10-Q: ePlus Inc. Reports Strong Q3 Growth, Driven by Product and Cloud

ePlus Inc. announced robust financial results for the third quarter and nine months ended December 31, 2025, with significant increases in net sales, gross profit, and net earnings from continuing operations.

Summary

• Net sales from continuing operations for the three months ended December 31, 2025, increased by $121.6 million (24.6%) to $614.8 million compared to the prior year.
• Net sales from continuing operations for the nine months ended December 31, 2025, increased by $338.7 million (22.2%) to $1.86 billion compared to the prior year.
• Gross profit for the three months increased by $33.6 million (26.9%) to $158.7 million, with gross margin expanding by 40 basis points to 25.8%.
• Gross profit for the nine months increased by $89.7 million (23.7%) to $469.0 million, with gross margin expanding by 30 basis points to 25.2%.
• Operating income for the three months surged by $27.0 million (164%) to $43.5 million, and operating margin increased by 380 basis points to 7.1%.
• Operating income for the nine months increased by $53.6 million (71.5%) to $128.5 million, and operating margin increased by 200 basis points to 6.9%.
• Net earnings from continuing operations for the three months rose by $18.8 million (129%) to $33.4 million.
• Net earnings from continuing operations for the nine months rose by $40.1 million (68.5%) to $98.7 million.
• Diluted EPS from continuing operations for the three months was $1.27, up from $0.55 in the prior year.
• Diluted EPS from continuing operations for the nine months was $3.74, up from $2.19 in the prior year.
• Adjusted EBITDA for the three months increased by $26.3 million (97.6%) to $53.4 million, with Adjusted EBITDA margin at 8.7%.
• Adjusted EBITDA for the nine months increased by $56.3 million (55.0%) to $158.8 million, with Adjusted EBITDA margin at 8.5%.
• The company completed the sale of its domestic financing business (HoldCo) on June 30, 2025, receiving net cash proceeds of $156.7 million.
• The cash conversion cycle increased to 41 days as of December 31, 2025, from 32 days in the prior year, primarily due to higher inventory days outstanding (DIO) and accounts receivable days outstanding (DSO).
• The Board of Directors authorized a share repurchase plan of up to 1,500,000 shares over a 12-month period beginning August 11, 2025, and repurchased 272,900 shares for $21.0 million during the nine months ended December 31, 2025.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a very positive report, reflecting strong financial performance across key metrics and a successful strategic divestiture. The company is well-positioned in high-growth IT sectors, though supply chain challenges remain a watch point.

Positives

• Significant growth in net sales from continuing operations, up 24.6% for the quarter and 22.2% for the nine months.
• Substantial increase in gross profit and expansion of gross profit margins, indicating improved profitability.
• Operating income more than doubled for the quarter (+164%) and increased significantly for the nine months (+71.5%), demonstrating strong operational leverage.
• Net earnings from continuing operations and diluted EPS from continuing operations showed impressive growth of 129% and 131% respectively for the quarter.
• Adjusted EBITDA nearly doubled for the quarter (+97.6%) and increased by 55.0% for the nine months, reflecting strong underlying business performance.
• Strategic divestiture of the domestic financing business allows for a focused approach on technology solutions, generating $156.7 million in net cash proceeds.
• Product segment sales increased due to strong demand in networking, cloud, security, and collaboration products.
• Managed services segment sales increased due to ongoing expansion of service offerings, particularly enhanced maintenance support and cloud services.
• Increased vendor incentives contributed positively to product segment gross margin.
• The company maintains a strong liquidity position with sufficient cash on hand and available credit to finance operations for at least the next year.

Negatives

• Services net sales for the three months ended December 31, 2025, slightly decreased by 0.7% compared to the prior year.
• Professional services segment sales for the three months decreased, primarily due to decreases in project services and staff augmentation.
• Professional services segment gross margin decreased due to the acquisition of Bailiwick, which has lower gross margins due to higher reliance on third parties for delivery.
• Managed services segment gross margin decreased due to increased third-party costs.
• Net cash used in operating activities of continuing operations for the nine months was $(223.4) million, a significant shift from providing $186.6 million in the prior year, primarily due to increases in accounts receivable and inventories.
• The cash conversion cycle increased to 41 days from 32 days, indicating a longer period to convert investments in inventory and receivables into cash.
• Other income, net, decreased for the three months, primarily due to lower foreign exchange gains and an expense related to adjustments to the fair value of contingent consideration from the HoldCo sale.

Risks

• Financial losses resulting from national and international political instability, including changes in interest rates, tariffs, inflation, export requirements, sanctions, and foreign currency rate changes.
• Supply chain issues, including shortages of IT component parts, rapid and unpredictable price fluctuations, and potential customer or vendor order cancellations, which may increase costs, decrease gross profit, delay order fulfillment, or increase working capital needs.
• Significant adverse changes in relationships with larger customer accounts or vendors, including decreased account profitability or loss of relationships.
• Increases to costs, such as wages, and the ability to pass these increases on to customers.
• A material decrease in the credit quality of the customer base or a material increase in credit losses.
• Reliance on third parties to perform service obligations and on a small number of key vendors without long-term supply agreements or guaranteed prices.
• The possibility of a reduction in vendor incentives.
• Inability to identify, integrate, or successfully complete merger and acquisition transactions.
• Cybersecurity attacks, IT outages, and challenges in securing electronic and confidential information while complying with evolving data privacy and cybersecurity laws.
• Dependence on key personnel and the ability to hire, train, and retain qualified staff with necessary vendor certifications.
• Risks related to Artificial Intelligence (AI), including its use, capabilities, and emerging laws and regulations.
• Ability to manage a diverse product set of solutions, including AI products and services, in highly competitive markets.
• Changes in the IT industry and rapid changes in product offerings, such as the proliferation of cloud services (IaaS, SaaS, PaaS, AI).
• Challenges in increasing the total number of customers, particularly for managed and professional services, while continuously enhancing offerings.
• Ongoing remote work trends and the associated increase in cybersecurity attacks.
• Exposure to changes in legislation and regulatory matters, and potential negative impacts from external audits on service agreements.
• Potential negative impact from natural disasters or adverse events at primary configuration centers, data centers, or third-party locations.
• Failure to comply with public sector contracts or related laws and regulations.
• Ability to raise capital, maintain or increase lines of credit, or the effect of these matters on common stock price.
• Ability to predictably meet expectations of the investor and analyst community regarding financial performance guidance.
• Ability to implement comprehensive integration plans following mergers and acquisitions.
• Ability to protect intellectual property rights and defend against challenges or infringement allegations.

Future Outlook

The company anticipates that extended lead times and price increases due to the worldwide shortage of memory chips, driven by AI demand, will likely persist for at least the next few quarters. Management believes that cash on hand and funds from operations, combined with available credit, will be sufficient to finance working capital, capital expenditures, and other requirements for at least the next year. The company also expects to continue its focus on AI, security, and cloud solutions, and may pursue future mergers and acquisitions or expand into new geographic areas.

Management Comments

• "AI continues to be a transformative force and demand driver particularly for our core products: Compute, Cloud, security, networking and our consultative services."
• "Across industries, customers are using AI to enhance decision making, automate tasks, and drive both growth and efficiency."
• "We continue to work closely with our suppliers and manufacturers to mitigate disruptions outside our control. Despite these actions, we believe extended lead times and price increases will likely persist for at least the next few quarters."
• "Our customers top focus areas include AI, security, cloud solutions, as well as digital transformation and modernization."
• "Rapid cloud adoption has led to customer challenges around increasing costs, security concerns, and skillset gaps. These challenges are consistent across all industries and business sizes. We have developed a Cloud Managed Services portfolio to address these needs, allowing our clients to focus on driving business outcomes via optimized and secure cloud platforms."
• "We believe that cash on hand and funds generated from operations, together with available credit under our credit facility, will be sufficient to finance our working capital, capital expenditures, and other requirements for at least next year."

Industry Context

StockSavvy.ai notes that ePlus Inc.'s strong performance aligns with broader industry trends showing increased enterprise spending on digital transformation, cloud adoption, cybersecurity, and emerging technologies like AI. The company's strategic shift to focus solely on technology solutions, following the divestiture of its financing arm, positions it well to capitalize on these high-growth areas. The reported supply chain challenges, particularly for memory chips, are a common theme across the IT sector, indicating that ePlus is navigating a complex environment while still delivering robust growth.

Comparison to Industry Standards

• The filing does not provide specific comparable companies or industry benchmarks for a direct assessment. However, StockSavvy.ai observes that ePlus Inc.'s reported revenue growth rates of 24.6% for the quarter and 22.2% for the nine months in its technology segments are competitive within the IT solutions and services industry, especially given the current macroeconomic environment and supply chain constraints.
• The significant expansion in operating income margins (up 380 bps for the quarter) suggests strong operational efficiency and pricing power, which could outperform some industry peers facing margin pressures from rising costs.
• The company's focus on high-demand areas like AI, cloud, and security positions it favorably against general IT services providers, potentially allowing for premium pricing and sustained growth compared to those with less specialized offerings.

Management Changes

Legal Proceedings

• Settled a legal matter related to discontinued operations in December 2025, resulting in a $2.3 million gain from the release of a $4.6 million contingent liability.
• As of December 31, 2025, the company does not believe there is a reasonable possibility of any material loss exceeding amounts already recognized for current legal proceedings and matters.

Stakeholder Impact

• Shareholders benefit from strong financial performance, increased earnings per share, and ongoing share repurchase programs and quarterly dividends.
• Employees are impacted by share-based compensation plans (restricted stock, PSUs, ESPP) and 401(k) contributions, reflecting continued investment in human capital.
• Customers are experiencing increased demand for AI, security, and cloud solutions, but may face potential delays and price increases due to ongoing supply chain issues for IT products.
• Vendors are crucial to the company's supply chain, with the company relying on a small number of key vendors and benefiting from vendor incentives.
• Creditors (Wells Fargo Commercial Distribution Finance, LLC) are key to the company's liquidity through its credit facility, which remains in good standing.

Next Steps

• Payment of a quarterly cash dividend of $0.25 per common share on March 18, 2026, to shareholders of record as of February 24, 2026.
• Ongoing assessment of the impact of the One Big Beautiful Bill Act (OBBBA) on consolidated financial statements.
• Continue working with suppliers and manufacturers to mitigate supply chain disruptions, with extended lead times and price increases expected to persist for at least the next few quarters.
• Potential future mergers and acquisitions to expand geographic footprint or bundled solutions.
• Potential opening of facilities in new geographic areas.

Key Dates

Recommendation

The company delivered exceptional financial results for the quarter and nine months, with significant growth in net sales, gross profit, operating income, and net earnings from continuing operations. The strategic divestiture of the domestic financing business allows for a sharper focus on high-growth technology solutions, particularly in AI, cloud, and cybersecurity, which are strong demand drivers. While supply chain challenges persist, the company's ability to expand margins and increase profitability in this environment demonstrates resilience and strong operational execution. The ongoing share repurchase program and consistent dividend payments further enhance shareholder value. These factors, combined with a healthy liquidity position, make ePlus Inc. an attractive investment.

Keywords

IT solutions, Cloud services, Cybersecurity, Networking, Managed services, Professional services, Artificial Intelligence, SEC filing, Quarterly report, Financial results, Technology provider, Enterprise IT, SLED market, Supply chain, Share repurchase