- Earnings call transcript Q2 2023

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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, SVP. begin. may you Sir,

Kley Parkhurst

joining for us you today. Thank

call Marion, CFO; the is Counsel. Mark Elaine President; and CEO and Marron, On Erica General Stoecker,

I on afternoon issued anticipated vary in Commission, Form detailed March and the moment XX-K uncertainties statements a this and September to Actual we be the Exchange afternoon facts want and XX-Q and periodic release and you and for risks ended deemed plans, quarter to the including XX, with filings are our materially certain estimates the statements XX, XXXX, that projections. based ended may to be our when earnings may we XXXX, current Form are due for future that the remind Securities year this results forward-looking our filed. to not management's historical make take and

any no light undertakes to of responsibility information company or new in The these events. future update forward-looking statements of

measures, to the during release, call, addition, at financial Investor our posted in financial which In included Information make is earnings our on we reference a www.eplus.com. of website reconciliation the GAAP non-GAAP and section may we've

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

Mark Marron

everyone, of our billings Thank our quarter X% gross net thank in XX%. and quarter with you, to second performance, adjusted results ePlus discuss quarter than sales and growth participating nearly first consolidated you, fiscal call XXXX. results Kley, today's second the on growth for for of more Building generated solid

with has from mid- focus markets We demand for to our solutions, market our computing, and We customers. share. security to networking capture cloud us and believe sizes, increased particular strategy our on services in by data saw customer strength growth plans continue continued enterprise-size our most allowed solutions driven to vertical center, primarily and

of while our to execute proud continues chain despite our team, top constraints. growth customers' meeting a line high persistent delivering supply level, which strong I'm needs at also

of drive profitability area technologies as customers and an increase growth our range remains important business continued services adopt and investment a revenue. driver an productivity, Our of enhance broad focus to

our our which encompass grew primarily remote to cloud due Services X.X%, and managed offerings. services, on-premise,

produces annuity variability in stream. quarter-to-quarter Our our quality consistent revenue service managed business revenue reducing

For solutions the supplement scarce sought-after reduced can operating platforms, areas personnel, especially their optimize holistic IT IT that our provide services clients, IT costs. most managed in and

We continue to advisory demand our security our and services. see for an services uptick annuity in cloud and

Some support adjacent by support centralize the our to technical space Lifecycle technologies. our and Support. the and call, in new offerings for include providing Cisco ePlus experience Services was eLSS streamline architecture multi-vendor first of multiproduct, developed

focus customers' In assessments ePlus and Azure designed addition, risk efficiencies Azure are areas to current our in and cost our configuration on in deployments. high-profile of security

a gross pleased our security On I'm outpace as billings in with The risk. our growth customers XX% XX-month top overall of basis, now billings. the particularly is our to investments security our against cybersecurity trailing escalating growth adjusted to and protect continues market line business. security gross prioritize adjusted

protection compliance-only against In trend fact, comprehensive further shift more the of higher seeing strategies based enterprise that traditional approaches a threats. cybersecurity a from we longer are a as contracts. market security level relationships provide customer to This services and time drive period provide strengthen managed also we multiyear ePlus growth broader can our innovative at and of solutions over can via security can range

$XX.X were segment in million $XX.X period. year the slightly financing up to our sales Net to prior in million compared

today's option. inherent tough an flexibility economic payment financing business, Despite believe in variable to the where segment declined particularly operating the lumpiness remains we business this environment QX which income year-over-year expected, from due our differentiator, this reflect attractive offers financing of competitive business an As nature quarter-to-quarter. important comparisons, in

increases on in IT called that in last earnings in quarter our customer-facing out and in internal and foreign us personnel segment comparison translation and investments capabilities our reflecting Second $X.XX, we reserves investments scale, currency financing our GAAP year-over-year X.X% to call. decreased a earnings to per losses share challenging help

of Excluding essentially was the non-GAAP effects flat. of foreign currency share earnings and acquisition translation $X.XX losses expenses, per

we our year-over-year, customer-facing needs, processes, of and in the for services Com growing focused people, solution the remain opportunities, tools our be our necessary customers' providing their revenue during capabilities capabilities particularly practices, deliver backlog. the members and business to the in to our We only meet of also committed These includes hires addition our sales, to have added quarter. cloud areas. well. but importantly, customer-facing on future second Future the The new Most to team foundational XXX investing current roles, in security choice have and of majority build partner the not employees as to strengthened been our increased highlighting hires our which

costs services added our to in order plus significantly current for and mix, have services particularly workforce, professional our services We fulfill talent anticipated specialized in margins. third-party and to new future affected demand. overall hires, annuity These increased and

We are reflect and expenses aligning XX% to professional part, supply year-over-year. delays, project costs. in and chain pricing and services services continuing monitor our to our is backlog to Due, over manage market up

outlook. economic Now over spending uncertainty our Despite IT the for past is solid most turning outlook across the market increasing several to months, segments.

our business support. the recession we technology our proof, and of recession not is mission-critical strength resilient, nature by is financial ePlus the and sell While supported

experience our across to risk underscoring to segments, and digital enabling markets needs continued managing end critical size have customers' broad-based cybersecurity customer to transformation. We ability from our demand address

our of of are the of demand level over which as second trends up open are the confidence outlook positive high XX% These last fiscal orders in year. our backlog, half well our that year as for support in reflected our all

is lines. availability balanced the limited in has project chain we against to challenges implementation to see supply view where the customer product favorable continue Our extended led time

last developing necessary project procured. which equipment as constraints a more towards fully reflect Our XXX% as be inventory deployed until the all levels, up that larger, supply year, complex are these are from well over trend chain customer cannot

dedication to commend would closing, ePlus for to In of providing highest the our level their service every team day. I like customers entire to the

We while opportunity strategy, maximizing our markets our adjusted in and and on long-term our through generating our in focused successfully are continued solid employees investment our in capabilities. growth executing growth sales billings

will over provide our Elaine? I Elaine turn quarter second to to financial CFO, on results. Marion, details now the call our

Elaine Marion

everyone. quarter. year-over-year, and XXXX I review Mark, second Net good performance you, sales the in fiscal second $XXX.X Thank financial year-to-date. our afternoon, and X.X% million of will in were the up quarter totaling

our mentioned, the we end right the expansion majority demonstrating As and focusing areas. Mark we markets on an are of that segments, customer saw across growth

X.X% compared and We $XX.X X.X% to year-over-year adjusted to product billings gross with were reported X.X% the million million, ago specific, sales the To growth million $XXX.X of increased more and the $XXX.X pleased $XXX.X be to respectively. $XXX.X million. Net quarter. to technology in in revenues segment amounting year increased million service in XX.X%, and

of adjusted XX.X% The second to compared in gross quarter basis to points XX.X% billings net adjustment XXXX. increased to the sales fiscal XXX

As sales, we XX% we our see with trends net end in entertainment sales segment, similar segment telecom, market technology and prior into media trailing largest to our and quarter XX-month XX% look deeper the and respectively. basis, markets, representing of our on a technology,

and the remaining XX%, SLED services with XX% representing types. X%, respectively, Health customer XX% other for care, and accounted financial

totaled note used months in lengthened rather our past XX cycles to now delays. customers our customers that XXXX, have the communications months as discrete X,XXX. purchased customer over supply count calculate than prior want customer XX approximately previous we XX, who September of I chain due As buying just to the and

offsetting in segment portfolio of proceeds million earnings sales to financing second a million from compared result lower $XX.X Our higher quarter equipment leased was revenue $XX.X transactional last as and gains. year's of

to million XX%. Technology As gross margin our was million quarter consolidated we we to the compared in year. reported million. segment $XXX.X up to reported points XX.X% the increased profit basis in last second growth move Gross $XXX.X to gross to X.X% XX $XXX profit, Consolidated

margins. more subscriptions net Technology segment as we lower increased maintenance, higher third-party points margin expanded sales Product and are proportion higher from offset basis a as margins XXX services, product to which to recorded points gross of XX.X% XX margin basis. on XX.X% benefited a of than gross service basis

of services contracts XXXX, were XX.X% priced, margins an in Mark services increase well While costs several our as managed higher margin from this our project-related to second which to and primarily XX.X% as that service mentioned, costs. was quarter third-party competitively related as to fiscal down our was blended professional due large service the compared

the profit in of in million Gross financing XXXX. the $XX.X second segment totaled reported quarter million compared $XX to fiscal

a had As quarter replicate. several did last reminder, year's large gains not transaction which

year's Early lease underlying quarter partially the lower leases. customer-driven several this events are earnings offset forward that buyouts which the buyouts, future transaction year. However, pull compared contained gains the from last early to lease

quarter, During saw the benefits. in salaries and increases we

Future contains which from Com, end as includes prior XXX the personnel an investments in increase the roles year. XX our demand headcount XXXX in to acquisition and July quarter-over-quarter and of are support September increase in in experienced to of X,XXX Our sales-related employees increase we technical The for XX XXXX, the X,XXX services. at compared the professional services personnel evident

about think these some keep upfront mind, there in between the and investments, revenue generation. please costs lag you is the As

to gross resumption profit we In in-person variable performance the compensation had related travel meetings. our and higher customer addition, saw of in increases tied and expenses to

our an an exposure reported increase facility reserves our higher receivables. our and in in across borrowing a change to expense related interest also in to on We increase due credit

methodology reserve not Our did change. calculation

consolidated million. year-over-year operating factors these XX.X% increase of All $XX.X an in together drove expense to of

quarter investments was the made XXXX, in XX.X% million, we second in outside in Although compared operating of $XX.X quarter level essentially year-ago exceptionally The benefited segment. financing rate the the flat $XX.X in from income several strong transactions was to to for the XX.X% our quarter. of tax effective significant million reported compared personnel, which

subsidiaries the foreign is $XX.X XXXX. $X.XX earnings of last $X.X translation $X.XX million, million quarter. Last December quarter share loans totaled share, second $X.XX stock EPS were were the currency diluted net to the our Kingdom reflect from Non-GAAP year's quarter. consolidated $XX.X dollar-denominated in in share XXXX earnings or U.S. the split $X.XX in diluted year-ago year's the adjusted per compared in that compared losses per to in million or United to fiscal Including second per with diluted

of at end in XX.X in the to $XX.X the ahead Adjusted quarter XXXX. of $XX.X the in slightly million, of compared fiscal quarter comparable count fiscal million was the quarter share EBITDA XX.X XXXX. diluted million second million Our was

increased $X.XX net X.X% Consolidated gross Just to compared financial driven a $XXX.X gross to Consolidated briefly year $XXX.X Adjusted first XX.X%, billings year-to-date, gross to performance million. to up growth to million, fiscal X% the the in by increased XX.X% million. Technology margin was of XXXX segment net of billion. sales $XXX.X ago. X our were profit reaching XX% for XX.X% months sales recap

stock the year-over-year points increased per December our Net X.X% to diluted compared per adjusted diluted $X.XX $X.XX or However, to split share. million share was earnings to Adjusted diluted and flat in XX.X%. gross $XX.X or effected margin segment share, $XX.X diluted EBITDA up XX respectively, totaled Technology for per per $X.XX share, million basis earnings was non-GAAP million, $XX.X at XXXX.

enables Our million us our from the of Fargo healthy long-term support we million. cash credit to execute credit growth announced will balance $XXX facilitate expanded banks. at our Bank, On agented The Wells effectively. our $XX.X participant expansion are strategy, sheet $XXX and XXXX. September XX, facility of support Wells were by line Cash the strategy million for Fargo and and the we Tuesday, equivalents and to help grateful

the quarter continue to to inventory September challenges orders $XXX.X to services end increasing of ongoing XX.X% compared and chain completed and corresponding at in which delays million resulted to have fiscal the XXXX. We supply end experience deliver

ago reminder, variation cycle days related compared increase primarily also to As in XX our in explains our orders a This XX by customers. quarter. inventory conversion the committed to year days to cash the our is

conversion the to technologies ease. we However, strategic well cash improve uncertainty, for that ePlus we constraints near-term the on cycle focus positions supply the our Despite believe expect chain economic our as right future.

now turn to the Mark? Mark. will back I call that, With

Mark Marron

our Elaine. critical ePlus half to open customers heightened ever. second light more a solid despite threats, of security levels To and both strong are you, positioned solid cyber In segments. to Thank have quarter orders, are proving we uncertainty. escalating economic business solutions recap, evolving a flexible of well recorded backlog With in inventory, and than

Supply areas variously affecting chain to a and constraints services. both operating revenue solution margins product expenses continue and in of our be for challenge, many

needs. continue and We monitor IT our to to critical customers' fill adjust

workforce. future balance positioned talented vendor In Operator, strong our while and defending closing, dedicated recessionary we the like over capture well turn risks, and to would are relationships call now given sheet, to customer our excellent against for questions. I and growth

Operator

question [Operator line Instructions] of Sheerin Stifel. from Your first comes with Matt the

Matt Sheerin

Yes. Hello, everyone.

in profit just segment. of gross Just a first question the the strength on Technology

sales product of right? hardware you Is of and out called business. think I seasonality sales because the the higher third-party that warranty that

Mark Marron

Matt. Yes,

about net XXX I think, gross just up basis points. was, Our to

the net there's affected on a a of gross in the gross One, couple things. margins way. So our margins, positive to

up, on too, sold. -- Our more product we actually that the based so technology margins were some mission-critical of

we bit some little was of Where really a services hit with our to do of margins, had that deliveries on chain. took with the a supply and product

really on it's tech highlight, thing. timing a you was the gross a And thing we're on GM points. the the if up industry, So just XX% I'd it, then basis at we where at just consolidated And highest XX some of the other wound up in look I believe basis margins.

Matt Sheerin

so. quarter, up or of is is that I was seasonal? getting no, how year, how the you're much last September understand. is What I mean, basis at XXX And No, Yes. points I sustainable that? in

I seasonally of Or change a of third-party these the the the December should there seasonal in that seems a decline like other quarter. be we because products quarter In is warranties? some modeling So like words, mean, stronger levels? of the

Mark Marron

Now I Matt. got you,

So sorry about that.

it's yes, more So seasonal.

do to software fiscal Cisco's that a where lot perspective. year-end So goes a where of we to of in this maintenance lot gross quarter is from third-party get uptick net a this and the to due there's has

So higher quarters other ePlus. within this quarter than is traditionally the a X

Matt Sheerin

making And side. various on resources, investments side, like the expense in sounds particularly some it Okay. you're the on technical prudent

that? about should of forward How how terms think we should OpEx in So increasing? think we going that about

Mark Marron

Yes, that's fair.

help you you in it maybe try a little So a bit. fence then let I'll detail, give to and Matt, me little

from on the services, OpEx couple security in seeing, is specifically, of in headcount big based there's space. cloud, headcount. market The and investment What services, the So standpoint, a things. that share of in a that we're annuity we're grabbing different some specifically adding we're

hired we've to the we that junior X a over space the then X customer-facing. have that trained example, in weeks going to associates we're of For bunch last security be

those mentioned, but up bit takes to making of of the kind We It investments. this productive. OpEx see the for I'd we're only kind not So quarter. folks a little time, others security get

we The our up. saw annuity other bookings thing was were

deals hire bookings. terms XX% SLAs it service those to I in services. think our of few desk that had large meet to was talent actually with We a year-over-year addition the we annuity had

are those the of So up OpEx. some things built that our

will -- to a over terms this catch we I as the say think hires that forward. needed. standpoint, model a were do I going If going We're investment the an From diligently to revenue is and level, add probably would at high manage of OpEx expense the decent going up very we're time. modeling to in from an business

Matt Sheerin

here? stable So from

Mark Marron

That's fair.

Matt Sheerin

Yes.

the the like and constraints, quarter. had And looks Okay. build it on in you just lastly, product the some upside inventory

upside limit things it the digits where build in in high or years, going encouraged going mid- So is benefited like previous terms from you supply on. are looks some inventory up been you quarter, all perhaps sequentially? of to that may in improving to And But the single that's at perhaps you've opening all? have been up at December

Mark Marron

Yes.

things is still Matt, couple of this a as very there. fluid, you know. So One,

of So getting in the we're hearing from things OEMs will timing of out. be different things when terms

So it's still fluid. very

So an on easy one. not this it's answer

What tell our to were year, for open I up XX% would at, over you one. last orders look

touched Elaine Second, it. I think on

inventory Our up XXX%. was

up March it's think XX% alone. I since

market grabbing is share. seeing we're we are what So

it's the run, adjusted to But Our of in positive some are things and out simple, we is control these answer grow, timing going long gross to don't not a of some this but door. well billings the to the get easy in out. it's half, as both when as quarter continue the get a since then

Operator

line Blair. of from the comes William question Nolan with Maggie next Your

Jesse Wilson

on with to is I for Maggie. Jesse This start revisiting product off margins. wanted

those about Are So mentioned? can your able you forward? puts products you there? are talk going to some the or expectations achieve of takes and you And pricing higher what mission-critical

Mark Marron

Yes. That's -- Jesse, thanks.

the to gross that things X talked which I about, affect was net. So it. One,

plays and/or SaaS software basis how the term. depending on third-party a are more on recognized the and having So technology that ratable net

the seen based the a we of yes, uptick On product the sell. margins on side, on we've an technology product bit little

I PC bigger will as space of do value don't device that some as others. sell our much services, you remind kind play it, you, customers, We sell the but for about space of of we selling the We mission-critical technology. a think if more in not some focus. it's in big

gross So traditionally, other the product margins that on bit see and higher some security get selling our be a little storage, of we'd a higher based margin. technologies

Jesse Wilson

change quick to And Are expect quickly? these a to supply as then And follow-up you eases? you pricing achieve seek more that as to would that. able solutions customers better

Mark Marron

Jesse. don't I quickly, know if Well, more it'd be

I lines -- in And you. a in we're go we what consultative and along if take a posture to a place, here, services-led, in things or have think customers our do means risk results-driven. leading have what that from customer-first, helping I'll put of We've step those with understand services ransomware it's mitigation and kind the made of security as more to our advisory along what hopes you the they we're is for security mantra back our that lines. and

normally, show increased be value, potentially, the services upfront work and a value to if from you product do you're you margin from seeing, should that and based perspective. you both get So on able that a the

chain for timing driver cost, us tight that thing. be much. think buying I and but worried have not don't There about I they're customers that they're are don't gross margin and frame supply know the that very a on the a us if time worried it's may some from about that's

Jesse Wilson

That's -- one last I And the then had question. helpful. Okay. last

even Future impact when quarter, seem you additions, from headcount strong net the Com. exclude in So they the

of for the thinking cadence year the the are throughout and So how implications the rest about you business?

Mark Marron

Jesse. question, Good Yes.

Future XXX to XX heads, XX was roughly of So Com. approximately the

those most security the cloud services space. we to both the customer-facing of desk, practices. that, had when head plays I I the in about that talked And I'd and delivery and certain meet were for SLAs presales XXX, our other also customers, majority that say and service say and for to The in annuity count

So to we'll that. continue monitor manage and

So need AGB we'll will. business the sales headcount adjust the we see if upwards, manage the we net add tightly it, you in as as and

Operator

would no closing [Operator call Instructions] over time, I to to are Marron this the back questions. for Mark Mr. further turn At there like remarks.

Mark Marron

you. Okay. Thank

today you happy for us thank want holiday next joining. other I for Thanksgiving QX call. say call. Take everybody for Just healthy now earnings season and there and season call our out earnings everybody and wish a for that's holiday joining to thanks -- every for our care, and between

Operator

concludes conference. This today's

may You now disconnect.

ePlus (PLUS) 3 Nov 232023 Q2 Earnings call transcript