ePlus inc. Q1 FY2027 earnings call

• Strategic Focus & Core Initiatives

  • The company is prioritizing expansion of its AI, security, cloud, networking, and data center capabilities to meet converging customer demand for secure, scalable AI deployment.
  • It has co-developed a self-contained agentic AI platform with Cisco and Nvidia that delivers secure autonomous AI infrastructure, reducing operational complexity and shifting IT teams from reactive to autonomous operations.
  • The firm is leveraging AI internally to improve sales organization efficiency and enhance customer experiences.

• Operational Performance & Market Position

  • Open orders were over $650 million higher year-over-year, ending the quarter at over $1.5 billion, with a strong pipeline of AI-related infrastructure demand across multiple industries including financial services, telecom, and neocloud.
  • Security remained a high-priority growth area, with multiple multi-year, multi-million dollar enterprise software licensing agreements secured in the quarter.
  • Managed services reached a key milestone of over $50 million in quarterly revenue, marking continued progress building a larger recurring revenue base.
  • The company earned multiple 2025-2026 partner awards from HPE, EverPure, SentinelOne, and Assured Data Protection, recognizing its execution and capabilities.
  • Net promoter score came in at 74, above industry average, reflecting strong customer trust.

• Workforce & Capital Allocation

  • Employee headcount grew ~1% sequentially, with nearly all incremental new hires added to customer-facing sales and engineering roles, while the company actively manages SG&A to drive future operating leverage.
  • The balance sheet remains strong, with $448.9 million in cash at quarter end and solid operating cash flow. Capital allocation priorities include organic growth investment, strategic M&A, and returning capital to shareholders. To date, the company has paid $26.7 million in dividends and repurchased $53.1 million in shares since initiating the dividend one year ago. The Board authorized a new 1.5 million share repurchase program effective August 11, 2026.

Consolidated net sales for Q1 FY2027 was $649.1 million, a 1% year-over-year increase. Total gross billings grew 0.5% YoY to $957.1 million.

• Product segment: Net revenue totaled $529.7 million, a 0.6% YoY increase. Security led growth, with gross billings up 15.6% YoY, and represented 24.2% of trailing 12-month gross billings. Product segment gross margin declined 30 basis points to 21%, due to a product mix shift.
• Services segment: Total net revenue rose 2.6% YoY to $119.4 million.
  • Managed Services: Net sales surpassed $50 million for the first time, growing over 15% YoY driven by cloud and data center services. Gross margin declined 100 basis points to 29.4% due to service mix shifts.
  • Professional Services: Net sales declined 5.1% YoY to $68.1 million, reflecting project delays tied to product delivery issues. Gross margin declined 230 basis points to 36.9% due to service mix shifts.

Management maintained its full fiscal 2027 guidance, reaffirming confidence in its execution strategy and the healthy demand environment despite a difficult year-over-year comparison in the first quarter.

• Ongoing worldwide memory chip shortage that causes product delivery delays and impacts product pricing
• Geopolitical uncertainties that could disrupt supply chains and customer demand
• Large backlog conversion is staggered over time, with most revenue from current open orders not expected until the back half of fiscal 2027 or later
• Gross margins have declined across all segments in the first quarter due to mix shifts, creating pressure to meet full-year profitability targets

Q: What is the total size of the current open order backlog, and when will this backlog convert to revenue? Is demand growth broad across the customer base? / A: Total open orders ended the quarter above $1.5 billion, and have grown further since quarter end. Most of the backlog is not made up of ratable subscriptions, and conversion will be staggered over time, with the majority of near-term conversion expected in the back half of fiscal 2027. Increased order and pipeline activity is broad across all customer segments, with some large customers accelerating purchases, similar to the pattern seen last year. There is a high volume of large outstanding opportunities that the firm is working to convert.

Q: What will drive gross profit and adjusted EBITDA acceleration to meet full-year targets, and what are the biggest risks to hitting these targets? / A: Top-line revenue growth will drive operating leverage and expanded adjusted EBITDA margins as volume increases. Expanding the company's high-value services business is the primary lever to grow gross profit over the course of the year, as services carry higher margins than core product sales.

Q: Are previously noted retail project delays progressing, and are they a broad demand signal or idiosyncratic issues? / A: The retail project delays are specific to the individual customers involved, not a reflection of broad retail or general market demand weakness. Work on these projects is still active, but will take additional time before revenue is recognized from these opportunities.