ePlus inc. (NASDAQ:PLUS) Q2 2019 Earnings Conference Call Transcript

Nov 07, 2018 • 04:30 pm ET

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ePlus inc. (NASDAQ:PLUS) Q2 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen. Welcome to the ePlus Earnings Results Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Kley Parkhurst, SVP. Sir, you may begin.

Executive
Kleyton Parkhurst

Thank you, and thank you for joining us today. On the call is Mark Marron, CEO and President; Elaine Marion, CFO; and Erica Stoecker, General Counsel.

(Forward-Looking Cautionary Statements)

In addition, during the call, we may make reference to non-GAAP financial measures, and we've included a GAAP financial reconciliation in our earnings release, which is posted on the Investor Information section of our website at www.eplus.com.

I would now like to turn the call over to Mark Marron. Mark?

Executive
Mark Marron

Thanks, Kley, and thank you all for participating in today's call to discuss our second quarter 2019 results. This was another quarter of strong gross margin performance for ePlus, demonstrating the positive impact of our focus on services, emerging technology and the impact of beneficial changes in our business mix.

Our consolidated gross margin of 24.8% was up 120 basis points, among the highest in the industry, and reflective of our continued transformation of higher-valued solutions. And our gross margin in the Technology segment was up 160 basis points in the quarter due to several factors, namely: growth in our higher margin services business lines, a portion of which is annuity-based; a shift in mix to higher-margin products; and an increase in the portion of our revenue recognized on a net basis.

Importantly, these positive results were achieved on lower revenues due to several factors that we signaled last quarter. Primarily, this year's revenue comparison reflected a large competitively bid project which we've discussed previously. While most of the project was delivered in last year's first half, it's important to note that looking forward to our third quarter comparisons, there was some delivery in last year's third quarter as well.

As we've discussed for several quarters, our business model is changing as a result of our larger portion of sales recognized on a net basis and the effect of ratably recognized revenues, which is overall, very favorable to our gross profit and will, over the long term, lessen quarterly volatility but does add to the pressure on top line comparisons. Given these marketplace changes and that our business is solution-oriented and not focused on commodity products, we have pointed to gross profit as an important metric for investors to use to track progress at ePlus. This quarter is a good example of this trend as our technology segment year-on-year gross profit increased slightly to $77 million, an all-time high, despite revenues declining 6.7%. Sequentially, gross profit increased by almost 5.7% against the 3.5% decrease in revenues.

Our focus on transforming our business to meet the high demand areas of cloud, security and digital infrastructure, areas with faster growth in general IT spending, continues to help us gain share with existing mid-market and enterprise clients and expands our customer base. We will