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ePlus inc
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Good day ladies and gentlemen. Welcome to the ePlus Earnings Results Conference Call. As a reminder, 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 Daniel, and thank you for joining us today. On the call is Mark Marron, CEO and President; Elaine Marion, Chief Financial Officer.
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 & Exchange Commission including our form 10-K for the year ended March 31, 2018, and our form 10-K for the year ended March 31, 2019, 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 have 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?
Thanks Kley. And thank you everyone for participating in today's call to discuss our fourth quarter and full year fiscal 2019 results and accomplishments.
I will start with an overview of fourth quarter results, do a deeper dive into the business trends that drove our fiscal 2019 performance, and then provide additional color on our thinking, heading into this new fiscal year.
First to our fourth quarter results, which we reported strong growth in adjusted gross billings of 6.8%. The gross billings to net sales adjustment was 33.7% in the quarter, representing a 580 basis point increase versus last year's 27.9% and up from 23.2% just a few years ago.
By contrast, net sales declined 1.3% due to industry trends that we have been discussing over the last several quarters, namely the transition to as a service and ratably recognized revenue. We are seeing higher contributions from software, maintenance and subscription-based solutions that are recognized on a net basis along with our push-to-drive more optimized or annuity services that are recognized ratably.
Consolidated gross margin reached 25% in the quarter, up 30 basis points year-on-year. Lower technology segment comparisons with last year's fourth quarter were more than offset by improved financing segment margins. Excluding the gross to net impact, this was a difficult quarter for product margins as we had a tough compare with last year and also had several deals at lower margins as part of our land and expand initiative.
With that said, we continue to expand our customer base, which provides us with the ability to upsell and cross-sell our solutions and services. As we continue to expand the lifecycle services we provide our customers, we are now breaking out our services revenue, which accounted for almost 14% of the fourth quarter revenues up 22.8% over the same period last fiscal year.
Fiscal 2019 was a successful year for ePlus across a number of key metrics, including growth in adjusted gross billings, services revenue, gross margin, net income and EPS. There are three key takeaways I would like to focus on.
One; we grew our services business nicely and are now disclosing services revenues and cost. Two; we increased our gross margin and three; we invested in our business both organically and the acquisition of support future growth. All of this is coming together to further strengthen our market positioning even from where we were one year ago.
Let me provide additional color on each of the three areas. First; growth in our services business. Our services have increased at a CAGR of just under 24% over the last three years, and we believe our services gross margins are very strong compared to many of our industry peers. We will continue to expand our consultative and advisory services along with optimized services that monitor and manage our customers' IT infrastructures.
At the same time, we are providing staffing resources to support what our customers are trying to accomplish, enabling them to focus on their core business. This allows us to stay close to our customers, while a portion of this provides annuity-quality revenue to our base of business.
In addition, this year's reclassification from gross to net was approximately $590 million. Keep in mind that this provides us with important renewal opportunity as it relates to subscription-based software and maintenance contracts, giving us an additional source of annuity like revenues. Second; we continue to see gross margin improvement.
From fiscal 2019 our consolidated gross margin reached an industry leading 24.1%, up 130 basis points year-on-year. We believe this demonstrates the value that our clients place in a customized solutions that we are providing, particularly in our key focus areas of cloud, security and digital infrastructure.
Additionally; gross margin benefited from the expansion of our services portfolio and the flexibility and margin of our financing business, which is a key competitive differentiator for ePlus.
Finally, investment in our business. We continue to invest in customer facing headcount and the expansion of our solutions and service offerings, along with broadening our reach to support our enterprise, mid-market, state, local and educational customer base. Along those lines, the acquisition of SLAIT in late January expanded our geographic footprint and service offerings, while expanding our security consulting and managed service capabilities.
It is important to note that we are continuing to see our industry transition to solutions sold on a subscription or ratable basis. While the trends started several years ago, we have seen an accelerating over the last 12 months. Our vendors are increasingly transitioning to this model and many of our customers prefer purchasing this way.
Thanks to our size and scope of our operations, ePlus is well positioned to support our customer base with many innovative consumption models they may prefer. This gives us the opportunity to leverage our financing arm, which is a significant competitive advantage for ePlus as compared to our peers, given our extensive underwriting experience, financing a wide array of IT products, services and software assets.
Also security continues to be a significant area of focus for ePlus and its customers. Security products and services represented nearly 20% of our adjusted gross billings for fiscal 2019, security remains at the top of mind for many CIOs within our customer base.
I will now turn the call over to Elaine to discuss the financial results of the fourth quarter and our fiscal 2019.
Thank you Mark, and thank you everyone for joining our call.
Let me give you some more detailed overview of our financial performance in the fourth quarter and full fiscal year 2019.
Starting with the quarterly results, our consolidated net sales amounted to $325.4 million, 1.3%below the $329.9 million reported in the fourth quarter of fiscal 2018, mainly due to a higher percentage of third-party software subscription and maintenance sales recorded on a net basis.
Adjusted gross billings amounted to $472.4 million, a 6.8% increase compared to $442.5 million in the same period a year ago, reflecting strong demand for our products and services. The adjustment from adjusted gross billings to net sales was 33.7% in the fourth quarter of 2019 compared to 27.9% in the year ago quarter reflecting a higher portion of third-party software subscription and maintenance sales.
In our technology segment, our service revenues increased to $45 million or 22.8% in the quarter due to an increase in managed services and staff augmentation. Our services include revenues from professional services, managed services and staff augmentation. Our financing segment had revenue growth of 14.2% to $12.3 million compared to $10.7 million in the fourth quarter of fiscal 2018 reflecting higher transactional gain.
While gross profit was essentially flat at $81.3 million, our consolidated gross margin expanded 30 basis points to 25%, mainly due to the increase in sales recorded on a net basis and an increase in service revenues and gross profit in the financing segment. Gross margin in the technology segment declined 10 basis points to 22.7% due a less favorable mix of products and services.
We had several large competitively priced product orders and had a shift in services to staff augmentation and enhanced maintenance services, which yielded lower margins than professional services. Staff augmentation and EMS offer more consistent revenue stream and helped build annuity quality revenues. Offsetting this was a positive impact on margins from an increase in the growth to net recast.
Operating expenses for the quarter amounted to $66.8 million, representing 5.8% increase from $63.1 million. This is mainly attributable to a 3.9% increase in salaries and benefits, as a result of higher headcount, primarily due to the acquisition of SLAIT Consulting and an increase in healthcare costs. Please note, that our total headcount at the end of March 2019 amounted to 1,537, compared to 1,260 due to the acquisition that I just mentioned, which brought on 256 professionals.
Our G&A expenses increased mainly due to the SLAIT acquisition. As a result of higher SG&A as well as an increase in acquisition related amortization, operating income for the quarter declined 21.8% to $14.5 million from $18.5 million in the comparable quarter last year.
Other income was $5.6 million for the quarter primarily due to distributions from a bankruptcy case. Our tax rate for the quarter was 24.8% compared to 51% in the year ago quarter. Last year's quarter contained an adjustment from the remeasurement of our deferred tax assets and liabilities relating to the Tax Cuts and Jobs Act.
Our consolidated net earnings were $15.1 million, or $1.12 per diluted share compared to $8.9 million, or $0.65 per share last year. Non-GAAP diluted earnings per share were $1.03 compared to $1.06 in the fourth quarter of fiscal 2018. Our diluted shares outstanding total 13.5 million for the quarter compared to 13.8 million at the end of fiscal 2018 and we repurchased 185,000 shares for a total of $14.1 million.
Now let me briefly summarize our financial results for the full fiscal year 2019. Our net sales reached $1.37 billion, 3.3% below the $1.42 billion reported in fiscal 2018. Technology segment net sales decreased 3.2% to $1.33 billion and net sales in our financing segment decreased 6.3% to $43.2 million due to lower post contract revenue.
Net sales decreased in the Technology segment, primarily due to an increase in sales reported on a net basis. Adjusted gross billings for the full year increased to $1.92 billion compared to $1.90 billion in fiscal 2018 despite the large competitively bid project that was partially completed last year.
Looking at our end markets in our technology segment for fiscal 2019, technology and SLED were once again our largest markets representing 22% and 17% of segment net sales respectively. Healthcare and financial services each represented 15%, while Telecom, Media and Entertainment accounted for 13%. The remaining 18% is attributed to certain smaller client types we classify as other.
Growth profits for fiscal 2019 was up 2.1% and amounted to $330.4 million. Consolidated gross margin was 24.1% representing a 130 basis point expansion for fiscal 2018 due to a more favorable mix of products and services. Service revenue increased 15.4% over last year. Gross profit in the financing segment decreased $470,000 to $35.7 million.
Other income of $6.7 million included distributions from claims at a bankruptcy. Our tax rate for fiscal 2019 was 26.7% as compared to 34.3%. Net earnings increased 14.6% to $63.2 million and fully diluted earnings per share were $4.65, up 17.7%. Non-GAAP earnings per diluted share was $5.12 compared to $5.04 in fiscal 2018.
Moving to the balance sheet. We ended the year with cash and cash equivalents of $79.8 million, compared to $118.2 million at the end of fiscal 2018. The decrease was primarily due to $50 million paid for the SLAIT acquisition in January 2019 and $14.1 million spent to repurchase our stock. Our net inventory increased by 26.7% year-on-year due to an increase in projects underway for specific customers.
Current deferred revenue increased by 32.5% to $47.3 million primarily due to our managed and professional service offerings. For modeling purposes for fiscal year 2020, we expect our effective tax rate to be between 28% and 29%, and expect intangible amortization expense to be approximately $9.8 million for the year.
Going forward, our capital allocation strategy remains the same, pursue growth opportunities for both organic and through acquisitions and share repurchases. We will continue to focus on adding capabilities in the faster growing segments of the market and believe we are well-positioned to outpace the overall IT market growth for the foreseeable future.
Thank you for your time today. I will now turn the call back over to Mark.
Thanks Elaine.
Well, less favorable product mix impacted our fourth quarter year-on-year comparisons, one quarter does not make a trend. We are very pleased with our positioning heading into fiscal year 2020, as market demand remain positive and we've made focus investments in the solutions areas, necessary to capture opportunities.
Many of our customers are involved in a business model transformation, adopting digital infrastructures, multi-cloud environments, IoT and utilizing AI and data analytics to drive efficiencies in their internal IT, as well as improving their own customer experience. And virtually all of our customers consider security as the number one threat to their businesses.
In each of these areas, ePlus has the right solutions, whether it be integrating leading vendors products and services or providing professional or management services, all in an advisory approach delivered by our consultants. We're currently serving over 3400 middle market, enterprise and state, local and education customers, and we have the resources to drive organic growth, as well as to take advantage of acquisition opportunities that present the right fit.
We continue to execute effectively on the key elements of our strategy, namely; growing our services revenues, which have been increasing at a significant double-digit rate, increasing our security products and services, which now account for approximately 20% of our business, and completing acquisition that are building on our capabilities and footprint.
We believe we are well positioned in the market that continues to evolve and transform. Going forward, we expect to balance our growth initiatives with actions to optimize product mix and cost structure, while providing the solutions and services, our customers need in the way they want to consume them.
I will now open the call for questions. Operator?
[Operator Instructions] Our first question comes from Maggie Nolan with William Blair. Your line is now open.
I wanted to dive into kind of that last comment that you just made Mark, when you're talking about balancing growth initiatives to optimize product mix. What does an optimized product mix look like to you all? And what are some of the things you can do to kind of achieve that and better balance it as you said?
Well, there's a few things there Maggie. So, one as you know in our prior calls we've talked about continued to expand our customer facing headcount. So, in terms to get the productivity piece of that, it would be getting those sales reps and service engineers up to speed quicker and delivering results.
On the optimized side, there are some things that we've looked at within our expense structure that we think over time, we should be able to get some operating leverage. And then the second, or third piece of that I guess I should say would be services. We think over time we'll continue to get operating leverage within our services business, specifically are annuity services, where revenue should continue to trend up, where expenses don't keep up at the same state - at the same pace.
And then I'm really happy to see that breakout of products and services, I think that'll be really informative going forward. Obviously there's a little bit of variability there in terms of just my initial calyx with the margin, gross margin profile look like this quarter, the same quarter last year, this year versus last year. So, can you give us an expectation of what you would consider to be a kind of a normalized range for gross margin for both products and then for services as well?
So, here are a couple of different things Maggie, to give you a feel. So, if you look at our services and we talked about it, which is I think Elaine and I are relieved that we're actually starting to break it out, which will make the conversations easier.
Our services for this quarter were up at 22.8% growth rate and well 14% of our overall revenues for the quarter. What's nice about our services though over the last three years, we've had a CAGR of 24% and more importantly our annuity services are more than double that in terms of the CAGR over the last three years.
Now to your question that gets a little bit harder in terms of giving you a true margin mix, is what we saw this quarter is, we had some increase in our staffing services that are traditionally at a lower margin than our professional services. And then what's interesting about annuity is, as I mentioned a little bit earlier is, as we continue to drive those revenues up, the expenses won't keep up, so those blended margins should continue to go up. So, if I had to put a ballpark on it, in the 38% to 40% range, if I had to put a ballpark on it - overall blended services are clear.
And then I'm wondering if I heard you properly so I hearted some mention of the land and expand approach it seems like maybe some of that hit in the fourth quarter here. And then Elaine you also mentioned on - mentioned some competitively - some large competitively priced product order. So, is there a larger project kind of ramping up now and can we expect that to contribute in 2020? Am I interpreting that properly?
Yes, well. Yes, you know Maggie. So, I'll start off and then if Elaine wants to jump in, is what we saw was we actually had a really tough compare on our product margins over the last year. So, that was one of the factors that affected our gross - I should say our GP for this quarter. And then we did have a few nice sized deals that we used our land and expand, where we were aggressively going in, when the deal end, and then over time, we think the margins will go up.
So, we'll continue to do that. Ballpark we were up a 175, 180 customers year-on-year. So, what we like about that is, we're building up our customer base, that we can continue to go back and upselling, cross-sell all the different services and solutions that we're focused on.
Yes, Maggie, just to add to that. One thing that impacts our product margin, that you see on now the income statement is that growth to net variance and that does swing quarter-to-quarter depending on what that product mix is. So, there's two things that impact product margins. One is the actual no margin that we sell the product for, but two is that gross to net impact.
And we said this quarter that it was up quite a bit on a quarter-over-quarter basis 580 basis points over last year's quarter. So that, while the product margins were impacted by the large competitively priced product transaction negatively, they grow to net impact improved margins. So, you're seeing kind of an offset there.
And then just one more quick one if I can. A little more color on kind of preliminary outlook of 2020. Is this a year, where we continue to focus on gross margin expansion? Do you expect to see revenue growth come back a little bit? How should we be thinking about this upcoming year here?
So, customer demand is still solid, Maggie. We haven't seen any slowdowns and feel good, where we look so far through the quarter and where the year looks. If I had a look at it, where it gets a little bit tougher on the sales growth. If you look at I'd never thought we'd have 34% in terms of gross to net from an adjustment to 580 basis point that Elaine talked about from an increase.
So, I think if that continues and as our software subscription licensing continues to grow, which has also taken out of net, I think that'll be tough on the top-line. I think as we expand our services and some other things, we should see some uptick in the gross margin. Yes, in the gross margin, but also want to be very clear here.
Our gross margins for this quarter were 25% and when I look at the year, we were at 24.1%, which was up 130 basis points of over last year. So, there's not a lot of, - I don't think it would be a big uptick as it relates to gross margins, but customer demand look like solid.
And not a big uptake - uptick related to that 25% that you exited the year at, or related to that 24% for the full year?
Well, yes, I think you got to start at the 24% Maggie, because you've got to look at - I would look at each of the quarter's last year and not see a solid uptick in, as it relates to gross margin. What I would stress is something that we've talked to in other calls. I would focus on gross profit so that's really what we're focused on driving that gross margin and topline is obviously important.
But we're trying to - we've moved away from the commodity sales, we're trying to draw out more of the solutions that are value add to the customers that they're willing to pay more for and drive the services both consultative as well as annuity. So, it's really about the GP is what we're focused on.
Our next question comes from Greg Burns with Sidoti. Your line is now open.
Just going back to the split out now with the services piece, you talked about the three-year CAGR of around 24%. But going forward is that kind of how you think of that business growing prospectively?
I think that gets a little bit tougher, just normal math as the numbers get bigger. I think it'll be tougher to kind of keep up with that percentage. With that said, we do expect services to continue to grow and be a big contributor to our gross profits, as we go forward because as we move more into the consultative and provide more annuity services for our customers across cloud, security and digital, we think there's opportunity within our existing customer base and net new customers.
And then in terms of the land and expand, I guess, what dictates - I guess your willingness to accept lower margins. Like there is certain size of the deal like a prospective size of the deal or maybe historically. Can you give us a little idea of like how this has worked out in the past? Maybe you accepted lower margins on some upfront sales and what you were able to accomplish by winning that customer through that land and expand strategy?
Yes. So you know, Greg. So, first of all it's not like we're just making any deals at any margin, it's really strategic account. So, accounts that we've identified or regional vice presidents in the field have come to us that they feel is as strategic account for them to win within their region.
And then secondly, is that they have an IT budget that is substantial that we would then be able to go back in and after providing something that, let's say, a lower margin be able to go back in and provide all the consultative and annuity services and other solutions that we have, to kind of drive those margins up.
So, it's mainly focused on strategic accounts that are identified either at the national or at the regional level. It's not - we track it by the way we have systems in place for deals based on a certain size, not to go below a certain margin, have to actually go up from our COO to get approval. But it's mainly on strategic accounts, we think we can then grow to be substantial accounts for ePlus.
And then security, what percent of adjusted gross billings was that this quarter? And what was the growth rate?
It was 19.3% I believe is what it was and last year it was like 18. - I want to say 18.6%
That was for the year, right.
For the year--
But for the quarter it was 20.6%.
20.6% okay. 20.6% Greg.
And then lastly, you talked about investing in the customer facing assets and headcount. Could you give us an idea of what the current utilization rate is now, or a sense of kind of your capacity, your existing capacity and maybe the need to add there? And how do you determine, when new assets need to be added? Thanks.
Yes, I got you now. Hey Greg, that's kind of a broad question, so there's a few things that kind of go into it. So, why don't I'll give you a little historical and then I'll try to address what you're saying. So, we've made investments that we believe have paid off and I'll give you just a couple. One, one of our strategic initiatives was to expand our geographic reach and our customer base and we've done that.
Second is; was to build out our service capabilities and our offerings that we talk about. And you heard, it was up 22.8% for the quarter and there's a CAGR of 24% over the last three years. Years ago we invested in a small security company and said that we were going to build up our security expertise and right now, it's almost approximately one-fifth of our overall adjusted gross billings in our business.
And the third was; we were going to sell or four if I should say, was going to sell solutions that were going to increase our gross margins and for this quarter it was 25%, for the year it was 24.1%.
So, we feel good that we're making the right investments. We also feel that we're in a space now, we're at a size and scale that we can continue and invest in customer facing headcount both from a sales and services because, our customer base is growing. And over time we're going to look to get that operating leverage, whether it be from a costs perspective or more importantly hopefully from a productivity perspective. Did that give you what you were looking for?
Yes. And I guess, when you do had that headcount, how do you determine - what's I guess full capacity? How quickly do they get ramped up to scale and maybe with your existing tax and sales and how much more growth, - how much utilization are you getting out of them now? I guess what I'm trying to get it.
Okay utilization, so yes we've got - I'll call them quotas and processes in place. So, both from a sales as well as from a services perspective there is a certain productivity that's expected. But as you can imagine, whether it's on the sales or services side, it's normally a quarter or so, before people ramp up and we kind of track that religiously.
So, we've got reports that actually track from our top reps to our bottom rep. What type of GP they've driven and what areas they've driven it, and it is hitting the expected targets and goals. And then we have utilization that we track both for our pre-sales as well as post-sales resources.
Okay. Thank you.
No problem. Hey Greg that's one thing we do have tracked pretty tightly, you can count on that.
[Operator Instructions] Our next question comes from Matt Sheerin with Stifel. Your line is now open.
Just another question on the gross margin, I mean it was 25%, but it was down a little bit on the technology side. You talked about the mix there and the fact that there are some competitive deals. As you look at your pipeline over the next quarter or two, I mean, you're still looking at that land and expand strategy, where you may give up a little bit of margin, adjusted to win business, and establish those relationships. So, Kley, you know, in Maggie's question you talked about maybe a gross margin sort of stabilizing from here. I mean is that one of the reasons?
Well not, I don't know if that's one of the reasons Matt. The reason I was somewhat conservative with Maggie, as when you look at it at 24.1% gross margins and 25% for the quarter, pretty much I believe it's some of the highest in the industry.
So, we're in that phase of continue to build out the solutions and services, so that we believe it potentially could uptick, yes. But we've had to give you a feel over last two years I think our gross margins have grown 250 basis points, right. So, I just don't think it's realistic to think that, that will continue.
Do we have landed - to your question do we have land and expand deals? Yes, we always have them in the pipeline. But realize those are deals that we've got to go in. We've got to build the customer relationship that, we don't have, we have to provide some type of value, not just price that the see key and leads into invest in us, as they go forward. So, there will always be there, but there's nothing specific that I know of right this minute that's going to happen.
And then so your - can you talk about the contribution from that SLAIT acquisition. I know they're focused on services, so whether the billings growth or other metrics, so we can sort of back that out and look at your organic numbers in the quarter?
So, from an adjusted gross billing approximately 50% of the upside on the adjusted gross billings was from SLAIT and the rest was organic Matt. But like anything with most of the acquisitions, they take time from when we require, they get settled in and for us to see the true upside.
What I will tell you about SLAIT that we're kind of excited is, we've talked about expanding our geographic coverage in our technical expertise and SLAIT actually gives us both with - with that acquisition we believe we're the dominant player in the mid-Atlantic.
The other thing is they had SLAIT relationships and contracts, that we're going to be able to leverage across the rest of ePlus in those regions. And then on top of that, they had some security expertise and programs that we believe we're going to be able to build out our security revenues and capabilities, in addition to having a nice staffing business that we're going to add to the existing staffing business we're doing.
So, it's a nice - we believe it's a nice ad for us. But like all acquisitions, you start to see the return in subsequent quarters more and more, as they get to know ePlus and all the offerings.
And then, as you look at, if we adjust the spending environment, we're hearing from some of the storage players are cured last night and then up tonight. It sound like there's some push outs, some big deals is also concerned about tariffs. And we're also seeing increase in tariffs on networking equipment like Cisco and others. Are you seeing any impact there on the demand front, or customers pausing at all?
No. So, two different things. One we haven't. So, your first question with the storage play and just overall, we haven't seen any - any drop off in our pipeline or forecasts or customer demand. In fact customer demand is fairly solid from what we've seen so far. On tariffs it's still little early.
Now there's two things that can come into play with that Matt. It could either potentially pull a deal forward, if the vendor hasn't implemented tariffs and you could pull it into this quarter or if they have implemented tariffs, you may have some customers that may wait and see to see if those tariffs are going to go away.
But so far I've not heard anything or seen anything through - well, through our first half of our quarter effectively. And haven't heard anything from our sales leaders that is holding up a deal or bringing a deal forward just yet.
And our next question comes from Brett Knoblauch with Berenberg Capital Markets. Your line is now open.
I guess just a couple of things. Just on the SLAIT acquisition, I guess, was that, I know when you initially announced, so the debt dilutive, was that kind of in the range, what you are expecting? I mean actually is that have anything to do with the year-over-year decrease in gross profit? Was that solely due to the kind of price projects and tough comp in terms of product mix?
Brett, I apologize you broke up a little, so I'm not sure what your question was. Can you ask that again?
Yes. I'm sorry.
I'm sorry.
I guess I was asking if the SLAIT acquisition played a part in the gross profit declining year-over-year. Was that was solely due to tough comps and product mix, plus the competitively priced project?
Yes, it did not affect the GP. In fact it would have helped if anything right in terms of GP. So, it was more the product margins that was the big effect on our GP. And then some of the competitively priced deals, obviously affect GP more and more affect our gross margins - because you're getting the incremental GP, I guess. But that's how I look at that one.
And then just that big increase year-over-year in that, you know, gross to net adjustment. I guess, Is that something you see continually stepping up, or do you think 34% is kind of going to be - kind of the talk and then that should help full feel some revenue growth going forward?
Brett, here's the easiest thing. I never would've thought we'd be at 34%. So, I'm guessing probably about four years ago, we were in the 23%, 24% range I'm going on memory, but I won't be up by a lot. For the year, we were at 30.7%, so on a - just short of a $2 billion business, that's a big swing in terms of gross to net, in terms of - roughly $600 million going from gross to net.
So, do I expect that it may continue? Yes, we've seen that kind of trend up because one; we've got loyal customers that we're able to go back and continually renew their maintenance. I don't want to jinx myself by saying that, but that's part of the gross to net.
The other thing we're seeing is, our software is picking up. So, as the customers are looking for new buying models and a lot of our security vendors are software and subscriptions if you will, that are recognized on a net basis. I would expect it to potentially trend up for a little while. But really this is one of those things I think we got to, as we continue to transform with the market we see where it takes us.
And then just one more. Is my thinking correct that - if you have a higher gross to net adjustment soon that kind of help benefit the gross profit. This is recognized in that basis. So, if you had a nice or a big increase in that adjustment that you have benefit gross profit.
No gross margin, not gross profit if you will. So, wouldn't - it would help your gross margins, where they would be higher. The things that will affect your gross profit, Brett, effectively, if we were to build up our services, which are stronger gross margins than our product sales. And then if we didn't have the tough compare were the hit we took this quarter with the product margins.
And if I could just for everybody on the call to is, when I looked at the quarter, I wouldn't say it was a strong quarter as traditionally from an ePlus perspective. But I never look at a quarter as a trend and there's a lot of positives that have been happening both in the quarter as well as what we see in the future.
Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over Mark Marron for any closing remarks.
All right. Thanks Daniel. Hey everyone, just want to thank you for taking the time to listen to us on the call. We appreciate you listening in and we'll speak to you soon. Take care.
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.