ePlus(PLUS) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter consolidated net sales increased by 10% year-over-year to $458.4 million, driven by a 12.1% growth in the technology segment [23][7] - Adjusted gross billings rose by 10.9% to nearly$ 702 million, with a 14.4% increase over the past 12 months [8][24] - Net earnings declined by 5% year-over-year to $22.3 million, primarily due to lower results in the financing segment and higher SG&A expenses [30][18] - Consolidated gross profit increased by 7.6% to$ 113.5 million, but gross margin decreased by 50 basis points to 24.8% [27][28] Business Line Data and Key Metrics Changes - Technology segment net sales grew by 12.1% to $448.8 million, with product revenues increasing by 11.9% and services revenue rising by 13.5% [23][10] - Financing segment revenue decreased to$ 9.6 million from $16.3 million in the previous year, reflecting variability in large transactions [16][26] - Security business accounted for 22.1% of adjusted gross billings, up from 19.4% in the same period last year [9] Market Data and Key Metrics Changes - Telecom, media and entertainment, and healthcare were the largest markets, accounting for 29% and 16% of segment net sales, respectively [25] - The company reported a 59.2% increase in inventory due to supply chain issues, contributing to a cash conversion cycle increase to 46 days [32][33] Company Strategy and Development Direction - The company is focused on expanding its capabilities in the enterprise security market through the acquisition of Future Com, enhancing its security solutions [18][19] - Continued investment in personnel, particularly in customer-facing roles, is aimed at strengthening competitive positioning and long-term growth opportunities [15][14] - The company is adapting to IT challenges by offering comprehensive capabilities and solutions aligned with customer technology roadmaps [12] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive view of the IT market, citing continued customer investments in essential areas for growth and efficiency [20][35] - Despite challenges from global supply chain issues, the company is confident in its ability to navigate the environment and maintain market share gains [21][35] Other Important Information - The company’s balance sheet remains solid with cash and cash equivalents of$ 83.5 million, down from $155.4 million at the end of fiscal 2022 [32] - The effective tax rate was 28%, similar to the previous year [31] Q&A Session Summary Question: Impact of change in reserve for credit losses and updated thoughts on credit risk - The change in reserve was about$ 1 million, with no change in the customer base or credit methodology [40][42] Question: Discussion on services gross margin trends - Management indicated that current lower margins are influenced by supply chain trends and increased compensation, but expects margins to trend back up [43][44] Question: Enhancements from Future Com acquisition - Future Com brings cloud security offerings and network monitoring capabilities, enhancing the company's security portfolio and regional presence [45][50] Question: Confidence in continued headcount growth amid tech industry pullbacks - The company believes it can capture market share, with a focus on adding resources in services, particularly in security and cloud areas [51][53]