Q4 2024 ePlus inc Earnings Call
Operator: Good day, ladies and gentlemen. Welcome to the ePlus Earnings Results Conference Call. As a reminder, this conference call is being recorded. I'd like to introduce your host for today's conference, Mr. Kley Parkhurst, General Counsel.
Good day, ladies and gentlemen, welcome to the E plus earnings results Conference call.
Speaker Change: As a reminder, this conference call is being recorded.
Speaker Change: I would like to introduce your host for today's conference Mr. Kley Parkhurst General counsel.
Sir: Sir you may begin.
Kleyton L. Parkhurst: Thank you for joining us today. On the call is Mark Marron, CEO and President, Darren Raguel, COO and President of ePlus Technology, Elaine Marion, CFO, and Erica Stoecker, General Counsel. I want to take a moment to remind you that the statements we make this afternoon that are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates, and projections. However, actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued this afternoon and in our periodic filings.
Sir: Thank you for joining us today on the call is Mark Marron, CEO and President Darren met UL.
Speaker Change: CLO and presently plus technology, Elaine Marion CFO, and Erica Stoecker General counsel.
Speaker Change: 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.
Speaker Change: Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed on the earnings release.
Speaker Change: This afternoon, and our periodic filings with Securities and Exchange Commission quite our most recent annual report on 10-K quarterly reports on Form 10-Q, and other documents that we may file with the SEC any forward looking statements speaks only as of the date, which the statement is made and the company undertakes no responsibility to update any of these forward looking statements.
Kleyton L. Parkhurst: The Securities and Exchange Commission included our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other documents that we may file with the SEC. Any forward-looking statement speaks only as of the date of which the statement is made, and the company undertakes no responsibility to update any of these forward-looking statements in light of new information, future events, or otherwise. In addition, we will be using certain non-GAAP measures during the call. This includes the GAAP Financial Reconciliation and Earnings Release, which is posted on the Investor Information section of our website at www.eplus.com.
Speaker Change: The new information future events or otherwise. In addition, we will be using certain non-GAAP measures. During the call. We haven't closed the 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.
Mark P. Marron: I'd now like to turn over the call to Mark Marron. Mark?
Speaker Change: I'd now like to turn over the call to Mark Marron Mark.
Mark P. Marron: Thank you, Kley, and good afternoon, everyone. Thank you for joining us today to discuss our fiscal fourth quarter and full year 2024 results. In the fourth quarter, our top line and gross billings increased by double digits, with net sales up 12.7% and gross billings up 13.8%. While our gross margin and operating income were below our expectations, we had a strong year overall and are pleased with how the business has performed in a challenging demand environment.
Mark P. Marron: Thank you clay and good afternoon, everyone. Thank you for joining us today to discuss our fiscal fourth quarter and full year 2024 results.
Mark P. Marron: In the fourth quarter, our topline and gross billings increased by double digits with net sales up 12, 7% and gross billings up 13, 8%.
Mark P. Marron: Our gross margin and operating income were below our expectations. We had a strong year overall and are pleased with how the business has performed in a challenging demand environment.
Mark P. Marron: We ended the year with over $250 million in cash on hand, which provides us with the resources to continue to make strategic acquisitions, invest in customer-facing personnel, and expand our solutions and services, especially in fast-growing areas such as AI, cloud, networking, and security. During the fourth quarter, product sales in our technology business increased 12.2 percent.
We ended the year with over $250 million in cash on hand, which provides us with the resources to continue to make strategic acquisitions invest in customer facing personnel and expand our solutions and services, especially in the fast growing areas, such as AI cloud networking and security.
Speaker Change: During the fourth quarter product sales in our technology business increased 12, 2%, we had a particularly strong quarter in networking product sales, partially driven by deliveries of equipment and inventory. Additionally, we continue to see positive results from our land and expand strategy winning significant business from new.
Mark P. Marron: We had a particularly strong quarter in networking product sales, partially driven by deliveries of equipment and inventory. Additionally, we continue to see positive results from our land and expand strategy, winning significant business from new and existing enterprise customers in the quarter. While it's impacted our margins in the quarter, we are capturing market share and growing our customer base, which positions us well for long-term growth. In our services business, revenue increased 14.8% in the quarter and 10.4% for the full year, led by managed services, which increased 22% for both the quarter and year. In addition, margins improved across both professional and managed services.
Speaker Change: An existing enterprise customers in the quarter.
Speaker Change: While this impacted our margins in the quarter, we are capturing market share and growing our customer base, which positions us well for long term growth.
Speaker Change: In our services business revenue increased 14, 8% in the quarter and 10, 4% for the full year led by managed services, which increased 22% for both the quarter and year and additions margins improved across both professional and managed services our focus on services as part of our long term.
Mark P. Marron: Our focus on services as part of our long-term strategy to meet customers' needs in a fast-changing and increasingly complex IT marketplace is enhancing our relationships with both customers and our partners. Managed services play an increasingly important role both for our customers operationally as well as for ePlus, building a solid recurring revenue base which creates consistent profitability and predictability. With that in mind, we expanded our storage as a service and enhanced maintenance service offerings, which have been important new business drivers for us.
Speaker Change: <unk> to meet customers' needs in a fast changing and increasingly complex marketplace is enhancing our relationships with both customers and our partners.
Speaker Change: Managed services plays an increasingly important role both of our customers operationally as well as free plus building a solid recurring revenue base, which creates consistent profitability and predictability.
Speaker Change: With that in mind, we expanded our storage as a service and enhanced maintenance service offerings, which have been an important new business drivers for us we.
Mark P. Marron: We are pleased that our annuity service backlog is up approximately 50% and giving us a line of sight to future annuity service revenue streams. Our financing segment performed well in the quarter. Our finance offerings enable our customers to have flexible payment options and provide a value-added service to our vendor partners as well. During the fourth quarter, financing segment revenue increased 15.5%, driven by transactional gains and portfolio earnings, partially offset by a decline in month-to-month rent.
Speaker Change: We are pleased that our annuity services backlog is up approximately 50% and giving us line of sight to future annuity service revenue streams.
Speaker Change: Our financing segment performed well in the quarter, our finance offerings enable our customers to have flexible payment options and provide a value added service to our vendor partners as well.
Speaker Change: During the fourth quarter financing segment revenue increased 15, 5% driven by transactional gains and portfolio earnings partially offset by a decline in month to month trends through.
Mark P. Marron: For the year, despite revenues declining 5.8% against a tough compare in the prior year, adjusted EBITDA remained flat. Consolidated net income declined in the quarter, primarily due to lower product margins from a higher percentage of sales to enterprise customers and products.
Speaker Change: For the year, despite revenues declining five 8% against a tough compare in the prior year adjusted EBITDA remained flat.
Speaker Change: Consolidated net income declined in the quarter, primarily due to lower product margins from a higher percentage of sales to enterprise customers and product mix. In addition, we experienced higher operating expenses, primarily as a result of higher head count as we continue to invest in customer facing sales and engineers engineering personnel.
Mark P. Marron: In addition, we experienced higher operating expenses, primarily as a result of higher headcount, as we continue to invest in customer-facing sales and engineering personnel to meet demand for fast-growing areas such as AI, and increased acquisition-related amortization expenses. Our headcount was up 146 employees, with most of them customer facing as we continue to invest for growth. It is important to note that our customer base grew by over 300 customers this year.
Speaker Change: To meet demand for fast growing areas, such as AI and increased acquisition related amortization expenses.
Speaker Change: Head Count was up 146 employees with most customer facing as we continue to invest for growth.
Speaker Change: It is important to note that our customer base grew by over 300 customers. This year, our incremental investments position us well to cross sell and upsell into our accounts as we rollout new solutions, such as our AI Ignite program, which is focused on helping customers and their AI journey.
Mark P. Marron: Our incremental investments position us well to cross-sell and up-sell into our accounts as we roll out new solutions, such as our AI Ignite program, which is focused on helping customers on their AI journey. We believe these investments are necessary to continue our positive revenue momentum, capture additional market share, and expand our solution set to meet customer demand. While it remains a challenging economic environment, with margins lower than expected for the quarter and operating expenses up, we will continue to manage our core structure and attain operating leverage over time. Looking forward, we expect gross margins to return to more normalized levels in fiscal year 25.
Speaker Change: We believe investments are necessary to continue our positive revenue momentum capture additional market share and expand our solution set to meet customer demand.
Speaker Change: While it remains a challenging economic environment with margins lower than expected for the quarter and operating expenses up we will continue to manage our cost structure and obtained operating leverage over time.
Looking forward, we expect gross margins to return to more normalized levels in fiscal year 'twenty five.
Mark P. Marron: As it relates to AI, we are seeing strong interest in our AI Ignite program, which helps customers in the formative stages of their AI engagement. Through Envisioning Sessions and Workshops, we offer a consultative approach to identify use cases around business outcomes, end-user productivity, or IT efficiency that customers can measure. AI Ignite helps the customer understand its data ecosystem with an open dialogue around AI governance and cross-functional involvement with business and IT leaders. We believe that AI has lengthened some decisions as customers evaluate the benefit of AI-versus-Quest.
Speaker Change: As it relates to AI, we are seeing strong interest in our AI ignite program, which helps customers at the formative stages of their AI engagements with envisioning sessions and workshops, we offer a consultative approach to identify use cases around business outcomes and user productivity or efficiency that customers can.
Speaker Change: Measured.
Speaker Change: AIA ignite helps the customer to understand its data ecosystem with an open dialogue around AI governance, and cross functional involvement with business leaders.
Speaker Change: We believe that AI is linked in some decisions as customers evaluate the benefit of AI first cost.
Elaine D. Marion: It is early innings for many in their AI journey, but it will be a growth driver for ePlus as it fits in our wheelhouse of infrastructure, security, network modernization, and the services required to implement these solutions. We have maintained a balanced approach to capital allocation, which includes investing for growth and acquisitions and a focus on improving shareholder returns. Our balance sheet and cash generation remain strong. In fact, at year-end, our cash is over a quarter billion dollars, which gives us flexibility with our M&A plans. Along with our growth initiatives, the ePlus board also approved a new share buyback plan of up to 1.25 million shares.
Speaker Change: It is early innings for many in their AI journey, but it will be a growth driver for <unk> plus as it fits in our wheelhouse of infrastructure security network modernization and the services required to implement these solutions.
Speaker Change: We have maintained a balanced approach to capital allocation, which includes investing for growth and acquisitions and a focus on improving shareholder returns our balance sheet and cash generation remains strong.
Speaker Change: In fact at year end, our cash is over a quarter billion dollars, which gives us flexibility with our M&A plans along with our growth initiatives.
Speaker Change: Plus board also approved a new share buyback plan of up to 125 million shares.
Elaine D. Marion: Although Q4 was not what we expected, we believe we were well positioned with our strategy and had a solid year overall, as evidenced by our net sales being up 7.6% and gross profit being up 6.4% for the year. I do want to take this time to thank our teammates for their efforts this year, and I'm proud of the work they did in a tough environment. I will now turn the call over to Elaine to discuss our financial results in more detail. Thank you.
Speaker Change: Although Q4 was not what we expected we believe we are well positioned with our strategy and had a solid year overall as evidenced by our net sales being up seven 6% and gross profit being up six 4% for the year.
Speaker Change: I do want to take this time that bank our teammates for their efforts this year and I'm proud of the work they have done in a tough environment.
Speaker Change: I will now turn the call over to Wayne to discuss our financial results in more detail Alain.
Elaine D. Marion: Thank you, Mark, and good afternoon, everyone. I will provide additional details about our financial performance in the 4th quarter of fiscal 2024, and we'll review our full year fiscal 2024 results. Consolidated net sales increased 12.7% year over year to $554.5 million, primarily driven by a 12.6% increase in the technology business, which reported net sales of $544.1 million for the quarter. The increase in technology business net sales was a result of double-digit growth in both product and service revenue.
Wayne: Thank you Mark and good afternoon, everyone I will provide additional details about our financial performance in the fourth quarter of fiscal 2024, and we will review our full year fiscal 2024 results.
Wayne: <unk> net sales increased 12, 7% year over year to $554 5 million, primarily driven by a 12, 6% increase in the technology business, which reported net sales of $544 1 million for the quarter.
Wayne: The increase in technology business net sales was the result of double digit growth in both product and service revenue.
Elaine D. Marion: Product revenue grew 12.2% to $465.2 million due to strong demand for networking equipment and cloud products, while service revenue increased 14.8% to $78.9 million, reflecting healthy renewal activity and growth from managed service customers. Within our technology business, our two largest verticals continue to be telecom, media, and entertainment and technology, representing 25 and 17 percent, respectively, of our technology business net sales on a trailing 12-month basis.
Wayne: <unk> revenue grew 12, 2% to $465 2 million due to strong demand for networking equipment and cloud products. While service revenue increased 14, 8% to $78 9 million, reflecting healthy renewal activity and growth from managed service customers.
Wayne: Within our technology business, our two largest verticals continue to be telecom media and entertainment and technology, representing 25% and 17% respectively of our technology business net sales on a trailing 12 month basis.
Elaine D. Marion: Lead, healthcare, and financial services accounted for 15, 13, and 11 percent, respectively, with the remaining 19 percent divided among other end markets. Net sales in our financing segment were $10.4 million, up 15.5% from $9 million in the prior year due to higher transactional gains and portfolio earnings. Consolidated gross profit was $130.3 million, with a gross margin of 23.5% compared to a gross profit of $132.3 million and a gross margin of 26.9% in the last year's fourth quarter.
Wayne: Led healthcare and financial services accounted for $15, 13, and 11% respectively with the remaining 19% divided among other end markets.
Speaker Change: Net sales in our financing segment were $10 4 million up 15, 5% from $9 million in the prior year due to higher transactional gains on portfolio earnings consolidated gross profit was $130 3 million with gross margin of 23, 5% compared to gross profit of $132 3 million.
Speaker Change: And gross margin of 26, 9% in the last year's fourth quarter.
Elaine D. Marion: Volume from our enterprise customers increased significantly, and there was less gross margin contribution from netted down revenues in the quarter, both of which changed the mix and resulted in lower margins, so we view much of this decline as quarter-specific. The product margin decline was partially offset by the services business, which saw a 270 basis point improvement in growth margin to 40.6%. The managed services growth margin grew 30 basis points to 30.5%, driven by revenue growth and scale, while the professional services growth margin expanded 580 basis points to 50%, attributable to a shift in mix towards higher-margin project and consulting services.
Speaker Change: Volume from our enterprise customers increased significantly and there was less gross margin contribution from netted down revenues in the quarter, both of which changed the mix and resulted in lower margins. So we view much of this decline at quarter specific.
Speaker Change: The product margin decline was partially offset by the services business, which saw 270 basis point improvement in gross margin to 46% managed services gross margin grew 30 basis points to 35% driven by revenue growth and scale, while professional services gross margin expanded 580 Bay.
Speaker Change: <unk> points to 50% attributable to a shift in mix towards higher margin project and consulting services.
Elaine D. Marion: Consolidated operating expenses grew 12.7% to $101.3 million, primarily due to increases in salaries and benefits from additional headcount, as well as increases in acquisition-related amortization expenses. Our total headcount at the end of March 2024 was 1,900, up 146 from a year ago, including 83 employees from Network Solutions Group acquired in May 2023 and 29 employees from Peak Resources acquired in January 2024. All but five of the total additions were in customer-facing roles.
Speaker Change: Consolidated operating expenses grew 12, 7% to $101 3 million, primarily due to increases in salaries and benefits from additional head count as well as increases in acquisition related amortization expenses. Our total head count at the end of March 2024, with 1900 about 146 from a year.
Speaker Change: Our ago, including 83 employees from network Solutions Group acquired in May 2023, and 29 employees from peak resources acquired in January 2024.
Speaker Change: Five of the total additions were in customer facing roles.
Elaine D. Marion: On a consolidated basis, operating income declined from $42.4 million to $29 million. Earnings before taxes were $31.2 million, down from $42.3 million reported in last year's fourth quarter. The decrease was primarily related to lower gross profit from product sales and higher expenses from investments in headcount and acquisition-related expenses. During the quarter, we had other income of $2.2 million, including interest income of $1.6 million and foreign currency transaction gains of $400,000, compared to foreign currency transaction losses of $200,000 in the prior year quarter.
Speaker Change: On a consolidated basis operating income declined from $42 4 million to $29 million earnings before taxes were $31 2 million down from $42 3 million reported in last year's fourth quarter. The decrease was primarily related to lower gross profit from product sales and higher expenses from <unk>.
Speaker Change: Investments in head count and acquisition related expenses during the quarter. We had other income of $2 2 million, including interest income of $1 6 million in foreign currency transaction gains of 400000 compared to foreign currency transaction losses of 200000 in the prior year quarter.
Elaine D. Marion: The effective tax rate was 29.5% in the fourth quarter of fiscal 2024 compared to 22.4% in the year-ago quarter. The lower-than-average tax rate last year was due to lower-than-forecasted non-deductible expenses, increased benefits from foreign sales, along with lower state tax rates.
Speaker Change: The effective tax rate was 29, 5% in the fourth quarter of fiscal 2024 compared to 22, 4% in the year ago quarter.
Speaker Change: Lower than average tax rate last year was due to lower than forecasted non deductible expenses increased benefits from foreign sales along with lower state taxes.
Elaine D. Marion: Consolidated net earnings were $22 million, or $0.82 per diluted share. This compares to net earnings of $32.9 million, or $1.23 per diluted share, last year. Non-GAAP diluted earnings per share were $0.93 compared to $1.36 in the year-ago period. Our diluted share count at the end of the quarter was $26.8 million compared to $26.7 million a year ago. Consolidated adjusted EBITDA decreased to $36.8 million compared to $48.7 million in the prior year, primarily due to a 26.8% adjusted EBITDA decline in the technology business for the reasons I mentioned.
Speaker Change: Consolidated net earnings were 22 million or <unk> 82 per diluted share. This compares to net earnings of $32 9 million or $1 23 per diluted share last year.
Speaker Change: non-GAAP diluted earnings per share were <unk> 93, compared to $1 36 in the year ago period, our diluted share count at the end of the quarter was $26 8 million compared to $26 7 million a year ago.
Consolidated adjusted EBITDA decreased to $36 8 million compared to $48 7 million in the prior year, primarily due to a 26, 8% adjusted EBITDA decline in the technology business for the reasons I mentioned.
Elaine D. Marion: Turning to our full-year results, ePlus reported fiscal 2024 net sales of $2.23 billion, reflecting a 7.6% year-over-year increase, aided by 8% revenue growth in the technology business to $2.18 billion and a 10.4% growth in service revenue to $292.1 million. Our financing segment net sales were $49.4 million, compared to $52.5 million in the prior year. Gross billings in our technology business total $3.3 billion, 5.8% ahead of fiscal 2023. Consolidated gross profit for the full year grew 6.4% and amounted to $550.8 million.
E Plus: Turning to our full year results E plus reported fiscal 2024 net sales of $2 3 billion, reflecting a seven 6% year over year increase aided by 8% revenue growth in the technology business two to $1 8 billion and a 10, 4% growth in service revenue to $292 one.
Speaker Change: Million.
Speaker Change: Our financing segment net sales were $49 4 million compared to $52 5 million in the prior year.
Gross billings in our technology business totaled $3 3 billion five 8% ahead of fiscal 2023 consolidated gross profit for the full year grew six 4% and amounted to $558 million consolidated gross margin was 24, 8% slightly below the 25%.
Elaine D. Marion: Consolidated gross margin was 24.8%, slightly below the 25% reported in fiscal year 2023 due to the product mix and the technology business. Gross profit in the technology business grew 7.2% to $508.5 million, while gross profit in the financing segment was $42.3 million, below the $43 million reported in the previous year. Consolidated operating income was $158.3 million compared to $166.2 million as we continued to invest in our customer-facing sales force and engineering talent throughout the year, resulting in an 11.7% increase in operating expenses.
Speaker Change: Reported in fiscal year 2023, due to the product mix in the technology business.
Speaker Change: Gross profit in the technology business grew seven 2% to $508 5 million, while gross profit in the financing segment was $42 3 million below the $43 million reported in the previous year.
Speaker Change: Consolidated operating income was $158 3 million compared to $166 2 million as we continued to invest in our customer facing sales force and engineering talent throughout the year, resulting in an 11, 7% increase in operating expenses, our effective tax rate for fiscal 2024.
Elaine D. Marion: Our effective tax rate for fiscal 2024 was 28.1% compared to 26.8% for fiscal 2023. Investment earnings were $115.8 million or $4.33 per diluted share compared to $119.4 million or $4.48 per diluted share, respectively. Non-GAAP diluted earnings per share was $4.92 compared to $5.02 in the prior year.
Speaker Change: With 28, 1% compared to 26, 8% for fiscal 2023 net earnings were $115 8 million or $4 33 per diluted share compared to $119 4 million or $4 48 per diluted share respectively.
Speaker Change: non-GAAP diluted earnings per share was $4 92 compared.
Speaker Change: Compared to $5 <unk> in the prior year adjusted EBITDA was $190 4 million in line with prior year.
Elaine D. Marion: Adjusted EBITDA was $190.4 million, in line with the prior year. Our balance sheet remains strong as our cash and cash equivalents totaled $253 million at the end of fiscal 2024, which is a high for ePlus and which compares favorably to $103.1 million at the end of the prior year. This increase was primarily due to improvements in working capital; inventories were $139.7 million at the end of fiscal 2024. Consistent with recent quarters, we have continued to see improvements in supply chains and product availability, leading to a $78 million sequential decrease in inventories.
Speaker Change: Our balance sheet remains strong as our cash and cash equivalents totaled $253 million at the end of fiscal 2024, which is a high for E plus and which compares favorably to $103 1 million at the end of the prior year. This increase was primarily due to improvements in working capital.
Speaker Change: Inventories were $139 7 million at the end of fiscal 2024, consistent with recent quarters. We have continued to see improvements in supply chain and product availability, leading to a $78 million sequential decrease in inventories.
Elaine D. Marion: Compared to the end of fiscal 2023, inventories were down $103.6 million, and we believe they have now normalized. Inventory turns improved to 23 days compared to 27 days in the prior quarter and 38 days at the end of fiscal 2023. Our cash conversion cycle was 46 days compared to 59 days in the year-ago quarter, reflecting supply chain easing and normalization. As a result, operating cash flow for the full year was $248.4 million, compared to $15.4 million of cash used last year.
Speaker Change: Compared to the end of fiscal 2023 inventories were down $103 6 million and we believe have now normalized.
Speaker Change: Inventory turns improved to 23 days compared to 27 days in the prior quarter and 38 days at the end of fiscal 2023, our cash conversion cycle was 46 days compared to 59 days in the year ago quarter, reflecting supply chain easing and normalization.
Speaker Change: As a result operating cash flow for the full year was $248 4 million compared to $15 4 million of cash used last year.
Elaine D. Marion: Stockholders' equity was $901.8 million, compared with $782.3 million at the end of fiscal 2023. Given our strong cash flow and cash balance, we are pleased to announce that our board approved a new $1,250,000 share repurchase authorization to begin on May 28, 2024. This replaces our prior authorization, which is set to expire next week. Our strategy of focusing on high-growth areas continues to bear fruit, as evidenced by growth ahead of our peers in a challenging overall demand environment.
Speaker Change: Stockholders' equity was $901 8 million compared with $782 3 million at the end of fiscal 2023.
Speaker Change: Given our strong cash flow and cash balance we are pleased to announce that our board approved a new $1 250000 share repurchase authorization to begin on May 28, 2024. This replaces our prior authorization, which is set to expire next week.
Speaker Change: Our strategy of focusing on high growth areas continues to bear fruit as evidenced by growth ahead of our peers in a challenging overall demand environment Mark will provide our guidance for fiscal 2025, but I want to note. We would expect to see a lesser impact on margins in fiscal 2025 than we saw in the fourth quarter, given some quarter specific energy.
Mark P. Marron: Mark will provide our guidance for fiscal 2025, but I want to note we would expect to see a lesser impact on margins in fiscal 2025 than we saw in the fourth quarter given some quarter-specific enterprise sales growth resulting in lower margin product sales next. With that, I will turn the call back over to Mark. Mark? Thank you. Elaine.
Speaker Change: <unk> sales growth, resulting in lower margin product sales mix.
Speaker Change: With that I will turn the call back over to Mark Mark.
Mark P. Marron: Thank you, Elaine. Despite a challenging industry-wide demand environment, we are pleased with the solid performance we delivered in 2024. We believe ePlus can continue its momentum in fiscal year 25 as we are very focused on providing the strategic IT solutions most in demand by our customers. ePlus is initiating fiscal year 2025 guidance for net sales growth over the prior fiscal year of between 3 and 6% and adjusted EBITDA in the range of $200 million to $215 million.
Mark P. Marron: Thank you Elaine despite a challenging industry wide demand environment. We were pleased with the solid performance. We delivered in 2024, we believe E. Plus can continue its momentum in fiscal year 'twenty five as we are very focused on providing the strategic IP solutions most in demand by our customers.
Mark P. Marron: <unk> plus is initiating fiscal year of 2025 guidance for net sales growth over the prior fiscal year of between three and 6% and adjusted EBITDA in the range of $200 million to $215 million.
Mark P. Marron: We are focused on driving shareholder value via growth, both organic and through acquisition. We are continually enhancing and broadening our product and service offerings to capture market share, align to market transitions, as well as broaden our relationship with existing customers. And we will continue to seek out expansion opportunities and investments that enhance our positioning in 2025 and beyond. In summary, we are pleased with the progress on our strategic priorities as we continue to successfully expand the business and make important foundational investments to drive growth. Operator, let's open the line for questions. Thank you.
Speaker Change: We are focused on driving shareholder value via growth, both organic and through acquisitions, we are continually enhancing and broadening our product and service offerings to capture market share aligned to market transitions as well as broaden our relationship with existing customers and we will continue to seek out expansion opportunities and investments.
Speaker Change: That enhance our positioning in 2025 and beyond.
Speaker Change: In summary, we are pleased with the progress on our strategic priorities as we continue to successfully expand the business and make important foundational investments to drive growth operator, let's open the line for questions. Thank you.
Operator: Ladies and gentlemen, we will now begin the question and answer session. In order to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from the line of Maggie Nolan with William Blair. Please go ahead.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session in order to ask a question press star followed by the number one on your telephone keypad.
Speaker Change: Your first question comes from the line of Maggie Nolan with William Blair.
Speaker Change: Please go ahead.
Margaret Marie Niesen Nolan: Hi, Mark Hi Lane.
Mark P. Marron: Hey Maggie, how are you?
Speaker Change: Hey, Maggie how are you.
Margaret Marie Niesen Nolan: Great. Thanks last quarter, you referenced some push outs from from fiscal <unk> into fiscal for Q that impacted revenue.
Margaret Marie Niesen Nolan: Last quarter, you referenced some pushouts from fiscal 3Q into fiscal 4Q that impacted revenue. Did those materialize in the quarter? And when you exclude those, how did the fourth quarter compare to your expectations going into the quarter?
Margaret Marie Niesen Nolan: This materialize in the quarter and when you exclude those how did the fourth quarter compare to your expectations going into the quarter.
Mark P. Marron: Okay, hey, good question, Maggie. So if you think about last quarter in Q3, we had a volume issue, but we had strong margins. So our margins were 410 basis points in Q3. In Q4, it was the opposite. We had strong volume, where our sales were up 12.7%, and gross billings were up 13.8%.
Lane: Okay, Hey, good question Maggie So it's actually a tale of two quarters. So if you think about last quarter in Q3, we had a volume issue, but we had strong margins. So our margins were up 410 basis points in Q3 in Q4. It was the opposite we had strong volume where our sales were up 12, 7% and gross bill.
Mark P. Marron: So those are some of those deals that moved over. So it's really a timing issue between the quarters. And that's mainly due to a couple different things. One, some of the size of the deals that we're dealing with now with some of our enterprise customers and some of the enterprise flush, that's kind of tough to predict when we'd get it out based on the customer's expectations and when they're ready for the product
Lane: <unk> were up 13, 8%. So that's some of those deals that moved over.
Lane: So it's really a timing issue between the quarters and Thats, mainly due to a couple of different things one some of the size of the deals that we're dealing with now with some of our enterprise customers and some of the enterprise flush that is kind of tough to predict when we'd get it out based on the customers' expectations and when theyre ready for the product. So it's really.
Lane: Kind of a tale of two quarters, if you will overall, though when we looked at the quarter.
Mark P. Marron: So it's really a kind of a tale of two quarters, if you will. Overall, when we looked at the quarter, it was kind of what we expected on net sales. Gross margins were a little lower, mainly due to some of our land and expand strategy where we're in some of these larger accounts at lower margins and then try to build it back up over time. But that's how it played out.
Lane: Kind of what we expected on net sales gross margins were a little lower mainly due to some of our land and expand.
Lane: Strategy, where we're in some of these larger accounts at lower margin and then try to build it back up over time, but that's how it played out.
Margaret Marie Niesen Nolan: Got it. Thank you.
Speaker Change: Got it. Thank you and then so you mentioned the margins obviously there is variations between the last two quarters of the year and you said in your prepared remarks, an expectation that there would be kind of more normalized levels in fiscal 'twenty. Five can you talk through some of the factors that give you confidence in that more normalized levels.
Margaret Marie Niesen Nolan: And then, you mentioned the margins, you know, obviously there are variations between the last two quarters of the year. And you said in your prepared remarks an expectation that there would be kind of more normalized levels in fiscal 25. Can you talk through some of the factors that give you confidence in that more normalized levels commentary? Yeah, sure.
Lane: Commentary.
Mark P. Marron: Yeah, sure, Maggie. So if you look at it for this quarter, it was mainly our product margins that were down significantly due to some of the larger enterprise deals. Overall, our service margins were up 270 basis points. We also had a gross net was down 130 basis points. So that's what kind of affected the margins for the quarter. But if you look at it for the year, our consolidated gross margins are actually flat.
Margaret Marie Niesen Nolan: Yes, sure Maggie So if you look at it for this quarter was mainly our product margins that were down significantly due to some of the larger enterprise deals.
Speaker Change: Overall, our service margins were up 270 basis points, we also had a.
Speaker Change: Gross to net was down 130 basis points. So that's what kind of affected the margins for the quarter. If you look at it for the year, our consolidate gross gross margins were actually flat. So in that 25% range. So we expect that to normalize so as the inventory.
Mark P. Marron: So in that 25% range, we expect that to normalize. So as the inventory has subsided, if you will, we think we're going to get to more normalized or historical levels, if you will, with our gross margins, mainly in that 24 to 26% range. And then if you use the 25%, which we've done as an average, which, by the way, I think is industry leading in our space, that's kind of where we think it is with a potential slight uptick as we move through the year and see more services driven.
Speaker Change: Has subsided if you will we think we're going to get to more normalized or historical levels. If you will with our gross margins mainly in that 24% to 26% range and then if you use the 25%, which we've done is as an average which by the way I think is industry leading.
Speaker Change: In our space.
Speaker Change: That's kind of where we think it is with a potential slight uptick as we move through the year and see more services driven.
Margaret Marie Niesen Nolan: Got it. Thanks, Mark. Thanks, Maggie. See you soon.
Mark P. Marron: Got it thanks Mark.
Margaret Marie Niesen Nolan: Thanks, Maggie see you soon.
Operator: The next question comes from the line of Matt Sheerin with Stiefel.
Speaker Change: The next question comes from the line of Matt Sheerin with Stifel.
Speaker Change: Please go ahead.
Matthew John Sheerin: Yes, thank you. I have a couple of questions for you. Mark, in terms of the revenue outlook for fiscal 25 of roughly 4% top-line growth, I know you just came off of a year with some very strong quarters and some weaker quarters, so really not a lot of seasonality, and I know that the March quarter was also better than seasonal. So how should we think about how the cadence of the year plays out in terms of seasonality and how you get to that 4% number?
Matthew John Sheerin: Yes. Thank you a couple.
Matthew John Sheerin: Couple of questions from me Mark in terms of the revenue outlook for fiscal 'twenty five or roughly.
Speaker Change: Roughly 4% topline growth.
Speaker Change: I know you just came off of a year with some very strong quarters and some weaker quarters. So really not a lot of seasonality and I know that the March quarter was also better than seasonal.
Speaker Change: How should we think about.
Speaker Change: How how the cadence of the year plays out in terms of seasonality and how you get to that 4% number.
Mark P. Marron: Yeah, Matt, I think it's going to be more, as you said, from a seasonality point of view, so Q2 and Q3 will be bigger, just like the historical levels, so I think that's how it's going to play out. So it'll be a little bit back-ended, if you will, but that's kind of how we expect it to play out this year.
Matthew John Sheerin: Matt I think it's going to be more as you said from a seasonality. So Q2 and Q3 will be bigger just like the historical levels.
Matthew John Sheerin: So I think thats, how its going to play out so be a little bit back ended if you will.
Matthew John Sheerin: But that's that's kind of how we expect it to play out this year.
Matthew John Sheerin: Okay.
Matthew John Sheerin: So would you expect June then to be down sequentially after the strong March quarter with those one-off big volume deals that you talked about?
Matthew John Sheerin: So would you expect June then to be down sequentially.
Speaker Change: After the strong March quarter with those those one off big volume deals that you talked about.
Mark P. Marron: I would expect it to be in a similar range, Matt. And then I'd expect Q2, which is normally our strongest quarter due to, you know, both the state and local business, Cisco's fiscal year end, and a few other things, and then Q3 with the year end, and then Q4 would traditionally trend down. This year has been different in terms of just when you look at it with the inventory and the timing of deals.
Speaker Change: I would expect it to be in the similar range Matt.
Speaker Change: And then I would expect Q2, which is normally our strongest quarter due to.
Speaker Change: Both the state and local business Cisco's fiscal year end and a few other things and then Q3 with year end and then Q4 would traditionally trend down.
Matthew John Sheerin: This year has been different in terms of just when you look at it with the inventory and the timing of deals. The other thing we're starting to see Matt based on our size and scale, we're being brought into some bigger deals.
Mark P. Marron: The other thing we're starting to see, Matt, based on our size and scale, we're being brought into some bigger deals, which is interesting because they normally take a little bit longer. Originally, they're a little bit tighter in terms of margin, but then over time, you kind of expand those margins. So, you know, I think you'll see some more normalized revenue and expenses as we move forward.
Matthew John Sheerin: Which is interesting because they are they normally take a little bit longer originally there a little bit margin tighter, but then over time, you kind of expand those margins. So.
Matthew John Sheerin: Sure.
Speaker Change: I think youll see some more normalized revenue and expenses as we move forward.
Matthew John Sheerin: Okay, and when you talk about land and expanding, you're really talking about pricing aggressively to win, basically getting a seat at the table, if you will, right? And then you grow the business? And so you're competitive against other competitors? Is that what the strategy's been?
Speaker Change: Okay.
Speaker Change: Can you talk about land and expand you're really talking about pricing aggressively to win basically get a seat at the table. If you will right and then and then you grow the business.
Speaker Change: Is that so youre competitive against against other competitors is that is that with this strategy has been yes, that's sad mad exactly in fact, and that's mainly in the kind of high end high mid market and the enterprise space. What was interesting this year, our customer base actually grew by 300 customers. So so.
Mark P. Marron: Yeah, that's it, Matt. Exactly. In fact, and that's mainly in the kind of high-mid market and the enterprise space. What was interesting this year, our customer base actually grew by 300 customers. So from that end, we're going to continue to be aggressive, try to get into more, I'll say, enterprise-like accounts, and then, over time, go back with our full solution set of products and services and try to grow those margins. And we've done that for years.
Speaker Change: That and we're going to continue to be aggressive try to get into more I'll say enterprise like accounts and then over time go back with our full solution set of.
Speaker Change: Products and services and try to grow those margins and we've done that for years. So we've been fairly successful. If you look at our history with our margins so that would be the intent. This past quarter was a little bit of an aberration. If you will as it relates to margins.
Mark P. Marron: So we've been fairly successful if you look at our history with our margins. So that would be the intent. This past quarter was a little bit of an aberration, if you will, as it relates to margins.
Matthew John Sheerin: Got it. Okay.
Mark P. Marron: And then your EVA guidance for next year implies just modest growth from where you are and below the run rate that you were at, except for last quarter. But you're also telling us that gross margins will get back to normal. Is that because there are more expenses, more on the operating expense side as you're growing out some of these capabilities?
Speaker Change: Got it Okay, and then your EBITDA guidance for.
Speaker Change: For next year implies.
Speaker Change: Just modest growth from where you were.
Speaker Change: And below the run rate that you're at.
Speaker Change: Except for last quarter.
Speaker Change: And but you are also telling us that gross margins will get back to normal is that because there's more expenses more on the operating expense side as youre growing out some of these capabilities.
Mark P. Marron: Yeah, very much so, Matt. So as it relates to adjusted EBITDA, it's actually going to be up 5% to 13%, which is what we're saying with our guidance. And then OPEX, we've made a decision based on our strategy and growth initiatives. We've made some investments, I'll say in the services space, because our services have continued to grow, and our backlog is growing. We've made some investments as we build out our AI capabilities, which we're hoping over time we'll start to monetize, but it's the early innings there.
Matthew John Sheerin: Yes, very much so Matt so as it relates to adjusted EBITDA, it's actually going to be up 5% to 13% is what we're saying with our guidance and then Opex. We've made a decision based on our strategy and growth initiatives. We've made some investments I'll say in the services space because our services have continued to grow on our <unk>.
Matthew John Sheerin: <unk> is growing we've made some investments as we build out our AI capabilities, which we're hoping over time, we will start to monetize but it's early innings. There and then we've made some investments on the sales side, both from a leadership and from enterprise sales standpoint to go forward. So.
Mark P. Marron: And then we've made some investments on the sales side, both from a leadership and from an enterprise sales standpoint to go forward. So based on the 300 new customers and what we believe in, where we fit in the market, we think that'll pay off over time, and we'll start to get that operating leverage you'd hope to get.
Speaker Change: On the 300, new customers and what we believe in.
Speaker Change: Where we fit in the market, we think that will pay off over time, and we will start to get that operating leverage you'd hope to get.
Matthew John Sheerin: How many active customers do you have? What's that 300? What is that as a percentage? It's about 4,600, a little over 4,600 now. Okay, okay. Great.
Speaker Change: How many of the active customers that you have what's that 301 is that as a percentage. It's about 4600, a little over 4600 now.
Mark P. Marron: And just lastly, the inventory worked down, which was, which was very impressive, and your cash flow was strong. Does that mean that your backlog is pretty much all worked down at this point? Like there's no elevated backlog, and now it's just kind of really visibility is really what the customer demand is looking like?
Speaker Change: Okay, Great and just lastly on the inventory work down which was which is very impressive and your cash flow was strong.
Speaker Change: Does that mean that your backlog is pretty much all worked down at this point like Theres no elevated backlog and now it's just kind of.
Speaker Change: Visibility is really what the customer demand is looking like.
Mark P. Marron: Yeah, I would say this is probably the new normal for inventory. There's still some there, Matt, that, you know, due to lead times and a few other things that are still in play, but I think this is kind of the new normal going forward, and it'd be almost business as usual. You know, the one that's interesting that's really, you know, in play here is AI. There's a lot of interest from customers.
Matthew John Sheerin: Yes, I would say this is probably the new normal on the inventory Theres still some there Matt that due to lead times and a few things few other things that are still in play, but I think this is kind of the new normal going forward and it would be almost business as usual.
Speaker Change: The one that's interesting that's really in play here is AI, there's a lot of interest from customers I actually believe it's delayed some decisions from our customers as they try to analyze and decide what they want to do with AI tried to figure out the infrastructure that they need in place to run. These AI models, if you will.
Mark P. Marron: I actually believe it's delayed some decisions from our customers as they've tried to analyze and decide what they want to do with AI, trying to figure out the infrastructure that they need in place to run these AI models, if you will. I think it's actually delayed some decisions, but yeah, I think as it relates to inventory and then the other thing you kind of touched on, which we're kind of feeling good about because it gives us a lot of flexibility.
Speaker Change: Actually delayed some decisions, but yes, I think as it relates to inventory and then the other thing you kind of touched on it which we're kind of we're feeling good because it gives us a lot of flexibility our cash was over $250 million or over a quarter billion. So from that and it gives us flexibility from an M&A.
Mark P. Marron: Our cash is over 250 million, or over a quarter billion. So from that end, it gives us flexibility in an M&A. We increased our stock buyback. So there are some things that we might be able to do as we move throughout the year.
Speaker Change: We increased our stock buyback so theres some things that we might be able to do as we move throughout the year.
Matthew John Sheerin: Okay, and just lastly, since you brought up AI, that AI Ignite program that you're talking about, is that really more just sort of in the consultative phase, or are you actually converting processes and actually doing AI implementations for customers, or is that just still in the early stages?
Speaker Change: And just lastly, just since you brought up the AI that AI ignite program that Youre talking about.
Speaker Change: Is that really more just sort of in the consultative phase where.
Speaker Change: Or are you actually converting.
Speaker Change: Processes and actually doing AI implementations for our customers or is that just still in the early stages.
Mark P. Marron: Early stages, Matt. What's interesting, we actually did an envisioning session with our team for us internally, and it was eye-opening, if you will, what customers are going to have to think through. So, as we walk them through these envisioning sessions and workshops and data strategy sessions, what we're seeing is that a lot of people have to figure out they've got data all over the place. They've got to put it into a repository or a data lake.
Matthew John Sheerin: Early stages, Matt what's interesting, we actually did in envisioning session with our team for us internally and it was it was.
Matthew John Sheerin: I opening if you will with customers are going to have to think through so as we walk them through these envisioning sessions and workshops and data strategy sessions. What we're seeing is a lot of people have to figure out they've got data they've got data all over the place they have got to put it into a repository of our data Lake.
Mark P. Marron: They have to make sure that they have good governance in place. And then, really, the big thing that came out of our meeting is that they have to decide what use case, meaning where can they monetize it best because there are so many. We came up with seven different areas we think we could use AI for internally at ePlus. So, it's the early innings. You're not seeing any of the infrastructure sales per se just yet, but it's starting to build.
Matthew John Sheerin: To make sure that they have good governance in place and then they really the big thing that came out of our meeting is they have to decide what use case, meaning where can they monetize at best because theres. So many we came out with seven different areas. We think we could use AI for internally at <unk> plus so.
Matthew John Sheerin: It's early innings youre not seeing any of the infrastructure sales per se just yet.
Matthew John Sheerin: But it's starting to build.
Speaker Change: Okay, alright, thanks, so much.
Matthew John Sheerin: Okay. All right. Thanks so much. No problem.
Operator: No problem. Take care, Matt.
Matthew John Sheerin: Take care Matt.
Gregory John Burns: Your next question comes from the line of Greg Burns with Sidoti and Company.
Speaker Change: Your next question comes from the line of Greg Burns with Sidoti <unk> Company.
Speaker Change: Please go ahead.
Gregory John Burns: Afternoon, the 300 customers this year, how does that compare to other years? How many customers do you typically add in a year?
Gregory John Burns: Good afternoon, 300 customers this year, how does that compare to other years.
Speaker Change: How many customers do you typically had in the year.
Mark P. Marron: You know, I don't know the number, Greg, but it's high. I know when we saw it, I was pleasantly surprised when we went through and did the analysis year over year. If I had a guess in the 150 range, you know, it's almost double what we normally did, but I truly don't have the numbers at hand right now.
I don't know the number Greg, but its high I know when we sort I was pleasantly surprised when we went through and did the analysis year over year.
Speaker Change: If I had a guess in the 150 range, it's almost double what we normally do but I truly don't have the numbers at hand right now.
Gregory John Burns: Okay. And some of the larger networking OEMs like Cisco I've talked about, the bottleneck of product that's sitting at customers waiting to get deployed. It's impacted their order patterns. It seems like you've been relatively unscathed compared to maybe what some of the other vendors have been talking about. Can you just discuss why that is, why you think you've been able to outperform the market so significantly, and maybe your view going forward on that dynamic in the market kind of getting cleaned up? Yeah, great. Great question, Greg.
Speaker Change: Okay.
Speaker Change: And some of the larger networking Oems like Cisco <unk> talked about this.
Speaker Change: Bottleneck of product that's sitting at customers waiting to get deployed it's impacted there.
Speaker Change: Their order patterns.
Speaker Change: It seems like.
Speaker Change: You've been relatively unscathed like compared to maybe what.
Speaker Change: Some of the other vendors the vendors have been talking about can you just discuss why that is why do you think you've been able to outperform the market so significantly and maybe your view going forward on that dynamic in the market.
Speaker Change: Kind of getting cleaned up.
Mark P. Marron: Yeah, great question, Greg, and a hard one, quite honestly. I think some of it's due to the backlog. Second, quite honestly, I think it's an interesting market. If you think about the HP acquisition of Juniper and how that's going to kind of throw that in flux a little bit with some of the solutions they have versus Cisco. But our background, you know, traditionally, as you know, Cisco's traditionally been almost 50% of our business. This past quarter, I think it was like 39%.
Gregory John Burns: Yes, great Great question, Greg and a hard one quite honestly I think some of it's due to backlog.
Speaker Change: Second is quite honestly I think it's an interesting market. If you think about the HP acquisition of Juniper, and how thats going to kind of throw that in flux, a little bit with some of the solutions that you have versus Cisco.
Speaker Change: But we've our background traditionally as you know Cisco has traditionally been almost 50% of our business. This past quarter I think it was like 39%.
Mark P. Marron: So we work pretty closely with Cisco. And if you think about AI, a lot of what's going to have to happen with those models is network modernization, so that the pipes are wide enough for people to do all the analysis they need to do with AI. So I think we've stayed ahead of that, and we've stayed close with Cisco on the other network vendors. And the team has done a really nice job of getting that in front of customers with the solutions and services we can provide. And some of it was just due to the backlog that we had in inventory.
Speaker Change: So we worked pretty closely with Cisco and if you think about AI.
Speaker Change: Lot of what's going to have to happen with those models is network modernization. So that the pipes are wide enough for people to do all the analysis they need to do with AI. So I think we've stayed ahead of that and we've stayed close with Cisco on the other network vendors and the team has done a really nice job of.
Speaker Change: Getting that getting in front of customers with the solutions and services, we can provide and some of it was just due to the backlog that we had in inventory.
Gregory John Burns: Okay, thank you. Anything else, Greg, or? No, that's all. Okay, all right. I don't, I don't believe there are any more questions. So, from that end, I want to thank everybody for taking the time to listen in today, and we look forward to seeing you or hearing from you at our quarterly earnings call. Thank you, and take care.
Speaker Change: Okay. Thank you.
Speaker Change: Anything else Gregor.
Gregor: No that's all okay.
Gregor: Alright.
Theres: I don't I don't believe Theres any more questions.
Theres: So from that end I want to thank everybody for taking the time.
Speaker Change: To listen in today, and we look forward to seeing you or hearing from you Ed our quarter one quarter.
Speaker Change: Quarterly earnings call, Thank you and take care.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Please wait; the conference will begin shortly.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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