ePlus inc. Q4 FY2025 earnings call

• Financial results: 2025 fiscal year had higher gross profitability and margin expansion on lower net sales and gross billings. Fourth quarter operating metrics were strong with double-digit increases in gross profit, operating income, adjusted EBITDA, and diluted earnings per share, and gross margin increased 270 basis points since fiscal 2024.
• Services growth: Services revenue continued rapid growth, with 33% increase in the quarter and 37% for the year. Managed services grew 16.6% in the quarter and 24.6% for the year.
• Long-term strategy: Centered on delivering solutions across AI, cloud, security, and networking, making strategic investments in organic and inorganic opportunities to expand capabilities.
• AI and security: Positive reception of AI Ignite workshops, has NVIDIA DGX Ready SuperPOD specialization, security represents 22% of gross billings.
• Balance sheet: Strong balance sheet with record cash position of approximately $389 million at the end of fiscal 2025.

In fiscal 2025 fourth quarter, consolidated net sales were $498.1 million, down 10.2% year-over-year. Technology business net sales declined 10.4% to $487.2 million, while services revenue increased 33% year-over-year. Professional services revenues were up 48% and managed services revenues rose 17%. Financing segment net sales rose 4.9% to $10.9 million. Fourth quarter 2025 consolidated gross profit increased 11.8% to $145.8 million, with a gross margin of 29.3%. For the full year 2025, consolidated net sales were $2.07 billion, down from $2.23 billion, but services revenue increased 37%. Technology business gross billings declined 5.4% in the quarter. Telecom, media, and entertainment, and SLED were the two largest customer end markets for technology business net sales on a trailing twelve-month basis.

• Cautiously optimistic about fiscal year 2026. Initiating fiscal year 2026 guidance for net sales growth of low single digits, while expecting gross profit and adjusted EBITDA to grow at mid-single digits over the prior fiscal year. Assumes some impact from economic uncertainty but not recessionary conditions or other unexpected developments.

• Business uncertainty surrounding tariffs and government spending impacted sales in the quarter.
• Industry-wide shift towards ratable and subscription-based revenue models caused increased gross-to-net adjustment.
• Economic uncertainty may affect future business performance.

Q: Where is the demand environment currently? Did you see any improvement throughout the quarter? Are you still seeing soft demand on the product side of the business? Please give an update on what you saw during the quarter, how it evolved, and where we are currently.

A: Yeah. Hey, Greg. Good morning and good afternoon. A couple of different things we are seeing in the market. We are seeing a pickup in the data center, cloud, and security space. That is not surprising when you think about some of the AI initiatives that are going on. Some of the things that folks have to think through are security in terms of governance and risk, data readiness, and things along those lines. They also make a lot of times the simple choices to move to the cloud. So we saw some nice pickup there. We did not see a pickup in networking year-over-year. So networking was down pretty big still for us. And then if I look at net sales just overall generically, what we kinda saw was, as we looked over the last couple of years, a few things. This quarter, it was a big gross to net that affected our net sales. We had a tough compare. No excuses. We were up 12% last year, so that was another factor. We had a few customers that are digesting some of the supply chain specifically in the networking space. We think they will start to come back into play in the coming quarters. So overall, data center, cloud, security, nice pickup. Networking still needs to improve.

Q: When you look at the AI opportunity, most of the investment has been going into the hyperscaler data center environment. Where does enterprise AI adoption, enterprise investment stand? And do you think that in your guidance for next year, does that contemplate any kind of acceleration in AI demand?

A: Yeah. Not yet, Greg. Maybe towards the end of the year, beginning of next year. So you are right. Most of the spend with NVIDIA and the bigger players is going towards the hyperscalers. What we are seeing is customers are taking advantage of some of our workshops, envisioning sessions. We have got a hosted proof of concept, basically, a private Gen AI chatbot that gives customers the ability to test and play around with their data to come up with use cases. So we think a lot of that will be on the services side, which will drive for us, which is a good thing. It is our most profitable business. And then we think the infrastructure stuff will start to pick up. We have made investments with the training of our sales teams. We also just got the NVIDIA SuperPOD specialization, which is their high-end computing. So over time, we think that infrastructure spend will pick up, but it will take a little bit of time.