Press release·03/01/2025 07:17:28

Overview

ePlus Inc. is a leading provider of IT solutions and services, including security, cloud, networking, collaboration, and artificial intelligence. The company also offers flexible financing options for technology and other capital assets. ePlus operates in two main business segments - technology and financing.

The technology business segment includes product sales, professional services, and managed services. The financing segment provides leasing and financing solutions for IT equipment, medical equipment, and other assets.

Financial Performance

For the nine months ended December 31, 2024, ePlus reported net sales of $1.57 billion, a 6.0% decrease compared to the same period in the prior year. This was driven by lower product revenue in the technology business, partially offset by higher managed services and professional services revenue, as well as higher revenue in the financing segment.

Gross profit increased 0.7% to $423.4 million, with gross margins improving 180 basis points to 27.0%. The increase in gross margins was due to a shift in product mix towards higher-margin third-party maintenance and subscription sales.

Operating income decreased 17.4% to $106.7 million, with operating margins declining 90 basis points to 6.8%. This was primarily due to higher operating expenses, including increases in salaries, benefits, and general and administrative costs.

Net earnings for the nine-month period were $82.8 million, an 11.7% decrease from the prior year. Diluted earnings per share declined 11.9% to $3.10.

The company’s non-GAAP metrics also showed declines, with Adjusted EBITDA decreasing 12.5% to $134.4 million and Adjusted EBITDA margin contracting from 9.2% to 8.6%.

Segment Performance

Technology Business Segments The technology business, which includes product, professional services, and managed services, accounted for 97% of ePlus’ total net sales and 71% of operating income.

Product segment revenue declined 13.6% year-over-year, driven by lower sales of networking, cloud, collaboration, and security products. This was partially offset by higher professional and managed services revenue, which increased 48.1% and 27.7%, respectively.

Gross margins in the product segment increased 50 basis points to 22.2%, while professional services and managed services margins declined by 120 and 100 basis points, respectively. The increase in product margins was due to a shift towards higher-margin third-party maintenance and subscription sales.

Operating expenses in the technology business increased 8.7%, primarily due to higher salaries, benefits, and general and administrative costs, including $1.1 million in acquisition-related expenses. This led to a 29.4% decline in operating income for the technology segments.

Financing Business Segment The financing business segment accounted for 3% of total net sales and 29% of operating income. Segment revenue increased 24.8% to $48.8 million, driven by higher portfolio earnings, transactional gains, and post-contract earnings.

Gross profit in the financing segment increased 31.9% to $44.2 million, with gross margins expanding from 85.9% to 90.7%. This was primarily due to higher transactional gains.

Operating income for the financing segment grew 43.5% to $30.4 million, as the increase in gross profit was partially offset by higher selling, general, and administrative expenses, including a higher provision for credit losses.

Business Trends and Outlook

ePlus highlighted several key business trends impacting its performance:

• General economic concerns, including inflation, rising interest rates, and geopolitical issues, may affect customer technology spending.
• Customers are focused on priorities like AI, security, cloud solutions, and digital transformation, driving demand for ePlus’ advisory, assessment, and managed services offerings.
• Rapid cloud adoption has led to challenges around cost, security, and skills gaps, which ePlus is addressing through its Cloud Managed Services portfolio.
• Pricing pressure and project delays in the enterprise segment are impacting gross profits, while financing transactions are subject to interest rate risk and tighter lending conditions.

The company believes its broad portfolio of integrated solutions, services, and financing options positions it well to deliver customized experiences that enable customer business outcomes. However, the uncertain economic environment and competitive pressures may continue to challenge the company’s financial performance in the near term.

Analysis and Outlook

ePlus’ financial results for the nine-month period show a mixed picture, with the company experiencing declines in top-line revenue and profitability metrics compared to the prior year. The key drivers of this performance were:

1. Weaker Product Sales: The 13.6% decline in product revenue, particularly in networking, cloud, collaboration, and security products, was a significant headwind. This reflects the broader economic uncertainty and potential slowdown in IT spending among ePlus’ customers.

2. Margin Pressure: While gross margins improved due to a shift in product mix, the company faced margin compression in its professional and managed services segments. This, combined with higher operating expenses, led to the decline in operating income and margins.

3. Financing Segment Strength: The financing business was a relative bright spot, with strong growth in revenue and profitability. This segment’s performance helped offset some of the challenges in the technology business.

Looking ahead, ePlus faces a number of headwinds that could continue to impact its financial performance:

• Economic Uncertainty: The company highlighted concerns around inflation, rising interest rates, and geopolitical issues, which may constrain customer technology spending and lead to further pricing pressure.
• Competitive Landscape: The IT solutions and services market is highly competitive, and ePlus may face challenges in maintaining its market share and profitability.
• Integration Costs: The recent acquisition of Bailiwick added capabilities in areas like digital signage and EV charging, but also brought integration costs that weighed on the company’s operating expenses.

However, ePlus also has several strengths that could help it navigate these challenges:

1. Diversified Business Model: The combination of technology solutions, services, and financing provides ePlus with multiple avenues for growth and a degree of diversification to mitigate risks.

2. Focus on High-Growth Areas: The company’s emphasis on emerging technologies like AI, security, and cloud solutions aligns with key customer priorities and could drive future demand.

3. Acquisition Strategy: ePlus has demonstrated its ability to strategically acquire companies like Bailiwick to expand its capabilities and geographic reach. Successful integration of these acquisitions could bolster the company’s long-term competitiveness.

4. Financial Flexibility: ePlus appears to have a strong liquidity position, with access to credit facilities and the ability to generate cash from operations. This should provide the company with the resources to invest in its business and pursue growth opportunities.

Overall, ePlus faces a challenging near-term environment, but its diversified business model, strategic focus, and financial strength could enable it to navigate the current headwinds and position the company for long-term success. Investors will be closely watching the company’s ability to maintain its profitability and market share in the face of economic and competitive pressures.