OREANDA-NEWS. August 03, 2016.  ePlus inc. (NASDAQ:PLUS), a leading provider of technology solutions, today announced financial results for the first quarter ended June 30, 2016.

Management Comment

“We reported strong financial results for our first quarter of fiscal 2017, as we continued to execute on our long term strategy of expanding solutions, focusing on security, and driving business outcomes for our customers,” said Mark. P. Marron, Chief Executive Officer and President of ePlus inc.  “Our transformative solutions coupled with security continue to resonate with the market, providing value to our customers and driving above-market revenue growth.  In addition, our results this quarter benefitted from increased IT spending by our enterprise customers, and certain seasonal factors, particularly in the state, local government, education, and healthcare sectors.  We also delivered another quarter of solid margin expansion, with first quarter gross profit, net earnings and adjusted EBITDA all growing faster than revenue.  At the same time, we continued to invest in the business during the quarter, deepening our expertise in key areas including services, security, and other complex solutions.”

Mark P. Marron Promoted to Chief Executive Officer

On July 25, 2016, ePlus announced that Mark P. Marron has been promoted to Chief Executive Officer and President effective August 1, 2016.  Mr. Marron joined the company in 2005 as Senior Vice President of Sales, and became Chief Operating Officer in 2010.  Phillip G. Norton, after serving 23 years as the company’s CEO, has been named Executive Chairman, and will continue to focus on important strategic corporate initiatives and effectuate a smooth transition.

“I am pleased and honored to be appointed CEO of ePlus,” stated Mr. Marron.  “Having worked side-by-side with Phil for the past 11 years, I look forward to continuing his tradition of excellence and driving growth while serving all of our stakeholders.  I am more excited than ever about the opportunities that lie ahead, and look forward to working closely with Phil on important strategic initiatives.  On behalf of all of our investors, customers, vendors and employees, I would like to congratulate him on his fantastic record of success building ePlus as our Chairman and CEO for over two decades.”

First Quarter Fiscal 2017 Results

For the first quarter ended June 30, 2016 as compared to the first quarter of the prior fiscal year ended June 30, 2015:

Consolidated net sales rose 10.6% to \\$298.5 million, from \\$269.9 million.

Technology segment net sales rose 11.5% to \\$291.5 million, from \\$261.5 million.

Adjusted gross billings of product and services increased 19.6% to \\$397.5 million. Adjusted gross billings are sales of product and services adjusted to exclude the costs incurred of applicable third-party software assurance, maintenance, and services.

Financing segment net sales decreased 15.7% to \\$7.0 million, from \\$8.4 million due to lower portfolio earnings.

Consolidated gross profit rose 14.4% to \\$67.7 million, from \\$59.1 million.

Consolidated operating income rose 16.1% to \\$17.5 million, from \\$15.1 million.

Net earnings rose 21.1% to \\$10.7 million, from \\$8.8 million.  Our effective tax rate for the three months ended June 30, 2016 was 39.0%, which includes a tax benefit of \\$0.4 million, or \\$0.06 per diluted share, related to the adoption of the new share-based compensation accounting standard.

Adjusted EBITDA rose 18.4% to \\$19.3 million, from \\$16.3 million.

Diluted earnings per share was \\$1.50, compared with \\$1.21 in the first quarter of fiscal 2016. Non-GAAP diluted earnings per share was \\$1.54, compared with \\$1.25 last year. Non-GAAP diluted earnings per share is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income and acquisition related amortization expense, net of taxes and the tax benefit of \\$0.4 million recognized in the current quarter.

Balance Sheet Highlights

As of June 30, 2016, ePlus had cash and cash equivalents of \\$78.8 million, compared with \\$94.8 million as of March 31, 2016.  The decrease is primarily the result of 226,792 shares bought under our share repurchase plan. Total stockholders' equity was \\$309.8 million and total shares outstanding were 7.2 million, compared with \\$318.9 million and shares outstanding of 7.4 million on March 31, 2016.

Summary and Outlook

“We remain committed to our long term strategy of geographic expansion both organically and through acquisition; expanding our services and solution offerings; and making sure we invest in current and emerging technologies to capture future customer IT spend.  Our investments in client-facing personnel over the last several years have provided ePlus with a much broader and deeper customer service capability.  This gives us the operational capacity and solution sets not only to grow our market share, but also increase revenue contribution from larger and more sophisticated customers where technology budgets tend to be larger and more stable. While overall IT industry growth remains modest, we believe we are well positioned to grow ahead of the overall market in fiscal 2017.  Our financial position, operational expertise and nationwide client base give us confidence that we can leverage this growth to create further value in the quarters ahead,” Mr. Marron continued.

Results of Operations – Three Months Ended June 30, 2016

The Company's operations are conducted through two business segments. The technology segment includes sales of information technology products, third-party software, third-party maintenance contracts, advanced professional services and managed services, and the Company's proprietary software to commercial entities and state and local governments. The financing segment consists of the financing of equipment, software, and related services to commercial entities, state and local governments, and government contractors.

Technology Segment

The results of operations for the technology segment for the three months ended June 30, 2016 and 2015 were as follows (dollars in thousands):

   
  Three Months Ended June 30,
   2016   2015  Change
Sales of product and services \\$ 290,181  \\$ 259,696  \\$ 30,485   11.7%
Fee and other income  1,276     1,811    (535)  (29.5%)
Net sales    291,457     261,507   29,950   11.5%
                 
Cost of sales, product and services  229,847     207,718   22,129   10.7%
                 
Gross profit  61,610   53,789   7,821   14.5%
                 
Professional and other fees    1,497     1,262   235   18.6%
Salaries and benefits    37,485     32,952   4,533   13.8%
General and administrative    6,231     5,325     906   17.0%
Depreciation and amortization  1,771   1,204   567   47.1%
Interest and financing costs    -     19   (19)  (100.0%)
Operating expenses    46,984     40,762   6,222   15.3%
                 
Segment earnings \\$ 14,626  \\$ 13,027  \\$ 1,599   12.3%
                 
Adjusted EBITDA \\$16,397  \\$14,231  \\$2,166   15.2%
                 

Net sales rose 11.5% to \\$291.5 million, from \\$261.5 million in the first quarter of fiscal 2016.  

Adjusted gross billings grew 19.6% to \\$397.5 million, from \\$332.3 million in the first quarter of fiscal 2016.

Gross margin on sales of product and services was 20.8%, up from 20.0% in the first quarter of fiscal 2016.

Operating expenses rose 15.3% to \\$47.0 million, from \\$40.8 million in the first quarter of fiscal 2016, reflecting increased salaries and benefits due to a 10.8% increase in personnel to 1,048 from 946, of which 48 were from the IGX acquisition, as well as increased variable compensation, and amortization expenses associated with the acquisition of IGX in December 2015. 

Segment earnings were \\$14.6 million, up 12.3% from \\$13.0 million in the first quarter of fiscal 2016.  Adjusted EBITDA increased 15.2% to \\$16.4 million for the quarter, from \\$14.2 million in the first quarter of fiscal 2016. 

The Company maintained its balanced portfolio of customer-end markets. The breakdown of net sales by customer end market for the twelve months ended June 30, 2016 and 2015 were as follows:

   
   Twelve Months Ended June 30, 
  2016   2015  Change
Technology 22%  20%  2%
State & Local Government & Educational Institutions 22%  23%  (1%)
Telecom, Media, and Entertainment 14%  18%  (4%)
?Financial Services 12%  10%  2%
?Healthcare  11%  10%  1%
?Other 19%  19%  - 
Total 100%  100%  
          

Financing Segment

The results of operations for the financing segment for the three months ended June 30, 2016 and 2015 were as follows (dollars in thousands):

   
  Three Months Ended June 30,
   2016   2015  Change
Financing revenue \\$ 6,987  \\$ 8,346  \\$  (1,359)  (16.3%)
Fee and other income  59   13   46   353.8%
Net sales  7,046   8,359   (1,313)  (15.7%)
                 
Direct lease costs  992        3,018    (2,026)  (67.1%)
                 
Gross profit   6,054   5,341   713   13.3 %
                 
Professional and other fees    289     256     33   12.9%
Salaries and benefits    2,313     2,262   51   2.3%
General and administrative  239   246     (7)  (2.8%)
Depreciation and amortization  4   4   -   0.0%
Interest and financing costs    349   534    (185)  (34.6%)
Operating expenses    3,194     3,302     (108)  (3.3%)
                 
Segment earnings \\$ 2,860  \\$ 2,039  \\$ 821   40.3%
                 
Adjusted EBITDA \\$2,864  \\$2,043  \\$821   40.2%
                 

Net sales were \\$7.0 million, compared with \\$8.4 million in the first quarter of fiscal 2016, as a result of lower portfolio earnings, which was offset by higher post-contract earnings. Direct lease costs decreased \\$2.0 million or 67.1% due to a lower depreciation expense from operating leases.

Operating expenses were down 3.3% over the previous year, mainly due to lower interest expenses as a result of lower debt combined with lower interest rates. Segment earnings and adjusted EBITDA both increased to \\$2.9 million from \\$2.0 million in the first quarter of fiscal 2016.

Recent Corporate Developments & Recognitions

  • On July 21, 2016, the ePlus Board of Directors promoted Mark P. Marron to Chief Executive Officer and President, effective August 1, 2016. Mr. Marron succeeded Phillip G. Norton, who assumed the new position of Executive Chairman. Mr. Marron was previously Chief Operating Officer of ePlus inc. and President of ePlus Technology, inc. Mr. Marron joined ePlus as senior vice president of sales in 2005 and was promoted to COO in 2010.
  • On July 14, 2016, ePlus inc. announced that its subsidiary, ePlus Technology, inc., has been named Emerson Network Power North American 2015 Solution Provider of the Year. Emerson Network Power, the world’s leading provider of critical infrastructure for information and communication technology systems, presented the award at its annual Partner Summit in Columbus, Ohio, in June 2016.
  • On June 8, 2016, ePlus inc. announced that its subsidiary, ePlus Technology, inc., has been named to The Channel Company’s 2016 CRN Solution Provider 500. The SP500 list is CRN’s annual ranking of the largest technology integrators, solution providers, IT consultants in North America by revenue. ePlus placed #34 in the annual ranking.

Conference Call Information

ePlus will hold a conference call and webcast at 4:30 p.m. ET on August 2, 2016:

 
 Date: Tuesday, August 2, 2016
 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: 46135651 (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 August 10, 2016.

About ePlus inc.

ePlus is a leading integrator of technology solutions. ePlus enables organizations to optimize their IT infrastructure and supply chain processes by delivering complex information technology solutions, which may include managed and professional services and products from top manufacturers, flexible financing, and proprietary software. Founded in 1990, ePlus has more than 1,000 associates serving commercial, state, municipal, and education customers nationally and in the UK. The Company is headquartered in Herndon, VA. 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® and ePlus products referenced herein are either registered trademarks or trademarks of ePlus 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, possible adverse effects resulting from financial market disruption and fluctuations in foreign currency rates, and general slowdown of the U.S. economy such as our current and potential customers' delaying or reducing technology purchases or put downward pressure on prices, increasing credit risk associated with our customers and vendors, reduction of vendor incentive programs, the possibility of additional goodwill impairment charges, and restrictions on our access to capital necessary to fund our operations; significant adverse changes in, reductions in, or losses of relationships with major customers or vendors; our ability to implement comprehensive plans to achieve customer account coverage, cost containment, asset rationalization, systems integration and other key strategies; our ability to secure our electronic and other confidential information or that of our customers or partners; changes to our senior management team and/or failure to implement succession plans; 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 adapt to changes in the IT industry and/or rapid change in product standards; our ability to hire and retain sufficient personnel; our ability to realize our investment in leased equipment; our ability to consummate and integrate acquisitions; the creditworthiness of our customers; our ability to raise capital and obtain non-recourse financing for our transactions; our ability to reserve adequately for credit losses; the impact of competition in our markets; the possibility of defects in our products or catalog content data; 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  
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS     
(except per share data)      
  As of As of
  June 30, 2016 March 31, 2016
           
ASSETS (amounts in thousands) 
     
Current assets:    
Cash and cash equivalents \\$ 78,807  \\$ 94,766 
Accounts receivable—trade, net  258,829   234,628 
Accounts receivable—other, net  37,909   41,771 
Inventories—net  46,376   33,343 
Financing receivables—net, current  72,826   56,448 
Deferred costs  4,267   6,371 
Other current assets  7,605   10,649 
Total current assets  506,619   477,976 
           
Financing receivables and operating leases—net  70,285   75,906 
Property, equipment and other assets  9,526   8,644 
Goodwill and other intangible assets—net  52,669   54,154 
TOTAL ASSETS \\$ 639,099  \\$ 616,680 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
     
LIABILITIES    
     
Current liabilities:    
Accounts payable \\$ 74,608  \\$ 76,780 
Accounts payable—floor plan  144,509   121,893 
Salaries and commissions payable  14,102   14,981 
Deferred revenue  17,511   18,344 
Recourse notes payable—current  2,299   2,288 
Non-recourse notes payable—current  39,151   26,042 
Other current liabilities  15,491   13,118 
Total current liabilities  307,671   273,446 
     
Recourse notes payable—long term  898   1,054 
Non-recourse notes payable—long term  14,581   18,038 
Deferred tax liability—net  2,993   3,001 
Other liabilities  3,202   2,263 
TOTAL LIABILITIES   329,345   297,802 
     
COMMITMENTS AND CONTINGENCIES    
     
STOCKHOLDERS' EQUITY    
Preferred stock, \\$.01 per share par value; 2,000 shares authorized; none issued or outstanding  -   - 
Common stock, \\$.01 per share par value; 25,000 shares authorized;
  13,296 issued and 7,167 outstanding at June 30 2016 and 13,237 issued and 7,365 outstanding at March 31, 2016		  133   132 
Additional paid-in capital  118,969   117,511 
Treasury stock, at cost, 6,129 and 5,872 shares, at June 30, 2016
  and March 31, 2016, respectively		   (150,555)   (129,518)
Retained earnings  341,895   331,224 
Accumulated other comprehensive income—foreign currency 
  translation adjustment		   (688)   (471)
Total Stockholders' Equity  309,754   318,878 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY \\$ 639,099  \\$ 616,680 
         
           
ePlus inc. AND SUBSIDIARIES          
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
     
 Three Months Ended June 30, 
   2016   2015  
                
 (amounts in thousands, except per share data) 
     
Net sales \\$298,503  \\$269,866  
Cost of sales  230,839   210,736  
Gross profit  67,664   59,130  
                
Professional and other fees  1,786   1,518  
Salaries and benefits  39,798   35,214  
General and administrative expenses  6,470   5,571  
Depreciation and amortization  1,775   1,208  
Interest and financing costs  349   553  
Operating expenses  50,178   44,064  
                
EARNINGS BEFORE PROVISION FOR INCOME TAXES  17,486   15,066  
                
PROVISION FOR INCOME TAXES  6,815   6,252  
                
NET EARNINGS \\$ 10,671  \\$8,814  
                
NET EARNINGS PER COMMON SHARE—BASIC \\$ 1.52  \\$1.22  
NET EARNINGS PER COMMON SHARE—DILUTED \\$ 1.50  \\$1.21  
                
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC  7,033   7,225  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED  7,108   7,301  
          

ePlus inc. AND SUBSIDIARIES 
RECONCILIATION OF NON-GAAP INFORMATION

We included reconciliations below for the following non-GAAP information: (i) Adjusted Gross Billings of Product and Services, (ii) Adjusted EBITDA, (iii) Adjusted EBITDA Margin and (iv) non-GAAP Net Earnings per Common Share - Diluted. We define adjusted gross billings of product and services as our sales of product and services calculated in accordance with GAAP, adjusted to exclude the costs incurred related to sales of third-party software assurance, maintenance and services.  We define Adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, provision for income taxes, and other income. 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. Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales.  Non-GAAP net earnings per common share are based on net earnings calculated in accordance with GAAP, adjusted to exclude other income and acquisition related amortization expense, and the related effects on income taxes.

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, 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 June 30, 
   2016   2015  
          
  (amounts in thousands) 
      
GAAP: Sales of product and services \\$ 290,181  \\$ 259,696  
Plus: Costs incurred related to sales of
  third party software assurance, maintenance and services		  107,292   72,612  
Non-GAAP Adjusted gross billings of product and services \\$397,473  \\$332,308  
      
    
  Three Months Ended June 30, 
   2016   2015  
          
  (amounts in thousands) 
      
GAAP: Net earnings \\$10,671  \\$8,814  
Plus: Provision for income taxes  6,815   6,252  
Plus: Depreciation and amortization [1]  1,775   1,208  
Non-GAAP: Adjusted EBITDA \\$19,261  \\$16,274  
      
Non-GAAP: Adjusted EBITDA margin  6.5%  6.0% 
      
      
  Three Months Ended June 30, 
   2016   2015  
          
  (amounts in thousands) 
Technology Segment     
  Earnings before tax \\$14,626  \\$13,027  
  Depreciation and amortization [1]  1,771   1,204  
  Adjusted EBITDA \\$16,397  \\$14,231  
      
Financing Segment     
  Earnings before tax \\$2,860  \\$2,039  
  Depreciation and amortization [1]  4   4  
  Adjusted EBITDA \\$2,864  \\$2,043  
          
  
  Three months ended June 30,
   2016   2015 
         
   (amounts in thousands, except per share)  
GAAP: Earnings before provision for income taxes \\$17,486  \\$15,066 
Plus:  Acquisition related amortization expense [2]  1,089   568 
Non-GAAP: Earnings before provision for income taxes  18,575   15,634 
Non-GAAP: Provision for income taxes [3]  7,616   6,488 
Non-GAAP: Net earnings \\$10,959  \\$9,146 
          
GAAP net earnings per common share – diluted \\$ 1.50  \\$1.21 
Non-GAAP net earnings per common share – diluted \\$1.54  \\$1.25 
         
[1] Amount consists of depreciation and amortization for assets used internally.
[2] Amount consists of amortization of intangible assets from acquired businesses.
[3] Non-GAAP provision for income taxes is calculated based on the effective tax rate for the non-GAAP adjustments. For
comparative purposes, the non-GAAP provision for income taxes for the three months ended June 30, 2016 excludes the tax benefit
of \\$0.4 million associated with adopting the stock-based compensation accounting standard.