ePlus inc (PLUS) 2003 Q4 法說會逐字稿

Good morning, everyone, and welcome to the ePlus Inc. quarterly earnings release conference call. (OPERATOR INSTRUCTIONS). I would like to turn the floor over to your host, Mr. Kleyton Parkhurst. Sir, the floor is yours.

Thank you, Nancy. Good morning. This is Kleyton Parkhurst, Senior Vice President of ePlus Inc., and I would like to welcome you to our conference call to discuss our March 31, 2004 fiscal year and fourth-quarter financial results. The conference call this morning will include prepared remarks, followed by questions and answer period.

Joining me today is Phillip Norton, the Chairman, Chief Executive Officer and President of ePlus Inc., and Steven Mencarini, 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. All information discussed during this conference call is as of June 17, 2004. ePlus Inc. undertakes no duty to update this information. We refer you to the disclosure contained in our annual report on Form 10-K for the year ended March 31, 2004 under the heading, "Risk Factors and Factors That May Affect Future Operating Results," and in our quarterly report on Form 10-Q for the quarter ended December 31, 2003 under the heading, "Factors That May Affect Future Operating Results."

For a description of these risks and uncertainties, these filings are available at the SEC Web site, www.SEC.gov, and can also be accessed via links on our Web site, www.ePlus.com. A live Web cast of this call, playback and audio playback are available. Please refer to our press release or e-mail info@ePlus.com or go to our Web site for more information.

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

Thank you very much for joining us. We are speaking this morning about our financial results and will provide commentary on our recent acquisition of the IT sourcing assets of Manchester Technologies and other highlights of the year and quarter ending March 31, 2004.

First, our financial results. For our 2004 fiscal year, we surpassed 10 million in net earnings for the first time and had record earnings of $10.2 million. Fully diluted earnings per share increased 5.9 percent to $1.02 and revenues increased 10.3 percent to 331 million from 300 million the prior year.

On March 31, 2004 weighted average diluted shares outstanding were 10 million shares as compared to 10.1 million shares the prior year. Actual shares issued and outstanding on March 31, 2004 were 9.3 million shares.

For the fourth quarter of our 2004 fiscal year which ended March 31, 2003, we are pleased to announce our 40th consecutive quarter of profitability. Revenues for the quarter increased 17.6 percent to 85.3 million as compared to 72.5 million recorded in the fourth quarter of 2003, and gross margin on sales of product increased from 9.5 percent to 12 percent. The increase in revenues is attributable to the general economic recovery and increased order levels by existing customers and new customers added over the past year. Net earnings decreased $50,000 to $2.55 million and fully diluted earnings per share were 26 cents -- 1 penny less than the prior year.

The decline in earnings is attributable in part to higher overhead and expenses relating to our software business, but also by increases in several overhead expense categories relating to the costs of being public and our patent lawsuit with Areva. These increases have offset some of the other cost reductions such as the decrease in headcount from 545 on 12/31 to 513 on 3/31. With new audit requirements, the cost of Sarbanes-Oxley compliance on the horizon and the cost of the patent lawsuit beginning to accelerate, we expect higher expenses in these categories to continue for the near-term. The Manchester acquisition will add approximately 130 employees, bringing our total to about 650 employees, and furthermore, we expect that the acquired Manchester operation will be dilutive for a quarter or two due to the anticipated costs of transition and business disruptions that normally occur in an acquisition.

At quarter's end, ePlus had total stockholders equity of $111.6 million and cash of $25.2 million. Since we began repurchasing stock in September of 2001, we have repurchased 1.8 million shares of common stock at a total cost of $17.2 million or $9.67 average price per share.

In the year, we purchased 688,000 for $9.7 million or $14.06 average per share of price. We will continue to repurchase shares from time to time within the parameters of our current repurchase plan.

I would like to turn now to our recent acquisition of certain assets and liabilities of the IT sourcing business of Manchester Technologies. Pursuant to the asset purchase agreement, the historical financial results of Manchester are confidential until public disclosure is legally required by either party.

So at this point in time, I can not share detailed financial information. However, I can provide some scope on the acquisition and how we think it will positively impact ePlus in the future.

Manchester has been in business since the early 1970s and has a great base of long-term customers in metropolitan New York, Baltimore and Florida. We purchased all the Company's customers, contracts, technicians and salespeople, and its reseller business, and will assume or sublease office space to provide the smoothest transition to our new employees and customers.

The interesting point of this transaction is that the day after it closed, all new orders will process through our systems, and this is the first rollout of our centralized Web-based accounting order entry and CRM systems in the acquisition. By using our software, we are able to leave behind overhead expenses that we would have had to assume historically and immediately convert customers to our system.

As this approach proves itself, we will be able to accelerate the pace of acquisitions in this marketplace and be in a much better position to aggressively grow the business than before. If all goes as expected, we expect the Manchester acquisition alone to increase our sourcing revenues up to $100 million at a cost of 5.2 million and to be the model for future ePlus acquisitions.

Another key part of the Manchester transaction was our acquisition of Manchester Software with a group of professionals in Rochester, New York, which provides custom software development services, Web portals, business process consulting and business performance management services. They provide the upfront analysis and consulting to optimize business processes and then create or customize enterprise applications that are tailored to the customer requirement. We expect to be able to apply Manchester Software's methodology to increase effectiveness of our supply chain optimization approach and, therefore, decrease costs and increase revenue by taking a more consultive approach to our customers.

During the quarter, we appointed a general sales manager of Canada and opened our first permanent location in Canada, which will facilitate our efforts to service our multinational clients and bring ECM solutions directly to the Canadian market. We also announced the first meeting of our Content Advisory Council, which was formed to discuss the challenges and benefits of enterprisewide content management initiatives. The conference was very successful, and as a result, we will be announcing a new Content+ based service in the next few months.

In our software business, we continue to win contracts and complete implementation of our various software applications with major customers such as Vanderbilt University, Georgia-Pacific, a leading university hospital and national oil.

During the quarter, we presented a case study with one of our major e-procurement customers, Gannett Corporation, which is the largest newspaper publisher in the United States. Our digital paper product continued to progress with several signed renewals and upgrades and a few new customers.

In our financing and distribution businesses, volumes are beginning to improve as customers replace older equipment and upgrade. In the fourth quarter, we saw an increase in our commercial leasing volume. This was reflected in our lease asset, which increased for the first time in many quarters. Sales of equipment increased 27 percent from the prior year as a result of higher sales volumes with existing customers.

The changes in the marketplace over the last year have verified our thought process and approach to this market. Customers are looking for solutions that help them improve their business. Customers are looking for companies that can perform for them. Customers are looking for a company that can help their business without being too rigid, a company that can make their operations better today and continue to help them improve it in the future. Unlike a few years ago, they want a solution that saves them money now, not at a vague, projected date in the future. At ePlus, our ECM solution allows us to automate in an efficient fashion the specific segments of customer's operation that they need to address first and are able to transform today, while delivering an attractive ROI.

We are capable of delivering our solution in a modular fashion, which can be as simple or as complex as the customer's requirements. From a simple procurement solution to a complex enterprise ECM solutions, ePlus is now in a better position to provide these services to our customers. All in all, we feel ePlus has had a very successful year and quarter; however, we realize that we have a great deal of work ahead of us.

Nancy, we will open the call for questions now. Thank you.

(OPERATOR INSTRUCTIONS). Matt McCormick, FBR.

On the e-commerce side, could you I guess talk about which products are selling the best right now?

When you look at how we have been positioning, it's really becoming a combination of all the software products. Procurement, content, asset management together is providing the solution that is what required by customers. So the whole industry and all of our competitors are starting to do order to pay as the requirements, and all of our customers are looking for those solutions. So in the end, our software businesses are kind of moving as one solution.

Okay and then, I guess you are talking about I guess the improving selling environment. What are you doing in terms of your salesforce? Have you been adding, or what are your plans there?

Well, with the recent acquisition, we added approximately 35 additional salesman in the New York metropolitan market, in the Washington market and Florida, so that we have increased our salesforce to well in excess of 100. So our footprint nationally has gotten significantly better.

In the software side of the business, we, in the last year, we have added at least six new people that are specialized in selling the software solution, and we have put them in regions across the country so that we have a footprint from a software side to cover the entire country.

Okay and then just lastly, I guess on your acquisitions you just announced, obviously Manchester in the quarter, but could you go back and talk about I guess Source One and some of the older ones and how the integration has been tracking?

Well, from an integration standpoint, March 31 of 2003 we were able to take all of our administrative requirements all over the country and centralize them here, and that was a real key factor for us that we now do all the procurement here. We do all of the accounting and administrative requirements for every acquisition that is headquartered here. Manchester I think is an accumulation of all of the learning that we did and all the systems work that we have done.

When we started, we closed on Friday night, and on Tuesday morning, we opened up business and we had no integration. We put the entire staff on our systems. We have very little transition work that we still have coming from Manchester to put that data in our systems, but we have no backlog of orders that we have to track. We have all new orders, and so we have reduced the overall costs that most acquisitions incur when you look at integration.

Okay and then I don't know if I said that was my last question, but this will be the last question. I know you did not provide guidance for the next fiscal year, and you did say that the acquisition was going to be slightly dilutive. But could you give us a sense about profitability assumptions? Going forward, what would you expect there?

I think the only thing that we can see right now is our revenues will significantly increase or should increase because of the Manchester acquisition, and the economic of the country is better and especially in technology. So we think that our revenues will significantly increase. We are still putting together the numbers on what the upfront costs will be for the Manchester acquisition for the transition for this quarter and for next quarter. We have not completed that, and we think that it will be a little dilutive.

Then the other costs that we have have not been really mapped out totally yet for Sarbanes-Oxley 404 compliance. The audit costs are significantly higher. We are most likely going to have to higher a few additional accounting people in order to make sure we meet all those requirements. We have probably a larger legal cost from litigation that we have going on that will occur in the next nine to 12 months, and we have to get a better handle on that. So it would be hard for us to make projections right now on our future earnings and where they will be.

Okay. Great. Thank you.

(OPERATOR INSTRUCTIONS). George Flaherty (ph).

Yes, I am interested in the buyback of stock. Could you explain exactly what you are doing with the stock after you buy it back? Is it being canceled out, or are you basically using it to pay executives? In other words, are you issuing stock options that are going to absorb all of this stock?

First of all, we have a stock option plan that has been in existence since 1998. We, up until this point, have not issued any new stock options. We have got a plan to try to look at options going forward that we are giving to the audit committee and to the Board. There is no correlation to buying the stock back and issuing options in the future.

(OPERATOR INSTRUCTIONS). Gentlemen, we have no further questions at this time.

Thank you very much. We will be here all day if people wish to call and ask follow-up questions. Thank you for your time.

Thank you, everyone. This does conclude today's teleconference. You may disconnect all lines at this time and have a wonderful day.