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ePlus inc. (PLUS) Q3 2024 Earnings Call Transcript

ePlus inc. (PLUS)

Q3 2024 Earnings Conference Call

Company Participants

Erica Stoecker - General Counsel

Mark Marron - Director, President & Chief Executive Officer

Elaine Marion - Chief Financial Officer

Conference Call Participants

Maggie Nolan - William Blair

Matt Sheerin - Stifel

Greg Burns - Sidoti

Presentation

Operator

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 Ms. Erica Stoecker, General Counsel. Ma'am, you may begin.

Erica Stoecker

Thank you for joining us today. On the call is Mark Marron, CEO and President; Darren Raiguel, Chief Operating Officer and President of ePlus Technology; and Elaine Marion, Chief Financial Officer.

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 report on Form 10-Q and other documents that we filed with the SEC, including the Form 8-K we filed on October 6, 2023 recasting certain disclosures in our most recent annual report.

Any forward-looking statements 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. 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 now like to turn the call over to Mark Marron. Mark?

Mark Marron

Thank you, Erica and thank you everyone for participating in today's call to discuss our third quarter fiscal 2024 results. Our year-to-date performance has been solid with net sales growth of 6% outpacing the industry and our peers. Customers' adoption of digital transformation technologies, security solutions and IT infrastructure to support AI remain strong.

Quarter-to-quarter top-line performance has been more variable than in prior years mostly due to supply chain fluctuations, which affected both customer behavior as well as our ability to ship equipment.

Over the past few years large enterprise customers ordered equipment well in advance of expected need in order to safeguard their mission-critical projects. As a result we built a backlog of booked orders and as the supply chain eased we were able to ship this backlog equipment helping to drive strong 22% sales growth in the first half of the fiscal year.

Following that wave of shipments, we saw some customers pause new orders in Q3 as they deploy these delivered products. As a result in our third quarter net sales were down 18%, but it's important to note that our gross profit held more stable and was down only 3.3%.

A contributing factor to the gross profit was our service revenues, which were up 10.7% as we deployed projects for our customers. And our services gross profit increased 21% year-over-year driven by double-digit gross profit gains in both professional and managed services. Overall, our services gross margin was up 340 basis points and we had another strong quarter with our managed services revenue up 22%.

Given the mission-critical nature of managed services we provide this business is characterized by recurring and predictable revenue streams. This revenue not only enhances our financial visibility, but also offers new opportunities for growth as we provide existing customers with additional managed service offerings that address their evolving IT needs.

The services growth noted above along with solid product margins and strong contribution from our financing segment helped our consolidated gross margin increased by 410 basis points. It's also important to note that our year-to-date consolidated gross profit increased 9% on an increase of 6% in net sales.

Net income declined 23.6% for the quarter and increased 8.4% year to-date. Net earnings were affected by lower product sales, higher acquisition related amortization expenses and higher personnel costs. We continue to invest strategically in building out our AI sales and consultative resources, AI optimized solutions and lab capabilities which underscores our confidence in our growth prospects.

While sales cycles have lengthened somewhat we do not view this quarter's sales decline as a trend and our annual guidance remains unchanged. It is worth noting again that we faced a tough compare with gross billings up almost 30% last year in this quarter.

We believe fundamental demand parameters remain intact and consider the variability in our quarterly sales this year, as primarily a timing issue on when and how deals fell between quarters. We expect sales growth in our fourth quarter enabling us to achieve the lower end of our guidance range.

While still early in its evolution, generative AI represents a promising long-term growth opportunity for both our product and services business. We have deep credentials in the AI world and AI is in a new solution set for ePlus. We have been strategizing, building engineering expertise and aligning with top vendors for years. In March of 2018, we were named Elite Level as a deep learning partner for NVIDIA, we were also an early distribution partner for AIRI, the AI-ready infrastructure, architected by Pure Storage and NVIDIA, which recognized our vision and integration capabilities.

We are excited about the possibilities for AI. And we recently announced our AI Ignite program that will help customers explore, adopt and optimize AI. It will help show what is possible with their data and applications, ensure their business and strategy is aligned and help drive scale, efficiencies and cost savings....

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