ePlus Reports Second Quarter and First Half Financial Results

- Broad-Based Demand Drives 8% Sales Growth -

Management Comment

“ePlus generated strong second quarter growth in sales and gross profit, with an uptick in gross margins, led by solid demand for our security, modern data center, and networking solutions,” said Mark Marron, president and chief executive officer of ePlus. “Consolidated net sales increased 7.8%, with balanced growth in products and services driving sales gains across the majority of our end markets and customer segments. During the quarter and year to date, we have been investing in headcount – up 175 people or 11% -- with the majority customer facing, to capture future opportunities and expand our solution portfolio. A portion of the headcount increase was from our acquisition of Future Com, which expanded our security services capabilities and geographic reach in Texas”.  Our second quarter earnings per share decline of 8.5% reflects the costs of these investments, as well as the impact of foreign currency translation losses, and a challenging year-over-year comparison in our financing segment.

Mr. Marron continued, “ePlus remains an essential partner for our more than 4,200 customers, providing customized solutions and services to manage complex IT infrastructure and accelerate digital transformation.  We remain focused on driving sustainable, long-term growth by continuing to expand our capabilities, investing in talent and capturing share in targeted high-growth market segments.”

Prior Period Reclassifications due to Stock Split

Reclassifications of prior period amounts related to number of shares and per share amounts have been made to conform to the current period presentation due to the December 13, 2021, two-for-one stock split.

Second Quarter Fiscal Year 2023 Results

For the second quarter ended September 30, 2022, as compared to the second quarter of the prior fiscal year ended September 30, 2021:

Consolidated net sales increased 7.8% to $493.7 million, from $458.0 million.

Technology segment net sales increased 8.1% to $471.5 million, from $436.3 million due to higher sales of product and services. Service revenues increased 7.1% to $65.2 million, from $60.9 million due to increases in managed services.  Adjusted gross billings increased 15.3% to $765.8 million from $664.1 million.

Financing segment net sales increased 2.4% to $22.2 million, from $21.7 million due to higher proceeds from sales of leased equipment and early lease buyouts.

Consolidated gross profit increased 8.4% to $133.3 million, from $123.0 million. Consolidated gross margin was 27.0%, up from 26.9% last year due to higher product margin, partially offset by lower service margins caused by increases in third-party costs.

Operating expenses were $89.2 million, up 13.3% from $78.7 million last year, primarily due to increases in salaries and benefits, variable compensation stemming from higher gross profit, advertising and marketing, software license and maintenance, travel expenses, and changes in reserve for credit losses.  Our headcount at the end of the quarter was 1,729, up 175 from a year ago, including 25 employees from the Future Com acquisition on July 15, 2022. Of the 175 additional employees, 148 were customer facing employees, including 100 professional services and technical support personnel due to demand for our services.

Consolidated operating income decreased 0.4% to $44.1 million.  During the quarter we incurred foreign currency translation losses of $3.9 million.

Our effective tax rate for the current quarter was 29.3%, higher than the prior year quarter of 28.6% due to foreign currency losses incurred in lower tax jurisdictions.

Net earnings decreased 9.4% to $28.5 million.

Adjusted EBITDA increased 0.2% to $50.3 million.

Diluted earnings per share was $1.07, compared with $1.17 in the prior year quarter. Non-GAAP diluted earnings per share was $1.29, compared with $1.30 last year.

First Half Fiscal Year 2023 Results

For the six months ended September 30, 2022, as compared to the six months of the prior fiscal year ended September 30, 2021:

Consolidated net sales increased 8.8% to $952.1 million, from $874.7 million.

Technology segment net sales increased 10.0% to $920.3 million, from $836.7 million due to higher sales of product and services. Service revenues increased 10.2% to $128.3 million, from $116.4 million due to increases in professional services and managed services.  Adjusted gross billings was $1,467.7 million, an increase of 13.2% from $1,297.1 million.

Financing segment net sales decreased 16.3% to $31.8 million, from $38.0 million, primarily due to lower portfolio earnings and transactional gains.

Consolidated gross profit increased 8.0% to $246.8 million, from $228.5 million. Consolidated gross margin was 25.9%, compared with 26.1% last year.

Operating expenses were $169.5 million, up 11.7% from $151.8 million last year, primarily due to increases in variable compensation stemming from higher gross profit, salaries and benefits, advertising and marketing, software license and maintenance, travel expenses, and changes in reserve for credit losses.

Consolidated operating income increased 0.7% to $77.3 million. During the six months ended September 30, 2022, we incurred foreign currency translation losses of $6.1 million.

Our effective tax rate for the current year period was 28.7%, higher than last year’s 28.2%.

Net earnings decreased 7.5% to $50.8 million.

Adjusted EBITDA increased 0.2% to $88.6 million.

Diluted earnings per share was $1.91, compared with $2.04 in the prior year. Non-GAAP diluted earnings per share remained at $2.28.

Balance Sheet Highlights

As of September 30, 2022, ePlus had cash and cash equivalents of $99.5 million, compared with $155.4 million as of March 31, 2022.  Inventory, which represents equipment ordered by customers but not yet delivered, increased 77.3% from March 31, 2022 due to ongoing projects with customers coupled with continued supply chain constraints.  Total stockholders’ equity was $705.6 million, compared with $660.7 million as of March 31, 2022.  Total shares outstanding were 26.9 million on September 30, 2022 and March 31, 2022.

Summary and Outlook

“Our balanced sales growth through the first half of fiscal 2023, coupled with the 13% year-to-date growth in our adjusted gross billings, underscore the fundamental health of our business and continued demand in the IT market for the types of fundamental solutions we provide including digital transformation, cloud services, and security.  Despite economic uncertainty, we believe businesses and organizations remain committed to investing in a broad range of technology solutions that enhance efficiency, mitigate risk and drive success. Backed by our robust offering of products and services, ePlus remains well positioned for this environment, and we continue to focus on maximizing our growth through investments in our team and our capabilities.”

Mr. Marron concluded, “As we look toward the remainder of fiscal 2023, we are confident that we are well positioned to capture IT spend despite broader economic uncertainties.  Our open orders and backlog remain strong, but are still subject to supply chain constraints, which remain a persistent challenge, affecting both product and services revenues.  We remain diligent in minimizing the impact to our customers by leveraging our extensive vendor network and offering innovative alternative solutions.”

Recent Corporate Developments/Recognitions

Conference Call Information

ePlus will hold a conference call and webcast at 4:30 p.m. ET on November 3, 2022:

Audio Webcast (Live & Replay):	https://events.q4inc.com/attendee/600083394
Live Call:	(888) 330-2469 (toll-free/domestic)
	(240) 789-2740 (international)
Replay:	(800) 770- 2030 (toll-free/domestic)
	(647) 362-9199 (international)
Passcode:	5403833 (live call and replay)

ePlus has an unwavering and relentless focus on leveraging technology to create inspired and transformative business outcomes for its customers. Offering a robust portfolio of solutions, as well as a full set of consultative and managed services across the technology spectrum, ePlus has proudly achieved more than 30 years of success in the business, carrying customers forward through adversity, rapidly changing environments, and other obstacles. ePlus is a trusted advisor, bringing expertise, credentials, talent and a thorough understanding of innovative technologies, spanning security, cloud, data center, networking, collaboration and emerging solutions, to organizations across all industry segments. With complete lifecycle management services and flexible payment solutions, ePlus’ more than 1,700 associates are focused on cultivating positive customer experiences and are dedicated to their craft, harnessing new knowledge while applying decades of proven experience. ePlus is headquartered in Virginia, with offices in the United States, UK, Europe, and Asia‐Pacific. For more information, visit www.eplus.com, call 888-482-1122, or email [email protected].  Connect with ePlus on LinkedIn, Twitter, Facebook, and Instagram.

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Forward-looking statements

Contact:

Kleyton Parkhurst, SVP

ePlus inc.

703-984-8150

RECONCILIATION OF NON-GAAP INFORMATION

We included reconciliations below for the following non-GAAP financial measures: (i) Adjusted Gross Billings, (ii) Adjusted EBITDA, (iii) Segment Adjusted EBITDA, (iv) non-GAAP Net Earnings and (v) non-GAAP Net Earnings per Common Share - Diluted.

We define adjusted gross billings as our technology segment net sales calculated in accordance with GAAP, adjusted to exclude the costs incurred related to sales of third-party maintenance, software assurance and subscription/SaaS licenses, and services.

We define adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the following: interest expense, depreciation and amortization, share based compensation, acquisition and integration expense, provision for income taxes, and other income (expense). Segment adjusted EBITDA is defined as operating income calculated in accordance with GAAP, adjusted for interest expense, share based compensation, acquisition and integration expenses, and depreciation and amortization. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses.

Non-GAAP net earnings and non-GAAP net earnings per common share – diluted are based on net earnings calculated in accordance with GAAP, adjusted to exclude other income (expense), share based compensation, and acquisition related amortization expense, and the related tax effects.

Our use of non-GAAP information as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate non-GAAP adjusted gross billings, adjusted EBITDA, non-GAAP net earnings and non-GAAP net earnings per common share or similarly titled measures differently, which may reduce their usefulness as comparative measures.