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

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 and 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 of 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. It 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 good afternoon, everyone. Thank you for joining us to discuss our fiscal year 2025 first quarter results. I will recap our first quarter highlights and provide an update on our business, then Elaine will discuss our financial results in more detail. I will conclude our prepared remarks with a discussion of our outlook. After that, we'll open the call to your questions. We continue to execute on our strategic initiatives around AI, cloud security and the related advisory and annuity services. Coming into the quarter, we had a tough compare to last year, which resulted in a net sales decline of 5.2% for the first quarter fiscal year 2025 compared to last year. Last year's quarter had 25% net sales growth, including a nearly 30% increase in product sales in our technology business. Our gross billings and gross margins held essentially flat when compared to the prior year's quarter. We believe our gross billings are stabilizing now that supply chains are normalizing. A portion of the net sales decline this quarter reflects an increase in the netting of sales from gross to net, partially offset by increases in professional and managed services revenues. We believe our product revenues are down due to some customers implementing technology orders that were previously supply chain constrained over the last year. Both quarters were affected by the supply chain last year by an abrupt easing of the supply chain in this quarters as customers digested their prior purchases. Despite these timing differences, we believe we are focused on the necessary IT areas, which make us more resilient, reflected in our annual guidance. Our service revenues sustained solid growth with overall service revenues up 15.8%. Managed Services continue to build and were up 28% year-over-year. We also continued to see strong…

Thank you, Mark, and thank you, everyone, for joining us today. I will provide additional details about our financial performance in the first quarter of fiscal 2025. First quarter consolidated net sales totaled $544.5 million, down from $574.2 million in last year's first quarter due to lower product sales in the technology business. As Mark noted, we faced a difficult year-over-year comparison as net sales were up 25% in the first quarter of fiscal 2024 due to easing supply chains, which allowed us to complete several previously delayed customer projects. Product revenue decreased 8.2% year-over-year, primarily due to lower sales of cloud and networking products -- the inventory flush in last year's first quarter primarily benefited from a 71.9% increase in sales of networking products. Our services business posted another quarter of double-digit top line growth with net sales up 15.8% to $78.2 million as ongoing demand for EMS, Cloud and Service Desk services drove 28% net sales growth in managed services. We also saw continued growth in professional services with net sales rising 4.8% year-over-year, primarily due to an increase in staff augmentation services. Sales within our technology business were broad-based. Our two largest verticals are telecom, media and entertainment and technology representing 24% and 19%, respectively, of our technology business net sales on a trailing 12-month basis. SLED, health care and financial services accounted for 15%, 12% and 11%, respectively, with the remaining 19% divided among other end markets. Moving to our financing segment. Net sales totaled $9 million, a 6.4% increase from $8.5 million in the prior year, primarily due to higher portfolio earnings. Although consolidated gross profit declined to $134.5 million from $142.3 million in last year's first quarter, gross margin declined only 10 basis points to 24.7%. The gross margin decline was primarily due to…

Thank you, Elaine. With our diverse portfolio and focus on providing the strategic IT solutions and demand by our customers, we are well positioned in the marketplace. For the year, we expect positive comparisons for sales and earnings and are reiterating our full year financial outlook. Specifically, we are maintaining our fiscal 2025 guidance for net sales growth over the prior fiscal year of between 3% and 6% and adjusted EBITDA range of $200 million to $215 million. While we continue to review and prioritize our capital needs, we remain committed to making the required investments in our company to position us for long-term success. In addition to providing value to our shareholders through share repurchase programs, our strong balance sheet allows us to continue to invest in our business while maintaining flexibility to take advantage of attractive and accretive opportunities. Operator, let's open the line for questions.

[Operator Instructions]. Our first question will come from the line of Maggie Nolan with William Blair. Please go ahead.

Hi, thank you. So, I wanted to ask about the upcoming fiscal second quarter. Obviously, you have another tough year-over-year compare in the fiscal second quarter. But what can you share with us about how it's progressed so far, how you're thinking about it on a sequential basis and your confidence in that building in the second quarter to help you get to that full year guidance you laid out?

Maggie, it's Mark. Great question. So right now, Q2 is in line with the expectations. Let me frame it a little bit too based on Q1 because Q2 is similar to Q1 in terms of being a tough compare. So, in Q1, net sales, as you know, was up 25%. Our product sales were up almost 30%. Our networking product sales were up over 70% -- that's for Q1. Now Q2, we have a similar compare where our net sales were up about 19%. But preliminary through the first 1.5 months of the quarter, pipeline back line, it's in line with expectations. We still believe in our guidance strongly that we're in line, but the first half were challenged just based on the IT environment and the tough compare that we have through the first half.

Okay, thanks, Mark. And then you mentioned expecting to benefit from operating leverage over time, maybe to you or Elaine, how do you expect that to manifest over the next year or so?

Well, a couple of different things. We already sourced some of that, Maggie. If you look at our quarter sequentially from Q4 to Q1, our operating income actually jumped 20%. Now what's happening in the OpEx base is some of the stuff that we've talked about over previous quarters. We're now in the process. We think we'll start to get more operating leverage. We're more opportunistic and measured hires, if you will. A lot of those take time. New hires take time to ramp up. Our investments in AI and services is more expense than revenue at this piece? And when I say that more the AI side, not so much the services side. The thing that we're excited that we think will start to get additional OpEx is last year -- last fiscal year, as you know, we added 300 customers. So, as we've added new sales reps and service personnel and we're building out our solution offerings going back into those new customers, we would expect that to drive our revenues up. We'd expect our OpEx to stay in line, and therefore, we'd get the operating leverage.

Okay, thanks, Mark. And one quick housekeeping, if you have it, the organic growth in the quarter and embedded in the full year guide.

I don't have it. Do you know what the top?

Yes, the material amount of the change in year-over-year was from the organic business.

That cover it, Maggie?

Did you say material or immaterial, Elaine, I didn't quite hear you.

The majority of the change from quarter-over-quarter was from the organic business.

Okay. Thank you all.

Our next question will come from the line of Greg Burns with Sidoti & Company. Please go ahead.

Thanks. In regards to the customer product backlog that you mentioned may be impacting some sales this quarter. Where do you think the channel is or the customer base is in terms of digesting that backlog? Do you feel like it's been worked through and you get back to a more normal cadence of order flow going forward?

Yes. I think it's already normalized, Greg. When we look at our gross billings. By the way, in this quarter, even though our net sales were down 5.2%, our gross billings were down just 1%, so essentially flat on a -- as we've talked about, I don't want to overkill it on a tough compare last year for this quarter. So, we do think that our gross billings have started to normalize. The supply chain has stabilized. So, I think we're more in a more normal run rate where we'll start to see the seasonality that we normally do in Q2 and Q3, and then we'll see where it goes from there.

Okay. And then is there anything you could share in terms of your AI business, whether it be growth pipeline opportunity, anything quantitative or qualitatively, you could add to give us a little bit better understanding of the opportunity there for you?

Yes, sure. Greg, the other thing just if I can go back to it, I'm not sure if you were talking about some of the consumption of the technology that we talked about with customers in previous. So, I think a lot of that has happened. And we really see it. If you look at our services numbers, we were up 15.8% in our services overall, which means that, that technology is being consumed and we're implementing it with our PS, our professional services and advisory services. So, I'm not sure if the first part when I answered if it answered your question, but that should do it. As it relates to AI -- so here's the thing with AI. It's really interesting. There's not a customer we have that won't give us a meeting or listen to us as it relates to our AI Ignite program. So, everybody is looking at the same thing all customers. They have data silos on-prem in the cloud, so they got all these disparate data silos. They've got data security and privacy concerns there's no AI governance, at least in a lot of customers that are more in the, let's say, formative or curious stage, if you will. Their infrastructure is not ready, especially in the power and cooling space. There's a skills gap. And then there is an identification of use cases. That's probably the biggest thing that we're seeing with our customers. Now we've rolled out a bunch of envisioning sessions, data copilot readiness, and we're starting to see some real interest and pipeline build in that space. And that's why what I had mentioned earlier to Maggie, we've made the investment in the programs and the tools and the training for our team and head count and what have you, it's more expense than revenue, but that is really starting to build. Now here's the other reason we're excited about AI. If you think about AI, it goes across everything that ePlus does over the years from compute, networking, storage, all the things that go into that is things that we've done for years, so -- as well as security as well, which is probably one of the bigger pieces that people are trying to figure. So, it's early innings. We're getting a lot of interest in meetings with customers. We've done some nice services work with our customers. We -- the pipeline is building, and then we'll see as we move through the quarters how that really turns into revenue.

Okay. Great. And then lastly, just any negatives or benefits from the CrowdStrike -- issue?

No negatives, to be honest, Greg. We did have a benefit. We had one customer that had some real problems with CrowdStrike that we got involved with early, and they were able to open up pretty much on time. And after that, they extended their service agreement with us for three years. So, we did see some benefit, but I don't want to overplay it. It was not too much in terms of, I'd say, revenue benefit more. I'd say customer set with how we helped our customers, then I could point to revenue. That's the only deal I've at least been notified that came out of some of the work that we did around CrowdStrike for our customers.

Great. Thank you.

[Operator Instructions]. Your next question will come from the line of Matt Sheerin with Stifel. Please go ahead.

Yes. Hey, good afternoon, everyone. I wanted to go back to Maggie's question about the outlook for Q2. You said in line with expectations in seasonal, but I'm not sure exactly what that meant because you talked about the backlog being down, is seasonal sort of flattish sequentially because, obviously, the last three years, there have been a lot of seasonality in your business with backlog. And so, are we to assume that this is going to be down year-over-year again and that growth that you're guiding to 3% to 6% is all going to come in the back half?

Yes. I'd say, Matt, that's a fair statement. I think it will be in the back half. Once again, just to remind you, right, if you look at it, first quarter, we were up 25%. Second quarter, we were 19%. So those are some pretty tough compares. But we do feel positive about our strategy and our growth plans. I'd say it'd be more second half back ended, if you will. Q2 is still a positive quarter way to say it.

A positive quarter, meaning, I'm not sure what that meant?

I mean, in line with last year.

Okay, so flat year-over-year. Got it. Okay. So that means you're going to be five but -- Okay. Got it. Understood. And then in terms of cost, you talked about adding resources to professional resources, et cetera, but then you said that you think that you're going to get leverage on OpEx as volumes return. So, what's the right -- is this the right number to use around the low 90s in terms of OpEx over the next few quarters? Or is it different?

I would say, yes, Matt. That's probably a fair assumption in terms of from a run rate, but realize what you've got that. But if I were looking at, I'll call it, the SNS G&A salaries, I think that would stay within line with where it is. I think what I'm also alluding to is Q4 to Q1, our operating income jumped 20%. Now that's just a quarter, so it's not a trend yet. But there are some things that we've done both from an expense standpoint and also from a training standpoint that we'd expect to get some improvements from our account executives and service reps as well as some expense savings that we've made. So, I'd expect operating leverage throughout the year. It's not going to jump, as you know, from quarter-to-quarter, but will grow throughout the year and into the following year.

Okay. Thank you.

No problem. Anything else, Matt, or?

No, that's it. Thanks.

Okay. All right.

And that will conclude our question-and-answer session. I will now turn the call back over to Mark Marronfor any closing remarks.

Okay. Thank you. I just want to thank everybody for joining us for our first quarter earnings call and wish you a happy and safe day and a long holiday for the Labor Day weekend even though I'm jumping the gun a little bit there. Take care, and have a good day.

That will conclude today’s call. Thank you all for joining, you may now disconnect.