Good day, ladies and gentlemen. Welcome to the ePlus Earnings Results Conference Call. As a reminder, this conference call is being recorded. I'd 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 our Form 10-K for the year ended March 31, 2022, 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 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 fourth quarter and fiscal 2022 results. This was a remarkable quarter and fiscal year for ePlus, marked by continued strong financial performance and significant progress in advancing our growth objectives. Once again, our dedicated team delivered exceptional results and effectively supported our customers in an evolving and dynamic market. Our success speaks to the strength of our differentiated business model that couples the advantages and flexibility of providing both technology services and financing as well as our strategic focus on capturing emerging high-growth opportunities in fast-moving markets. In short, our strategy is working and ePlus is gaining market share as evidenced by our results in the fourth quarter and for our fiscal year. Fourth quarter net sales increased 28% to $451.5 million with solid contributions from both segments, reflecting broad-based strength across our customer base and end markets. Fourth quarter adjusted gross billings increased approximately 21% year-over-year to $638.5 million with increases in every vertical market sector. The growth in fourth quarter adjusted gross billings helped drive our fiscal 2022 adjusted gross billings to over $2.6 billion, representing approximately 16% growth from fiscal 2021. We continue to see nice growth in collaboration and networking as hybrid work models have become the de facto operating model for most of our customers. Another highlight of the quarter was further expansion of our annuity quality revenues as we experienced broad gains in managed services, help desk services and staffing driven in part by the shortage of IT professionals as well as customer optimization of their IT spend through utilization of outsourced services to manage day-to-day IT operations. We believe we have the right mix of best-in-class services to capitalize on this favorable long-term trend. In the fourth quarter,…

Thank you, Mark, and good afternoon, everyone. I appreciate you joining us today, and I'm pleased to share the details of our fourth quarter results with double-digit growth across key metrics, marking a strong finish to our fiscal 2022. In the fourth quarter, consolidated net sales totaled $451.5 million, up 28.1% from $352.6 million reported in the comparable quarter of fiscal 2021. Net sales in the technology segment reflected broad-based growth, increasing 26.4% to $419.4 million. Product revenue increased 28.3% to $357.8 million, while services revenue was up 16.6% to $61.6 million. Adjusted gross billings grew 20.8% to $638.5 million compared to $528.6 million in the same period a year ago. Our robust growth suggests market share gains and underscores the successful execution of our strategy. The adjusted gross billings to net sales adjustment was 34.3% compared to 37.2% in the fourth quarter of 2021. Our financing segment also delivered robust revenue growth, up 54.4% to $32.1 million compared to $20.8 million in the last year's fourth quarter, mainly as a result of higher proceeds from sales of off-lease equipment. Consolidated gross profit increased 17.8% to $115.4 million compared to $97.9 million last year. However, consolidated gross margin declined 230 basis points to 25.5%, primarily as a result of a lower proportion of sales recorded on a net basis, lower gross margin in our financing segment due to a change in mix and lower service margins. For our technology segment, gross profit increased 23% to $103.2 million. Looking more closely, product gross margin increased 20 basis points to 22.8%, while service gross margin decreased 390 basis points to 35.3%, reflecting lower professional service margins due to higher costs. Consolidated SG&A was up 10.7% to $77 million, while consolidated operating expense increased 8.9% to $80.9 million given higher variable compensation as…

Thank you, Elaine. Just to sum up, we are pleased with our strong fourth quarter results that capped off another great year for ePlus. Our diversified portfolio of products and services spanning the entire IT life cycle remains a key competitive differentiator, positioning us for continued growth as we provide both the solutions and flexibilities our customers require to realize their most critical business objectives. We appreciate your participation today and your interest and look forward to speaking with you on our first quarter conference call in August. Operator, we are ready to open the line for questions.

[Operator instructions] Our first question comes from Maggie Nolan with William Blair.

Hi. Thank you for taking my question. I'm hoping -- can you give us a little more insight into what your clients are saying about the timeline for IT projects and how they're thinking about factors that are driving their budgets and spend with ePlus?

Sure. Hey Maggie, how are you? So first off, demand still continues to outpace supply. Our customers, when we're working with them on solutions, are asking us if we know the lead times based on the different solutions that we're suggesting or providing. I think our team, the ePlus team, has done a really nice job of setting expectations with those customers and then working with the different OEMs to get the products and solutions where services are included out the door in a timely fashion. From a demand standpoint, still solid, hasn't changed. Supply lead times, I think this is going to go through at least the end of this year, if not longer, Maggie. So customers are, I guess, I don't want to say aware of it and dealing with it, but that's probably the best way to say it at this point.

Okay. Understood. And then on the services side of things, can you talk a little bit about the impact of the difficult talent environment on your service offerings in particular and the demand for those?

Sure. Actually, the demand for our services has picked up. I think you saw our service were up 16.6% for the year. And I think it was 19 -- sorry, 16.6% for the quarter and 19% for the year. So I think our team has done a real nice job of building up our portfolio of services around our consultative and advisory services, specifically in a market like this, as well as our annuity services revenues continue to expand. The other thing that comes into play, Maggie, is we're seeing some real nice staffing opportunities where we're placing multiple people for long-term projects with our customers. So the demand is nice and the -- we have been as it relates to the talent shortage, it does affect us. Our margins were down a little bit and that's really just a short term thing as it relates to services in terms of adjusting our bill rates and things like that. So it affected our margins a little bit this quarter. I don't see that as a long-term thing, but the demand is there.

Okay. Thanks Mark.

No problem. See you soon, Maggie.

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

Hi. Good afternoon. Is there any way you could quantify the growth in your open order book and backlog maybe against last year this time?

It's big. How does that sound, Greg? It's actually over 100% up over last year. So when I talked a little bit earlier with Maggie, the demand is definitely outpacing supply for sure. So we're starting to see that continue to build up both in our open orders, our backlog, deferred revenue and things along those lines. So it's a positive sign. And I think over time, as supply chain starts to ease up and get better, it will be a positive sign for the future.

So that plus 100% was on backlog or open orders or both?

Open orders. Open orders.

Okay. And I guess with the inventory continuing to grow, I guess, that's an indication of these open orders -- the level of open orders that you continue to have. But do you have any line of sight on when maybe that starts to unwind itself and you can start to reduce the working capital?

Yes. Greg, to be honest, that's a tough one. It continually changed the -- we're working closely with the OEMs. The lead times are constantly changing, both getting better and getting worse in some cases, depending on the vendor and the type of technology. So that's a tough one. That's just a -- quite honestly, that's a work in progress that we're going to stay on top of and work closely with the vendors and customers to get things out the door.

Okay. And then we've seen some guidance from some other large technology vendors that have not been so strong or disappointing. Why do you think your outlook is maybe a little bit stronger than that or continues to be positive? Is it just the markets you're playing in? Is there anything specific that you're doing? Maybe it's you're gaining share, but could you just maybe help us understand the strength you're seeing in your business versus maybe what we've seen from some other large technology vendors recently.

Well, one of the quick easy added benefits, Greg, is that we have the ability of selling multiple OEM solution as compared to an OEM that's just selling their own technology. The other thing we have is we've got the two segments. So depending on a market, for example, as interest rates rise, that's actually, in some cases, presents an opportunity for our finance business to provide financing programs to buy technology where maybe some of the OEMs may not be taking advantage of programs like that, for example. So I do believe we are taking share. So if you look at our growth, most of the industry analysts are out there saying anywhere from 5% to 6% in terms of IT spend. And if you look at it for the quarter, we were up 28%; for the year, we were up 16%. I do think it has to do -- we feel really good about our strategy that we're in all the critical IT areas that we think we need to be in. And we've made the investments in the people, the solutions and the services to be well positioned as we go forward. The other thing we're seeing, too, Greg, is across our customer base and verticals, they're all up. So we've done a nice job of working with those different types of customers specific to the business outcomes that they're looking for.

Great. Thank you.

No problem. Thanks Greg.

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

Yes. Thank you. Good afternoon, everyone. Just wanted to drill down a little bit more on the supply-demand environment and it sounds like a little bit more cautious tone from you, Mark, regarding the supply side. You're just coming off of 28% growth, 20%-plus product growth. So you were able to meet demand and obviously beat expectations. So what's happened in the last couple of months of things to have gotten worse? And could you maybe drill down within the different product areas, networking, sort storage, etcetera, give us an idea of what may be better or worse in terms of the constraints?

Yes. Okay. So starting with the last piece. So I'd say networking, wireless, security appliances are some of the things with longer lead times. Storage and servers, for the most part okay. Darren, I don't know if you have any insight there. You want to...

Yes. Big iron networking is the longest lead time for us. I'd say, behind that -- there's all categories. But wireless has been pretty extended several months, if not longer, in some cases. Security appliances are now more than a few weeks in many cases. But servers and storage haven't been too bad. They -- and you know what, in general, it's not getting worse. It's kind of just treading water, it hasn't really gotten better, but there's a lot of movement in and out.

Yes. So -- and Matt, to your first part of your question, look, I'll be honest with you. We think we had a really solid quarter and a solid year, and the team did a really nice job of working with customers. So I think some of that is pent-up demand, right, in terms of customers as they return to work in these hybrid work models and they need networking and connectivity and security and things like that. The hesitancy, if that's the right way to say it, as it relates to the supply chain is, I think you'll hear from all the OEMs and our peers that everybody is just nervous that it hasn't lessened. You still got Ukraine-Russia war going on, you've got the China lockdown. So there's just a lot of variables that are beyond our control, if you will.

Got it. Okay. But then maybe looking at the June quarter, I appreciate you don't give -- you don't issue forward guidance, but you're more than halfway through the quarter. It sounds like given lead times, you probably have visibility into what you're going to ship for at least the next few weeks. So are you still expecting double-digit year-over-year growth like you've seen in the last couple of quarters?

Yes. You're prodding me here, aren't you, Matt? So here, we -- as you know, we don't give guidance. What we -- what I can tell you, we do have visibility into the open orders that we expect to ship. We do have visibility, obviously, where we're effectively two months through the quarter where we think we're going to wind up. There are some variables as that relates to every quarter, we have a deal or two that might be a large deal that may slip or come into a quarter. That can always adjust the number. Do we feel good that -- do we believe we'll continue to outpace the IT spend market? Yes. I think you had an article out not too long ago. I think you said IDC was expecting 5% to 6% on IT spend, and we believe we'll definitely outpace that.

Okay. All right. Thank you. And then on the leasing segment, as you said, it certainly been well above normal trends in the last few quarters, but you're expecting it to moderate. So in terms of kind of a revenue run rate or EBITDA, when are we expecting it to get back to where it was a couple of years ago? Or is it just hard to tell because it's so lumpy?

Yes. You know what, it's a hard one because with interest rates rising and things that go along with that could be an opportunity. But remember, Matt, last year in Q2, we called it out early. We had a large transaction that we wouldn't expect to replicate or duplicate this year. So what we're saying is we would expect more normalized EBITDA to be in the line of the last year or two -- that we did in the last year or two.

Okay. And just lastly on M&A. And obviously, you've done a very steady and strong job in terms of identifying good candidates, integrating them. Is there still a pipeline that you're looking at here in terms of opportunities over the next few quarters?

Yes, Matt. Very strong pipeline out there both from a territory as well from a, I'll call it, technical or services standpoint across multiple markets. So still very much -- there's a lot of opportunity to fill out the M&A space for us to explore and consider with the right multiples.

Okay. Thanks a lot.

Thanks Matt. We'll talk to you soon.

We have reached the end of the question-and-answer session. I'll turn the call back over to Mark Marron, CEO, for closing remarks.

Okay. Hey, I just want to thank everybody for joining us on the call. We thought we had a nice quarter and nice year. Also I want to wish everybody a happy holiday for Memorial Day weekend. Enjoy yourselves, be safe, and see you on the next call. Take care.

This concludes today's conference call. You may now disconnect.