EPS of $0.91 decreased by 10.8% from previous year
Gross margin of 27.6%
Net income of 24.13M
"We continue to see the evolution of our industry transition to a more ratable consumption and subscription-based model, which has impacted the comparability of our quarterly results." - Mark Marron
ePlus Inc. (PLUS) QQ3 2025 Results Analysis: Services-Led Growth, AI Enablement, and Acquisition Integration Amid Mixed Hardware Demand
Executive Summary
ePlus reported consolidated net sales of $511 million for Q3 FY2025, essentially flat versus the prior year, as growth in high-margin services offset softer hardware and product sales. The shift toward a services-led model is evident: services revenue rose 52% year over year to reach a quarterly high of $114 million, supporting a 130 basis point expansion in gross margin to 27.6% and a modest operating margin of 5.58%. The core driver of profitability remains the mix shift to higher-margin services and netted-down revenues on software and maintenance, though the company noted a meaningful uptick in gross-to-net adjustments (approximately 840â940 basis points in recent quarters), which dampened top-line revenue relative to gross billings. Adjusted EBITDA declined 15% year over year to $39.2 million as investments in headcount (including Bailiwick and PEAK Resources acquisitions) and continued go-to-market expansion offset higher Services contribution. Net income was $24.1 million ($0.91 per share), with non-GAAP diluted EPS of $1.06, reflecting a higher share count and ongoing capex in growth initiatives. Cash generation remained robust: net cash provided by operating activities was $65.7 million, free cash flow was $64.2 million, and cash at period-end stood at $253.1 million. The company maintains a strong balance sheet (net cash position of approximately $103.5 million) and disciplined capital allocation, including approximately 380,000 shares repurchased for $30 million in the first nine months. Management signaled a continued transition to ratable revenue and AI-enabled services, including the Secure GenAI platform and AI Ignite initiatives, while updating FY2025 guidance to revenue of $2.07â$2.11 billion and adjusted EBITDA of $165â$171 million. These dynamics set a mixed near-term earnings trajectory typical of an services-led, software-enabled IT solutions provider in a transitional macro environment.
Key Performance Indicators
Revenue
510.97M
QoQ: 245.27% | YoY:0.38%
Gross Profit
140.89M
27.57% margin
QoQ: -4.80% | YoY:5.29%
Operating Income
28.51M
QoQ: -33.26% | YoY:-25.06%
Net Income
24.13M
QoQ: -22.92% | YoY:-11.54%
EPS
0.91
QoQ: -22.88% | YoY:-10.78%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $511.0 million, up slightly from $509.1 million a year ago (YoY growth of 0.38%; QoQ was aided by a sharp uptick in net billings, but top-line revenue was pressured by higher gross-to-net adjustments).
Gross profit: $140.9 million, up 5.3% YoY; gross margin 27.6% (up 130 bps from 26.3% prior year) driven by higher product margins and a favorable mix toward third-party maintenance and subscriptions, partially offset by higher netting and lower upfront margins on certain enterprise product sales.
Operating expenses: $112.4 million, up 17.3% YoY due to Bailiwick and PEAK headcount additions and continued investments in growth initiatives.
Operating income: $28.5 million; operating margin 5.58% (vs prior-year level near 8.0% depending on line items).
Net income and EPS: Net earnings $24.1 million or $0.91 per share; non-GAAP diluted EPS $1.06 vs $1.18 in the prior year quarter.
Financial Highlights
Overview of Q3 FY2025 performance highlights with YoY and QoQ context:
- Revenue: $511.0 million, up slightly from $509.1 million a year ago (YoY growth of 0.38%; QoQ was aided by a sharp uptick in net billings, but top-line revenue was pressured by higher gross-to-net adjustments).
- Gross profit: $140.9 million, up 5.3% YoY; gross margin 27.6% (up 130 bps from 26.3% prior year) driven by higher product margins and a favorable mix toward third-party maintenance and subscriptions, partially offset by higher netting and lower upfront margins on certain enterprise product sales.
- Operating expenses: $112.4 million, up 17.3% YoY due to Bailiwick and PEAK headcount additions and continued investments in growth initiatives.
- Operating income: $28.5 million; operating margin 5.58% (vs prior-year level near 8.0% depending on line items).
- Net income and EPS: Net earnings $24.1 million or $0.91 per share; non-GAAP diluted EPS $1.06 vs $1.18 in the prior year quarter.
- Adjusted EBITDA: $39.2 million vs $46.2 million prior year (down 15%), reflecting mix shift and investments in the business.
- Segment mix: Technology sales flat YoY with services up 52% to a quarterly high of $114 million; Financing segment revenues $17.8 million, up 19.8% YoY.
- Cash flow and liquidity: Operating cash flow $65.7 million; free cash flow $64.2 million; ending cash $253.1 million; inventory $99.0 million; inventory turns 13 days; cash conversion cycle improved to 32 days.
- Leverage and capital allocation: Total debt $149.5 million; net debt negative ~($103.5) million (net cash); stock repurchases around 380k shares for $30 million over the nine months; no dividend paid.
- Guidance: FY2025 revenue guidance of $2.07â$2.11 billion and adj. EBITDA $165â$171 million, reflecting higher gross-to-net adjustments and tariff-related considerations.
Notes: YoY and QoQ figures reflect GAAP revenue and mix with netted-down revenues; management emphasized the ongoing shift toward ratable and subscription-based revenue, which affects revenue recognition timing but can yield longer-term high-margin growth.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
510.97M
0.38%
245.27%
Gross Profit
140.89M
5.29%
-4.80%
Operating Income
28.51M
-25.06%
-33.26%
Net Income
24.13M
-11.54%
-22.92%
EPS
0.91
-10.78%
-22.88%
Key Financial Ratios
currentRatio
1.83
grossProfitMargin
27.6%
operatingProfitMargin
5.58%
netProfitMargin
4.72%
returnOnAssets
1.37%
returnOnEquity
2.51%
debtEquityRatio
0.16
operatingCashFlowPerShare
$2.48
freeCashFlowPerShare
$2.42
priceToBookRatio
2.03
priceEarningsRatio
20.28
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights and quotes from the earnings call, grouped by theme:
- Strategic model and growth trajectory: "We continue to see the evolution of our industry transition to a more ratable consumption and subscription-based model, which has impacted the comparability of our quarterly results." (Speaker: Mark Marron)
- Momentum in subscriptions and services: "subscription orders up 51.4% year-over-year, accounting for almost 46% of our open orders currently compared to 31.7% last year and growth of over $100 million." (Speaker: Mark Marron)
- AI enablement and security focus: "AI is a good place to start... we continue to build out our AI Ignite and Secure GenAI programs... to deliver services and solutions our customers need to make informed decisions." (Speaker: Mark Marron)
- Operational execution and cash flow: "Our balance sheet provides financial flexibility to support future growth initiatives... returning excess cash to our shareholders through our repurchase program." (Speaker: Mark Marron)
- Channel and demand dynamics: "There is soft demand for some hardware and enterprise customers; digestion of purchases from last year's inventory flush remains a factor, especially in networking and data center cloud sales." (Speaker: Elaine Marion, CFO)
- Margin and mix commentary: "Consolidated gross profit grew 5.3% faster than revenue; gross margin expansion driven by higher product margins and netting effects; however, a higher proportion of product sales to certain enterprise customers at lower margins weighed on product margins." (Speaker: Elaine Marion)
We continue to see the evolution of our industry transition to a more ratable consumption and subscription-based model, which has impacted the comparability of our quarterly results.
â Mark Marron
subscription orders up 51.4% year-over-year, accounting for almost 46% of our open orders currently compared to 31.7% last year and growth of over $100 million.
â Mark Marron
Forward Guidance
Assessment of the FY2025 outlook and risk factors:
- Guidance posture: Revenue guidance of $2.07â$2.11 billion and adjusted EBITDA of $165â$171 million indicates management expects continued mix shift toward services and ratable revenue while recognizing near-term headwinds from gross-to-net adjustments and potential tariff-related decisions.
- Growth drivers and achievability: The acceleration in services (up 52% YoY to $114m this quarter) and the Bailiwick integration support ongoing top-line resilience, with AI initiatives (Secure GenAI and AI Ignite) expected to contribute progressively to services mix and higher add-on revenue per customer.
- Risks and sensitivity: Near-term hardware demand softness persists; netting adjustments can depress reported revenue despite gross billings strength; tariffs and supply-chain dynamics could influence customer decisions and project timing; macro conditions (election timing, tariffs) were cited as external factors.
- Monitoring factors for investors: progression of Bailiwick integration, growth of managed/professional services, trajectory of subscription-based orders, adoption and expansion of Secure GenAI/AI Ignite offerings, and any shifts in procurement behavior of large enterprise customers. Investors should watch quarterly net-to-gross revenue dynamics, service mix penetration, and the ratio of gross billings to net sales as a leading indicator of future revenue growth under a ratable model.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
PLUS Focus
27.57%
5.58%
2.51%
20.28%
MODN
57.20%
4.60%
2.72%
120.08%
PRGS
83.70%
22.60%
6.69%
21.90%
AGYS
63.00%
10.70%
1.49%
237.86%
SPNS
44.00%
15.90%
3.91%
28.38%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Outlook remains cautiously constructive, anchored by a durable services-led growth engine and a scalable ratable-revenue model. The Q3 performance validates the strategic shift toward higher-margin services and AI-enabled offerings, though near-term revenue growth is tempered by substantial gross-to-net adjustments and hardware softness. The FY2025 guidance implies modest top-line growth with expanding service contribution and margin improvement as netting effects normalize over time and AI services scale. Key catalysts include successful Bailiwick integration, ramp in Secure GenAI and AI Ignite services, and a sustained acceleration in managed services penetration. Investors should monitor (i) progression of subscription-based revenue recognition and its impact on reported revenue versus gross billings, (ii) the trajectory of hardware demand and enterprise capex, and (iii) the evolution of AI-enabled service attach rates and cross-sell momentum across a broadened client base.
Key Investment Factors
Growth Potential
High-growth potential from services-led portfolio expansion, accelerated managed services adoption, and AI-enabled offerings (Secure GenAI, AI Ignite). The Bailiwick acquisition broadens client base and vertical diversity, while continued investment in professional and managed services positions ePlus to monetize annual recurring revenue and cross-sell with cloud, security, and consulting services. Expect services to remain a meaningful growth engine, supported by higher services gross margins (Professional 40.1%, Managed 29.8%) and a scalable ratable revenue model that could expand visibility into future cash flows.
Profitability Risk
Key risks include ongoing softness in hardware/product demand among enterprise customers, the volatility of gross-to-net adjustments which can obscure reported revenue growth, and potential tariff or macro-driven shifts that could affect short-term capital expenditure and buying cycles. Integration risks related to Bailiwick and other acquisitions (cultural fit, system harmonization, retention of key personnel) could temper near-term margin expansion. Competitive intensity in IT solutions and potential disintermediation pressures in a subscription environment also merit monitoring.
Financial Position
Strong liquidity and balance sheet health with cash and cash equivalents of $253.1 million and a net cash position of approximately $103.5 million. Total debt is modest at $149.5 million, enabling strategic M&A and buybacks. Operating cash flow of $65.7 million in the quarter and free cash flow of $64.2 million support ongoing investments in growth initiatives and capital return. Inventory optimization (inventory of $99m; 13-day turns; CCC 32 days) reflects working-capital discipline and favorable cash conversion dynamics.
SWOT Analysis
Strengths
Services-led growth with strong 52% YoY increase in services revenue and a new services profit expansion (Professional 40.1% margins; Managed 29.8%).
Solid balance sheet and strong cash flow generation (CFO $65.7m; FCF $64.2m; net cash position).
Diverse end-market exposure and the Bailiwick acquisition enhancing footprint and vertical reach.
Ability to fund growth investments and share repurchases despite macro uncertainties.
Weaknesses
Lower overall gross margin relative to IT services peers due to product mix and higher netting adjustments (gross margin 27.6% vs peers in the 40â80% range in the sector).
Reliance on netting for revenue recognition in software and subscriptions introduces top-line volatility and opacity in GAAP revenue growth.
Hardware demand softness remains a near-term headwind, potentially delaying order cycles.
Opportunities
Expansion of AI-enabled solutions and secure GenAI offerings to capture growing demand for AI-enabled IT services.
Cross-sell opportunities across Bailiwick and PEAK Resources customers; expanding managed services footprint.
Continued deleveraging of working capital with favorable cash conversion cycles and potential for proactive capital returns.
Threats
Macro and tariff-related volatility impacting IT spending and project timing.
Intense competition in IT services and potential customer preference for direct procurement in some software/subscription models.
Execution risk from integrating acquisitions and sustaining high-growth service margins.