ePlus(PLUS) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales for Q3 were $509.1 million, down from$ 623.5 million in the prior year, reflecting an 18% decline [62] - Consolidated net earnings decreased to $27.3 million or$ 1.2 per diluted share, compared to $35.7 million or$ 1.34 per diluted share last year [24] - Adjusted EBITDA decreased to $46.2 million from$ 53.3 million in the prior year, primarily due to a 23.3% decline in the technology business [24][44] - Year-to-date operating cash flows were $143.5 million, compared to$ 147 million of cash used in the same period last year [25] Business Line Data and Key Metrics Changes - Technology business net sales were $494.2 million, down from$ 611.8 million in the previous year, attributed to lower product sales [62] - Service revenue grew 10.7% to $74.7 million, driven by double-digit growth in managed services [62] - Managed services gross margin improved by 330 basis points to 31.8%, while professional services gross margin grew by 420 basis points to 43.3% [49] Market Data and Key Metrics Changes - SLED, healthcare, and financial services accounted for 16%, 13%, and 10% of technology business net sales, respectively [10] - The two largest verticals in the technology business were telecom media and entertainment and technology, representing 24% and 17% of net sales [48] Company Strategy and Development Direction - The company is focusing on AI capabilities, including consulting, managed services, and training, to help customers implement complex AI architectures [60] - Acquisitions remain a key element of the growth strategy, with the recent acquisition of PEAK Resources aimed at expanding geographical presence and enhancing offerings [8] - The company is targeting higher-growth market segments like cloud, networking, collaboration, and security [66] Management's Comments on Operating Environment and Future Outlook - Management noted that while sales cycles have lengthened, the decline in sales is not viewed as a trend, and annual guidance remains unchanged [6] - The company expects Q4 results to improve sequentially from Q3, driven by positive customer sentiment and a re-acceleration of growth in the technology business [26] - Despite ongoing economic uncertainty, the company remains confident in its market position and growth strategy [52] Other Important Information - Consolidated operating expenses increased by 4.2% year-over-year, reflecting higher salary and benefits costs due to increased headcount [11] - The company ended the quarter with cash and cash equivalents of$ 142 million, the highest level in the past seven quarters [61] Q&A Session Summary Question: What influenced the quarter's performance? - Management indicated that the performance was influenced by timing of deals, with some enterprise deals pushed from Q3 into Q4, and noted an uptick in activity in January [15][81] Question: Is supply chain an issue? - Management clarified that they do not face the same supply chain issues as competitors like Cisco, and have seen open orders decrease regularly [20][77] Question: What is the impact of the recent acquisition? - The acquisition of PEAK Resources is expected to provide a platform for growth in the Mountain West region, although its immediate revenue contribution is considered immaterial [91] Question: How is the company positioned for AI growth? - Management emphasized that AI represents a promising long-term growth opportunity, with investments in AI optimized solutions and infrastructure already in place [45][96]