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, SVP. 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, and subsequently filed quarterly report including our Form 10-Q for the quarter ended September 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 non-GAAP financial measures, and 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. 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 second quarter of fiscal 2022. ePlus delivered impressive financial results in the second quarter highlighting the strength of our business model and the continued success of our strategy to drive growth. Clients demand for our innovative services and solutions across the technology stack continues to grow as businesses and organizations increasingly rely on our breadth of capabilities and expertise to enable their digital transformation and IT modernization initiatives. In this evolving and dynamic environment, we believe ePlus is gaining market share as our agile model coupled with our focus on high growth areas, which includes cloud, security and digital infrastructure allow us to pivot and fulfill complex customer needs in both a timely and cost effective manner. In addition, overall fundamentals within the IT market remain healthy, as enterprises and organizations continue to invest in IT infrastructure to drive revenue, enhanced business analytics, safeguard new data and increase automation. Our second quarter adjusted gross billings increase 10.5% from the prior year period to $664.1 million with security solutions accounting for approximately 20% of our adjusted gross billings on a trailing 12 months basis. Consolidated net sales increased 5.8% from last year second quarter to $458 million, with broad based growth in products, services and financing. Significant improvements in profitability again highlighted our discipline cost structure and the operating leverage in our business model as revenue scales. As a result, second quarter operating income rose more than 55% year-over-year, while earnings climbed more than 58% from the prior quarter to $2.34 per diluted share. Looking more closely at our second quarter performance, technology net sales increased 4% from the same period last year, driven by growth in both products and services with services…

Thank you, Mark. And thank you everyone for joining us today. We are pleased with our strong fiscal 2022 second quarter performance. Our consolidated net sales for the second quarter were $458 million, a 5.8% increase from the $433.1 million reported in last year second quarter. In our technology segment, net sales increased 4% to $436.3 million compared to $419.4 million in the last year second quarter. Adjusted gross billings increased 10.5% to $664.1 million from $601.1 million. The adjusted gross billings to net sales adjustment was 34.3% compared to 30.2% in the last year second quarter due to an increase in the proportion of sales recognized on a net basis. Product and service revenues increased 1.5% and 23.1%, respectively. Service revenue benefited from a broad based increase in demand for both managed services and professional services, which includes project based services as well as staff augmentation. This marks the sixth quarter in a row of sequential improvement in our services revenue. Financing segment revenue was up 58.3% to $21.7 million primarily due to higher transactional gains from several large transactions we announced with last quarter's results and increases in portfolio and post contract revenues. As Mark noted, results from our financing segment tend to be uneven from period to period. Consolidated gross profit increased 24.3% to $123 million from $99 million in the last year second quarter. Consolidated gross margin increased 400 basis points to 26.9% compared to 22.9% last year. Technology segment gross profit increased 20.5% to $105.1 million and gross margin increased 330 basis points to 24.1%, mainly due to higher product margins and increased sales of third party maintenance and software subscriptions recognized on a net basis. Service margins increased 160 basis points to 38.6% due to increase revenues and improved margins from all service categories.…

Thank you, Elaine, on behalf of Elaine, Darren and myself and the entire ePlus management team, I would like to take a moment to express our gratitude and appreciation for the continued efforts of our global ePlus team who have performed admirably in serving our customers while adapting to changing and often challenging market dynamics. Through their dedication in pursuit of excellence, ePlus has grown stronger and more resilient as an organization with enhanced capabilities that position us for continued growth and success in the years ahead. In conclusion, this was a solid quarter and first half for ePlus; we believe we will continue to see operating leverage in our model based on the strength of our two business segments. Operator, let's now open for questions.

[Operator Instructions] Our first question is from Maggie Nolan with William Blair.

Hey, Mark and Elaine. This is Ted on for Maggie. Thanks for taking our question. To start, how did the results I guess compared to your expectations in the quarter? And could you maybe quantify the impact of the supply chain challenges and component shortages add on the ATP in the quarter?

Okay, hey, Ted, how are you first off? So the quarter was in line with our expectations. As you know, with the supply chain, it's a little different. It's fairly fluid, if you will, as it relates to the supply chain. So let me give you some feel on the supply chain, and then I'll touch on the quarter. So first off, I actually believe demand is outpacing supply overall, the lead times are changing pretty much every day and being extended. I think it's actually a credit to the ePlus teams in terms of how they work with our customers or vendors in order to get product out and the times that our customers needed it. So I think they perform very well in the quarter. I will tell you our open orders sequentially were up 25%. And currently they're the highest they've ever been for us. So we are seeing the effect of a very strong demand. Some supply chain I don't think it affected our quarter too much from a revenue recognition standpoint. It gives us good, some good visibility and predictability into the future with what we have in the open orders. And then related to the quarter, I'd say we performed like we thought maybe a little bit ahead we had called out that we were going to have a strong quarter for our financing team and they did. But also on the technology side, we saw strong growth in our services or services margins, or adjusted gross billings being in double digits. So I think the teams performed very well in a challenging environment.

Great, that's helpful color. And maybe as a follow up to that I guess how is the state of the supply chain impacting the demand for your financing services? Or areas where you are seeing more like sales of leased equipment or other types of financing transactions as given what you're seeing in the supply chain environment?

Yes, I don't, to be honest, Ted, we don't see too much effect there as it relates to the supply chain. The only thing I think that could affect our financing potentially could be inflation and if interest rates go up, so that would be the one effect on our business potentially, that could happen as we go forward. But as it relates to, I'll call it supply chain with our finance business no different than in other quarters, or what we're dealing with our technology segment and trying to get product out the door.

And our next question is from Matt Sheerin with Stifel.

Yes, thanks. Good afternoon, everyone. Mark, I wanted to ask just some more commentary in terms of the outlook and it sounds like you talked about open orders and backlog. First, could you explain what the difference in that is? It sounds like your record open orders or backlog also adds records. And in that inventory that you're building is that -- are you seeing customers are ordered like further out? You're just to be safe, in order to get their supply? And is that sort of helping your visibility over the next couple of quarters?

Yes, that's what it is, Matt, what we think is happening for a couple different reasons. I think customers; we haven't seen any slowdown from the customers and their need for technology. In fact, I think that demand has actually picked up a little bit in the investments that they're making in technology. So I think customers are making decisions to get their orders in early, knowing that the lead times are going to be more than what we currently we currently deal with. So from that, and I do think there's there, the thing I'd like to point out though, it doesn't turn into revenue right now. So just to be clear, those are orders that are placed. And until they're shipped, we can't recognize the revenue. So it hasn't affected this quarter may affect subsequent quarters, if you will. The other thing to also kind of keep in mind, if you will, is some of those orders are ratable, which doesn't turn into revenue right away. So it depends on the order. But the visibility, in terms of the orders that have been booked, is the highest we've seen since I've been here.

Okay, great. And you talked about the growth in services, but also cloud and off-prem. And I'm wondering are you seeing acceleration there because of the product constraints. And maybe some customers don't want to wait in; they're more inclined to move certain workloads off-prem earlier than previous because of that.

Yes, a little bit, Matt, but I don't think anything significant yet. I still think a lot of customers are looking at their existing data centers and trying to figure out how to modernize their data center footprint first, in terms of the investments that they've made. Then they're looking to extend stuff to the cloud. So whatever, whether it's an application or a particular function that they want to extend to the cloud, and then they're looking for us to kind of help them accelerate and optimize the cloud deployments that they have in place. So I think it's a little bit of everything. Yes, some has gone to the cloud, potentially due to the supply, but I wouldn't say it's significant at this point, at least for ePlus.

Okay and could you give us an idea of where the product shortages for you or maybe the worst and where your customers are waiting the longest.

I think some of it is probably in the networking space, maybe some in the storage and a couple other places small on the storage. We have as you know little commodity play ePlus. So there is a little delay there for some of our bigger customers, but nothing significant, but those would be the areas for us that will probably touch it on.

Okay. And just lastly, in terms of cost inputs, I know your SG&A was up, and are you finding that you need to be more competitive in order to attract talent. And also in terms of unit pricing, we know that pricing is going up, OEMs are passing those costs along. And are you having success doing the same thing, just passing them along to customers?

Yes, good question, Matt. So as it relates to, I'll call it inflation across both OEM pricing and recruiting talent. I think we're feeling that like everybody else as it relates to the OEMs, we've been able to pass on the pricing that the price increases onto the customer so it's had little to no effect on us as it relates to our margin. As it relates to talent in terms of looking for talent that we want to recruit for specific roles, yes, I think it's affecting us a little bit in terms of what you have to pay for that talent. Now, the good news, over the past year, we've added 57 heads that are mainly in the sales and services side. So we're continuing to invest, even in this environment around building out some of the solutions and services. But I think we're affected on the salaries, I'll call it, if you will, or compensation for employees a little bit like everybody else, but on the pricing, and we're fine.

Our next question is from Greg Burns with Sidoti.

Good afternoon. The AI bundle for healthcare organizations that you rolled out, is that another like some segment of the market like security that you think you can invest in and grow? Is that an area of investment you're looking at going forward? And is it just an applicable healthcare or are there other industry verticals where do you think that might have demand?

Yes, hey, Greg, how are you? So look, we're seeing pretty good growth in our healthcare both year-over-year, and the trailing 12 months. Now some of that I think is pent-up demand due to COVID. So we're organizations were really just focused on patients and not doing anything else. So this is a specific bundle to our healthcare organizations, we have a kind of a dedicated healthcare team. We have a former CIO of a healthcare organization that kind of helped create this bundle. That's a combination of hardware, software and services. And really, it's just leveraging the data that each of these healthcare organizations have in order to kind of solve problems, real healthcare problems. So one, we think it's a good fit for that particular vertical. And I do believe over time, we potentially could expand that to other verticals that may make sense.

Okay. And just one more on the deals for open orders and backlog. Is any way you could quantify how much backlog is up maybe from a percentage or absolute percentage? And same with the open orders, like how much is sitting in that open order bucket?

Yes, as a percentage, Greg, just to give you a feel sequentially, it's up 25%. So it's up a significant amount, just quarter-over-quarter, if you will. For quarter two quarter, I guess I should say that.

Is that backlog or open orders?

Open Orders.

Open orders.

And the backlog, how much is that up like year-over-year or sequentially, or any kind of --

I don't know at the top of my head our backlog, both are here. I'll give you on the services side. Both our pipeline and our backlog are up a decent amount as it relates to PS and MS, I believe.

No questions at this time, presenters. Please continue.

All right. Thank you. Thank you, everyone, for joining us today. If I could I wish everybody a happy Thanksgiving. I hope you enjoy that time with your families and have a healthy and happy holiday season. Take care and be safe.

Thank you, presenters. This concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.