Q1 2026 ePlus Inc Earnings Call
Speaker #4: Good day, ladies and gentlemen. Welcome to the ePlus first quarter 2026 earnings results conference call. As a reminder, this conference call is being recorded.
Speaker #4: I would like to introduce your host for today's conference, Mr. Kleyton Parkhurst, Senior Vice President. Sir, you may begin.
Speaker #5: Thank you for joining us today. On the call is Mark Marron, CEO and President; Darren Ragwell, COO and President of ePlus Technology; Elaine Marion, CFO; and Erica Stoker, General Counsel.
Speaker #5: I want take a moment to remind you that the statements we make this afternoon are not historical facts may be deemed to be forward-looking statements and are based on management's current plans, estimates, and projections.
Speaker #5: Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issue this afternoon. And our periodic filings of securities and change commission, including our most recent annual report on Form 10K, quarterly reports on Form 10Q, and another documents that we may file with the SEC.
Speaker #5: Any forward-looking statement speaks only as of the date of which the statement is made and the company undertakes no responsibility to update any of forward-looking statements in light of new information, future events, or otherwise.
Speaker #5: In addition, we will be using certain non-GAAP measurements during the call. We've a GAAP financial reconciliation in our arnings release which is posted on the Investor Information section of our website at www.eplus.com.
Speaker #5: I’d now like to turn the call over to Mark Marron. Mark?
Speaker #6: Thank you, Kley. Good afternoon, everyone, and thank you for joining our first quarter fiscal 2026 earnings call. Our results for the first quarter highlight the strength of the business we have built even in an uncertain economic environment.
Speaker #6: We believe this is a testament to the need for our solutions and services and our diverse customer industry segments. In addition to our strong results, we advanced on some major strategic initiatives during the first quarter.
Speaker #6: So before discussing our financial and operating results, I want to start with four key messages. First, the first quarter results reflect the importance of our strategic initiatives over the past few years and the momentum across our business.
Speaker #6: Second, with the sale of our domestic finance business, we are now a pure play technology services provider and we believe we are better positioned for long-term growth.
Speaker #6: Third, our strategy remains centered around delivering integrated service-rich solutions with an emphasis on AI, security, data center, cloud, and networking. This approach, coupled with our agile operating model, allows us to rapidly respond to market needs and continue gaining market share while supporting our customers with the products and services they need.
Speaker #6: And then fourth, our healthy balance sheet with the largest cash position in our history provides flexibility to support our growth initiatives as well as return capital to shareholders.
Speaker #6: To that end, we are initiating our first quarterly dividend and announcing a new stock buyback program. Now, let's discuss the highlights of our financial results.
Speaker #6: The results I'm about to discuss include our continuing operations and exclude the domestic financing business which we divested on June 30th and is accounted for as discontinued operations in the quarter.
Speaker #6: And retrospectively, in prior periods. Elaine will discuss this in more detail in her presentation. We are pleased with the strong start to the year with a solid first quarter performance across key financial metrics.
Speaker #6: We delivered double-digit increases in net sales, gross profit, adjusted EBITDA, driven by our core solutions in data center, cloud, and security, and the resumption of purchasing by some large enterprise customers.
Speaker #6: We achieved our highest ever quarterly results in gross billings and net sales underscoring the strength and resilience of our strategy, execution, and business model.
Speaker #6: Looking at some highlights for the quarter, product sales rose nearly 14%, fueled by continued demand across AI, security, data center, and cloud. We continue to see a sustained industry-wide shift towards radical and subscription-based models as you heard me discuss on previous calls.
Speaker #6: Gross billings of security products and services remain to stand out with an increase of 24.4% year over year. Security now represents 22.8% of our gross billings on a trailing 12-month basis.
Speaker #6: Networking showed sequential improvement, and we broader demand environment driven by AI adoption. Our 2023 acquisition of SBG expanded our high-end networking capabilities to better serve customers investing in AI infrastructure.
Speaker #6: Service sales were up 49% as our investments in high-growth, recurring offerings continued to gain traction as well as the acquisition of Bailiwick. Bailiwick is a great example of our acquisition strategy to broaden our solution set from core to edge, expand our customer base, and add enterprise-level service capabilities.
Speaker #6: Let me spend some time now discussing AI. AI continues to be a transformative force and demand driver, particularly for our core products of compute, cloud, security, networking, and our consultative services.
Speaker #6: Across industries, customers are using AI to enhance decision-making and automate tasks and drive both growth and efficiency. We have and will continue to invest in AI resources, solutions, and services.
Speaker #6: Including providing bespoke workshops and labs to help our customers find the right AI-driven business outcomes. Through our AI consultative engagements, we are helping our customers define the possible.
Speaker #6: We believe we are well-positioned to provide the infrastructure hardware, software, and services our customers need to power AI use cases, similar to what we did for our ustomers around converged infrastructure years ago.
Speaker #6: The sale of our domestic finance business was a major milestone. It simplifies our business model, reduces earnings volatility from that business, and solidifies our position as a pure play technology product and services company while providing the flexibility to enhance our solutions and services.
Speaker #6: We are still able to provide financing and related offerings through a relationship with the buyer. So the sale effectively simplifies our overall pure play technology business while allowing us to grow our offerings in a more capital-efficient manner.
Speaker #6: Moving next to capital allocation, where we also made progress on our strategic initiatives. Our balance sheet remains strong, closing the quarter with 480 million in cash and cash equivalents, a record level for us.
Speaker #6: This financial stability, combined with the consistent free cash flow generation, enables us to invest in the business while also opportunistically returning capital to shareholders.
Speaker #6: We will focus our resources on markets and segments where we have the greatest advantage and will continue evaluating strategic acquisitions that align with our growth areas.
Speaker #6: We are looking to capitalize on the fast-growing segments of AI, data center, cloud, security, networking, and related services. With our strong cash position, we remain committed to driving shareholder initiated our first-ever quarterly dividend of 25 cents per common share.
Speaker #6: The board also approved a new share repurchase authorization of up to 1.5 million shares. We will continue to review our capital allocation strategy on a periodic basis with an eye towards organic and inorganic growth and enhancing shareholder returns with dividends and share repurchases.
Speaker #6: Which we have value. opportunistically conducted for more To that end, we than 20 years. I will now turn the call over to Elaine to discuss our financial results in more detail.
Speaker #6: Elaine?
Speaker #7: Thank ou, Mark, and thank you, everyone, for joining us today. I am pleased to review our performance in the first quarter of fiscal 2026.
Speaker #7: We had a strong start to fiscal 2026 with double-digit growth in net sales, gross profit, adjusted EBITDA, and diluted earnings per share. In a fluid macroeconomic environment, we also achieved gross billings of 953 million, a high for E-Plus underscoring our ability to drive growth both organically and through strategic acquisitions.
Speaker #7: On June 30th, 2025, we completed the sale of our domestic financing business for cash proceeds of 180.1 million. And recognized a post-closing receivable of 7.8 million.
Speaker #7: And a contingent consideration asset of 13.5 million. Consequently, alongside the results of our continuing operations, we are retrospectively presenting the results our domestic financing business as discontinued operations for the current period and all prior periods.
Speaker #7: First quarter Product sales grew 13.9% to 521 million, driven by continued demand for our data center, cloud, and security offerings. Revenue also benefited from large purchases by certain enterprise customers that were project-specific as well as favorable product mix.
Speaker #7: consolidated net sales increased 19% to 637.3 million, led by strong performance in both our product and services segments with broad-based growth across all customer sizes.
Speaker #7: This dynamic benefited net sales while lowering gross margin. As Mark mentioned, security remains a key growth driver for E-Plus, now representing approximately 22.8% of gross billings on a trailing 12-month basis up from 20.4% in prior years comparable period.
Speaker #7: Our service segments continue to be standout performers with revenue up nearly 50% year over year. Growth in the professional services segment was led by the acquisition of Bailiwick, which occurred on August 19th, 2024, while continued demand for enhanced maintenance services and cloud offerings drove managed services growth.
Speaker #7: Moving on to our ustomer verticals, telecom, media, and entertainment, and SLED, are our two largest end markets representing 25% and 16% of net sales respectively.
Speaker #7: On a trailing 12-month basis. Healthcare technology and financial services accounted for 14.13 and 8% respectively with the remaining 24% divided among other verticals. Consolidated gross profit was 148.2 million, up 16.8% from the prior year quarter.
Speaker #7: As higher product and services net sales were partially offset by lower margins. Gross margin was 23.3%, down 40 basis points from the first quarter of fiscal 2025, primarily driven by lower product margins of 20.4% compared to 21.6% a year ago.
Speaker #7: As I mentioned before, this reflects the outsized proportion of sales to certain enterprise customers at lower margins as well as a lower proportion of sales of third-party maintenance and subscriptions which are recognized on a net basis.
Speaker #7: These factors resulted in a gross-to-net adjustment of 33.8% of gross billings compared 34.6% in the prior year quarter. Gross margin in our professional services segment was 39.2% compared to 41.5% a year ago due to the acquisition of Bailiwick, which generally provides services with a lower gross margin than core professional services offerings.
Speaker #7: Managed services gross margin was 30.4% compared to 31.4% in the first quarter of fiscal 2025. Consolidated operating expenses increased 17.4% to 112 million. Primarily reflecting acquisition-related amortization and increased headcount from the Bailiwick acquisition.
Speaker #7: Headcount increased by 275 employees from the first quarter of fiscal 2025 which includes the addition of 377 employees from Bailiwick at June 30th with some offset.
Speaker #7: On July 1st, 2025, 45 employees moved with the sale of financing business. Operating income was 36.2 million and earnings before taxes were 36.8 million from continuing operations representing increases of 15.1% and 11% respectively compared to the prior year period.
Speaker #7: Other income was 600,000 which includes 2.1 million in interest income, partially offset by 1.5 million of foreign currency translation losses. Our effective tax rate was 26.3%, below the 27.1% as recast for continuing operations for the last year's period.
Speaker #7: Net earnings from continuing operations amounted to 27.1 million or $1.03 for diluted share above the 24.2 million or 90 cents per diluted share in the year ago quarter.
Speaker #7: Which was recast for discontinued operations. Non-GAAP EPS from continuing operations was $1.26 versus $1.01 in the prior year and weighted average diluted shares outstanding decreased slightly to 26.4 million.
Speaker #7: Discontinued operations earnings before tax was 14.6 million up from 4.4 million in last year's quarter and comprised of earnings before tax of 10.2 million and a gain on the sale of the financing business before tax of 4.4 million.
Speaker #7: Diluted EPS from discontinued operations was 40 cents compared with 12 cents last year. Moving on to our balance sheet, cash and cash equivalents were 480.2 million at the end of the quarter up sequentially from 389.4 million driven by cash proceeds from the sale of the financing business offset by changes in working capital.
Speaker #7: Inventory was 101.1 million down from 120.4 million at the end of fiscal 2025. While inventory days outstanding of 14 remained stable. Our cash conversion was 26 days down from 29 days in the prior sequential period and 37 days a year ago.
Speaker #7: Our capital allocation strategy is centered on four pillars. First, we continue to evaluate strategic acquisitions to expand our geographic footprint and complement our core offerings.
Speaker #7: Second, we continue to invest in organic growth opportunities across the business. We are focused on improving shareholder returns, as such, our third priority is to return capital via quarterly dividends while our fourth is to return capital via a share repurchase program.
Speaker #7: Ultimately, our balanced approach allows us to continue investing for growth while simultaneously allocating capital to other initiatives like acquisitions, dividends, and share repurchases. To that end, we are pleased to announce the first quarterly dividend in E-Plus's history of 25 cents per common share payable on September 17th, 2025, to shareholders of record on August 26th, 2025, reflecting our commitment to delivering consistent long-term value to shareholders.
Speaker #7: In addition, our board has authorized a new 12-month share repurchase program of up to 1.5 million shares beginning August 11th, 2025. Underscoring our confidence in our long-term prospects.
Speaker #7: With that, I will turn the call back over to Mark. Mark?
Speaker #6: Thank you, Elaine. E-Plus currently has the strongest financial foundation in our history. The first quarter saw significant transformational advancement in our strategic initiatives with the sale of our domestic financing business and the initiation of a quarterly dividend.
Speaker #6: Coupled with our strong organic performance, we are adjusting our fiscal 2026 guidance. Additionally, we continue to believe that the breadth and scale of our customer base provides a solid foundation for continued growth.
Speaker #6: For fiscal 2026, we are increasing our net sales gross profit and adjusted EBITDA forecast. We now expect net sales growth in the upper single-digit range above fiscal year 2025's 2.01 billion from continuing operations and gross profit growth in the upper single-digit range from fiscal year 2025's 515.5 billion from continuing operations.
Speaker #6: For adjusted EBITDA, we now forecast growth in the mid-teens over fiscal year 2025's 141 million from continuing operations. Our previous guidance was for low single-digit net sales growth accompanied by mid-single-digit gross profit and adjusted EBITDA growth.
Speaker #6: The strong increase reflects our first quarter outperformance as well as our strong pipeline and outlook. We remain committed driving expansion and complementary product categories and executing our disciplined approach on M&A to drive additional scale in our business, grow our addressable market, and stay focused on the areas that add value in the long term.
Speaker #6: In conclusion, we have reached an important inflection point in our business as evidenced by the progress and strategies discussed today. We have built a solid foundation for future expansion and we remain confident in our ability to build on our strength while capitalizing on meaningful growth opportunities ahead.
Speaker #6: Thank you for joining us today. We will now open for questions.
Speaker #8: At this time, I would like to remind everyone in order to ask a question press star that the number one on your telephone keypad.
Speaker #8: We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Maggie Nolan from William Blair.
Speaker #8: Please go head.
Speaker #9: Thanks so much, Mark and Elaine. Busy quarter. I'm wondering if you can be a bit more granular on the drivers behind the increase in your adjusted EBITDA growth guidance in particular.
Speaker #6: In the adjusted EBITDA? So a couple of things, Maggie. One, good hearing from you. I'm glad you're on the call. A ew things. Let me touch on the quarter and then I'll touch on the adjusted EBITDA.
Speaker #6: First, if you looked at our quarter, it was a really solid quarter across a lot of different metrics. Everything was up double-digit across the board.
Speaker #6: From net sales, GP, adjusted EBITDA, and so forth. What we're seeing is an uptick. We saw an uptick in both product and services. Across all customer size segments, we started to see a more uptick in data center cloud.
Speaker #6: In the security business, we also saw some sequential growth in our networking business which gives us, you know, keeps us positive of that starting to grow after being down year over year with the supply chain.
Speaker #6: As it relates to adjusted EBITDA, the other quick things, sorry, just real quick. In terms of we saw some really nice growth in our services business that think can continue, right?
Speaker #6: And security continues to be a top performer being up 24.4%. We're also seeing the early innings of some AI traction. So we feel we're pretty well positioned that space based on what we've done traditionally with infrastructure across compute and storage and networking and all the security and services related.
Speaker #6: Even though it's early innings, we are starting to see some wins in what we'd call a plumbing, both the service opportunities, as well as storage and networking that's starting to come out of that.
Speaker #6: With that said, related to the adjusted EBITDA, there are some moves that we've made across OpEx and some other things over the past few quarters that will lead to the adjusted EBITDA being up a little bit more than the top line sales and gross profit.
Speaker #6: Now, that was long-winded, Maggie. opefully, that answered it.
Speaker #9: That did. Thank ou. And then for my next question, the resumption of purchasing by some large enterprise customers. Are they back to normal spending levels or from a modeling perspective, should we consider this to be project-based revenue that wouldn't necessarily repeat in subsequent quarters?
Speaker #9: Just can you elaborate a little bit on what this means from a growth perspective going forward?
Speaker #6: Yeah. Thanks, Maggie. Yeah, we started we had a nice quarter with our enterprise customers. And I ink that is the resumption with a couple of large customers that have slowed down in terms of, you know, implementing some of the technology that they had bought in prior quarters.
Speaker #6: I still think it's project-based. I'm not so sure yet that it's a trend that will continue throughout the year. But we had some real nice enterprise wins across the board.
Speaker #6: Overall. And then the other thing that comes into play for us as a, you know, relates is you had some seasonality with Cisco and Palo two of our bigger vendors.
Speaker #6: That kind of affect the quarter at some point.
Speaker #9: Got it. Helpful context. Thanks for your time.
Speaker #6: All right, Maggie. Take e.
Speaker #8: Our last question comes from the line of Greg Burns from CW. Please go head.
Speaker #10: Good afternoon. Congrats on the solid quarter. I just want to maybe get your view on why now why was now the right time to to divest the the financing business as opposed to maybe some time in the past?
Speaker #6: Yeah. Hey, Greg. How are you? So first off, it's been on our radar for a while. We've explored it as a management team for years.
Speaker #6: I think really what it came down to is we started seeing with what's appening in the market around AI and cyber and all the things that services that are needed.
Speaker #6: And we thought it was the right time. So we went through a full process with the third party. What we think it does is it really it kind of really helps us become a pure technology place.
Speaker #6: So it simplifies our business model. If you think about it, right? It frees up significant cash, right? So that gives us the flexibility we need to make moves to expand our footprint and customer base as AI and other things start to take off.
Speaker #6: The other thing it did, if you think about it, is that it also gives us the ability to provide a dividend to our shareholders with some of the cash that we had tied up.
Speaker #6: So I don't know if I'd call it a timing thing. It's something that's been in play or on our radar for a while. We've always thought about it.
Speaker #6: And as we see the market really moving towards AI and some other things, we thought this was the right time to take vantage of it.
Speaker #10: All right. Thanks that. And then just lastly, in terms of your your readiness to capitalize on on AI, are there any areas of organic investment or maybe inorganic acquisitions that you might need to do to to kind of bolster your your AI service offering?
Speaker #6: Yeah. Very much so. I ink in the consultative services side would be the first one. We've made a lot of investments in terms of training our sales and service teams.
Speaker #6: We built up our labs and AI briefing centers and things along those lines. But I do think we'd probably have to build up our AI consultative service capabilities.
Speaker #6: All the stuff underneath that, Greg, all of what we'd call a plumbing, you know, the high-performance computing, the storage, the networking, the security, we pretty much have done that for years.
Speaker #6: So we feel we're pretty well positioned. But 's more that front-end, getting in front of a customer, help them work through what they want to do with AI and help them build their use cases and then provide the infrastructure to manage those workloads and things along those lines.
Speaker #6: Here's what we're excited about. It gives us the ability to really take some hard looks at some things that we may have passed in the, you know, in the past.
Speaker #6: We would have passed on. But now we have the ability to take harder look at it. We're not going to just spend to spend, though.
Speaker #6: So it's ing to have to be the right opportunity. But we feel pretty good about how it's positioned us for going forward.
Speaker #10: All right. Great. Thank you.
Speaker #6: All right. Thanks, Greg.
Speaker #8: I would now like to turn the call back over to Mark Marron, President, CEO for Closing Remarks.
Speaker #6: Thanks, man. Hey, so if I could, I think it was a ally solid quarter and start to the fiscal year for E-Plus. With double-digit growth across all the key metrics, you know, strategically, we sold finance and instituted a quarterly dividend.
Speaker #6: That when you think about it, increased our flexibility with our capital allocation plans. And I believe positions us really well for growth in the ure.
Speaker #6: So with that, I want to thank you for joining us today and have a great day. Take e.
Speaker #8: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.