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ePlus Reports Third Quarter and First Nine Months Results

On February 5, 2025, ePlus Inc. (NASDAQ: PLUS) released its financial results for the third quarter and the first nine months of the fiscal year 2025. The report highlighted a modest increase in net sales alongside a considerable uptick in service revenues, although challenges in product sales tempered overall profitability.

Financial Overview

In the third quarter, net sales saw a slight rise of 0.4% reaching $511.0 million. Within this, technology business revenues experienced a minor decline of 0.2%, amounting to $493.1 million, while service revenues surged by 52.2% to hit $113.6 million. This impressive growth in the service sector is largely attributed to ePlus's strategic investments in its service offerings and expanding market demands for cloud and managed services.

Despite the positive sales trajectory, gross profit rose by 5.3%, resulting in a consolidated gross profit of $140.9 million, and the gross margin improved to 27.6% compared to last year’s 26.3%. However, net earnings took a hit, decreasing by 11.5% to $24.1 million, and adjusted EBITDA fell by 15.2% to $39.1 million.

In the first nine months of FY 2025, net sales dropped by 6.0% to $1.57 billion, reflecting tougher market conditions and shifting consumer preferences. While technology net sales declined by 6.7% to $1.52 billion, service revenues still managed to increase by 38.6% to $295.5 million. This trend underlines the growing importance of service offerings in the company’s revenue mix, showcasing a significant shift in business operations toward service-based models.

Management Insights

Mark Marron, President and CEO of ePlus, commented on the results: "Our third-quarter performance underscores the importance of our investment in services and the industry-wide shift towards subscription-based revenue models. We have seen growth driven by both organic growth and strategic acquisitions, particularly in managed services. While the mixed results in product sales reflect market uncertainties, our robust service performance underscores the value of our offerings in a rapidly evolving technological landscape."

He added that technology gross billings increased by 6.6% to $849.5 million, indicating solid customer demand despite the lower product sales.

Challenges Faced

The report did indicate some areas of concern: the technology segment's gross profit increased by only 4% amidst a decline in product revenues, which were down by 9.5% to $379.5 million. The overall product margin stood at 22.1%, slightly improving from 21.9% previously. This discrepancy highlights the challenges faced as the industry transitions toward subscription-based models that limit immediate revenue recognition from product sales.

Operating expenses were reported at $112.4 million, a significant increase of 17.3% year-over-year, largely due to a rise in employee costs following recent acquisitions. The workforce increased to 2,291 employees, reflecting ePlus's focus on enhancing its service capabilities.

Future Outlook

Looking forward, ePlus remains optimistic. The company aims to continue prioritizing investments in rapidly growing sections such as artificial intelligence and cybersecurity, not only to enhance its service portfolio but also to secure its position in a competitive market. The fiscal year 2025 net sales guidance is projected between $2.07 billion and $2.11 billion, highlighting management’s confidence despite the shifting landscape.

Additionally, the company announced the achievement of its ISO 9001 Certification and the launch of its Secure GenAI Accelerator in the third quarter, developments that enhance its operational credibility and service offerings.

In summary, while ePlus faces challenges in product sales amid market transitions, its significant gains in service revenues reveal a strategic pivot that may well position the company for sustainable growth as it continues to adapt to industry changes.