May 09, 2007 - 4:14pm EST by
2007 2008
Price: 9.55 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 78 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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ePLUS is a technology vendor which combines software and hardware for sale or lease to others. It offers integrated systems to middle-market companies, states and municipalities and service organizations who do not have substantial in-house tech capabilities.

ePLUS was written up by adanah312 on 6/4/02 @ $9.10. The Company's equity market value was $94.5 mil based on the 10,384,220 shares outstanding at the time. Sales for the year ended 3/31/2002 were $205 mil, and the Company earned $8.9 mil after-tax with EPS of $0.87.

ePLUS was written up by hack731 on 12/31/2004 @ $10.92. The Company's equity market value was $97.8 mil based on the 8,954,258 shares outstanding at the time. Sales for the year ended 3/31/2005 were $480 mil, and the Company earned $25.3 mil after-tax with EPS of $2.68 fully-diluted. The wonderful increase in the reported EPS was heavily influenced by a $37 mil patent infringement suit settlement which netted the Company $33 mil after expenses. Without the settlement, I estimate that the Company earned around $0.80 per share after-tax which was down from the $1.02 reported for the prior year.

During the first 9 months of its 2006 fiscal year, the period ending on 12/31/2005, ePLUS reported an increase in sales of 19.5% but an increase in costs of 21.8%. Earnings declined from $5.8 mil to $4.4 mil and EPS from$0.53 to $0.42. There are two major reasons cited for this decline in profitability. First, legal expenses increased by $1.8 mil pretax or $1.1 mil after-tax due to the pursuit of a patent infringement case against SAP. In addition, the Company expanded equipment lease book from $183.8 mil to $205.8 mil, increasing depreciation from $7.9 mil to $12.7 mil. 

On 6/28/2006, ePLUS announced that it would have to delay the filing of the10-K for its 3/31/2006 fiscal year and that it would restate the 10-K's for 2004 and 2005. "The restatement is expected to have no effect on the Company's revenue, earnings, or debt levels. The restatement includes a separate line item on the consolidated balance sheet for the accounts payable related to its floor plan financing agreements which had previously been included in accounts payable-trade...". On 7/17/2006, ePLUS announced that it had received a letter from a stockholder raising concerns about the granting of stock options. Those concerns were taken up by the Audit Committeee and an investigation ensued. In order to be thorough, the Audit Committee reviewed all the options granted since the Company went public in 1996. They have determined that  "actual measurement dates  for certain stock options granted by the Company in the fiscal years March 31, 1998 through March 31, 2005 differ from the recorded measurement dates." Based on the ir review the charge to earnings for this is estimated to be about $3 mil. No doubt the cost of the investigation will be greater - call it $5 mil for a total charge of $8 mil. On another legal front, ePLUS had been in litigation with GMAC and Banc of America over leases that they had financed with an ePLUS customer named Cyberco Holdings. ePlus settled the suit with GMAC by paying them $6 mil. The suit brought by Banc of America was lost to the tune of $4 mil which includes costs. On the other hand, the suit against SAP was settled with SAP paying ePLUS $17.5 mil. There were no other legal proceedings noted in the 12/31/2005 10-Q. Over all, the SAP victory should just about exactly cover the Cyberco  matter and the  options charge and the cost of the investigation.

On 12/31/2005, ePLUS had stockholders equity of $131 mil of which $30 mil was goodwill and other, leaving hard book at $12.90  per share.

On 3/15/1999 an investor, Eric Hovde,  filed a 13-D on ePLUS after purchasing 379,324 shares at a price of about $8.50. Mr. Hovde has continued to purchase ePLUS stock. On 8/16/2006 his 13-D showed that he had increased his stake to 15.5% of the outstanding after having paid $12,838,072 for 1,265,129 shares or $10.15 a share. Mr. Hovde is an investment banker specializing in financial institutions and services. On 11/21/2006, Mr. Hovde and a partner, Irving Beimler, went onto the Board of ePLUS.
Phillip G. Norton is Chairman of the Company and owns 26.7% of the stock. Bruce M. Bowen, an EVP with the Company, was a Company founder and holds 8.7% of the stock. In all, insiders control 38.7% of the stock, not including Hovde's holdings.

Altogether, ePLUS seems to be a reasonable little business whose assets might be more productively used combined with another. With over $50 mil of patent infringement victories in the past two years, they clearly have some intellectual property of value. Their balance sheet is strong and earnings have been steady though not spectacular. Their options problem will be rectified by disclosure and a very manageable charge to earnings. Phillip Norton is 61 years old. Eric Hovde is most likely an owner who is running out of patience. Altogether, I believe that this is cheap enough and timely enough to be a buy.


Release of the restated financials.
Possible business combination.
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