ePlus inc. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Financial Momentum: Second quarter saw record $1 billion in gross billings, with revenue up over 20% and total gross billings of almost $2 billion in the 6-month period. Net sales grew 23.4% year-over-year.
• Profitability: Adjusted EBITDA grew more than twice net sales growth due to operating leverage. Leveraged AI internally for faster incident resolution and better customer experience.
• AI Focus: Nearly 3/4 of IT and business leaders view AI as a revenue growth driver; acquired Realwave, a cloud-based AI-powered software, to expand AI-driven insights for customers.
• Balance Sheet and Capital Allocation: Healthy balance sheet with over $400 million in cash; capital allocation focus on strategic acquisitions, organic investments in high-growth areas, quarterly dividends, and share repurchases.

Segment Performance

• Security: Gross billings of security products and services up 52% year-over-year, now representing 24% of trailing 12-month gross billings (up from 21% last year).
• Networking: Posted second consecutive quarter of sequential growth, fueled by AI-driven infrastructure investments.
• Data Center and Cloud: Net sales grew nearly 30% year-to-date, reflecting customer modernization initiatives tied to AI deployments.
• Product sales: Totaled $485.1 million in the quarter, up 24.5% from the prior year, led by robust demand in networking and security solutions.
• Services revenue: Professional Services grew 23.3% (due to acquisition of Bailiwick), while Managed Services increased 13.5% (led by enhanced maintenance support and cloud offerings).
• Gross margin: Consolidated gross margin was 26.6%, up 80 basis points from 25.8% last year. Product gross margin expanded 160 basis points to 24.5%, Professional Services gross margin was 38.2% (down from 41.3% prior year), and Managed Services gross margin was 29.5% (in line with prior year).

Guidance

• Increased fiscal year 2026 net sales, gross profit, and adjusted EBITDA guidance. Net sales expected to grow in the mid-teens from fiscal year 2025's $2.01 billion, gross profit mid-teens growth from $515.5 million, and adjusted EBITDA increase at approximately twice the rate of net sales growth.
• Announced quarterly dividend of $0.25 per common share payable on December 17, 2025.

Risks

• Forward-looking statements may vary due to risks and uncertainties detailed in earnings release and SEC filings, including market uncertainties, government shutdowns, tariffs, and inflation.

Q: Congratulations on the results. Could you double-click for me on the strength in security?

A: Mark Marron mentioned security gross billings were up 56%, driven by AI initiatives like data classification, data cleanliness projects, and AI-related deals across compute, storage, and security. Networking also contributed nicely, recovering from prior supply chain issues as customers modernize networks for AI.

Q: It's good to see the AI starting to now translate into some order flow for you. Could you talk about maybe how the pipeline looks? What gives you confidence in the raised outlook for the year?

A: Mark Marron stated they're proud of execution in an uncertain market, track pipeline and opportunities, had large deals in Q2, and remain optimistic about the rest of the year, which is reflected in the guidance. Also, they're a growth company with flexibility to expand via organic hires and acquisitions, expecting operating leverage in the short term while building out footprint and customer base organically and inorganically