Q1 2022 ePlus inc Earnings Call
Okay.
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Good day.
And gentlemen, welcome to the E plus earnings results Conference call.
Minder, that's the conference call is being recorded I would now like to introduce your host for today's conference. Mr. Kley Parkhurst Senior Vice President Sir you may begin.
Thank you for joining us today on the call is Mark Marron, CEO and President Elaine Marion CFO, Darren <unk> President of the pulse technology.
And the Erica Stoecker General counsel.
I want to take a moment to remind us of the statements. We make this afternoon that are non historical therapy, the deemed to be forward looking statements from there based on management's current plans.
The months and projections.
Actual and anticipated future results may vary materially through the certain risks and uncertainty of detail in the earnings release, where she can share from them.
Our periodic filings with the Securities and Exchange Commission income.
Moving on the form 10-K for the year end of March 31, 2021 on our form 10-Q for the quarter ended June 30 of 2021 plus.
The company undertakes no responsibility to update any of these forward looking statements in light of new information or future events and of.
Additionally, during the call we may make reference to certain non-GAAP financial measures and we've included the GAAP financial reconciliation in our earnings release, which is posted on the industrial information section of our website at Www Darden post of the calm.
I'd now like to turn the call over to Mark Marron Mark.
Thank you clay and thank you everyone for participating in today's call to discuss our results for the first quarter of fiscal 2022, we had a great start to our fiscal year net sales and adjusted gross billings growth underscore our robust customer demand for our technology and finance solutions more importantly, this quarter.
Continued to show the scalability and efficiency of our operating model as strong top line growth fueled healthy operating income and net earnings growth. Our first quarter consolidated net sales increased 17, 4% from the prior year period with operating income growing 29, 8% and net earnings growing.
35, 5%. In addition, adjusted gross Billings Rose 15, 9% year over year to $633 million. These.
These results reflect demand for our solutions of substantial rebound of the markets and our continued focus on expense management and investments that enhance our operating efficiency.
Our strong first quarter financial performance benefited from balanced revenue growth for product sales and services.
And our technology segment sales were up 17, 3% driven in part by strong growth in the enterprise market and additional land that expand contract wins with high volume customers.
All of our technology segment gross margins decreased from last year due to product and customer mix, along with a lower gross to net adjustment. Our overall results highlight the positive operating leverage in our model as segment operating income was up 43, 9%.
Services revenue grew 16, 3% in the first quarter with gross margins of 39% up of 140 basis points from last year's first quarter.
During the first quarter, we experienced solid growth in both professional and managed services driven in part by continued strong demand for secure and flexible hybrid work models to accommodate remote workforces.
This increased growth in the remote workforce as positive free plus accelerating customer cloud adoption and the provision of cloud services, we had several key cloud and security related contract wins during the quarter underscoring market demand for our capabilities in these areas.
1 innovative. The example of this is where we work with the health care provider, who leveraged our cloud hosted infrastructure to use the solution that out of license and the tax at the digital medical image of a mall is cancerous.
We also saw a solid uptick in annuity service bookings of Q1 versus last year and continued to add to our annuity quality revenue. In addition, the recurring annuity type revenue generated by our services business will enhance both the predictability and visibility of our revenue stream.
Security remains a critical area of customer focus and investment.
Our consultative approach to designing and implementing comprehensive security solutions help safeguard our customers' data and mitigate ever present security risks sit.
The security represents 28% of our trailing 12 month, adjusted gross billings and almost $500 million out of standalone basis, reflecting of significance within the total solutions approach, we bring to customers.
The pandemic has shifted applications and users beyond their traditional environments. We continue to innovate invest and help our customers go beyond their traditional cyber security methodologies.
Optimized environments and introduce new technologies that are purpose built for securing the remote workforce and applications deployed across multiple clouds.
As the global economy moves beyond 2020 and into a post pandemic environment businesses are quickly adapting to the new normal a process that involves reassessing previously implemented remote workforce solutions and network infrastructure to ensure the current it systems and technology Roadmaps can adapt with agility.
To both present and future challenges.
To help our customers succeed in this new environment EPS developed of innovative suite of services and solutions called navigate the next hour solution, specifically address and help solve the 3 most pressing challenges now face probably of our customers first as employees return to the office even out of part time base.
Their health and safety remain of Paramount concern from our partnerships with leading technology vendors are innovative return to the workplace solutions. The assist enterprises, the monitoring physical distancing and providing safe working conditions.
Enterprises and organizations seek more efficient management of current.
The project expenses, coupled with the longer term strategy for funding future technology products, our expense management offerings southeast needs through cloud cost optimization services carrier expense management and strategic financing programs the.
Third as remote of hybrid work has become commonplace business is now more than ever require robust and scalable platform to maintain business continuity with the dispersed workforce to address this challenge we developed an approach based on our hybrid cloud virtual desktop infrastructure that offers significant cost performance and security of <unk>.
Vantages over existing solutions.
We've been pleased by the positive market response to our navigate the next suite of solutions, which represents just 1 example of how our investments in technology and resources enable E plus the stay at the forefront of dynamic market trends and further strengthen our position as a trusted partner to our more than 3500 customers.
Turning now to our financing segment net sales grew 18% in the first quarter compared to the prior year period, primarily due to increased sales of off lease equipment.
Though the financing segments results can be lumpy from quarter to quarter due to the timing and size of transactions. This business provides a unique point of differentiation free plus as our lease of financing options offer our customers flexibility in managing their it budgets.
With an acceleration in it spend is expected this year our financing segment is seeing strong interest from a variety of customers.
From a capital allocation standpoint, the strength of our balance sheet enables us to pursue strategic acquisitions and fund organic growth initiatives as we move forward. We will continue to identify and evaluate potential acquisition candidates not only broaden our geographic presence, but also enhance our capabilities.
And participation in high growth markets.
Looking ahead to the balance of our fiscal year. We are encouraged by the fundamental health of our markets and the strength of customer demand for our services and solutions with the global economy reopening in IC spending accelerating the outlook free plus remains positive, particularly in our areas of focus of security data Center cloud and digital.
The infrastructure.
As I noted last quarter disruptions in the electronic supply chain continued to cause component shortages and while this did not materially affect our first quarter results. We recognize the potential for some revenue headwinds as we move through our fiscal year.
In addition, the emerging COVID-19 variance and the possibility of of delayed return to work and of our government mandates could adversely affect our future performance.
We remain well positioned for continued growth in fiscal 2022 supported by the strength and breadth of our customer relationships, our strategic partnerships with leading vendors across the ecosystem and our comprehensive portfolio of transformative technology solutions.
I'll now turn the call over to Elaine Marion our CFO to walk you through our financial results in more detail the land.
Thank you Mark and thank you everyone for joining US today, we are pleased with our strong fiscal 2022 first quarter performance. Our consolidated net sales for the first quarter were $416.6 million of 17, 4% increase from the $355 million reported in last year.
The first quarter.
In our technology segment revenue was up 17, 3% to $400.4 million compared to $341.2 million in the last years first quarter, reflecting robust growth in the <unk>.
<unk> revenue and service revenue of 17, 5% and 16, 3% respectively.
We are also very pleased with the continued sequential increase in service revenue over the past 5 quarters, resulting from our ongoing effort to emphasize our managed services our robust top line performance underscores the strong demand for our diverse portfolio of solutions that are well aligned with customer needs.
Adjusted gross billings increased 15, 9% to $633 million from $546.4 million benefiting mainly from organic growth, which constituted approximately 80% of the growth coupled with contribution from the S&P acquisition, we completed on December <unk>.
31.2020.
The adjusted gross billing the net sales adjustment was 36, 8% compared to 37, 5% in last year's first quarter.
The continued to trend higher relative to 33, 3% on the trailing 12 month basis.
Our financing segment was up 18% of $16.3 million, mainly due to increased sales of off lease equipment of $5.1 million up from $3.9 million last year. The results from our financing segment tend to be uneven from period to period.
Our consolidated gross profit increased 7.1% the $105.5 million from $98.6 million.
While consolidated gross margin was 25, 3% compared to 27, 8% last year technology segment gross profit increased 9.9% of $95.4 million, while the gross margin of 23, 8% declined 160 basis points, mainly as a result of lower <unk>.
<unk> margin due to competitive pressure from enterprise customers and a lower proportion of sales of third party maintenance and software subscriptions in the first quarter.
Services margins expanded 140 basis points to 39% due to growth in our start to the Opex the <unk>.
Financing segment gross profit decreased 14% due to higher sales of off lease equipment, which yielded lower margin.
Consolidated operating expenses decreased <unk>, 7% of $73.1 million.
System with last year of the prior sequential quarter, our total head count at the end of June 2021 was 547, an increase of 7% compared to 536 in the year ago first quarter and 8% below last quarter's level operating income increased $29.
8% to $32.5 million, our effective tax rates of the quarter decreased to 27, 8% from 38% last year for.
For the year, we expect our tax rate to be between 28% and 30%.
Our consolidated net earnings of $23.5 million or $1.75 per diluted share were up 35, 5% of 34, 6%, respectively from $17.4 million or $1.30 per diluted share in the last year's first quarter.
Non-GAAP diluted earnings per share increased 29, 8% of $1.96 per diluted share compared to $1.51 per diluted share year over year. Adjusted EBITDA was up 24, 6% to $38.3 million our diluted share count total 13, 4.4 million.
Compared to $13.39 million in the prior year quarter.
Now looking at our end market and our technology segment on a trailing 12 month basis Telecom media and entertainment and technology continued to be our largest markets representing 27% of 16% of segment net sales respectively.
Healthcare and financial services, followed accounting for 2014, 13, and 12% respectively with the remaining 17% distributed among several other customer types.
Moving to the balance sheet, we ended the quarter with $93.8 million of cash and cash equivalents compared to $129.6 million at the end of March as a reminder, we have approximately of $161 million in our financing portfolio and a portion of that could be monetized in the need for additional capital arise.
Yes.
Inventory levels increased sequentially 11, 1% to $77.8 million.
Inventory levels vary with ongoing customer projects.
Our cash conversion cycle at the end of the first quarter was 32 days up from 30 days in the year ago quarter, but down from 37 days in the March period.
Continue to actively monitor the effects of COVID-19, the vaccine rollout and the spread of the new variance on our business and footprint. We also remain committed to seeking new investments either organically or through acquisition to the advance our positioning.
We began fiscal 2022 with strong fiscal quarter results, which bolster our outlook given the solid demand and positive trends of the market for our solutions and services.
In addition, we closed several outside of transactions in our financing business in July 2021, which we estimate will contribute 32 to 37 cents per diluted share in our second quarter against the favorable backdrop, we continue to monitor the potential negative impact from product shortages in our industry.
Free.
I'll now turn the call back to Mark Mark.
Thanks, Helane, we were off to a great start in fiscal 2022, and I'd like to thank the entire E plus team for their continued dedication and hard work in achieving our positive first quarter results, we continue to execute well on our growth strategy and as the global economy continues to reopen we see numerous opportunities to expand.
Of our participation and higher growth areas and as always we will continue to work closely with our customers to be their partner of choice for delivering comprehensive lifecycle solutions.
In summary, the fundamental outlook for <unk> remains strong and I am excited about our opportunities this year and beyond.
Operator, I'd now like to open the call for questions.
As a reminder to ask the question you will need to grasp of our 1 on your telephone can we draw your question Chris of the County lease day by while we compile the Q&A roster.
Your first question comes from Maggie Nolan with William Blair. Your line is open.
Thank you.
And I'm wondering.
Hey line going forward for the next couple of quarters. How are you balancing your expectation just given the increased product sales you saw but also expected sure Jason and supply chain initiatives.
Really really good question Maggie so if the.
The first if you look at the quarter, we feel pretty good about the quarter overall of metrics were up across all of the key areas from top to bottom.
We've also seen that our open orders were up significantly almost 32% over the last year backlog in our services was up so all the kind of key metrics. We look at are all very good as it relates to the shortage.
This past quarter. It was still in play and we sort of minimal effect of it affect our quarter, where some things were pushed out through the lead times I give credit to our teams Darren our CEO of the land our CFO did a great job with their teams, making sure that we work closely with the customers of the vendors on getting the products out that the customers are solutions that our customers need.
There is still some uncertainty around the lead times of a lot of the experts are saying it is going out to next year.
But right now we feel pretty good about where we are in the quarter. So far the pipeline and some of the metrics overall, but theres always that uncertainty as it relates to some of the shortages that are beyond our control.
Okay. Thanks, Mark and then on the financing offering can you give us an update the way.
With the update on.
Credit quality of the customers, how youre assessing risk.
Particularly out of the receivable or modified the third party.
Yes sure.
The line, we are continuing in our in our standard process of evaluating our lessees.
We've been doing of per year, then have a pretty prevent process in place to evaluate the credit quality of life of our lessees.
Our exposure is actually down this quarter from the from the previous quarter.
So it's really basically related to transactional sales that occurred within the quarter.
So there's really no change baggy in how we approach the credit quality.
And our customer base.
Okay. Thank you.
Sure.
So from Maxim.
And your next question comes from Matt Sheerin with Stifel. Your line is open.
Yes. Thank you good afternoon, everyone.
My first question.
Regarding the.
Net leasing.
The leasing transactions that you said is an incremental 32% to 37%.
How should we think about that is that just the gross profit drop through in that business. So you didn't get the incremental whenever a few million dollars.
Yes, that's a fair way of Hey, Matt a couple of things as we discussed it wasn't percent. It was actually sense. So I don't know if you if I missed 1 of the sand.
Yeah actually sense okay.
As we always kind of talk about with our finance business, it's a lumpy business.
As you know mainly of lot of that stuff is transaction gains. So that's kind of a net of low cost except taxes right. What happened is we had several large deals that happened in this quarter that we thought were material and what kind of put it out so in July in.
In Q2, so but yes from what you had asked is exactly how it is going to play out.
Okay great.
And then on the.
The commentary about the gross margin and segment down.
You talked about you did talk about a little bit of pricing pressure at the customer level. If you could expand on that and then.
And then as we look to the September quarter, I know you've got.
You tend to have better gross margins because theres more of warranty third party maintenance contract with your largest vendor. So should we expect gross margins to improve quarter on quarter.
So that was a that was a lot there Matt so I'll try to touch on the quarter what happened. This quarter. So there are a couple of things of that affected our gross margins 1 of the gross to net was lower so which lowered the margins our product margins were a little bit lower than normal nothing outside the.
Crazy normal if you will but a lot of it was due to some of the stuff that we've talked about with our land and expand we did some land and expand type deals that traditionally a little bit lower margin and then over time, we try to show value to those customers.
We also sort of our enterprise business growth substantially so.
As a percentage of net sales of thousands of employees and above customers actually grew 28%. So traditionally those enterprise margins are a little tighter offsetting that we saw our service margins actually increased by 140 basis points, So which is attributed to a lot of our annuity services revenues that we've talked about that as we continue to be.
<unk> of annuity, we would expect both the services revenue as well as the margins to continue to grow I think the second part of your question is the gross to net normally with July due to fiscal the fiscal year and do we expect it to be up.
That's a tough 1 right now Matt to kind of give you an exact answer.
I would expect it to be up some versus last year for sure I can't give you an exact percentage of a month into interest yet until we kind of start calculating all of the numbers, but I think it's safe to say that the gross to net will be higher than last year, which would have a positive effect on the gross margins I just don't know how much it I'm not sure it's going to be dramatically.
Dramatic uptick.
Got it.
And then just in terms of the the upside of that you saw last quarter.
And the momentum you have going in and what would you attribute that to.
The customer is finally getting back to the office. They are seeing more pent up demand projects been has to be done what do you account for that big uptick that you saw EBIT.
There are few things they are what is demand for our solutions. Ben. So we are seeing a lot of customers need what we're providing across a lot of different things in terms of returns of the workforce.
Cost management, the long term kind of funding for projects that they may be put on hold.
Some of the remote and hybrid solutions that we are seeing customers kind of buildup. I also think there is a little bit of a rebound of the market so from that end.
We saw that and then we sort of continued growth across our 4 key areas. So data center and cloud networking security and collaboration of all grew in the quarter and trailing 12 months.
Security was.
I think it was up 19% year over year for the quarter and it's 28% of our trailing 12 months, it's almost a $500 million business. So.
I guess the key thing is diverse customer base selling the solutions that our customers need growth in each of our solution areas would be the roundabout answer of that.
Okay. Thanks, and just my last question just regarding it sounds like Youre of head count has been flattish youre seeing good growth and as you remember last year on the services side, where youre actually youre.
The employees that your customer base I know that was down. So are you are you adding back to your head count and are you having an issue of finding people given the labor shortages that we're hearing about.
So a couple of things there, Matt Yes, we're going to continue to invest in head count because we believe we can continue to.
Expand our reach and of our solutions. So we will continue to look for head count is it a little bit tougher in the market from both a recruiting and retention standpoint, yes.
Fairly competitive market.
And people being able to work remotely is kind of put an interesting dynamic.
We do have an internal recruiting team that does a really nice job finding the resources, we need both on the sales and services side. So.
All goodness there on the services side, though just to add to admit that's pretty interesting. So 1 of our services were up 16, 3% this quarter year over year.
That's attributable of lot PFS getting on site is still a little bit tight as we had talked about but what's interesting now is staffing is starting to pick up where our customers are looking for being the hiring market is a little tighter they're looking for us the kind of help them get up the speed as they return to work. We're also seeing customers that need help with what.
We call our on demand Jumpstart program, where if you think about a lot of customers have been working from home are now getting back into the office. So a lot of their technology has been sitting idle. So we kind of go in and do a identify test remediate that technology, both with local resources at our call centers. So we're starting to see some pickups.
Staffing of that on demand services, and our annuity services, our total contract value in Q1 year over year was actually up to 80%. So a lot of the services business we have been.
We've been trying to build out is actually moving in the right direction even in these times.
Okay. That's very helpful. Thanks, a lot alright.
Alright.
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Again, if he would like to ask the question. Please press star 1 on your telephone again to ask the question. Please press Star then the number 1 on New York Telephone. Your next question comes from Greg Burns with Sidoti Your line is open.
Okay.
Just following up on the quest.
And in terms of head count and investing in more customer facing resources.
<unk> been really strong last few quarters, maybe some of that is yes.
Some of it isn't.
And then obviously the picking up here so how should we think about operating.
Operating leverage pretty margin targets or.
Okay. So the hay.
Greg you were breaking up a little bit there, but what I think you asked is what should we expect with operating leverage as we go forward. So what I think we've done a nice job of overall some of the operating leverage we've got is due to the pandemic, obviously with travel and entertainment and things along those lines that are down I think we've done a really nice job of keeping all of the plus.
Employees.
Realigning towards the areas that we believe are key that our customers need in this new environment, So driving up our net sales of our HIV. If you will while maintaining head count with that said.
I would expect that we'll continue to hire both sales and services as we continue because I do think we've got a real good chance the grab some additional market share as we go forward. So I would think the opex as it stands this past quarter is probably a good metric overall 2.2.
<unk> managed to if you will I would think over time, our head count should trend up a little bit as we continue to build out certain areas. Because I think we can continue to grow in some of our focus areas.
Okay. Thanks, and then.
In terms of the has there been any change in the the conversations youre, having with your customers given the little resurgence. We're seeing COVID-19 are you starting to get more cautious in terms of their outlook.
No I haven't heard of it yet I mean, we just got the news I think today with the mandates of the mass again coming back in I think everybody is.
Been accustomed to doing a lot of the.
The virtual remote kind of <unk>.
Calls if you will.
I have done many many in terms of.
Calls myself on video with customers and they seem very open to it and EBITDA did fairly well to it as we walk through our solutions or trying to help them with what they need so.
Don't think we will see much of a change than what we've seen over the past year to be honest, Greg I think the big thing that a lot of customers are trying to figure out is the lead times on some of the supply chain stuff. So I think they all need solutions, where they're looking to upgrade the solutions where maybe.
<unk> start some of the stuff that they wanted to do but didn't do in the last year and they are trying to figure out what is the right solution and then what's the lead time in order to get that in.
Okay, great. Thank you alright.
Alright, Greg Thanks.
Alright, there are no further question at this time I will now hand, the call back of the company.
The company says thank you.
If I could thank everybody for attending today, we appreciate it and look forward to seeing you or hearing from you in the next.
Quarterly earnings call take care of be safe.
Thank you.
This concludes today's conference call. Thank you for you.
For your participating you may now disconnect.
Yes.
Okay.
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