Q4 2022 ePlus inc Earnings Call
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Good day, ladies and gentlemen, welcome to the ethos earnings result 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 for joining us today on the call is Mark Marron, CEO and President Elaine Marion CFO , Darren <unk>, CFO , and president of <unk>, plus technology, and Erica Stoecker General counsel.
Let's take a moment to remind you that the statements. We make this afternoon that are not historical facts may be deemed to be forward looking statements and are based on management's current plans estimates and projections actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release, we issued this afternoon.
And our periodic filings with the Securities and Exchange Commission, including our Form 10-K for the year ended March 31, 2021, and our Form 10-K for the year ended March 31, 2022, when filed the company undertakes no responsibility to update any of these forward looking statements in light of new information or future events.
In addition, during the call we may make reference to non-GAAP financial measures and we've included a GAAP financial reconciliation in our earnings release, which is posted on the Investor information section of our website at Www Dot E plus dot com.
Now I'd 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 fourth quarter and fiscal 2022 results.
This was a remarkable quarter and fiscal year free plus marked by continued strong financial performance and significant progress in advancing our growth objectives. Once again, our dedicated team delivered exceptional results and effectively supported our customers in an evolving and dynamic market our.
Our success speaks to the strength of our differentiated business model that couples the advantages and flexibility of providing both technology services and financing as well as our strategic focus on capturing emerging high growth opportunities in fast moving markets.
In short our strategy is working and E plus is gaining market share as evidenced by our results in the fourth quarter and for our fiscal year.
Fourth quarter net sales increased 28% to 451 5 million with solid contributions from both segments, reflecting broad based strength across our customer base and end markets.
Fourth quarter adjusted gross billings increased approximately 21% year over year to $638 5 million with increases in every vertical market sector. The growth in fourth quarter. Adjusted gross billings helped drive our fiscal 2022, adjusted gross billings to over $2 6 billion representing.
Approximately 16% growth from fiscal 2021, we continue to see nice growth in collaboration and networking as hybrid work models have become the de facto operating model for most of our customers.
Another highlight of the quarter was further expansion of our annuity quality revenues as we experienced broad gains in managed services help desk services and staffing driven in part by the shortage of it professionals as well as customer optimization of their it spend through utilization of outsourced services to manage day to day.
Operations.
We believe we have the right mix of best in class services to capitalize on this favorable long term trend.
In the fourth quarter, we generated robust growth in operating income adjusted EBITDA and earnings per share demonstrating the substantial operating leverage in our model as revenue scales. It is worth noting that our technology segment had a particularly strong fourth quarter with operating income up 88% our full year performance.
Also featured solid operating leverage as net sales growth of 16% helped drive a year over year gain of more than 38% and operating income and a more than 41% improvement in diluting earnings per share over the past several years, we have focused on investing in our teams and our capabilities to capitalize on long term trend.
<unk> that are driving it spending in key high growth markets.
Whether it's private public or hybrid cloud data center, cyber security or managed services or expanded breadth of integrated services and solutions is resonating with our customers who increasingly seek to partner with the skilled service partner to achieve their business objectives and maximize their return on investment customers.
Continue to rely on E plus to provide the guidance and solutions that enable them to meet the challenges they face today and for the future.
We continue to experience strong growth trends in our services business, which includes a wide range of professional and managed services staffing logistics and help desk services and remains an important competitive differentiator for <unk> plus in fiscal 2022 for example, our services business generated sales growth of 19%.
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Our service mix is trending towards recurring long term services, such as managed Helpdesk and staffing as compared to project driven services.
This is a positive trend as annuity quality services tend to have higher margins and more predictable financial performance. The strong growth in our service business is also reflective of our expanded capabilities encompassing critical functions such as cloud hosted services security and network monitoring that are often too complex in <unk>.
Firstly to manage internally as organizations and enterprises increasingly outsource these and other it functions it will favorably impact our financial results by enhancing both our top line growth and our profitability given the higher margins associated with these services.
In terms of capital allocation priorities, we continue to evaluate a range of potential acquisition targets to enhance our growth and expand our geographic presence.
Our focus remains primarily on bolt on acquisition opportunities in high growth market segments, our strong balance sheet supports our ongoing M&A efforts and our newly expanded credit facility provides additional liquidity and flexibility that we can draw on as needed.
Last year at this time, we said that as the economy continues to recover and our customers returned to a more normalized work environment. We would expect it to see the pace of spending gain momentum. This is exactly what happened in fiscal 2022, and we expect this trend to continue into this year as well spurred by our customers' digital transformation.
Initiatives and growing need to support more adaptable business models.
Im encouraged by the strength of our open orders in backlog to reflect the continued high level of demand for our products services and solutions that will drive growth in fiscal 2023.
Against this favorable backdrop, we are seeing lead times extend that supply chains remain tight and product availability has become more limited.
As a result, while we anticipate solid topline growth in fiscal 2023, we expect that timelines for project implementations will be extended creating revenue headwinds as we move throughout the year. Our team has done a very effective job navigating supply chain issues over the past year working closely with our channel partners and <unk>.
Distributors to minimize the impact on our customers and we will continue to draw on the strength of our resources and relationships to deliver for our customers in fiscal 2023 and beyond.
Turning to our financing segment. This segment's performance for fiscal 2022 was particularly strong as adjusted EBITDA of $39 million increased 25% from the prior year and benefited in particular from an outsized transaction in the second quarter as we look forward into fiscal 2023 based.
On our current visibility, we anticipate financing segment results will revert to a more normalized level as we saw in fiscal 2020 in fiscal 2021, I will now turn the call over to our CFO Elaine Marion to provide details on our fourth quarter and full fiscal year 2022 results.
Thank you Mark and good afternoon, everyone. I appreciate you joining us today and I am pleased to share the details of our fourth quarter results with double digit growth across key metrics, marking a strong finish to our fiscal 2022 and.
In the fourth quarter consolidated net sales totaled 451 5 million up 28, 1% from $352 6 million reported in the comparable quarter of fiscal 2021.
Net sales in the technology segment reflected broad based growth, increasing 26, 4% to $419 4 million.
Product revenue increased 28, 3% to $357 8 million, while services revenue was up 16, 6% to $61 6 million adjusted gross billings grew 28% to $638 5 million compared to $528 6 million.
In the same period a year ago.
Our robust growth suggests market share gains and underscores the successful execution of our strategy. The adjusted gross billings to net sales adjustment was 34, 3% compared to 37, 2% in the fourth quarter of 2021.
Our financing segment also delivered robust revenue growth up 54.4.
4% to $32 1 million compared to $20 8 million in the last year's fourth quarter, mainly as a result of higher proceeds from sales of off lease equipment.
Consolidated gross profit increased 17, 8% to $115 4 million compared to $97 9 million last year. However, consolidated gross margin declined 230 basis points to 25, 5%, primarily as a result of a lower proportion of sales Ricky.
On a net basis lower gross margin in our financing segment due to a change in mix and lower service margins.
Our technology segment gross profit increased 23% to $103 2 million looking more closely product gross margin increased 20 basis points to 22, 8% while service gross margin decreased 390 basis points to 35, 3%, reflecting lower professional service margins.
Due to higher costs.
Consolidated SG&A was up 10, 7% to $77 million, while consolidated operating expense increased eight 9% to $89 billion given higher variable compensation as a result of our strong gross profit growth.
Total head count at the end of March 2022 was 577 compared to <unk> hundred 60 in the prior year.
Operating income for the quarter of $34 5 million was up 46, 1% our effective tax rate was 29, 6% compared to 32, 6% in the year ago quarter due to higher nondeductible compensation expense in the prior year.
<unk> net earnings of $24 2 million or <unk> 91 per diluted share increased 55, 9% and 56, 9%, respectively from $15 6 million or 58 per diluted share in last year's fourth quarter.
non-GAAP diluted earnings per share were $1, one an increase of 42, 3% adjusting for the two for one stock split on December 13th 2021 <unk>.
Adjusted EBITDA grew 34, 4% to $39 8 million year over year, our diluted share count at the end of fiscal 2022 with $26 7 million flat after adjusting for the stock split.
To sum up our strong performance in fiscal 2022 consolidated net sales of $1 82 billion reflected a 16, 1% year over year increase.
Technology segment net sales grew 14, 9% to $1 73 billion and our financing segment net sales increased 45, 7% to $88 million as a result of higher proceeds from leased equipment sales.
Importantly, adjusted gross billings for the year were our highest in history at $2 6 billion up 15, 8% from fiscal 2021, as we review topline numbers by end markets in our technology segment for fiscal 2022, Telecom media and entertainment and health care, where our largest markets representing.
29% and 16% of segment net sales respectively.
Technology sled in financial services make up 14%, 14% and 9% respectively. The remaining 18% is a combination of all other customers in fiscal 2022 consolidated gross profit was up 17, 1% to $461 million gross profit in the <unk>.
Technology segment increased 17, 9% to $408 2 million and gross profit in the financing segment was up 11, 6% to $52 8 million, partly due to the outsized transactions. We previously called out in our second quarter. The consolidated gross margin widened by 20 basis points to 20.
Five 3% from fiscal 2021, while the technology gross margin expanded 60 basis points to 23, 6%.
Consolidated operating income improved 38, 5% and totaled $147 3 million, while operating expenses rose only nine 2% to $313 7 million demonstrating the favorable operating leverage in our business model, our effective tax rate for fiscal 2022 with 28.
1% compared to 34% a year ago.
Positive operating leverage helped drive strong earnings growth as we saw net earnings of $105 6 million or $3 93 per diluted share representing an increase of 41, 9% for both metrics non-GAAP EPS grew 37, 6% to $4 39.
As we continue to expand our business our strong balance sheet supports our growth initiatives as cash and cash equivalents at the end of fiscal 2022 were $155 4 million up 19, 9% compared to $129 6 million. Additionally, we have approximately $126 million in our financing.
Portfolio, a portion of which could be monetized, if we have a need for additional capital as well as the availability on our recently expanded wells Fargo credit facility of $375 million.
Inventories were up 121, 6% ending the year at $155 $1 million with the year over year increase reflective of ongoing customer projects not yet completed partly due to the continued supply chain constraints.
Our cash conversion cycle was 48 days compared to 37 days in the year ago quarter, but similar to <unk> 47 in the previous quarter, reflecting the same trends, we spoke about last quarter, namely higher inventory levels and an increase in sales to customers with greater than 30 day terms, our robust results combined with a favorable <unk>.
Outlook for it spending underpinned our confidence in our ability to continue to outpace industry growth I want to express my gratitude to all of our talented E plus employees for the strong results. We continue to deliver together with that I will now turn the call back over to Mark Mark.
Thank you Elaine just to sum up we are pleased with our strong fourth quarter results that capped off another great year for <unk>, plus our diversified portfolio of products and services spanning the entire lifecycle remains a key competitive differentiator positioning us for continued growth as we provide both the solutions and flexibility our customers.
We require to realize their most critical business objectives. We appreciate your participation today and your interest and look forward to speaking with you on our first quarter conference call in August .
Operator, we are ready to open the line for questions.
At this time I would like to remind everyone in order to ask a question Press Star One our first question comes from making Nolan with William Blair. Your line is open.
Hi, Thank you for taking my question.
I'm, hoping can you give us a little more insight into what your clients are saying about the timeline for it projects and how they're thinking about factors that are driving their budgets and spend with E plus.
Sure Hey, Maggie how are you. So first off demand still continues to outpace supply.
Our customers when we're working with them on solutions are asking us if we know the lead times based on the different solutions that we're suggesting we're providing.
I think our team the E plus team has done a really nice job of setting expectations with those customers and then working with the different Oems to get the products.
And solutions, where our services are included out the door in a timely fashion.
From a demand standpoint, we still see is still solid hasnt changed.
Supply lead times I think this is going to go through at least the end of this year, if not longer Maggie so cut.
Customers or I guess I don't want to say.
Aware of it and dealing with it but thats, probably the best way to say it at this point.
Okay understood and then on the.
Services side of things can you talk a little bit about the impact of the difficult talent environment on your service offerings in particular, and then the demand for those.
Sure actually the demand for our services has picked up I think you.
You saw our services were up 16, 6% for the year and up I think it was <unk> 19, sorry, 16, 6% for the quarter and 19% for the year. So I think our team has done a real nice job of building up our portfolio of services around our consultative and advisory services, specifically in a market like this as well as our annuity.
Services revenues continue to expand.
The other thing that comes into play Maggie is we're seeing some real nice staffing opportunities, we're replacing multiple multiple people for long term projects with our customers. So the demand is nice and the.
We have been as it relates to the talent shortage.
It does affect us our margins were down a little bit and Thats really just a short term thing as it relates to services.
In terms of adjusting our bill rates and things like that so it affected our margins a little bit this quarter I don't see that as a long term thing, but the demand is there.
Very good thanks Mark.
No problem Maggie.
Again, if you would like to ask a question. Please press star one. Our next question comes from Greg Burns with Sidoti and company. Your line is open.
Good afternoon.
Is there any way you can quantify.
The growth in your open order book and backlog maybe against last year at this time.
It's big How's that sound Greg.
It's actually over 100% up over last year.
So when I had talked a little bit earlier with Maggie the demand is definitely outpacing supply for sure. So we're starting to see that continue to build up both in our.
Open orders or backlog deferred revenue and things along those lines.
It's a positive sign and I think over time as supply chain starts to ease up and get better that'll be a positive sign for the future.
So that's the first 100% was on backlog backlog or open orders open orders.
Open orders.
Okay.
<unk>.
And I guess with the inventory continuing to grow I guess.
That's an indication of.
These open orders.
The level of open orders that you continue to have but do you have any I mean.
Do you have any line of sight on when maybe that starts to unwind itself.
And you can start to reduce the working capital.
Yes, Greg to be honest, that's a tough one it continually change the.
We're working closely with the Oems the lead times are constantly changing both both getting better and getting worse in some cases, depending on the the vendor and the type of technology. So that's a tough one thats just a quite honestly that's a work in progress that we're going to stay on top of an and work closely with vendors and customers to get things out the door.
Okay and then.
There we've seen some.
Guidance from some other large technology vendors that have not been so strong are disappointing why why do you think your outlook is.
Maybe a little bit stronger than that or continues to be positive is it just the markets. You are playing in is there anything specific that youre doing maybe it's you are gaining share but can you just maybe.
Help us understand.
The strength Youre seeing in your business versus maybe what we've seen from some other large technology vendors recently.
One other quick easy added benefits, Greg is that we have the ability of selling multiple OEM solution as compared to an OEM as just selling their own technology. The other thing. We have is we've got the two segments. So depending on the market for example, as interest rates rise that's actually in some cases presents an opportunity for our finance.
Business too.
Provide financing programs to buy technology, where maybe some of the Oems may not be taking advantage of programs like that for example.
I do believe we are taking share. So if you look at our growth most of the industry analysts are out there, saying anywhere from 5% to 6% in terms of <unk> spend and if you will.
Look at it for the quarter, we were up 28% for the year, we were up 16% I do think it has to do we feel really good about our strategy that we are in all the critical areas that we think we need to be in and we've made the investments in the people the solutions and the services to be well positioned as we go forward. The other thing we're seeing <unk> Greg.
Across our customer base and verticals that rollout, so where we've done a nice job of.
Working with those different types of customers specific to the business outcomes that they're looking for.
Okay, great. Thank you.
Thanks, Greg.
Our next question comes from Matt Sheerin with Stifel. Your line is open.
Yes, Thank you and good afternoon, everyone.
Just wanted to drill down a little bit more.
The supply demand environment, and it sounds like a little bit more cautious tone from you Mark regarding the supply side, you're just coming off of 28% growth.
20% product growth so.
You were able to meet demand and obviously beat expectations. So.
But what's happened.
In the last couple of months have things gotten worse.
Could you maybe drill down within the different product areas networking server and storage et cetera.
Give us an idea of what.
What may be better or worse in terms of the constraints yeah. Okay. So starting with the last piece, so I'd say networking wireless security appliances, or some of the things with longer lead times storage and servers for the most part okay. Darrin I don't know if you have any insight there you want to be.
<unk> iron networking is the longest lead times for us I'd say behind that Theres all categories, but wireless has been pretty extended several months if not longer in some cases security appliances are now more than a few weeks in many cases.
But servers and storage havent been too bad.
In general it's not getting worse.
Treading water it hasn't really gotten better, but theres a lot of movement in and out so.
And Matt to your first part of your question look I'll be honest with you. We think we had a really solid quarter and a solid year and the team did a really nice job of working with customers. So I think some of that is pent up demand right in terms of customers as they return to work in these hybrid work models and they need networking and connectivity and security and things like that.
At the hesitancy, if that's the right way to say it as it relates to the supply chain is I think you hear from all the Oems and our peers that everybody is just nervous that it hasn't hasnt lessened you still got Ukraine, Russia reward going on you've got the China Lockdown. So theres just a lot of variables that are.
Beyond our control if you will.
Got it okay.
But then maybe looking at the June quarter, I mean, I. Appreciate you don't give you don't issue forward guidance, but you're more than halfway through the quarter. It sounds like given lead times, you probably have visibility into what youre going to ship.
Yeah.
For at least the next few weeks. So are you still expecting double digit year over year growth that like you've seen in the last couple of quarters.
Yes.
Youre proud of me here aren't you Matt. So yes, we as you know we don't we don't give guidance, but what I can tell you. We do have visibility into the open orders that we expect to ship, we do have visibility, obviously, where we're effectively two months through the quarter, where we think we're going to wind up there are some variables as it relates to <unk>.
Every quarter, we have a deal or two that might be a large deal that may slip or come into a quarter that can always adjust that number do we feel good that do we believe we will continue to outpace the it.
Spend market, Yes, I think you had an article out not too long ago I.
I think you said IDC was expected 5% to 6% on it spend and we believe will definitely outpaced that.
Okay, Alright, Thank you and then on the the leasing segment as you said certainly been well above.
Normal trends in the last few quarters, but youre expecting it to moderate.
So in terms of kind of a revenue run rate or EBITDA run rate.
We are expecting it to get back to where it was a couple of years ago or or is it just hard to tell because it's so lumpy.
It's a hard one.
With interest rates rising and things that go along with that could be an opportunity, but remember Matt list last year in Q2, we called it out early we had a large transaction that we wouldn't expect to replicate or duplicate this year. So.
What we're saying is we would expect more normalized EBIT to be in the line of the last year or two but we did in the last year or two.
Okay, and just lastly on M&A and obviously you've done.
Very steady.
Strong job in terms of.
Identifying good candidates integrating them.
Is there still a pipeline that youre looking at here in terms of opportunities over the next few quarters.
Yes, Matt very very strong pipeline out there both from a territory as well from a I'll call it technical or services standpoint.
Across multiple markets so.
Still very much.
There is a lot of opportunities still out in the M&A space for us to explore and consider what the right multiples.
Okay. Okay. Thanks, a lot alright.
Alright, Thanks, Matt will talk to you soon.
At Stifel.
We have reached the end of the question and answer session I will turn the call back over to Mark Marron CEO for closing remark.
Okay.
Want to thank everybody for joining for joining us on the call. We thought we had a nice quarter and nice year also want to wish everybody happy holidays for Memorial day weekend enjoy yourselves safe and see you on the next call take care.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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