ePlus inc (PLUS) 2006 Q3 法說會逐字稿

Ladies and gentlemen, my name is [Sharita] and I will be your conference facilitator today. At this time I would like to welcome everyone to your ePlus Group quarterly earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer period. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host, Mr. Kley Parkhurst. Sir, you may begin your conference.

Thank you Sharita. Good afternoon. This is Kley Parkhurst, Senior Vice President of ePlus, and I’d like to welcome you to our conference call to discuss the financial results of our third quarter of fiscal year ’06, which ended December 31 2005. The conference call this afternoon will include prepared remarks, followed by a question and answer period. Joining me today is Phil Norton, the Chairman, CEO and President of ePlus and Steve Mencarini, Senior Vice President and Chief Financial Officer.

Before we begin the formal presentation I’d like to read our safe harbor statement. Statements made during this call which are not historical facts may be deemed to contain forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 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 February 14, 2005. 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, 2005, 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 December 31, 2005 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 website, www.sec.gov, and can also be accessed on our website at www.eplus.com.

A live web cast of this call, playback and audio playback are available. Please refer to our press release or email info@eplus.com or go to our website for more information.

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

Thank you Clay. I’m pleased to report strong operating results for the quarter and nine months ended December 31, 2005. Strong organic growth increased revenues for the quarter 10%, to $163 million, which is the highest revenue we have ever recorded in our third quarter. the strong revenue growth in the quarter contributed to us realizing record revenues for the nine months, a record $487 million, which is a 20% increase over the same period last year. And perhaps the best trend of all, coming on top of strong top line growth, is that our margins increased slightly. So not only did we grow revenues, but increased margins as well. We believe that these two combined factors tell the story that we are focused, our business model is compelling, and we are executing on the vision of differentiating ePlus from our competitors by providing a broader set of better solutions and products.

The net earnings for the quarter and nine months were, as previously announced, negatively impacted by the ongoing expenses relating to our patent infringement lawsuit against SAP. Our legal costs associated with the suit were about $1.6 million during the quarter. For the quarter ended December 31, 2005, fully diluted earnings per share declined 17% to $0.14 from $0.18, and basic EPS decreased 17% from $0.18 to $0.15 as compared to the prior year’s quarter.

Excluding legal fees, which equates to approximately $0.11 per share, core operating earning would have increased by more than 40% as compared to the prior year. In addition to increased operating earnings generated by high revenues and margins on sales of products this year, the prior year results also included higher costs relating to the June 4 acquisition of Manchester Technologies. We have successfully eliminated those expenses, which goes to a key point, we have purchased 10 companies in 10 years and we can execute acquisitions and authorize post closing operations. We will continue to selectively acquire strategic companies if they are a great fit and the right value, and we will be disciplined in our approach.

We don’t give forward-looking guidance, but we will say that legal expenses relating to the patent infringement lawsuit are expected to continue at the same or greater levels until the matter is resolved. The trial is scheduled for late March. We will continue to pursue this case and others using our best efforts until it is resolved favorably for the benefit of ePlus, and we will continue to protect our intellectual property against patent infringement.

ePlus investors may recall that this case is regarding the same patents that were the subject of our lawsuit against Ariba last year. In that case, at trial a jury found Ariba had willfully infringed the patent, and we later settled for $37 million in cash, plus other terms.

2006 should be an interesting year for ePlus, our tenth year as a public company. If you have followed ePlus during that time, you know that we have successfully transformed the company to meet the needs of the marketplace and our customers. In 2006 our focus will be on improving the customer experience, delivering a simplified message that focuses on the unique value that ePlus provides, and using a new generation of software to deliver true on demand services.

Our first step will be OneSource, to be delivered to ePlus customers beginning in April. OneSource is designed to be a single portal to automate the customer order process and reduce administrative overhead for both customer and ePlus, facilitate electronic commerce and increase efficiency due to better information and transaction visibility.

OneSource will provide better access to product information, place and accept orders, provide tracking and audit functionality, work flow, and invoicing. We have provided various ecommerce tools over the past 7 years, but OneSource is the first product that combines our deep expertise as a leading systems integrator and a direct marketer of IT equipment, and our robust software architecture and development capabilities. We think OneSource will be a clear benefit for our customers and for ePlus. It should allow us to drive more transactions at a lower cost of sales, and for the first time, will let us manage the customers’ storefront experience in a way that generates additional sales. For example we will be able to offer complimentary goods and services right at the point of sale.

These are lessons learned from the best in our industry such as Dell and CDW, and part of the transformational process that is core to ePlus and a key to our success. Down the road OneSource will act as a front door to the full suite of ECM products and solutions, all redesigned and improved as on demand ala carte offerings. With a complete offering of business process automation solutions, from content management, supplier enablement and spend management, e-procurement, asset management, financing and [inaudible] we believe OneSource will transform our customer experience and drive ePlus revenues and profits.

Our balance sheet continues to be strong, shareholders’ equity at the end of the quarter was $131 million, and cash was $17.4 million. We continue to use our capital to repurchase stock under our share repurchasing program. During the quarter we repurchased 276,756 shares of outstanding common stock at a total cost of $3,656,118. Since the inception of the company’s initial repurchase program on September 20, 2001, and as of December 31, 2005, we had repurchased 2,672,956 shares of common stock at an average cost of $10.71 per share for a total cost of $28.6 million.

This quarter’s financial performance, excluding legal costs, demonstrate the potential operating leverage of our platform. With the potential business transformation empowered by OneSource and our national footprint, we believe ePlus is positioned for growth in revenue and earnings. I’d be happy to answer any questions at this time.

[OPERATOR INSTRUCTIONS]

Our first question is coming from Chris Penny.

Good afternoon.

Hi Chris, how are you doing?

Good Phil, how are you? A question on your leases, leases sequentially kind of stayed, you started to show that you can maintain your lease balances, and I was wondering kind of the macro environment that we’re in with rates going up, when rates were going down I think you had a harder time keeping those leases on the balance sheet. I was wondering your opinion about the interest rates and what you think leases will do on the balance sheet in terms of the portfolio size?

Well we have a couple of programs, one is what we call a small ticket program to access our bar customers, which have a significant amount of sales, on our present run rate well over 500 million. We believe that this will enable us to increase the volume of leases that we will be able to transact with our customers.

As to interest rates, we’re not in the position of being able to determine one way or the other, but we do believe as interest rates rise we will have the opportunity to provide more financing for our customer base, which is especially in the middle market, and it will also eliminate the competition of cash, to some degree, that customers have on their balance sheet. So therefore we think in a rising environment we should see an increase in that business.

OK, and just another question as it relates to your current lawsuit. I think in your stated comments you had said that the amount of the legal fees you had in the quarter to protect yourself, or for this lawsuit, and then you said and others, going forward. Are we to assume that you’re going to have more lawsuits after this one?

I don’t think we could assume that. I mean, you know, we have not done anything other than SAP. We have no plans for anything other than SAP at this point in time. And, you know, what we were saying was that, you know, if we find that other people would be infringing our patents, then we would protect them.

OK.

That’s what that meant.

And then lastly, just a question on, you talked about OneSource and some of the other technology initiatives you’ve got going on. To what extent did those comments relate to your ability to protect your patents in court?

I don’t believe that it would have any negative effect on our business if we lost. You know, all that would mean is that there would be no, you know, patent protection for, you know, what we’re doing. But we don’t that anybody else has patents out there that would cause us a problem.

And your reseller margins, a couple of years ago, reseller margins started to come in a little bit. It looks like they’ve stabilized somewhat around the 10% range. Can you give us an idea of what margins – do you think that 10% or around there is sustainable?

It appears that the margins are somewhere in the neighborhood, in the industry, of 9-1/2% to 11%. And it appears like they’ve flattened out in that range and I think the higher margins come from a couple of things. One is being more efficient with your back office and your customers and being able to process business with manufacturers and distributors at a lower cost. That’s the only way that you really can gain margins directly from product fulfillment.

We have an initiative on the services side and on the leasing side to increase our penetration into our customers, which will, I think, increase the margins and we hope to more than hold them at that level.

OK, thank you.

Thank you. Our next question is coming from Brad Evans.

Yes, with Heartland. Good afternoon. I’m just curious, the legal expenses, were the preponderance of those costs charged to the technology SBU?

Yes.

OK. And just a nit picky type of question, I guess. Can you explain why the non-recourse debt would’ve gone up sequentially, when the investment in leases actually declined sequentially?

I’ll have to let Steve answer that question.

We sometimes borrow deals, or fund deals, just due to certain credit situations, or we have too much in one particular portfolio of type of customers. So, we’ll go out and non-recourse fund them. And that’s the reason.

OK. And, just with respect to OneSource, has that been pushed out to the right a little bit, maybe a month or two? Or, is that time frame still consistent with what you had thought, say, you know, six months ago?

[Inaudible] the target that we had, where we were six months ago.

I’m sorry; I didn’t hear that.

It’s pretty much on target where we thought it would be, somewhere at the end of the first calendar quarter or the beginning of the second. And, we’re in the process of, you know, pushing it out to our sales people now.

OK, thank you.

Thank you. At this time, gentlemen, there appear to be no further questions.

Thank you.

Thanks very much.

Thank you. This does conclude today’s ePlus Group conference call. You may now disconnect.