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

Thank you, and thank you for joining us today. On the call is Mark Marron, CEO and President; Elaine Marion, Chief Financial Officer; and Erica Stoecker, General Counsel. I want to take a moment to remind you that the statements we make this afternoon 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 this afternoon and our periodic filings with the Securities and Exchange Commission, including our Form 10-K for the year ended March 31, 2018, and our Form 10-Q for the quarter ended June 30, 2018, when filed. The company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events. In addition, during the call, we may make reference to non-GAAP financial measures and we've included a GAAP financial reconciliation on our earnings release, which is posted on the investor information section of our website at www.eplus.com. I'd now like to turn the call over to Mark Marron. Mark?

Thanks, Kley, and thank you, all, for participating in today's call to discuss our first quarter 2019 results and our business outlook. Our first quarter results represented a solid start to the fiscal year on key metrics. We reported a 4% year-on-year increase in gross profit and a significant improvement in our gross margin, which increased 180 basis points to 22.6%. Our gross margin remains at or near the top of our peer group, and was supported this quarter by a favorable product mix and continued expansion of our consultative, professional and managed services within our customer base. We believe that our continued focus on cloud, security and digital infrastructure solutions for our middle market and enterprise customer base positions ePlus very well in the broader IT market to capture share and allows us to nurture and maintain highly relevant and valuable relationships with our customers. On a very tough year-over-year compare due to an outsized customer project that we delivered in last year's first and second quarter, net sales for the quarter declined 4.5%. On a sequential basis, net sales increased approximately 8%. We are starting to see the gradual effect that ratably recognize revenues and subscription sales that are increasingly becoming a factor in our business model. These new types of revenue streams provide a few notable financial and operational benefits to ePlus, recurring revenue and better revenue visibility and higher gross margins over time. They also allow us to provide an ongoing solutions or service to our customers and engage with them consistently on a consultative basis, giving us opportunities to cross-sell and upsell additional services and solutions. Customers prefer this paradigm for consuming IT as well as it is more closely aligned with how they consume and utilize cloud, telecom and IT applications over time. Our…

Thank you, Mark, and thank you, everyone, for joining us today. Before I discuss our financial results, I want to remind you that we adopted ASU 606 April 1, 2018. The two primary changes in our accounting for revenue are sales of off-lease equipment, which we recognize on a growth basis, and the timing of recognition of certain transactions known as bill-and-hold arrangements. The impact from the adaption on our consolidated statement of operations for the three months ended June 30, 2017, was an increase of net sales and cost of sales of $6.2 million. We adopted the standard on a retrospective basis and as such, have shown our prior periods on an adjusted basis. I am pleased to report on our first quarter financial results, which represented a solid start to fiscal 2019. Our net sales amounted to $356.5 million, representing a 4.5% decline year-over-year due to a tough comp. And some of the decline attributed to a greater proportion of sales of third-party maintenance and assurance presented on a net basis. It is worth noting that excluding a large project in the first quarter of fiscal 2018, our net sales would have increased. Despite the revenue decrease, we reported a 4% year-over-year gross profit growth to $80.7 million while our gross margin expanded 180 basis points to 22.6%. This positive performance is a result of our success selling value-add services and a shift in mix of products and services. Operating expenses increased 5.5% to $60.2 million principally due to higher salaries and benefits, reflecting the year-over-year headcount increase of 2.1% to 1,249 employees. The higher headcount was largely due to the acquisition of IDS in September 2017. However, as we continue to realign talent, our headcount declined sequentially by 1% from 1,260 at the end of fiscal 2018.…

Thanks, Elaine. First quarter 2019 sets the stage for another year of progress for ePlus. Market dynamics remain favorable, and we are positioned well to provide our customers with the solutions they need as we continue to build out our areas of focus in cloud, security and digital infrastructure. We continue to focus closely on growing gross profit, managing our core structure and evaluating strategic acquisitions. Operator, I would now like to open the call for questions.

[Operator Instructions]. And our first question comes from Maggie Nolan with William Blair.

I wanted to get a feel for your internal expectations for revenue growth. I know it's a tough quarter for year-over-year comparisons. But how did the growth come in compared to what you all were expecting?

Maggie, it was in line with what we were expecting. Just a couple of things to note or remind you of. One, it was a really tough compare. Last year, in this quarter, we were up 23%. The other thing that Elaine had talked about, in terms of our gross to net, our gross to net was actually a little bit higher, which affected our sales, but it was in line with what we were thinking. And if you go back to the last couple of quarters, we've talked about gross profit and gross margins being better metrics to kind of manage us on as we move towards more of a service -- consultative services and as we move into the ratable subscription world a little bit more. Those are the things to kind of take a look at that will show our growth as we go forward.

Okay, great. Makes sense. And then, you have one acquisition that's about to anniversary, one that anniversary-ed a couple of months ago. Can you just give us an update on how those acquisitions are integrating into the business and whether or not they're performing in line with your expectations when you brought them on?

Okay. Yes, so two things. One, if you remember, the two acquisitions, one was OneCloud and the other one was IDS. The reason that we acquired them was to help build out our cloud strategy and our cloud practice. And they were integrated on day 1, so we feel good about both acquisitions, that they're part of the ePlus team. They're building out the solutions that we provide to our customers, so that's everything from helping businesses align their business to be more cost effective with their cloud strategy that's helping them with health checks to ensure that the -- what they deployed to the cloud has been deployed correctly, all the way down the provide cost optimization to reduce costs as well as security solutions to kind of reduce risk. So we feel good what it's done to build out our cloud offerings and our cloud capabilities. And we're starting to see sales from both of those organizations, not only within the existing regions they were in, but across ePlus.

Great. And then, Elaine, can you just give us your updated expectation for the normalized tax rate for the year? Or if you can't give a specific number, just kind of an idea of where this quarter falls compared to your expectation for the year?

Sure. For the remainder of the three quarters, we expect each quarter to come in at about a 29% rate. This quarter, we saw an additional benefit from divesting of stock compensation that occurred during the quarter, which is why the rate declined slightly from where we had said that there was -- we thought it was going to come in at about 29%.

[Operator Instructions]. Our next question comes from Alvin Park with Stifel.

This is Alvin Park on behalf of Matt Sheerin. Just for fiscal year 2019, especially considering the tough comps in Q1 and Q2 from the large customers, just wondering if you could provide any insight of how you guys are looking at the IT growth and market growth and where ePlus might be in terms of spread on top of that growth. Any color on what top line growth might be, especially given tougher comps with the strong fiscal year '18.

So a couple of different things. There was a lot of questions in there, Alvin. So a couple of quick things. One, we still feel good with our strategy and what we're building. So we do believe we'll continue to outpace the IT market. We feel we're well positioned to do that. What we've talked about in prior calls is that as we're evolving the solutions that we sell to our customers, and a lot of those are either ratable or subscription related, we feel good that we're building the solutions that our customers are looking for, and that's showing up. If you look at our gross profit, on net sales decrease, our gross profit was actually up 4%. If you would factor out that large deal, our sales would have been up as well as our adjusted gross billings. Also, the other thing I'd highlight is the services and solutions that we're selling are more valuated solutions and higher in consultative and annuity services. So if you look at our gross margins, they were up 180 basis points over last year. So we feel good where we're positioned in the market. We feel good that we're positioned well not only with our customers and --as well as with our vendors. And we feel good that will continue to grab market share as the market goes forward or as the year goes forward.

Okay. And as well, if you could give some color on share buybacks. I believe, for the last 2 quarters or so, you've been gradually decreasing the share count through buybacks. If you could just provide color on your general strategy on how you view it, if you can you remind us how much there is left in the coffer. And if there might be potential for further buybacks with the board approval?

Okay. So there's two things that we -- or three things that we normally look at in terms of how we allocate our cash. So we believe we're a growth company, Alvin. So first thing we normally try to do with our cash is either reinvest back in organic hires and/or look at acquisitions that could build out either our territory coverage or our technology portfolio that we can go back to our customers with. Over the years, we've had share repurchases for years and years and years, so -- and we have one open currently right now, but it's more opportunistic. But if I were going to look at cash allocation, it would be more in investing and resources to build out our capabilities or potential acquisitions that are out there.

And Alvin, the board did authorize a share repurchase program in April which started May 27, and that was 500,000 shares.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Mark Marron for any further remarks.

Okay. Thanks, Daniel. So if I could just close off with -- we still feel very good about our strategy in terms of over long-term growth and the moves that we've made both organically as well as through M&A. We've got a strong balance sheet. We've continued to build out both our footprint as well as our solutions and our services and we will continue to manage our metrics closely as we go forward. So with that, I want to thank you for joining us today on the call. Look forward to speaking with you on the next quarter's call, and have a good day. Thanks, Daniel.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.