Safe Harbor

This transcript of the earnings call that occurred on February 4, 2026, contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “project,” and similar expressions or by using future dates. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date of the earnings call and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we later become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:

• financial losses resulting from national and international political instability fostering uncertainty and volatility in the global economy including changes in interest rates, tariffs, inflation, export requirements applicable to products we sell, sanctions and exposure to foreign currency rate changes;
• supply chain issues, including a shortage of IT component parts and products, such as memory chips, may increase our costs or cause a delay in fulfilling or inability to fulfill customer orders, or increase our need for working capital, or delay completing professional services, or purchasing IT products or services needed to support our internal infrastructure or operations, resulting in an adverse impact on our financial results;
• significant adverse changes in our relationship with one or more of our larger customer accounts or vendors, including decreased account profitability, reductions in contracted services, or a loss of such relationships;
• increases to our costs including wages and our ability to increase our prices to our customers as a result, or we experience negative financial impacts due to the pricing arrangements we have with our customers; 
• a material decrease in the credit quality of our customer base, or a material increase in our credit losses;
• reliance on third parties to perform some of our service obligations to our customers, and the reliance on a small number of key vendors in our supply chain with whom we do not have long-term supply agreements, guaranteed price agreements, or assurance of stock availability;
• the possibility of a reduction of vendor incentives provided to us;
• our inability to identify merger and acquisition candidates, perform sufficient due diligence prior to completing mergers and acquisitions, successfully integrate a completed merger and/or acquisition, successfully complete merger and acquisition transactions, including on favorable terms, or identify an opportunity for or successfully completing a business disposition;
• our ability to remain secure during a cybersecurity attack or other information technology (“IT”) outage, including disruptions in our, our vendors or a third party’s IT systems and data and audio communication networks;
• our ability to secure our own and our customers’ electronic and other confidential information, while maintaining compliance with evolving data privacy and cybersecurity laws and regulations and appropriately providing required notice and disclosure of cybersecurity incidents when and if necessary;
• our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel by recruiting and retaining highly skilled, competent personnel with needed vendor certifications;
• risks relating to artificial intelligence (“AI”), including the use or capabilities of AI and emerging laws, rules and regulations related to AI;
• our ability to manage a diverse product set of solutions, including AI products and services, in highly competitive markets with a number of key vendors;
• changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service (“IaaS”), software as a service (“SaaS”), platform as a service (“PaaS”), and AI which may affect our financial results;
• ongoing remote work trends, and the increase in cybersecurity attacks that have occurred while employees work remotely and our ability to adequately train our personnel to prevent a cyber event;
• our ability to raise capital, maintain or increase, as needed, our lines of credit with vendors or our floor plan facility, or the effect of those matters on our common stock price;
• our ability to predictably meet expectations of the investor and analyst community, including relative to our financial performance guidance that we provide; and our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration, and other key strategies following mergers and acquisitions.

We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks and uncertainties. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 as well as other reports that we file with the Securities and Exchange Commission.

This document may also contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes that this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of non-GAAP measures presented in this document, see our earnings press release issued February 4, 2026, a copy of which is posted on our website at www.eplus.com/investors.

February 4, 2026

Prepared Remarks

Operator

Welcome to the ePlus Third Quarter 2026 Earnings Results Conference Call. As a reminder, this conference call is being recorded. 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 at that time please press * then the number 1 on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time simply press *1 again. Thank you.

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

Kley Parkhurst, SVP

Thank you for joining us today.  On the call is Mark Marron, CEO & President;  Darren Raiguel, COO & President of ePlus Technology, Elaine Marion, CFO, and Erica Stoecker, 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 in other documents that we file with the SEC.  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 these forward-looking statements in light of new information, future events, or otherwise.  In addition, we will use certain non-GAAP measures during the call.  We have included a GAAP financial reconciliation in our earnings release, which is posted on the Investor Information section of our website at www.eplus.com.

I’d now like to turn the call over to Mark Marron. Mark?

Mark Marron, CEO & President

Thank you Kley. Good afternoon, everyone, and thank you for joining us today for our third quarter fiscal 2026 earnings call.

The momentum we are seeing across the business continues to affirm our strategy and our focus on efficient operations which is driving strong bottom line results.   

A few key things to note:

We are seeing the most strength across our key focus areas of AI, Cloud, Networking, and Security. We believe our ability to bring these capabilities together through integrated solutions is resonating in the market and helping us gain market share. 

We saw growth across all customer size segments with a particularly strong performance in the mid-market and Enterprise space. 

Throughout the year, we have consistently delivered strong, broad based growth and continue to achieve operating leverage with the strategic alignment of our workforce toward higher growth areas and disciplined expense management. All while continuing to invest in the areas most important to our customers.

And, our strong balance sheet gives us the flexibility to invest organically, pursue strategic acquisitions and return capital to our shareholders. Today, our Board of Directors approved a quarterly dividend of $.25 cents per common share and during the quarter the Company repurchased over 200,000 shares.

Turning now to a brief overview of the financial results of the quarter, Net sales grew 24.6% to $615 million. Product sales increased 32.2% year-over-year, led by strong performance in data center and cloud, networking, and security. Demand tied to AI initiatives continue to drive infrastructure modernization across customers of all sizes.

Services were flat as strong managed services were offset by weaker professional services revenue. We saw an increase in storage and cloud services as the continued build-out of data centers and underlying infrastructure suggests a long runway of opportunity across the ecosystem and ePlus is well-positioned to benefit from this trend. Offsetting this was a decrease in project work due in large part to delays from customers in our retail sector. Our service offerings continue to play an increasingly important role as customers look for ePlus to help assess, design, deploy, and manage AI- use cases.

Security also continues to be an important business driver for us. Overall, Security gross billings for products and services grew 16.4% year-over-year and is up 27.6% for the trailing twelve months. Customers continue to prioritize cybersecurity investments as threat levels rise due to AI. Our expanding security capabilities are resonating with our customers and we are well positioned to meet demand here too. This includes helping customers around their Governance and Risk frameworks, as well as, providing Data governance advice to ensure the right classifications and permissions are in use to support AI consumption of data. While also providing guidance on the correct protection architectures to secure AI workloads both in development and production.

Moving on to profitability. Net earnings from continuing operations increased 129.3% to $33.4 million from $14.6 million in the prior year quarter, and adjusted EBITDA increased 97% to $53.4 million with a margin of 8.7%, 320 basis points higher than the same period of the prior year.   

Closing out the financial commentary, our Fiscal Year 26 operating performance has been particularly strong, with net sales up 22% and adjusted EBITDA up 55% year to date. This reflects healthy demand trends combined with disciplined operational execution.

With respect to industry trends, AI continues to be a meaningful growth driver. For us, AI adoption continues to accelerate across our customer base and remains a powerful tailwind as we are seeing AI-driven investments drive demand across data center, security, cloud, and networking.  

We continue to look for ways to enhance and expand our AI envisioning sessions and AI acceleration offerings to help customers identify use cases that would benefit their company and provide cost effective solutions to help get them started. This includes working on AI-specific solutions and services to address areas of need, address any financial constraints and help supplement their current workforce. 

Overall, we remain focused on expanding our solutions portfolio, growing our professional and managed services capabilities, and extending our geographic reach. We continue to evaluate acquisitions and investments that enhance our position in our higher-growth areas, help us scale, provide access to new customers, markets, and capabilities,  and support our long-term vision of delivering comprehensive workplace transformation solutions.

In summary, our third quarter and nine month year to date results reflect our diversified business model, emphasis on high-growth areas, and our disciplined execution. We believe we are well-positioned for continued growth, supported by industry demand trends, operating leverage, and financial flexibility.

I will now turn the call over to Elaine.

Elaine Marion, CFO

Thank you, Mark, and thank you, everyone, for joining us. I will review our financial performance in the second quarter of fiscal 2026.

Continued momentum across our business led to another quarter of double-digit increases in our key financial metrics. Consolidated net sales totaled $608.8 million, up 23.4% year-over-year, driven by sustained demand across our focus areas of security, networking, and cloud.

As Mark mentioned, we continue to see demand across all customer sizes, with particular strength in the mid-market and enterprise segments. As you may recall from our last earnings call, enterprise customers resumed purchasing in the first quarter following a period of product digestion, and we saw a continuation of this trend in the second quarter.

Gross billings of $1.02 billion in the quarter represented a 26.5% increase year-over-year, with the majority of this growth being organic. This milestone underscores the strength of our diversified business model and our strategic focus on high-growth areas, including offerings that enable AI consumption.

Product sales in the quarter totaled $485.1 million, up 24.5% from the prior year quarter led by robust demand in networking and security solutions, aided by increased AI adoption, as well as growth in data center and cloud.

Service revenue reached $123.8 million in the quarter, representing growth of 19.4% year-over-year. Professional Services grew 23.3%, led by the addition of Bailiwick in August 2024, while Managed Services increased 13.5%, led by strength in enhanced maintenance support and cloud offerings. Services remain a strategic focal point for ePlus, and we remain committed to add to our capabilities in this segment to build out our strong, recurring revenue base over the long term.

Taking a look at our customer verticals, sales remained broad-based. Telecom, media and entertainment, and SLED, our two largest verticals, accounted for 27% and 14%, respectively of net sales on a trailing 12-month basis. Healthcare, technology, and financial services represented 13%, 13%, and 9%, respectively, with the remaining 24% divided among other end markets.

Second quarter gross profit totaled $162.1 million, up 27.4% from the prior year quarter. This represents a consolidated gross margin of 26.6%, up 80 basis points from 25.8% last year, driven by increased product margins.

Product gross margin expanded 160 basis points to 24.5%, reflecting favorable mix, as we sold a higher proportion of third-party maintenance and services in the quarter, which are recorded on a net basis.

Professional services gross margin was 38.2% compared to 41.3% a year ago. This change was due to the acquisition of Bailiwick which had lower gross margin than our legacy professional services. Managed Services gross margin was 29.5%, in line with the prior year quarter.

Consolidated operating expenses increased 12.9% to $113.3 million, reflecting higher salaries and benefits primarily from a full quarter of Bailiwick and additional variable compensation due to the increased gross profit generated in the quarter. Headcount from continuing operations at quarter end was 2,138, down 6.0% from the prior year quarter as we focus on roles in high-growth areas including AI, cloud, security, and networking. Operating income rose 80.9% to $48.8 million, significantly outpacing the increase in operating expenses, demonstrating meaningful operating leverage.

Earnings before taxes increased to $54.0 million, from $27.3 million in the prior year quarter. Other income was $5.2 million, which includes $4.5 million in interest income, and foreign exchange gains of $700 thousand. Our effective tax rate for the quarter was 29.3%, versus 27.5% in the second quarter of fiscal 2025.

Consolidated net earnings from continuing operations were $38.2 million, above net earnings of $19.8 million in the prior year quarter, and net earnings from continuing operations per diluted share was $1.45 compared to $0.74 in the prior year quarter.

Discontinued operations net loss was $3.3 million, compared to net earnings of $11.5 million in last year's quarter. Diluted loss per share from discontinued operations was $0.13 compared with earnings per share of $0.43 last year.

Non-GAAP diluted earnings per share for continuing operations was $1.53, up from $0.94 in the prior year. Our weighted average diluted share count was 26.4 million, compared to 26.7 million in the second quarter of fiscal 2025.

Adjusted EBITDA totaled $58.7 million, up 61.6% from $36.3 million a year ago. Adjusted EBITDA grew more than twice as fast as net sales, underscoring the operating leverage inherent in our business model.

Moving to our results for the six months ended September 30, 2025. Consolidated net sales totaled $1.25 billion, up 21.1% from $1.03 billion in the first half of fiscal 2025, driven by an 18.8% increase in product sales and a 32.0% increase in services revenue. Year-to-date gross billings totaled $1.98 billion, an increase of 20.3% year-over-year.

Consolidated gross profit for the first six months was $310.3 million, 22.1% above the $254.2 million in the first half of fiscal 2025. Gross margin expanded 20 basis points to 24.9%, led by an increase in product margins.

Year-to-date consolidated net earnings from continuing operations were $65.3 million or $2.47 per diluted share compared to $44.0 million or $1.64 per diluted share in the first half of fiscal 2025.

Discontinued operations net earnings for the first six months was $7.3 million, versus $14.7 million in the first six months of fiscal 2025. Diluted EPS from discontinued operations was $0.28 compared with $0.55 in the comparable period last year.

Non-GAAP earnings per share from continuing operations were $2.79, up 42.3% versus $1.96 in the prior year period.

Turning to our balance sheet. Cash and cash equivalents at quarter end totaled $402.2 million, up from $389.4 million at the end of the last fiscal year. Our cash position remains robust, providing us with significant flexibility to continue investing in both organic and inorganic growth initiatives as well as support our capital allocation strategy.

Inventory at quarter end was $154.1 million, up from $120.0 million at the end of fiscal 2025. Inventory days outstanding were 15 days, slightly above 14 days in the prior sequential quarter and 12 days in the prior year. Despite the slight uptick in inventory days outstanding, our cash conversion improved to 30 days, from 32 days in the prior year period.

Our capital allocation strategy remains focused on four priorities: strategic acquisitions that complement our capabilities, organic investments in high-growth areas, quarterly dividends, and opportunistic share repurchases. Consistent with these priorities, we repurchased 60,000 shares during the quarter after our stock repurchase plan authorization began on August 11, 2025.

In addition, we are continuing to deliver shareholder value with the announcement of our second quarterly dividend of $0.25 per common share payable on December 17, 2025 to shareholders of record on November 25, 2025.

In summary, we delivered strong second quarter and first half results, demonstrating superb execution by our employees, momentum in our business, and the success of our strategic initiatives.

Now, I will turn the call back over to Mark, Mark?

Mark Marron, CEO & President

Thank you, Elaine.

We reported a solid quarter and year to date performance with double digit growth across all key metrics. Our third quarter and year to date results reinforce the strength of our strategy, the demand momentum across our portfolio, and the scalability of our operating model. Importantly, we see this momentum continuing. Accordingly, we are increasing our full year guidance for net sales, gross profit, and adjusted EBITDA growth. 

We are raising our net sales guidance to 20-22% year-over-year growth, an increase from the prior guidance of mid-teens. This increase is against Fiscal Year 2025’s $2.01B from continuing operations. Gross profit is expected to grow at a rate of 19 to 21% now, as compared to the prior guidance of mid-teens from fiscal year 2025's $515.5 million from continuing operations. We now expect Adjusted EBITDA to increase 41% to 43% over our Fiscal Year 2025 Adjusted EBITDA of $141M from continuing operations. This is an increase from our prior guidance that was twice the pace of net sales when net sales was expected to be in the mid-teens.

As we look ahead, we are also mindful of potential near-term risks, including the industry-wide memory shortage. The global memory chip market is experiencing a notable supply squeeze and rapid unexpected price increases. Demand for advanced memory components, especially those used in large AI systems and data centers, is outpacing the industry’s ability to produce them. While this dynamic could impact certain customer deployments or timing, we believe we are well positioned to manage through it given our diversified supplier relationships and close coordination with customers. Still, it is a development we must monitor closely.

We are entering the last quarter of the year with strong momentum, and balance sheet resources to continue investing while supporting our capital allocation priorities. Our focus remains on executing our long-term strategy, delivering consistent results, maintaining disciplined capital allocation, and supporting our customers as they invest and grow. The progress we have made year to date underscores the strength of our strategy and successful execution and positions us well for the future. We are excited about the opportunities ahead and remain focused on driving sustainable growth and long-term shareholder value.

I want to close by thanking our ePlus team for their continued dedication and execution in delivering another strong quarter. Their efforts are critical to delivering value to our customers and our shareholders.

Thank you for joining us today. We will now open the call for questions.

Question & Answer

Operator

Thank you, we will now begin the question and answer session. Again, if you would like to ask a question please press * then the number 1 on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, you can simply press * 1, again. We will pause for just a moment to compile the roster. Your first question comes from the line of Maggie Nolan with William Blair, your line is open.

Maggie Nolan, William Blair

Hi thank you and congrats from me on the quarter and the guidance. I wanted to dig into the comment that one of you had made about outsized projects from enterprise customers. Can you fill us in a little bit on the nature of these, how big they are, the drivers of them? And then how many quarters of kind of that outsized impact do you potentially expect until it reverts to normal or moderates?

Mark Marron, CEO & President

Okay. First off, thanks, Maggie, for the quick appreciation of the quarter. So a couple of different things happened in the quarter. I'll touch on a few of them and then address your enterprise piece.

One, we saw growth across all product segments and customer size segments. What was really interesting, our mid-market customers had the biggest growth. So that's kind of our sweet spot. So some of the things we've talked about throughout the years about our strategy and where our focus is around AI, cloud, security and networking is really taking hold.

What we were trying to message, if you will, as it relates to the enterprise customers, we got a few of our large enterprise customers that had fairly large quarters in Q3. We don't think that there'll be a major slowdown in Q4, but we don't think we'll be able to replicate that. And that kind of shows in our guidance that we gave for the year.

Maggie Nolan, William Blair

Okay. Great thank you Mark. And then on the professional services piece, you mentioned some project delays from retail customers. Are those more like pushouts where you would expect maybe that revenue to materialize in March or fiscal 2027? And then, any insight on what is the nature of these delays and whether that could be more widespread across your services business?

Mark Marron, CEO & President

Yes. I would expect, Maggie, more '27 -- in 2027 -- or, I guess, 2026, our fiscal 2027, is when you'd see it. So we don't expect it to be a long term. It was just a few customers that delayed projects, specifically in the retail and consumer space, that affected that. That's why our PS was down. Our staffing was down a little bit as well, but we're not as concerned on that.

And then the other thing just to note, if you remember, last year, our services were up significantly, over 50%. And that was really due to the Bailiwick acquisition. So it was a combination of a tough compare, a few customers that kind of slid off this quarter that will slide into next fiscal year, and then staffing being down. I will highlight as well our MS continues to grow, our managed services, sorry. So we feel like we're in a pretty good spot overall.

Maggie Nolan, William Blair

Okay, thank you.

Mark Marron, CEO & President

Thanks, stay warm in Chicago Maggie.

Operator

Again, if you would like to ask a question, please press * then the number 1. Your next question comes from the line of Gregory Burns with Sidoti & Company, your line is open.

Greg Burns, Sidoti

Afternoon, I just wanted to touch on the inventory build and the, I guess, the timing of those projects. When do you expect to be able to deliver against that inventory that you're carrying on your balance sheet?

Elaine Marion, CFO

Yes, Greg. So sequentially, the inventory increased about $85 million. And that's really in concert with what we're seeing with the increase in just demand for the quarter as well. So the projects are fluctuating in and out. There'll be a progression of lesser inventory over time, but we're also seeing new orders as well. So I would expect the inventory level to be a little more inflated in the next several quarters.

Mark Marron, CEO & President

And traditionally, Greg, our AI and inventory tick up at the end of the year a little bit as well.

Greg Burns, Sidoti

Okay. Is there any way you can -- I don't know, maybe we're not at the point yet, but to quantify the impact AI is having for you? Maybe any kind of additional color you could give us to maybe understand the size of that business now versus maybe the growth rates?

Mark Marron, CEO & President

Yes Greg, we've kind of talked about it. What was interesting this quarter versus some of the prior quarters, AI was somewhat of a headwind. We now see it as a tailwind. And we've talked about this in prior quarters. What's happening now is everybody is starting to define their use cases and figure out how to take advantage of these AI capabilities.

What we've always talked about is people have to modernize their legacy systems, and that's where we're seeing the growth. If you look at our data center cloud growth, if you look at our networking growth -- which, by the way, networking, we've talked about it in previous quarters, it was kind of down a while back because the supply chain people had to digest it. Well, we're through that. They're now AI-enabling their networking and refreshing stuff based on timing. So a lot of what you're seeing in the growth in our product areas is being driven by AI.

Also from a security perspective, there's a lot going on with governance risk and compliance, data governance, and I'd call it even threat protection, like building the road maps for our customers as they try to take advantage of the AI capabilities. But it's been a very nice add for us over the last few quarters related to the different product areas.

Greg Burns, Sidoti

All right. And then you mentioned your ability to offer kind of integrated solutions across all the areas you mentioned, like AI cloud networking. How important is that becoming for you? Could you just maybe talk -- I haven't heard you mention that in the past. So how important is that dynamic to your ability to continue to grow and gain market share?

Mark Marron, CEO & President

Yes. I think it's one of our differentiators, Greg. I think a lot of customers are looking to just lock down a few key partners or strategic vendors to kind of deal with. I'd almost liken it to, if you remember back in the day with converged infrastructure, when that came out, with compute and storage and virtualization, that's what kind of put us on the map in that space, because we were able to bring all those vendors together in a tight solution while providing managed services around it.

Greg Burns, Sidoti

Okay, great thank you.

Mark Marron, CEO & President

No problem, anything else?

Operator

Thank you and with no further questions in queue, I’d like to turn the conference back over to Mark for any closing remarks.

Mark Marron, CEO & President

All right. Thank you, everyone, for joining us today for our earnings call. We look forward to updating you on our fiscal -- Q4 and fiscal earnings call in May. Thanks for taking the time today. Take care.

Operator

This concludes today's conference call. You may now disconnect.

ePlus reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.

In the earnings calls upon which this transcript is based, ePlus may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in ePlus’ most recent filings with the Securities and Exchange Commission. Although ePlus may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized.

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