ePlus inc (PLUS) 2003 Q3 法說會逐字稿

Good morning, and welcome to the ePlus quarterly earnings release conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to introduce your host for today's call, Mr. Kley Parkhurst. Sir, you may begin.

Thank you, Stephanie. This is Kley Parkhurst, Senior Vice President of ePlus, and I would like to welcome you to our conference call today to discuss our December 31st, 2003 third-quarter fiscal year 2004 nine-month financial results. The conference call this morning will include prepared remarks followed by a question-and-answer period. Joining me today is Phil Norton, the Chairman and Chief Executive Officer and President of ePlus, and Steve Mencarini, Senior Vice President and Chief Financial Officer.

Before we begin the formal presentation, let me read our Safe Harbor statement. The statements made today 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 and the December 31st, 2003 Form 10-Q to be filed by January 17th, 2004, under the headings "factors that may affect future operating results" for description of these risks and uncertainties.

All information discussed during this conference call is as of February 13th, 2004. EPlus undertakes no duty to update this information. More information about potential factors that could affect ePlus and its business and financial results is included in the company's annual report on Form 10-K through the fiscal year ended March 31st, 2003 and the quarterly report on Form 10-Q for the quarter ended September 30th, 2003, including, without limitation, under the caption "risk factors and management's discussion and analysis of financial condition and results of operation," 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 in those sections in ePlus's quarterly report on Form 10-Q for the quarter ended December 31st, 2003, which we filed with the SEC on or about February 17, 2003 -- 2004, excuse me. A live webcast of this call playback and audio playback are available. Please refer to our press release or e-mail info at ePlus.com or go to our web site, www.ePlus.com for more information.

It is now is my pleasure to introduce Phil Norton, the Chairman and Chief Executive Officer and President of ePlus. Phil?

Thank you for joining us. I will be speaking this morning about our financial results and highlight a few important customer wins and implementations. First, our financial results. For the third quarter of our 2004 fiscal year we ended December 31st, 2003, we are pleased to announce our 29th consecutive quarter of profitability. Revenues increased 9 percent to $80 million over the prior year's quarter. Net earnings and earnings per share were $2.6 million and 26 cents, respectively. We are in line with our expectations.

For the nine months ended 12/31, revenues increased 7.6 percent to 245 million, and net earnings increased 6.9 percent to 7.1 million. The increase in total revenues this quarter, as compared to the prior year, was driven, in part, by a 14.2 percent increase in sales of products to 63.3 million from 55.5 million. We are continuing to see an upward trend in equipment orders, software licensing revenues, and subscription revenues. Although, in our view, capital spending continues to be week, and there are no real technology drivers for customers to roll out entirely new hardware platforms such as Y2K. We are starting to see the normal replacement cycle and obsolescence become a factor. We believe that we will see continued moderate growth in our sales of product revenue, driven, in part, by cross-selling from our spend management solutions.

We have announced previously that we are reducing costs, and this is the first quarter where the results are translating to improved financial performance. For the quarter, salaries and benefits decreased 16.6 percent to 9.8 million, from 11.8 million. Total corporate headcount was 545 on 12/31/'03 versus 564 on 12/31/'02 and 570 03/31/'03. We are continuing to use our own technology solutions and methodologies to reduce our costs, such as centralized purchasing and accounting. At quarter's end, ePlus had total stockholders' equity of $113.8 million and cash of $26.8 million.

On October 1, 2003, we announced the third-annual stock repurchase plan, and the company repurchased 164,000 shares of common stock at a cost of $2.39 million during the quarter, with an average cost per share of 14.59. Since we began repurchasing stock in September of 2001, we have repurchased 1.42 million shares of common stock at a total cost of $12.1 million. This equates to a cumulative average cost, over the past 27 months, of $8.61 per share, which compares favorably to yesterday's closing price of $14.79. We will continue to repurchase shares within the parameters of our current repurchase plan.

I would like to turn now to a few important customer wins and implementations that we highlighted in the press release. During the quarter, we completed a major eProcurement implementation and a content services project engagement for a subsidiary of a Global 50 company. This was an important strategic win, especially in light of the strength of the incumbent, which had been there for a few years and is itself a Global 50 company. We were able to complete the supplier collaboration portal, deployed 19,000 business rules across multiple commodity classes, and integrate with SAP and E2-Open (ph) all within six months. We believe we accomplished this in one-third to one-half of the time of any other vendor.

To give you some further scope on this project, the first rollout was in Japan, and we had to convert Procure+ to Japanese. There are more than 7,000 users in six countries, and we were under pressure to convert by date certain as there was tremendous penalties to our customer if they remained on their prior system. Furthermore, the opportunities of this account are plentiful. We are actively in dialogue with several subsidiaries to deploy the system.

This deal, more than any other, has brought ePlus to a higher playing field. It will increase our current visibility, solidify our growing market position, and affirm ePlus as a market leader, which provides customers with an immediate ROI and is delivered by a profitable solutions provider with a single point of accountability.

We completed a number of other notable deals as well. EPlus rolled out Procure+ to one of the world's largest manufacturers of paper and building products. To host its system will allow more than 1,000 IT professionals and over 350 offices around the country to purchase technology equipment from more than 100 designated vendors. The system replaced an internal eProcurement system that has been in use for several years. And ePlus won the contract after a lengthy evaluation of the major eProcurement vendors.

The customer selection of ePlus was furthered by ePlus's (technical difficulty), the main expertise in the IT space. Using our content management expertise in software, we provide real-time aggregated IT catalogs to hundreds of customers. In this case, the customer benefited from the reduced ramp-up time and deployment costs to accelerate the benefits of spend management, better vendor performance management, and contract compliance -- improved process controls for ordering and aggregated and leveraged spend to reduce direct costs.

The company implemented Content+ for the leading provider of drilling and production solutions for the oil and gas industry. The content management solution is to be used as a sell-side (ph) solution to provide enriched data for each of its customers' Customized eCatalogs. The customer will use Content+ to aggregate, classify and normalize product data for nearly 200,000 items; create enriched product descriptions and images for each eCatalog; and manage both content and catalogs through the system's workflow and maintenance tools.

EPlus was selected after a two-year due diligence process that involve evaluating multiple content management vendors, including the top enterprise software and service providers. Content+ was chosen for its maturity and deep functionality, such as its ability to quickly and automatically categorize hundreds of thousands of products and services, using an internal knowledge-base that is the industry's largest, and its ability to feed cleansed (ph) data directly into the company's SAP ERP (ph) system.

During the quarter, ePlus announced the Content+ transaction with Strategic Distribution, Inc., a leading provider of maintenance and repair and operating supply chain management services, to create and manage Customized eCatalog for its customers. The catalogs will integrate SDI's internal Insight eProcurement system to enable end-users to access real-time inventory information.

We are also very pleased to elect Milt Cooper onto our Board of Directors in November. Milt has numerous long-term relationships within the federal government and the federal government contracting, community. In addition to continuing the ePlus tradition of having a strong independent Board, we expect that he will provide significant value and guidance in helping to bring ePlus solutions into this marketplace, including our Software Sourcing and Financing segment.

We also acquired the software and customer license assets of Digital Paper Corp., and released the Content+ Supplier Portal. With a continuing focus on improving our content management capabilities, which we believe is the necessary ingredient for every eProcurement or spend management customer initiative. We continued to beat the competition by providing better software and services solutions in the content area and to convert customers from more-expensive, less-functional systems to ours, proving that our strategy, execution and solutions are winning.

Steve Mencarini and I are happy to answer questions at this time. Thank you very much.

(OPERATOR INSTRUCTIONS). Chris Penney, Friedman Billings Ramsey.

Good morning, guys.

Good morning.

Phil, a quick question on the fee-based revenue -- I think, sequentially up. Can you talk a little bit about the direction of that and some of the things you have done in terms of the acquisition? How we should see that rolling out over the next couple of quarters -- the fee revenue?

Well, let's go to the acquisition first. You're referring to Digital Paper?

Yeah.

Well, Digital Paper provides document imaging and specialized imaging for very complex documents. And, in the software products that we are delivering, one of the things that is important is to be able to provide contract management and document management, which we will be able to integrate into our system and reduce our cost and reliance on other vendors. We think that it was a very strategic acquisition. We only acquired seven people. We acquired 14 customers, which were all very large. And, provides us the opportunity to up-sell, and it gives us the ability to provide those services to all of our customers.

On the fee part, what are you specifically looking for?

Well, your fee income has moved around a lot -- not a lot, but I mean to me, I think it's incrementally the larger margin business, when we talk about some of your content management jobs. There's a lot of things going into that. I'm just trying to get a sense as to the direction of that fee-based income. We will talk about your margins on the equipment side in a second, but, I mean, to me, the upside or downside, really, comes in generating more fee-based income over time. I'm just trying to get a sense of the direction of that. What is really going to drive that? What is your margin going to be?

Well, if you look at where our direction is and where I think the customer's direction is, is that we are trying to provide our software services and our solutions over a subscription, or term license, so that, for the most part, the revenue comes ratably (ph) over the term of the contract. So, I think we will see a gradual increase in the fee and other income, as we get more customers on, as we build up a higher base. There could be some fluctuation in-and-out, up-and-down in that market segment, because the timing of the deals take longer than just a normal cycle that we would see. So we could get a very large transaction; we did have an increase in one quarter. And, it could be -- not increase as much or be off as compared to the previous quarter. But, our trend, we think, is moving up, and we have a significant number of opportunities that we are in negotiation for contracts. And, we think that segment of the business is going to improve.

Okay, shifting to the balance sheet real quick. What was the leases on the balance sheet at the end of the quarter?

The leases on the balance sheet was about 189 million, a slight uptick over prior quarter.

Okay, so in the past you guys talked about using some of your cash to underwrite some of those leases. Is that the reason there or --?

We used some of our cash. We also increased some of our non-recourse borrowing at the same time. Again, as a vehicle to offset debt and risk to a non-recourse basis.

Directionally, leases on the balance sheet should go up or down from here?

I see, as the economy picks up, I think leasing will pick up. So, I think that is hand-in-hand.

Do you see any shift in -- I mean, because interest rates are so low, and maybe people are -- do you see any shift away or towards your customers in terms of how they look at leasing right now?

I just gave you my opinion. I mean, if you have money and you're sitting on a commercial money market account for (indiscernible) paying .8 percent. It is kind of hard to say "well, let's borrow or let's lease at a much higher rate." Until that turns around a bit, I think it is going to be a tough sell.

And Phil, in terms of your comments about capital spending -- still kind of week. You guys have shown some pretty good numbers in terms of reselling. I think a lot of that comes from the assets that you've buying and from the customers that you've been penetrating. Can you give a sense -- margins are still about, I believe, if I've got my calculations right, about 12 percent, which has always been above where you said they could go. Can you give me a little bit of a sense of, you know, the trends that you might see in '04, in terms of both growth from the topline of reselling, looking at maybe how some of your customers are growing or shrinking in terms of purchasing? And then also margins?

Well, first of all, I think that the margins have been constant. More so because we have been able to provide our customers a better service, of which forces our competition to try to be able to provide those services, and our customers will pay us a higher price for that.

I think, if you look at where we are today, the buying is still pretty cyclical from the customer depending on when the customer has rollouts, when he has replaced his equipment. We are getting a more seasoned sales force in the different regions, and we have, I think, significant opportunity in some of the larger metropolitan areas that we've started to penetrate. And, I think our trend should be, over time, depending on how customers by, it will continue to go up. And, I think our margins, for the time being, will stay at close to the 12 percent rate.

Okay, and one last question, Steve, on the balance sheet. I should have asked this before. Do you have your quarter-ending equity -- shareholders' equity? And also the goodwill?

The equity is 113.8. Goodwill is 20.2.

Okay. Thank you very much.

Thanks, Chris.

(OPERATOR INSTRUCTIONS). There appear to be no further questions at this time. I would like to turn the floor back over to management for any closing comments.

We would like to thank you very much. We look forward to another good quarter. And we will talk with you again in three months.

Thank you for your participation. That does conclude this morning's teleconference. You may disconnect your lines at this time, and have a great day. Thank you.