ePlus(PLUS) - 2026 Q1 - Quarterly Report

markdown [Front Matter](index=1&type=section&id=Front%20Matter) [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides the basic identification details for ePlus inc.'s Form 10-Q filing for the quarterly period ended June 30, 2025, confirming its status as a large accelerated filer and the number of common shares outstanding as of August 4, 2025 - ePlus inc. is a Delaware corporation, identified by Commission file number **1-34167**, with its principal executive offices in Herndon, VA[3](index=3&type=chunk)[4](index=4&type=chunk)[5](index=5&type=chunk) - The company is a **large accelerated filer** and has filed all required reports and interactive data files during the preceding 12 months[6](index=6&type=chunk)[7](index=7&type=chunk)[8](index=8&type=chunk) - As of August 4, 2025, the number of common stock shares outstanding was **26,625,574**[10](index=10&type=chunk) [Table of Contents](index=3&type=section&id=TABLE%20OF%20CONTENTS) The Table of Contents outlines the structure of the Form 10-Q, detailing the sections for Financial Information (Part I) and Other Information (Part II), along with their respective items and starting page numbers [Cautionary Language About Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20LANGUAGE%20ABOUT%20FORWARD-LOOKING%20STATEMENTS) This section warns readers about forward-looking statements within the report, emphasizing that actual results may differ materially due to various risks and uncertainties, including economic instability, customer/vendor relationships, cost increases, cybersecurity, and rapid changes in IT and AI technologies - Forward-looking statements are subject to risks and uncertainties, and actual results may materially differ from anticipated events[13](index=13&type=chunk) - Key risks include financial losses from political instability, changes in interest rates, tariffs, and inflation[13](index=13&type=chunk)[15](index=15&type=chunk) - Significant adverse changes in relationships with major customers or vendors, including decreased profitability or loss of relationships[13](index=13&type=chunk)[15](index=15&type=chunk) - Increases in costs (e.g., wages) and the ability to adjust prices, or negative financial impacts from existing pricing arrangements[13](index=13&type=chunk)[15](index=15&type=chunk) - Reliance on third parties for service obligations and a small number of key vendors in the supply chain[13](index=13&type=chunk)[15](index=15&type=chunk) - Cybersecurity attacks, IT outages, and the ability to secure confidential information while complying with data privacy regulations[13](index=13&type=chunk)[15](index=15&type=chunk) - Dependence on key personnel and the ability to hire, train, and retain qualified staff[13](index=13&type=chunk)[15](index=15&type=chunk) - Risks related to Artificial Intelligence (AI), including its use, capabilities, and emerging regulations[13](index=13&type=chunk)[15](index=15&type=chunk) - Supply chain issues, including component shortages, which may increase costs, delay orders, or impact working capital[13](index=13&type=chunk)[15](index=15&type=chunk) - Exposure to changes in legislation and regulatory matters, and potential non-compliance with public sector contracts[13](index=13&type=chunk)[15](index=15&type=chunk) [Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for ePlus inc. and its subsidiaries, including balance sheets, statements of operations, comprehensive income, cash flows, and stockholders' equity, along with detailed notes explaining significant accounting policies, recent pronouncements, and specific financial items [Unaudited Consolidated Balance Sheets](index=6&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) The unaudited consolidated balance sheets show a decrease in total assets from $1,884,805 thousand as of March 31, 2025, to $1,799,135 thousand as of June 30, 2025, primarily due to the divestiture of discontinued operations. Total liabilities also decreased, while total stockholders' equity increased Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | March 31, 2025 | | :--------------------------------- | :------------ | :------------- | | Total Assets | $1,799,135 | $1,884,805 | | Total Liabilities | $778,704 | $907,182 | | Total Stockholders' Equity | $1,020,431 | $977,623 | | Cash and cash equivalents | $480,178 | $389,375 | | Accounts receivable—trade, net | $700,873 | $516,925 | | Current assets of discontinued operations | $- | $222,399 | | Current liabilities of discontinued operations | $- | $166,463 | - The decrease in **total assets** and **liabilities** is largely attributable to the reclassification and sale of discontinued operations[16](index=16&type=chunk)[29](index=29&type=chunk) [Unaudited Consolidated Statements of Operations](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2025, net sales increased to $637,315 thousand from $535,652 thousand in the prior year. Net earnings also saw a significant increase, reaching $37,697 thousand, up from $27,339 thousand, driven by growth in both continuing and discontinued operations Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $637,315 | $535,652 | | Gross profit | $148,216 | $126,874 | | Operating income | $36,200 | $31,459 | | Net earnings from continuing operations | $27,128 | $24,193 | | Earnings from discontinued operations, net of tax | $10,569 | $3,146 | | Net earnings | $37,697 | $27,339 | | Diluted EPS (Continuing Operations) | $1.03 | $0.90 | | Diluted EPS (Total) | $1.43 | $1.02 | - **Net sales** increased by **$101.7 million** (**19.0%**) year-over-year, with product sales up **13.9%** and services up **48.8%**[17](index=17&type=chunk) - **Net earnings from discontinued operations** significantly increased from **$3,146 thousand** in 2024 to **$10,569 thousand** in 2025[17](index=17&type=chunk) [Unaudited Consolidated Statements of Comprehensive Income](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for the three months ended June 30, 2025, increased to $40,855 thousand from $27,407 thousand in the prior year, primarily due to higher net earnings and a substantial increase in foreign currency translation adjustments Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net Earnings | $37,697 | $27,339 | | Foreign currency translation adjustments | $3,158 | $68 | | Total Comprehensive Income | $40,855 | $27,407 | - **Foreign currency translation adjustments** contributed significantly to the increase in **comprehensive income**, rising from **$68 thousand** in 2024 to **$3,158 thousand** in 2025[19](index=19&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended June 30, 2025, the company experienced a net cash outflow from operating activities of $98,967 thousand, a significant shift from a $97,127 thousand inflow in the prior year. This was largely offset by a substantial cash inflow from investing activities, primarily due to the sale of discontinued operations, resulting in a net increase in cash and cash equivalents of $90,803 thousand Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $(98,967) | $97,127 | | Net cash provided by (used in) investing activities | $155,857 | $(1,906) | | Net cash provided by financing activities | $31,924 | $1,612 | | Net increase in cash and cash equivalents | $90,803 | $96,888 | | Cash and cash equivalents, end of period | $480,178 | $349,909 | - **Operating activities** of continuing operations used **$106,003 thousand** in cash in 2025, compared to providing **$110,145 thousand** in 2024, mainly due to an increase in **accounts receivable**[21](index=21&type=chunk)[139](index=139&type=chunk) - **Investing activities** provided **$155,857 thousand** in 2025, primarily from **$156,681 thousand** in net cash from discontinued operations, including **$180.1 million** in proceeds from the sale of HoldCo[21](index=21&type=chunk)[144](index=144&type=chunk) - **Financing activities** provided **$31,924 thousand** in 2025, driven by **$39,888 thousand** in net borrowings on the **floor plan facility**, partially offset by common stock repurchases[21](index=21&type=chunk)[146](index=146&type=chunk) [Unaudited Consolidated Statements of Stockholders' Equity](index=12&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased to $1,020,431 thousand as of June 30, 2025, from $977,623 thousand as of March 31, 2025. This increase was primarily driven by net earnings and foreign currency translation adjustments, partially offset by common stock repurchases Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | June 30, 2025 | March 31, 2025 | | :--------------------------------- | :------------ | :------------- | | Total Stockholders' Equity | $1,020,431 | $977,623 | | Retained Earnings | $888,653 | $850,956 | | Accumulated Other Comprehensive Income | $6,599 | $3,441 | | Treasury Stock | $(74,052) | $(70,748) | - **Net earnings** of **$37,697 thousand** and **foreign currency translation adjustments** of **$3,158 thousand** contributed positively to equity[24](index=24&type=chunk) - Repurchase of common stock amounted to **$3,304 thousand** for the three months ended June 30, 2025[24](index=24&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's financial statements, covering significant accounting policies, the impact of the financing business divestiture, revenue recognition, goodwill, credit facilities, and other financial instruments. They clarify the retrospective presentation of discontinued operations and the accounting for recent acquisitions [Note 1. Organization and Summary of Significant Accounting Policies](index=13&type=section&id=1.%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) ePlus inc. is an IT solutions provider focusing on medium to large enterprises and SLED markets in the US and select international regions. The company completed the sale of its domestic financing business on June 30, 2025, transitioning to a pure-play technology solutions provider, with the financing business retrospectively presented as discontinued operations - ePlus provides **IT solutions**, consulting, professional, and managed services, focusing on optimizing IT environments and supply chain processes[27](index=27&type=chunk) - On June 30, 2025, ePlus sold its domestic financing business (Expo Holdings, LLC), becoming a **pure-play technology solutions provider**. Financial results for the domestic financing business are retrospectively presented as discontinued operations[29](index=29&type=chunk)[41](index=41&type=chunk) - A substantial portion of sales (**26%** in Q1 2025, **36%** in Q1 2024) are products from Cisco Systems, indicating a concentration of risk[32](index=32&type=chunk) [Note 2. Recent Accounting Pronouncements](index=14&type=section&id=2.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) ePlus is evaluating the impact of recently issued FASB ASUs: ASU 2023-09 (Income Taxes) effective for fiscal year ending March 31, 2026, requiring disaggregated tax information, and ASU 2024-03 (Income Statement—Reporting Comprehensive Income) effective for fiscal year ending March 31, 2028, requiring detailed expense disclosures - **ASU 2023-09 (Income Taxes)** requires disaggregated effective tax rate reconciliation and income taxes paid, effective for fiscal year ending March 31, 2026[33](index=33&type=chunk) - **ASU 2024-03 (Income Statement—Reporting Comprehensive Income)** requires detailed expense disclosures, effective for fiscal year ending March 31, 2028[34](index=34&type=chunk) [Note 3. Revenues](index=14&type=section&id=3.%20REVENUES) This note details the composition of accounts receivable and contract liabilities, and outlines future revenue expected from unsatisfied performance obligations, primarily for non-cancelable managed services contracts Accounts Receivable—Trade, Net (in thousands) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------- | :------------ | :------------- | | Accounts receivable | $687,904 | $507,052 | | Contract assets | $16,288 | $13,775 | | Allowance for credit losses | $(3,319) | $(3,902) | | Total accounts receivable—trade, net | $700,873 | $516,925 | - Revenues recognized from beginning **contract liability** balance were **$42.8 million** for Q1 2025, up from **$40.5 million** for Q1 2024[37](index=37&type=chunk) Total Remaining Performance Obligations (in thousands) | Period | Amount | | :--------------------------------- | :------- | | Remainder of the year ending March 31, 2026 | $74,913 | | Year ending March 31, 2027 | $50,250 | | Year ending March 31, 2028 | $25,546 | | Year ending March 31, 2029 | $13,538 | | Year ending March 31, 2030 and thereafter | $4,369 | | Total remaining performance obligations | $168,616 | [Note 4. Discontinued Operations](index=15&type=section&id=4.%20DISCONTINUED%20OPERATIONS) On June 30, 2025, ePlus completed the sale of its domestic financing business (HoldCo) for net cash proceeds of $156.7 million, recognizing a gain on sale of $4.4 million before income taxes. This divestiture marks a strategic shift to a pure-play technology solutions provider, with the financing business results retrospectively presented as discontinued operations - Sale of domestic financing business (HoldCo) completed on June 30, 2025, for **net cash proceeds** of **$156.7 million**[40](index=40&type=chunk) - Recognized a **gain from sale of HoldCo** before income taxes of **$4,368 thousand** for the three months ended June 30, 2025[43](index=43&type=chunk) Operating Results of Discontinued Operations (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $15,811 | $8,886 | | Gross profit | $14,077 | $7,607 | | Operating income | $10,028 | $4,010 | | Earnings from discontinued operations, net of tax | $10,569 | $3,146 | [Note 5. Goodwill and Other Intangible Assets](index=17&type=section&id=5.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Goodwill remained stable at $202,979 thousand as of June 30, 2025, with only minor foreign currency translation adjustments. Other intangible assets, primarily customer relationships and trade names, decreased slightly due to amortization, with total amortization expense for other intangible assets at $5.5 million for Q1 2025 Goodwill by Segment (in thousands) | Segment | March 31, 2025 | June 30, 2025 | | :---------------- | :------------- | :------------ | | Product | $129,177 | $129,271 | | Professional Services | $63,779 | $63,797 | | Managed Services | $9,902 | $9,911 | | Total | $202,858 | $202,979 | - The only activity in **goodwill** for the quarter was foreign currency translation adjustments[47](index=47&type=chunk) Purchased Intangible Assets (Net, in thousands) | Asset Type | June 30, 2025 | March 31, 2025 | | :-------------------- | :------------ | :------------- | | Customer relationships | $68,781 | $74,008 | | Trade names and other | $7,640 | $7,959 | | Total | $76,421 | $81,967 | - Total **amortization expense** for other **intangible assets** was **$5.5 million** for Q1 2025, up from **$3.8 million** in Q1 2024[51](index=51&type=chunk) [Note 6. Allowance for Credit Losses](index=18&type=section&id=6.%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) The allowance for credit losses within accounts receivable—trade decreased to $3,319 thousand as of June 30, 2025, from $3,902 thousand at the beginning of the period, despite an increase in the provision for credit losses due to higher exposure to accounts with elevated credit risk Allowance for Credit Losses Activity (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Beginning balance | $3,902 | $2,549 | | Provision for credit losses | $596 | $75 | | Write-offs and other | $(1,179) | $(12) | | Ending balance | $3,319 | $2,612 | - The **provision for credit losses** increased significantly to **$596 thousand** in Q1 2025 from **$75 thousand** in Q1 2024, driven by increased exposure to higher credit risk accounts[52](index=52&type=chunk)[117](index=117&type=chunk) [Note 7. Credit Facility](index=18&type=section&id=7.%20CREDIT%20FACILITY) ePlus utilizes a $500.0 million floor plan facility and a $200.0 million revolving credit facility with Wells Fargo Commercial Distribution Finance, LLC. The floor plan facility had an outstanding balance of $129.4 million as of June 30, 2025, used for inventory purchases, while the revolving credit facility had no outstanding balance. The facility was amended in anticipation of the financing business sale, but substantive terms remained unchanged - The WFCDF **Credit Facility** includes a **$500.0 million floor plan facility** and a **$200.0 million revolving credit facility**[54](index=54&type=chunk) - Outstanding balance on the **floor plan facility** was **$129.4 million** as of June 30, 2025, up from **$89.5 million** as of March 31, 2025[55](index=55&type=chunk) - No outstanding balances were reported under the **revolving credit facility** as of June 30, 2025, or March 31, 2025[57](index=57&type=chunk) - The WFCDF **Credit Facility** was amended on June 20, 2025, in anticipation of the financing business sale, but its substantive terms were not materially changed[54](index=54&type=chunk) [Note 8. Commitments and Contingencies](index=19&type=section&id=8.%20COMMITMENTS%20AND%20CONTINGENCIES) ePlus is subject to various legal proceedings and claims in the normal course of business. As of June 30, 2025, the company does not believe there is a reasonable possibility of material losses exceeding recognized amounts, but acknowledges that outcomes are uncertain and could adversely affect financial condition - ePlus is involved in various legal proceedings and claims arising in the normal course of business[62](index=62&type=chunk) - As of June 30, 2025, management does not believe there is a reasonable possibility of material losses exceeding already recognized amounts[62](index=62&type=chunk) [Note 9. Earnings Per Share](index=20&type=section&id=9.%20EARNINGS%20PER%20SHARE) Basic and diluted earnings per common share for continuing operations increased to $1.03 for the three months ended June 30, 2025, from $0.91 (basic) and $0.90 (diluted) in the prior year. Total basic and diluted EPS, including discontinued operations, rose to $1.43 from $1.03 and $1.02, respectively Earnings Per Common Share (EPS) (except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net earnings (Continuing operations) | $27,128 | $24,193 | | Net earnings (Discontinued operations) | $10,569 | $3,146 | | Total Net earnings | $37,697 | $27,339 | | Basic EPS (Continuing operations) | $1.03 | $0.91 | | Basic EPS (Total) | $1.43 | $1.03 | | Diluted EPS (Continuing operations) | $1.03 | $0.90 | | Diluted EPS (Total) | $1.43 | $1.02 | - **Weighted average common shares outstanding (diluted)** decreased to **26,381 thousand** in Q1 2025 from **26,801 thousand** in Q1 2024[65](index=65&type=chunk) [Note 10. Stockholders' Equity](index=20&type=section&id=10.%20STOCKHOLDERS'%20EQUITY) ePlus repurchased 47,488 shares of common stock for $3.3 million in Q1 2025 to satisfy tax withholding obligations. The board authorized a new share repurchase program on August 7, 2025, for up to 1,500,000 shares over a 12-month period - During Q1 2025, ePlus repurchased **47,488 shares** of common stock for **$3.3 million** to satisfy tax withholding obligations[67](index=67&type=chunk) - On August 7, 2025, the board authorized a new **share repurchase program** for up to **1,500,000 shares** over a 12-month period starting August 11, 2025[69](index=69&type=chunk) - In Q1 2024, **109,869 shares** were repurchased for **$8.1 million** under the then-current plan, and **52,450 shares** for **$3.8 million** for tax withholding[68](index=68&type=chunk) [Note 11. Share-Based Compensation](index=21&type=section&id=11.%20SHARE-BASED%20COMPENSATION) ePlus granted 122,195 restricted shares in Q1 2025 under its Director and Employee LTIPs. Total share-based compensation expense for the quarter was $3.44 million, with $17.1 million in unrecognized compensation expense remaining, expected to be recognized over 36 months - Granted **122,195 restricted shares** in Q1 2025 (**351** under 2024 Director LTIP, **121,844** under 2021 Employee LTIP)[72](index=72&type=chunk) Share-Based Compensation Expense (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Equity-based compensation expense | $3,440 | $2,791 | | Income tax benefit | $(905) | $(756) | - Total **unrecognized compensation expense** related to unvested restricted stock was **$17.1 million** as of June 30, 2025, with a weighted-average recognition period of **36 months**[76](index=76&type=chunk) - Issued **28,665 shares** under the ESPP at **$61.29** per share in Q1 2025, with **2.34 million shares** remaining under the plan[75](index=75&type=chunk) [Note 12. Income Taxes](index=22&type=section&id=12.%20INCOME%20TAXES) The provision for income tax expense for Q1 2025 was $9.7 million, up from $9.0 million in Q1 2024. The effective income tax rate decreased to 26.3% from 27.1% year-over-year, primarily due to lower state taxes. The company is assessing the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) Income Tax Provision and Effective Rate (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Provision for income tax expense | $9,684 | $8,977 | | Effective income tax rate | 26.3% | 27.1% | - The **effective tax rate** decreased primarily due to lower state taxes[78](index=78&type=chunk) - ePlus is currently assessing the impact of the One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, which permanently extends many 2017 tax provisions and introduces modifications to corporate tax provisions[79](index=79&type=chunk) [Note 13. Fair Value of Financial Instruments](index=22&type=section&id=13.%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) ePlus holds money market funds as Level 1 assets and a contingent consideration asset of $13.5 million as a Level 3 asset as of June 30, 2025. This contingent consideration stems from the sale of HoldCo and includes potential Holdback Premium and Earn-Out payments based on post-closing performance, valued using a Monte Carlo simulation model Fair Value Hierarchy of Financial Instruments (in thousands) | Asset | June 30, 2025 (Recorded Amount) | Level 1 | Level 2 | Level 3 | | :------------------------ | :------------------------------ | :------ | :------ | :------ | | Money market funds | $392,717 | $392,717 | $- | $- | | Contingent Consideration | $13,502 | $- | $- | $13,502 | - The **contingent consideration asset** of **$13.5 million** is related to the sale of HoldCo and includes potential Holdback Premium (up to **$3.0 million**) and two types of Earn-Outs (Lease Originations Earn-Out capped at **$10.0 million**, Transaction Gains Earn-Out uncapped)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - The fair value of the **contingent consideration** was estimated using a Monte Carlo simulation model[81](index=81&type=chunk) [Note 14. Business Combinations](index=23&type=section&id=14.%20BUSINESS%20COMBINATIONS) On August 19, 2024, ePlus acquired Bailiwick Services, LLC for a preliminary consideration of $124.9 million. This acquisition added $41.3 million in goodwill, assigned to the professional services and product segments, and $58.0 million in identified intangible assets, primarily customer relationships and trade names - ePlus acquired Bailiwick Services, LLC on August 19, 2024, for a preliminary consideration of **$124.9 million**[84](index=84&type=chunk)[85](index=85&type=chunk) - The acquisition resulted in **$41.3 million** in **goodwill**, assigned to **professional services** and **product segments**, attributable to the acquired workforce and expected synergies[86](index=86&type=chunk) - Identified **intangible assets** totaled **$58.0 million**, comprising **$49.3 million** in **customer relationships** (10-year useful life) and **$8.7 million** in **trade names** (7-year useful life)[85](index=85&type=chunk) [Note 15. Segment Reporting](index=24&type=section&id=15.%20SEGMENT%20REPORTING) ePlus manages its operations through three reportable segments: Product, Professional Services, and Managed Services, with performance evaluated based on gross profit. The 'Other' category includes retained international financing entities. Revenue disaggregation is provided by timing, principal/agent position, customer end market, and type - ePlus operates with three reportable segments: **Product**, **Professional Services**, and **Managed Services**, with performance measured by **gross profit**[88](index=88&type=chunk)[90](index=90&type=chunk) Net Sales by Segment (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Product | $520,895 | $457,312 | | Professional Services | $71,729 | $37,279 | | Managed Services | $44,580 | $40,910 | | Total Reportable Segments | $637,204 | $535,501 | Gross Profit by Segment (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Product | $106,482 | $98,505 | | Professional Services | $28,153 | $15,455 | | Managed Services | $13,534 | $12,834 | | Total Reportable Segments | $148,169 | $126,794 | Gross Margin by Segment | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Product | 20.4% | 21.5% | | Professional Services | 39.2% | 41.5% | | Managed Services | 30.4% | 31.4% | - The 'Other' category consists of the international entities of the financing business retained after the domestic sale[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition for the quarter, highlighting the strategic shift to a pure-play technology solutions provider following the divestiture of the financing business. It details key financial metrics, operational trends, and segment-specific results, emphasizing growth in net sales and earnings despite some margin pressures [Executive Overview](index=27&type=section&id=EXECUTIVE%20OVERVIEW) ePlus is a leading IT solutions provider specializing in security, cloud, networking, collaboration, AI, and emerging technologies. Following the sale of its domestic financing business on June 30, 2025, the company is now a pure-play technology solutions provider, focusing on advisory consulting, design, deployment, and management of integrated solutions for middle market to large enterprises and SLED customers - ePlus is a leading solutions provider in **security**, **cloud**, **networking**, **collaboration**, **AI**, and emerging technologies, delivering IT and consulting solutions[95](index=95&type=chunk) - The company offers consulting, professional services, managed services, IT staff augmentation, and complete lifecycle management[96](index=96&type=chunk) - The sale of the domestic financing business on June 30, 2025, positions ePlus as a **pure-play technology solutions provider** with three reportable segments: **Product**, **Professional Services**, and **Managed Services**[100](index=100&type=chunk) [Business Trends](index=28&type=section&id=BUSINESS%20TRENDS) ePlus monitors key financial and non-financial metrics, including GAAP and non-GAAP measures like Adjusted EBITDA, and operational metrics like gross billings. Current business trends indicate customer focus on AI, security, and cloud solutions, driving demand for digital transformation and modernization, while general economic concerns and pricing pressures impact gross profit - Customers' top focus areas include AI, security, cloud solutions, digital transformation, and modernization[104](index=104&type=chunk) - Modernizing legacy applications, data modernization, reducing operational complexity, and securing workloads are fueling deployments on cloud, managed services, and hybrid platforms[104](index=104&type=chunk) - Rapid cloud adoption presents challenges in cost, security, and skillset gaps, addressed by ePlus's Cloud Managed Services portfolio[104](index=104&type=chunk) Key Business Metrics (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $637,315 | $535,652 | | Gross profit margin | 23.3% | 23.7% | | Operating income margin | 5.7% | 5.9% | | Non-GAAP: Net earnings from continuing operations | $33,164 | $27,366 | | Non-GAAP: Net earnings from continuing operations per common share - diluted | $1.26 | $1.01 | | Adjusted EBITDA | $46,709 | $39,069 | | Adjusted EBITDA margin | 7.3% | 7.3% | Gross Billings by Type (in thousands) | Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Cloud | $312,017 | $241,274 | | Networking | $268,732 | $281,528 | | Security | $190,045 | $151,883 | | Collaboration | $22,777 | $32,976 | | Other | $51,446 | $44,592 | | Product segment total | $845,017 | $752,253 | | Services | $107,748 | $81,455 | | Total Gross Billings | $952,765 | $833,708 | [Results of Operations](index=31&type=section&id=RESULTS%20OF%20OPERATIONS) Net sales increased by $101.7 million year-over-year, driven by growth in telecom, media, and entertainment, despite declines in other sectors. Gross profit rose by $21.3 million, but overall gross margin decreased by 40 basis points to 23.3% due to product mix shifts and lower services margins. Operating income increased by $4.7 million, while net earnings from continuing operations grew by $2.9 million, and total net earnings increased by $10.4 million, significantly boosted by discontinued operations - **Net sales** increased by **$101.7 million**, primarily due to increased sales in telecom, media, and entertainment industries[112](index=112&type=chunk) - Consolidated **gross profit** increased by **$21.3 million**, but **gross margins** decreased by **40 basis points** to **23.3%** due to a shift in product mix and lower services margins[113](index=113&type=chunk) - Selling, general, and administrative expenses increased by **$14.4 million**, mainly due to higher salaries and benefits (up **$11.8 million** from increased headcount, including Bailiwick acquisition) and general and administrative costs[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - **Operating income** increased by **$4.7 million**, but **operating margin** decreased by **20 basis points** to **5.7%**[118](index=118&type=chunk) - **Net earnings from discontinued operations**, net of tax, increased by **$7.5 million** to **$10.6 million**, including a **$4.4 million gain on sale** of the domestic financing business[122](index=122&type=chunk) - Total **net earnings** increased by **$10.4 million** to **$37.7 million**[123](index=123&type=chunk) [Segment Overview](index=32&type=section&id=SEGMENT%20OVERVIEW) Following the divestiture of its domestic financing business, ePlus now operates with three reportable segments: Product, Professional Services, and Managed Services. The Product segment focuses on IT hardware and software sales, Professional Services offers advanced consulting and deployment, and Managed Services provides ongoing management and support for customer environments - **Product segment**: Sales of third-party hardware, software (perpetual and subscription), and maintenance/assurance services[124](index=124&type=chunk)[128](index=128&type=chunk) - **Professional services segment**: Advanced professional services including consulting, architecture, deployment, logistics, training, staff augmentation, and project management[124](index=124&type=chunk)[128](index=128&type=chunk) - **Managed services segment**: Advanced managed services, security solutions, storage-as-a-service, cloud hosted/managed services, and service desk, typically billed over 3-5 year contract terms[124](index=124&type=chunk)[128](index=128&type=chunk) - The 'Other' category consists of the international entities of the financing business retained after the domestic sale[126](index=126&type=chunk) [Segment Results of Operations](index=33&type=section&id=SEGMENT%20RESULTS%20OF%20OPERATIONS) Product segment sales increased due to demand and product mix shifts, while Professional Services sales grew significantly, primarily from the Bailiwick acquisition. Managed Services sales also increased due to expansion in enhanced maintenance and cloud services. However, gross margins for all three segments decreased, with Product margin down due to mix, Professional Services margin impacted by the lower-margin Bailiwick services, and Managed Services margin declining from reduced service desk revenue - **Product segment sales** increased due to demand and a shift in product mix, with less third-party maintenance and subscriptions recognized on a net basis[130](index=130&type=chunk) - **Professional services segment sales** increased significantly, primarily driven by revenues from the Bailiwick acquisition[131](index=131&type=chunk) - **Managed services segment sales** increased due to ongoing expansion of service offerings, particularly in enhanced maintenance support and cloud services[131](index=131&type=chunk) - **Product segment margin** decreased by **110 basis points** to **20.4%** due to a shift in product mix[132](index=132&type=chunk) - **Professional services segment margin** decreased by **230 basis points** to **39.2%**, primarily due to the Bailiwick acquisition, which has lower gross margins due to higher reliance on third-party delivery[133](index=133&type=chunk) - **Managed services segment margin** decreased by **100 basis points** to **30.4%** due to a decline in revenue from the service desk offering[134](index=134&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) ePlus finances operations through cash flow and borrowings, expecting current liquidity to cover needs for at least the next year. The cash conversion cycle improved to 26 days from 37 days, driven by a 10-day decrease in Days Sales Outstanding (DSO). The company relies on its WFCDF Credit Facility for working capital and has declared an initial quarterly cash dividend of $0.25 per common share - ePlus expects cash on hand, funds from operations, and available credit to finance **working capital**, capital expenditures, and other requirements for at least the next year[137](index=137&type=chunk) Cash Conversion Cycle (in days) | Metric | As of June 30, 2025 | As of June 30, 2024 | | :-------------------------- | :------------------ | :------------------ | | Days sales outstanding (DSO) | 58 | 68 | | Days inventory outstanding (DIO) | 14 | 14 | | Days payable outstanding (DPO) | (46) | (45) | | Cash conversion cycle | 26 | 37 | - The **cash conversion cycle** decreased to **26 days** from **37 days**, primarily due to a **10-day decrease** in **DSO**, reflecting higher sales to customers with shorter payment terms[143](index=143&type=chunk) - The WFCDF **Credit Facility**, with a **$500.0 million floor plan** and **$200.0 million revolving credit facility**, is crucial for daily **working capital**; its loss could materially affect future results[148](index=148&type=chunk)[150](index=150&type=chunk) - On August 7, 2025, the Board of Directors declared an **initial quarterly cash dividend** of **$0.25** per common share, payable September 17, 2025[155](index=155&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) ePlus is exposed to foreign currency risk from transactions not denominated in its subsidiaries' functional currency, including purchases, sales, and intercompany loans. While past exposure has not been significant, fluctuations in exchange rates could impact financial results - ePlus has **foreign currency exposure** from transactions not denominated in subsidiaries' functional currency, including product/service purchases and sales, and intercompany loans[165](index=165&type=chunk) - **Foreign currency exposure** from product/service transactions has not been significant to date, but fluctuations in exchange rates may impact results[165](index=165&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2025, ePlus's CEO and CFO concluded that the company's disclosure controls and procedures were effective. The acquisition of Bailiwick Services, LLC on August 19, 2024, was excluded from the internal control over financial reporting evaluation for the quarter, with integration ongoing. Management acknowledges the inherent limitations of control systems - The CEO and CFO concluded that **disclosure controls and procedures** were effective as of June 30, 2025[166](index=166&type=chunk) - Bailiwick Services, LLC, acquired on August 19, 2024, was excluded from the evaluation of **internal control over financial reporting** for the quarter ended June 30, 2025, with integration in progress[167](index=167&type=chunk) - Management acknowledges that control systems have inherent limitations and cannot prevent or detect all errors or fraud[168](index=168&type=chunk) [Part II. Other Information](index=40&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 8 of the Consolidated Financial Statements for details on legal proceedings, commitments, and contingencies, indicating no new material information beyond what is already disclosed - Refer to Note 8, 'Commitment and Contingencies' for information on legal proceedings[169](index=169&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) The sale of the financing business has altered ePlus's operational and financial profile, reducing revenue diversification and potentially increasing volatility. The company faces risks that anticipated benefits from the sale may not be realized, and the receipt of contingent consideration depends on the post-closing performance of the divested entity - The sale of the financing business reduces **revenue diversification** and may increase **volatility** in results of operations, cash flows, and working capital[171](index=171&type=chunk) - There is a risk that anticipated benefits from the sale may not be realized, adversely affecting the business[171](index=171&type=chunk) - The ability to receive **contingent consideration** from the sale depends on the post-closing performance of the divested HoldCo Group, which is operated by PEAC Solutions[171](index=171&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended June 30, 2025, ePlus repurchased 47,488 shares of common stock in June 2025 at an average price of $69.58 per share to satisfy tax withholding obligations related to restricted stock vesting. The 2024 Repurchase Plan terminated on May 27, 2025 Common Stock Purchases (Three Months Ended June 30, 2025) | Period | Total shares purchased | Average price paid per share | | :--------------------------------- | :--------------------- | :--------------------------- | | April 1, 2025 through April 30, 2025 | - | $- | | May 1, 2025 through May 31, 2025 | - | $- | | June 1, 2025 through June 30, 2025 | 47,488 | $69.58 | | Total | 47,488 | | - The repurchases were made to satisfy tax withholding obligations related to the vesting of restricted stock[178](index=178&type=chunk) - The 2024 Repurchase Plan, which authorized the repurchase of up to **1,250,000 shares**, terminated on May 27, 2025[178](index=178&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is marked as 'Not Applicable,' indicating no defaults upon senior securities during the reporting period [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is marked as 'Not Applicable,' indicating no mine safety disclosures are relevant to the company [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025. Executive officers may participate in the employee stock purchase plan, which complies with Rule 10b5-1(c) - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[177](index=177&type=chunk) - Executive officers may participate in the employee stock purchase plan, which is designed to comply with Rule 10b5-1(c)[177](index=177&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the Membership Interest Purchase Agreement for the sale of Expo Holdings, LLC, amendments to the Credit Agreement, certifications from the CEO and CFO, and Inline XBRL documents - Key exhibits include the Membership Interest Purchase Agreement for Expo Holdings, LLC, and the Third Amendment to the First Amended and Restated Credit Agreement[179](index=179&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer are included, along with Inline XBRL documents for financial data[179](index=179&type=chunk) [Signatures](index=43&type=section&id=SIGNATURES) This section contains the signatures of ePlus inc.'s Chief Executive Officer and President, Mark P. Marron, and Chief Financial Officer, Elaine D. Marion, certifying the filing of the report on August 7, 2025 - The report was signed by Mark P. Marron, Chief Executive Officer and President, and Elaine D. Marion, Chief Financial Officer, on August 7, 2025[182](index=182&type=chunk)[183](index=183&type=chunk)