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spk05: We continue to closely monitor and adjust to the bottlenecks in the supply chain that may act as a headwind going forward. To date, Eplus has managed this situation effectively, drawing on our extensive channel partner relationships and our own internal flexibility to minimize the potential impact on our customers. Reflecting confidence in our growth strategy and market positioning, I am pleased to announce a two-for-one stock split of E-plus shares for shareholders of record at the close of business on November 29, 2021. I will now turn the call over to Elaine Marion, our CFO, to walk you through our financial results in more detail. Elaine?
spk01: Thank you, Mark, and thank you, everyone, for joining us today. We are pleased with our strong fiscal 2022 second quarter performance. Our consolidated net sales for the second quarter were $458 million, a 5.8% increase from the $433.1 million reported in last year's second quarter. In our technology segment, net sales increased 4% to $436.3 million compared to $419.4 million in the last year's second quarter. Adjusted gross billings increased 10.5% to $664.1 million from $601.1 million. The adjusted gross billings to net sales adjustment was 34.3% compared to 30.2% in the last year's second quarter due to an increase in the proportion of sales recognized on a net basis. Product and service revenues increased 1.5% and 23.1% respectively. Service revenue benefited from a broad-based increase in demand for both managed services and professional services, which includes project-based services as well as staff augmentation. This marks the sixth quarter in a row of sequential improvement in our services revenue. Financing segment revenue was up 58.3% to $21.7 million, primarily due to higher transactional gains from several large transactions we announced with last quarter's results. and increases in portfolio and post-contract revenue. As Mark noted, results from our financing segment tend to be uneven from period to period. Consolidated gross profit increased 24.3% to $123 million from $99 million in the last year's second quarter. Consolidated gross margin increased 400 basis points to 26.9% compared to 22.9% last year. Technology segment gross profit increased 20.5% to 105.1 million, and gross margin increased 330 basis points to 24.1%, mainly due to higher product margins and increased sales of third-party maintenance and software subscriptions recognized on a net basis. Service margins increased 160 basis points to 38.6%, due to increased revenues and improved margins from all service categories. The financing segments gross profit increased 52.4%, mainly due to large transactional gains. Consolidated operating expenses were up 11.7% to 78.7 million due to an increase in salaries and variable compensation and G&A expenses. Our total headcount at the end of September was 1,554, an increase of 3.8% compared to $1,497 in the year-ago second quarter and a modest increase sequentially. All of this came together to yield operating income growth at 55.5% to $44.3 million. Our effective tax rate for the quarter decreased to 28.6% from 30.8% last year. For the full year, we expect our tax rate to be between 28 and 30%. Our consolidated net earnings of $31.4 million, or $2.34 per diluted share, increased 58.3% and 58.1%, respectively, from up $19.8 million, or $1.48 per diluted share, last year's second quarter. Non-GAAP diluted earnings per share were up 54.2% to $2.59 per diluted share, compared to $1.68 per diluted share year over year. Adjusted EBITDA increased 49.6% to $50.2 million. Our diluted share count totaled $13.4 million, the same as in the year-ago quarter. Looking at our customer end markets in the technology segment on a trailing 12-month basis, telecom media and entertainment continues to be our largest end market, accounting for 28% of net sales. followed by SLED, healthcare, technology, and financial services, which represented 15, 15, 14, and 11% respectively. The remaining 17% is distributed among several other customer types. Now let's turn to our consolidated year-to-date results. Net sales for the first six months of fiscal 2022 increased 11% to $874.7 million. Net sales in the technology segment increased 10% to $836.7 million. And adjusted gross billings increased 13% to $1.3 billion. Consolidated gross profit was $228.5 million, up 15.7%. Consolidated gross margin was up 100 basis points to 26.1%, and our technology segment gross margin increased 110 basis points to 24%. Net earnings were $54.9 million, or $4.09 per diluted share, up 47.6% and 47.1% respectively. Adjusted EBITDA increased 37.6%, to $88.5 million, and non-GAAP diluted earnings per share increased 42.6% to $4.55 per diluted share. Moving to the balance sheet, we ended the quarter with $57 million in cash and cash equivalents compared to $129.6 million at the end of March, reflecting increased working capital needs in the technology segment as well as share repurchases. Inventory levels were up 92.3% to $134.5 million. While this is a significant increase, I want to remind you that our inventory levels vary based on ongoing customer projects. We currently have some large projects in inventory that we expect to complete over the next several quarters. In our financing portfolio, we have approximately $165 million that we could monetize if the need arises by funding with third-party financial institutions. We also recently expanded our credit line by $100 million to $375 million, providing additional financial flexibility and funding to pursue Eplus's growth strategy. Our cash conversion cycle at the end of the second quarter was 35 days, up from 21 days in the year-ago quarter and 32 days in the prior sequential quarter. As Mark mentioned, we are pleased to report that Eplus's Board of Directors has approved a two-for-one stock split of the company's common shares. The stock split will be in the form of a 100% stock dividend to shareholders of record at the close of business on November 29th, 2021, and will be payable on December 13th, 2021. In closing, I am pleased with our strong results for the quarter. Looking ahead, We remain focused on our strategic initiatives, including expanding our offerings and market share both organically and through acquisitions. I will now turn the call back over to Mark. Mark?
spk05: Thank you, Elaine. On behalf of Elaine, Darren, and myself, and the entire ePLUS management team, I would like to take a moment to express our gratitude and appreciation for the continued efforts of our global ePLUS team. who have performed admirably in serving our customers while adapting to changing and often challenging market dynamics. Through their dedication and pursuit of excellence, E-Plus has grown stronger and more resilient as an organization with enhanced capabilities that position us for continued growth and success in the years ahead. In conclusion, this was a solid quarter and first half for E-Plus. We believe we will continue to see operating leverage in our model based on the strength of our two business segments. Operator, let's now open for questions.
spk00: If you have a question at this time, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question is from Maggie Nolan with William Blair. Your line is open.
spk03: Hey, Mark and Elaine. This is Ted on for Maggie. Thanks for taking our question. To start, how did the results, I guess, compare to your expectations in the quarter? And could you maybe quantify the impact that the supply chain challenges and component shortages had on the AGB in the quarter? Okay.
spk05: Hey, Ted, how are you, first off? So, the quarter was in line with our expectations. As you know, with the supply chain, it's a little different. It's fairly fluid, if you will, as it relates to the supply chain. So, let me give you some feel on the supply chain, and then I'll touch on the quarter. So, first off, I actually believe demand is outpacing supply overall. The lead times are changing pretty much every day. and being extended. I think it's actually a credit to the Eplus teams in terms of how they work with our customers, our vendors, in order to get product out at times that our customers needed it. So I think they perform very well in the quarter. I will tell you our open orders sequentially were up 25%, and currently they're the highest that they've ever been for us. So we are seeing the effect of a very strong demand. Some supply chain, I don't think it affected our quarter too much from a revenue recognition standpoint. It gives us some good visibility and predictability into the future with what we have in the open orders. And then related to the quarter, I'd say we performed like we thought, maybe a little bit ahead. We had called out that we were going to have a strong quarter for our financing team, and they did. But also on the technology side, we saw a strong growth in our services, our services margins, our adjusted gross billings being in double digits. So I think the teams performed very well in a challenging environment.
spk03: Great. That's helpful, caller. And then maybe as a follow-up to that, I guess, how is the state of the supply chain impacting the demand for your financing services? Are you seeing more, like, sales of off-lease equipment or other types of financing transactions, given what you're seeing in the supply chain environment?
spk05: yeah i don't to be honest ted we don't see too much effect there as it relates to the supply chain the only thing i think that could affect our financing potentially could be inflation and if interest rates go up so that would be the one effect on our business uh potentially that could happen as we go forward uh but as it relates to i'll call it supply chain with our finance business no no different than in other quarters or what we're dealing with our technology segment and trying to get product out the door
spk03: All right, great. Thanks for taking our questions.
spk05: No problem, Ted. We'll see you soon.
spk00: And our next question is from Matt Sheeran with Stifel. Your line is open.
spk02: Yes, thanks. Good afternoon, everyone. Mark, I wanted to ask just some more commentary in terms of the outlook. And it sounds like you talked about open orders and backlog. First, could you explain what the difference in that is? It sounds like your record open orders are backlogged also at records. And that inventory that you're building, is that – Are you seeing customers order like further out just to be, you know, just to be safe, you know, to get their supply? And is that sort of helping your visibility over the next couple of quarters?
spk05: Yeah, that's what it is, Matt. What we think is happening for a couple different reasons, I think customers, we haven't seen any slowdown from the customers in their need for technology. In fact, I think the demand has actually picked up a little bit in the investments that they're making in technology. So I think customers are making decisions to get their orders in early, knowing that the lead times are going to be more than what we currently deal with. So from that end, I do think there's there. The thing I'd like to point out, though, you know, it doesn't turn into revenue right now. So just to be clear, those are orders that are placed that until they're shipped, we can't recognize the revenue. So it hasn't affected this quarter. It may affect subsequent quarters, if you will. The other thing to also kind of keep in mind, if you will, is some of those orders are ratable, which doesn't turn into revenue right away. So it depends on the order. But the visibility... in terms of the orders that have been booked, is the highest we've seen since I've been here.
spk02: Okay, great. And you talked about the growth in services, but also cloud and off-prem services. And I'm wondering, are you seeing an acceleration there because of the product constraints and maybe some customers don't want to wait and they're more inclined to move certain workloads off-prem earlier than previous because of that?
spk05: Yeah, a little bit, Matt, but I don't think anything significant yet. I still think a lot of customers are looking at their existing data centers and trying to figure out how to monetize their data center footprint first in terms of the investments that they've made. Then they're looking to extend stuff to the cloud, so whether it's an application or a particular function that they want to extend to the cloud. And then they're looking for us to kind of help them accelerate and optimize the, you know, the cloud deployments that they have in place. So I think it's a little bit of everything. Yes, some has gone to the cloud potentially due to the supply, but I wouldn't say it's significant at this point, at least for E+.
spk02: Okay. Could you give us an idea of where the product shortage is for you or maybe, you know, the worst and where your customers are waiting the longest?
spk05: I think some of it is probably in the networking space, maybe some in the storage and a couple other places small on the storage. We have, as you know, little commodity play at E+. So, you know, there's a little delay there for some of our bigger customers, but nothing significant. But those would be the areas for us that we'll probably touch on.
spk02: Okay. And just lastly, in terms of cost input, I know your SMA was up. Are you finding that you need to be more competitive in order to attract talent? And also in terms of unit pricing, we know that pricing is going up. OEMs are passing those costs along. Are you having success doing the same thing, just passing them along to customers?
spk05: Yeah, good question, Matt. So as it relates to, I'll call it inflation across both OEM pricing and recruiting talent, I think we're feeling that like everybody else. As it relates to the OEMs, we've been able to pass on the pricing that the price increases onto the customer, so it's had little to no effect on us as it relates to our margins. As it relates to talent, in terms of looking for talent that we want to recruit for specific roles, I think it's affecting us a little bit in terms of what you have to pay for that talent. Now, the good news, over the past year, we've added 57 heads that are mainly in the sales and services side, so we're continuing to invest. even in this environment around building out some of the solutions and services. But, yeah, I think we're affected on the salaries, I'll call it, if you will, or compensation for employees a little bit like everybody else. But on the pricing, we're fine.
spk02: Okay. All right. Thanks so much.
spk05: All right, Matt. We'll see you soon.
spk00: Again, if you have a question at this time, please press the star, then the number one key on your touchtone telephone. Our next question is from Greg Burns with Cedoti. Your line is open.
spk04: Good afternoon. With the AI bundle for healthcare organizations that you rolled out, is that another subsection of the market like security that you think you can invest in and and grow? Is that an area of investment you're looking at going forward? And is it just applicable to healthcare or is there other industry verticals where you think that might have demand?
spk05: Yeah. Hey, Greg, how are you? So look, we're seeing pretty good growth in our healthcare, both year over year and trailing 12 months. Now, some of that I think is pent up demand due to COVID. So organizations were really just focused on patients and not doing anything else. This is a specific bundle to our healthcare organizations. We have a dedicated healthcare team. We have a former CIO of a healthcare organization that helped create this bundle. That's a combination of hardware, software, and services. Really, it's just leveraging the data that each of these healthcare organizations have in order to solve problems, real healthcare problems. One, we think it's a good fit for that particular vertical, and I do believe over time we potentially could expand that to other verticals that may make sense.
spk04: Okay. And just one more on the open orders and backlog. Is there any way you could quantify, you know, how much backlog is up, maybe from a percentage or absolute percentage? And same with the open orders. Like, how much is sitting in that open order bucket? Okay.
spk05: Yeah, as a percentage, Greg, just to give you a feel, sequentially it's up 25%. So it's up a significant amount, just quarter over quarter, if you will, or quarter to quarter, I guess I should say.
spk04: Is that backlog or open orders?
spk05: Open orders. Open orders.
spk04: Okay. And the backlog, how much is that up, like year over year or sequentially or any kind of?
spk05: I don't know off the top of my head our backlog. Here, I'll give you on the services side, both our pipeline and our backlog is up, you know, a decent amount as it relates to PS and MS, I believe.
spk04: Okay. All right. Thank you.
spk05: Okay. No problem, Greg. We'll see you soon, okay?
spk04: All right. Yep. Bye.
spk00: No questions at this time, personers. Please continue.
spk05: All right. Thank you. Thank you, everyone, for joining us today. If I could, I wish everybody a happy Thanksgiving. I hope you enjoy that time with your families and have a healthy and happy holiday season. Take care and be safe.
spk00: Thank you, personers. This concludes today's conference. Thank you for your participation.
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