Good day, everyone, and welcome to the ePlus Earnings Release Conference Call. At this time, all participants are in a listen-only mode and later we will take your questions. I would now like to hand the call over to Mr. Kley Parkhurst. Please go ahead.

Thank you for joining us today. On the call is Mark Marron, CEO and President; Darren Raiguel, COO and President of ePlus Technology; Elaine Marion, CFO; 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 in our periodic filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and in other documents that we may file with the SEC. Any forward-looking statement speaks only as of the date on which the statement is made and the Company undertakes no responsibility to update any of these forward-looking statements in light of new information, future events or otherwise. In addition, we will be using certain non-GAAP measures during the call. We 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 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 first quarter fiscal 2024 results. I will start with some key takeaways. ePlus delivered strong results in the first quarter, marking a great start to our fiscal year. Double-digit sales growth was driven by solid execution, our land and expand strategy, supply chain improvements and contributions from acquisitions, our team performed at a high level, executing consistently across all end markets. Our net sales growth of 25%, along with our scalable operating platform and disciplined cost management drove significant operating leverage. Adjusted EBITDA rose 41% and diluted EPS improved 51% compared to the same period last year. The strength of our performance again highlighted how our strategic positioning and focus on serving faster-growing solution areas enables us to generate growth well in excess of the overall market for IT spending. In today's environment, where enterprises and organizations are prioritizing investments that optimize cost and security, we have continued to meet our customers' needs with the suite of products and services that deliver value rapidly and efficiently. During the first quarter, we continue to see an easing in supply chain constraints. With the improved product availability, we were able to complete a number of previously delayed customer projects benefiting overall sales growth. Based on our conversations with our partners, we anticipate continued improvement in product availability and lead times over the remainder of the year. As you know, acquisitions represent the fundamental component of our growth strategy, and our first quarter results benefited from the contributions of our Network Solutions Group and Future Com, who we acquired in July of 2022. On a combined basis, these acquisitions contributed approximately 1/3 of our net sales growth in the first quarter. Our technology business sales increased 26% with…

Thank you, Mark, and good afternoon, everyone. I am pleased to report on our strong start to fiscal year 2024, reflecting the success of our growth strategy as well as the contribution from our recent acquisitions. Broad-based strength across key end markets and revenue from acquisitions led to a consolidated net sales increase of 25.3% to $574.2 million -- these factors are also evident in our technology business net sales, which grew 26% to 565.7 million. Beginning with this quarter, we have introduced three operating segments, which comprise our technology business, product, professional services and managed services. Our product segment includes sales of third-party products, including software and services. Our professional service segment contains our project-related services staff augmentation, consulting engagements and project management services. Our Managed Services segment comprises various services offerings, such as our infrastructure and cloud managed services managed security and service desk. Going forward, we will reference these new business segments collectively as our technology business. In our Products segment, revenues increased by 29.2% to $498.2 million, led by sales of networking products in the Managed Services segment, revenue grew 23.2% to $32 million from sustained growth and enhanced maintenance support and security operation center services. In our Professional Services segment, revenue declined 4.3% to $35.6 million year-over-year, primarily due to reduced demand for staff augmentation services. Our strategy of focusing on faster-growing areas boosted by acquisition contribution and easing supply chains led to technology business gross billings growing by 17.6% and to $842 million year-over-year. As a reminder, gross billings denote the total dollar value of customer purchases of goods and services, including shipping charges during the period, net of customer returns and credit memos and sales and other taxes. Within our technology business, our two largest markets continue to be telecom, media and entertainment,…

Thank you, Elaine. ePlus is off to a strong start this year, benefiting from our diversified base of customers and our strategic focus on serving faster-growing end markets. In an environment where our customers are prioritizing more rapid payback on their IT investments, ePlus remains well positioned for continued growth. We are leveraging our extensive capabilities across the technology stack to deliver effective solutions that enable our customers to optimize costs, enhance security and focus on their core business operations. As a result, we remain confident in our ability to deliver sales growth in fiscal 2024 that exceeds the projected growth in the IT spending market. We are, therefore, initiating fiscal 2024 net sales guidance of $2.23 billion to $2.33 billion. We expect adjusted EBITDA to be between $200 million to $215 million, representing an adjusted EBITDA margin of to 9.2%. Our guidance assumes in part, a continued gradual leasing and supply chain constraints that enables us to complete previously delayed customer projects. In closing, ePlus remains focused on building long-term shareholder value through the execution of our growth strategy and efficient allocation of capital. I want to thank the ePlus team for their dedication, which is again evident in our strong performance. Operator, please open the call for questions.

Thank you, sir. And everyone, we will now take your questions. First up is Jesse Wilson, William Blair.

This is Jesse on for Maggie. Congrats on the results and I guess, first, it's nice to see you initiate full year guidance, but just to dig in, it seems like a bit of a range in terms of the calculated growth at the upper and lower end. Can you talk about some of the assumptions you've made, what kind of gets you to upper end versus the lower end?

Sure. So Jesse, it's Mark here. So a couple of different things. So let me start off with one why we're providing guidance now. So we had actually planned on providing guidance a few years back and then COVID hit. So we kind of pulled back. As we've talked to folks like yourself and other investors, they thought it would be helpful if we provide guidance. We have really good visibility into our pipeline and backlog, and we thought this would help with some of the modeling because there was some pretty big differences between the different analysts in terms of our growth, both top line and bottom line. So we're just trying to provide a little more granularity. As it relates to the numbers, both from a, I'll call it, net sales and adjusted EBITDA. What we saw in Q1, we actually had a really nice quarter, but there are a few things that happened in the quarter. One, we saw some supply chain easing. So we source some deals specifically in the networking space that were pulled forward. We also had about 1/3 of our net sales was from acquisitions. I will point out in subsequent quarters. One of the acquisitions will fall off and are in your projections already. We also had some large land and expand deals that affected the quarter. So, there was some pull forward. There were some acquisition related, which is about 1/3 of the net sales and then supply chain easing. As we looked at the metrics, it was about seven to rough numbers. This is approximate 7% to 11% growth over last year on the top line. And we were very comfortable looking at our pipeline and backlog on where that put us, especially after the first quarter. I will point out Q2 is a tough compare for us for a lot of different reasons. Mainly in our finance segment, we had a really solid quarter last year, especially in the operating income space. So I think that will be tough to for us to match as we go into this quarter. And it's normally -- Q2 is normally a solid quarter, but with that tough compare and some of the pull forward, we thought it might be a little bit tighter in Q2. But that's the high level on the thought process as it relates. And we thought the margin percentage 9% to 9.2% on the adjusted EBITDA was in line with expectations based on some investments we plan on making as we continue forward throughout the year.

Got it. That's all really helpful. And then a couple of follow-up questions just because you hit on both in your first answer. So you are seeing some of those land and expand deals ramp up. Are you thinking about that on a multiyear basis? Or kind of over a few quarters, which seems like that might be the case. And then my second follow-up…

Go ahead, Jesse. Sorry.

Yes. My second follow-up was on the acquisition. So did you just acquire some very talented sales persons that are winning new business? Or were some recently acquired customers spending more? That's it for me.

Okay. So good question. So on the land and expand, it's a strategy we've had for a while, and it's where we work with the -- I'll say more on the enterprise side, but it's also on the mid-market side that we'll work with customers. We'll try to get a foothold in the account. And then from there, we try to expand the sale everything that we have. So sometimes we'll get a big pop or hit in the quarter based on a big opportunity. Normally, the margin is a little bit tighter on those deals, and then we try to expand it with our value-added solutions and services. And that can go across multiple quarters or multiple years as we try to expand it. So that's not something that's just the in a quarter or two, it could be multiple years that we see the benefit on that strategy, all right? And the second question was around acquisitions. So, on the acquisitions, we like to think we acquired really good people and talented salespeople. We think it's a great -- two of them are both really good acquisitions for us. Future Com, which we acquired in July of 2022 and mainly in the security space and gave us some additional customers and access in the Texas region. And then network service systems group is in the service provider space. And they had a really nice quarter. Most acquisitions normally struggle in the first quarter, Jesse, and they actually had a nice quarter. And I think that was due to some of the network supply chain that open up as well as some things that they closed. But I would expect that to slow down a little bit as we move forward, but a nice jump to Q1.

Next, we'll take a question from Greg Burns. Sidoti.

Can you just delve into where you're pipeline and backlog stands now because it sounds like you did deliver on some of those backlog projects this quarter, but the inventory didn't really go down too much? So how much is left there to -- that I guess would still be in process?

Yes. So Greg, so what I was talking about is both in our CRM systems as well as looking at our open orders and backlog, we've got very good visibility. As it relates to our backlog/open orders, they're probably down about $60 million sequentially. So that's where we saw some of the runoff into the quarter. There was also some, what I'll say, lead times that improved on the networking side that help our networking numbers were up about 67%. So there was some pull forward in my opinion, that I don't know if we'll see as much as we move throughout the year. But that's kind of the high level on the quarter there.

Okay. And then it seems like demand is broadening -- you had broad-based demand across products and customer segments. But are you seeing any signs of caution, any indications that companies are pulling back? Or are they just reprioritizing and where your products and services are is where the money is flowing. Can you just give us a sense of maybe your outlook for the market?

Yes. So it's interesting, Greg. So, a couple of different things there. One, we do believe we'll continue to pace the IT spend market, for sure. We've done that and believe we'll continue to do it. We are seeing some longer deal cycles and there's the economic uncertainty. There is some -- there's been some nice size layoffs from some of the tech vendors out there. And you see some of the projections from some of our public peers in terms of what they're projecting in terms of declining revenue. So I never want to say we're immune to it, but we are resilient, if you will, as it relates to our business. The other thing is -- we don't really play in the commodity space. We made a decision a long time ago in the PC laptop space to get out of that business. We still do it for some of our bigger customers. But we didn't see some of the headwinds, I think that some of the others are in that space. And then the other thing is on our customer size segment, every customer size segment was up. What was really nice was our mid-market was up, which I believe is -- those customers have real need for the types of solutions that we're providing. So, we feel good about our guidance. We feel good about the quarter, but not overly -- not jumping up and down yet in terms of where the economy can go in the second half.

Okay. And then lastly, why did you split out professional managed services into their own segments. Is there like an expectation for a difference in terms of growth rates or margins? Like why provide that extra granularity now?

Yes. You know what, Greg, it's to help with some of the modeling. We've talked about our managed services/annuity quality revenues for years. We thought it made sense as we decided to give guidance to break out services as well. I would think what I'd call a transactional services or professional services and staffing over time, you'll start to see an uptick. Some of that is held back by supply chain overall. So that's one thing. And as it relates to or managed services, we saw that this quarter was up 23% year-over-year. And as I think I mentioned, the CAGR over the last five years is 24%. So, it's a -- it's a very visible revenue stream and it's a profitable reverse. But I would expect our transactional professional services over time to pick up as well.

And we'll take the next question from Matthew Sheerin, Stifel.

Yes. Thank you. Good afternoon, Mark, and everyone and I also echo others' comments about appreciating the disclosure, the outlook and guidance as well as the breakdown of some of your revenue streams. So I appreciate that. But just relative to your guidance for the year, Mark, as you said, it looks like your forward guide is it looks to be conservative because you're up 25% year-on-year, you're guiding up 10%, I mean, in the first quarter. So that would imply that the second half is going to be flat to down also in December, I know you're going to be facing tough comps because you had a very, very strong December quarter last year. So I'm just wondering, are you just -- is that just conservative because of maybe you don't have visibility into the full year or some of the comments you made earlier about reasons maybe to be more conservative? Just trying to get a feel for how you think about the rest of the year. And also, the September quarter, you're typically up sequentially. But I'm wondering if -- with all the pull-ins that you talked about, whether that's going to be more flattish or down sequentially?

Yes. So that was a lot in there, Matt. So a couple of different things, one is, I think I called out, we're starting to see some of the tough comps on the finance piece. So we had a really big quarter I believe it was $12.2 million in operating income in Q2. So that's going to be really tough to replicate. So that's the first thing as it relates to Q2. You are right. Q3 is normally our strongest quarter. Q2 is normally a solid quarter, but I do believe we had some pull forward in this quarter. We saw some things that popped in that at the end of the quarter that popped into the quarter that we weren't expecting. So, I think that's part of what maybe is throwing you off a little bit because the quarter was so big. The other thing is, yes, we are a little reserved as it relates to our guidance, but we feel very good about the guidance. Based on what we're hearing in the market from our competitors and from others that are down single to double digits. So we're just trying to make sure that we put something out that's fair based on our pipeline, based on our backlog, based on everything that we're seeing. The other thing I will highlight, it is up 7% to 11% on over last year in this market, which I don't think you're seeing in most of the companies that have announced results. And quite honestly, that's ballpark $150 million to $250 million in terms of guidance above what we did last year. So I think it's a somewhat aggressive but realistic target, so not undercutting it. I don't know if that gave you everything you need there, Matt.

Well, I have some follow-ups, but just regarding backlog, is it still elevated? It sounds like it was down. Was it down $60 million quarter-on-quarter? And is it still elevated, and how much relative to your normal backlog?

Yes, it's still elevated to our normal backlog, Matt. It's quite honestly, it's almost pre-COVID, almost double our normal in terms of open orders, but it's down sequentially $60 million.

Okay. And then on the EBITDA guidance, the margin guidance 9% to 9.2%, that's basically flat year-over-year, but you're going to be up significantly year-on-year in UR in Q1. So I'm wondering is that because you expect maybe some OpEx going up? Why not continue to see that leverage play through the year?

Yes, I think there's two things, Matt. One, we acquired the network service group. So you only saw two months of the OpEx in this quarter. So I'd expect that to be up a little as we move forward. And yes, we believe we can continue to grow market share. So we are going to invest across our practices, adding more customer-facing headcount. For example, if you think about some of the stuff going on with artificial intelligence, it's an area that, right now, I believe, is in the early innings. I don't -- it's not a big revenue generator for us, but we believe it could be a growth driver. So, we'll look to invest in areas in that space over time by providing advisory services around helping customers understand the risk and the government and things that they have to understand, understanding how to take advantage of some of the AI embedded solutions from our partners that are out there. So yes, we do plan on making some additional investments in headcount, but it's also some additional expense that's not in there as it relates to the Network Services Group, which we acquired in May.

Okay. That's super helpful. And just last question for me. Just regarding the pricing trends and I know in recent quarters, you and everyone has been -- have been able to pass along the vendor price increases. Are you starting to see that level off at all? Or any pricing pressure as the component availability becomes better.

Yes. No, Matt, I haven't seen anything. We've been able to pass it on and haven't seen. There are certain deals where you'll have some pressure from competitors that will go in aggressively with discounts. But as it relates to any pricing pressures, we've been able to pass that on, we had a strong quarter related to our product sales, which I think Elaine mentioned was up 29%. So didn't see much of that change in that space.

And everyone, at this time, there are no further questions. I'll hand things back to our speakers for any additional or closing remarks.

Okay. Thanks, Lisa. So if I could close, it was a really nice start to our fiscal year. It was a solid quarter and I want to congratulate and thank the ePlus team for everything they did to produce the results that we did. And with that, I'd like to thank everybody for joining us for this call and look forward to our next earnings call. Take care and be safe.

Once again, everyone that does conclude today's conference. Thank you for your participation. You may now disconnect.