ePlus inc (PLUS) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen, and thank you for standing by. Welcome to the ePlus first-quarter fiscal 2012 earnings conference call. (Operator Instructions)As a reminder, this conference may be recorded. I would now like to introduce our host for today, Mr. Kley Parkhurst, Senior Vice President. Sir, please go ahead.

Thank you Karen and thank you everyone for joining us. With me today are Phil Norton, Chairman, President, and CEO of ePlus; Elaine Marion, our Chief Financial officer; and Erica Stoecker, our General Counsel. I want to take a moment to remind you that the statements we make this morning that are not historical facts may be deemed to be Forward-looking Statements and are based on management's current plans, estimates and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the Earnings Release we issued yesterday and our periodic filings with the Securities and Exchange Commission including our Form 10K, which was filed on June 10, 2011. The Company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events. With that I'd like to turn the call over to Phil Norton. Phil?

Thank you Kley. We reported another solid revenue gain in the quarter ended June 30, 2011, which is our first quarter of fiscal year 2012. Total revenue increased 11.9% over the prior year as customer demand for advanced IT solutions products and services continued to be robust. The gross margin in our technology business unit improved slightly to 14.2% from 14.1%, which is a good indicator that our mix of products and services continues to be the right mix for our customer base. We continue to gain traction with our key vendors and our focus on providing cloud related solutions and security solutions is the right -- is right on target.

As a national systems integrator we are leveraging our resources, strong balance sheet and liquidity, experienced management, efficient operating platform, acquisition expertise, and integration skills to invest today for the future growth, meet customer demand, and provide the right mix of technology solutions to remain a leading a visionary in our marketplace. Our strategic vision includes expanding our geographic footprint and building out comprehensive technology solutions offerings. To execute our vision, we have accelerated hiring employees and there have been somewhat unique opportunities in the marketplace to hire groups of people in various markets. Over the past 12 months, our staff grew by 13% are 88 people and in the past quarter we hired 30 people, of whom more than 90% are customer facing, revenue producing salespeople and engineers. Our new staff have allowed us to expand in a number of new markets including Richmond and Tidewater, Virginia, Upstate New York, Southern California, Phoenix, Chicago, South Florida, and Philadelphia, New Jersey.

In our business of selling to enterprises and larger middle market commercial customers and state, local, and educational customers it is important to have a local presence in the market. With a local presence we can provide services and interface regularly with customers and our vendor partners our position as a leading systems integrator with the highest vendor credentials, strong financial resources, and a terrific entrepreneurial culture allows us to attract some of the best people in the industry who, in turn, bring energy and new skill sets to the Company. We are meeting customer demand by building new technology solutions practices that leverage our existing vendor relationships and engineering capabilities with the latest trends in technology. Many of today's solutions require complex architecture design and integration of technology from multiple vendors and services. Whether based in the public cloud, private cloud, or in a hybrid, ePlus has the project management and skills to bring complex cloud and collaboration solutions to completion.

Our customers rely on us for their most critical computing requirements. Over the past 12 months, we have added a number of key solution areas including a robust security assessments practice from our June 2011 acquisition of NCC to complement our existing security solution, visual collaboration capabilities from the acquisition of ITI, which was completed in November 2010. The establishment of an advanced audio visual group -- a new staff augmentation organization, a complete retooling and expansion of our managed services offering, and a security operations center. These investments in people and new offices and supporting infrastructure as well as deal and integration costs of our acquisitions, put some pressure on earnings in the technology business segment. As a result, segment pre-tax earnings did not increase at the same rate as revenues. Elaine will go in detail in her remarks, but we are very satisfied with the long-term growth prospects of our new people, locations, and solutions we will provide. Effectively we have seized expansion opportunities which have had an impact to EPS that we believe will provide long-term growth opportunities.

During the quarter, we continued to add our numerous awards and engineering certifications with a Cisco Gold recertification, a Cisco Master Security recertification, and multiple Microsoft Gold and Silver competencies. We continue to strengthen our relationship with all our key tier 1 partners such as Cisco, HP, IBM, Oracle Sun, VMware, NetApp, and Microsoft for both vendor specific authorizations and for specific solution areas such as visual communications and security. We were ranked number 37 in CRN's VAR 500 list, moving up from 86 in last year's rankings.

In the financing business unit, revenues declined 31.6% and pre-tax earnings declined 44.8%, a result of lower transaction volumes due to fewer sales up-leases, a smaller lease portfolio which produced fewer residual gains, and a decline in federal government lease financing's. This business unit, which in the quarter consisted of about 4% of our total revenue, is subject to earnings variability due to its high margin transactions, which may or may not be consummated during a given quarter. These transactions may include federal government lease financing's, residual realization, and asset sales as we optimize our portfolio mix. The decline of pre-tax earnings this quarter looks comparatively worse than the prior year's quarter when we realized a gain of the sale of financial transactions of approximately $1.1 million more in net revenue or profit than our usual run rate. Our ability to offer financing to our technology customers continues to be a differentiator in the marketplace and becomes even more important in a recessionary environment when technology customers turn to leasing to acquire vertical infrastructure. We are keenly focused on providing leasing to our customers to facilitate purchases even with budget and cash constraints.

We are one of the few third party equipment vendors which offers integrated leasing asset management and supply chain optimization through our proprietary business processes and software. In the federal space, there has been a lot of uncertainty due to the budget crisis. But our experience has been that when there are budget cuts, leasing volume increases as the federal government utilizes leasing to acquire assets and services. We have one of the most experienced teams in the country, as many of our finance professionals have been providing federal government financing services for more than two decades. We have a specialized sales team which is redoubling their efforts to build pipeline in this space and capture opportunities as they arise.

The financing business has been a significant contributor to ePlus earnings for many years and remains a key driver to our overall business. In a recession, it has been our experience that the return on our lease portfolio increases because customers retain older equipment and we realized higher residual gains. We are well-positioned to increase both commercial and federal lease production as opportunities arise and our long-term experience managing the portfolio from the credit and risk perspective should optimize our returns in the business segment.

Moving on to our intellectual property portfolio. On May 23, 2011 the trial court in our litigation against Lawson Software Inc, issued an injunction ordering Lawson and its successors to immediately stop selling and servicing products relating to its electronic procurement systems that infringe our patents. The injunction also prevents Lawson from any ongoing or future maintenance, training or installation of it's infringing software products. Lawson has appealed the ruling, however it's request that the injunction be stayed had been denied. In summary we are satisfied with our first fiscal quarter results in the tech space, we have invested in headcount and acquisitions that meet our strategic objectives for future growth for both revenues and earnings. Our financing business remains profitable with high margin and it becomes an important business driver in a recessionary environment. We have released a new version of our flagship procurement software, Procure+ version 7, and we continue to focus on shareholder value by executing our share repurchase plan. We believe ePlus is well positioned for future growth and to deliver the best value advanced technology solutions to our customers.

I'd like to turn the call over to Elaine Marion, our CFO, who will discuss the specific financial results, and I will return to answer question at the end of this call.

Thanks Phil. I would like to review the consolidated financial results followed by our segment breakdown. As Phil has described, our revenue trends have remained favorable. On a consolidated basis, revenues totaled $211.5 million, an increased of $22.5 million or 11.9% compared to $189 million in the same quarter last fiscal year. Net earnings decreased 21.4% to $3.7 million, or $0.44 per diluted share, as compared to $4.7 million, or $0.57 per diluted share in the same quarter last fiscal year. On a sequential basis, revenues were consistent and net earnings were up or 4.1%. As of June 30, 2011, stockholders equity was $214.9 million, or $25 per share, and total cash and cash equivalents were $61.6 million. During the three months ended June 30, 2011 we repurchased 66,680 shares of our outstanding common stock at an average cost of $24.51 per share for a total purchase price of $1.6 million.

As for our two business segments, in our Technology sales segment revenues in the first quarter were $203.9 million an increase of $26.1 million or 14.7% as compared to $177.8 million in the prior year's quarter. During the quarter ended June 30, 2011 we implemented new revenue recognition guidance for multiple deliverable arrangements and recognized $4.9 million of revenues for products that were delivered during the quarter that were sold together with services. In previous periods we were required to defer this type of revenue until the services were complete. In addition, demand for products and services increased over the prior year, partly due to additional product and services offerings obtained through the acquisition of NCC networks in June 2011 and ITI Technologies in November 2010, and from sales by the new employees we have hired. The gross margin on products and services improved slightly to 14.2% as compared to 14.1% in the same quarter last year. Total SG&A costs in the segment were $26.5 million, an increase of $3.3 million or 14.3% as compared to $23.2 million during the same quarter last year.

Salaries and benefits expense increased $3.5 million to $20.7 million compared to $17.1 million during the three months ended June 30, 2010. This increase was driven by increases in the number of employees, increases in commission expense as a result of the increase of gross profit. The Technology sales business segment has 695 employees as of June 30, 2011. An increase of 93 employees from 602 employees at June 30, 2010. More than 70% of the increase in headcount relates to sales marketing and engineering personnel, who are customer facing and revenue generating. General and Administrative expenses increased $949,000 or 33.7% primarily due to increases in office locations as a result of our continued expansion efforts and an increase in our reserves for credit losses. Professional and Other fees decreased 35.9% to $2.1 million compared to $3.2 million during the three months ended June 30, 2010. These decreases are primarily due to decreased legal and other fees related to the patent infringement litigation. As a result of the foregoing, technology sales segment earnings before taxes as compared to the prior year increased $276,000, or 7.4%, to $4 million for the three months ended June 30, 2011.

Now turning to our financing business segment. Total revenues in this segment decreased by $3.5 million or 31.6% to $7.7 million for the three months ended June 30, 2011 as compared to the prior year. Due to a reduction of $1.1 million in net gain on transfers of financial assets coupled with decreases in earnings from our investments in direct financing and operating leases due to a reduction in the lease portfolio. At June 30, 2011 our investment in leases were $121.7 million compared to $133.4 million at June 30, 2010, a decrease of 8.8%. The decrease in the lease portfolio is due to lease terminations, cash collections and transfers of leases partially offset by the addition of new leases. Fee and Other Income in this segment decreased $542,000 due to decreases in re-marketing fees. Total costs and expenses decreased $1.7 million or 24% mostly driven by decreases in direct lease cost and salaries and benefits. The direct lease cost decreased $738,000 or 26% to $2.1 million due to a decrease in depreciation expense for operating leases and a decrease in our reserve for credit losses. Salaries and benefits decreased primarily due to decreases in accrued bonuses and the reduction of five employees in this business unit.

During the three months ended June 30, 2011, interest and financing costs decreased 52.6% to $362,000 as compared to $763,000 during the same period last year. These decreases were primarily the results of lower non-recourse note balances as we utilize our cash for new leases, thus funding fewer leases with non-recourse debt. Non-recourse notes payable decreased 46.6% to $25 million at June 30, 2011 as compared to $46.9 million at June 30, 2010. These non-recourse notes payable are generally recourse to the underlying lease equipment and the lessee. As a result, segment earnings before tax decreased $1.8 million or 44.8% to $2.3 million for the three months ended June 30, 2011. While we experienced a decrease in earnings from our financing segment we continue to earn a positive return on our portfolio. Our financing capabilities and strong financial condition continue to be a differentiator in the marketplace and we continue to look for opportunities to use our strong cash position for such investments.

In conclusion we have made significant progress on our strategic plan which includes extending our geographical presence and improving our advanced technology solutions offerings through the opportunities we executed over the past year. We are confident that these investments will help us achieve our strategic objective. That concludes my remarks and Operator we'd like to open the call for questions.

(Operator Instructions)One moment for any questions. Our first question come from the line of Alex Kurtz from Sterne Agee.

Thanks for taking the question. I'd love to hear your commentary about strength and different verticals for your products and services that you are selling into, such as the government versus general enterprise. Sort of how you saw that sort of flow through the quarter and into sort of the rest of the year. Thank you.

Well on the commercial section we have seen the sales continue to be robust up to this period of time. It is hard to judge based on what's happening in the financial markets what people will do in the future. In the state and local government, which is where we have another large portion of our business, up to this point we have seen a drop-off and we had, as you can see, better sales than the year before. In the federal space, we really only deal through the integrator's and do very little direct other than government financing. And that part of the business is kind of on hold. People are not making a lot of big decisions today and I think it may open up some between now and the end of September, which it usually does now that the debt default has been passed.

Thank you.

Thank you, Alex.

Thank you, and I see no further questions at this time.

Alright, we'd like to thank everyone for joining us. If you all have any questions you can call Kley, Elaine, or myself and we look forward to hearing from you in the future. Thank you. Good-bye.

Thank you.

Thank you. Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program and you may disconnect. Everyone have a good day.