ePlus inc (PLUS) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to your earnings conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to your host, Mr. Kley Parkhurst. Sir, you may begin.

Good morning. This is Kley Parkhurst, Senior Vice President of ePlus, and I'd like to welcome you to our conference call today to discuss our September 30, 2003 or second quarter of our fiscal 2004 financial results. The conference call this morning will include prepared remarks followed by a questions and answer period. Joining me today is Phil Norton, the Chairman, Chief Executive Officer and President of ePlus as well as Steve Mencarini, our Senior Vice President and Chief Financial Officer.

Before we begin the formal presentation, let me read our Safe Harbor statement. The statements made during this call which are not historical facts may be deemed to contain forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may vary due to general economic conditions and other risks and uncertainties, including those risks and uncertainties detailed in our Securities and Exchange Commission filings. We refer you to the disclosure contained in our annual report on Form 10-K for the year ended March 31st, 2003 under the headings risk factors and factors that may affect future operating results, and in our quarterly report on Form 10-Q for the quarter ended September 30, 2003 to be filed today under the heading, factors that may effect future operating results for a description of these risks and uncertainties. All information discussed during this conference call is as of November 14th, 2003. ePlus inc. undertakes no duty to update this information. More information about potential factors that could affect ePlus inc.'s business and financial results is included in the Company's annual report on Form 10-K for the fiscal year ended March 31st, 2003, and the quarterly report on Form 10-Q for the quarter ended June 30, 2003, including, without limitation, under the captions risk factors and management's discussion and analysis of financial condition and results of operations which are on file with the SEC, and available at the SEC's web site at www.sec.gov. Additional information will also be set forth on those sections on ePlus inc.'s quarterly report on Form 10-Q for the September ended September 30, 2003, which will be filed with the SEC on or by November 14, 2003. A live web cast of this call, play back, and audio play back are available. Please refer to our press release or e-mail info@eplus.com, or go to our web site, www.eplus.com for more information.

Now, it's my pleasure to introduce Phil Norton. Phil.

Thank you, very much for joining us this morning. For the second quarter of our 2004 fiscal year, which ended September 30, 2003, we are pleased to announce our 28th consecutive quarter of profitability, with a 4 percent increase in revenues over the same quarter last year and an 8 percent increase fully diluted earnings per share. For the quarter, our net earnings increased 6 percent to $2.7 million from $2.5 million the prior year. EPS grew to 27 cents as compared to 25 cents on a dully diluted basis, while basic earnings per share increased 16 percent to 29 cents from 25 cents.

The earnings power of our business model continues to produce very good results with diverse sources of revenues and cash flow, giving us the ability to continue to invest in our eECM platform for the future.

The increase in revenues was driven by a $4.3 million or 6.5 percent increase in sales of product, which resulted from both new customers as well as organic growth from our existing customer base, we have more opportunities to cross sell enterprise cost management software and services. We believe that our customers are choosing to buy from us specifically because of our eECM services and software. With eECM, customers can automate their purchases from a single source, ePlus, and lower their headcount, improve visibility into their supply chain, improve transaction velocity and transparency, and reduce both the cost of the product as well as the cost of administering the acquisition and payment process. We have a number of customers today who purchase from ePlus specifically because we provide unique or better services that increase productivity and improve efficiency.

Salaries and benefits decreased 2.1 million or 18 percent, partly driven by the consolidations of operations in ePlus Technology, and a 36 percent reduction in headcount from last year to this year. We will continue to reengineer our operational systems to optimize efficiencies, using our own software to automate processes and further reduce costs.

Regarding procurement and content software, we achieved the results we had expected. During the quarter, we added a Fortune 1000 Procure+ customer, signed a Global 1000 Procure+ customer, and announced UNICCO as a new Procure+ customer. As we have focused more on the Fortune 1000, the sales evaluation, and especially the contract closing cycles, have lengthened due to the many levels of managerial review of our customers. Today, we have a robust backlog of deals for these solutions, and we continue to be very enthusiastic about the opportunity to expand our Enterprise Cost Management sales.

On October 10, we purchased the assets of Digital Paper Corp. The purchase assets include the customer contracts, software, and intellectual property, including one patent. Digital Paper software is used by major corporations such as GE and Sikorsky for document access and collaboration over the Internet. We believe it is a very strong stand-alone product, and will add significant functionality enhancements to our existing software. For example, in Content+, our current plan is to use Digital Paper as the Web content viewing technology for complex engineering drawings, and to share and collaborate on those drawings. And Procure+, Digital Paper technology will become the collaboration engine used for complex sourcing, e-sourcing, and RFx functionality. And we plan to extend Manage+, our asset management product, into facilities management. And digital paper technology will be used for blueprint imaging and access contract management at lease management. Over the long-term, we believe Digital Paper software and wireless technology will be valuable in the homeland security and defense areas, especially for emergency responders.

This morning, we announced the election of Milt Cooper to our board of directions. Milt was the senior executive responsible for turning CSC's federal sector into one of the largest federal government integrators. He has terrific knowledge of this space, and a wide array of high-level contacts, both within the federal government and among the federal contractor community. We expect that Milt will help to bring our enterprise cost management solutions further into this space. Additionally, the election of Milt to the board as an independent director continues our tradition of having a strong independent board, which is now comprised of four independent directors out of the six total.

In summary, ePlus continues to execute its strategy of acquiring customers, improving our sales force, using our positive earnings to repurchase stock and invest in our software and business solutions, open new sales locations, and reduce costs. We have also continued to repurchase our stock. In the quarter ending 9/30/03, we purchased 163,300 shares at an average prize of $13.95. We are continuing to build ePlus into a world-class enterprise-level organization to serve the needs of our customers and broaden our set of solutions. With the addition of software like Digital Paper and solutions like outsourced procurement services to our enterprise cost management framework, we are moving closer to becoming the utility for middle market and Fortune 1000 companies. Companies are seeking to reduce costs, create efficient processes, and outsource noncore functions. And today, ePlus is being recognized as a leader for both outsourced or enterprise solutions.

That concludes our prepared remarks. Steve Mencarini and I are happy to answer any questions at this time. Thank you.

(OPERATOR INSTRUCTIONS). Our first question comes from Mollie Sandusky with Friedman Billings.

Good morning. Thanks for taking my question. Phil, I was wondering if you could talk a little bit more about how you see the software sales kind of ramping up over time. I know you've talked about how the focus on the Fortune 1000 customers is a longer sales cycle. But can you give us an idea of kind of when we get caught up with that sales cycle, and when we should maybe start to see more of an increase in the software sales?

Well, I think we talked about it. June, we saw, you know, about 59 opportunities in our pipeline. We have been focusing our sales force to driving more opportunities to (ph) the table within our customer base as well as new customers. As of September 29th, we had 77 opportunities. We have seen a significant increase in the number of Web casts. We have also gotten some additional, you know, press about winning some of our larger transactions. And, you know, we are still seeing a lot more interest. We are getting down to the finals in (ph) a lot more opportunities. But the timeframe for people making those decisions are, you know, still spread out. But we're starting to see people narrow down the number of people that they are looking at. And, you know, we think we'll see, you know, some escalation of the number that we're closing in, you know, if not this quarter, next quarter. I think this quarter is probably, because of the holidays, we'll probably see more decisions in the January, February timeframe.

Okay. And the headcount reductions -- can you just talk a little bit about what areas that was in? Was that mostly kind of back office support areas, or sales people? Or how did that break out?

There's two parts to that. One, as we've talked in the past, our consolidation for the acquisitions we have made in the past was to centralize our administration and our accounting so that we would have a better view of everything going on across the enterprise. And basically, that is taking out the additional costs in the field of accounting and administration from the acquisitions, of which, we completed that March 31st. And we ran it one quarter without having very many of the headcount reduced. And then last quarter, we were able to basically reduce it further. We are continuing to go forward in that area. It was very few sales; it was more administration. On the sales side, our goal is to maintain the number of salesmen that we have. We will be taking people who have not stepped up to selling the Enterprise Cost Management solutions, and that have not, you know, done very well on their quota assignments and reducing those, but adding back people that are at a higher level. And we are continuing to see better applicants for sales jobs, with more experience and better success. And I think we are improving the quality of our sales force. But we are not planning on reducing it.

Okay. And with your new board member and in the press relate, you talked about how the DOD is now a new customer with the acquisition. And you are kind of focused on homeland security as an area for the Digital Paper acquisition. Can we maybe think that you are now focusing on the federal government as more of a target customer?

Digital Paper, you know, first to respond to that part, does have some contracts in the Department of the Feds (ph) and in the government space. For example, they have a contract with Ohio Department of Transportation, where they have all of their RFP processes for new roads and construction, and all the engineering drawings online for the competitors to use. We also have the Chicago Transit Authority, where they have most of the facilities listed, or imaged so that people can view those. So we see a great opportunity in the homeland security and first responder market for having engineering drawings and facilities available to people, you know, over the Web. And Digital Paper has spent an enormous amount of money. I think we're going to be the beneficiary of all the technology and research that they have done in that area. And we're going to focus on that part. And it will be in addition to all of our other customers for facilities management and asset management.

But on the other side, what we are starting to see, which we didn't have, you know, the proper sales force, nor did we have, you know, the capabilities and reach to go into the federal government, we are starting to see asset management, content management and e-procurement, in that order, becoming a significant higher importance to the government, and more emphasis on all those areas. So that one of the reasons that Mil was put on the board was A, he has a wealth of experience in the federal government. He led the CSC team to be one of the top three or four integrators in the federal government. He is well respected. We were very pleased that he had interest in joining our company and helping us move into the federal space to sell our solutions. And I think he will give us access to going with some of the bigger federal integrators to use our products. And that is the area we are going to focus and concentrate on.

Okay. Great. Just one more. If you could give us an update on kind of what you're seeing on spending for capital equipment and computers. Are you seeing any sort of a significant pickup? Is it kind of staying the same? Just give us an update on that.

Well, what we are seeing is a significant number of people indicating that their budgets are being increased, that they are starting to look for quotations and look for opportunities for them to increase the efficiencies and reduce the costs and buy software. I said -- I think I've said this several times -- that we thought there would be some pickup in capital spending in the last half of '03. I think that has occurred to some degree. But what we really see is a lot more people planning on spending in the first half of '04, and I still believe that, you know, that that appears to be happening.

Okay. Thank you, very much.

(OPERATOR INSTRUCTIONS). It appears we have no further questions.

Thank you all for attending. We appreciate your support. Thank you.

Thank you. This does conclude this morning's presentation. Please disconnect your lines and have a wonderful day.