Safe Harbor Statement
This transcript of the earnings call that occurred on August 4, 2021, contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact, but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “intend,” “estimate,” “will,” “potential,” “could,” “believe,” “expect,” “anticipate,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date of the earnings call, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:
· national and international political instability fostering uncertainty and volatility in the global economy including an economic downturn, exposure to fluctuations in foreign currency rates, interest rates, and pressure on prices;
· the duration and ongoing impact of the COVID-19 pandemic, which could materially adversely affect our financial condition and results of operations and has resulted in governmental authorities imposing numerous unprecedented measures to try to contain the virus that have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners;
· domestic and international economic regulations uncertainty (e.g. tariffs and trade agreements);
· the creditworthiness of our customers and our ability to reserve adequately for credit losses;
· significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers or vendors;
· managing a diverse product set of solutions in highly competitive markets with a number of key vendors:
· uncertainty regarding the phase out of LIBOR may negatively affect our operating results;
· increasing the total number of customers using integrated solutions by up-selling within our customer base and gaining new customers;
· adapting to meet changes in markets and competitive developments;
· maintaining and increasing advanced professional services by recruiting and retaining highly skilled, competent personnel and vendor certifications;
· increasing the total number of customers who use our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
· performing professional and managed services competently;
· maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace;
· reliance on third-parties to perform some of our service obligations to our customers;
· our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train and retain sufficient qualified personnel;
· our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key strategies;
· a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
· the possibility of goodwill impairment charges in the future;
· changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service, software as a service and platform as a service;
· our dependency on continued innovations in hardware, software and services offerings by our vendors, availability of those products from our venders and our ability to partner with them;
· significant and rapid inflation may cause price and wage increases, as well as increases in operating costs which may impact the arrangements that have pricing commitments over the term of the agreement;
· our contracts may not be adequate to protect us, and we are subject to audit in which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
· exposure to changes in, interpretation of, or enforcement trends in legislation and regulatory matters;
· future growth rates in our core businesses;
· reduction of vendor incentives provided to us;
· failure to comply with public sector contracts or applicable laws and regulations;
· our ability to secure our own and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;
· our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, or obtain debt for our financing transactions or the effect of those changes on our common stock price;
· changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;
· disruptions or a security breach in our or our vendors’ or suppliers’ IT systems and data and audio communications networks, supply chains or other systems;
· our ability to realize our investment in leased equipment; and
· our ability to successfully perform due diligence and integrate acquired businesses;
·
· our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents, or allegations that we are infringing upon any third-party patents, and the costs associated with those actions, and, when appropriate, license required technology.
We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks and uncertainties. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in our Form 10-K for the year ended March 31, 2021 as well as other reports that we file with the SEC.
This document may also contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes that this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of non-GAAP measures presented in this document, see our earnings press release issued August 4, 2021, a copy of which is posted on our website at www.eplus.com/investors.
August 4, 2021
Prepared Remarks
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 now like to introduce your host for today's conference, Mr. Kley Parkhurst, Senior Vice President. Sir, you may begin.
Kleyton Parkhurst, SVP
Thank you for joining us today. On the call is Mark Marron, CEO & President; Elaine Marion, CFO; Darren Raiguel, COO and President of ePlus Technology; 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 & Exchange Commission including our form 10-K for the year ended March 31, 2021, and our form 10-Q for the quarter ended June 30, 2021, 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 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, CEO, President
Thank you, Kley, and thank youveveryone, for participating in today's call to discuss our results for the first quarter of fiscal 2022. We had a great start to our fiscal year as net sales and adjusted gross billings growth underscore robust customer demand for our technology and finance solutions. More importantly, this quarter continued to show the scalability and efficiency of our operating model as strong top line growth fueled healthy operating income and net earnings growth. Our first quarter consolidated net sales increased 17.4% from the prior-year period with operating income growing 29.8% and net earnings growing 35.5%. In addition, adjusted gross billings rose 15.9% year-over-year to $633 million.
These results reflect demand for our solutions, a substantial rebound in the IT markets, and our continued focus on expense management and investments that enhance our operating efficiency.
Our strong first quarter financial performance benefitted from balanced revenue growth for product sales and services. In our Technology segment, sales were up 17.3%, driven, in part, by strong growth in the enterprise market and additional “land and expand” contract wins with high-volume customers. Although our technology segment gross margins decreased from last year due to product and customer mix, along with a lower gross to net adjustment, our overall results highlight the positive operating leverage in our model, as segment operating income was up 43.9%.
Services revenue grew 16.3% in the first quarter with gross margins of 39%, up 140 bps from last year’s first quarter. During the first quarter, we experienced solid growth in both professional and managed services, driven in part by continued strong demand for secure and flexible hybrid work models to accommodate remote workforces. This increased growth in the remote workforce is positive for ePlus, accelerating customer cloud adoption and the provision of cloud services. We had several key cloud and security-related contract wins during the quarter, underscoring market demand for our capabilities in these areas. One innovative example of this is where we worked with a Healthcare provider who leveraged our Cloud Hosted infrastructure to use a solution that analyzes and detects if a digital medical image of a mole is cancerous.
We also saw a solid uptick in annuity services bookings in Q1 versus last year and continued to add to our annuity quality revenues. In addition, the recurring annuity-type revenue generated by our services business will enhance both the predictability and visibility of our revenue stream.
Security remains a critical area of customer focus and investment. Our consultative approach to designing and implementing comprehensive security solutions help safeguard our customers’ data and mitigate ever-present security risks. Security represents 20.8% of our trailing twelve-month Adjusted Gross Billings and almost $500 million on a standalone basis, reflecting its significance within the total solutions approach we bring to customers.
The pandemic has shifted applications and users beyond their traditional environments. We continue to innovate, invest and help our customers Go beyond their traditional cyber security methodologies to optimize environments and introduce new technologies that are purpose built for securing the remote workforce and applications deployed across multiple clouds.
As the global economy moves beyond 2020 and into a post-pandemic environment, businesses are quickly adapting to the “new normal” – a process that involves reassessing previously implemented remote workforce solutions and network infrastructure to ensure that current IT systems and technology roadmaps can adapt with agility to both present and future IT challenges.
To help our customers succeed in this new environment, ePlus developed an innovative suite of services and solutions called “Navigate the Next.” Our solutions specifically address and help solve the three most pressing IT challenges now faced by our customers:
First, as employees return to the office, even on a part-time basis, their health and safety remain a paramount concern. Through our partnerships with leading technology vendors, our innovative “Return to the Workplace” solutions assist enterprises in monitoring physical distancing and providing safe working conditions.
Second, enterprises and organizations seek more efficient management of current IT project expenses coupled with a longer-term strategy for funding future technology projects. Our Expense Management offerings solve these needs through cloud cost optimization services, carrier expense management and strategic financing programs.
And third, as remote and hybrid work has become commonplace, businesses now more than ever require a robust and scalable platform to maintain business continuity with a dispersed workforce. To address this challenge, we developed an approach based on a hybrid cloud virtual desktop infrastructure that offers significant cost, performance and security advantages over existing solutions.
We have been pleased by the positive market response to our “Navigate the Next” suite of solutions, which represents just one example of how our investments in technology and resources enable ePlus to stay at the forefront of dynamic market trends and further strengthen our position as a trusted partner to our more than 3,500 customers.
Turning now to our financing segment, net sales grew 18% in the first quarter compared to the prior-year period primarily due to increased sales of off-lease equipment. Although the financing segment results can be lumpy from quarter-to-quarter due to the timing and size of transactions, this business provides a unique point of differentiation for ePlus as our lease and financing options offer our customers’ flexibility in managing their IT budgets. With an acceleration in IT spending expected this year, our financing segment is seeing strong interest from a variety of customers.
From a capital allocation standpoint, the strength of our balance sheet enables us to pursue strategic acquisitions and fund organic growth initiatives. As we move forward, we will continue to identify and evaluate potential acquisition candidates that not only broaden our geographic presence but also enhance our capabilities and participation in high-growth markets.
Looking ahead to the balance of our fiscal year, we are encouraged by the fundamental health of our markets and the strength of customer demand for our services and solutions. With the global economy re-opening and IT spending accelerating, the outlook for ePlus remains positive, particularly in our areas of focus: security, data center, cloud and digital infrastructure.
As I noted last quarter, disruptions in the electronics supply chain continue to cause component shortages. And while this did not materially affect our first quarter results, we recognize the potential for some revenue headwinds as we move through our fiscal year. In addition, the emerging Covid variants and the possibility of a delayed return to work and/or government mandates, could adversely affect our future performance.
We remain well-positioned for continued growth in fiscal 2022, supported by the strength and breadth of our customer relationships, our strategic partnerships with leading vendors across the IT ecosystem and our comprehensive portfolio of transformative technology solutions.
I will now turn the call over to Elaine Marion, our CFO, to walk you through our financial results in more detail. Elaine?
Elaine Marion, CFO
Thank you, Mark, and thank you everyone, for joining us today. We are pleased with our strong fiscal 2022 first quarter performance.
Our consolidated net sales for the first quarter were $416.6 million, a 17.4% increase from the $355.0 million reported in last year’s first quarter.
In our Technology segment, revenue was up 17.3% to $400.4 million compared to $341.2 million in last year’s first quarter, reflecting robust growth in both product revenue and service revenue of 17.5% and 16.3%, respectively. We are also very pleased with the continued sequential increase in Service revenue over the past five quarters resulting from our ongoing efforts to emphasize our managed services. Our robust topline performance underscores strong demand for our diverse portfolio of solutions that are well aligned with customer needs. Adjusted gross billings increased 15.9% to $633.0 million from $546.4 million, benefitting mainly from organic growth which constituted approximately 80% of the growth, coupled with contribution from the SMP acquisition we completed on December 31, 2020. The adjusted gross billings to net sales adjustment was 36.8% compared to 37.5% in last year’s first quarter. This continues to trend higher relative to 33.3% on a trailing twelve-month basis.
Our Financing segment revenue was up 18.0% to $16.3 million mainly due to increased sales of off-lease equipment of $5.1 million, up from $3.9 million last year. The results from our Financing segment tend to be uneven from period to period.
Our consolidated gross profit increased 7.1% to $105.5 million from $98.6 million, while consolidated gross margin was 25.3% compared to 27.8% last year. Technology segment gross profit increased 9.9% to $95.4 million while the gross margin of 23.8% declined 160 basis points mainly as a result of lower product margins due to competitive pressure from enterprise customers and a lower proportion of sales of third-party maintenance and software subscriptions in the first quarter. Services margins expanded 140 basis points to 39.0% due to growth across our service offerings. The Financing segment’s gross profit decreased 14.0% due to higher sales of off lease equipment, which yielded lower margins.
Consolidated operating expenses decreased 0.7% to $73.1 million, consistent with last year and the prior sequential quarter. Our total headcount at the end of June 2021 was 1,547, an increase of 0.7% compared to 1,536 in the year ago first quarter and 0.8% below last quarter’s level.
Operating income increased 29.8% to $32.5 million. Our effective tax rate for the quarter decreased to 27.8% from 30.8% last year. For the year we expect our tax rate to be between 28% and 30%.
Our consolidated net earnings of $23.5 million, or $1.75 per diluted share were up 35.5% and 34.6%, respectively, from $17.4 million, or $1.30 per diluted share in last year’s first quarter. Non-GAAP diluted earnings per share increased 29.8% to $1.96 per diluted share, compared to $1.51 per diluted share year-over-year. Adjusted EBITDA was up 24.6% to $38.3 million. Our diluted share count totaled 13.44 million compared to 13.39 million in the prior year quarter.
Now looking at our end markets in our Technology segment on a trailing twelve-month basis, Telecom, Media & Entertainment and Technology continue to be our largest markets, representing 27% and 16% of segment net sales, respectively. SLED, Healthcare and Financial Services followed accounting for 15%, 13% and 12% respectively, with the remaining 17% distributed among several other customer types.
Moving to the balance sheet, we ended the quarter with $93.8 million in cash and cash equivalents compared to $129.6 million at the end of March. As a reminder, we have approximately $161 million in our financing portfolio and a portion of that could be monetized if the need for additional capital arises. Inventory levels increased sequentially 11.1% to $77.8 million. Inventory levels vary with ongoing customer projects. Our cash conversion cycle at the end of the first quarter was 32 days, up from the 30 days in the year ago quarter but down from 37 days in the March period.
We continue to actively monitor the effects of COVID-19, the vaccine roll-out and the spread of new variants on our business and footprint. We also remain committed to seeking new investments either organically or through acquisitions to advance our positioning.
We began fiscal 2022 with strong first quarter results, which bolster our outlook, given solid demand and positive trends in the market for our solutions and services. In addition, we closed several outsized transactions in our financing business in July 2021 which we estimate will contribute $0.32 to $0.37 per diluted share in our second quarter. Against this favorable backdrop, we continue to monitor the potential negative impact from product shortages in our industry.
I will now turn the call back to Mark. Mark?
Mark Marron, CEO, President
Thanks, Elaine. We are off to a great start in fiscal 2022 and I’d like to thank the entire ePlus team for their continued dedication and hard work in achieving our positive first quarter results. We continue to execute well on our growth strategy, and as the global economy continues to re-open, we see numerous opportunities to expand our participation in higher growth areas. As always, we will continue to work closely with our customers to be their partner of choice for delivering comprehensive lifecycle IT solutions.
In summary, the fundamental outlook for ePlus remains strong, and I am excited about our opportunities this year and beyond.
Operator, I’d now like to the open the call for questions.
Operator
[Operator Instructions] Your first question comes from Maggie Nolan with William Blair. Your line is open.
Maggie Nolan, William Blair & Co. LLC
Hi. Thank you.
Elaine Marion, CFO
Hi, Maggie.
Maggie Nolan, William Blair & Co. LLC
Hey, Elaine. Going forward for the next couple of quarters, how are you balancing your expectations just given the increased product sales you saw, but also expected shortages and supply chain issues you noted?
Mark Marron, CEO, President
Really, really good question, Maggie. So first, if you look at the quarter, we feel pretty good about the quarter overall, the metrics were up across all of the key areas from top to bottom. We've also seen that are our open orders were up significantly, almost 32% over last year. Backlog in our services was up, so all the kind of key metrics we look at are all very good.
As it relates to the shortage, this past quarter, it was still in play and we saw minimal effect. It did affect our quarter where some things were pushed out due to lead times. I give credit to our teams. Darren, our COO, and the Elaine, our CFO, did a great job with their teams making sure that we worked closely with the customers and the vendors on getting the products out that the customers or solutions that our customers needed.
There is still some uncertainty around the lead times and a lot of the experts are saying it's going out to next year. But right now, we feel pretty good about where we are in the quarter so far, the pipeline and some of the metrics overall. But there's always that uncertainty as it relates to some of the shortages that are beyond our control.
Maggie Nolan, William Blair & Co. LLC
Okay. Thanks Mark. And then on the financing offering, can you give us an update, just the latest update on credit quality of your customers, how you're assessing risk, particularly for those receivables that are not assigned to third parties?
Elaine Marion, CFO
Yeah. Sure. This is Elaine. We are continuing in our standard process of evaluating our lessees. We've been doing it for years and have a pretty robust process in place to evaluate the credit quality of our lessees. Our exposure is actually down this quarter from the previous quarter. So, it's really basically related to transactional sales that occurred within the quarter. So, there's really no change, Maggie, in how we approach the credit quality process in our customer base.
Maggie Nolan, William Blair & Co. LLC
Okay. Thank you.
Elaine Marion, CFO
Sure.
Mark Marron, CEO, President
No problem, Maggie.
Operator
And your next question comes from Matt Sheerin with Stifel. Your line is open.
Matt Sheerin, Stifel
Yes. Thank you. Good afternoon, everyone. My first question is regarding that leasing, those leasing transactions that you said is an incremental 32% to 37%. How should we think about that? Is that just a gross profit drop through that business? So, you're going to get an incremental whatever a few million dollars?
Mark Marron, CEO, President
Yeah. That's a fair way. Hey, Matt, a couple of things. As we discussed, it wasn't percent. It was actually cents. So, I don't know if you if I missed what you said there.
Matt Sheerin, Stifel
No, cents, yeah. No, cents, yeah.
Mark Marron, CEO, President
Okay. So as we always kind of talk about with our finance business, it's a lumpy business, as you know, mainly a lot of that stuff is transaction gains. So that's kind of net of all cost except taxes, right. What happened is we had several large deals that happened in this quarter that we thought were material and we've got to put it out in July, in Q2. So – but yes, from what you asked, it's exactly how it's going to play out.
Matt Sheerin, Stifel
Okay, great. And then on the commentary about the gross margin in tech segment down you talked about you, did talk about a little bit of pricing pressure at the customer level. If you could expand on that? And then as we look to the September quarter, I know you've got – you tend to have better gross margin because there's more warranty, third party maintenance contracts with your largest vendor. So, should we expect gross margins to improve quarter-on-quarter?
Mark Marron, CEO, President
So that was a lot there, Matt. So, I'll try to touch on the quarter what happened this quarter. So, a couple of things that affected our gross margins. One, the gross to net was lower, so which lowered the margins. Our product margins were a little bit lower than normal. Nothing outside crazy normal, if you will, but a lot of it was due to some of the stuff that we talked about with our land and expand. We did some land and expand type deals that traditionally a little bit lower margin and then over time we tried to show value to those customers.
We also saw our enterprise business grow substantially. So as a percentage of net sales, 1,000 employees and above customers actually grew 28%. So traditionally those enterprise margins are a little tighter. Offsetting that we saw our service margins actually increased by 140 basis points, which is attributed to a lot of our annuity services revenues that we talked about that as we continue to build those annuity, we would expect both the services revenue as well as the margins to continue to grow.
I think the second part of your question is the gross to net normally with July due to fiscal year end, we expect it to be up. That's a tough one right now, Matt, to kind of give you an exact answer. I would expect it to be up some versus last year for sure. I can't give you an exact percentage a month into it just yet until we kind of start calculating all the numbers. But I think it's safe to say that the gross to net will be higher than last year, which would have a positive effect on the gross margins. I just don't know how much. I'm not sure it's going to be dramatically – a dramatic uptick.
Matt Sheerin, Stifel
Got it. And then, just in terms of the upside that you saw last quarter in the momentum you have going and what do you attribute that to, your customers finally as they get back to the office or seeing more pent-up demand projects that have to be done, what do you account for that big uptick that you saw?
Mark Marron, CEO, President
A few things there. One is demand for our solutions, Matt. So, we are seeing a lot of customers need what we're providing across a lot of different things in terms of return to the workforce, cost management, long-term kind of funding for projects that they may be put on hold, some of the remote and hybrid solutions that we're seeing customers kind of buildup. I'd also think there's a little bit of a rebound in the IT market. So, from that end, we saw that.
And then we saw continued growth across our four key areas. So, data center and cloud, networking, security and collaboration, all grew in the quarter and trailing 12 months. And security was – I think was up 19% year-over-year for the quarter, and it's 20.8% of our trailing 12 months. It's almost a $500 million business. So, I guess the key thing is diverse customer base, selling the solutions that our customers need, growth in each of our solution areas would be the roundabout answer of that.
Matt Sheerin, Stifel
Okay, thanks. And just my last question, just regarding – it sounds like your head count has been flattish, yet you're seeing good growth. And I remember last year, on the services side where you were actually – your employees and your customer base, I know that was down. So, are you adding back your head count and are you having any issues finding people given the labor shortages that we're hearing about?
Mark Marron, CEO, President
Yeah, so a couple things there, Matt. Yes, we're going to continue to invest in head count because we believe we can continue to expand our reach and our solutions, so we will continue to look for head count. Is it a little bit tougher in the market from both a recruiting and retention standpoint? Yeah, it's a fairly competitive market and people being able to work remotely has kind of put an interesting dynamic. We do have an internal recruiting team, though, that does a really nice job of finding the resources we need both on the sales and services side, so all goodness there.
On the services side, though, just to add to it, Matt, that's pretty interesting. So one, our services were up 16.3% this quarter year-over-year. That's attributable a lot, PS getting on site is still a little bit tight as we talked about. But what's interesting now is staffing is starting to pick up where our customers are looking for being the hiring market is a little tighter. They're looking for us to kind of help them get up to speed as they return to work.
We're also seeing customers that need help with what we call our on demand jumpstart program where if you think about a lot of customers have been working from home are now getting back into the office. So a lot of their technology has been sitting idle. So we kind of go in and do a identify, test, remediate that technology both with local resources and our call centers. So we're starting to see some pickups in staffing in that on-demand services. In our annuity services, our total contract value in Q1 year-over-year was actually up 80%. So, a lot of the services business we've been saying we've been trying to build out is actually moving in the right direction even in these times.
Matt Sheerin, Stifel
Okay. That's very helpful. Thanks a lot.
Mark Marron, CEO, President
All right. See you, Matt.
Operator:
[Operator Instructions] Your next question comes from Greg Burns with Sidoti. Your line is open.
Greg Burns, Sidoti
Good afternoon. Just following up on that, the last question in terms of head count and investing in more customer-facing resource, the leverage has been really strong over the last few quarters, maybe some of that is conservatism related to the pandemic. But obviously demand is picking up here. So should we think about operating leverage, operating margin targets going forward?
Mark Marron, CEO, President
Okay. So hey, Greg, you were breaking up a little bit there, but what I think you asked is what should we expect with operating leverage as we go forward. So what I think we've done a nice job of overall some of the operating leverage we've got is due to the pandemic, obviously, with travel and entertainment and things along those lines that are down. I think we've done a really nice job of keeping all the ePlus employees, realigning towards the areas that we believe are key that our customers need in this new environment. So driving up our net sales and our AGV, if you will, while maintaining head count.
With that said, I would expect that we'll continue to hire both sales and services as we continue because I do think we've got a real good chance to grab some additional market share as we go forward. So I would think the OpEx as it stands this past quarter is probably a good metric overall to manage to, if you will. I would think over time, our head count should trend up a little bit as we continue to build out certain areas because I think we can continue to grow in some of our focus areas.
Greg Burns, Sidoti
Okay, thanks. And then in terms of the – has there been any change in the conversations you're having with your customers, given the little resurgence we're seeing in COVID? Are they starting to get more cautious in terms of their outlook?
Mark Marron, CEO, President
No, I haven't heard it yet. I mean we just got the news I think today with the mandate for the masks again coming back in. I think everybody's been accustomed to doing a lot of the virtual remote kind of calls, if you will. I've done many in terms of calls myself on video with customers and they seem very open to it and they've adapted fairly well to it as we walk through our solutions, we are trying to help them with what they need. So I don't think we'll see much of a change than what we've seen over the past year to be honest, Greg.
I think the big thing that a lot of customers are trying to figure out is the lead times on some of the supply chain stuff. So I think they all need solutions where they are looking to upgrade the solutions or maybe jumpstart some of the stuff that they wanted to do, but didn't do in the last year. And they're trying to figure out what is the right solution and then what's the lead time in order to get that in.
Greg Burns, Sidoti
Okay, great. Thank you.
Mark Marron, CEO, President
All right, Greg. Thanks.
Operator
All right. There are no further questions at this time. I would now hand to call back to the company.
Mark Marron, CEO, President
Okay. The company says thank you. And if I could, thank everybody for attending today, we appreciate it and look forward to seeing you or hearing from you on the next quarterly earnings call. Take care and be safe. Thank you.
Operator
This concludes today's conference call. Thank you for your participating. You may now disconnect.
