10 Questions for Procurri Corporation

Company Overview

Procurri Corporation (Procurri) is one of the leading global independent providers of Third-Party Maintenance Services, IT Asset Disposition (ITAD) & Data Centre Services and Hardware Distribution & Resale. By offering a channel that combines the technology, finance and logistics domains, Procurri aims to be a global aggregator of enterprise services and hardware. Procurri has offices across Asia Pacific, the Americas and Europe.

1. Describe Procurri’s Main Business Segments, Segment Drivers, and Margins.

• Procurri is a global provider of lifecycle services for data centre equipment. Its business segments are split into:
  i. Hardware, Lifecycle Services and IT Asset Disposition (Lifecycle Services) (80.4% of FY22 revenue) includes refurbished IT hardware, distribution of new hardware, professional services associated with data erasure, installations, imaging, lifts and shifts of IT hardware as well as modern workplace management involving global deployment of IT assets and IoT devices.
  ii. Third Party Maintenance (19.6% of FY22 revenue) includes rendering of IT maintenance services, sales of maintenance parts and professional services tied to systems on renewable contracts.

• In 2022, Procurri reported a gross profit margin of 26.1%, with the Lifecycle Services segment accounting for 24.1% and the Third-Party Maintenance segment accounting for 34.2%.

• The Group anticipates future business to be driven by the increasing demand for reliable maintenance and support services for complex data centre equipment as well as solutioning of complexities associated with hybrid working environment post-pandemic.

2. Can You Elaborate on the Cost-cutting Measures That Procurri Undertook Recently?

• The Group relocated much of its first level network operations team from the UK and US to Malaysia and Kosovo during 2H2022. This provided the Group with greater access to talent at a more competitive cost base.

• In addition, Procurri retired its 50,000 sqft facility in Boston, US, and consolidated its facilities into Norcross, Atlanta and opened an 18,000 sqft facility in Richardson, Texas. The consolidation and relocation of facilities enabled the Group to better manage cost, resources and efficiency.

3. Describe Procurri’s FY2022 financial performance. What drove the expansion of gross margins and why did operating expenses increase significantly?

• In 2H2022, the Group's Lifecycle Services business segment improved year on year, driven by stronger demand due to global shortages in semi-conductors. Procurri benefitted from increased hardware rentals while customers had to wait for the arrival of new products, as well as increased margins on refurbished hardware while customers looked for alternative supply chain solutions.

• In FY22, gross profit margins improved by 1.9%, primarily due to a significant decrease in stock obsolescence allowance, which fell significantly from S$4.3 million in FY2021 to S$1.6 million in FY2022. This was achieved through our centralised platform that drove productivity and automation in inventory management.

• The Group's operating expenses increased due to a one-off cost optimisation exercise of S$0.7 million and higher selling expenses of S$2.9 million driven by higher sales commissions. This increase is in tandem with the increase in gross profits.

• Despite the stronger performance in the Lifecycle Services segment, the one-off cost optimisation exercise, exit of the Boston facility and a goodwill impairment led to a net loss of S$0.2 million for FY22.

4. How does Procurri plan to bring in additional revenue streams and create more value for shareholders?

• Procurri will continue to evolve in order to address customer demand. In 2023, there will be a clear separation of the Third-Party Maintenance business from the Lifecycle Services segment in terms of operations, enabling us to focus on driving growth while managing costs. Our Lifecycle Services business has 4 main areas - refurbished hardware, distribution, professional services and modern workplace – with opportunities identified in: 
  i. eCommerce distribution of the classic refurbished hardware trade;
  ii. distribution throughout Europe and the US with a potential addition of APAC to our HP Enterprise authorise parts distribution business;
  iii. data erasure and supply of global engineering resources for ad hoc professional services; and
  iv. increased engagement from global system integrators looking for global laptop and IoT deployment.

• Procurri plans to leverage the extensive network of its major shareholder, DeClout Pte. Ltd., to expand its market share in Asia. Headquartered in Singapore, DeClout is a wholly owned subsidiary of Exeo Group, Inc., which has a major presence in the Japanese market. It offers system solutions that utilise information and communication technologies (ICT) to operate cloud-based enterprise communication network systems and various enterprise systems.

• In FY2022, Procurri proposed a final dividend of 1.0 Singapore cent per share, representing a dividend yield of 3.8% based on share price as of 31 Mar 2023. This is the first dividend payout in 6 years. We are committed to continue unlocking value for our shareholders through the strategies mentioned above.

5. What Are Procurri’s Key Considerations When Expanding Into a New Market or Business Vertical?

• From a merger & acquisition perspective, Procurri focuses on identifying "plug-and-play" acquisition targets that can easily assimilate into the company's existing business operations. The company's key considerations when expanding into a new market or business vertical are to strengthen its client service delivery platform.

• We believe in our ability to manage clients' IT infrastructure in a more sustainable, cost-effective, and flexible manner. Our commitment to excellence and innovation also enables us to stay ahead of the curve and deliver superior value to customers.

6. How Will Procurri’s Recent Partnership With Igneo Technologies Enhance Procurri’s Operations?

• Procurri and Igneo Technologies share core values with regards to environmental protection. Igneo Technologies, a subsidiary of Korea Zinc, will provide recycling services for Procurri’s Lifecycle Service operations. IT equipment managed by Procurri is first evaluated for refurbishment. If it cannot be refurbished, it will now be sent to Igneo or Korea Zinc to be separated into plastics, ferrous metals, non-ferrous metals and precious metal bearing.

• Procurri's partnership with Igneo Technologies further enhances its global lifecycle service operations by expanding its footprint in end-of-life recycling and e-waste refining services. The partnership leverages the combined global footprint of Procurri, Igneo, Korea Zinc, and other strategic partners to offer turnkey and vertically integrated global recycling solutions.

7. How is the current inflation headwinds and rising interest rates environment impacting your business?

• While there will be impact on Procurri’s operational costs, macro trends such as higher inflation and rising interest rates have historically also benefited the Group’s business. Customers are more inclined to adopt cost-saving solutions by sourcing for cheaper alternatives and may find Procurri’s suite of solutions financially attractive.

• Customers may also opt to look for credible maintenance solutions to extend the lifecycle of their assets. Procurri has already witnessed organisations shifting from a 3 or 4 year refresh cycle to that of a 6 or 7 year refresh cycle.

8. What are some ongoing market opportunities or trends and how is Procurri leveraging them to strengthen its business?

• We have observed a growing trend towards sustainable IT consumption, driven by supply chain bottlenecks, economic challenges, and government policies.

• Challenges within the semiconductor supply chain have led many companies to review IT procurement strategies and consider purchasing refurbished products due to the limited availability of new products. Economic challenges have exacerbated the situation, forcing companies to seek cost-efficient IT capital budget strategies.

• Businesses are turning to refurbished products, leasing of IT assets, or extending the life of existing IT assets. These often require third-party maintenance contractors to provide comfort that the assets will remain serviced and functional.

• Procurri believes that it is well-positioned to leverage its capabilities to meet the demand for sustainable IT consumption in the coming years through delivering solutions from its carbon neutral certified global facilities.

9. What Is Procurri Doing to Fulfil Your Sustainability Commitments?

• Procurri is committed to promoting sustainable IT consumption and has achieved carbon neutral status for its global operations across 3 continents.

• We have made a commitment to achieve the following by 2025:
  i. Reducing energy consumed as a percentage of revenue by 1% year on year
  ii. Increasing renewable sourced electricity
  iii. Saving 2 million kgs of CO2 emissions through offering alternative solutions and promoting low or carbon-neutral devices
  iv. Diverting 10 million kgs of technological waste from landfill between 2020 - 2025
  v. Operating on a carbon neutral basis

• Procurri also offers thought leadership on carbon offset reporting. We offer detailed methodology and thought process to help clients in their sustainability process as well as accurately collate and report ESG data (including carbon offsets). More details can be found on Procurri’s sustainability website.

• Through working with Procurri, clients will be able to make better informed decisions about the disposal of their hardware, identify key ESG metrics to report on and be assured of best practice surrounding secure data eradication and reporting of legacy data.

10. Why Should Investors Take a Closer Look at Procurri?

• We believe that Procurri presents an attractive turnaround story. In 2022, the company underwent a management reorganisation, which saw experienced line managers taking charge to steer the group through the challenges of recent history, including the pandemic.

• Procurri implemented a major cost rationalisation programme under the new management team in 2H2022, consolidating facilities and offshoring the first level network operations team to more strategic and cost-efficient locations. This has resulted in an immediate positive impact on the company's bottom line.

• The demand for sustainable IT enterprise best practices continues to accelerate, coupled with tighter governance for IT asset disposal. This has increased demand for Procurri's IT lifecycle services suite of solutions. Procurri is optimistic that current macro trends such as global inflation are likely to result in clients seeking IT asset lifecycle extension and deferring capex for new IT replacement which will further drive demand for Procurri's maintenance services.

• Moreover, Procurri is excited about growing its market share in Asia with the support of new major shareholders and parent company – DeClout and Exeo Group, which has a major presence in the Japanese market.

• Overall, management believes that Procurri presents an exciting opportunity for investors seeking to benefit from a global shift towards greener solutions. Together with the aforementioned factors, we believe that we operate in a favourable environment for future growth and expansion.

10 in 10 – 10 Questions in 10 Minutes With SGX-listed Companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

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Click Here for Procurri Corporation’s FY2022 Financial Results