ePlus Reports Third Quarter and First Nine Months Financial Results

ePlus inc. (NASDAQ:PLUS), a leading provider of technology and financing solutions, today announced financial results for the three and nine months ended December 31, 2019.

Management Comment

"ePlus achieved strong double-digit growth across key financial metrics in both the third quarter and first nine months of fiscal 2020, demonstrating the competitive advantages of our portfolio of technology products and services, complemented by our financing capabilities. We continued to gain market share in the third quarter, underscored by 20.3% growth in technology product sales and 43.2% growth in technology services revenue, which combined with strong performance from our financing segment, drove a 31.5% increase in net earnings,” commented Mark Marron, CEO and President of ePlus.

"Growth in gross profit and earnings per share outpaced revenue growth in the third quarter, and consolidated gross margin expanded by 20 basis points to 24.2%. Our continuing investment in customer-facing professionals supports growth in the high demand areas of cloud, security and digital infrastructure.”

Third Quarter Fiscal 2020 Results

For the third quarter ended December 31, 2019 as compared to the third quarter of the prior fiscal year ended December 31, 2018:

Consolidated net sales increased 24.1% to $429.0 million, from $345.7 million.

Technology segment net sales increased 22.7% to $410.6 million, from $334.7 million primarily from an increase in sales to customers in the telecom, media and entertainment industry as well as technology, healthcare, and state and local government and educational institutions. Service revenues increased 43.2% to $50.4 million, from $35.2 million due to increases across all our services offerings including professional and managed services, and staff augmentation.

Adjusted gross billings increased 22.5% to $586.3 million due, in part, to organic growth and the acquisitions of SLAIT Consulting, LLC in January 2019 and ABS Technology in August 2019.

Financing segment net sales increased 67.7% to $18.4 million, from $11.0 million, primarily due to an increase in transactional gains.

Consolidated gross profit increased 25.1% to $103.7 million, from $82.9 million. Consolidated gross margin increased to 24.2% from 24.0% last year, due to higher gross profit in our financing segment.

Operating expenses increased 23.1% to $77.4 million, from $62.9 million, primarily due to an increase in salaries and variable compensation and additional costs associated with the acquisitions and operations of SLAIT Consulting, LLC and ABS Technology. Our headcount increased 337 employees primarily from the acquisitions.

Consolidated operating income increased 31.2% to $26.3 million.

Our effective tax rate for the current quarter was 28.3%, consistent with the prior year quarter.

Net earnings increased 31.5% to $19.6 million.

Adjusted EBITDA increased 24.7% to $31.9 million, from $25.6 million.

Diluted earnings per share was $1.46, compared with $1.10 in the prior year quarter. Non-GAAP diluted earnings per share was $1.64, compared with $1.29 last year.

First Nine Months Fiscal 2020 Results

For the nine months ended December 31, 2019 as compared to the nine months of the prior fiscal year ended December 31, 2018:

Consolidated net sales increased 16.7% to $1,221.9 million, from $1,047.2 million.

Technology segment net sales increased 15.8% to $1,176.9 million, from $1,016.3 million. Service revenues increased 38.0% to $144.3 million, from $104.5 million.

Adjusted gross billings increased 18.5% to $1,713.8 million due, in part, to organic growth as well as the acquisitions of SLAIT Consulting, LLC in January 2019 and ABS Technology in August 2019.

Financing segment net sales increased 45.8% to $45.0 million, from $30.9 million, primarily due to an increase in transactional gains from several large government related transactions.

Consolidated gross profit increased 20.2% to $299.4 million, from $249.1 million. Consolidated gross margin improved 70 basis points to 24.5%, compared with 23.8% last year, due to higher service revenues and higher transaction gains from the financing segment.

Operating expenses increased 20.6% to $222.0 million, from $184.1 million, primarily due to an increase in salaries and variable compensation and additional costs associated with the acquisitions and operations of SLAIT Consulting, LLC and ABS Technology.

Consolidated operating income increased 19.0% to $77.4 million.

Our effective tax rate for the current period was 28.7%, compared with 27.3% in the prior year. The increase in the rate was primarily due to a decrease in the tax benefit from the vesting of restricted stock.

Net earnings increased 16.0% to $55.8 million.

Adjusted EBITDA increased 18.6% to $95.8 million, from $80.8 million.

Diluted earnings per share was $4.16, compared with $3.54 in the prior year period. Non-GAAP diluted earnings per share was $4.89, compared with $4.10 last year.

Balance Sheet Highlights

As of December 31, 2019, ePlus had cash and cash equivalents of $59.6 million, compared with $79.8 million as of March 31, 2019. The decrease in cash and cash equivalents was primarily due to investments in our financing portfolio, acquisition funding, and share repurchases totaling $13.7 million. Total stockholders' equity was $472.5 million, compared with $424.3 million as of March 31, 2019. Total shares outstanding were 13.5 million and 13.6 million on December 31, 2019 and March 31, 2019, respectively.

Summary and Outlook

"Year-to-date results set the stage for fiscal 2020 to be a year of significant growth for ePlus, driven by our ability to capture demand from our growing base of mid-market and enterprise customers for complex solutions that optimize and protect their IT initiatives. In addition to our organic growth, we have successfully integrated the August, 2019 ABS Technology acquisition, and we continue to evaluate additional acquisition opportunities that would expand our technology capabilities and our geographic reach,” Mr. Marron concluded.

Conference Call Information

ePlus will hold a conference call and webcast at 4:30 p.m. ET on February 5, 2020:

The replay of this webcast will be available approximately two hours after the call and be available through February 12, 2020.

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 1,600 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.

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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, 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
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 expense, provision for income taxes, and other income (expense). 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 (expense), share based compensation, and acquisition related amortization expense, and the related tax effects.

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 non-GAAP adjusted gross billings, adjusted EBITDA, non-GAAP net earnings and non-GAAP net earnings per common share or similarly titled measures differently, which may reduce their usefulness as comparative measures.

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