Procurri Corporation is one of the leading global 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:
• Lifecycle services: Provides hardware, lifecycle services and IT asset disposition services. These include refurbished IT hardware, distribution of new hardware, professional services associated with data erasure, installations, imaging as well as modern workplace management involving the global deployment of IT assets and IoT devices. This segment contributed to 80.4% of FY2022 ended December 2022 revenue.
• Third-party maintenance: Provides rendering of IT maintenance services, sales of maintenance parts and professional services tied to systems on renewable contracts. This segment contributed to 19.6% of FY2022 revenue.
In 2022, Procurri, whose executive chairman is Vesmond Wong, 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 higher demand for reliable maintenance and support services for complex data centre equipment as well as provide solutions to projects associated with the hybrid working environment post-pandemic.
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2. Can you elaborate on the recent cost-cutting measures?
The group relocated much of its first-level network operations team from the UK and US to Malaysia and Kosovo during 2HFY2022. This provided the group with greater access to talent at a more competitive cost base. In addition, Procurri retired its 50,000 sq ft facility in Boston, US, consolidated its facilities into Norcross, Atlanta, and opened an 18,000 sq ft facility in Richardson, Texas. The consolidation and relocation of facilities enabled the group to better manage cost, resources and efficiency.
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3. Describe Procurri’s FY2022 financial performance. What drove the expansion of gross margins and why did operating expenses increase significantly?
In 2HFY2022, the group’s lifecycle services business segment improved y-o-y, driven by stronger demand due to global shortages in semiconductors. Procurri benefitted from increased hardware rentals while customers had to wait for the arrival of new products, as well as higher margins on refurbished hardware while customers looked for alternative supply chain solutions.
In FY2022, gross profit margins improved by 1.9%, primarily due to a significant decrease in stock obsolescence allowance, which fell significantly from $4.3 million in FY2021 to $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 $0.7 million and higher selling expenses of $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 $0.2 million for FY2022.
4. How does Procurri plan to bring in additional revenue streams?
Procurri will continue to evolve to address customer demand. This year, 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 four main areas with opportunities identified:
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• E-commerce distribution of the classic refurbished hardware trade;
• Distribution throughout Europe and the US with a potential addition of Apac to our HP Enterprise authorise parts distribution business;
• Data erasure and supply of global engineering resources for ad hoc professional services; and
• 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, 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 cent per share, representing a dividend yield of 3.8% based on the share price as of March 31. This is the first dividend payout in six 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 vertical?
From an M&A 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 consideration when expanding into a new market or business vertical is 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 about 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 bearings. 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.
7. How are inflation headwinds and rising interest rates environment impacting business?
While there will be an 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 three or four-year refresh cycle to a six or seven-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 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.
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 three continents. We have committed to achieve the following by 2025 including:
• Reducing energy consumed as a percentage of revenue by 1% year on year
• Increasing renewable sourced electricity • Saving 2 million kilograms of CO2 emissions through offering alternative solutions and promoting low or carbon-neutral devices
• Diverting 10 million kilograms of technological waste from landfill between 2020 and 2025
• Operating on a carbon-neutral basis Procurri also offers thought leadership on carbon offset reporting. We offer detailed methodology and thought processes 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 practices 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 companies — DeClout and Exeo Group — which has a major presence in the Japanese market.
Candace Li is a research analyst with the Singapore Exchange
