Q4 2025 ePlus inc Earnings Call

Operator: Good day, ladies and gentlemen. Welcome to the ePlus fourth quarter and full year 2025 earnings results conference call. As a reminder, this conference call is being recorded.

Good day, ladies and gentlemen, welcome to the E plus fourth quarter and full year 2025 earnings results Conference call.

As a reminder, this conference call is being recorded.

Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.

I'd like to withdraw your question Press Star one again.

Thank you.

Kley Parkhurst: And I would now like to introduce your host for today's conference, Mr. Kley Parkhurst, Senior Vice President. Sir, you may begin. Thank you for joining us today.

Speaker Change: And I would now like to introduce your host for today's conference. Mr. Kley, Parkhurst Senior Vice President Sir you may begin.

Mark Marron: Thank you for joining us today on the call is Mark Marron, CEO and President Elaine Marion CFO, and Erica Stoecker General Counsel I wanted to take a moment to remind you that the statements. We make this afternoon that are not historical facts may be deemed to be forward looking statements and are based on management's current plans estimates.

Kley Parkhurst: On the call is Mark Marron, CEO and President, Elaine Marion, CFO, and Erica Stoker, General Counsel. I want to take a moment to remind you that the statements we make this afternoon that are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates, and projections. Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued this afternoon and our periodic filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other documents we may file with the SEC.

Mark Marron: And projections.

Mark Marron: Actual and anticipated future results may vary materially due to certain restaurant uncertainties detailed in the earnings release, we issued this afternoon and our periodic filings with the Securities Exchange Commission, including our most recent annual report on Form 10-K.

Quarterly reports on Form 10-Q, and in other documents, we may file with the SEC.

Kley Parkhurst: Any forward-looking statement speaks only as of the date at which the statement is made, the company undertakes no responsibility to update any of these forward-looking statements in light of new information, future events, or otherwise.

Mark Marron: Any forward looking statements speaks only as of the date on which the statement is made and the company undertakes no responsibility to update any of these forward looking statements in light of new information future events or otherwise.

Kley Parkhurst: In addition, we will be using certain non-GAAP measures during the call, and we've included a GAAP Financial Reconciliation and Earnings Release, which is posted on the Investor Information section of our website at www.ePlus.com.

Mark Marron: In addition, we will be using certain non-GAAP measures during the call and we've included a GAAP financial reconciliation of our earnings release, which is posted on the Investor information section of our website at Www Dot <unk> Dot com and now I'd like to turn the call over to Mark Mark.

Mark Marron: And now I'd like to turn the call over to Mark. Thank you, Kley. Good afternoon, everyone.

Mark Marron: Thank you clay good afternoon, everyone and thank you for joining our fourth quarter and fiscal year 2025 earnings call. Our financial results continue to reflect the ongoing industry wide shift towards ratable and subscription based revenue models, which impacts how we recognize product revenue.

Mark Marron: And thank you for joining our fourth quarter and fiscal year 2025 earnings goal. Our financial results continue to reflect the ongoing industry-wide shift towards ratable and subscription-based revenue models, which impacts how we recognize product revenue. In fiscal year 2025, we delivered higher gross profitability and margin expansion on lower net sales and gross billing. In our fourth quarter, operating metrics were strong with double-digit increases in gross profit, operating income, adjusted EBITDA, and diluted earnings-per-share. We also saw continued improvement in our gross margin, which increased 270 basis points since fiscal year 2024. During the quarter, we believe sales were slightly impacted by business uncertainty surrounding the tariffs and government spending.

Mark Marron: In fiscal year 2025, we delivered higher gross profitability and margin expansion on lower net sales and gross billings.

Mark Marron: Fourth quarter operating metrics were strong with double digit increases in gross profit operating income adjusted EBITDA and diluted earnings per share. We also saw continued improvement in our gross margin, which increased 270 basis points since fiscal year 2024.

Mark Marron: During the quarter, we believe sales were slightly impacted by business uncertainty surrounding the tariffs and government spending.

Mark Marron: With our strong focus on services-led solutions, continuing to build out our security and AI capabilities that are in high demand by our customers, and holding the line on expenses, we believe we are well positioned for future growth. Q4 net sales declined 10.2% year over year, driven primarily by a reduction in product sales due in part to economic uncertainty as well as a tough compare to the prior year when Q4 last year benefited from supply chain easing of networking product orders. Despite an increased gross-to-net adjustment caused by the industry-wide shift towards routable and subscription-based revenue models, we saw strength in several areas.

With our strong focus on services led solutions continuing to build out our security and AI capabilities that are in high demand by our customers and holding the line on expenses. We believe we are well positioned for future growth.

Mark Marron: Q4, net sales declined 10, 2% year over year, driven primarily by a reduction in product sales due in part to economic uncertainty as well as a tough compare to the prior year. When Q4 last year benefited from supply chain easing of networking product orders.

Mark Marron: Despite an increased gross to net adjustment caused by the industry wide shift towards ratable and subscription based revenue models, we saw strength in several areas.

Mark Marron: Gross profit rose by nearly 12% and gross margin expanded 580 basis points year-over-year to 29.3% in the fourth quarter due to a more profitable business mix between product and services and a higher proportion of netted down revenue. Gross profit increased and margin expanded in the full year for the same reason. Our services revenue continued its rapid growth, increasing 33% in the quarter and 37% for the year. This is a key component of our trusted advisor status to our customers, which deepens the relationship and results in long-term customer loyalty. Our managed services continue to grow nicely, up 16.6% for the quarter and 24.6% in the year, which provides predictable long-term revenue and profitability.

Mark Marron: Most profit rose by nearly 12% and gross margin expanded 580 basis points year over year to 29, 3% in the fourth quarter due to a more profitable business mix between product and services and a higher proportion of netted down revenue.

Mark Marron: Gross profit increased and margin expanded in the full year for the same reasons.

Mark Marron: Our services revenue continued its rapid growth, increasing 33% in the quarter and 37% for the year.

Mark Marron: This is a key component of our trusted advisor status to our customers, which deepens the relationship and result in long term customer loyalty.

Mark Marron: Our managed services continue to grow nicely up 16, 6% for the quarter and 24, 6% in the year, which provides predictable long term revenue and profitability.

Mark Marron: Let me take a moment to discuss our long-term strategy, which is centered on delivering solutions across four key growth focus areas, AI, cloud, security, and networking, of which we expect to drive related consultative, professional, and managed services growth. We are making strategic investments in the most promising opportunities, both organic and inorganic, to expand our capabilities and meet evolving customer needs. AI adoption continues to be a significant potential business driver. And we are particularly well positioned to capitalize on its transformative growth across our expanding suite of products. Throughout the past year, we have discussed the positive reception from our customers of our AI Ignite workshops and envisioning sessions.

Mark Marron: Let me take a moment to discuss our long term strategy, which is centered on delivering solutions across four key growth focus areas AI cloud security and networking of which we expect to drive related consultative professional and managed services growth.

Mark Marron: We are making strategic investments in the most promising opportunities, both organic and inorganic to expand our capabilities and meet evolving customer needs.

Mark Marron: AI adoption continues to be a significant potential business driver and we are particularly well positioned to capitalize on its transformative growth across our expanding suite of products.

Mark Marron: Throughout the past year, we have discussed the positive reception from our customers of our AI ignite workshops and envisioning sessions. These are designed to share the latest AI trends and insights and demonstrate how this revolutionary technology can empower our customers businesses.

Mark Marron: These are designed to share the latest AI trends and insights and demonstrate how this revolutionary technology can empower our customers' businesses. We combine these AI Ignite offerings with our AI Experience Center and our generative AI Accelerator solution that helps customers navigate and rapidly test use cases in a secure private environment. We also believe ePlus is the only NVIDIA partner in North America that has achieved both the NVIDIA DGX-ready SuperPOD specialization and DGX-ready Managed Service Providers specialization. This achievement demonstrates our engineering expertise for enterprise-grade AI infrastructure deployments and capabilities to provide end-to-end lifecycle services from initial design through implementation and management of AI workloads.

Mark Marron: We combine these AI ignite offerings with our AI experience center and are generated AI accelerate a solution that helps customers navigate and rapidly test use cases in a secure private instance.

Mark Marron: We also believe E plus is the only in video partner in North America that has achieved both the Nvidia <unk> ready Super pod specialization and <unk> managed service providers specializations.

Mark Marron: This achievement demonstrates our engineering expertise for our enterprise grade AI infrastructure deployments and capabilities to provide end to end lifecycle services from initial design through implementation and management of AI workloads.

Mark Marron: And finally, as the capabilities and benefits of AI become more clear, we have stepped up our AI investments to meet our internal business needs as well. We have seen how AI can support our customers better, automate some internal processes, and provide real-time information for our sales teams to leverage and provide value to their customers.

Mark Marron: And finally as the capabilities and benefits of AI become more clear we have stepped up our AI investments to meet our internal business needs as well we are seeing how AI can support our customers better automate some internal processes and provide real time information for our sales teams to leverage and provide value to their customers.

Mark Marron: Yeah.

Mark Marron: Security remains a standout for ePlus. On a trailing 12-month basis, it now represents 22% of gross billings, underscoring our success in aligning with enterprise priorities around digital risk mitigation and will only be more relevant as AI becomes more prevalent in the market.

Mark Marron: Security remains a standout for E plus on a trailing 12 month basis, and now represents 22% of gross billings.

Mark Marron: Scoring our success in aligning with enterprise priorities around digital risk mitigation and will only be more relevant as AI becomes more prevalent in the market.

Mark Marron: In conclusion, we have a very strong balance sheet, which gives us the opportunity to make strategic investments both organically and through acquisition. We exited the year with a record-cast position of approximately $389 million. This financial flexibility provides a solid foundation as we navigate macroeconomic uncertainty and supports our growth initiatives. As always, we remain committed to disciplined capital allocation and driving long-term shareholder value.

Mark Marron: In conclusion, we have a very strong balance sheet, which gives us the opportunity to make strategic investments both organically and through acquisitions we.

Mark Marron: We exited the year with a record cash position of approximately $389 million. This financial flexibility provides a solid foundation as we navigate macroeconomic uncertainty and supports our growth initiatives as always we remain committed to disciplined capital allocation and driving long term shareholder.

Mark Marron: <unk>.

Elaine Marion: I will now turn the call over to Elaine to discuss our financial results in more detail. Thank you, Mark. And thank you, everyone, for joining us today. I will provide additional details about our financial performance in the fourth quarter of fiscal 2025 and review our full fiscal year results, which ended March 31st, 2025. Consolidated net sales in the fiscal 2025 fourth quarter were $498.1 million, down from $554.5 million in the fourth quarter of fiscal 2024, and our consolidated adjusted EBITDA was $43.8 million, up from $36.8 million in the prior year, which exceeded our expectations as we captured increased gross profit from the sales of products.

Mark Marron: I will now turn the call over to Elaine to discuss our financial results in more detail.

Elaine: Thank you Mark and thank you everyone for joining us today.

Elaine: I will provide additional details about our financial performance in the fourth quarter of fiscal 2025 and review our full fiscal year results, which ended March 31 2025.

Elaine: Consolidated net sales in the fiscal 2025 fourth quarter were $498 1 million down from $554 5 million in the fourth quarter of fiscal 2024, and our consolidated adjusted EBITDA was $43 8 million up from $36 8 million in the prior.

Elaine: Here year, which exceeded our expectations as we captured increased gross profit from the sales of product.

Elaine Marion: Technology business net sales declined 10.4% year-over-year to $487.2 million, reflecting lower product sales, which continue to be impacted by the industry-wide shift towards ratable and subscription-based services, resulting in more netted-down revenues. Product sales also faced a tough year-over-year comparison as the fourth quarter of fiscal 2024 benefited from elevated deliveries of networking products, partially offsetting the decline in product sales with strong demand for our services offerings, which we have strategically emphasized and grown. ePlus' services-led approach is evident in our results, as our service revenues increased 33% year-over-year. Professional services revenues were up 48% as the segment continues to benefit from the Bailiwick acquisition, while revenues for our managed services rose 17%, led by sustained growth in Enhanced Maintenance Support, or EMS, and cloud-managed services.

Elaine: Technology business net sales declined 10, 4% year over year to $487 2 million, reflecting lower product sales, which continue to be impacted by the industry wide shift towards ratable and subscription based services, resulting in more netted down revenues.

Elaine: <unk> sales also faced a tough year over year comparison as the fourth quarter of fiscal 2024 benefited from elevated deliveries of networking products, partially offsetting the decline in product sales with strong demand for our services offerings, which we have strategically emphasized and ground.

Elaine: <unk> services led approach is evident in our results as our service revenues increased 33% year over year professional services revenues were up 48% as the segment continues to benefit from the Bailiwick acquisition, while revenues for our managed services rose, 17% led by sustained growth in <unk>.

Elaine: Hence maintenance support or E&S and cloud managed services.

Elaine Marion: Managed services bookings remain strong, underscoring our confidence in the segment. Technology business growth billings declined 5.4% in the quarter due to softer demand from enterprise customers as well as a challenging comparable in the prior period. Telecom, Media and Entertainment and SLED were our two largest customer end markets accounting for 23% and 17% of technology business net sales on a trailing 12-month basis. Technology, healthcare, and financial services accounted for 15, 14, and 9% respectively, with the remaining 22% from other end markets. In our financing segment, net sales rose 4.9% to $10.9 million, primarily due to higher transaction gains and portfolio earnings.

Elaine: Managed services bookings remained strong underscoring our confidence in the segment.

Elaine: Technology business gross billings declined five 4% in the quarter due to softer demand from enterprise customers as well as a challenging comparable in the prior period.

Elaine: Telecom media and entertainment and sled were our two largest customer end markets accounting for 23% and 17% of technology business net sales on a trailing 12 month basis.

Elaine: Technology healthcare and financial services accounted for 15, 14, and 9% respectively with the remaining 22% from other end markets.

Elaine: In our financing segment net sales rose four 9% to $10 9 million, primarily due to higher transaction gains in portfolio earnings.

Elaine Marion: Fourth quarter 2025 consolidated gross profit increased 11.8% to $145.8 million, representing a gross margin of 29.3%, comparing favorably to gross profit of $130.3 million and gross margin of 23.5% in the prior year fourth quarter. The increase in gross margin was led by our technology business, which saw product margin expand from 19.3% to 26.6%, reflecting more profitable mix and a larger proportion of sales of product that were recognized on a net basis, as well as additional gross profit from our services business. In our services business, professional services gross margin was 35.9% versus 50% in the comparable prior year period.

Elaine: Fourth quarter 2025, consolidated gross profit increased 11, 8% to $145 8 million, representing a gross margin of 29, 3% comparing favorably to gross profit of $130 3 million and gross margin of 23, 5% in the prior year fourth quarter.

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Elaine: The increase in gross margin was led by our technology business, which saw product margin expand from 19, 3% to 26, 6%, reflecting more profitable mix and a larger proportion of sales of product that were recognized on a net basis as well as additional gross profit from our services business.

Elaine: In our services business professional services gross margin was 35, 9% versus 50% in the comparable prior year period.

Elaine Marion: Bailiwick, which we acquired in August of 2024, has lower professional services gross margin due to a higher concentration of third party costs in the business model, contributing to the year over year decline. Managed services gross margin of 29.1% declined modestly from the 30.5% reported in a prior year due to an expanded mix of services provided. Fourth quarter 2025 operating expenses of $111 million increased 9.6% from the prior year quarter, as we recognize costs related to increased headcount from the bailiwick acquisition. Our headcount at the end of the quarter increased to $2,199 from $1,900 a year ago, reflecting an increase of 299 employees, of which 272 were customer facing.

Elaine: Daily work, which we acquired in August of 2024 has lower professional services gross margin due to a higher concentration of third party cost in the business model contributing to the year over year decline.

Elaine: Managed services gross margin of 29, 1% declined modestly from the 35% reported in the prior year due to an expanded mix of services provided.

Elaine: Fourth quarter 2025, operating expenses of $111 million increased nine 6% from the prior year quarter as we recognized cost related to increased head count from the Bailiwick acquisition, our head count at the end of the quarter increased to 2199 from 1900 a year.

Elaine: Reflecting an increase of 299 employees of which 272 were customer facing.

Elaine Marion: Sequentially, our headcount decreased from 2,291 at December 31, 2024. Benefiting from our strong margin performance, consolidated operating income and earnings before taxes rose 19.6% and 14.9% respectively. Other income totaled $1.1 million, driven by interest income of $2 million, partially offset by foreign exchange losses. Our effective tax rate in the fourth quarter was 29.7%, slightly higher than the 29.5% reported in the prior year quarter. Consolidated net earnings were up 14.6% to $25.2 million or $0.95 per diluted share versus net income of $22 million or $0.82 per diluted share a year ago. Non-GAAP diluted earnings per share was $1.11, representing an increase of 19.4% year-over-year, and weighted average diluted share count decreased slightly from the prior year's fourth quarter.

Elaine: Sequentially, our head count decreased from 2291 at December 31, 2024.

Elaine: Benefiting from our strong margin performance consolidated operating income and earnings before taxes Rose 19, 6% and 14, 9% respectively.

Elaine: Other income totaled $1 1 million driven by interest income of $2 million, partially offset by foreign exchange losses.

Elaine: Our effective tax rate in the fourth quarter with 29, 7% slightly higher than the 29, 5% reported in the prior year quarter.

Elaine: Consolidated net earnings were up 14, 6% to $25 2 million or <unk> 95 per diluted share versus net income of $22 million or <unk> 82 per diluted share a year ago.

Elaine: non-GAAP diluted earnings per share was $1 11, representing an increase of 19, 4% year over year and weighted average diluted share count decreased slightly from the prior year's fourth quarter.

Elaine Marion: Consolidated Adjusted EBITDA increased 19.1% to $43.8 million with 97% of the increase from our technology business.

Elaine: Consolidated adjusted EBITDA increased 19, 1% to $43 $8 million with 97% of the increase from our technology business.

Elaine Marion: Moving on to our results for the full year of fiscal 2025. Consolidated net sales for the fiscal year were $2.07 billion, down from $2.23 billion in fiscal 2024. The decline was driven by a 13.7% decline in product sales, partially offset by 37.1% growth in services and strong performance in the financing segment. Technology business growth billings of $3.3 billion were down slightly year over year. Fiscal 2025 consolidated growth profit rose 3.3% to $569.1 million, led by growth in both the technology business and financing segment. Gross margin expanded 270 basis points to 27.5%, reflecting favorable product mix, a larger proportion of netted down revenues, and additional services revenue in the technology business.

Elaine: Moving on to our results for the full year of fiscal 2025.

Elaine: Consolidated net sales for the fiscal year were 2.07 billion down from $2 billion to $3 billion in fiscal 2024.

Elaine: The decline was driven by a 13, 7% decline in product sales, partially offset by 37, 1% growth in services and strong performance in the financing segment.

Elaine: Technology business gross billings of $3 3 billion were down slightly year over year fiscal 2025 consolidated gross profit rose three 3% to $569 1 million led by growth in both the technology business and financing segment.

Elaine: Gross margin expanded 270 basis points to 27, 5%, reflecting favorable product mix, a larger proportion of netted down revenues and additional services revenue in the technology business.

Elaine Marion: Operating income was $141.4 million versus $158.3 million a year ago.

Elaine: Operating income was $141 4 million versus $158 3 million a year ago. The decline was primarily a function of lower product sales and increased operating expenses, which rose 9% year over year due to the bailiwick and peak acquisitions as well as continued investments in technology.

Elaine Marion: The decline was primarily a function of lower product sales and increased operating expenses, which rose 9% year-over-year due to the bailiwick and peak acquisitions, as well as continued investments in technology and customer-facing headcount. Our effective tax rate for the full year was 27.5%, below the 28.1% reported in the prior year due to lower state tax rates. Consolidated net earnings were $108 million, or $4.05 per diluted share in fiscal 2025. This compares to $115.8 million, or $4.33 per diluted share in the year-ago period. Non-GAAP diluted EPS amounted to $4.67 per share, down from $4.92. Fiscal 2025 adjusted EBITDA decreased 6.4% to $178.2 million.

Elaine: <unk> customer facing head count.

Elaine: Our effective tax rate for the full year was 27, 5% below the 28, 1% reported in the prior year due to lower state taxes.

Elaine: Consolidated net earnings were $108 million or $4 <unk> per diluted share in fiscal 2025. This compares to $115 8 million or $4 33 per diluted share in the year ago period, non-GAAP diluted EPS amounted to $4 67 per share down from <unk>.

Elaine: $4 92.

Elaine: Fiscal 2025, adjusted EBITDA decreased six 4% to $178 2 million.

Elaine Marion: Our balance sheet remains solid with assets over $1.8 billion, highlighted by our cash position of $389.4 million at the end of fiscal 2025, well above $253 million at the end of fiscal 2024, reflecting strong operating cash flows of $302.1 million compared to $248.4 million in fiscal 2024. As of March 31st 2025, our inventories were 120.4 million. While inventories were higher sequentially, they were below 139.7 million reported at the end of fiscal 2024. Stockholders' equity was $977.6 million compared to $901.8 million at the end of fiscal 2024. During fiscal 2025, we repurchased more than 557,000 shares under our repurchase program, leaving 26.5 million shares outstanding at March 31, 2025.

Elaine: Our balance sheet remains solid with assets over $1 8 billion highlighted by our cash position of $389 4 million at the end of fiscal 2025, well above $253 million at the end of fiscal 2024, reflecting strong operating cash flows of $302 1 million.

Elaine: Third to $248 4 million in fiscal 2024.

Elaine: As of March 31, 2025, our inventories were $120 4 million.

Elaine: Inventories were higher sequentially. They were below a $139 7 million reported at the end of fiscal 2024.

Elaine: Stockholders' equity was $977 6 million compared to $901 8 million at the end of fiscal 2024.

Elaine: During fiscal 2025, we repurchased more than 557000 shares under our repurchase program, leaving $26 5 million shares outstanding at March 31, 2025, our cash conversion cycle was 29 days compared to 46 days a year ago as inventory days outstanding declined.

Elaine Marion: Our cash conversion cycle was 29 days compared to 46 days a year ago, as inventory days outstanding declined from 23 days in fiscal 2024 to 14 days at the end of March 2025, highlighting a more normalized supply chain. Our strategy of focusing on high growth areas and anticipating our customers' needs continues to position us well for the future. We remain focused on strategic capital allocation with an eye toward organic and inorganic investments in an effort to add geographies and increase our service offerings.

Elaine: From 23 days in fiscal 2024 to 14 days at the end of March 2025, highlighting a more normalized supply chain.

Elaine: Our strategy of focusing on high growth areas and anticipating our customers needs continues to position us well for the future. We remain focused on strategic capital allocation with an eye toward organic and inorganic investments in an effort to add geographies and increase our service offerings with.

Mark Marron: With that, I will turn the call back over to Mark. Thank you, Elaine. Our core business is solid and our team is executing well. This is reflected in our financial results with solid gross profit growth and margin expansion. We continue to review our portfolio of products and services, identifying new sources of growth in our core markets. Our strong balance sheet provides us the opportunity to invest organically and make acquisitions when the right opportunity comes along. As always, we will continue to take a balanced and disciplined approach to building our company and evolving our business model for the future.

Speaker Change: With that I will turn the call back over to Mark Mark.

Speaker Change: Thank you Elaine our core business is solid and our team is executing well. This is reflected in our financial results with solid gross profit growth and margin expansion.

Speaker Change: We continue to review our portfolio of products and services identifying new sources of growth in our core markets.

Elaine: Our strong balance sheet provides us the opportunity to invest organically and make acquisitions when the right opportunity comes along as always we will continue to take a balanced and disciplined approach to building our company and evolving our business model for the future.

Mark Marron: Moving next to a comment about guidance. We are cautiously optimistic as we head into fiscal year 2026, but want to be prudent when considering the entire year and the trends we are experiencing with regard to ratable and netted down revenue. Today, we are initiating fiscal year 2026 guidance for net sales growth of low-signal digits while we expect gross profit and adjusted EBITDA to grow at mid-single digits over the prior fiscal year.

Elaine: Moving next to a comment about guidance, we are cautiously optimistic as we head into fiscal year 2026, but wanted to be prudent when considering the entire year and the trends we are experiencing with regard to ratable and netted down revenue.

Mark Marron: Today, we are initiating fiscal year 2026 guidance for net sales growth of low single digits, while we expect gross profit and adjusted EBITDA to grow at mid single digits over the prior fiscal year. This guidance assumes some level of impact from economic uncertainty, but does not factor in recessionary conditions or other.

Mark Marron: This guidance assumes some level of impact from economic uncertainty, but does not factor in recessionary conditions or other unexpected developments. To sum up, our strategic pivot towards services, subscriptions and high growth technology areas is gaining traction. We believe these foundations, combined with our financial strength and customer-first approach position us well to support our customers' evolving and growing business.

Elaine: Unexpected developments.

Elaine: To sum up our strategic pivot towards services subscriptions and high growth technology areas is gaining traction. We believe these foundations combined with our financial strength and customer first approach position us well to support our customers' evolving and growing business needs.

Mark Marron: We believe we are well positioned for the opportunities ahead and remain committed to delivering value for all of our shareholders.

Elaine: We believe we are well positioned for the opportunities ahead and remain committed to delivering value for all of our shareholders. Operator. Please open the call for questions. Thank you.

Operator: Operator, please open the call for questions. Thank you. Thank you, and we will now begin the question and answer session if you have dialed in and would like to ask a question Please press star 1 on your telephone keypad to raise your hand and join the queue If you would like to withdraw your question simply press star 1 a second time If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one if you would like to join the queue.

Elaine: Thank you and we will now begin the question and answer session.

Speaker Change: If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined Mchugh.

Elaine: If you would like to withdraw your question simply press Star one a second time.

Operator: If you are called upon to ask your question and our listening via Speakerphone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

Elaine: Again, it is star one if you would like to join the queue.

Greg Burns: And our first question comes from the line of Greg Burns with Sidotian Company. Your line is open. Good morning, or afternoon. Where do you, where's 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?

Greg Burns: And our first question comes from the line of Greg Burns with Sidoti <unk> Company. Your line is open.

Greg Burns: Yeah.

Greg Burns: Good morning, Laura.

Greg Burns: Afternoon.

Greg Burns: Where do you where is the demand environment.

Greg Burns: Currently like did you see any improvement throughout the quarter are you still seeing soft demand on the product side of the business can you just maybe give us an update on what you saw during the quarter, how it evolved and kind of where we are.

Greg Burns: Can you just maybe give us an update on what you saw during the quarter, how it evolved, and kind of where we are currently? Thank you.

Greg Burns: Currently thank you.

Mark Marron: Yeah, hey, Greg. Good morning and good afternoon. Okay. A couple different things we're seeing in the market. We are seeing pickup in the data center cloud and security space. That's 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 is 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.

Greg Burns: Hey, Greg Good morning, and good afternoon, Okay.

Greg Burns: A couple of different things, we're seeing in the market. We are seeing pickup in the data center cloud and security space. That's not surprising when you think about some of the AI initiatives that are going on some.

Greg Burns: Some of the things that folks have to think through is.

Greg Burns: Security in terms of governance and risk.

Greg Burns: Ada readiness and things along those lines state also make a lot of times, a simple choices to move to the cloud. So we saw some nice pick up there.

Greg Burns: 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 kind of saw was as we looked over the last couple of years. So a few things for this quarter was a big gross to net that affected our net sales we had a tough compare.

Mark Marron: So networking was down pretty big still for us. And then if I look at net sales just overall generically, what we kind of saw was as we looked over the last couple of years, a few things. For this quarter 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. And we had a few customers that are digesting some of the supply chain specifically in the networking space. We think they'll start to come back into play in the coming quarters.

Greg Burns: No excuses, we were up 12% last year. So that was another and we had a few customers that are digesting some of the supply chain specifically in the networking space.

Greg Burns: 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.

Mark Marron: So overall data center cloud security, nice pickup, networking still needs to improve.

Mark Marron: Okay, and then when you look at the The AI opportunity, a lot, most of the investment's been going into like the hyperscaler data center environment, where does like enterprise AI adoption enterprise investment stand and do you think that And I guess maybe in your guidance for next year, does that contemplate any kind of acceleration and maybe AI demand? Yeah, not yet, Greg. Maybe towards the end of the year, beginning of next year. So you're right, most of the spend with NVIDIA and the bigger players is going towards the hyperscalers. What we're seeing is customers are taking advantage of some of our workshops, envisioning sessions.

Greg Burns: Okay.

Greg Burns: When you look at the.

Greg Burns: AI opportunity.

Greg Burns: Most of the investment has been going into like the hyper scaler.

Greg Burns: Data center environment.

Greg Burns: Where does it where does like enterprise AI adoption in enterprise investment stand and do you think that.

Greg Burns: And I guess, maybe in your guidance for next year does that.

Greg Burns: Contemplate any kind of.

Greg Burns: Acceleration maybe.

Greg Burns: High demand.

Speaker Change: Yes, 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 hyperscale or.

Speaker Change: What we're seeing is customers are taking advantage of some of our workshops envisioning sessions. We've got a hosted proof of concept basically a private jet AI chatbot.

Mark Marron: We've got a hosted proof of concept, basically a private Gen AI chatbot that gives customers the ability to kind of test and play around with their data to come up with use cases. So we think a lot of that will be, you know, on the services side that will drive for us, which is a good thing. It's our most profitable business. And then we think the infrastructure stuff will start to pick up. We've 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'll take a little bit of time.

Speaker Change: That we that gives customers the ability to kind of 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 that will drive for us which is a good thing. It's our most profitable business and then we think the infrastructure stuff will start to pick up we've made investments with the.

Speaker Change: The training of our sales teams. We also just got the <unk>.

Speaker Change: Video Super pod specialization, which is they are high end computing. So over time, we think that infrastructure spend will pick up but it will take a little bit of time.

Greg Burns: Okay, thank you. No problem. See you soon.

Speaker Change: Okay. Thank you.

Greg Burns: Problem.

Greg Burns: See you soon.

Mark Marron: And there are no further questions, so I will now turn the conference back over to Mr. Mark Marron for closing remarks. Okay, thanks, Abby. Thank you, everyone, for attending our Q4 and full-year earnings call.

Greg Burns: And there are no further questions. So I will now turn the conference back over to Mr. Mark Marron for closing remarks.

Mark Marron: Okay. Thanks Avi.

Mark Marron: Thank you everyone for attending our Q4 and full year earnings call I hope everybody gets the enjoy the long Memorial day holiday and we look forward to speaking with you again on our next earnings call take care and be safe.

Mark Marron: I hope everybody gets to enjoy the long Memorial Day holiday, and we look forward to speaking with you again on our next earnings call. Take care and be safe.

Operator: And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.

Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.

Operator: Please wait. The conference will begin shortly.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: [music].

Greg Burns: Yes.

Greg Burns: [music].

Greg Burns: Yes.

Greg Burns: [music].

Greg Burns: Yes.

Greg Burns: Yes.

Greg Burns: [music].