Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ePlus Inc (NASDAQ:PLUS) reported a significant increase in subscription orders, up 51.4% year over year, indicating strong future growth potential.
• The company achieved a 52% year-over-year growth in services revenue, reaching a new high of $114 million.
• The finance segment delivered a solid quarter with a 20% increase in revenue, driven by higher proceeds from equipment sales and portfolio earnings.
• ePlus Inc (NASDAQ:PLUS) is leveraging AI to improve internal efficiencies and customer satisfaction, which is expected to provide long-term cost savings.
• The company's balance sheet remains strong, providing financial flexibility to support future growth initiatives both organically and through acquisitions.

Negative Points

• Total revenues were flat year over year, primarily due to lower product sales, which were only partially offset by high-margin service revenue.
• Adjusted EBITDA decreased by 15% as higher earnings in the finance segment were offset by a decrease in the technology business.
• The company experienced softer than expected hardware sales and lower demand from some enterprise customers.
• Operating expenses increased by 17.3% year over year, primarily due to increased headcount from acquisitions and business investments.
• ePlus Inc (NASDAQ:PLUS) adjusted its fiscal 2025 financial outlook, reflecting higher gross to net adjustments and potential impacts from tariffs.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with PLUS.

Q: Can you talk a little bit about your expectations for product sales included in the guidance and a couple of quarters beyond that? A: Mark Marron, CEO, explained that there is a softening in the market around hardware or product demands, particularly with select enterprise accounts. This trend is expected to continue into the next quarter, with a potential pick-up as they move into Q1. The shift towards a subscription model is affecting product sales, with netted down revenues impacting top-line figures.

Q: Are you calling an acceleration in the shift toward netted down product revenues? What might be driving this trend? A: Mark Marron noted that the shift is driven by OEMs changing their market approach, moving towards subscription models that are recognized on a net and ratable basis. This shift in product mix and solutions is significantly affecting their revenues.

Q: Can you discuss the demand environment and whether there are factors beyond product digestion affecting demand? A: Mark Marron stated that the demand environment is primarily affected by the digestion of products in the networking space and select enterprise customers. Other factors include tariffs, geopolitical issues, and the election, which slowed down decisions. However, diversification through acquisitions like Bailiwick helps mitigate long-term impacts.

Q: With the ongoing shift towards software subscription models, is there a risk of disintermediation for VARs? A: Mark Marron explained that the shift to subscription models presents opportunities to build up services, such as renewals, lifecycle management, and managed services. This shift does not pose a disintermediation risk but rather enhances service offerings.

Q: What is the company's strategy moving forward given the current market conditions? A: Mark Marron emphasized that ePlus will continue to focus on building a services-led model, leveraging their strong balance sheet for organic and inorganic growth. They remain confident in their strategy and ability to adapt to market changes, with services accounting for 23% of net sales this quarter.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.