Q1 2025 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 would like to introduce your host for today's conference, Mr. Kley Parkhurst. Please, you may begin.

Operator: Good day, ladies and gentlemen. Welcome to the EPlus 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. As a reminder, this conference call is being recorded I would like to introduce your host for today's conference. Mr. Kley Parkhurst, Sir you may begin.

Operator: I would like to introduce your host for today's conference, Mr. Clay Parkhurst. Sir, you may begin.

Kley 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. 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 most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other documents that we may file with the SEC.

Clay Parkhurst: Thank you for joining us today.

Speaker Change: Thank you for joining us today on the call is Mark Marron, CEO and President Darren <unk>, CFO and President of <unk>, plus technology, Elaine Marion CFO and Erica Stoecker General Counsel I wanted 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 managements.

Mark Marron: I'm the call as Mark Marron, CEO and President, Darren Ragwell, CEO and President of EPlus Technology, Elaine Marion, CFO, and Erica Stoecker, General Council. 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 our baseline management's current plans, estimates, and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detail in the earnings release we should this afternoon, and our periodic fileages of the stairs in change commission, including our most recent annual report on form 10K, quarterly reports on form 10Q, and another documents fill we may file with the FCC.

Speaker Change: Current plans estimates and projections.

Speaker Change: 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 Securities and Exchange Commission, including our most recent annual report on Form 10-K quarterly reports on Form 10-Q and in other documents. So we may file with the SEC any.

Kley Parkhurst: Any forward-looking statement speaks only as of the date of which the statement was 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. We have included a GAAP financial reconciliation in our earnings release, which is posted on the Investor Information section of our website at www.ePlus.com.

Mark Marron: Any forward-looking statements speak only as of the date of which the statement was made, and the company undertakes no responsibility to update any of these forward-looking statements in light of new information, future events, or otherwise.

Speaker Change: Forward looking statements 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. We've included a GAAP financial reconciliation in our earnings release.

Mark Marron: In addition, we will be using certain nine gap measures during the call. It includes a gap financial reconciliation and our earnings release, which is posted on the Investor Information section of our website at www.eplus.com.

Speaker Change: Which is posted on the Investor information section of our website at Www Dot E plus dot com.

Kley Parkhurst: I'd now like to turn the call over to Mark Marron. Mark?

Mark Marron: I'd now like to turn the call over to Mark Marin. Mark?

Speaker Change: I'd now like to turn the call over to Mark Marron Mark.

Mark Marron: Thank you, Kley, and good afternoon, everyone. Thank you for joining us to discuss our fiscal year 2025 first quarter results. I will recap our first quarter highlights and provide an update on our business, then Elaine will discuss our financial results in more detail. I will conclude our prepared remarks with a discussion of our outlook. After that, we'll open the call to your questions.

Mark Marron: Thank you, Clay, and good afternoon, everyone. Thank you for joining us to discuss our fiscal year 2025 first-quarter results. I will recap our first quarter highlights and provide an update on our business, then Elaine will discuss our financial results in more detail.

Mark Marron: Thank you clay and good afternoon, everyone. Thank you for joining us to discuss our fiscal year 2025 first quarter results I will recap our first quarter highlights and provide an update on our business then Alain will discuss our financial results in more detail I will conclude our prepared remarks with the discussion of our outlook.

Mark Marron: I will conclude our prepared remarks with the discussion of our outlook. After that, we'll open the call to your questions. We continue to execute on our strategic initiatives around AI, cloud, security, and the related advisory and the new ED services. Coming into the quarter, we had a tough compared to last year, which resulted in a net sales decline of 5.2% for the first quarter fiscal year 2025 compared to last year. Last year's quarter had 25% net sales growth, including a nearly 30% increase in product sales in our technology business. Our gross billings and gross margins held essentially flat when compared to the prior year's quarter.

Mark Marron: After that we'll open the call to your questions.

Mark Marron: We continue to execute on our strategic initiatives around AI, cloud, security, and the related advisory and annuity services. Coming into the quarter, we had a tough compare to last year, which resulted in a net sales decline of 5.2% for the first quarter fiscal year 2025 compared to last year. Last year's quarter had 25% net sales growth, including a nearly 30% increase in product sales in our technology business. Our gross billings and gross margins held essentially flat when compared to the prior year's quarter.

Mark Marron: We continue to execute on our strategic initiatives around AI cloud security and the related advisory and annuity services.

Alain: Coming into the quarter, we had a tough compare to last year, which resulted in a net sales decline of five 2% for the first quarter fiscal year 2025 compared to last year.

Speaker Change: Last year's quarter had 25% net sales growth, including a nearly 30% increase in product sales and our technology business.

Speaker Change: Our gross billings and gross margins held essentially flat when compared to the prior year's quarter. We believe our gross billings are stabilizing now that supply chains are normalizing.

Mark Marron: We believe our gross billings are stabilizing now that supply chains are normalizing. A portion of the net sales decline this quarter reflects an increase in the netting of sales from gross to net, partially offset by increases in professional and managed services revenue. We believe our product revenues are down due to some customers implementing technology orders that were previously supply chain constrained over the last year. Both quarters were affected by the supply chain last year by an abrupt easing of the supply chain in this quarter as customers digested their prior purchases.

Mark Marron: We believe our gross billings are stabilizing now that supply chains are normalizing. A portion of the net sales decline this quarter reflects an increase in the netting of sales from gross to net, partially offset by increases in professional and managed services revenues. We believe our product revenues are down due to some customers' implementing technology orders that were previously supply chain constrained over the last year. Both quarters were affected by the supply chain last year by an abrupt easing of the supply chain, and this quarters as customers digested their prior purchases. Despite these timing differences, we believe we were focused on the necessary IT areas, which make us more resilient, reflected in our annual guidance.

Speaker Change: Portion of the net sales decline this quarter reflects an increase in the netting of sales from gross to net partially offset by increases in professional and managed services revenues.

We believe our product revenues are down due to some customers implementing technology orders that were previously supply chain constrained over the last year.

Speaker Change: Quarters were affected by the supply chain last year buying an abrupt easing of the supply chain and this quarters as customers digested theyre. Prior purchases. Despite these timing differences. We believe we are focused on the necessary areas, which make us more resilient reflected in our annual guidance.

Mark Marron: Despite these timing differences, we believe we are focused on the necessary IT areas which make us more resilient, reflected in our annual guidance. Our service revenues sustained solid growth, with overall service revenues up 15.8 percent. Managed services continued to grow and were up 28 percent year over year. We also continued to see strong growth in our managed services bookings, which were up approximately 70 percent year over year. This bodes well for ePlus as these are recurring revenue streams that will give us predictability and more consistent profitability in future years.

Mark Marron: Our service revenues sustained solid growth, with overall service revenues up 15.8%. Managed services continue to build, and we're up 28% year over year. We also continue to see strong growth in our managed services bookings, which were up approximately 70% year over year. This votes well for E-plus as these are recurring revenue streams that give us predictability and more consistent profitability and future year. us. Security was an area of strength for us, which continues to be over 20% of our gross billings in the trailing 12 months and was up over 9% quarter over quarter. Our finance segment performed well, with revenue up 6.4% due to an increase in our portfolio earnings, resulting in a 24.3% increase in adjusted EBITDA for this segment.

Speaker Change: Our service revenues sustained solid growth with overall service revenues up 15, 8% managed services continued to build and were up 28% year over year. We also continued to see strong growth in our managed services bookings, which were up approximately 70% year over year. This bodes well for Eplex as these are real.

Speaker Change: <unk> revenue streams that give us predictability and more consistent profitability in future years.

Mark Marron: Security was an area of strength for us, which continues to be over 20% of our gross billings in the trailing 12 months and was up over 9% quarter over quarter. Our finance segment performed well, with revenue up 6.4% due to an increase in our portfolio earnings, resulting in a 24.3% increase in adjusted EBITDA for this segment. We continue to see strong customer interest for our AI Ignite program and discovery assessment. We have also rolled out a new storage-as-a-service offering and an Azure Recover program. We believe these will continue to support the rapidly evolving needs of our customer base both now and into the future.

Speaker Change: Security was an area of strength for us, which continues to be over 20% of our gross billings in the trailing 12 months and was up over 9% quarter over quarter.

Speaker Change: Our finance segment performed well with revenue up six 4% due to an increase in our portfolio earnings resulting in a 24, 3% increase in adjusted EBITDA for this segment, we continue to see strong customer interest for our AI Ignite program in discovery assessments, we have also.

Mark Marron: We continue to see strong customer interest for our AI Ignite program and discovery assessments. We have also rolled out a new Storage as a Service offering and an Azure Recovery Program. We believe these will continue to support the rapidly evolving needs of our customer base both now and into the future. Many of our customers are in the formative phase of their AI journeys, contemplating how best to leverage AI. In many cases, customers do not have well-defined use cases, have too many data silos, a lack of data cleanly in this, an immature or non-existent AI policies.

Speaker Change: <unk> rolled out a new storage as a service offering and an Azure recover program. We believe these will continue to support the rapidly evolving needs of our customer base, both now and into the future.

Speaker Change: Many of our customers are in the formative phase of their AI journeys contemplating how best to leverage AI in many case. These customers did not have well defined use cases have too many data silos, a lack of data cleanliness and immature nonexistent AI policies. We believe we are well positioned to help our customers capitalize.

Mark Marron: We believe we are well positioned to help our customers capitalize on this opportunity through our AI Ignite program. We are seeing interest across various verticals, which presents a significant opportunity for us within our customer base and for net new customers. As a certified NVIDIA DGX managed service partner, we have had some wins with our AI support services in managing AI optimize infrastructure stacks. In the quarter, we experienced higher SDNA expenses, primarily relating to headcount from both organic hires to support our new solution areas and the peak acquisition. We will continue to invest in customer-facing personnel in sales and engineering professionals with skills in the highest demand areas such as AI security and services.

Speaker Change: On this opportunity through our AI ignite program, we're seeing interest across various verticals, which presents a significant opportunity for us within our customer base and for net new customers.

Speaker Change: As a certified Nvidia D. Gx managed service partner, we have had some wins with our AI support services and managing AI optimize infrastructure stacks in.

Speaker Change: In the quarter, we experienced higher SG&A expenses, primarily relating to head count from both organic hires to support our new solution areas and the Pic acquisition, we will continue to invest in customer facing personnel in sales and engineering professionals with skills in the highest demand areas such as AI security and services.

Mark Marron: In the quarter, we had some lag between the higher costs of these onboarded personnel and revenue generation. Although first quarter of 2025 experienced some revenue headbands on a sequential basis, we were disciplined with our SDNA cost. To quenchally, this discipline and gross margin expansion of 120 basis points contributed to our operating income, which increased more than 20 percent, and operating margin was up 130 basis points. Over time, we believe we will continue to benefit from operating leverage as we move forward with the investments we have made. Turning to our balance sheet, with supply chain easing, we have been able to deliver many delayed projects, which resulted in accelerating our cash conversion cycle and a cash balance of 350 million.

Speaker Change: In the quarter, we had some lag between the higher cost of these onboard personnel and revenue generation, although first quarter of 2025 experienced some revenue headwinds on a sequential basis, we were disciplined with our SG&A cost sequentially. This discipline and gross margin expansion of 120.

Speaker Change: The basis points contributed to our operating income, which increased more than 20% and operating margin was up 130 basis points over time. We believe we will continue to benefit from operating leverage as we move forward with the investments we have made.

Speaker Change: Turning to our balance sheet with supply chain easing, we've been able to deliver many delayed projects, which resulted in accelerating our cash conversion cycle and a cash balance of $350 million with this capital we have the funds to execute on strategic initiatives judiciously invest in head count and support our share repurchase.

Mark Marron: With this capital, we have the funds to execute on strategic initiatives, judiciously invest in headcount, and support our share of repurchase program. During the quarter, we repurchase the 162,319 shares. This most recent share repurchase program further demonstrates our commitment to returning value to shareholders and our confidence in long-term growth potential. We will continue to evaluate opportunities to repurchase shares based on investment opportunities to drive growth, our financial position, and market conditions. On the growth front, we continue to identify both near-term and long-term organic and inorganic opportunities, and we have a healthy pipeline. Our balance sheets provide financial flexibilities to support future growth initiatives.

Speaker Change: Ram.

Speaker Change: During the quarter, we repurchased 160 to 319 shares. This most recent share repurchase program further demonstrates our commitment to returning value to shareholders and our confidence in long term growth potential we will continue to evaluate opportunities to repurchase share based on investment opportunities to drive.

Speaker Change: Growth, our financial position and market conditions on.

Speaker Change: On the growth front, we continue to identify both near term and long term organic and inorganic opportunities and we have a healthy pipeline our balance sheets provides financial flexibility to support future growth initiatives the.

Mark Marron: The underlying strategic focus on our business is solid, and we believe we are well positioned to drive top-line sales and profitable growth.

Speaker Change: The underlying strategic focus of our business is solid and we believe we are well positioned to drive top line sales and profitable growth.

Elaine Marion: I will now turn the call over to Elaine to discuss our financial results in more detail. Elaine?

Speaker Change: I'll now turn the call over to Elaine to discuss our financial results in more detail Alain.

Elaine Marion: Thank you, Mark, and thank you everyone for joining us today. I will provide additional details about our financial performance in the first quarter of fiscal 2025. First quarter from 574.2 million in last year's first quarter due to lower product sales in the technology business. As Mark noted, we face the difficult year-to-year comparison as net sales were up 25 percent in the first quarter of fiscal 2024 due to easing supply chains, which allowed us to complete several previously delayed customer projects. Product revenue decreased 8.2 percent year-to-year primarily due to lower sales of cloud and networking products.

Elaine: Thank you Mark and thank you everyone for joining us today.

Elaine: I will provide additional details about our financial performance in the first quarter of fiscal 2025 first.

Elaine: First quarter consolidated net sales totaled $544 5 million down from $574 2 million in last year's first quarter due to lower product sales in the technology business as Mark noted, we faced a difficult year over year comparison of net sales were up 25% in the first quarter of fiscal 2024.

Mark Marron: Did it easing supply chains, which allowed us to complete several previously delayed customer projects.

Speaker Change: Product revenue decreased eight 2% year over year, primarily due to lower sales of cloud and networking products and inventory flush in last years first quarter, primarily benefited from a 71, 9% increase in sales of networking products.

Elaine Marion: The inventory flush in last year's first quarter primarily benefited from a 71.9 percent increase in sales of networking products. Our services business posted another quarter of double-digit top-line growth, with net sales of 15.8 percent to 78.2 million, as ongoing demand for EMS cloud and service desk services drove 28 percent net sales growth and managed services. We also saw continued growth in professional services, with net sales rising 4.8 percent year over year, primarily due to an increase in staff augmentation services. Sales within our technology business were broad-based. Our two largest verticals are telecom media and entertainment and technology, representing 24 percent and 19 percent, respectively, of our technology business net sales on a trailing 12-month basis.

Speaker Change: Our services business posted another quarter of double digit topline growth with net sales up 15, 8% to $78 2 million as ongoing demand for EMS cloud and service desk services drove 28% net sales growth in managed services.

Elaine: We also saw continued growth in professional services with net sales rising four 8% year over year, primarily due to an increase in staff augmentation services.

Mark Marron: Sales within our technology business were broad-based. Our two largest verticals are telecom, media, and entertainment, and technology, representing 24% and 19%, respectively, of our technology business net sales on a trailing 12-month basis. Partially offsetting this decline in gross margin was a 70 basis point expansion in managed services gross margin. Our managed services offerings continue to benefit from scale as we expand our offerings.

Elaine: Sales within our technology business, where broad based our two largest verticals, our telecom media and entertainment and technology, representing 24% and 19% respectively of our technology business net sales on a trailing 12 month basis.

Elaine Marion: Fled healthcare and financial services accounted for 15, 12, and 11 percent, respectively, with the remaining 19 percent divided among other end markets. Moving to our financing segment, net sales totaled 9 million, a 6.4 percent increase from 8.5 million in the prior year, primarily due to higher portfolio earnings. Although consolidated gross profit declined to 134.5 million from 142.3 million in last year's first quarter, gross margin declined only 10 basis points to 24.7 percent. The gross margin decline was primarily due to a 90 basis point decline in product margin in the technology business, which was the result of a shift in customer mix.

Elaine: Sled healthcare and financial services accounted for <unk>, 12, and 11% respectively with the remaining 19% divided among other end markets.

Elaine: Moving to our financing segment net sales totaled $9 million, a six 4% increase from $8 5 million in the prior year, primarily due to higher portfolio earnings.

Elaine: Although consolidated gross profit declined to $134 5 million from $142 3 million in last year's first quarter gross margin declined only 10 basis points to 24, 7%. The gross margin decline was primarily due to a 90 basis point decline in product margin in the technology business, which.

Elaine: Was the result of a shift in customer mix.

Elaine Marion: Partially offsetting this decline in gross margin was a 70 basis point expansion in managed services gross margin. Our managed services offerings continue to benefit from scale as we expand our offerings. Professional services gross margin rose 10 basis points to 41.5 percent. Sequentially, while net sales were down 1.8 percent, gross profit increased 3.2 percent, mainly driven by an increase in product gross margin to 21.5 percent versus 19.3 in the prior quarter. Consolidated operating expenses grew 3.2 percent year-over-year, primarily due to higher salaries and benefits from additional headcounts. At the end of the quarter, our headcount was 19.07, up 54 from a year ago, including 29 employees from the peak acquisition in January 2024.

Elaine: Partially offsetting this decline in gross margin was a 70 basis point expansion in managed services gross margin. Our managed services offerings continue to benefit from scale as we expand our offerings professional services gross margin rose 10 basis points to 41, 5% sequentially, while net sales were down one.

Mark Marron: Professional services gross margin rose 10 basis points to 41.5%. Sequentially, while net sales were down 1.8%, gross profit increased 3.2%, mainly driven by an increase in product gross margin to 21.5% versus 19.3% in the prior quarter. During the quarter, we had other income of $2.1 million, primarily driven by an increase in interest income of $2.6 million. The effective tax rate remained unchanged from last year's first quarter at 27.2%. During the quarter, we repurchased 162,319 shares, costing $11.9 million. 109,869 shares were from our share repurchase program announced in May 2024.

Elaine: 8% gross profit increased three 2%, mainly driven by an increase in product gross margin to 21, 5% versus 19, 3% in the prior quarter.

Elaine: Consolidated operating expenses grew three 2% year over year, primarily due to higher salaries and benefits from additional head count at the end of the quarter. Our head count was $19 seven up 54 from a year ago, including 29 employees from the peak acquisition in January 2024, we remain.

Elaine Marion: We remain focused on driving efficiencies across the business through disciplined expense management. These efforts yielded positive results in the quarter as operating expenses decline 2.3 percent sequentially, mainly driven by lower variable compensation in. First quarter operating income was 35.5 million and earnings before taxes were 37.5 million, down from 46.3 million and 46.5 million, respectively, in the prior year due to lower gross profit in the technology business and a year-over-year increase in operating expenses. During the quarter, we had other income of 2.1 million, primarily driven by an increase in interest income of 2.6 million. The effective tax rate remained unchanged from last year's first quarter at 27.2%.

Elaine: <unk> on driving efficiencies across the business through disciplined expense management. These efforts yielded positive results in the quarter as operating expenses declined two 3% sequentially, mainly driven by lower variable compensation and G&A.

Elaine: First quarter operating income was $35 5 million and earnings before taxes were $37 5 million down from $46 3 million and $46 5 million respectively. In the prior year due to lower gross profit in the technology business and a year over year increase in operating expenses.

Elaine: During the quarter, we had other income of $2 1 million, primarily driven by an increase in interest income of $2 6 million. The effective tax rate remained unchanged from last year's first quarter at 27, 2%.

Elaine Marion: Moving to the bottom line, consolidated net earnings amounted to 27.3 million or $1.2 per diluted share in the first quarter, down from $33.8 million or $1.27 per diluted share reported in the year-ago period. Non-GAAP diluted earnings per share were $1.13 versus $1.41 in the prior year. Our diluted share count at the end of the quarter was 26.8 million, modestly above the 26.6 million a year ago. On a sequential basis, both consolidated net earnings and diluted earnings per share increased 24.4%. Consolidated adjusted EBITDA totaled 43.1 million compared to 53.9 million in the first quarter of fiscal 2024.

Elaine: Moving to the bottom line consolidated net earnings amounted to $27 3 million or a $1 two per diluted share the first quarter down from $33 8 million or $1 27 per diluted share reported in the year ago period.

Elaine: non-GAAP diluted earnings per share were $1 13 versus $1 41 in the prior year, our diluted share count at the end of the quarter was $26 8 million modestly above the $26 6 million a year ago.

Elaine: On a sequential basis, both consolidated net earnings and diluted earnings per share increased 24, 4% consolidated adjusted EBITDA totaled $43 1 million compared to $53 9 million in the first quarter of fiscal 2024.

Elaine Marion: Shifting to our balance sheet, we ended the quarter with cash and cash equivalence of 350 million, up from 253 million at March 31st, 2024. The increase was primarily due to improvements in working capital. The significant growth in our cash position was aided by a 36% sequential decline in inventories as supply chains have continued to normalize. We ended the quarter with 89.1 million in inventory, which is a 3-year low. Further inventory turn continued to improve, totaling 14 days, down from 23 days in the prior sequential quarter and 32 days in the prior year. Our cash conversion cycle was 37 days compared to 48 days in the prior year.

Elaine: Shifting to our balance sheet, we ended the quarter with cash and cash equivalents of $350 million up from $253 million at March 31, 2024.

Elaine: The increase was primarily due to improvements in working capital.

Elaine: The significant growth in our cash position was aided by a 36% sequential decline in inventories as supply chains have continued to normalize.

Elaine: We ended the quarter with $89 1 million in inventory, which is a three year low further inventory turns continue to improve totaling 14 days down from 23 days in the prior sequential quarter and 32 days in the prior year or.

Elaine: Our cash conversion cycle was 37 days compared to 48 days in the prior year.

Elaine Marion: During the quarter, we repurchased 162,319 shares costing 11.9 million. 109,869 shares were from our share repurchased program announced in May 2024.

Elaine: During the quarter, we repurchased 160 to 319 shares costing $11 9 million or 109869 shares were from our share repurchase program announced in May 2024.

Elaine Marion: Overall, we remained focused on investing in organic growth, seeking out a creative acquisition to expand our geographic footprint and service offerings, and returning value to the shareholders through share repurchases.

Elaine: Overall, we remain focused on investing in organic growth seeking out accretive acquisitions to expand our geographic footprint and service offerings and returning value to the shareholders through share repurchases with that I will turn the call back over to Mark Mark.

Mark Marron: With that, I will turn the call back over to Mark. Thank you, Elaine. With our diverse portfolio and focus on providing the strategic IT solutions in demand by our customers, we are well positioned in the marketplace. For the year, we expect positive comparisons for sales and earnings and are reiterating our full year financial outlook. Specifically, we are maintaining our fiscal 2025 guidance for net sales growth over the prior fiscal year of between 3% and 6% and adjusted EBITR range of 200 million to 215 million.

Mark Marron: Thank you Elaine with our diverse portfolio and focus on providing the strategic solutions in demand by our customers, we are well positioned in the marketplace.

Mark Marron: For the year, we expect positive comparisons for sales and earnings and are reiterating our full year financial outlook, specifically, we are maintaining our fiscal 2025 guidance for net sales growth over the prior fiscal year of between 3% and 6% and adjusted EBITDA range of $200 million to $215 million.

Mark Marron: While we continue to review and prioritize our capital needs, we remain committed to making the required investments in our company to position us for long-term success. In addition to providing value to our shareholders through share repurchased programs, our strong balance sheet allows us to continue to invest in our business while maintaining flexibility to take advantage of attractive and accretive opportunities. Please.

Elaine: While we continue to review and prioritize our capital needs, we remain committed to making the required investments in our company to position us for long term success. In addition to providing value to our shareholders through share repurchase programs. Our strong balance sheet allows us to continue to invest in our business while maintain.

Elaine: <unk> flexibility to take advantage of attractive and accretive opportunities.

Operator: Operator, let's open the line for questions.

Speaker Change: Operator, let's open the line for questions.

Maggie Nolan: At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Maggie Nolan with William Blair. Please go ahead.

Speaker Change: At this time, if you'd like to ask a question simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Maggie Nolan with William Blair. Please go ahead.

Maggie Nolan: Hi, Thank you.

Maggie Nolan: So I wanted to ask about the upcoming fiscal second quarter. Obviously, you have another tough year over year compare.

Mark Marron: In the fiscal second quarter, but what can you share with us about, you know, how it's progressed so far, how you're thinking about it on a sequential basis and your confidence in that building in the second quarter to help you get to that full year guidance you laid out. Hey Maggie, it's Mark. Great, great question. So right now, Q2 is in line with expectations. Let me frame it a little bit to based on Q1 because Q2 is similar to Q1 in terms of being a tough compare. So in Q1, net sales, as you know, was up 25%. Our product sales were up almost 30%.

Speaker Change: In the fiscal second quarter, but what can you share with us about how it's progressing so far.

Speaker Change: Thinking about it on a sequential basis.

Speaker Change: And your confidence in that building in the second quarter to help you get to that full year guidance you laid out.

Mark Marron: Hey, Maggie it's Mark Great. Great question. So right now Q2 is in line with expectations, let me frame it a little bit too.

Mark Marron: Based on Q1, because Q2 similar to Q1 in terms of being a tough compare.

Speaker Change: In Q1 net sales as you know was up 25% our product sales were up almost 30%.

Mark Marron: Our networking product sales were up over 70%. That's for Q1. Now Q2, we have a similar compare where our net sales were up about 19%. But preliminary, you know, through the first month and a half of the quarter pipeline, back line, it's in line with expectations. We still believe in our guidance strongly that we're willing line, but the first half were challenged, but based on the IT environment and the tough compare that we have through the first half. Okay, thanks, Mark.

Speaker Change: Our networking product sales were up over 70%. That's for Q1 Q2, we have a similar compare where our net sales were up about 19% but.

Speaker Change: But preliminary through the first month and a half of the quarter pipeline back line. It's in line with expectations. We still believe in our guidance strongly that were well in line, but the first half were challenged but based on the environment and the tough compare that we have through the first half.

Unnamed: Okay, thanks, Mark. And then you mentioned expecting to benefit from operating leverage over time. Maybe to you or Elaine, how do you expect that to manifest over the next

Mark Marron: And then you mentioned expecting to benefit from operating leverage over time. Maybe to you or Elaine, how do you expect that to manifest over the next year or so? Well, a couple different things. We already saw some of that, Maggie. If you look at our quarters sequentially from Q4 to Q1, our operating income actually jumped 20%. Now, what's happening in the op-ex base is some of the stuff that we've talked about over previous quarters. We're now in the process. We think we'll start to get more operating leverage. We're more opportunistic and measured hires, if you will.

Mark Marron: A lot of those take time, you know. New hires take time to ramp up. Our investments in AI and services is more expense than revenue at this piece. And when I say that, more the AI side, not so much the services side. The thing that we're excited that we think we'll start to get additional op-ex is last year or last fiscal year, as you know, we added 300 customers. So, as we've added new sales reps and service personnel, and we're building out our solution offerings going back into those new customers, we would expect that to drive our revenues up.

Mark Marron: We would expect our op-ex to stay in line, and therefore we'd get the operating leverage.

Speaker Change: It was up we would expect our opex to stay in line and therefore, we'd get the operating leverage.

Mark Marron: Okay, thanks, Mark.

Mark Marron: Okay. Thanks, Mark and one quick housekeeping, if you have it the organic growth in the quarter and embedded in the full year guide.

Maggie Nolan: And one quick housekeeping, if you have it, the organic growth in the quarter and embedded in the full year guide.

Elaine Marion: I don't have it. Do you know what the top of the material amount of the change in year-over-year was from the organic business?

Speaker Change: I don't have it.

Speaker Change: At the top of the material amount of the.

Speaker Change: The change in year over year was.

Speaker Change: From the organic business.

Elaine Marion: Did you say material or immaterial, Elaine? I didn't quite hear you. The majority of the change from quarter to quarter was from the organic business. Okay, thank you all.

Speaker Change: Okay cover it Maggie sorry did you say.

Speaker Change: Material or immaterial Elena I didn't quite hear you.

Maggie Nolan: The majority of the change from quarter over quarter was from the organic business.

Speaker Change: Thank you all.

Maggie Nolan: Take care, Maggie.

Maggie Nolan: Take care of Maggie.

Greg Burns: Our next question will come from the line of Greg Burns with Sedotti and Company. Please go ahead. Thanks in regards to the customer product backlog that you mentioned, maybe. The impact things themselves this quarter, where do you think the channel is the customer basis in terms of digesting that backlog.

Speaker Change: Our next question will come from the line of Greg Burns with Sidoti <unk> Company. Please go ahead.

Speaker Change: Thanks, and regards to the.

Speaker Change: The customer product backlog that you mentioned maybe.

Greg Burns: Impacting some cells this quarter, where where do you think the channel is or the the the customer base is in terms of digesting that.

Mark Marron: Do you feel like it's been worked through, and you get back to a more normal cadence of order flow going forward? Yeah, I think it's already normalized. Greg, when we look at our gross buildings, by the way, in this quarter, even though our net sales were down 5.2%, our gross buildings were down just 1%. So essentially flat on a, as we've talked about, I don't want to overkill it on a tough compare last year for this quarter. So we do think that our gross buildings have started to normalize. The supply chain is stabilized. So I think we're more in a more normal run rate, where we'll start to see the seasonality that we normally do in Q2 and Q3.

Speaker Change: Backlog do you feel like it's been worked through and you get back to a more normal.

Speaker Change: Our cadence of order flow going forward, yes.

Speaker Change: I think it's already normalized Greg when we look at our gross billings by the way in this quarter.

Mark Marron: And then we'll see where it goes from there. Okay.

Mark Marron: And then, is there anything you could share in terms of your AI business, whether it be growth pipeline opportunity, anything quantitative or qualitatively you could add to give us a little bit better understanding of the opportunity there for you. Yeah, sure.

Mark Marron: Hey, Greg, the other thing. I'm just if I can go back to it. I'm not sure if you were talking about some of the consumption of the technology that we talked about with customers in previous. So I think a lot of that has happened. And we really see it. If you look at our services numbers, we were up 15.8% in our services overall, which means that that technology is being consumed and we're implementing it with our PS, our professional services and advisory services. So I'm not sure if the first part, when I answered, if it answered your question, but that should do it as it relates to AI.

Mark Marron: So here's the thing with AI. It's really interesting. There's not a customer we have that won't give us a meeting or listen to us as it relates to our AI, AI Ignite program. So everybody's looking at the same thing; all customers. They have data silos on prem in the cloud. So they got all this desperate data silos. They've got data security and privacy concerns. There's no AI governance, at least in a lot of customers that are more in the, let's say, formative or curious stage, if you will. Their infrastructure is not ready, especially in the power and cooling space.

Mark Marron: There's a skills skills gap. And then there's an identification, you know, of use cases. That's probably the biggest thing that we're seeing with our customers.

Mark Marron: Now, we've rolled out a bunch of envisioning sessions, data strategy sessions, workshops, Microsoft 365, Co-Pilot readiness. And we're starting to see some real interest and pipeline build in that space. And that's why when I had mentioned earlier to Maggie, you know, we've made the investment in the programs and the tools and the training for our team and, you know, headcount and what have you. So it's more expense than revenue, but that is really starting to build.

Speaker Change: Without a bunch of envisioning sessions data strategy sessions workshops, Microsoft 365, co pilot readiness and we are starting to see some real interest in pipeline build in that space and that's why when I had mentioned earlier to Maggie we've made the investment in the programs and the tools and the training for our team.

Speaker Change: Head count and what have you it's more expense than revenue, but that is really starting to build now here's the other reason we're excited about AI. If you think about AI. It goes across everything that <unk> does over the years from compute networking storage all of the things that go into that is things that we've done for years, so as well.

Mark Marron: Now, here's the other reason we're excited about AI. If you think about AI, it goes across everything that E plus does over the years from compute, networking, storage. All the things that go into that is things that we've done for years. So and as well as security as well, which is probably one of the bigger pieces that people are trying to figure. So it's early innings. We're getting a lot of interest in meetings with customers. We've done some nice services work with our customers. We were the pipeline is building. And then we'll see as we move through the quarters, how that really turns in the revenue.

Speaker Change: As security as well, which is probably one of the bigger pieces that people are trying to figure. So it's early innings, we're getting a lot of interest in meetings with customers. We've done some nice services work with our customers. We were the pipeline is building and then we'll see as we move through the quarters, how that really turns into revenue.

Mark Marron: you. Okay, great.

Speaker Change: Okay, Great and then lastly, just any any.

Mark Marron: And then lastly, just any, any negatives or benefits from the, the CrowdStrike issue? No, no negatives, no negatives. To be honest, Greg, we did have a benefit. We had one customer that had some real problems with CrowdStrike that we got involved with early, and they were able to open up pretty much on time. And after that, they extended their service agreement with us for three years. So we did see some benefit, but I don't want to overplay it. It was not too much in terms of, I'd say revenue benefit more. I'd say customer sat with how we helped our customers, then I could point to revenue.

Speaker Change: Negatives or benefits from the crowd strike.

Speaker Change: Issue.

Greg Burns: That's the only deal I've at least been notified that came out of some of the work that we did around CrowdStrike for our customers. Great. Thank you. All right. Thanks, Greg.

Matt Shearing: Again, for any questions, press star one, and your next question will come from the line of Matt Shearing with Steeple. Please go ahead.

Matt Shearing: Yes, hey, good afternoon, everyone. I want to go back to Maggie's question to zip out the outlook for Q2. You said in line with expectations in seasonal, but I'm not sure exactly what that meant because you talked about the backlog being down is seasonal sort of flat issue. Quentially, because obviously the last three years, there has been a lot of seasonality in your business with backlogs. And so are we to assume that this is going to be a down year of a year again in that growth that you're guiding to 3 to 6% is all going to come in the back half?

Mark Marron: Yeah, I'd say Matt, that's a fair statement. I think it'll be in the back half. Once again, just to remind you, right? If you look at it, first quarter, we were up 25%; second quarter, we were 19%. So those are some pretty tough compares, but we do feel positive about our strategy and our growth plans. I'd say it'd be more second half, you know, back ended, if you will. Q2 is still a positive quarter, just if we were flat based on what we did last year. But that's probably a safe way to say it. A positive quarter, meaning I'm not sure what that meant.

Speaker Change: A positive quarter, meaning I'm not sure what that meant.

Mark Marron: I'm in line with last year. Oh, okay. So fly your year. Got it. Okay. So that means you're going to be flat, but that, okay, got it, understood. Okay.

Speaker Change: In line with last year.

Speaker Change: Oh, Okay, so flat year over year got it okay.

Speaker Change: So that means youre going to be fact, but.

Speaker Change: Okay, Okay got it.

Speaker Change: Understood. Okay, and then in terms of cost you talked about.

Mark Marron: And then, in terms of cost, you talked about adding resources, some professional resources, etc. But then you said that you think that you're going to get leverage on OPEX as a volume for turn. So what's the right? Is this the right number to use around the low 90s in terms of OPEX over the next few quarters, or is it different? I would say yes, Matt. That's probably a fair assumption in terms of from a run rate, but realize you've got some variables in that based on, you know, GP and commission and things like that. But if I were looking at, I'll call it the, the S and S DNA salaries, I think that would stay within line with where it is.

Speaker Change: Adding resources professional resources et cetera, but then you said that you think that youre going to get leverage on Opex.

Speaker Change: As volumes return so what's the right.

Speaker Change: Is the right number to use around the low ninety's in terms of Opex over the next few quarters or or is it different I would say, yes, Matt that's probably a fair assumption in terms of from a run rate, but realize you've got some variables in that based on GP and commission and things like that but if I were looking at I'll call. It the <unk> S.

Speaker Change: G&A salaries, I think that would stay within line with where it is.

Mark Marron: I think what, you know, I'm also alluding to is Q4 to Q1 are operating income jump 20%. Now, that's just a quarter, so it's not a trend yet. But there are some things that we've done both from an expense standpoint and also from a training standpoint that we'd expect to get some improvements from our account executives and service reps, as well as some expense savings that we've made. So I'd expect operating leverage throughout the year. It's not going to jump, as you know, from quarter to quarter, but we'll grow throughout the year and into the following.

Speaker Change: I think what I'm also alluding to is Q4 to Q1, our operating income jumped 20% now thats just a quarter. So it's not a trend yet but there are some things that we've done both from an expense standpoint, and also from a training standpoint that we'd expect to get some.

Mark Marron: here.

Matt Shearing: Okay, thank you. No problem. Anything else matter? I know. That's it. Thanks. Okay. All right.

Mark Marron: And that will conclude our question-answer session.

Mark Marron: I'll now turn the call back over to Mark Marron for any closing remarks. Okay. Thank you. Hey, I just want to thank everybody for joining us for our first quarter earning school and wish you a happy and safe day and a long holiday for the Labor Day weekend, even though I'm jumping the gun a little bit there. Take care and have a good day.

Operator: That will conclude today's call. Thank you all for joining, and you may now disconnect. Please wait.

Operator: The conference will begin shortly.