Good day, ladies and gentlemen. Welcome to the ePlus Earnings Results Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. Kley Parkhurst, Senior Vice President. Sir, you may begin.

Thank you for joining us today. On the call is Mark Marron, CEO and President; Elaine Marion, CFO; Darren Raiguel, COO and President of ePlus Technology; 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 Form 10-K for the year ended March 31, 2021 on our Form 10-Q for the quarter ended Jun 30, 2021 when filed. The company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events. In addition, during the call, we may make reference to certain non-GAAP financial measures and we've included a GAAP financial reconciliation in our earnings release, which is posted on the Investor Information section of our website at www.eplus.com. I'd now like to turn the call over to Mark Marron. Mark?

Thank you, Kley, and thank you, everyone, for participating in today's call to discuss our results for the first quarter of fiscal 2022. We had a great start to our fiscal year as net sales of adjusted gross billings growth underscore robust customer demand for our technology and finance solutions. More importantly, this quarter continued to show the scalability and efficiency of our operating model as strong top line growth fueled healthy operating income and net earnings growth. Our first quarter consolidated net sales increased 17.4% from the prior-year period, with operating income growing 29.8% and net earnings growing 35.5%. In addition, adjusted gross billings rose 15.9% year-over-year to $633 million. These results reflect demand for our solutions, a substantial rebound in the IT markets and our continued focus on expense management and investments that enhance our operating efficiency. Our strong first quarter financial performance benefited from balance revenue growth for product sales and services. In our technology segment, sales were up 17.3%, driven in part by strong growth in the enterprise market and additional land and expand contract wins with high volume customers. Although our technology segment gross margins decreased from last year, due to product and customer mix along with a lower gross to net adjustment, our overall results highlight the positive operating leverage in our model as segment operating income was up 43.9%. Services revenue grew 16.3% in the first quarter, with gross margins of 39%, up 140 basis points from last year's first quarter. During the first quarter, we experienced solid growth in both professional and managed services, driven in part by continued strong demand for secure and flexible hybrid work models to accommodate remote workforces. This increased growth in the remote workforce is positive for ePlus, accelerating customer cloud adoption and the provision of cloud…

Thank you, Mark, and thank you, everyone, for joining us today. We are pleased with our strong fiscal 2022 first quarter performance. Our consolidated net sales for the first quarter were $416.6 million, a 17.4% increase from the $355 million reported in last year's first quarter. In our technology segment, revenue was up 17.3% to $400.4 million compared to $341.2 million in the last year's first quarter, reflecting robust growth in both product, revenue and service revenue of 17.5% and 16.3%, respectively. We are also very pleased with the continued sequential increase in service revenue over the past five quarters, resulting from our ongoing efforts to emphasize our managed services. Our robust top line performance underscores strong demand for our diverse portfolio of solutions that are well aligned with customer needs. Adjusted gross billings increased 15.9% to $633 million from $546.4 million, benefiting mainly from organic growth which constituted approximately 80% of the growth coupled with contribution from the SMP acquisition we completed on Dec 31, 2020. The adjusted gross billings to net sales adjustment was 36.8% compared to 37.5% in the last year's first quarter. This continued to trend higher relative to 33.3% on a trailing 12-month basis. Our financing segment was up 18% to $16.3 million, mainly due to increased sales of off lease equipment of $5.1 million, up from $3.9 million last year. The results for our financing segment tend to be uneven from period-to-period. Our consolidated gross profit increased 7.1% to $105.5 million from $98.6 million, while consolidated gross margin was 25.3% compared to 27.8% last year. Technology segment gross profit increased 9.9% to $95.4 million, while the gross margin of 23.8% declined 160 basis points, mainly as a result of lower product margin due to competitive pressure from enterprise customers and our lower proportion of…

Thanks, Elaine. We are off to a great start in fiscal 2022 and I'd like to thank the entire ePlus team for their continued dedication and hard work in achieving our positive first quarter results. We continue to execute well on our growth strategy, and as a global economy continues to reopen, we see numerous opportunities to expand our participation in higher growth areas. As always, we will continue to work closely with our customers to be their partner of choice for delivering comprehensive lifecycle IT solutions. In summary, the fundamental outlook for ePlus remains strong, and I am excited about our opportunities this year and beyond. Operator, I'd now like to open the call for questions.

[Operator Instructions] Your first question comes from Maggie Nolan with William Blair. Your line is open.

Hi, thank you. I'm wondering -- hey, Elaine. Going forward to the next couple of quarters, how are you balancing your expectations, just given the increased product sales you saw, but also expected shortages and supply chain issues you noted?

Really good question, Maggie. So firstly if you look at the quarter, we feel pretty good about the quarter overall, the metrics were up across all of the key areas from top to bottom. We've also seen that our open orders were up significantly, almost 32% over last year, backlog in our services was up. So all kind of key metrics we look at are all very good. As it relates to the shortage, this past quarter, it was still in play and we saw a minimal affect. It did affect our quarter, where some things were pushed out due to lead times. I give credit to our teams, Darren, our COO and Elaine, our CFO did a great job with their teams making sure that we work closely with the customers and the vendors on getting the products out that the customers or solutions that our customers needed. There's still some uncertainty around the lead times and a lot of the experts are saying it's going out to next year. But right now, we feel pretty good about where we are in the quarter so far, the pipeline and some of the metrics overall. But there is always that uncertainty as it relates to some of the shortages that are beyond our control.

Okay. Thanks, Mark. And then on the financing offering, can you give us an update just the latest update on credit quality of your customers, how you're assessing risk particularly for those receivables that are not assigned to third-parties?

Yes, sure. This is Elaine. We are continuing in our standard process of evaluating our lessees. We've been doing it for years and have a pretty robust process in place to evaluate the credit quality of our lessees. Our exposure is actually down this quarter from the previous quarter. So it's really basically related to transactional sales that occurred within the quarter. So there's really no change, Maggie, in how we approach the credit quality process in our customer base.

Okay. Thank you.

Sure.

No problem, Maggie.

And your next question comes from Matt Sheerin with Stifel. Your line is open.

Yes, thank you. Good afternoon, everyone. My first question just is regarding that leasing -- those leasing transactions that you said is an incremental 32% to 37% [ph], how should we think about that, is that just a gross profit drop-through in that business, so you're going to get an incremental whatever a few million dollars?

Yes, that's a fair way. Hey, Matt a couple of things as we discuss. It wasn't percent, it was actually cents, so I don't know if you -- if I -- it's actually cents. Okay, so as we always kind of talk about with our finance business, it's a lumpy business. As you know, mainly a lot of that stuff is transaction gains so that's kind of net of all costs except taxes, right. What happened is we had several large deals that happened in this quarter that we thought were material and we're going to put it out. So in July, in Q2. So but, yes, from what you had asked is exactly how it's going to play out.

Okay, great. And then on the commentary about the gross margin in tech segment down, I mean you talked about -- you did talk about a little bit of pricing pressure at the customer level, if you could expand on that? And then as we look to the September quarter, I know you've got -- you tend to have better gross margin because there's more warranty third-party maintenance contracts with your largest vendor. So should we expect gross margin to improve quarter-on-quarter?

All right. So that was a lot there, Matt. So I'll try to touch on the quarter, what happened this quarter. So there are a couple of things that affected our gross margins. One, the gross to net was lower, so which lowered the margins. Our product margins were a little bit lower than normal. Nothing outside crazy normal, if you will, but a lot of it was due to some of the stuff that we talked about with our land and expand. We did some land and expand type deals that traditionally little bit lower margin and then over time we try to show value to those customers. We also saw our enterprise business grow substantially. So as a percentage of net sales, a thousand employees and above customers actually grew 28%. So traditionally those enterprise margins are a little tighter. Offsetting that, we saw our service margins actually increased by 140 basis points, so which is attributed to a lot of our annuity services revenues that we talked about that as we continue to build those annuity, we would expect both the services revenue as well as the margins to continue to grow. I think the second part of your question is the gross to net normally with July due to fiscal year-end, we expect it to be up. That's a tough one right now, Matt, to kind of give you an exact answer. I would expect it to be up some versus last year for sure. I can't give you an exact percentage a month in to it just yet until we kind of start calculating all the numbers. But I think it's safe to say that the gross to net will be higher than last year, which would have a positive effect on the gross margins. I just don't know how much, and I'm not sure it's going to be dramatically -- a dramatic uptick.

Got it. And then, just in terms of the upside that you saw last quarter. I mean the momentum you have going and what do you attribute that to, if you're just customer's finally they get back to the office, they're seeing more pent-up demand projects that have to be done. What do you account for that big uptick that you saw?

Yes. There are a few things there. One is demand for our solution, Matt. So we are seeing a lot of customers need what we're providing across a lot of different things in terms of return to the workforce, cost management, long-term kind of funding for projects that they may be put on hold, some of the remote and hybrid solutions that we're seeing customers kind of build-up. I also think there is a little bit of a rebound in the IT market. So from that end, we saw that. And then we sort of continued growth across our four key areas. So data center and cloud, networking, security and collaboration, all grew in the quarter and trailing 12 months. And security was -- I think was up 19% year-over-year for the quarter and it's 20.8% of our trailing 12 months, it's almost $500 million business. So, I guess the key thing is diverse customer base, selling the solutions that our customers need, growth in each of our solution areas would be round about the answer on that.

Okay. And just my last question, just regarding -- it sounds like your headcount has been flattish, yet you're seeing good growth, and I remember last year on the services side where you're actually -- your employees had your customer base, I know that was down. So are you adding back to your headcount and are you having any issues finding people given the labor shortages that we're hearing about?

Yes. So a couple of things there, Matt. Yes, we're going to continue to invest in headcount because we believe we can continue to expand our reach and our solutions so we will continue to look for headcount. It's a little bit tougher in the market from both a recruiting and retention standpoint. Yes, it's a fairly competitive market and people being able to work remotely is kind of put an interesting dynamic. We do have an internal recruiting team though that does a really nice job finding the resources we need both on the sales and services side; so all goodness there. On the services side, just to add to it Matt, that's pretty interesting. So one, our services were up 16.3% this quarter year-over-year, that's attributable a lot PS getting on site is still a little bit tight as we have talked about. But what's interesting now is staffing has start to pick up where our customers are looking for being the hiring market is a little tighter, they are looking for us to kind of help them get up to speed as they return to work. We're also seeing customers that need help with, what we call, our on-demand jumpstart program where if you think about a lot of customers have been working from home will now get back into the office. So a lot of their technology has been sitting idle. So we kind of go in and do identify test, remediate their technology, both with local resources at our call centers. So we're starting to see some pickups and staffing and that on-demand services. And our annuity services are total contract value in Q1. Year-over-year, it was actually up 80%. So a lot of the services business we've been -- saying we've been trying to build out is actually moving in the right direction even in these times.

Okay, that's very helpful. Thanks a lot.

All right. See you, Matt.

[Operator Instructions] Your next question comes from Greg Burns with Sidoti. Your line is open.

Just following up on that. The last question in terms of headcount and investing in more customer-facing resource. The left and really the strong last few quarters, maybe some of that is conservatism. And then, obviously demand is picking up here. So how should we think about operating leverage, operating margin targets moving forward?

Okay. So, Greg you were breaking up a little bit there, but -- what I think you asked is, what should we expect with operating leverage as we go forward. So what I think we've done a nice job of overall -- some of the operating leverage we've got is due to the pandemic, obviously, we travel on entertainment and things along those lines that are down. I think we've done a really nice job of keeping all ePlus employees realigning towards the areas that we believe are key that our customers need in this new environment, so driving up our net sales and our AGB, if you will, while maintaining headcount. With that said, I would expect that we'll continue to higher both sales and services as we continue because I do think we've got a real good chance to grab some additional market share as we go forward. So, I would think the OpEx as it stands this past quarter is probably a good metric overall to manage to, if you will. I would think over time, our headcount should trend up a little bit as we continue to build out certain areas because I think we can continue to grow in some of our focus areas.

Okay, thanks. And then, in terms of the -- has there been any change in the conversations you're having with your customers, given the little resurgence we're seeing in COVID or are they starting to get more cautious in terms of their outlook?

No, I haven't heard it yet. I think we just got the news. I think today with the mandate for the mask again coming back in, I think everybody's been accustomed to doing a lot of the virtual remote kind of calls, if you will. I've done many, many in terms of calls myself on video with customers and they seem very open to it and they've adapted fairly well to it as we walk through our solutions or trying to help them with what they need. So, I don't think we'll see much of a change than what we've seen over the past year, to be honest Greg. I think the big thing that a lot of customers are trying to figure out is the lead times on some of the supply chain stuff. So, I think they all need solutions where they're looking to upgrade their solutions or maybe jump-start some of the stuff that they wanted to do, but didn't do in the last year and they're trying to figure out what is the right solution and then what's the lead time in order to get that in.

Okay, great. Thank you.

All right, Greg. Thanks.

All right. There are no further question at this time. I will now hand the call back to the company.

Okay. The company says, thank you. And if I could thank everybody for attending today, we appreciate it and look forward to seeing you or hear from you on the next quarterly earnings call. Take care and be safe. Thank you.

This concludes today's conference call. Thank you for your participating. You may now disconnect.