 18,425   22,310   96,014   98,831
               
GAAP: Provision for income taxes 4,974   9,270   23,038   28,769
Share based compensation 454   464   1,988   1,866
Acquisition and integration expense (64)   112   522   621
Acquisition related amortization expense [3] 573   490   1,916   1,598
Other (income) expense [2] (1,380)   100   (1,702)   101
Re-measurement of deferred taxes [4] -   (1,753)   -   1,654
Adjustment to US federal income tax rate to 21% -   (1,017)   -   (7,635)
Tax benefit on restricted stock -   -   672   1,444
Non-GAAP: Provision for income taxes 4,557   7,666   26,434   28,418
               
Non-GAAP: Net earnings $13,868   $14,644   $69,580   $70,413
               
               
  Three Month Ended March 31,   Year Ended March 31,
  2019   2018   2019   2018
               
GAAP: Net earnings per common share – diluted $1.12   $0.65   $4.65   $3.95
               
Share based compensation 0.10   0.08   0.38   0.33
Acquisition and integration expense (0.01)   0.02   0.09   0.11
Acquisition related amortization expense [3] 0.13   0.09   0.40   0.32
Other (income) expense [2] (0.31)   0.02   (0.35)   0.01
Re-measurement of deferred taxes [4] -   0.13   -   (0.12)
Adjustment to US federal income tax rate to 21% -   0.07   -   0.54
Tax benefit on restricted stock -   -   (0.05)   (0.10)
Total non-GAAP adjustments – net of tax ($0.09)   $0.41   $0.47   $1.09
               
Non-GAAP: Net earnings per common share – diluted $1.03   $1.06   $5.12   $5.04
               

 

[1] Amount consists of depreciation and amortization for assets used internally.
[2] Interest income and foreign currency transaction gains and losses.
[3] Amount consists of amortization of intangible assets from acquired businesses.
[4] Tax benefit (expense) for the re-measurement of U.S. deferred income tax assets and liabilities at 21% federal income tax rate for U.S. operations.