ePlus(PLUS) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales increased by 24.1% to $429 million compared to the prior fiscal year's third quarter, driven by strong performance and market share growth from both segments [14] - Gross profit grew by 25.1% to $103.7 million, with a consolidated gross margin expanding by 20 basis points to 24.2% year-over-year [19] - Operating income increased by 31.2% to $26.3 million, while net income and diluted earnings per share rose by 31.5% and 32.7% respectively [22] Business Line Data and Key Metrics Changes - Technology segment net sales increased by 22.7% year-over-year to $410.6 million, with product sales up by 20.3% and service revenue up by 43.2% [15] - Financing segment revenue rose by 67.7% year-over-year to $18.4 million, primarily due to higher transactional gains from large government-related business [16] - Adjusted gross billings in the technology segment increased by 22.5% to $586.3 million, driven by strong demand from larger customers and contributions from acquisitions [18] Market Data and Key Metrics Changes - The largest customer vertical remains technology, accounting for 22%, followed by SLED and telecom, media and entertainment at 17% each [17] - Security products and services grew by 15% year-on-year on a trailing 12-month basis, representing roughly one-fifth of adjusted gross billings [9] Company Strategy and Development Direction - The company is focusing on investing in higher growth areas such as cloud, security, and digital infrastructure, while also executing strategic acquisitions to expand its customer base [5] - A balanced approach of organic and acquisition growth is enabling the company to gain market share and build a base of annuity quality revenue [5] - The company aims to capture demand from mid-market and enterprise customers for complex solutions that optimize and protect their IT initiatives [28] Management's Comments on Operating Environment and Future Outlook - Management has not seen any slowdown in overall demand and maintains a positive forecast for the upcoming quarter [40] - The company is tracking supply chain logistics closely due to potential impacts from the coronavirus, but currently reports little to no exposure [40] - Management remains optimistic about the growth of annuity revenue and expects margins to improve as the business evolves [38] Other Important Information - The company ended the quarter with cash and cash equivalents of $59.6 million, a decrease from $79.8 million at the end of the previous fiscal year [25] - Consolidated headcount increased to 1,602, reflecting the addition of employees from recent acquisitions [21] Q&A Session Summary Question: Nature of land and expand engagements - Management indicated that land and expand initiatives involve both new and existing customers, with initial lower margins expected to improve over time [31][33] Question: Changes in annuity revenue as a mix of total revenue - Annuity revenue continues to grow, with management noting that staffing revenues have increased, which may have lower margins initially but serve as a gateway to sell additional services [38] Question: Updated thoughts on the macro environment - Management has not observed any slowdown in demand and is monitoring supply chain impacts from the coronavirus, reporting no significant exposure at this time [40] Question: Operating margin profile and future expectations - Management acknowledged that operating expenses are increasing due to acquisitions and investments, but expects to achieve operating leverage over time [48] Question: Positioning for software and security spending shifts - Management believes the company is well-positioned to benefit from shifts in spending towards software and security, with significant growth reported in these areas [50] Question: Visibility into large financing transactions - Management noted that the financing business is inherently lumpy and difficult to forecast, but recent quarters have shown solid performance [59] Question: Dynamics of revenue and adjusted gross billings growth - Management explained that the closer alignment between revenue and adjusted gross billings is due to a reduction in the delta between gross and net sales [64]