Q3 2022 ePlus inc Earnings Call
Please wait the conference will begin shortly.
Speaker 1: Please wait, the conference will begin shortly.
[music].
Speaker 2: Good day ladies and gentlemen. Welcome to the E Plus Earnings Results Conference Call. As a reminder, this conference call is being recorded.
Good day, ladies and gentlemen, welcome to the E plus earnings results Conference call.
A reminder, this conference call is being recorded.
Speaker 2: I would like to introduce your host for today's conference, Mr. Clay Parkhurst, SVP. Sir, you may begin.
I would like to introduce your host for today's conference Mr. Kley Parkhurst SVP, 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 Erica Stoecker General counsel.
Speaker 2: Thank you for joining us today. I'm Nicole as Mark Marin, CEO and president, Elaine Marion, CFO , Darren Ragwell, CEO and president of E-Pulse Technology, and Erica Stoker, General Counsel.
Speaker 3: 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
I wanted to take a moment to remind you that the statements. We make this afternoon that are not historical facts may.
May be deemed to be forward looking statements and are based on management's current plans estimates and projections.
Speaker 3: Actual and anticipated future results in a very materially due to certain risks and uncertainties, detailing the earnings release we issued this afternoon, and their periodic filings with the Security and Exchange Commission, including our form 10K for the year-end of March 31st, 2021, and subsequently filed court and reports, including our form 10K for the quarter-end of December 31st, 2021, when filed.
<unk> and anticipated future results may vary materially.
Certain risks and uncertainties detailed in the earnings release, we issued this afternoon.
<unk> periodic filings with the Securities Exchange Commission, including our Form 10-K for the year ended March 31, 2021, and subsequently filed quarterly reports, including our Form 10-Q for the quarter ended December 31, 2021 when filed.
Speaker 3: The company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events.
Company undertakes no responsibility to update any of these forward looking statements in light of new information or future events.
Speaker 3: In addition, during the call, we may make reference to non- GAAP financial measures, and we've included the GAAP financial reconciliation and earnings release, which is posted on the investor information section of our website at www.ethlas.com. I'd like to turn the call over to Mark Aaron. Mark?
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 Dot E plus.
I'd now like to turn the call over to Mark Mark.
Speaker 4: Thank you, Clay, and thank you everyone for participating in today's call to discuss our results for the third quarter of fiscal 2022. E-plus delivered strong financial results in our third quarter. Our performance highlights resilient IT spend in the marketplace and the successful execution of our growth strategy to capture share in our focused end markets, including the mid-market, enterprise, and public sector.
Thank you clay and thank you everyone for participating in today's call to discuss our results for the third quarter.
<unk> 2022.
<unk> delivered strong financial results in our third quarter performance highlights resilient standing in the marketplace and the successful execution of our growth strategy to capture share in our focused end markets, including the mid market enterprise and public sector.
Speaker 4: Notably, customer demand was broad-based in third quarter, with growth across all customer size segments and nearly all end more.
Notably customer direct customer demand was broad based in the third quarter with growth across all customer size segments and nearly all end markets are higher than market growth rates. Despite continuing supply chain challenges demonstrates that our strategy to drive consulting advisory and managed services security.
Speaker 4: are higher than market growth rates, despite continuing supply chain challenges, demonstrate that our strategy to drive consultative, advisory and manage services, security, and hybrid cloud solutions is delivering one of our customers demand today. We are confident that E-plus remains well positioned for the future with a strong balance sheet, deep engineering expertise, and unique value-edited financing alternatives.
And hybrid cloud solutions is delivering what our customers demand today.
We are confident that <unk> remains well positioned for the future with a strong balance sheet deep engineering expertise and unique value added financing alternatives.
Speaker 4: Our adjusted gross billings increase 16.5% year-over-year to $685 million in the third quarter, and on a year-to-day basis increased by more than 14% to nearly $2 billion. Net sales in the quarter grew by 15.7% year-over-year to $495 million, and year-to-date sales increased 12.6% to 1.37 billion.
Our adjusted gross billings increased 16, 5% year over year to $685 million in the third quarter and on a year to date basis increased by more than 14% to nearly $2 billion net sales in the quarter grew by 15, 7% year over year to $495 million and year to date sales increased 12.
6% to $1 $3 7 billion.
Speaker 4: Given strong top-line growth and the positive operating leverage inherent in our business model, earnings per share again significantly outpaced sales growth. In the third quarter, diluted earnings per share increased 21% and non-GAAP earnings per share improved nearly 24% from the prior year period.
Given strong topline growth and the positive operating leverage inherent in our business model earnings per share again significantly outpaced sales growth in the third quarter diluted earnings per share increased 21% and non-GAAP earnings per share improved nearly 24% from the prior year period.
Speaker 4: I like to highlight a few areas that continue to contribute to our strong-grose margins and profitability. Our services revenue was up 20% for both the quarter and year-to-date, reflecting not only increased project-based professional services, but a continuing increase in managed services and new-ity type bookings, which creates value-added and thick-skate customer relationships. Strengthening the ties we have with our customers, as well as driving more predictable future revenue and gross profit profiles.
I'd like to highlight a few areas that continue to contribute to our strong gross margins and profitability. Our services revenue was up 20% for both the quarter and year to date, reflecting not only increased project based professional services, but a continuing increase in managed services annuity type bookings, which creates value added.
Sticky customer relationships strengthening that ties we have with our customers as well as driving more predictable future revenue and gross profit profiles.
Speaker 4: Along with revenue growth, our services business is generating higher gross margins, achieving 39.4% in the third quarter, and 39% year to date, which is 120 basis point improvement.
Along with revenue growth our services business is generating higher gross margins, achieving 39, 4% in the third quarter and 39% year to date and year to date, which is a 120 basis point improvement.
Speaker 4: As our service revenue scales and increases as a percentage of our total revenue, we expect a continued favorable impact on our consolidated margins, providing incremental and sustainable benefits to our profitability and our economic growth.
As our service revenue scale and increases as a percentage of our total revenue. We expect the continued favorable impact on our consolidated margins provide incremental and sustainable benefits to our profitability and earnings.
Security continues to be a key contributor to our business accounting for approximately 20% of adjusted gross billings on a trailing 12 month basis.
Speaker 4: Security continues to be a key contributor to our business accounting for approximately 20% of adjusted cruise billings on a trailing 12-month basis.
Speaker 4: Customers are dealing with new regulations, ransomware concerns and post incident response, cybersecurity insurance requirements and staffing shortage.
Estimates are dealing with new regulations ransomware concerns and post incident response, cyber security insurance requirements and staffing shortages.
Speaker 4: We've built programs to help organizations develop and manage proper implementation of their security programs, which may be as simple as providing a gap analysis along with a deliverable roadmap to more extensive solutions that provide full-time CISO resources with key deliverables associated with each functional area. We continue to see growing customer demand for our consultant and advisory services, which in turn has helped increase our gross margin from service.
We've got programs to help organizations develop and manage proper implementation of their security programs, which may be as simple as providing a gap analysis, along with the deliverable roadmap to more extensive solutions.
Five full time CSO resources with key deliverables associated with each functional area. We continue to see growing customer demand for our consulting and advisory services, which in turn has helped increase our gross margin from services.
Speaker 4: The continued solid performance of our financing segment underscores its value-add as operating income of 8.9 million increased nearly 39% year over year in the third quarter.
The continued solid performance of our financing segment underscores its value add as operating income of $8 9 million increased nearly 39% year over year in the third quarter.
Speaker 4: On a year-to-date basis, our financing segment has generated operating income of more than $30 million, which includes an outsized benefit from several large transactions in our second quarter.
On a year to date basis, our financing segment generated operating income of more than $30 million, which includes an outsized benefit from several large transactions in our second quarter.
Speaker 4: In today's dynamic IT market, our customers seek to architect solid technology foundations that are both flexible and scalable. As legacy applications and business processes increasingly move to modernize their data centers or move to a hybrid cloud environment, we are able to support our customers' more adaptable business models through our integrated approach that is tailored to meet their specific networking and information security requirements.
In today's dynamic market, our customers seek to architect solid technology foundations that are both flexible and scalable as legacy applications and business processes increasingly move to modernize their data centers or move to a hybrid cloud environment, we're able to support our customers more adaptable business models through our integrated.
Approach that is tailored to meet their specific networking and information security requirements.
Speaker 4: This past December , for example, we launched a new networking strategy. That provides customers with a roadmap to help streamline complex, multi-faceted network of implementation.
This past December for example, we launched a new networking strategy that provides customers with a roadmap to help streamline complex multifaceted network implementations.
Speaker 4: At the same time, our financing segment provides unique differentiation from a competitive standpoint. As IT initiatives grow in scope and complexity, our financing capabilities offer customers additional flexibility as they manage tighter capital IT budgets and spending plans.
At the same time, our financing segment provides unique differentiation from a competitive standpoint, as it initiatives growing scope and complexity, our financing capabilities to offer customers additional flexibility as they might manage tighter capital budgets and spending plans.
Speaker 4: As we enter our fiscal fourth quarter, we are coverage by continued favorable market fundamentals that are reflected in the strength of our open orders and in our growing services backlog.
As we enter our fiscal fourth quarter. We are encouraged by continued favorable market fundamentals and are reflected in the strength of our open orders and R&R growing services backlog.
Speaker 4: We've continued focus on making the right investments, including acquisitions, strategic hires, or investments in technology and partnerships, to ensure that our services and solutions support our customer's future technology road maps and needs. And while we have a robust balance sheet, and proven integration expertise, which gives us the ability to acquire the right targets, we will continue to be disciplined in our approach to acquisition.
We continue to focus on making the right investments, including acquisitions strategic hires or investments in technology and partnerships to ensure that our services and solutions support our customers' future technology Roadmaps and needs.
While we have a robust robust balance sheet, improving integration expertise, which gives us the ability to acquire the right targets. We will continue to be disappointed in our approach to acquisitions.
Speaker 4: As we have discussed on prior calls, supply chain constraints remain an ongoing challenge and are likely to remain a headwind throughout this calendar year. We continue to work in close partnership with our vendors and customers to navigate these issues, which in some cases require us to hold ordered inventory in advance of large customer deployments.
As we have discussed on prior calls supply chain constraints remain an ongoing challenge and are likely to remain a headwind throughout this calendar year. We continue to work in close partnership with our vendors and customers to navigate these issues, which in some cases require us to hold ordered inventory in advance of large customer deployments.
Speaker 4: This dynamic, coupled with continued strong customer demand for IT equipment, has led to heightened inventory levels that we expect will diminish as supply chain constraints ease and customer projects are completed.
Dynamic coupled with continued strong customer demand for equipment as well.
The heightened inventory levels that we expect will diminish as supply chain constraints ease and customer projects are completed.
Speaker 4: In summary, I'm very pleased with our financial and operational performance in the third quarter and an idea-to-date base.
In summary, I am very pleased with our financial and operational performance in the third quarter.
On a year to date basis, we continue to execute at a high level delivering strong revenue and earnings growth, while investing in our capabilities to strengthen our competitive position and deliver innovative and cost effective solutions for our customers I will now turn the call over to Elaine Marion our CFO to walk through our financial results in more detail.
Speaker 4: We continue to execute at a high level, delivering strong revenue and earnings growth, while investing in our capabilities to strengthen our competitive position and deliver innovative and cost effective solutions for our customers. I will now turn the call over to Elaine Marion, our CFO , to walk through our financial results in more detail. Elaine?
Elaine.
Speaker 5: Good afternoon, everyone, and thank you, Mark. I'm happy to share more insight about our strong financial performance in the third quarter of fiscal 2022, where we delivered double-digit top-line and net earning growth.
Good afternoon, everyone and thank you Mark I'm happy to share more insight about our strong financial performance in the third quarter of fiscal 2022, where we delivered double digit top line and net earnings growth the strong demand for <unk> products and services that Mark discussed is evident in our third quarter fiscal year 2020.
Speaker 5: The strong demand for E-Plus products and services that Mark discussed is evident in our third quarter fiscal year 2022 consolidated net sales growth of 15.7% to 494.8 million.
Consolidated net sales growth up 15, 7% to $494 8 million.
Speaker 5: Performance was strong across the board in both our technology and financing segments.
Performance was strong across the board in both our technology and financing segments.
Speaker 5: Our business strategy and continued focus on our growth areas supported the technology segments net sales increase of 14.8% to 477 million compared to 415.6 million in last year's third quarter.
Our business strategy and continued focus on our growth areas supported the technology segments net sales increase of 14, 8% to $477 million compared to $415 6 million in last year's third quarter.
Speaker 5: Product and service revenues increase 14% and 20% respectively evidencing market share gains.
Product and service revenues increased 14% and 20% respectively evidenced in market share gains, we're particularly pleased with our continued streak of service revenue growth. This was our sixth consecutive quarter of strong performance driven by a broad demand for our managed and professional service offerings.
Speaker 5: We're particularly pleased with our continued streak of service revenue growth. This was our six consecutive quarter of strong performance driven by a broad demand for our managed and professional service offering.
Speaker 5: The same trend supported the adjusted gross billings increase a 16.5% to 685 million compared to 587.8 million in the third quarter of fiscal 2021.
These same trends supported the adjusted gross billings increase of 16, 5% to $685 million compared to $587 8 million.
The third quarter of fiscal 2021.
The adjusted gross billings to net sales adjustment was 34% compared to 29, 3% in the last year's third quarter as we had very strong growth in this quarter for sales of third party maintenance SaaS and subscription.
Speaker 5: The adjusted growth billing to net sales adjustment was 30.4% compared to 29.3% in the last year's third quarter, as we had very strong growth in this quarter for sales of third-party maintenance, staff, and subscriptions.
Speaker 5: For the financing segments of 2022, third quarter revenue increased 48.4% to 17.9 million reflecting higher post contract sales from several early biomes of assets.
For the financing segment fiscal 2022 third quarter revenue increased 48, 4% to $17 9 million, reflecting higher contract sales from several early buyout of assets under lease.
Speaker 5: Fiscal year 2022 third quarter consolidated growth profit amounted to $117.1 million of 19.3% from $98.2 million year on year. Consolidated growth margin widened 70 basis points to 23.7% compared to 23% in the year ago quarter.
Fiscal year 2022 third quarter consolidated gross profit amounted to $117 1 billion up 19, 3% from $98 $2 million year on year consolidated gross margin widened 70 basis points to 23, 7% compared to 23% in the year ago quarter.
Speaker 5: Technology segment gross profit was $104.5 million, up 18.3% year over year, and gross margin expanded 60 basis points to 21.9%, primarily reflecting expanding margins for product and service.
Technology segment gross profit was $104 5 million up 18, 3% year over year and gross margin expanded 60 basis points to 21, 9%, primarily reflecting expanding margins for product and services.
Speaker 5: Service margins widened 70 basis points to 39.4% due to increased volume from professional services that yield higher margins. The financing segment's gross profit was $12.6 million, reflecting a 28.5% increase.
Service margins widened 70 basis points to 39, 4% due to increased volume for professional services that yield higher margins. The financing segment gross profit was $12 6 million, reflecting a 28, 5% increase in <unk>.
Salaries and variable compensation were the main drivers of the 17, 6% increase in SG&A to $76 9 million and the similar growth in operating expenses. Our total head count at the end of December 2021, with 554 flat sequentially and a 2% decrease.
Speaker 5: Our total head count at the end of December 2021 was 1,154 flat sequentially and a 2% decrease compared to 1,586.
Compared to <unk> hundred 86.
Speaker 5: a year ago in the third quarter, which included 102 employees added from the S&P acquisition on December 31, 2020.
A year ago in the third quarter, which included 102 employees added from the S&P acquisition on December 31 2020.
Our strong topline growth and operating leverage led to 23, 3% growth in operating income to $36 1 million, our effective tax rate for the quarter decreased to 26, 4% from 28, 1% last year due to an adjustment to the prior year's tax return related.
Speaker 5: Our strong top-line growth and operating leverage led to 23.3% growth in operating income to $36.1 million. Our effective tax rate for the quarter decreased to 26.4% from 28.1% last year due to an adjustment to the prior year's tax return related to foreign tax.
Foreign taxes for the full year, we expect our tax rate to be between 28 and 29% for the same reasons I just mentioned consolidated net earnings of $26 4 million or <unk> 98 per diluted share representing increases of 22, 1% and 21% respectively from 'twenty one.
Speaker 5: For the full year, we expect our tax rate to be between 28% and 29%. For the same reasons I just mentioned, consolidated net earnings of $26.4 million, or $0.98 per diluted share, represented increases of 22.1% and 21% respectively.
Speaker 5: from 21.6 million or 81 cents per diluted share in the last year's third quarter. Non-gap diluted earnings per share increased 23.6% to $1.10 compared to 89 cents in the year ago quarter. As a reminder, EPS and the diluted share count of 26.9 million reflect the 2-for-1 stocks list that took effect on December 31, 2021.
One 6 million or <unk> 81 per diluted share in last year's third quarter non-GAAP diluted earnings per share increased 23, 6% to $1 10, compared to 89% from the year ago quarter. As a reminder, EPS on the diluted share count of $26 9 million reflect the two for one.
Split that took effect on December 31, 2021.
Speaker 5: Also, adjusted EBITDA increased 21.5% to $41.8 million for the quarter.
Adjusted EBITDA increased 21, 5% to $41 8 million for the quarter.
Speaker 5: Moving to our consolidated results for the nine months ended December 31st, 2021, net sales increased 12.6% to $1.37 billion.
Moving to our consolidated results for the nine months ended December 31, 2021, net sales increased 12, 6% to $1 37 billion.
Speaker 5: Net sales in the technology segment were up 11.7% to 1.31 billion. Year-to-date adjusted gross billing increased 14.2% to 1.98 billion. Consolidated gross profit increased 16.9% to 345.6 million. Consolidated gross margin expanded 90 basis points to 25.2% and our technology segment gross margin increased 90 basis points to 23.2%.
Net sales in the technology segment were up 11, 7% to 131 billion year to date adjusted gross billings increased 14, 2% to $1 98 billion consolidated gross profit increased 16, 9% to $345 $6 million consolidated gross margin expanded 90 basis.
<unk> to 'twenty, five 2% and our technology segment gross margin increased 90 basis points to 23, 2%.
Speaker 5: reflecting the effective execution of our growth strategy.
Reflecting the effective execution of our growth strategy. This combined with the operating leverage inherent in our business model led to an increase in year to date net earnings and earnings per share of 38, 3% and 37, 7%, respectively to $81 4 million or three.
Speaker 5: This, combined with the operating leverage inherent in our business model, led to an increase in year-to-date net earnings and earnings per share of 38.3% and 37.7% respectively to $81.4 million, or $3.03 per diluted share.
<unk> per diluted share.
Speaker 5: Adjusted EBITDA increased 32% to $130.3 million, and non-GAAP diluted earnings per share increased 36.3% to $3.38 over the nine-month period.
Adjusted EBITDA increased 32% to $130 3 million and non-GAAP diluted earnings per share increased 36, 3% to $3.38 over the nine month period as.
Speaker 5: As for the end markets, on a trailing 12 month basis, telecom media and entertainment continues to be our largest end market accounting for 29% of that sales, followed by healthcare, sled, technology, and financial services, which represented 16%, 15%, 15%, and 9% respect...
As for the end markets on a trailing 12 month basis Telecom media and entertainment continues to be our largest end market accounting for 29% of net sales followed by healthcare sled technology and financial services, which represented 16% to 15, 15, and 9% respectively. The remaining 16.
Speaker 5: The remaining 16% is distributed among several other customer types.
<unk> distributed among several other customer types.
Yes.
Speaker 5: Now looking at the balance sheet, we ended the quarter with $105.6 million in cash and cash equivalents compared to $129.6 million at the end of March 2021. This lower level was due to share repurchases totaling $9.5 million and increased working capital needs to support strong demand for our products and services in the technology segment, particularly as it related to inventory.
Now looking at the balance sheet, we ended the quarter with $105 6 million in cash and cash equivalents compared to $129 6 million at the end of March 2021. This lower level was due to share repurchases totaling $9 5 million and increased working capital needs to support strong demand for our products and services.
In the technology segment, particularly as it related to inventory, which more than doubled to $147 7 million when compared to the end of fiscal 2021. This is due to an increase in committed ongoing customer projects, coupled with some impact from the continued supply chain constraints.
Speaker 5: which more than doubled to $147.7 million when compared to the end of fiscal 2021.
Speaker 5: This is due to an increase in committed ongoing customer projects coupled with some impact from the continued supply chain constraints.
Right.
I want to remind you that we have approximately $188 million in our financing portfolio and a portion of that could be funded with third parties for additional liquidity to fuel our growth.
Speaker 5: I want to remind you that we have approximately $188 million in our financing portfolio, and a portion of that could be funded with third parties for additional liquidity to fuel our growth.
Speaker 5: In addition, we recently expanded our Wells Fargo credit facility to 300,000.
In addition, we recently expanded our wells Fargo credit facility to $375 million.
Speaker 5: Our cash conversion cycle at the end of the third quarter was 47 days up from 24 days in the year ago quarter and 35 days in the prior sequential quarter. This sharp increase is mainly due to increase in inventory and in and an increase in sales to customers with greater than 60 day terms.
Our cash conversion cycle at the end of the third quarter was 47 days up from 24 days in the year ago quarter, and 35 days in the prior sequential quarter. This sharp increase is mainly due to increase in inventory and an increase in sales to customers with greater than 60 day terms.
Speaker 5: To sum up, our strong performance year-to-date gives us confidence in our ability to continue to grow our business, gain market share, and to deliver value to our shareholders. I would like to extend my thanks to the entire E-Plus team for their unwavering perseverance and performance. With that, I will now turn the call back over to Mark.
To sum up our strong performance year to date gives us confidence in our ability to continue to grow our business gained market share and to deliver value to our shareholders I would like to extend my thanks to the entire <unk> team for their unwavering perseverance and performance.
With that I will now turn the call back over to Mark Mark.
Speaker 4: Thank you, Elaine. Before we open the call to questions, I'd like to take a moment to thank our global team for their continued strong execution, despite the challenges of the rapidly changing COVID environment and supply chain constraints. Their hard work and dedication allowed us to support our customers key business initiatives while delivering solid operating.
Thank you Alain before we open the call to questions I would like to take a moment to thank our global team for their continued strong execution. Despite the challenges of the rapidly changing Colgate Colgate environment and supply chain constraints their hard work and dedication allowed us to support our customers' key business initiatives, while delivering solid operating metrics.
Speaker 4: We believe we are well positioned and have the flexibility and expertise to meet our customers ever evolving needs. I'd like to open the call to questions.
We believe we are well positioned and have the flexibility and expertise to meet our customers ever evolving needs I'd like to open the call to questions operator.
Speaker 2: At this time I would like to remind everyone, in order to ask a question press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press star 1.
Okay.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Your first question comes from the line of Maggie Nolan with William Blair. Your line is open.
Speaker 2: Our first question comes from the line of Maggie Nolan with William Blair. Your line is open. Hi, thank you.
Hi, Thank you nice performance.
Thanks Maggie.
Mark I'm, hoping you could maybe give us a little bit more detail on the backlog and where it stands I think you had record levels.
Speaker 6: Mark, I'm hoping you could maybe give us a little bit more detail on the backlog and where it stands. I think you had record levels last quarter. What does it look like as you're looking out from here and any kind of color on maybe products versus services within that as well would be helpful.
Levels last quarter, what does it look like.
As Youre looking out from here and any kind of color on maybe products versus services within that as well would be helpful.
Speaker 4: Yeah, so Maggie are open orders continue to grow. In fact, they're up about 106% over last year.
Yeah. So Maggie are open orders continue to grow in fact, they are up about 106% over last year, our services backlog is up as well pretty significantly.
Speaker 4: Our services backlog is up as well, pretty significantly, and our pipeline of opportunities for Q4 and beyond are both visible and strong at this point. So as it relates to, I'll call it backlog, open orders, visibility into the pipeline, we're seeing pretty strong demand across all customer sites right now.
Our pipeline of opportunities for Q4 and beyond are both visible and strong at this point so as it relates to I'll call. It backlog open orders visibility into the pipeline, we're seeing pretty strong demand across all customer sizes right now.
Okay. Thanks, Mark and then on the services gross margin Elaine I think you alluded to maybe that was a little bit of mix within services, but there does seem to be kind of a pattern of a couple quarters here are pretty strong gross margin in services. So is that mix.
Speaker 6: Okay, thanks Mark. And then on the services gross margin, Elaine, I think you alluded to maybe that was a little bit of mix within services. But there does seem to be kind of a pattern of a couple quarters here of a pretty strong gross margin in services. So is that mix shift becoming a bit of a trend or are there any trends in pricing that we should be taking note of?
The shift to becoming a bit of a trend or are there any trends in pricing that we should be taking that out.
Yes, I mean this quarter it was really related to an increase in project related services and those come with a higher margin.
Speaker 5: Yeah, I mean, this quarter, it was really related to an increase in project related services and those come with a higher margin compared to last year where we had cobit. We couldn't get on site as much. So I think project service.
Compared to last year, where we had COVID-19 , we couldnt get onsite as much so I think project services.
Speaker 5: wasn't quite as high as it was this year. In terms of trending, you know, our services just growing as a percentage of our total sales and project-based staff augmentation, as well as managed services they are all up across.
It wasn't quite as high as it was this year in terms of trending.
Our service is just growing as a percentage of our total net sales.
And probably project base staff augmentation as well as managed services. They are all up across the board.
Speaker 4: I think back if I could add to Elaine's piece what we're seeing in the market is
I think back to you if I could add to elaine's piece, what we're seeing in the market as a lot of companies are short on staffing. So what we're seeing is they have need for both staffing resources on demand resources to go out and install routers and switches and things along those lines. We also see with everything going on with log for Jay and all the other.
Speaker 4: A lot of companies are short on staffing. So what we're seeing is they have need for both staffing resources on demand resources to go out.
Speaker 4: install routers and switches and things along those lines. We also see with everything going on with log4j and all the other types of security threats that are out there that they're looking for security services. So we've seen some nice up ticks across the board on services and as Elaine kind of alluded to, if you look at our services what's nice is, it's up 20% for the quarter, but it's up 19.9% for the year and the gross margins are actually increasing. So that's a nice mix for us right now.
Types of security threats that are out there that theyre looking for security services. So we've seen some nice upticks across the board on services and as Aleem kind of alluded to if you look at our services Whats nice is up 20% for the quarter, but it's up 19, 9% for the year and the gross margins are actually increasing so that's a nice mix.
For us right now.
Alright, Thank you for taking my questions.
Speaker 7: Thanks, Maggie.
Thanks Maggie.
Speaker 2: Your next question comes from a line of Greg Burns with Sid Odeon Company. Your line is open.
Your next question comes from the line of Greg Burns with Sidoti and company. Your line is open.
Good afternoon.
Speaker 8: Yeah, in regards to the rise in working capital, the rise in inventory, what's the timing on?
In regards to the the rise in working capital the rise in inventory.
What's the timing on.
Speaker 8: The compulsion of the projects tied to that, like when you expect them to be delivered and at what point do you start to think that the working capital starts a decline going forward?
The complexion of the projects tied to that when do you expect them to be delivered in Q2.
At what point do you start to think that.
The working capital starts to decline going forward.
Speaker 4: Hey Greg, as it relates to the inventory, I think this is going to go on for a little bit. I think with the supply chain issues that are in place
Hey, Greg as it relates to the inventory I think this is going to go on for a little bit I think with the supply chain issues that are in place I think youre going to see them through the end of the year of this calendar year based on everything we're seeing and hearing so I think that's going to continue for a period of time.
Speaker 4: I think you're going to see them through the end of the year, of this calendar year, based on everything we're seeing and hearing. So I think that's going to continue for a period of time. We're lucky enough it really didn't affect us in the quarter too much as it relates to the, you know, some of the supply chain things, similar to previous quarters as it relates to the supply chain. So I think this will continue for the near future and then over time it'll start to wind down as we move forward related to inventory.
We're lucky enough it really didn't affect us in the quarter too much as it relates to some of the supply chain things similar to previous quarters as it relates to the supply chain. So I think this will continue for the near future and then over time it will start to wind down.
We move forward related to inventory.
Okay.
Speaker 4: Okay, thanks. And then in terms of labor availability, are you seeing any issues there in terms of being able to hire as well as maybe the cost of labor going up? How do you feel about that going forward? Yeah, you know, I think it's a competitive market to be honest, Greg. We've been lucky, you know, from an attrition standpoint, it's up a little bit compared to previous years.
Okay. Thanks.
And then in terms of labor availability are you seeing any issues there in terms of being able to hire as well as maybe the cost of labor going up how do you feel about that going forward.
Yes.
I think it's a competitive market to be honest, Greg we've been lucky.
From an attrition standpoint, it's up a little bit.
Compared to previous years.
Speaker 4: I think it is a competitive market both for new hires as well as people that potentially leave and the with labor cost being up You know, I do think it's a little more expensive with replacements on I'll say their terms are new hires So it is it is a little bit challenging at this point
It is a competitive market both for new hires as well as people looked at potentially leave and with labor costs being up.
I do think it's a little more expensive with replacements.
I will say either terms or new hires. So it is it is a little bit challenging at this point.
Okay, and then I guess.
Speaker 8: Okay, and then I guess with that in mind, how do you feel about continues to be able to drive operating leverage to the business? I mean, is it gonna be more of a, I know historically, you know, you're investing in forward facing.
That in mind, how do you feel about continuing to be able to drive operating leverage to the business.
Is it going to be more of a I know historically you were investing in forward facing.
Speaker 8: and a sales and technological head count. And more recently, we've started to see some leverage in the business. So going forward.
Sales and technology.
Technological.
Head count and more recently, we're starting to see some leverage in the business so going forward.
Speaker 8: How do you feel about balancing that in this current environment?
How do you feel about balancing that in this current environment.
Speaker 4: Yeah, I think a couple of things there Greg, that you touched on one, we are going to continue to invest. We think we're in a pretty good spot with the solutions and services we have. So it's really about getting more feet on the street to touch more customers. So we think we'll continue to invest in head counts. So that'll drive up some of the, I'll call it the yes and SGNA, if you will, from an OPEX perspective.
I think a couple of things there Greg you touched on one we are going to continue to invest we think we're in a pretty good spot with the solutions and services. We have so it's really about getting more feet on the street to touch more customers. So we think we will continue to invest in head count So that'll drive up some of the I'll call. It the <unk> and SG&A, if you will from an Opex perspective.
Speaker 4: But if you look at this year, we've been able to drive our operating income. Consolidated income is like 30 up like 36% year over year.
But if you look at this year, we've been able to drive our operating income consolidated income is like 30 up 36% year over year and actually the operating income margin is up I think it's like 140 basis points. So I think we have some room within that model is still to get operating leverage and continue to grow both both topline.
Speaker 4: And actually the operating income margin is up, I think it's like 140 basis points.
Speaker 4: So I think we have some room within that model still to get operating leverage and continue to grow both both top line managed through some of the I'll say
<unk> managed through some of the I'll say.
Speaker 4: Salary increases for lack of quality, anything else to still have a nice bottom line from an operating perspective. Great. Great. Thank you.
Salary increases for lack of call it anything else to still have it.
Nice.
Bottom line from an operating perspective.
Okay, great. Thank you.
Thanks, Craig well see Ya.
Speaker 2: Your next question is from the line of Matt Sheeran with Steeple. Your line is open.
Your next question is from the line of Matt Sheerin with Stifel. Your line is open.
Speaker 9: Yes, thank you. A couple of questions from me. Mark, just to start, you talked about the strength and the strong demand in the quarter. Were you able to meet all of that demand or did you have a product and strength that pushed out orders where there revenue left on the table, in other words, that you missed?
Yes. Thank you.
A couple of questions for me Mark just to start you talked about the strength and the strong demand in the quarter.
Are you able to meet all of that demand or did you have a product constraints that pushed out orders.
The revenue left on the table in other words that your mezz.
Speaker 4: Well, we try not to leave revenue on the table, Matt, but there's definitely things with the look with the supply chain. It's an interesting dynamic. I think demand is obviously outpacing supply. I think there's obviously constraints. Lead times are changing and extending all the time, Matt, but we've been lucky enough. The team has done a really nice job of working with both our vendor partners and our customers on setting expectations.
We try not to leave revenue on the table, Matt, but there is definitely things with the look with the supply chain. It's an interesting dynamic I think demand is obviously outpacing supply I think theres, obviously constraints.
Lead times are changing and.
And extending all the time, but we've been lucky enough. The team has done a really nice job of working with both our vendor partners and our customers on setting expectations. So I think there may be some that leaks over from Q3 into Q4, and then Q4 to Q1, but I don't think it's anything material.
Speaker 4: So I think there may be some that leaks over from Q3 and to Q4 and then Q4 to Q1, but I don't think it's anything material or it hasn't been material at this point. And I'm not expecting that to be material in Q4 at this point.
It hasnt been material at this point and I'm not expecting it to be material in Q4 at this point.
Speaker 9: Okay, and are you seeing a price increases and just passing that along? Is that, you know, inflation contributing to your revenue growth?
Okay.
Are you seeing.
This increases than just passing that along or is that.
Inflation.
Contributing to your revenue growth.
Not not yet, but it could with the price increases it could potentially as we go forward, we have been able to pass that on at this point.
But a lot of the pricing changes have just come into play recently, so there were some things in place honoring oil pricing and some of their new pricing just came into play January 1st So just starting in this quarter. So havent seen it would affect the revenues yet, but as as each of the vendors increased their pricing and if we're able to pass. It on you should you should see some uptick there.
Okay.
Speaker 9: Okay, and I appreciate that you don't give forward guidance and haven't given outlook for the March quarter, but typically you're down seasonally that last year you were down double digits sequentially. I mean, is that sort of the expectations of more seasonal demand trends because of the product constraints or anything different than that?
Okay.
I appreciate that you don't give forward guidance and you haven't given outlook for the March quarter.
Typically youre down seasonally down last year, you were down double digits sequentially.
I mean is that sort of the expectations thats more seasonal demand trends because of the product constraints or anything different than that.
Speaker 4: Yeah, no, I think seasonality still comes into play, Matt. It always does every year for us in the March quarter versus the December calendar year end. So I think seasonality is in play. I also think on our group side, our financing side, we have a tough compare for Q4 to last year. I think there was some sales of off-lease equipment and a few other things that jumped up that number last year. So we got a little tough compare there.
Yes, no I think seasonality still comes into play Matt. It always does every year for us.
The March quarter versus the December calendar year end, so I think seasonality is in play.
I also think on our group side, our financing side, we have a tough compare for Q4 to last year I think there was some sales of.
Off lease equipment and a few other things that jumped up that number last year. So we got a little tough compare there.
Speaker 4: Those would be the two things, but once again, as I mentioned earlier, you know, the pipeline, the backlog and all the other things that we're seeing are still strong.
This will be the two things, but once again as I had mentioned earlier.
The pipeline the backlog and all the other things that we're seeing are still strong.
Speaker 9: Okay, thanks for that. And just Elaine, I have just a modeling question regarding op-x, you talked about an acquisition contributing to op-x or S-T-N-A. Could you give us an idea of what we should expect for the March quarter?
Okay. Thanks for that and just lean I have just a modeling question regarding Opex you talked about.
Acquisition.
Contributing to the Opex or SG&A could you give us an idea of what we should expect for the March quarter.
Speaker 5: Yeah, I think if you follow what this quarter looks like, it should be running in the same lines, except variable comp will obviously vacillate based on the gross profit in the quarter.
Yes, I think if you if you fall was this quarter it looks like it should be running in the same lines as except variable comp will obviously vacillate based on gross profit in the quarter.
Okay, so flattish give or take yes.
Yes.
Speaker 9: Okay, that's it for me. Thanks a lot. All right, Matt. See you. Take care, Matt.
Okay. Okay. That's it for me thanks, a lot.
Hi, Matt.
Thank you Matt.
Speaker 2: There are no further questions at this time. I will turn the call back over to Mr. Mark Marin, CEO .
There are no further questions at this time I will turn the call back over to Mr. Mark Marron CEO .
Speaker 4: All right, thank you everyone. Thanks for joining us today. We look forward to everybody being safe and sound during some of the storms that are coming through the US and abroad, if you will. And then we'll speak to you at the end of Q4 for both our Q4 and year end results. Take care.
Alright. Thank you everyone. Thanks for joining us today.
We look forward to everybody being safe and sound during some of the storms that are coming through the U S and abroad. If you will and then we will speak to you at the end of Q4 for both our Q4 and year end results take care.
Speaker 2: Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disc nes.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
Speaker 1: Please wait, the conference will begin shortly. Please wait, the conference will begin shortly.
Please wait the conference will begin shortly.
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