ePlus inc (PLUS) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ePlus earnings results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Kley Parkhurst. Sir, you may begin.

Thank you, Sam, and thank you, everyone, for joining us today. 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 and our periodic filings with the Securities and Exchange Commission, including our Form 10-K for the year ended March 31, 2012 filed today. The Company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events. Before I turn the call over to Phil and Elaine for their prepared remarks, I'd like to say a brief word on our Restatement which was announced on May 31, 2012. As noted in our earnings press release, the Company announced that it would Restate its consolidated financial statements for the fiscal years ended March 31, 2010 and 2011 and the quarterly financial statements for the three quarters ended June 30, September 30 and December 31, 2011, and all the quarters in the fiscal year ended March 31, 2011.

During this call, all references to applicable financial results from the prior periods will be the restated figures. A more detailed description of the Restatement is included in the annual report on Form 10-K for the fiscal year ended March 31, 2012 which was filed today with the Securities and Exchange Commission. I'd now like to turn the call over to Phil Norton. Phil?

Thank you, Kley. We concluded the fiscal year with solid fourth quarter results as customers increasingly utilized our advanced technology solutions to meet their needs. Our financial results reflect both our success from our base business, as well as the short-term cost of investments we have made to meet customer needs today and build a great platform for tomorrow's growth. Revenues are up as customers buy more of our advanced technology solutions. Earnings for the year were flat, reflecting investments we have made, including hiring highly talented engineers in our focus areas and growing our national footprint through acquisitions and hiring.

For the year, total revenues increased 14.9% to $825.6 million, an increase of $107.1 million, net earnings decreased 1.5% to $23.4 million, while earnings per share increased to $2.84 per diluted share as compared to $2.82 per diluted share last year. For the fiscal fourth quarter revenue increased $24.4 million to $219 million. Net earnings increased 8.5% to $3.9 million and fully diluted earnings per share increased 16.7% to $0.49. In fiscal year 2012, we made significant progress in our long-term strategic plan which includes building a national footprint, increasing our ability to sell key solutions by growing our services portfolio, adding to our technical capabilities, and increasing our managed service offerings. We acquired three companies and hired sales and engineering resources in a number of markets, both new and existing, including southern California, upstate New York, Chicago and southern Virginia.

Recently, we have begun to build a presence in the Pacific Northwest. These acquisitions brought us new or enhanced technology capabilities, such as Cisco Call Center Express and Security and expanded regional presence, and an additional managed service customer and offering, including a security operations center, more specifically. On June 4, 2011, we acquired business operations of NCC Networks Inc., a security focused solutions provider that operates a Security Operations Center located in metropolitan Chicago. With the acquisition, we expanded our information security capabilities which provided a wider variety of security risk assessments including vulnerability, Web application, wireless, and cloud-based security assessments. NCC, which provides 24/7 security managed services, has numerous authorizations from leading security manufacturers and engineering expertise in cutting edge security technologies. Combined with our Cisco Master Security specialization at NCC, we can provide customers a full suite of security solutions and services including penetration testing and remediation services. On January 6, 2012, we acquired the operating business of VantiCore, LLC, a Cisco-focused solutions provider headquartered in New Hampshire, with expertise in Advanced Unified Communication, Collaboration and Customer Contact Center solutions.

We gained increased market presence in New England, as well as enhanced Cisco engineering delivery capabilities to complement our existing UC, Data Center, and Managed Services practices. On February 25, 2012, we acquired Pacific Blue Micro, a Cisco-focused solutions provider located in Irvine, California. With the acquisition, we gain new customers, sales resources and engineering delivery capabilities which complement our existing Data Center, Borderless Networks, Collaboration, and Managed Services practices and solutions in southern California. We continue to invest in the most important advanced technology solutions, primary cloud collaborations and managed services offerings by hiring top-level engineers to enhance our solution set and delivery capabilities. We have restructured our solutions area into three specializations; Data Center, Collaboration and Security. Through this structure, we expect to be able to bring better solutions to market faster and produce solutions which are more highly focused on meeting customer needs in today's ever-changing IT environment.

As a result of acquisitions and investments and geographic growth in the technology segment, our headcount increased 115 people, or 17%. About two-thirds of the increase was due to acquisitions and the remaining increase was organic as we invest in building our Company. The majority of hires were sales and marketing focused which generally produces a lag in gross profit generation in relation to general and administrative expenditures. Given our balance sheet resources and the core profitability of our franchise, we have the means to opportunistically acquire companies and hire people without leverage, impairing our capital position, or taking any outside operational risks.

We will continue to execute these opportunities as they arise, as a balanced program of acquisitions and new hires is the best way to programmatically and conservatively build this Company. Another area of investment has been our Managed Services and it is gaining momentum. Starting about two years ago, we rebuilt our infrastructure and hired a new senior management team. Last quarter was our largest quarterly bookings of new orders in our history. During the year, we announced that we can provide managed video conferencing services and we are continuing to add new client demand driven solutions to meet their needs.

Managed Services will ultimately produce a solid flow of recurring revenues and earnings which we believe will become a meaningful component of our overall business. Before I turn the call over to Elaine, I'd like to touch on a few additional items that affected earnings this year. In addition to the consideration paid to acquire companies, there are additional direct and indirect costs that affect our P&L, such as the costs of having our personnel deployed away from their regular jobs to be involved in the execution and integration of acquired companies. By utilizing ePlus personnel in the process, we are increasing the likelihood of a successful closing and integration. While these investments may decrease earnings in the short run, we believe it is advantageous to acquire synergistic companies which can accelerate ePlus long-term growth and competitiveness in the market and we will continue to pursue acquisitions that fit our strategy.

In the fourth quarter, we recorded a $2.9 million reserve for credit losses due to the bankruptcy of a single customer, which was both a technology and financing customer. This customer had an unexpectedly rapid demise, having filed bankruptcy within four months of the first rumors of financial troubles hitting the press. To mitigate actual losses we are aggressively pursuing equipment and asset recovery and taking all legal action possible to collect the amounts due. Elaine will provide some additional information on the overall credit quality of our customers which remains strong. ePlus' success has been driven by our ongoing commitment to deliver the most advanced technology offerings with expert engineers and commitment to continuous training. We are leveraging the investments we have made in cloud enablement, security, virtualization, managed services and other data center technologies to expand our offerings, such as cloud assessment, enablement and migration solutions.

In combination with our acquisitions and the hiring of new sales and engineering resources, we have gained new customers, sold more to existing customers, and continue to expand the products and services we offer to meet growing customer demands. In addition, ePlus continues to gain increased recognition and was recently named to CRN's 2012 list of Tech Elite 250, and multiple awards at Cisco Partner Summit 2012 including US Theater Architecture Excellence, Data Center Partner of the Year, Nationals Architectural Excellence Data Center Partner of the Year, Nationals Service Partner of the Year, and Nationals State, Local Government and Education, SLED Partner of the Year - East Area. The Company was further recognized this past fiscal year by NASDAQ by being named to the global select market. We are also focused on improving shareholder value as we continue our share repurchase program, and during fiscal year we bought approximately 735,000 shares of common stock for a total purchase price of $19 million. As a result, our fully diluted weighted average shares outstanding decreased from approximately 8.4 million to 8.2 million shares.

In summary, our strategy remains committed in investing in our people, acquiring new technology and delivery capabilities, expanding our national footprint and lowering operating costs. Our customers rely on us for the key elements of their IT infrastructure, including advanced technology solutions and services. We can also help improve our customers' supply chain efficiency with OneSource IT, our procurement portal, that provides customers with a wide array of useful tools such as the ability to search and source products online, track their assets, and provide spend management analytics. Another differentiator is our ability to offer financing as a principle to meet customers' mission critical purchases, as well their budgetary and treasury requirements. We believe we offer a set of solutions that are unique in the industry and we are making the investments necessary to support future growth in the market. At the end of this call, I'd be happy to answer any questions, but first I would like to turn the call over to Elaine Marion, our CFO.

Thank you, Phil. Looking at the fourth quarter, revenues were $219 million, an increase of $43 million, or 24.4%, as compared to $176 million for the prior year's quarter. Revenue growth was primarily driven by a 26.3% increase in revenues from product and services which totaled $209.8 million as compared to $166.1 million during the quarter ended March 31, 2011. Financing revenue and fee and other income totaled $9.2 million, a decrease of $752,000 compared to $9.9 million during the quarter ended March 31, 2011. The gross margin on products and services in our Technology segment decreased 17.6% compared to 18.1% in the same quarter last year. Our gross margin was affected by the mix between products and services, vendor incentives earned, and competitive pricing pressures on sales of software assurance, maintenance, and services which are now presented on a net basis.

For the quarter, professional and other fees, salaries and benefits, and general and administrative expenses totaled $36.7 million, an increase of $6 million, or 19.4%, as compared to $30.7 million during the quarter ended March 31, 2011. Salaries and benefits expenses increased $3.4 million compared to the prior year due to 115 additional employees in our Technology segment over the same quarter last year, and an increased commission expense due to the increasing gross profit. As Phil mentioned, during the quarter we recorded a reserve for credit losses in our Financing segment of $2.9 million due to an unexpected and rapid deterioration of a customer which recently filed bankruptcy. This was an isolated event related to a single customer and is neither indicative of a degradation of credit quality of our portfolio, nor the result of changes to our credit policy. We continue to maintain high credit standards for new and existing customers and the credit quality of our portfolio remains strong. Interest and financing costs totaled $366,000, a decrease of $131,000 compared to the prior year due to a reduction of the total non-recourse and recourse notes payable balances. At March 31, 2012, total notes payable were $28.1 million as compared to $29.6 million at March 31, 2011. For the quarter, net earnings totaled $3.9 million, or $0.49 per diluted share, as compared to $3.6 million or $0.42 per diluted share for the quarter ended March 31, 2011.

Moving onto our fiscal year results, total revenues increased 14.9% to $825.6 million, driven by a 16.4% increase in revenues from our Technology Sales business segment which were partially offset by a 12.3% decrease in revenues in our Financing business segment. The decrease in revenues in our Financing segment was due to lower earnings from our portfolio. Professional and other fees totaled $11.6 million during the year ended March 31, 2012, a decrease of 23.7% from $15.4 million in the prior year. These decreases were primarily due to a reduction in fees, and fees related to the patent infringement litigation which were $6 million and $10.5 million for the years ended March 31, 2012 and 2011, respectively. Salaries and benefits expense increased 16.6% to $98.3 million compared to $84.2 million during the prior year. This increase was driven by increases in the number of employees, additional commissions expenses due to the increase in gross profit, as well as higher share-based compensation expense.

Our Technology Sales business segment had 777 employees as of March 31, 2012, an increase of 115 from 662 at March 31, 2011, while there was a slight decrease in employees in the Financing segment. We employed 833 staff members at March 31, 2012. General and administrative expenses increased $5.8 million to $20.5 million, or 39.6%, during the year ended March 31, 2012, primarily due to the reserve for credit losses previously discussed and higher expenses overall due to increased locations and employees. As a result of the foregoing, net earnings for fiscal year 2012 decreased 1.5% to $23.4 million. Our earnings per diluted share were $2.84 as compared to $2.82 per diluted share for fiscal year 2011.

Turning to the balance sheet, as of March 31, 2012 we had $41.2 million of cash and cash equivalent and short-term investments, as compared to $75.8 million in the prior year. During the year, we invested our excess cash in several areas including $19 million for the repurchase of our common stock and $11.8 million for acquisitions. Accounts receivable increased 43.4% to $174.6 million as a result of increased sales of product and services and a higher volume of product shipments at the end of the quarter. Our investment in leases and notes receivable increased 13.6% to $140.3 million as we continue to focus on increasing origination of our portfolio assets. As of March 31, 2012, we had total stockholders equity of $219.6 million, as compared to $212 million and 8.2 million diluted shares outstanding, as compared to 8.4 million as of March 31, 2011.

Regarding the Restatement announced May 31, during the preparation of our financial statements for the fiscal year ended March 31, 2012 we reassessed the presentation of third-party software assurance, maintenance, and services and concluded that these transactions should be presented on a net basis. We previously presented these transactions on a gross basis, primarily as a result of our determination that we were acting as a principal in the arrangement because the customer contracts are with us and not a third-party service provider. However, we determined that we should be considered an agent in the transaction because the third party is responsible for the day-to-day provision of services under the contract. Under net sales recognition, the cost paid to the third-party service provider is recorded as a reduction to sales of product and services resulting in net sales being equal to the gross profit on the transaction. This change affected our revenues and offsetting costs and expenses for the identified period, but did not affect net earnings, net earnings per common share or consolidated statements of cash flows.

The Restatement did not impact our underlying agreements with, or obligations to, our customers and third-party service providers, nor the amount that we invoice to our customers. For fiscal year 2011, the adjustment decreased total revenues from $863 million to $718.5 million, and for fiscal year 2010 from $676.9 million to $550.6 million. On a pro forma basis, if revenues had been recorded on a gross basis, total revenues for fiscal year 2012 would have been $1.018 billion, as compared to gross revenues in fiscal year 2011 of $863 million, an increase of 18.1%. That completes our prepared remarks and we would now like to open the line to questions.

Thank you. (Operator Instructions) And at this time, I am not showing any questions from the phone line.

This is Phil Norton. We'd like to thank you very much for taking the time to join our conference call. If you have any questions, please feel free to contact us. Thank you very much and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.