Image source: The Motley Fool.
DATE
Thursday, Nov. 5, 2026
CALL PARTICIPANTS
- Senior Vice President - Kley Parkhurst
- Chief Executive Officer and President - Mark Marron
- Chief Operating Officer and President of ePlus Technology - Darren Raiguel
- Chief Financial Officer - Elaine Marion
- General Counsel - Erica Stoecker
TAKEAWAYS
- Net Sales -- $667.9 million, representing a 9.7% increase driven by higher product sales which were partially offset by lower services revenue.
- Gross Profit -- $180.3 million, an 11.2% increase from $162.1 million due to gains in the product and managed services segments.
- Gross Margin -- 27.0%, reflecting a 40 basis point expansion from 26.6% in the prior year quarter.
- Adjusted EBITDA -- $67.1 million, a 14.3% increase from $58.7 million, outperforming the growth rate of net sales.
- Gross Billings -- $1,066.8 million, representing a record for the quarter and a 4.3% increase compared to $1,022.7 million in the prior year.
- Product Net Sales -- $547.1 million, rising 12.8% year over year led by data center and cloud solutions where demand for artificial intelligence increased.
- Managed Services Revenue -- $53.1 million, increasing 11.9% from $47.4 million due to demand for data center-related managed services.
- Professional Services Revenue -- $67.8 million, declining 11.3% from $76.3 million due to project delays among large retail customers.
- Product Gross Margin -- 25.8%, an increase of 130 basis points from 24.5% due to a shift in product mix and increased third-party maintenance sales.
- Open Orders -- Nearly $750 million increase year over year, bringing the total backlog to over $1.8 billion.
- Inventory -- $271.4 million, rising from $146.0 million as of June 30, 2026, to support large customer projects expected to ship in the second half of the fiscal year.
- Non-GAAP Diluted EPS -- $1.82, representing a 19.0% increase from $1.53 in the second quarter of last year.
- Cash Position -- $380.9 million, providing liquidity for organic growth, strategic acquisitions, and capital returns to shareholders.
- Fiscal 2027 Guidance -- Management raised its outlook to expect upper single-digit growth in net sales and gross profit and low double-digit growth in adjusted EBITDA.
- Share Repurchases -- 148,000 shares during the quarter, bringing the first-half total to 400,000 shares for approximately $34 million.
- Quarterly Dividend -- $0.27 per common share, payable on Dec. 16, 2026, to shareholders of record as of Nov. 24, 2026.
- Telecom, Media, and Entertainment Vertical -- 26% of net sales on a trailing 12-month basis, representing the company's largest market segment.
- Healthcare Vertical -- 14% of net sales on a trailing 12-month basis, showing consistent presence in regulated industries.
- Operating Income -- $56.5 million, a 15.8% increase reflecting improved operating leverage as expenses grew slower than gross profit.
- Headcount -- 2,171 employees, including 35 net additions over the past year, 19 of which resulted from the Daymark Solutions acquisition.
Need a quote from a Motley Fool analyst? Email pr@fool.com
RISKS
- Raiguel stated, "There are still issues in the compute space on the memory side. It's more on the high-end compute, especially the GPU-type arenas," regarding supply chain constraints that are causing delays in high-end networking and data center sectors.
- Marion reported that professional services revenue declined 11.3% due to "continued project delays" among large retail customers, creating a difficult comparison against the previous year's record performance.
SUMMARY
ePlus inc. (NASDAQ:PLUS) reported growth in net sales for the second quarter of fiscal 2027, driven by performance in the product segment and data center-related managed services. Management stated that growth was primarily organic and diversified across its customer base, with record gross billings reflecting demand for artificial intelligence and cybersecurity solutions. The company increased its full-year guidance following the integration of the Daymark Solutions acquisition and a significant increase in open orders. Capital allocation during the period included share repurchases and the declaration of a quarterly dividend.
- CEO Marron stated, "Daymark broadens our presence in the Northeast market, and it brings us a Microsoft Tier 1 CSP certification with expertise in highly regulated and data-intensive industries."
- Management reported that open orders increased by approximately $300 million sequentially from the previous quarter, totaling over $1.8 billion.
- The company achieved several partner recognitions, including becoming the first company in North America to achieve Everpure Ambassador status and being named NetApp North American Flash Partner of the Year.
- Darren Raiguel noted that AI-related customer engagements range from use case validation to purchasing and implementation, particularly in data center connectivity and secure network infrastructure.
- Inventory levels increased by 35.1% since the end of the first fiscal quarter to support several large customer projects scheduled for shipment in the second half of the year.
INDUSTRY GLOSSARY
- Gross Billings: A non-GAAP metric representing the total amount billed to customers, including the full value of products and services regardless of whether they are recognized as revenue on a gross or net basis.
- SLED: An acronym for the State, Local, and Education vertical market.
- GPU: Graphics processing unit, a specialized electronic circuit used for high-end compute tasks and artificial intelligence workloads.
- Microsoft Tier 1 CSP: A Cloud Solution Provider certification that allows partners to sell Microsoft cloud services directly to customers while providing support and billing.
- Managed Services: IT services where the provider takes ongoing responsibility for monitoring and managing a customer's technology infrastructure.
Full Conference Call Transcript
Operator: Good day, ladies and gentlemen. Welcome to the ePlus second quarter fiscal year 2027 earnings results conference call. As a reminder, this conference call is being recorded. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I would like to introduce your host for today's conference, Mr. Kley Parkhurst, Senior Vice President. Sir, you may begin.
Kley Parkhurst: Thank you for joining us today. On the call is Mark Marron, CEO and President, Darren Raiguel, COO and 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 we may 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 the GAAP financial reconciliation in our earnings release, which was posted on the Investor Information section of our website at www.eplus.com. I'd like to turn the call over to Mark Marron. Mark?
Mark Marron: Thank you, Kley. Good afternoon, everyone, and thank you for joining us for our fiscal second quarter 2027 earnings call. In the second quarter, we delivered robust growth across key metrics with improved profitability and a record quarter for gross billings. Net sales increased nearly 10%, and gross profit increased 11.2%, with adjusted EBITDA growing even faster. We achieved improved operating leverage in our business with operating income up 15.8% and expect that trend to continue in the second half of our fiscal year. What is noteworthy is that our growth was largely organic and was spread across our diversified customer base.
Lastly, the combination of our strong backlog and pipeline with open orders up nearly $750 million compared to last year underscores our confidence as we shift to the second half of fiscal 2027. Our balance sheet is healthy with the cash position of $381 million at quarter end, providing flexibility to invest in organic growth, pursue strategic acquisitions, and return capital to shareholders via dividends and share repurchases. Furthering that strategy was our acquisition of Daymark Solutions during the quarter. Daymark broadens our presence in the Northeast market, and it brings us a Microsoft Tier 1 CSP certification with expertise in highly regulated and data-intensive industries, which we believe we can scale across all of ePlus markets.
Daymark complements our existing offerings and creates additional opportunities to deliver integrated solutions to a broader customer base. Exiting the domestic finance business last year has enabled us to focus solely on the faster-growing areas of AI, cloud, data centers, security, and networking. As customers navigate increasingly complex IT requirements, they are looking for partners that can help them modernize infrastructure, strengthen security, and deploy emerging technologies effectively. AI remains an important catalyst for technology investment and represents a significant long-term growth driver for us. We are seeing this demand translate into business opportunities, particularly across data center, agentic AI, and security.
On the operational front, we are modernizing our internal systems and processes, including leveraging AI to improve efficiency and support greater operating leverage over time. Our solid performance in the quarter and year-to-date reflects successful execution of our strategy, the strength of our diversified business model, and our ability to drive profitable growth. Given our strong first-half performance, the healthy demand environment, and significant growth in bookings and open orders, we are raising our fiscal 2027 guidance and now look for upper single-digit growth in both net sales and gross profit, with adjusted EBITDA expected to grow in the low double digits, reflecting operating leverage inherent in our business.
In closing, we remain confident in our strategy and our ability to capitalize on the opportunities ahead while maintaining financial discipline and a balanced approach to capital allocation. I'll turn the call over to Darren to discuss the quarter in more detail. Darren?
Darren Raiguel: Thank you, Mark, and good afternoon, everyone. I will discuss the second quarter and overall strategy relating to our business segments in more detail, then Elaine will cover the second quarter financial results. We had a strong quarter in our product business with net sales increasing 12.8% year-over-year to $547.1 million, and we achieved record gross billings exceeding $1 billion. Additionally, open orders were up nearly $750 million year-over-year, led by data center and cloud, with additional growth in networking and security. These results reflect healthy demand across our broad portfolio. We are also seeing a significant increase in AI-related customer engagements, ranging from use case validation to purchasing and implementation.
As customers advance these initiatives, they are looking to ePlus to help design, deploy, and secure the infrastructure required to support increasingly complex workloads. This activity is contributing to our strong pipeline and buildup of open orders. Data center and cloud net sales grew 39.2% in the quarter. We secured several multimillion-dollar wins across data center, cloud, security, and networking, fueled by AI and IT modernization initiatives. A few examples include assisting a neocloud customer with data center connectivity requirements for build-outs around the globe, helping a service provider evaluate compute options and configurations to deliver business outcomes for its customers, and supporting a utility as it updates its growing storage environment.
We are also working with defense tech to design solutions and investments in secure network infrastructure. Security also performed well, with product net sales increasing 10.3% during the quarter. On a trailing 12-month basis, sales of security products represented 22.9% of gross billings. We are seeing a wide range of opportunities to engage our security practice from both a product and services perspective. Cybersecurity remains a priority for our customers as they manage increasingly complex IT environments and address evolving AI-related threats on their install base. We are also seeing security more closely integrated with infrastructure projects as customers look to deploy AI securely and at scale.
Our skills and experience in this area enable us to help customers better secure their environments, consolidate into platform solutions, and make more effective investments. Turning next to services, customers increasingly look to ePlus to provide a full lifecycle suite of services from design to ongoing management and support across their technology environments. Managed services continued its strong performance with net sales increasing 12% year-over-year, driven by several different portfolio offerings, including storage as a service and enhanced maintenance services. We continue to work alongside our partners and customers to broaden and expand our portfolio. These recurring services support longer-term customer relationships and the base for recurring revenue.
Professional services net sales declined against a difficult comparison, as the prior year quarter was our strongest professional services quarter to date. The decline was primarily related to project delays among large retail customers, which had a particularly strong quarter last year. We are continuing to invest in exceptional talent, such as our field Chief Technology Officer and principal technologist teams, to facilitate and drive additional strategic services engagements. Professional services is an integral part of our overall business. What often begins as a product opportunity at times requires extensive collaboration between our sales organization, highly skilled technical resources, and customers.
Our ability to bring together multiple technologies and partners and design solutions around specific customer requirements is an important competitive differentiator. Our extensive portfolio of professional and managed services allows us to augment and support customers throughout the technology lifecycle, from planning and design to implementation and management. This services-led approach distinguishes ePlus and reinforces our role as a trusted value-added solutions provider. Reflective of that, both our partners and our customers regularly recognize and award ePlus for this significant distinction. During the second quarter, ePlus became the first company in North America to achieve Everpure Ambassador status.
We were also named NetApp North American Flash Partner of the Year, and we became a certified services partner in Anthropic's Claude Partner Network. These distinctions reflect the depth of our capabilities, the commitment of our teams, and our continued investment in areas that matter to customers. To conclude, we are enthusiastic about the continued growth in our product business, momentum in AI-related engagements, pipeline of quality services opportunities, and noteworthy open orders. As customers modernize their IT environment and strengthen cyber resilience, our deep relationships and broad portfolio of products and services position us well to meet their evolving needs.
We remain focused on engaging around our multi-architectural capabilities in high-growth markets, continually enhancing our professional and managed services offerings, and leveraging our services-led operating model. Thank you. I will now turn it over to Elaine to discuss our financial results in more detail. Elaine?
Elaine Marion: Thank you, Darren, and thank you, everyone, for joining us. First, I will review our financial performance for the second quarter of fiscal 2027, which ended September 30th, 2026. We delivered solid second quarter results with growth across our key financial metrics and record quarterly gross billings of $1.07 billion. We also continued to generate operating leverage as adjusted EBITDA grew 14.3%, outpacing net sales growth of 9.7%. We were particularly pleased with this improvement in light of the difficult comparison from last year's second quarter, when net sales grew more than 23% and adjusted EBITDA grew more than 39%.
Consolidated net sales in the quarter totaled $667.9 million, up 9.7%, as double-digit growth in product and managed services was partially offset by lower professional services revenue. Gross billings rose 4.3%, reflecting continued momentum across our strategic focus areas, including AI, data center, and cloud, and security. Product segment net sales increased 12.8% to $547.1 million, led by data center and cloud, where AI-related demand increased significantly, and strength from security and collaboration, as Darren noted. Services revenue was $120.8 million compared to $123.8 million in the second quarter of fiscal 2026. Managed services revenue grew 11.9% to $53.1 million, driven by demand for data center-related managed services.
Professional services revenue declined 11.3% to $67.8 million due to continued project delays. As we discussed in previous quarters, the timelines for certain large retail projects have extended. We remain actively engaged with these customers as they work through their plans. We also faced a difficult comparison in this quarter, as last year's second quarter was our largest professional services revenue quarter to date. Our sales by vertical remain broad-based. On a trailing 12-month basis, telecom, media, and entertainment accounted for 26% of net sales, and healthcare for 14%. Technology, SLED and financial services accounted for 13%, 12%, and 12%, respectively, with the remaining 23% divided among other end markets.
Second quarter gross profit was $180.3 million, an 11.2% increase from $162.1 million in the prior year quarter, and gross margin expanded 40 basis points to 27%. Product segment gross margin increased 130 basis points to 25.8%, reflecting a shift in product mix and an increase in revenue from third-party maintenance and subscriptions. Services gross margin was 32.5% compared to 34.8% a year ago, reflecting a shift in mix in both segments. Managed services gross margin was 28.8% versus 29.4%, mainly driven by increased third-party costs. Professional services margin declined to 35.4% from 38.2% due to a higher proportion of third-party costs and lower professional services revenue. Operating expenses increased 9.2% to $123.8 million.
The increase was mainly due to higher salaries and benefits, driven by growth in customer-facing headcount and higher variable compensation tied to the increase in gross profit. We added 35 employees when compared to last year's quarter, 19 of which were from the Daymark acquisition. The second quarter also included certain costs related to the acquisition of Daymark and professional fees as we continue to enhance our systems and processes to drive efficiencies. Operating income rose 15.8% to $56.5 million. Earnings from continuing operations before taxes increased 3.7% to $56 million, as higher operating income was partially offset by other expense of $500,000 compared to other income of $5.2 million in last year's second quarter.
The decline reflects lower interest income, foreign exchange losses of $300,000 versus a gain of $700,000 last year, and a $3.5 million decrease to the fair value of the contingent consideration associated with the sale of our domestic financing business. Our effective tax rate was 27.9%, down from 29.3% due to state and local taxes and non-deductible expenses. Net earnings from continuing operations were $40.4 million, or $1.56 per diluted share, up 7.6% from $38.2 million, or $1.45 per diluted share in last year's second quarter. Non-GAAP diluted earnings per share increased 19% to $1.82. Adjusted EBITDA grew 14.3% to $67.1 million from $58.7 million in the prior year quarter.
Turning to the first six months of fiscal year 2027, consolidated net sales rose 5.2% to $1.32 billion, led by a 6.5% increase in product segment sales. Services revenue was flat year-to-date, as 13.4% growth in managed services was offset by lower professional services revenue. Gross billings increased 2.5% to $2.02 billion. Consolidated gross profit grew 5% to $331.6 million, and gross margin held steady at 25.2%. Net earnings from continuing operations were $70.7 million, up 0.7% from $70.2 million in the prior year, and diluted earnings per share was $2.72, up from $2.66 in the first half of fiscal year 2026. Non-GAAP earnings per share grew 5.1% to $3.11, and adjusted EBITDA rose 3.2% to $114.9 million.
Moving to the balance sheet, we ended the quarter with cash and cash equivalents of $380.9 million compared to $448.9 million at the end of the first quarter. The sequential change primarily reflects an increase in inventory, which ended the quarter at $271.4 million, up from $146 million as of June 30th, 2026. The increase relates to several projects for a large customer that we expect to ship in the second half of the fiscal year. Our cash conversion cycle improved to 36 days from 41 days at the end of the first quarter.
Our strong balance sheet gives us flexibility to execute our capital allocation priorities, which include investing in organic growth, pursuing strategic acquisitions, and returning capital to shareholders through dividends and share repurchases. On that note, we repurchased approximately 148,000 shares during the quarter, bringing our first half repurchases under our share repurchase plan to approximately 400,000 shares, totaling nearly $34 million, reflecting our confidence in the business. We are pleased to announce a dividend of $0.27 per common share payable on December 16th, 2026, to shareholders of record as of the close of business on November 24th, 2026. With that, I will turn the call back over to Mark. Mark?
Mark Marron: Our second quarter and year-to-date results reinforce our confidence in the strength of our business and the opportunities ahead. We are executing well across core markets, expanding our capabilities, and positioning ePlus to benefit from continued customer investment in AI, security, cloud, and data centers. With strong open orders, a solid balance sheet, and an increased outlook for fiscal 2027, we remain focused on profitable growth and delivering long-term value for our shareholders. Finally, I would like to thank our employees for their continued dedication and commitment to our customers. Thank you for joining us today and for your continued support. Operator, you may open the call to questions.
Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Greg Burns with Sidoti Company. Your line is now open. Please go ahead.
Greg Burns: Good afternoon. Can you just maybe give us an update on what you are seeing in terms of supply constraints, particularly around memory, how that might be impacting the business, and your view on maybe when you might get some relief on that front?
Darren Raiguel: Hi, Greg. It's Darren. There are still issues in the compute space on the memory side. It's more on the high-end compute, especially the GPU-type arenas, and there's some delays that's also causing in the high-end networking space. But in general, it's not affecting broadly across the market as far as delays. It's just more about price increases than anything else. Hope that answers it for you.
Greg Burns: Okay. I guess then the follow-on. What is causing the large increase in the open orders if there's not really supply issues? Maybe could you give us what the number was? What is that $750 million increase off of? Where was that last year?
Darren Raiguel: Yeah, so even with the increase in gross billings, the record gross billings we had, it's about a $300 million increase from where we were last quarter on the open order side of things. The backlog of open orders is some of that higher-end networking and some of that higher-end data center stuff that we're seeing in the market. We're also seeing more activity overall, which is helping to build the numbers.
Mark Marron: Hey, Greg, if I could add, we are seeing accelerating adoption of AI around the modernization space. The demand for, as you know, in terms of data center infrastructure has picked up across the board, and there's more emphasis on cybersecurity with what's going on. So that all fits within our sweet spot in terms of where our strengths are, both from a services and from a product perspective.
Greg Burns: Okay, thanks. Just lastly, what was the year-over-year increase? That $750 million is up off of. Is it up 100% from last year? What was the number last year?
Darren Raiguel: Well, it's over $1.8 billion total. So that gives you an idea there.
Elaine Marion: $1.1 billion.
Darren Raiguel: Yeah.
Greg Burns: Okay, great. All right. Thank you.
Darren Raiguel: Did that help, Greg?
Greg Burns: Yeah, got it.
Darren Raiguel: All right. Thanks for the questions, Greg.
Operator: Your next question comes from the line of Maggie Nolan with William Blair. Your line is now open. Please go ahead.
Maggie Nolan: Hi. Maybe I could come at the open orders from a slightly different angle. When you think about the raised guidance, what's the assumption there for conversion rates in the second half versus what you experienced in the first half?
Darren Raiguel: Hi, Maggie. It's Darren again. I think we're just seeing some of that come to fruition now. We've been building the open orders over previous quarters, and we're starting to see some of that flush. You saw some of the inventory that Elaine mentioned as well, and we expect some of that to go out, or a good portion, a significant portion of that inventory to go out in the second half of the fiscal. It's just a lot of really positive activity. So while the open orders are building and a good portion of that will push into FY 2028, we expect to see increasing growth as the year has progressed in the fiscal.
Maggie Nolan: Okay, thank you. On the higher third-party costs in the professional and managed services, can you talk about how that's impacting customers and pricing and how you're thinking about that going forward?
Darren Raiguel: From a, well the cost in professional service, third-party cost in professional service, we have a lot of partners that we work with. So some of that just may be the mix of who's delivering which services that we have in the portfolio more than anything else. The product costs are being passed through to the customers on that side of things from the vendors.
Maggie Nolan: But can the more expensive third-party costs also be passed through effectively?
Darren Raiguel: Yes. Yes. They're all built into how we price our projects for the customer base, yes.
Elaine Marion: Maggie, some of that is reflective of the business. The Bailiwick acquisition had a higher proportion of third-party costs in that business, so some of that's reflective of that blend.
Maggie Nolan: Understood. Thank you, guys.
Elaine Marion: Sure.
Darren Raiguel: Thanks, Maggie.
Mark Marron: Thanks, Maggie.
Operator: There are no further questions at this time. I will now turn the call back to Mark Marron for closing remarks.
Mark Marron: Thank you, everyone. Look, we believe it was a very solid quarter on a really tough compare last year. We had record gross billings and believe we are well-positioned for the second half. If you look at this quarter, we saw a really nice operating leverage where both operating income and adjusted EBITDA exceeded the growth of our net sales and gross profit, and we expect that to continue in the second half.
We are excited about the momentum we are starting to see with our AI and cybersecurity solutions, the strength of our diversified customer base, and the flexibility in our cash, I should say our balance sheet and cash, where it provides both the growth opportunity with M&A as well as organic hires, but also, as Elaine noted, with the first half of buying back 400,000 shares with share buyback and dividends. That allowed us to increase our guidance both across net sales, GP, and adjusted EBITDA. With that, I want to thank you all for attending today's call.
I wish everyone a happy and healthy holiday season, and we look forward to seeing you or hearing from you on next earnings call. Take care and have a good night.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.