ePlus Inc 2027 Q1 Earnings Call

On the call is Mark Marron, CEO and President, Darren Raiguel, COO and President of ePlus Technology, Elaine Marion, CFO, and Amanda Dupree, Deputy 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 press 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 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've 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? Thank you, Kleyton. Good afternoon, everyone, and thank you for joining us today for our fiscal first quarter 2027 earnings call.

We delivered a solid quarter against a difficult comparison. The prior year benefited from the timing of several large enterprise orders. While the first quarter included some costs related to investments we are making in the business to support future growth, demand across our business was healthy, particularly among mid-market customers. We are encouraged by the current level of bookings and open orders, which are up significantly as we move through the remainder of the year. Most importantly, our results indicate that we are executing well on our key operational and strategic initiatives. We are expanding our geographic footprint and customer base, focused on growing our presence in attractive markets and helping customers solve increasingly complex technological challenges while leveraging our multi-architecture capabilities.

As AI, cloud, security, and networking continue to converge, our ability to bring together innovative solutions is becoming an even larger competitive differentiator. A key part of that effort is continuing to build out our AI capabilities. Our customers are focused on how to deploy AI securely, efficiently, and at scale. We have leveraged our security practice to build secure AI solutions around a data-first strategy, and we continue to build the new innovative solutions our customers need going forward. An example of this is the self-contained agentic AI platform we built in collaboration with Cisco and NVIDIA that results in a more secure AI infrastructure and requires less human interaction to self-diagnose and self-heal. It reduces operational complexity. It accelerates incident response and enables IT and security teams to shift from reactive issue resolution to autonomous operations.

We are also investing in the future of ePlus by continuing to add customer-facing resources and improve efficiency through systems and processes to support long-term growth and scale the business. Internally, we are using AI to improve efficiency and effectiveness throughout the sales organization to enhance the customer experience. Our customer-first approach remains central to everything we do, we've made meaningful progress in deepening and strengthening our relationships with customers over the past year. Underscoring this was our recent above-industry average Net Promoter Score of 74. That's something we are proud of because it reflects the trust we have built over many years and allows us to capture greater share across our customer base and win new customers. Our balance sheet remains strong as we generated solid cash flow and allocate capital effectively.

We will continue to invest in organic growth, pursue strategic M&A opportunities, return capital to shareholders through dividends and share repurchases. We initiated a dividend one year ago, to date, we have paid $26.7 million. Over the same period, we have repurchased $53.1 million in shares. Our current share buyback authorization is up to 1.5 million shares, we expect to continue purchasing shares opportunistically. Overall, we had a solid start to fiscal 2027. We are seeing healthy customer demand, strong activity across our strategic focus areas, solid growth across our managed services revenue and offerings. As a result, we are maintaining our fiscal 2027 guidance.

We remain focused on executing our strategy, driving greater operating leverage over time, creating long-term value for our customers and shareholders, and continue to monitor potential headwinds, including the worldwide memory chip shortage and geopolitical issues, as we have mentioned in the past. With that, I'll turn the call over to Darren to discuss the quarter in more detail.

Darren? Thanks, Mark. I will discuss the quarter, our segments, and our overall strategy.

Elaine will cover our results in more detail. From a product perspective, we had modest growth in both gross billings and net sales, coming off a strong year and a tough compare, as Mark noted. A substantial positive for the quarter were bookings and open orders, both up significantly. Open orders were up over $650 million higher year-over-year at quarter end amid healthy demand for our breadth of offerings. Outside AI opportunities, particularly related to AI infrastructure, are surfacing regularly, and we have booked some large AI-linked modern network infrastructure and data center wins across multiple industries, including financial services, telecom, service providers, and Neocloud. While it will take some time to deliver and convert these wins to revenue, they are a testament to our strategic execution.

They also highlight our ability to help customers design and provide solutions to support forthcoming AI investments. AI-related demand for infrastructure is robust with a strong pipeline. We are also seeing our clients show interest in exciting services-rich AI offerings, such as agentic AI and Memory-as-a-Service. Security remained another area of strong performance, with gross billings increasing 15.6% during the quarter. Security is less affected by some of the product availability issues because of the software mix in that product site. More importantly, it remains a priority for our customers. We also had multiple significant multi-year enterprise software licensing agreements of several million dollars or more in security in the first quarter, which contributed to our growth.

ePlus provides a wealth of knowledge and expertise to help consolidate multiple security products and platforms, improve the way security is managed across the enterprise, and connect customers with our strategic vendor partner solutions. A good way to frame much of the energy we are seeing in the market is the phrase security for AI and AI for security. As I mentioned, we are seeing more services activity and opportunity tied to customer AI initiatives. On the heels of the Realwave acquisition last year, we delivered detailed insights and helped a customer to navigate challenges related to some of the recent FIFA World Cup matches. The custom solution included our services with AI, cameras, and Light Detection and Ranging technology layered on top of our Realwave platform.

The team did a great job executing on short notice to deliver a successful outcome, creating significant additional opportunity to broaden the potential use cases for this customer and others. Professional services were down slightly with some projects slowed by product delivery delays. Our professional services teams are very involved in all aspects of our business and are important contributors to our product sales as well. Managed services posted double-digit growth once again, eclipsing $50 million for the first time. That is an important milestone for us because it reflects continued execution against our strategy and the progress we have made in building a larger recurring revenue business. Growth was primarily driven by additional revenue tied to cloud and data center services. Customers continue to look for us to provide ongoing management and support across our many offerings.