Press release·02/06/2025 21:43:30

Overview of the Company’s Financial Performance

eplus Inc. is a leading provider of IT solutions and services, as well as financing options, to organizations across various industries. For the nine months ended December 31, 2024, the company reported net sales of $1,570.7 million, a 6.0% decrease compared to the same period in the prior year. This decline was driven by lower product revenues in the technology business segments, partially offset by higher managed services and professional services revenue, as well as higher revenue from the financing business segment.

Gross profit for the nine-month period increased 0.7% to $423.4 million, with the gross margin improving by 180 basis points to 27.0%. This margin expansion was primarily due to a shift in product mix towards higher-margin third-party maintenance and subscription sales. However, operating income decreased 17.4% to $106.7 million, and the operating income margin declined by 90 basis points to 6.8%, due to higher operating expenses.

Net earnings for the nine months ended December 31, 2024, were $82.8 million, an 11.7% decrease compared to the same period in the prior year. This decline was driven by the lower operating profits in the technology business segments, partially offset by increased other income and a lower provision for income taxes. Diluted earnings per share decreased 11.9% to $3.10.

Revenue and Profit Trends

The company’s revenue and profitability performance can be analyzed across its two main business segments: technology and financing.

Technology Business Segments The technology business, which includes product, professional services, and managed services, accounted for 97% of the company’s net sales and 71% of its operating income for the nine-month period.

Net sales in the technology business segments decreased 6.7% to $1,521.9 million, primarily due to lower product revenue. Product sales declined 13.6% to $1,226.4 million, driven by decreases in demand for networking, cloud, collaboration, and security products. This was partially offset by increases in professional services revenue, which grew 48.1% to $168.7 million, and managed services revenue, which increased 27.7% to $126.8 million.

Gross profit in the technology business segments decreased 2.0% to $379.1 million, but the gross margin improved by 120 basis points to 24.9%. This was due to higher product margins, which increased by 50 basis points to 22.2%, partially offset by lower margins in professional services and managed services.

Operating income in the technology business segments decreased 29.4% to $76.3 million, and the operating margin declined from 6.6% to 5.0%. This was driven by higher operating expenses, including a $17.5 million (7.9%) increase in salaries and benefits, a $4.5 million (11.3%) increase in general and administrative expenses, and a $2.5 million increase in depreciation and amortization.

Financing Business Segment The financing business segment, which offers leasing and financing solutions, accounted for 3% of the company’s net sales and 29% of its operating income for the nine-month period.

Net sales in the financing business segment increased 24.8% to $48.8 million, driven by higher portfolio earnings, transactional gains, and post-contract earnings. Gross profit increased 31.9% to $44.2 million, and the gross margin improved from 85.8% to 90.7%.

Operating income in the financing business segment increased 43.5% to $30.4 million, primarily due to the increase in gross profit. The operating margin improved from 54.3% to 62.3%.

Strengths and Weaknesses

Strengths:

• Diversified revenue streams, with a mix of product, professional services, managed services, and financing offerings
• Strong market position and reputation as a trusted IT solutions provider
• Expanding professional services capabilities, including the addition of Bailiwick’s digital signage, EV charging, and retail services
• Improving gross margins, particularly in the technology business segments, driven by a shift towards higher-margin offerings
• Robust financing capabilities that provide customers with flexible purchasing options

Weaknesses:

• Declining product revenue in the technology business segments, which account for the majority of the company’s sales
• Increasing operating expenses, particularly in salaries and benefits, which have outpaced the growth in gross profit
• Potential interest rate risk in the financing business segment, as rising rates may impact the company’s internal rate of return on transactions

Outlook and Future Prospects

The company’s outlook is cautiously optimistic, as it navigates a challenging economic environment marked by concerns such as inflation, rising interest rates, and geopolitical tensions. These factors may impact customer spending on technology and services, leading to pricing pressure and project delays.

However, the company’s focus on high-growth areas like AI, security, cloud solutions, and digital transformation is expected to drive demand for its services. The company has also developed advisory, assessment, and managed services offerings to help customers address these priorities and achieve their desired outcomes.

The continued shift towards cloud, managed services, and consumption-based models presents both opportunities and challenges for the company. While these trends may lead to increased customer demand, they also require the company to adapt its business model and invest in the necessary skills and capabilities.

The company’s acquisition of Bailiwick in August 2024 has expanded its professional services capabilities, particularly in the areas of digital signage, EV charging solutions, loss prevention, and retail services. This diversification of the company’s service offerings is expected to enhance its value proposition to customers and contribute to future growth.

The financing business segment, while a smaller part of the overall business, provides a valuable complement to the company’s technology solutions. However, the segment faces potential interest rate risk, as rising rates may impact the company’s internal rate of return on transactions. The company’s ability to manage this risk and maintain the profitability of its financing offerings will be crucial.

Overall, eplus Inc. appears to be navigating a challenging market environment, but its diversified business model, focus on high-growth technology areas, and expanding service capabilities position it well for the future. The company’s ability to effectively manage its operating expenses and adapt to evolving customer needs will be key to its continued success.