Mix Shift Continues to Drive Gross
Margin
Second Quarter Fiscal Year 2019
First Half Fiscal Year 2019
HERNDON, Va., Nov. 07, 2018 (GLOBE NEWSWIRE) -- ePlus inc. (NASDAQ:PLUS - news), a leading provider of technology solutions, today announced financial results for the three and six months ended September 30, 2018.
Management Comment
“Consolidated gross margin reached 24.8% in the second quarter, driven by a 160-basis point margin expansion in our technology segment. This margin performance reflects our continued strategic emphasis on driving professional and managed services together with the solutions that are most in demand from our customers, including cloud and security,†said Mark Marron, President and Chief Executive Officer. “For the trailing twelve months ended September 30, our sales of security products and services increased 9.1% and represented 18.9% of adjusted gross billings, which underscores the importance of this area to our customers.
“Revenues were comparatively lower year-on-year, reflecting the impact of a large project that we partially delivered to a major enterprise customer in last year’s second quarter, and an increase in sales we recognized on a net basis. Revenues were also affected by newly originated transactions that are recognized ratably and/or on a net basis. These are industry trends that can produce lower current period revenue, but also can result in higher margins over the life of the transaction.
“We continued to realign our engineering and sales resources to optimize utilization and deliver capabilities which are closely aligned with customer demand. We are investing in highly credentialed engineers, consultants, and sales professionals with expertise in targeted solution areas, strengthening partnerships with key vendors, and adding headcount through acquisitions. As a result, over the past few quarters we have rationalized certain disciplines while building out others, and we expect these actions will help drive and support future growth.â€
Second Quarter Fiscal Year 2019 Results
For the second quarter ended September 30, 2018 as compared to the second quarter of the prior fiscal year ended September 30, 2017:
Consolidated net sales decreased 7.1% to $345.0 million, from $371.4 million.
Technology segment net sales decreased 6.7% to $334.8 million, from $358.7 million.
Adjusted gross billings decreased 3.7% to $485.9 million. Adjusted gross billings are technology segment net sales adjusted to exclude the costs incurred of applicable third-party maintenance, software assurance and subscription/Saas licenses, and services.
Financing segment net sales decreased 19.0% to $10.3 million, from $12.7 million, due to a decrease in post contract earnings from the early terminations of several large leases in last year’s quarter.
Consolidated gross profit decreased 2.4% to $85.5 million, from $87.6 million. Consolidated gross margin improved 120 basis points to 24.8%, compared with 23.6% last year, due to a shift in mix towards third-party maintenance, software assurance and subscription/SaaS licenses, and services. Also contributing were higher product margins and service revenues.
Operating expenses increased 3.7% to $60.9 million, from $58.7 million, due, in part to an increase in personnel cost from a full quarter of salaries and benefits from the IDS acquisition we completed on September 15, 2017. Our headcount decreased to 1,255, or 2.1% from 1,282 as of September 30, 2017.
Consolidated operating income decreased 14.8% to $24.6 million.
Our effective tax rate for the current quarter was 27.7%, compared with 40.0% in the prior year quarter. The lower effective tax rate was due to the change in the U.S federal statutory rate to 21% from legislation that was enacted on December 22, 2017.
Net earnings rose 4.5% to $18.0 million.
Adjusted EBITDA decreased 10.3% to $29.9 million, from $33.3 million.
Diluted earnings per share was $1.33, compared with $1.23 in the prior year quarter. Non-GAAP diluted earnings per share was $1.53, compared with $1.68 last year. Non-GAAP diluted earnings per share is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share based compensation, and acquisition and integration expenses, and the related tax effects, and an adjustment to our tax expense in the prior year assuming a 21% statutory income tax rate for U.S. operations.
First Half Fiscal Year 2019 Results
For the six months ended September 30, 2018 as compared to the six months of the prior fiscal year ended September 30, 2017:
Consolidated net sales decreased 5.8% to $701.6 million, from $744.7 million.
Technology segment net sales decreased 5.5% to $681.6 million, from $721.6 million.
Adjusted gross billings decreased 2.4% to $968.2 million. Adjusted gross billings are technology segment net sales adjusted to exclude the costs incurred of applicable third-party maintenance, software assurance and subscription/Saas licenses, and services.
Financing segment net sales decreased 13.8% to $19.9 million, from $23.1 million.
Consolidated gross profit increased 0.6% to $166.2 million, from $165.2 million. Consolidated gross margin improved 150 basis points to 23.7%, compared with 22.2% last year, due to a shift in mix towards third-party maintenance, software assurance and subscription/SaaS licenses, and services. Also contributing were higher product margins and service revenues.
Operating expenses increased 4.6% to $121.2 million, from $115.8 million, due, in part to an increase in personnel cost and an increase in variable compensation as a result of the increase in gross profit.
Consolidated operating income decreased 8.7% to $45.0 million.
Our effective tax rate for the first half of fiscal year 2019 was 26.8%, compared with 38.0% in the prior year. The lower effective tax rate was due to the change in the U.S federal statutory rate to 21% from legislation that was enacted on December 22, 2017.
Net earnings rose 8.6% to $33.3 million.
Adjusted EBITDA decreased 4.3% to $55.3 million, from $57.7 million.
Diluted earnings per share was $2.45, compared with $2.19 in the prior year. Non-GAAP diluted earnings per share was $2.81, compared with $2.88 last year. Non-GAAP diluted earnings per share is based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share based compensation, and acquisition and integration expenses, and the related tax effects, and an adjustment to our tax expense in the prior year assuming a 21% statuatory income tax rate for U.S. operations.
Balance Sheet Highlights
As of September 30, 2018, ePlus had cash and cash equivalents of $75.6 million, compared with $118.2 million as of March 31, 2018. The decrease in cash and cash equivalents was primarily due to increases in working capital in the technology segment and share repurchases. Inventory levels increased $16.8 million to $56.6 million from the fiscal year end due to projects underway. Total stockholders' equity was $399.3 million, compared with $372.6 million as of March 31, 2018. Total shares outstanding were 13.7 million and 13.8 million on September 30, 2018 and March 31, 2018, respectively.
Summary and Outlook
“Heading into the second half of fiscal 2019, we continue to see favorable market conditions in our targeted solution areas, with demand for solutions and service offerings that enable customers to evaluate and implement cloud strategies, power end-user experiences through digital transformation that drive customer and employee engagement, and mitigate the ever-present risk of cybersecurity threats.
“Our focus remains on broadening our capabilities and leveraging the expertise we have across our organization to help our clients achieve the best possible technology solutions. We continue to build on our base of managed and annuity services revenue, which provides opportunities to sell additional products and services. Additionally, we will continue to opportunistically add to our roster of customer-facing sales and engineering professionals, while also evaluating strategic acquisitions that can broaden our footprint, deepen our expertise, and add additional service offerings,†Mr. Marron concluded.
Recent Corporate Developments/Recognitions
Conference Call Information
ePlus will hold a conference call and webcast at 4:30 p.m. ET on November 7, 2018:
| Date: | Wednesday, November 7, 2018 |
| 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: | 1694487 (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
November 14, 2018.
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 1,200 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 [email protected]. Connect with ePlus on Facebook at www.facebook.com/ePlusinc and on Twitter at www.twitter.com/ePlus.
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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 volatility in the U.