Executive Summary / Key Takeaways

• ePlus is successfully executing a services-led strategy focused on high-growth IT areas like AI, cloud, and security, driving significant expansion in gross profit and margins despite headwinds in traditional product sales.
• The industry-wide shift towards netted-down and ratable revenue recognition models is impacting reported net sales figures, creating tough year-over-year comparisons, but reflects underlying demand for subscription and consumption-based offerings.
• Strong growth in professional and managed services (up 48% and 24.6% respectively in FY25) and managed services bookings (up ~70% year-over-year in Q1 FY25) provides increasing predictability and higher profitability.
• The company is making strategic investments in AI capabilities, including specialized NVIDIA partnerships and dedicated programs, positioning itself to capitalize on future infrastructure and services demand despite AI currently elongating some sales cycles.
• A robust balance sheet, highlighted by a record cash position of $389 million at the end of FY25 and an improved cash conversion cycle of 29 days, provides financial flexibility for organic investments, accretive acquisitions, and shareholder returns.

Setting the Scene: A Services-Led Evolution in a Dynamic IT Landscape

Founded in 1990, ePlus inc. has evolved from a provider of core IT infrastructure and financing into a services-led organization focused on delivering transformative technology solutions across critical areas like security, cloud, data center, networking, collaboration, and artificial intelligence (AI). Serving a diverse base of middle market to large enterprises and public sector institutions, ePlus leverages a dual business model encompassing both technology solutions and specialized IT financing. This integrated approach, particularly its financing segment which accounted for 25% of operating income in fiscal year 2025, provides a differentiated value proposition compared to competitors primarily focused on product distribution or pure services.

The IT solutions market is intensely competitive and subject to rapid technological change and macroeconomic cycles. ePlus competes against a spectrum of players, from large national and international resellers and service providers like CDW Corporation (CDW) and Insight Enterprises (NSIT), to specialized consulting firms, direct marketers, and even vendors selling directly to end-users. Indirect competition also comes from cloud hyperscalers (like AWS (AMZN) and Azure (MSFT)) and fintech companies offering alternative financing solutions.

Against this backdrop, ePlus has strategically positioned itself by emphasizing higher-value professional and managed services and focusing on high-demand technology areas. Recent acquisitions, such as Bailiwick Services (August 2024) to expand integration and deployment services and geographic reach, and PEAK Resources (January 2024) to bolster data center, networking, and security capabilities, underscore this commitment to enhancing its service portfolio and market presence. This strategic pivot aims to build deeper customer relationships, capture recurring revenue streams, and drive profitability in an industry undergoing significant shifts.

Technological Differentiation and the AI Ambition

ePlus's competitive stance is increasingly underpinned by its specialized technological expertise and service delivery capabilities, rather than merely reselling commoditized hardware. The company holds top-level engineering certifications across a broad range of leading IT vendors, enabling it to design and implement complex, multi-vendor solutions optimized for specific customer needs. Key areas of focus include advanced skills in orchestration, automation, DevSecOps, zero-trust architectures, data management, edge computing, and consumption licensing models.

A central pillar of ePlus's current technological strategy is AI. Recognizing AI as a potentially transformational force, the company is investing significantly to support clients on their AI journey, from "AI Curious" to "AI Mature." Offerings like the AI Ignite program, AI advisory services, and the ePlus Secure GenAI Accelerator are designed to help customers navigate the complexities of AI adoption. The AI Experience Center provides a physical space for customers to explore AI technologies and infrastructure purpose-built for AI workloads.

ePlus highlights specific, tangible capabilities in the AI space. It is positioned as an NVIDIA partner in North America, notably achieving both the NVIDIA DGX Ready SuperPOD specialization and DGX Ready managed service provider specializations. This demonstrates expertise in deploying enterprise-grade AI infrastructure and providing end-to-end lifecycle services, from design to management of AI workloads. While specific quantifiable performance metrics for ePlus's AI services compared to competitors are not detailed, the NVIDIA specializations signal a level of technical proficiency in high-performance AI computing infrastructure that differentiates it from broader IT generalists. The Secure GenAI Accelerator, a hosted proof-of-concept offering, aims to provide customers with a secure environment to rapidly test use cases, with the stated goal of helping organizations make informed decisions and adopt GenAI safely and quickly.

The company's AI readiness survey revealed that 76% of IT leaders believe their organizations have not yet reached AI maturity, citing skills gaps (41.8%), cost (38.8%), and security (35.8%) as top challenges, along with data quality, security, and governance concerns. This gap between aspiration and readiness presents a significant opportunity for ePlus's advisory and professional services. While management notes that AI is currently elongating some sales cycles as customers evaluate options, the strategic investment in this area is designed to capture future demand for both infrastructure and the associated high-margin services required to deploy and manage these complex environments.

Beyond AI, ePlus's technological capabilities extend to specialized managed services like Storage-as-a-Service (powered by partners like Pure Storage (PSTG) and NetApp (NTAP)) offering consumption-based on-premises storage, Azure Recover for cloud disaster recovery, and Managed Security Services including SOC, Vulnerability Management, and MDR. These services, backed by certifications and attestations (SOC 1 Type 2, SOC 2 Type 2), provide recurring revenue streams and deepen customer reliance on ePlus as a trusted operational partner. The company's ability to offer single-call support for multi-vendor environments through Enhanced Maintenance Support (EMS/ELSS) further simplifies the customer experience and builds loyalty.

Financial Performance Reflecting Strategic Transition

ePlus's recent financial performance underscores the impact of its strategic pivot and the broader industry dynamics. For the fiscal year ended March 31, 2025, consolidated net sales decreased by 7% to $2.07 billion, primarily driven by a 14.6% decline in product sales within the technology business. This decline was attributed to tough comparisons against the prior year (which benefited from supply chain easing), decreased demand in certain areas (like networking), and crucially, a significant shift in product mix towards third-party maintenance and subscriptions recognized on a net basis. Management highlighted that gross billings for the technology business were down a more modest 1.5% in FY25, indicating that underlying transaction volume held up better than net sales figures suggest, due to the increasing proportion of netted-down revenue.

Despite the top-line pressure, consolidated gross profit increased by 3.3% to $569.1 million in FY25. This growth, coupled with the lower net sales, resulted in a notable 270 basis point expansion in consolidated gross margin to 27.5%. This margin improvement was primarily fueled by the technology business, where product margins increased by 210 basis points (to 23.2%) due to the shift towards higher-margin, netted-down offerings. Growth in the higher-margin professional and managed services segments also contributed, although services margins saw some pressure due to mix shifts and higher third-party costs associated with acquisitions like Bailiwick and cloud services. Operating expenses increased by 9% in FY25, largely due to higher salaries and benefits resulting from increased headcount, particularly from the Bailiwick acquisition which added 441 employees. Acquisition-related expenses and increased depreciation and amortization also contributed. This led to a 10.6% decrease in consolidated operating income to $141.4 million and a 30 basis point contraction in operating margin to 6.8%. Adjusted EBITDA for FY25 decreased by 6.4% to $178.2 million, with the technology business seeing a decline offset by strong growth in the financing segment.

The financing business segment demonstrated robust performance, with net sales increasing by 20.7% to $59.6 million and operating income growing by 36.7% to $35.1 million in FY25. This growth was driven by higher portfolio earnings and transactional gains, although post-contract earnings saw a decrease. This segment's strong profitability contributed significantly to overall operating income and Adjusted EBITDA.

Operationally, ePlus showed improved efficiency in working capital management. The cash conversion cycle decreased significantly to 29 days at March 31, 2025, down from 46 days a year prior. This improvement was primarily driven by a reduction in inventory days outstanding (DIO) from 23 days to 14 days, reflecting a more normalized supply chain environment compared to the prior year's inventory build-up.

Liquidity and Capital Allocation

ePlus maintains a strong financial position, ending fiscal year 2025 with a record cash and cash equivalents balance of $389.4 million, up from $253 million a year earlier. This substantial increase was primarily a result of strong operating cash flow generation, which totaled $302.1 million in FY25, benefiting from the improved working capital dynamics.

The company's capital allocation strategy prioritizes funding investments to drive organic and inorganic growth, alongside returning capital to shareholders. The robust cash position and available credit facilities (including the WFCDF Credit Facility with a $500 million aggregate limit) provide ample flexibility to pursue strategic acquisitions, invest in high-growth areas like AI and services, and manage working capital needs. In FY25, ePlus used $124.9 million for the acquisition of Bailiwick and repurchased 557,009 shares of common stock for $43.1 million under its share repurchase program. The company's ability to generate significant operating cash flow and maintain a healthy balance sheet is a key strength, enabling it to navigate market uncertainties and fund its strategic initiatives without relying heavily on external financing.

Outlook and Key Risks

Looking ahead, ePlus initiated fiscal year 2026 guidance anticipating net sales growth in the low single digits, while projecting mid-single-digit growth for both gross profit and Adjusted EBITDA. This outlook explicitly reflects the expectation that the trend of netted-down and ratable revenue recognition will continue, resulting in profitability growing faster than top-line sales. The guidance assumes some impact from economic uncertainty but does not factor in a recession or other unexpected developments. Management expects growth to be more back-half weighted in FY26, following tough comparisons in the first half of FY25.

Despite the positive outlook for profitability, several risks could impact ePlus's performance. Macroeconomic factors such as inflation, rising interest rates, and government spending cuts (including initiatives like DOGE impacting SLED customers) could reduce customer IT spending or increase costs. The highly competitive market could lead to pricing pressure, particularly in product sales, potentially eroding margins. Reliance on a small number of key vendors (Cisco (CSCO) products represented 32% of technology net sales in FY25) and third parties for service delivery poses supply chain and performance risks. Cybersecurity threats remain a significant concern, given the nature of ePlus's business involving sensitive customer data and IT systems. The ability to successfully integrate acquired businesses and retain key personnel are also critical operational risks. Furthermore, the ongoing industry transition to new consumption models and the nascent nature of the AI market introduce uncertainty regarding the timing and magnitude of future revenue streams.

Conclusion

ePlus is navigating a transformative period in the IT industry, marked by a fundamental shift in how technology is consumed and revenue is recognized. While this transition has created headwinds for reported net sales, particularly in traditional product segments, the company's strategic pivot towards a services-led model focused on high-growth areas like AI, cloud, and security is yielding tangible results in profitability. The significant expansion in gross profit and margins, driven by strong services growth and a favorable product mix shift, underscores the success of this strategy.

With a robust balance sheet, healthy operating cash flow, and an improving cash conversion cycle, ePlus possesses the financial strength to continue investing in its strategic priorities, including accretive acquisitions and the build-out of its AI capabilities. While macroeconomic uncertainty, intense competition, and the inherent risks of technological change persist, the company's differentiated financing segment, deep technical expertise, and growing portfolio of high-margin services position it to capture value in the evolving IT landscape. Investors should monitor the company's execution on its services growth strategy, the successful integration of recent acquisitions, and the pace of adoption and monetization of its AI offerings as key indicators of its ability to deliver sustainable, profitable growth.