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. Kley Parkhurst, SVP. Sir, you may begin.

Thank you for joining us today. On the call is Mark Marron, CEO and President; 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 Form 10-K for the year ended March 31, 2022, and our Form 10-Q for the quarter ended September 30, 2022, when filed. The company undertakes no responsibility to update any of these forward-looking statements in light of new information or future events. In addition, during the call, we may make reference to non-GAAP financial measures, and we've 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 thank you, everyone, for participating in today's call to discuss our results for the second quarter of fiscal 2023. Building on our first quarter performance, ePlus generated solid second quarter results with nearly 8% consolidated net sales growth and adjusted gross billings growth of more than 15%. We saw growth in most vertical markets and customer sizes, driven primarily by increased demand for our data center, cloud computing, networking, and security solutions with particular strength from our mid- to enterprise-size customers. We believe our solutions, services, and continued focus on our strategy plans have allowed us to continue to capture market share. I'm also proud of our team, which continues to execute at a high level, delivering strong top line growth while meeting our customers' needs despite persistent supply chain constraints. Our services business remains an important growth driver and an area of continued investment focus as our customers adopt a broad range of technologies to enhance productivity, increase profitability, and drive revenue. Services grew 7.1%, primarily due to our managed services, which encompass our on-premise, remote, and cloud offerings. Our managed service business produces consistent annuity quality revenue, reducing quarter-to-quarter variability in our revenue stream. For our clients, managed services provide holistic IT solutions that can optimize their IT platforms, supplement scarce IT personnel, especially in the most sought-after areas, and reduce operating costs. We continue to see an uptick in demand for our annuity services and our cloud and security advisory services. Some of our new offerings in the space include our ePlus Lifecycle Services Support. eLSS was developed to centralize and streamline the technical support experience by providing first call, multiproduct, multi-vendor architecture support for Cisco and adjacent technologies. In addition, our ePlus Azure assessments are designed to focus on high-profile security and configuration risk in areas of cost and efficiencies in our customers' current Azure deployments. I'm particularly pleased with the growth in our security business. On a trailing 12-month basis, security is now 22% of our adjusted gross billings. The security market continues to outpace our overall top line and adjusted gross billings growth as our customers prioritize investments to protect against escalating cybersecurity risk. In fact, we are seeing the cybersecurity market shift from traditional compliance-only-based approaches to more comprehensive enterprise security strategies that provide a higher level of protection against threats. This trend can further drive growth at ePlus as we provide a broader range of innovative security solutions and can also strengthen our customer relationships over a longer time period via managed services and multiyear contracts. Net sales in our financing segment were up slightly to $22.2 million compared to $21.7 million in the prior year period. As expected, Q2 financing segment operating income declined due to tough year-over-year comparisons, which reflect the variable nature of this business from quarter to quarter. Despite the lumpiness inherent in this business, we believe our financing business remains an important competitive differentiator, particularly in today's economic environment where payment flexibility offers an attractive option. Second quarter GAAP earnings per share decreased 8.5% to $1.07, reflecting investments in customer-facing personnel and investments in our internal IT capabilities to help us scale, increases in reserves and foreign currency translation losses, and a challenging year-over-year comparison in our financing segment that we called out on our last earnings call. Excluding the effects of foreign currency translation losses and acquisition expenses, non-GAAP earnings per share of $1.29 was essentially flat. Most importantly, we remain committed to investing in our people, tools, and processes, not only to meet our customers' current needs but to build the foundational capabilities to be their partner of choice in the future as well. We added 175 employees year-over-year, which includes the addition of the Future Com team members during the second quarter. The majority of our new hires have been for customer-facing roles, highlighting our growing business opportunities, particularly in our focused solution areas. These customer-facing hires have strengthened our sales, cloud, and security practices, providing the necessary capabilities to deliver on our increased services revenue and backlog. We have added significantly to our workforce, particularly for new specialized talent in professional and annuity services to fulfill current and anticipated future demand. These hires, plus increased third-party costs and overall services mix, affected our services margins. We are continuing to monitor and manage expenses and align our project and services pricing to reflect market costs. Due, in part, to supply chain delays, our professional services backlog is up over 68% year-over-year. Now turning to our outlook. Despite increasing economic uncertainty over the past several months, the outlook for IT spending is solid across most market segments. While ePlus is not recession-proof, our business is recession-resilient, supported by our financial strength and the nature of the mission-critical technology we sell and support. We have continued to experience broad-based demand across end markets and customer size segments, underscoring our ability to address our customers' critical needs from managing cybersecurity risk to enabling digital transformation. These positive demand trends are reflected in our high level of open orders that are up 42% over last year as well as our backlog, all of which support our confidence in the outlook for the second half of our fiscal year. Our favorable view is balanced against the challenges we continue to see in the supply chain where limited product availability has led to extended customer project implementation timelines. Our inventory levels, which are up over 100% from last year, reflect these supply chain constraints as well as a developing trend towards larger, more complex customer projects that cannot be fully deployed until all the necessary equipment is procured. In closing, I would like to commend the entire ePlus team for their dedication to providing the highest level of service to our customers every day. We are successfully executing on our strategy, generating solid sales and adjusted growth billings growth in our focused markets while maximizing our long-term opportunity through continued investment in our employees and in our capabilities. I will now turn the call over to Elaine Marion, our CFO, to provide details on our second-quarter financial results. Elaine?

Thank you, Mark, and good afternoon, everyone. I will review our financial performance in the second quarter of fiscal 2023 and year-to-date. Net sales were up 7.8% year-over-year, totaling $493.7 million in the second quarter. As Mark mentioned, we saw an expansion across the majority of our end markets and customer segments, demonstrating that we are focusing on the right growth areas. Net sales in the technology segment increased 8.1% to $471.5 million. To be more specific, product and service revenues increased 8.2% and 7.1% year-over-year to $406.3 million and $65.2 million, respectively. We were pleased with the growth in adjusted gross billings of 15.3%, amounting to $765.8 million compared to $664.1 million reported in the year-ago quarter. The adjusted gross billings to net sales adjustment increased 413 basis points to 38.4% compared to 34.3% in the second quarter of fiscal 2022. As we look deeper into our end market sales in our technology segment, on a trailing 12-month basis, we see similar trends to the prior quarter with telecom, media and entertainment, and technology, our largest markets, representing 29% and 16% of segment net sales, respectively. Health care, SLED, and financial services accounted for 14%, 13%, and 9%, respectively, with the remaining 19% representing other customer types. As of September 30, 2022, our customers totaled approximately 4,200. I just want to note that we now calculate our customer count as discrete customers who have purchased over the past 24 months rather than the prior 12 months used in previous communications due to lengthened customer buying cycles and supply chain delays. Our financing segment revenue was $22.2 million compared to $21.7 million in last year's second quarter as a result of higher proceeds from sales of leased equipment offsetting lower portfolio earnings and transactional gains. As we move to our consolidated gross profit, we reported 8.4% growth to $133.3 million in the second quarter compared to $123 million reported last year. Consolidated gross margin increased 10 basis points to 27%. Gross profit in the Technology segment was up 10.7% to $116.3 million. Technology segment gross margin increased 60 basis points to 24.7% as higher product margins more than offset lower service margins. Product gross margin expanded 150 basis points to 23.2% as we benefited from a higher proportion of sales of third-party maintenance, subscriptions, and services, which are recorded on a net basis. While our service margin was 33.6% compared to 38.6% in the second quarter of fiscal 2022, as Mark mentioned, this was primarily due to higher third-party costs related to our professional services and several large project-related contracts that were competitively priced, which blended down our service margins as well as an increase from managed services costs. Gross profit in the financing segment totaled $17 million compared to $17.9 million reported in the second quarter of fiscal 2022. As a reminder, last year's quarter had several large transaction gains which did not replicate. However, this year's quarter contained several early lease buyouts, which partially offset the lower transaction gains compared to last year. Early lease buyouts are customer-driven events that pull forward future earnings from the underlying leases. During the quarter, we saw increases in salaries and benefits. Our investments in personnel are evident in the headcount increase to 1,729 at the end of September 2022, which includes 25 employees from the July 2022 acquisition of Future Com, compared to 1,554 in the prior year. The quarter-over-quarter increase contains 48 sales-related roles and 100 professional services and technical support personnel as we experienced an increase in demand for our services. As you think about these investments, please keep in mind, there is some lag between the upfront costs and the revenue generation. In addition, we saw increases in variable compensation tied to our gross profit performance and had higher travel expenses related to the resumption of customer and in-person meetings. We also reported an increase in interest expense related to our higher borrowing on our credit facility and a change in reserves due to an increase in exposure across our receivables. Our reserve calculation methodology did not change. All of these factors together drove an increase in consolidated operating expenses of 13.3% year-over-year to $89.2 million. Although we made significant investments in personnel, operating income for the quarter was $44.1 million, essentially flat compared to the exceptionally strong level of $44.3 million reported in the second quarter of 2022, which benefited from several outside transactions in our financing segment. The effective tax rate was 29.3% compared to 28.6% in the year-ago quarter. Including foreign currency translation losses from U.S. dollar-denominated loans with our subsidiaries in the United Kingdom that totaled $3.9 million, consolidated net earnings in the second quarter of fiscal 2023 were $28.5 million or $1.07 per diluted share, compared to $31.4 million or $1.17 per diluted share in the last year's second quarter. Non-GAAP diluted earnings per share were $1.29 compared to $1.30 in the year-ago quarter. Last year's EPS is adjusted to reflect the stock split in December 2021. Our diluted share count at the end of the quarter was 26.6 million compared to 26.9 million in the second quarter of fiscal 2022. Adjusted EBITDA was $50.3 million, slightly ahead of $50.2 million in the comparable quarter in fiscal 2022. Just to briefly recap our financial performance year-to-date, net sales for the first 6 months of fiscal 2023 increased 8.8% to $952.1 million, driven by net sales growth of 10% in the Technology segment to $920.3 million. Adjusted gross billings were up 13.2%, reaching $1.47 billion. Consolidated gross profit increased 8% to $246.8 million. Consolidated gross margin was 25.9% compared to 26.1% a year ago. However, our Technology segment gross margin increased 10 basis points to 24.1%. Net earnings totaled $50.8 million or $1.91 per diluted share, compared to $54.9 million or $2.04 per diluted share, respectively, adjusted for the stock split affected in December 2021. Adjusted EBITDA was up 0.2% to $88.6 million, and non-GAAP diluted earnings per share were flat year-over-year at $2.28 per diluted share. Our healthy balance sheet enables us to execute our strategy effectively. Cash and cash equivalents were $99.5 million at September 30, 2022. On Tuesday, we announced the expansion of our credit facility agented by Wells Fargo Bank, from $375 million to $425 million. The expanded credit line will help facilitate and support our growth strategy, and we are grateful for the long-term support of Wells Fargo and the participant banks. We continue to experience supply chain challenges and have ongoing delays to deliver completed orders and corresponding services which resulted in inventory increasing 77.3% to $274.9 million at the September quarter-end compared to the end of fiscal 2022. As a reminder, our inventory is primarily related to committed orders by our customers. This variation also explains the increase in our cash conversion cycle to 54 days compared to 35 days in the year-ago quarter. However, we expect our cash conversion cycle to improve as supply chain constraints ease. Despite the near-term economic uncertainty, we believe that our strategic focus on the right technologies positions ePlus well for the future.

Thank you, Elaine. To recap, ePlus recorded a solid quarter in both business segments. With strong levels of open orders, backlog, and inventory, we are well positioned to have a solid second half despite heightened economic uncertainty. In light of escalating cyber threats, our flexible and evolving security solutions are proving more critical to customers than ever. Supply chain constraints continue to be a challenge, variously affecting revenue margins and operating expenses in many of our solution areas for both product and services. We continue to monitor and adjust to fill our customers' critical IT needs. In closing, we are well positioned to capture future growth while defending against recessionary risks, given our strong balance sheet, excellent vendor and customer relationships, and our talented and dedicated workforce. Operator, I would now like to turn the call over for questions.

Your first question comes from the line of Matt Sheerin with Stifel.

Yes. Hello, everyone. Just a first question just on the strength of gross profit in the Technology segment. I think you called out higher hardware product sales because of the third-party warranty sales and the seasonality of that business. Is that right?

Yes, Matt. Our gross to net was, I think, up just about 400 basis points. So on our gross margins, there's a couple of things. One, the gross to net affected the margins in a positive way. Our product margins were actually up, too, based on some of the more mission-critical technology that we sold. Where we took a little bit of a hit was on our services margins, and that really had to do with product deliveries with some of the supply chain. So it's really just a timing thing. And then the other thing I'd just highlight, if you look at it, the tech GM was up 60 basis points. And I believe we're some of the highest in the industry, where we wound up on a consolidated basis at 27% on gross margins.

Yes. No, no, I understand. What I was getting at is how sustainable is that? And how much of that is seasonal? I mean, last year, in the September quarter, you're up 400 basis points or so. So that seems like a seasonally stronger quarter. In other words, I mean, should we be modeling these levels? Or is there a seasonal decline in the December quarter because of the change of some of the products like the third-party warranties?

Now I got you, Matt. So sorry about that. So yes, it's more seasonal. So a lot of this has to do in this quarter where we get the uptick is due to Cisco's fiscal year-end where there's a lot of third-party maintenance and software that goes from a gross to net perspective. So this is traditionally a higher quarter than the other three quarters within ePlus.

Okay. And on the expense side, it sounds like you're making some prudent investments in various resources, particularly on the technical side. So how should we think about that going forward in terms of OpEx increasing? How should we think about that?

Yes, that's fair. So let me give you a little detail, Matt, and then maybe I'll try to help you fence it in a little bit. So from an OpEx standpoint, there's a couple of different things. The big investment is in headcount. What we're seeing, based on some of the market share that we're grabbing specifically in the services, annuity services, specifically, security, and cloud, we're adding headcount in that space. For example, we hired a bunch of junior associates in the security space that we've trained over the last 5 to 6 weeks that we're then going to have be customer-facing. So we're kind of making those investments. We see the OpEx up a little bit this quarter. It kind of takes time, not only for the security folks I mentioned, but others to get productive. The other thing we saw was our annuity bookings were up. I think it was 36% year-over-year in terms of our annuity bookings. We had a few large service desk deals that we had to hire additional talent to meet the SLAs with those services. So those are some of the things that built up our OpEx. From an investment standpoint, we do think that the revenue will catch up to the expense over time. If I were modeling at a very high level, I would say this is probably a decent model in terms of OpEx going forward. We're going to diligently manage the business and add hires as needed.

So stable from here?

That's fair.

Yes. Okay. And just lastly, on the inventory build and the product constraints, it looks like you had some upside in the quarter. So it looks like you may have benefited from some improving supply or perhaps the inventory build that's been going on. But are you encouraged at all in terms of things opening up at all? And is that going to limit perhaps upside in the December quarter, where in previous years, you've been up mid- to high single digits sequentially?

Yes. So Matt, a couple of things there. One, this is still very fluid, as you know. So we're hearing different things from the OEMs in terms of timing of when things will be getting out. So it's still very fluid. So it's not an easy answer on this one. What I would tell you to look at, our open orders were up 42% over last year, for one. Second, I think Elaine touched on it. Our inventory was up 100%. I think it's up 77% since March alone. So what we're seeing is we are grabbing market share. Our adjusted gross billings continue to grow, both in the quarter as well as the half, and then some of this is a timing to get out the door. But it's positive in the long run, but it's not a simple, easy answer since we don't control when some of these things are going to get out.

Your next question comes from the line of Maggie Nolan with William Blair.

This is Jesse on for Maggie. I wanted to start off with revisiting product margins. So can you talk about some of the puts and takes there? Are you able to achieve higher pricing or those mission-critical products you mentioned? And what are your expectations going forward?

Yes, thank you, Jesse. There are two main factors affecting this. Firstly, as I mentioned, it's related to the gross to net situation. We have more third-party software SaaS products that are recognized on a net or ratable basis depending on the technology and the terms. On the product side, we have noticed a slight increase in product margins due to the technology we are selling. I want to highlight that we primarily focus on value selling services and mission-critical technology, rather than competing heavily in the PC device market like some others do. While we do sell in that space for some of our larger clients, it's not a major focus for us. Traditionally, we tend to see our product margins being higher due to our sales in areas like storage and security, which generally yield a greater gross margin.

And then a quick follow-up to that. Are you able to achieve better pricing as customers seek these solutions more quickly? And would you expect that to change as supply eases?

I'm not sure if the process will be quicker, Jesse. It really comes down to our approach, which emphasizes being customer-first, services-led, and results-driven. This means we prioritize our consultative and advisory services to help our customers understand the necessary security measures, especially regarding ransomware and risk mitigation. When we conduct this initial work effectively and demonstrate the value, we can potentially see improved margins based on both the products and services we offer. Timing might be a factor for some customers who are under tight deadlines and focused on supply chain issues rather than costs, but I don't believe that's a significant driver for our gross margin.

Okay. That's helpful. I have one last question. The net headcount additions appear strong this quarter, even when excluding the impact from Future Com. How are you planning for the cadence for the rest of the year and its implications for the business?

Yes. Good question, Jesse. So of the roughly 175 heads, approximately 25 to 30 were from Future Com. The other 145, most of those were customer-facing, and I'd say the majority in the services space. And when I say that, both the service desk, annuity plays that I talked about that we had to hire headcount to meet certain SLAs for customers, and also in presales and delivery for cloud and our security practices. So we'll continue to monitor and manage that. So we'll manage the business tightly and add the headcount as we need it, as we see the net sales in AGB adjust upward, if you will.

At this time, there are no further questions. I would like to turn the call back over to Mr. Mark Marron for closing remarks.

Thank you all for joining us today for our Q2 earnings call. I wish everyone a happy and healthy holiday season for Thanksgiving and all other holidays before our next earnings call. Take care, and thanks for being here.

This concludes today's conference. You may now disconnect.