ePlus inc. Stock

Good day, ladies and gentlemen. Welcome to the ePlus First Quarter Fiscal Year 2027 Earnings Results Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Kleyton Parkhurst, Senior Vice President. Sir, you may begin.

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 Amanda Dupree, Deputy General Counsel. 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 that 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, Kley. 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, and we 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 and return capital to shareholders through dividends and share repurchases. We initiated a dividend 1 year ago, and 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, and 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 and 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 and 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, and then 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 of healthy demand for our breadth of offerings.

Outsized 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 type. More importantly, it remains a priority for our customers. We also had multiple significant multiyear 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 in 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 opportunities tied to customer AI initiatives. On the heels of the Realwave acquisition last year, we delivered detailed insights and help 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 detecting 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 opportunities 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. We are working to broaden and expand the managed service portfolio even further to address customer needs and market developments. We continue to have wins across our portfolio of enhanced maintenance and support services within the segment. With regard to a multimillion dollar booking this quarter, we are seeing customers opting for our higher-touch U.S.-based support experience for essentially the same price as the vendor partner equivalent offerings.

Our ability to provide these services across multiple vendors adds even more value. We are also winning business for managed backup or disaster recovery initiatives as customers focus more closely on security and risk mitigation. These additional consumption-based OpEx models dovetail with the storage as a service wins mentioned last quarter by helping provide customers with options amid market price increases and other memory shortage-related impacts.

Our product offerings and outstanding customer service continues to be recognized by our strategic vendor partners. Following the Dell and Digital Realty awards announced in May, we were awarded HPE's 2026 North America Networking Partner of the Year and Everpure's Service Partner of the Year. We also received SentinelOne's 2026 Momentum Award and Assured Data Protection's North American Top Revenue Partner for 2025.

These awards reflect the capabilities, commitment and consistent execution of our team. I'm proud of what we have accomplished. One other note, our employee base increased approximately 1% sequentially. Of the new additions, nearly all of the net incremental employee additions since March 31, 2026, are customer-facing in sales and engineering, demonstrating we remain a growth-focused company that is also actively managing our SG&A with an eye towards generating operating leverage.

In summary, the demand environment remains healthy. Our pipeline continues to build and bookings and open orders are strong. We are investing in our solutions and delivering full cycle outcomes in the areas we believe will drive long-term growth in AI, security, cloud, networking and data center. Our agile operating model, broad portfolio and expanding geographic and services capabilities position us well to meet changing customer needs, grow and gain market share. Thank you, and I'll turn it over to Elaine. Elaine?

Thank you, Darren, and thank you, everyone, for joining us. I will review our financial performance for the first quarter of fiscal 2027. We had a solid start to fiscal 2027, especially in light of a challenging year-over-year comparison. As a reminder, the first quarter last year benefited from the timing of large project-specific purchases by certain enterprise customers, which contributed to net sales growth of 20% in that period.

Even with that difficult comparison, first quarter consolidated net sales of $649.1 million increased 1% year-over-year as growth in product and managed services was partially offset by a decline in professional services. Gross billings grew modestly, up 0.5% year-over-year to $957.1 million.

Product revenue totaled $529.7 million, a 0.6% increase from last year's first quarter, led by continued strength in security and networking as demand in both areas continues to benefit from increased AI adoption. In particular, security remains a key focus area for us and represented 24.2% of gross billings on a trailing 12-month basis.

Turning to services. Revenue rose 2.6% to $119.4 million. Managed services delivered a standout quarter with net sales surpassing $50 million and increasing over 15% year-over-year, primarily led by continued strength in managed services related to data center and cloud. We are pleased to see the ongoing momentum and a growing recurring revenue base and continue to build out our offerings to align with customer needs. Professional services net sales declined 5.1% to $68.1 million, reflecting project delays.

Looking at our customer verticals, sales remain broad-based. Telecom, media and entertainment and technology are our 2 largest markets, representing 28% and 14% of net sales on a trailing 12-month basis, respectively. Health care, SLED and financial services accounted for 13%, 12% and 11%, respectively, with the remaining 22% divided among other end markets.

First quarter gross profit was $151.3 million with a gross margin of 23.3%, down from 23.9% in the prior year. By segment, product margins declined 30 basis points to 21%, reflecting the shift in product mix and a lower proportion of sales of third-party maintenance and subscriptions.

Managed Services gross margin declined 100 basis points to 29.4% and professional services gross margin declined 230 basis points to 36.9%, each reflecting a shift in mix of services provided.

Operating expenses increased 1.6% to $112.5 million, reflecting higher professional fees and salaries and benefits. Headcount increased by 33 employees compared to the prior year quarter. As Darren mentioned, the bulk of employees were hired in customer-facing roles. Operating income in the quarter was $38.8 million compared to $42.9 million. Other income net was $3.1 million compared to $0.6 million in the prior year quarter, driven by higher interest income as well as lower foreign currency transaction losses.

Earnings before taxes totaled $42 million compared to $43.6 million, and our effective tax rate was 27.8% versus 26.5% in the prior year quarter. Net earnings from continuing operations in the fiscal first quarter were $30.3 million or $1.16 per diluted share compared to $32 million or $1.21 per diluted share in last year's first quarter.

Non-GAAP net earnings per common share from continuing operations diluted totaled $1.28 versus $1.41 in the prior comparable year. Adjusted EBITDA amounted to $47.8 million compared to adjusted EBITDA of $52.7 million in the prior year quarter. Turning to our balance sheet. Our cash position remains strong, ending the quarter at $448.9 million, up from $410.8 million at the end of fiscal 2026. Inventory decreased $54.9 million to $146 million due to the completion of projects during the quarter.

As a result, our inventory days outstanding declined 6 days sequentially, contributing to a 10-day sequential improvement in our cash conversion cycle, which ended the quarter at 41 days compared to 51 days at the end of fiscal 2026.

Our strong balance sheet enables us to continue to pursue our capital allocation priorities, investing in organic growth, evaluating strategic acquisitions that expand our capabilities and geographic footprint and returning capital to shareholders through dividends and share repurchases.

In the quarter, we repurchased approximately 251,000 shares under our share repurchase program for a total of $20.8 million. We are also pleased to announce a dividend of $0.27 per common share payable on September 16, 2026, to shareholders of record as of August 25, 2026, as well as the Board of Directors authorizing a new repurchase plan of up to 1.5 million shares over a 12-month period commencing on August 11, 2026.

With that, I will turn the call back over to Mark. Mark?

Our first quarter results reflect solid execution across the business and reinforce our confidence in the strategy we have put in place. We are continuing to invest for the future by expanding our capabilities, enhancing our service offerings and advancing our AI strategy.

At the same time, we are maintaining financial discipline. Our strong balance sheet gives us the flexibility to invest organically, pursue strategic acquisition opportunities and return capital to shareholders through our dividend and share repurchase program.

As we look ahead, we are confident in our outlook for fiscal 2027 and remain focused on executing our strategy, deepening customer relationships and creating long-term value for our customers and shareholders. Finally, I'd like to thank our employees for their continued dedication and commitment to our customers. Thank you for joining us today, and we appreciate your continued interest and support. Operator, let's open the line for questions.

[Operator Instructions] Your first question comes from the line of Greg Burns with Sidoti & Company.

The $650 million of open orders that you mentioned in the quarter, what was that up on a percentage basis? And what's your view on the timing of when some of this backlog gets converted into revenue?

Greg, it's Darren. I'll give you the overall numbers. So it was above $1.5 billion in total at the end of the quarter, and it's even higher than that at this point. A portion of that is ratable subscription type thing, but the vast majority of it is not that way, but it will take some time to flush. We're thinking that we're going to see some of that in the back half of the year, but it will be over time beyond that as well.

Okay. And are you seeing like increased activity like amongst your larger customers or maybe just your customers in general in terms of getting ahead of this if lead times are extending? Or are you seeing the pipeline fill at a faster rate?

We're seeing it broadly across the customer base. In general, there are some large customers that are accelerating some purchases per se. But it's just -- it's a testament that the strategy is working, all the different conversations we're having, a lot of it is AI related, but it's pretty broad at this point in a good way.

Okay. I guess maybe this leans on that a little bit. But last year was a very strong year in terms of large enterprise orders. It's creating some difficult comparisons for this year. But what is your view on maybe the pipeline of larger enterprise type opportunities this year, similar to what you saw last year?

Very similar. The activity, the requests we're getting, the pipeline of quotes and RFPs and such, there's a lot of large opportunities out there. Obviously, we have to convert them as well, and we saw some of that in the quarter, which was great.

Your next question comes from the line of Maggie Nolan with William Blair.

Can you talk about maybe what would drive an acceleration in gross profit or adjusted EBITDA over the course of the year to get you to the full year levels that we expect? And maybe what areas are kind of carry the greatest risk to get there?

Maggie, it's Darren again. I mean, obviously, growth, the more top line revenue growth we'll see, we'll see some more of that adjusted EBITDA. We'll be able to see more operating leverage with those volumes. And gross profit, as we can expand the services, obviously, that's the easiest way for us to drive the gross profit as well on that.

Okay. Great. And then maybe on -- you discussed in the past, there were some retail project delays. Are those moving forward? And do you think this is a timing issue or a demand signal?

It's still going to take a little bit more time. So we are still actively working with those customers, but they're large customers, and it's going to probably take a little while longer before we start to see the fruits of that labor.

Okay. And are those more broad demand takeaways? Or are they sort of idiosyncratic to those customers?

I didn't hear it exactly.

And would you interpret that as more like a broad demand signal? Or are these sort of specific to those customers?

Specific to those customers in general.

[Operator Instructions There are no further questions at this time. This concludes today's question-and-answer session. I would now like to turn it back to Mark Marron for closing remarks.

All right. Thank you. And if I could close with, look, we believe in our long-term strategy. If you look at what we've done, we sold our finance. We've become a pure technology player. And we're really focused on expanding our footprint and our customer base enhancing our services and solutions, such as some of the things that we talked about a little bit earlier around some of our consumption models, around some of our Agentic AI platform that basically investigates and responds to security threats automatically that some of our customers are looking for.

And then we're going to continue to leverage our capital allocation plans. Elaine touched on it. We were at $448 million in cash at the end of the quarter, almost $450 million. That's after spending $50 million on share repurchases and $26 million on dividends, if you will. So we've got the flexibility to kind of fuel our long-term growth as well as we move forward, and we'll look to take advantage of that where we can. So with that, I want to thank you for joining us today on today's call. I hope you enjoy the rest of the summer, and we look forward to speaking with you at our next earnings call in November. Thank you.

This concludes today's conference call. You may disconnect.

Good day, ladies and gentlemen. Welcome to the ePlus Fourth Quarter Fiscal Year 2026 Earnings Results Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would like to introduce your host for today's conference, Mr. Clay Parker, Senior Vice President. Sir, you may begin.

Thank you for joining us today. On the call is Mark Marron, CEO and President; Darren Rage, 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 and in other documents that we 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 a GAAP financial reconciliation in our earnings press release, which was 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, Clay. Good afternoon, everyone, and thank you for joining us today for our fourth quarter and full year fiscal 2026 earnings call. .

The year was defined by the strong execution of our team and our ability to meet evolving customer IT needs, which resulted in achieving meaningful milestones across the business.

The momentum drove strong full year results with double-digit growth across our key revenue and operating metrics and gross billings, which reached a record $3.8 billion, in addition, we experienced continued operational efficiencies, improve the scalability of our platform with fully diluted EPS from continuing operations in the fourth quarter, increasing 53% on a year-over-year basis.

It is worth noting for the full year diluted EPS from continuing operations increased 64%. Our performance reflects continued market share gains as we saw strong demand across our diverse customer base, particularly with respect to their AI journey.

Throughout the year, we continue to broaden our core portfolio offerings by adding professional and managed services. Moreover, we continue to build out our higher-value consultative services to assist our customers with a more holistic approach.

Our agile model allows us to pivot and meet marketplace opportunities while fulfilling customer needs. Growth throughout the year was largely organic and broad-based across our core focus areas of AI, cloud, data center, networking and security as well as across customer segments from the mid-market to large enterprises.

Our integrated solutions-led approach continues to resonate with customers, particularly as they increasingly adopt AI-driven technologies and accelerate their digital transformation strategies.

Strategically, we have proactively transformed into a pure-play technology solutions and services provider by divesting our domestic financing business earlier in the fiscal year. This has allowed us to increase our focus on and allocate resources to the faster-growing IT markets and pivot all of our resources to building IT solutions and capturing market share.

We continue to execute on our plans for disciplined cost management, leveraging AI for internal efficiency and revenue growth initiatives and aligning resources to our highest growth opportunities.

Our balance sheet remains healthy. We ended the year with a cash balance of $411 million and increased our working capital. Our balance sheet provides the flexibility to invest in our business organically and through acquisitions while also returning capital to shareholders through dividend payments and share repurchases as part of our capital allocation plan.

Reflecting long-term confidence in the business and the strength of our financial position, our Board recently authorized an 8% increase in our quarterly dividend to $0.27 per share.

As noted, we ended fiscal year 2026 with record gross billings and backlog and which provides us with solid momentum as we move into the new fiscal year. We're also mindful of potential headwinds, including the worldwide memory chip shortage and geopolitical issues, as we have mentioned in the past, offsetting that potential risk are the core drivers of digital transformation and AI that are supportive of growth.

Overall, I'm very pleased with our performance in fiscal year 2026. Our results reflect the strength of our business model, our focus on high-growth technology areas and our ability to execute consistently. With strong momentum, healthy backlog and solid demand across our key markets as well as thoughtful capital allocation plans, we are well positioned to build on the success and drive profitable growth in the year ahead. I will now turn the call over to Darren to discuss the segments in more detail. Darren?

Thank you, Mark, and good afternoon, everyone. As you just heard from Mark, we delivered a very good year with broad-based demand across the business with increasing contribution from AI, let me dive a bit more into the business drivers.

In our Products segment, fourth quarter sales increased 25% and full year sales advanced 24% to nearly $2 billion driven by strong customer demand across data center and cloud networking and security.

We continue to engage customers early in their AI journey to help them develop AI use cases and prioritize related investments. leading to increased demand for infrastructure modernization across the breadth of our focused product categories.

This trend is also translating into continued and expanding demand for infrastructure. We are well positioned to benefit from those seeking consolidation of spend and strategic guidance from their partners.

At the same time, customers remain disciplined in how they spend balancing long-term AI initiatives with efficiency and cost management priorities. Further validating our success and execution in the area of digital transformation were 2 new honors awarded last week.

We were just recognized as the Dell channel Strategic Impact Partner of the Year at Dell Technology World and Digital Realty announced ePlus as its 2025 Americas Partner of the Year.

Our creation of an AI experience center inside Digital Realty's Innovation Lab, which is being leveraged by customers for a handle on demonstrations of a complete advanced AI infrastructure stack with undoubtedly a catalyst for the award.

Moving next to services. Managed services continue to grow, but was partially offset by smaller growth and elongation of some professional services projects. Services revenue for the fourth quarter increased 5% compared to the prior year's quarter.

For the full year, services revenue increased a more robust 16% with solid performance across both professional and managed services. Looking at professional services, we had some project timing delays in the fourth quarter with retail customers, which resulted in revenue growth of 2% in the fourth quarter.

For the full year, professional services revenue increased 19%, supported by the addition of bailiwick services. Full year margins were modestly lower due to the mix impact from Daily Wick, which has a different margin profile than our legacy services business.

Moving next to managed services, which continue to perform well, in the fourth quarter, managed services revenue increased approximately 9%. For the full year, Managed services revenue increased approximately 11% as we continue to build out our capabilities in this segment.

The portfolio continues to grow based on both customer demand and offering development via partners. For example, we now have managed collaboration offerings for Cisco, Zoom and Microsoft. Our ever-broadening enhanced maintenance services capabilities layered on top of OEM support have helped us deliver a better experience for our customers. We have several multiyear wins in the storage and backup space.

Some of these wins are being delivered as ePlus storage as a service and back up as a service managed service offerings with others as annuitized solutions with the OEMs. These longer-term engagements show customer confidence in our ability to deliver tangible business outcomes and provide strategic value over time.

Our managed services solutions continue to see strong customer interest yielding new bookings to support our outlook for continued growth. Security also remains an important growth and investment area for us. Security gross billings grew 23.1% to $842 million for the full year and represented approximately 22% of fiscal year 2026 gross billings.

Customers continue to prioritize cybersecurity investments, whether due to increasing AI sophistication or the ongoing matrix of threats across their enterprise. With respect to other industry trends, Aon continues to be 1 of the biggest drivers of technology investment across our customer base.

In recent quarters, customers are increasingly focused on how AI can improve productivity, streamline operations and enhanced customer engagement. We currently have a strong pipeline of customer requests with our technical teams to deliver these business outcomes.

We believe our expanding capabilities position us well to help customers navigate this evolving landscape. We are further encouraged by the Net Promoter Score we earned of 74. To put this in perspective, global NPS standards rank any score above 70 as world class.

A score of 74 places ePlus in the top quartile of the technology and IT services industry where the average score is 55. Our score shows we are not just meeting customer expectations but are building loyalty and our customers are becoming advocates for ePlus as they believe in the value we provide.

Our high NPS speaks to the work we have put into responding quickly solving problems and truly listening to our customers. I will now turn the call over to Elaine to discuss our fourth quarter and full year financial results.

Thank you, Darren, and thank you, everyone, for joining us. Today, I will review our financial performance for the fourth quarter and full year of fiscal 2026.

The fourth quarter capped a strong fiscal year in which we delivered double-digit growth across key metrics. Importantly, we posted net sales growth of 22% and adjusted EBITDA growth of nearly 50%, while holding head count flat and growing operating expenses at a more modest 9% and underscoring the operating leverage inherent in our business model.

Beyond our financial results, fiscal year 2026 was a transformative year for ePlus, as Mark mentioned, as we completed the divestiture of our domestic financing business, simplifying our business model and enhancing our focus on our core technology growth areas.

As we initiated our first quarterly dividend, reinforcing our strong financial performance and our commitment to returning capital to our shareholders. Moving on to our fourth quarter results. Consolidated net sales increased 20.6% to 576.2 million, driven by broad-based growth across product categories and customer segments.

Gross billings grew 11.7% to $881 million, reflecting sustained demand across our strategic focus areas of AI, cloud, security and networking. Product revenue increased 25% to $466.2 million, demonstrating healthy demand across our core growth areas as well as a higher proportion of revenue from enterprise customers in the quarter.

Services revenue grew 4.9% to $110 million. Managed services revenue increased 9.3% to $48.7 million, reflecting continued strength in our enhanced maintenance support and cloud offerings, underscoring the progress we continue to make in building out our recurring revenue base.

Professional services revenue grew to $61.3 million, reflecting timing delays from select retail customers -- as we noted on our third quarter call, we expect these projects to normalize in fiscal 2027, and we are seeing signs of positive progress.

Sales across our customer verticals remain broad-based -- on a trailing 12-month basis, telecom, media and entertainment accounted for 30% of net sales, while health care and SLED, each accounted for 13%, technology accounted for 12% and Financial services accounted for 10% and retail accounted for 6%. The remaining 16% was divided among other end markets.

Consolidated gross profit in the fourth quarter was $141.6 million with a gross margin of 24.6% compared to 26.5% in the prior year quarter, primarily due to lower product margins.

Product segment gross margin was 22.2% compared to 24.7% in the prior year quarter, reflecting a lower proportion of revenue recognized on a net basis and an increase in large enterprise sales at competitive gross margins.

Professional services gross margin was 38.3%, up 240 basis points from 35.9% in the prior year, benefiting from improved project mix while Managed Services gross margin came in at 30.5% and above the 29.1% reported in the prior year quarter.

Operating expenses in the quarter were $110.7 million, an increase of 2.4% year-over-year mainly due to higher variable compensation commensurate with the increase in gross profit. Operating income increased 64.7% to $30.9 million Other expense was $600,000 compared to other income of $1 million in the fourth quarter of fiscal year 2025 and included a $3 million charge related to an adjustment to the fair value of contingent consideration associated with the sale of our domestic financing business.

The fourth quarter effective tax rate was 32.2%, which was higher than 31.4% reported last year due to higher state income taxes and nondeductible expenses. Net earnings from continuing operations were $20.5 million versus $13.5 million last year, and diluted earnings per share from continuing operations were $0.78 compared to $0.51 in the prior year quarter.

Net loss from discontinued operations was $400,000 or $0.02 per share compared to net income of $3.9 million or $0.15 per share in the prior year quarter. Fourth quarter adjusted EBITDA increased 40.2% to $40.1 million. Non-GAAP diluted earnings per share from continuing operations was $1, up 44.9% from $0.69 and in the fourth quarter of fiscal year 2025.

Turning to our full year results for fiscal year 2026, net sales were $2.4 billion, up 22.1% and with product sales growing 23.7% and services revenue increasing 15.6%. Growth was broad-based across customer sizes and verticals and was primarily organic.

Our full year gross billings were $3.8 billion, growing 17% from the prior year, highlighting sustained demand across our suite of offerings. Consolidated gross profit for the full year grew 20.3% and to $66.1 million.

Gross margin was 25.2% compared to 25.6% in fiscal 2025, and with the year-over-year decline primarily attributable to the product mix consistent with the dynamic we saw in the fourth quarter.

As I mentioned, the operating leverage in our business model was evident in fiscal year 2026. The Full year operating expenses grew 9.1% against 22.1% net sales growth and 49.5% adjusted EBITDA growth with head count remaining essentially flat year-over-year.

This reflects our workforce focus on high-growth areas and creating and maintaining a scalable operating model. This leverage, combined with strong top line performance led to the operating income growth of 67% in fiscal year 2026.

Our effective tax rate was 28.4% compared to 28% last year. For the full year, net earnings from continuing operations increased 62.4% to $124.1 million, and diluted EPS from continuing operations was $4.71 and compared with $2.87 in the prior year.

Net earnings from discontinued operations totaled $8.5 million or $0.32 per diluted share compared to $28.1 million or $1.06 per diluted share in the prior year. Non-GAAP EPS from continuing operations increased to $5.39 from $3.53 and and adjusted EBITDA increased 49.5% to $204.8 million.

Now taking a look at our balance sheet. Cash and cash equivalents remained strong, ending the fiscal year at $410.8 million, up from $326.3 million at the end of the third quarter and above the $389.4 million at the end of fiscal year 2025.

Inventory at quarter end was $200.9 million, down from $241 million in the prior sequential quarter reflecting increased shipments to enterprise customers. Our cash conversion cycle was 51 days compared to 29 days in the prior year quarter. Sequentially, our cash conversion cycle increased 10 days -- the year-over-year increase was driven by the timing of large enterprise shipments and an increase in projects in progress.

As Mark noted, our balance sheet is strong, and we are well positioned to pursue organic investments and strategic opportunities in our core growth areas. We also remain committed to returning capital to our shareholders through share repurchases and dividends.

To that end, we repurchased 90,000 shares in the quarter. We also raised our quarterly dividend by 8% to $0.27 per common share, which will be paid on June 30, 2026, to shareholders of record as of the close of business on June 17, 2026.

In summary, we are pleased with our full year fiscal 2026 results. Our team performed well, and we delivered strong broad-based growth while expanding our operating leverage simplifying our business model and initiating a quarterly dividend. We enter fiscal year 2027 with strong momentum and a solid foundation to continue supporting our customer success. Back to you, Mark, for closing remarks.

In closing, we believe our results show that our strategy is working and our teams are focused on executing in key areas where our customers require our solutions and services. Over the long term, we will continue to focus on increasing our overall market presence and expanding our customer base in the enterprise and mid-market space. .

The strength of our balance sheet provides financial flexibility to implement key organic hires, make strategic M&A decisions and return shareholder value through share buyback and dividend plans.

As you saw in our earnings release, we have introduced fiscal year 2027 guidance and expect net sales, gross profit and adjusted EBITDA to all grow in the mid-single-digit range. I'd like to close by thanking the entire ePlus team for their ongoing commitment and strong execution in delivering a year we can all be proud of.

Their contributions are instrumental in creating value for both our customers and shareholders. We believe we are well positioned for another year of growth ahead. Operator, can you now turn it over for questions.

[Operator Instructions] We'll go first to Maggie Nolan at William Blair

Mark, you just gave the guidance there. And at the beginning of your prepared remarks, you said you were continuing to be mindful of potential headwinds. So could you expand a little bit on the framework for the guidance, what you factored in, where you're being conservative versus ambitious?

Yes, Maggie. First off, how are you? In terms of the guidance, there's a few things that we looked at. One, we had a really tough compare. As you saw from the numbers for the year, we were up over 20% on the top and almost 50% on the bottom with everything going on from a memory shortage with some of the lead times, we are being a little conservative.

Our open orders are up, which is a good sign for our business, but it's also dictated based on lead times, which we don't control. The other things that we're starting to see is a AI strategy is starting to work. We're starting to see some significant progress in the areas in that space, both in terms of opportunities.

But once again, it really comes down to being conservative with the memory shortage and some of the geopolitical unrest that's going on that we don't control. .

Okay. And then I think also in the prepared remarks, there was a comment about large enterprise sales coming in at maybe competitive rates and the impact on margins there. Is there an opportunity to expand margins at some of these large enterprises over time? Or is this reflective of maybe a more heightened competitive environment? Should we expect this going forward?

Matt, it's Darren. I'll take that one. I think there's plenty of opportunity for expansion. We talk about land and expand all the time. And I think we're seeing more opportunity as we're providing value to the larger enterprises and also look at a services as well. So optimistic on that as opposed to thinking this is going to continue. .

[Operator Instructions] And that does conclude our Q&A session. I would like to turn the conference back over to Mark Marron for any additional remarks. .

Okay. Thanks, operator, and thanks, everybody. Hey, if I look at the year, it was a big year for ePlus. I think the team did a really nice job of delivering. We sold our Finance segment -- and we see -- we did that because we saw what was happening in the market with AI and everything in that space.

So we wanted to become a pure technology solutions and services player -- we continue to do our share buybacks. We -- our board approved an increased dividend by 8%. When I look at the team in terms of executing on our go-to-market plans, in all the key focus areas, they actually delivered both from a product and services perspective. All the customer size segments were up.

We're going to continue to drive our strategic initiatives around expanding our market presence and our customer base driving our AI initiative and continue to enhance our service offerings and capabilities while focusing on profitability and our operating leverage as we go forward, -- the other thing that gives us strength, if you will, is our balance sheet with the financial flexibility.

So as it relates to our capital allocation plans, we have the ability, both with organic hires and M&A to help fuel long-term growth. And as I mentioned, the dividend and buybacks are ways to return shareholder value.

So with that, I'll conclude. I will thank all of you for joining us today and look forward to speaking with all of you at our next earnings call in August. Enjoy the summer, and take care.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, ladies and gentlemen. Welcome to the ePlus Third Quarter 2026 Earnings Results Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions]

Thank you. I would now like to introduce your host for today's conference, Mr. Kley Parkhurst, Senior Vice President. Sir, you may begin.

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'll 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 that we 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 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, Kley. Good afternoon, everyone, and thank you for joining us today for our Third Quarter Fiscal 2026 Earnings Call. The momentum we are seeing across the business continues to affirm our strategy and our focus on efficient operations, which is driving strong bottom line results.

A few key things to note. We are seeing the most strength across our key focus areas of AI, cloud, networking and security. We believe our ability to bring these capabilities together through integrated solutions is resonating in the market and helping us gain market share. We saw growth across all customer size segments, with a particularly strong performance in the mid-market and enterprise space.

Throughout the year, we have consistently delivered strong, broad-based growth and continue to achieve operating leverage with the strategic alignment of our workforce towards higher-growth areas and disciplined expense management, all while continuing to invest in the areas most important to our customers. And our strong balance sheet gives us the flexibility to invest organically, pursue strategic acquisitions and return capital to our shareholders. Today, our Board of Directors approved a quarterly dividend of $0.25 per common share. And during the quarter, the company repurchased over 200,000 shares.

Turning now to a brief overview of the financial results of the quarter. Net sales grew 24.6% to $615 million. Our product sales increased 32.2% year-over-year, led by a strong performance in data center and cloud, networking and security. Demand tied to AI initiatives continue to drive infrastructure modernization across customers of all sizes.

Services were flat as strong managed services were offset by weaker professional services revenue. We saw an increase in storage and cloud services as the continued build-out of data centers and underlying infrastructure suggests a long runway of opportunity across the ecosystem, and ePlus is well positioned to benefit from this trend. Offsetting this was a decrease in project work due in large part to delays from customers in our retail sector. Our service offerings continue to play an increasingly important role as customers look for ePlus to help assess, design, deploy and manage AI use cases.

Security also continues to be an important business driver for us. Overall, security gross billings for products and services grew 16.4% year-over-year and is up 27.6% for the trailing 12 months. Customers continue to prioritize cybersecurity investments as threat levels rise due to AI.

Our expanding security capabilities are resonating with our customers and we are well positioned to meet demand here too. This includes helping our customers around their governance and risk frameworks as well as providing data governance advice to ensure the right classifications and permissions are in use to support AI consumption of data, while also providing guidance on the correct protection architectures to secure AI workloads both in development and production.

Moving on to profitability. Net earnings from continuing operations increased 129.3% to $33.4 million from the $14.6 million in the prior year quarter. And adjusted EBITDA increased 97% to $53.4 million, with a margin of 8.7%, 320 basis points higher than the same period of the prior year.

Closing out the financial commentary, our fiscal year '26 operating performance has been particularly strong with net sales up 22% and adjusted EBITDA up 55% year-to-date. This reflects healthy demand trends combined with disciplined operational execution.

With respect to industry trends, AI continues to be a meaningful growth driver. For us, AI adoption continues to accelerate across our customer base and remains a powerful tailwind as we are seeing AI-driven investments drive demand across data center, security, cloud and networking. We continue to look for ways to enhance and expand our AI envisioning sessions and AI acceleration offerings to help customers identify use cases that would benefit their company and provide cost-effective solutions to help them get started. This includes working on AI-specific solutions and services to address areas of need, address any financial constraints, and help supplement their current workforce.

Overall we remain focused on expanding our solutions portfolio, growing our professional and managed services capabilities and extending our geographic reach. We continue to evaluate acquisitions and investments that enhance our position in higher growth areas, help us scale, provide access to new customers, markets and capabilities, and support our long-term vision of delivering comprehensive workplace transformation solutions.

In summary, our third quarter and 9-month year-to-date results reflect our diversified business model, emphasis on high-growth areas and our disciplined execution. We believe we are well positioned for continued growth supported by industry demand trends, operating leverage and financial flexibility.

I'll now turn the call over to Elaine. Elaine?

Thank you, Mark, and thank you, everyone, for joining us. Today I will review our financial performance in the third quarter of fiscal 2026. Our third quarter results demonstrate the resilience and scalability of our business model as we delivered double-digit growth across all key metrics.

Consolidated net sales increased 24.6% to $614.8 million as compared to the same 3-month period in the prior year, led by continued broad-based growth across customer sizes and verticals, with notable strength from mid-market and enterprise customers, with some outsized projects from enterprise customers. Importantly, we delivered this growth while operating expenses increased a more modest 6%, underscoring operating leverage.

Driven by our strategic focus areas of AI, cloud, security and networking, we delivered 15.6% growth in quarterly gross billings to $982.1 million, and 18.7% growth in year-to-date gross billings, which approached nearly $3 billion. For the quarter, product revenue grew 32.2% year-over-year to $501.9 million, reflecting growth across all categories. And service revenue totaled $112.8 million, down slightly from $113.6 million in the prior year period.

Managed services revenue grew 10.5%, led by continued demand for cloud and enhanced maintenance support offerings, while professional services revenue declined 7.8% due to project delays from customers in our retail sector. Services remain a strategic focal point for ePlus as we continue to add capabilities in our managed services segment to build out our recurring revenue base.

Sales across our customer verticals remain broad-based with telecom, media and entertainment accounting for 27% of net sales on a trailing 12-month basis, and technologies-led and health care each accounting for 13%, and financial services at 9%, with the remaining 25% divided among other end markets, which have been growing.

Third quarter consolidated gross profit totaled $158.7 million, up 26.8% from $125.1 million in the prior year quarter. And consolidated gross margin came in at 25.8%, up 40 basis points from 25.4% last year.

Product segment gross margin expanded 170 basis points to 23.8%, benefiting from a higher gross margin on sales, offset by a lower impact from the sales of products that are recorded on a net basis. Professional services gross margin was 39.2%, down from 40.1% in the prior year due to the blending of services from our acquisition of Bailiwick, while managed services margins decreased slightly to 29% from 29.8%.

Operating expenses increased 6.1% to $115.2 million in the quarter, mainly due to increased variable compensation reflective of the increased gross profit. Continuing operations head count declined 3.4% to 2,166 as we emphasize roles in our strategic high-growth areas.

Operating income totaled $43.5 million and earnings before taxes were $45.6 million, compared to $16.5 million and $19.9 million, respectively, in the third quarter of fiscal 2025. Other income totaled $2.1 million, compared to $3.4 million in the prior year. Our effective tax rate came in at 26.7%, essentially in line with 26.9% in the prior year.

Net earnings from continuing operations were $33.4 million or $1.27 per diluted share, more than double the $14.6 million or $0.55 per diluted share reported in the year-ago period. Discontinued operations net income was $1.7 million due to the settlement of a legal matter, compared to the $9.6 million reported in the third quarter of fiscal 2025. Net earnings from discontinued operations per diluted share were $0.06, compared to $0.36 in the prior year quarter. Non-GAAP diluted earnings per share from continuing operations more than doubled to $1.45 from $0.71 in the prior year.

Adjusted EBITDA for the quarter totaled $53.4 million, nearly double the $27 million we reported in the third quarter of fiscal 2025. Adjusted EBITDA growth significantly outpaced gross profit and net sales growth, demonstrating the meaningful operating leverage in our business model.

Now I would like to review our results for the 9 months ended December 31, 2025. Consolidated net sales increased 22.2% to $1.86 billion, up from $1.52 billion in the first 9 months of fiscal 2025, driven by balanced growth across products and services. Year-to-date consolidated gross profit rose 23.7% to $469 million and gross margin expanded 30 basis points to 25.2%, led by strong product margins.

Year-to-date consolidated net earnings from continuing operations totaled $98.7 million, 68.5% above the $58.6 million reported in the first 9 months of fiscal 2025. Diluted EPS from continuing operations increased to $3.74 from the $2.19 per diluted share reported in the prior year. Discontinued operations net earnings for the first 9 months was $8.9 million or $0.34 per diluted share, versus $24.2 million or $0.91 per diluted share in the first 9 months of fiscal 2025. Non-GAAP earnings per share from continuing operations grew 59% to $4.23, up from $2.66 in the prior year period.

Turning to our balance sheet. Cash and cash equivalents at quarter-end totaled $326.3 million, down from $389.4 million at the end of the last fiscal year, primarily due to working capital needs. Our strong cash position provides financial flexibility and enables us to pursue organic and inorganic investments while also allowing us to return capital to shareholders.

Inventory at quarter-end was $241 million, up from $120.4 million at the end of fiscal 2025, primarily due to an increase in projects in process. Inventory days outstanding were 22 days, above the 15 days reported in the prior sequential quarter and 13 days in the prior year. This contributed to an increase in our cash conversion cycle to 41 days from 32 days in the last year's fiscal third quarter.

We continue to take a disciplined approach to capital allocation with a focus on organic and inorganic investments in our key strategic areas, and returning capital to shareholders through dividends and share repurchases. In line with this framework, we repurchased over 200,000 shares during the quarter. We are also very pleased to announce a quarterly dividend of $0.25 per common share, payable on March 18, 2026 to shareholders of record on February 24, 2026.

Our third quarter demonstrates the resilience of our business model and continued execution on our strategic priorities. With that, I will turn the call back to Mark. Mark?

Thank you, Elaine. We reported a solid quarter and year-to-date performance with double-digit growth across all key metrics. Our third quarter and year-to-date results reinforce the strength of our strategy, the demand momentum across our portfolio and the scalability of our operating model. Importantly, we see this momentum continuing.

Accordingly, we are increasing our full year guidance for net sales, gross profit and adjusted EBITDA growth. We are raising our net sales guidance to 20% to 22% year-over-year growth, an increase from the prior guidance of mid-teens. This increase is against fiscal year 2025's $2.01 billion from continuing operations.

Gross profit is now expected to grow at a rate of 19% to 21%, as compared to the prior guidance of mid-teens from fiscal year 2025's $515.5 million from continuing operations. We now expect adjusted EBITDA to increase 41% to 43% over our fiscal year 2025 adjusted EBITDA of $141 million from continuing operations. This is an increase from our prior guidance that was twice the pace of net sales when net sales was expected to be in the mid-teens.

As we look ahead, we are also mindful of potential near-term risks, including the industry-wide memory shortage. The global memory chip market is experiencing a notable supply squeeze and rapid unexpected price increases. Demand for advanced memory components, especially those used in large AI systems and data centers, is outpacing the industry's ability to produce them. While this dynamic could impact certain customer deployments or timing, we believe we are well positioned to manage through it given our diversified supplier relationships and close coordination with customers. Still, it is a development we must monitor closely.

We are entering the last quarter of the year with strong momentum and balance sheet resources to continue investing while supporting our capital allocation priorities. Our focus remains on executing our long-term strategy, delivering consistent results, maintaining disciplined capital allocation, and supporting our customers as they invest and grow. The progress we have made year-to-date underscores the strength of our strategy and successful execution, and positions us well for the future. We are excited about the opportunities ahead and remain focused on driving sustainable growth and long-term shareholder value.

I want to close by thanking our ePlus team for their continued dedication and execution in delivering another strong quarter. Their efforts are critical to delivering value to our customers and our shareholders.

Thank you for joining us today. We will now open up the call for questions.

[Operator Instructions] Your first question comes from the line of Maggie Nolan with William Blair.

Congrats from me on the quarter and the guidance. I wanted to dig into the comment that one of you had made about outsized projects from enterprise customers. Can you fill us in a little bit on the nature of these, how big they are, the drivers of them? And then how many quarters of kind of that outsized impact do you potentially expect until it reverts to normal or moderates?

Okay. First off, thanks, Maggie, for the quick appreciation of the quarter. So a couple of different things happened in the quarter. I'll touch on a few of them and then address your enterprise piece.

One, we saw growth across all product segments and customer size segments. What was really interesting, our mid-market customers had the biggest growth. So that's kind of our sweet spot. So some of the things we've talked about throughout the years about our strategy and where our focus is around AI, cloud, security and networking is really taking hold.

What we were trying to message, if you will, as it relates to the enterprise customers, we got a few of our large enterprise customers that had fairly large quarters in Q3. We don't think that there'll be a major slowdown in Q4, but we don't think we'll be able to replicate that. And that kind of shows in our guidance that we gave for the year.

Okay. Great. And then on the professional services piece, you mentioned some project delays from retail customers. Are those more like pushouts where you would expect maybe that revenue to materialize in March or fiscal 2027? And then, any insight on what is the nature of these delays and whether that could be more widespread across your services business?

Yes. I would expect, Maggie, more '27 -- in 2027 -- or, I guess, 2026, our fiscal 2027, is when you'd see it. So we don't expect it to be a long term. It was just a few customers that delayed projects, specifically in the retail and consumer space, that affected that. That's why our PS was down. Our staffing was down a little bit as well, but we're not as concerned on that.

And then the other thing just to note, if you remember, last year, our services were up significantly, over 50%. And that was really due to the Bailiwick acquisition. So it was a combination of a tough compare, a few customers that kind of slid off this quarter that will slide into next fiscal year, and then staffing being down. I will highlight as well our MS continues to grow, our managed services, sorry. So we feel like we're in a pretty good spot overall.

Your next question comes from the line of Greg Burns with Sidoti & Company.

I just wanted to touch on the inventory build and the, I guess, the timing of those projects. When do you expect to be able to deliver against that inventory that you're carrying on your balance sheet?

Yes, Greg. So sequentially, the inventory increased about $85 million. And that's really in concert with what we're seeing with the increase in just demand for the quarter as well. So the projects are fluctuating in and out. There'll be a progression of lesser inventory over time, but we're also seeing new orders as well. So I would expect the inventory level to be a little more inflated in the next several quarters.

And traditionally, Greg, our AI and inventory tick up at the end of the year a little bit as well.

Okay. Is there any way you can -- I don't know, maybe we're not at the point yet, but to quantify the impact AI is having for you? Maybe any kind of additional color you could give us to maybe understand the size of that business now versus maybe the growth rates?

Yes. Greg, we've kind of talked about it. What was interesting this quarter versus some of the prior quarters, AI was somewhat of a headwind. We now see it as a tailwind. And we've talked about this in prior quarters. What's happening now is everybody is starting to define their use cases and figure out how to take advantage of these AI capabilities.

What we've always talked about is people have to modernize their legacy systems, and that's where we're seeing the growth. If you look at our data center cloud growth, if you look at our networking growth -- which, by the way, networking, we've talked about it in previous quarters, it was kind of down a while back because the supply chain people had to digest it. Well, we're through that. They're now AI-enabling their networking and refreshing stuff based on timing. So a lot of what you're seeing in the growth in our product areas is being driven by AI.

Also from a security perspective, there's a lot going on with governance risk and compliance, data governance, and I'd call it even threat protection, like building the road maps for our customers as they try to take advantage of the AI capabilities. But it's been a very nice add for us over the last few quarters related to the different product areas.

All right. And then you mentioned your ability to offer kind of integrated solutions across all the areas you mentioned, like AI cloud networking. How important is that becoming for you? Could you just maybe talk -- I haven't heard you mention that in the past. So how important is that dynamic to your ability to continue to grow and gain market share?

Yes. I think it's one of our differentiators, Greg. I think a lot of customers are looking to just lock down a few key partners or strategic vendors to kind of deal with. I'd almost liken it to, if you remember back in the day with converged infrastructure, when that came out, with compute and storage and virtualization, that's what kind of put us on the map in that space, because we were able to bring all those vendors together in a tight solution while providing managed services around it.

Anything else or?

Thank you. And with no further questions in queue, I'd like to turn the conference back over to Mark for any closing remarks.

All right. Thank you, everyone, for joining us today for our earnings call. We look forward to updating you on our fiscal -- Q4 and fiscal earnings call in May. Thanks for taking the time today. Take care.

This concludes today's conference call. You may now disconnect.

Good day, ladies and gentlemen. Welcome to the ePlus Second Quarter Fiscal Year 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's conference, Amanda Dupree, Associate General Counsel. You may begin.

Thank you for joining us today. On the call is Mark Marron, CEO and President; Darren Raiguel, COO and President of ePlus Technology; and Elaine Marion, CFO. 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 that we 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 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, Amanda. Good afternoon, everyone, and thank you for joining us today for our second quarter fiscal 2026 earnings call. This quarter represents a significant milestone for ePlus as we delivered the first quarter in our history with over $1 billion of gross billings, underscoring the momentum across our business and the strength of our diversified model. Our performance this quarter again reflects our unrelenting focus on delivering the products and services our customers require in today's market. We are seeing this growth not only in the quarter, but in our year-to-date results as well, with revenue up over 20% and total gross billings of almost $2 billion in the 6-month period.

I want to highlight 4 key messages. First, as I mentioned, our record $1 billion in gross billings in the quarter underscores strong and broad-based demand across our portfolio, customer segments and verticals. Notably, most of the growth was organic with acquisitions accounting for only 10%. Second, our consolidated net sales for the quarter grew 23.4%, but adjusted EBITDA grew at a rate that is more than twice that of net sales as operating leverage continues to shine through. This was supported by increased demand for our products and services, underscoring the resilience in our strategy and internal automation initiatives.

Third, we continue to invest and align our resources in higher-growth areas of AI, security and cloud to deliver value-added products and solutions, enabling us to both grow our customer base and increase sales to existing customers. And fourth, our balance sheet remains strong, closing the quarter with over $400 million in cash, giving us flexibility to continue investing organically and inorganically while returning capital to shareholders.

Let me start with a brief overview of the quarter's financial results. As a reminder, we completed the sale of our domestic financing business on June 30, 2025, which is now accounted for as a discontinued operations. During the quarter, we had solid execution across the board, delivering strong financial results with most of the growth organic. Net sales increased 23.4% year-over-year with broad-based growth across products, professional services and managed services. Additionally, growth was across all customer sizes and industries with notable performance in the mid-market and enterprise segments. Lastly, we saw especially strong performance across almost every vertical, except state and local government, where budget constraints persisted.

Let me talk about some additional drivers of this robust performance as it relates to fast-growing areas. Security continues to be a standout performer with gross billings of security products and services up 52% year-over-year, now representing 24% of trailing 12-month gross billings, up from 21% last year. Networking posted its second consecutive quarter of sequential growth, which we believe is being fueled by AI-driven infrastructure investments. And in Data Center and Cloud, net sales grew nearly 30% year-to-date, reflecting customer modernization initiatives tied to AI deployments.

Shifting to profitability. Second quarter adjusted EBITDA increased 62% and the 6-month adjusted EBITDA was 40% higher than the same period of the prior year. The operating leverage reflects our strategic alignment of headcount towards high-growth focus areas of AI, data center and cloud, security and networking. We have also leveraged AI internally to provide faster incident resolution and closure, leading to a better customer experience. Although we have grown through automation, we have been able to maintain headcount in parts of our internal and external services teams over the last couple of years. These actions provide a solid platform to build upon.

Now let's turn next to AI, an area that continues to accelerate across our customer base and within ePlus itself. Our recently released AI industry pulse poll revealed that nearly 3/4 of IT and business leaders now view AI primarily as a driver of revenue growth, surpassing cost savings and customer satisfaction. This marks a significant shift in how organizations approach AI from efficiency to expansion. At the same time, the survey showed that 81% of leaders are concerned about whether their infrastructure can support advanced AI applications, underscoring the opportunity for ePlus to help customers scale securely and effectively.

During the quarter, we acquired Realwave, a cloud-based AI-powered software that integrates video, Internet of Things and sensor data to detect events, make decisions and trigger automated actions, expanding our ability to deliver real-time AI-driven insights to customers.

Shifting to our balance sheet and capital allocation. We have a healthy balance sheet with over $400 million in cash, enabling disciplined capital allocation, both organically and through M&A that can fuel long-term growth. In summary, our second quarter results reflect continued progress across our segments. We remain focused on driving growth, optimizing margins and deploying capital to maximize shareholder value over time. I want to close by thanking all of our ePlus teammates for their efforts in delivering a strong quarter and first half for ePlus and our shareholders.

I will now turn the call over to Elaine. Elaine?

Thank you, Mark, and thank you, everyone, for joining us. I will review our financial performance in the second quarter of fiscal 2026. Continued momentum across our business led to another quarter of double-digit increases in our key financial metrics. Consolidated net sales totaled $608.8 million, up 23.4% year-over-year, driven by sustained demand across our focus areas of security, networking and cloud.

As Mark mentioned, we continue to see demand across all customer sizes with particular strength in the mid-market and enterprise segments. As you may recall from our last earnings call, enterprise customers resumed purchasing in the first quarter following a period of product digestion, and we saw a continuation of this trend in the second quarter.

Gross billings of $1.02 billion in the quarter represented a 26.5% increase in year-over-year with the majority of this growth being organic. This milestone underscores the strength of our diversified business model and our strategic focus on high-growth areas, including offerings that enable AI consumption. Product sales in the quarter totaled $485.1 million, up 24.5% from the prior year, led by robust demand in networking and security solutions, aided by increased AI adoption as well as growth in data center and cloud.

Service revenue reached $123.8 million in the quarter, representing growth of 19.4% year-over-year. Professional Services grew 23.3%, led by the addition of Bailiwick in August of 2024, while managed services increased 13.5%, led by the strength in enhanced maintenance support and cloud offerings. Services remain a strategic focal point for ePlus, and we remain committed to add to our capabilities in this segment to build out our strong recurring revenue base over the long term.

Taking a look at our customer verticals, Sales remained broad-based. Telecom, Media and Entertainment and SLED, our 2 largest verticals accounted for 27% and 14%, respectively, of net sales on a trailing 12-month basis. Health Care, Technology and Financial services represented 13%, 13% and 9%, respectively, with the remaining 24% divided among other end markets. Second quarter gross profit totaled $162.1 million, up 27.4% from the prior year quarter. This represents a consolidated gross margin of 26.6%, up 80 basis points from 25.8% last year, driven by increased product margins.

Product gross margin expanded 160 basis points to 24.5%, reflecting a favorable mix as we sold a higher proportion of third-party maintenance and services in the quarter, which are recorded on a net basis. Professional Services' gross margin was 38.2% compared to 41.3% a year ago. This change was due to the acquisition of Bailiwick, which had lower gross margin than our legacy Professional Services. Managed Services gross margin was 29.5%, in line with the prior year quarter.

Consolidated operating expenses increased 12.9% to $113.3 million, reflecting higher salaries and benefits, primarily from a full quarter of Bailiwick and additional variable compensation due to the increased gross profit generated in the quarter. Headcount from continuing operations at quarter end was 2,138, down 6% from the prior year quarter as we focus on roles in high-growth areas, including AI, cloud, security and networking.

Operating income rose 80.9% to $48.8 million, significantly outpacing the increase in operating expenses, demonstrating meaningful operating leverage. Earnings before taxes increased to $54 million from $27.3 million in the prior year quarter. Other income was $5.2 million, which includes $4.5 million in interest income and foreign exchange gains of $700,000. Our effective tax rate for the quarter was 29.3% versus 27.5% in the second quarter of fiscal 2025.

Consolidated net earnings from continuing operations were $38.2 million, above net earnings of $19.8 million in the prior year quarter, and net earnings from continuing operations per diluted share was $1.45 compared to $0.74 in the prior year quarter. Discontinued operations net loss was $3.3 million compared to net earnings of $11.5 million in last year's quarter. Diluted loss per share from discontinued operations was $0.13 compared with earnings per share of $0.43 last year. Non-GAAP diluted earnings per share for continuing operations was $1.53, up from $0.94 in the prior year. Our weighted average diluted share count was 26.4 million compared to $26.7 million in the second quarter of fiscal 2025.

Adjusted EBITDA totaled $58.7 million, up 61.6% from $36.3 million a year ago. Adjusted EBITDA grew more than twice as fast as net sales, underscoring the operating leverage inherent in our business model.

Moving to our results for the 6 months ended September 30, 2025. Consolidated net sales totaled $1.25 billion, up 21.1% from $1.03 billion in the first half of fiscal 2025, driven by an 18.8% increase in product sales and a 32% increase in services revenue. Year-to-date gross billings totaled $1.98 billion, an increase of 20.3% year-over-year. Consolidated gross profit for the first 6 months was $310.3 million, 22.1% above the $254.2 million in the first half of fiscal 2025. Gross margin expanded 20 basis points to 24.9%, led by an increase in product margins.

Year-to-date consolidated net earnings from continuing operations were $65.3 million or $2.47 per diluted share compared to $44 million or $1.64 per diluted share in the first half of fiscal 2025. Discontinued operations net earnings for the first 6 months was $7.3 million versus $14.7 million in the first 6 months of fiscal 2025. Diluted EPS from discontinued operations was $0.28 compared to $0.55 in the comparable period last year. Non-GAAP earnings per share from continuing operations were $2.79, up 42.3% versus $1.96 in the prior year period.

Turning to our balance sheet. Cash and cash equivalents at quarter end totaled $402.2 million, up from $389.4 million at the end of the last fiscal year. Our cash position remains robust, providing us with significant flexibility to continue investing in both organic and inorganic growth initiatives as we support our capital allocation strategy. Inventory at quarter end was $154.1 million, up from $120 million at the end of fiscal 2025. Inventory days outstanding were 15 days, slightly above 14 days in the prior sequential quarter and 12 days in the prior year. Despite the slight uptick of inventory days outstanding, our cash conversion improved to 30 days from 32 days in the prior year period.

Our capital allocation strategy remains focused on 4 priorities: strategic acquisitions that complement our capabilities, organic investments in high-growth areas, quarterly dividends and opportunistic share repurchases. Consistent with these priorities, we repurchased 60,000 shares during the quarter after our stock repurchase plan authorization began on August 11, 2025. In addition, we are continuing to deliver shareholder value with the announcement of our second quarterly dividend of $0.25 per common share payable on December 17, 2025, to shareholders of record on November 25, 2025.

In summary, we delivered strong second quarter and first half results, demonstrating superb execution by our employees, momentum in our business and the success of our strategic initiatives.

Now I will turn the call back over to Mark. Mark?

Thank you, Elaine. The second quarter and year-to-date growth reflects momentum in the business and is aligned with our focus on high-growth areas. Underlying end market demand is healthy across much of the portfolio, and we continue to be pleased with our current positioning. Reflecting the strong financial performance to date and momentum we expect to continue, we are increasing our fiscal year 2026 net sales, gross profit and adjusted EBITDA guidance.

Net sales growth over the prior fiscal year is now expected to grow at a rate in the mid-teens from fiscal year 2025's $2.01 billion from continuing operations. Gross profit is also expected to grow at a rate in the mid-teens from fiscal year 2025's $515.5 million from continuing operations. Adjusted EBITDA is expected to increase from fiscal year 2025's $140 million at approximately twice the rate of net sales growth for fiscal year 2026 as continuing operation results are expected to benefit from operating leverage. We also announced today our quarterly dividend of $0.25 per common share, which will be paid on December 17, 2025, to shareholders of record on November 25, 2025.

Our solid cash balance positions us well to allocate capital to growth while returning capital to our shareholders. It was a significant quarter and first half for ePlus with double-digit growth across all key metrics. The sale of our domestic financing business has simplified our business model and allowed us to focus on being a pure technology player. It also gives us the financial flexibility to expand our footprint and customer base, both organically and through acquisitions while continuing to expand and enhance our solutions and service offerings. We are well positioned to build on our momentum, capitalize on new opportunities and deliver value to stakeholders over the long term.

Thank you for joining us today. We will now open it up for questions.

[Operator Instructions]

Your first question comes from the line of Maggie Nolan with William Blair.

Congratulations on the results. I'm hoping that you can double-click for me on the strength in security. It was a pretty impressive numbers that you shared there. So what is driving the strength in that offering?

Well, a couple of different things, Maggie. So Security was up 56% in terms of gross billings. Overall trailing 12 months, it's up nicely as well. What we're starting to see is a lot of the AI initiatives with customers making investments, looking at data classification, data cleanliness and projects along those lines. And then just the normal network security and all the other things that we've done over time. We are starting to see an uptick in, I'll say, AI-related deals across compute, storage and security. And that's part of the reason we had a nice quarter in those areas.

Networking, by the way, I know you didn't ask for it, but Networking was up nicely. So that also contributed nicely to the quarter. And if you remember, a few quarters back, it was actually down due to the supply chain issue with the digesting of product that Elaine talked about. That's actually starting to pick up as customers look to modernize their networks to be ready for AI.

Okay. Great. And maybe to round it out, can you talk a little bit about what you're seeing by customer end market as well? There seem to be some variability in strength and weakness across your different end markets.

Yes. In terms of -- well, let me touch on 2 things, make sure -- as it relates to the verticals, we had a strong quarter across almost every vertical. The only thing that was down was our state and local, which I think had to do with a lot of what's going on in the government and funding and things along those lines. Otherwise, all the verticals were up.

And as it relates to our customer size segments, Maggie, the mid, the 500 to 10,000 and the 10,000 and above, which we consider to be enterprise was up real nice. So across, I'd say, all 3 of our segments, product, professional services, managed services, across all the verticals, except for the state and local in the SLED space, and then across all the different product areas, we were up significantly, except for collab -- collaboration, I should say.

Your next question comes from the line of Gregory Burns with Sidoti & Company.

It's good to see the AI starting to now translate into some order flow for you. Could you just talk about maybe how the pipeline looks? What gives you confidence in kind of the raised outlook for the year? Any kind of color you can give on preorder or demand activity and pipeline, how the pipeline is shaping up?

Yes, Greg. So a couple of different things. So as it relates first to the quarter, really proud of the team in terms of the execution, especially in a kind of an uncertain economic market with what's going on with the government shutdown, tariffs and inflation up or down, right? So team really did a nice job in the first half. We also -- as we talked about on previous calls, we do a nice job of tracking the pipeline and opportunities that are in there. We did have a couple of nice large deals that fell in Q2. But as you can see, based on our guidance, we're still very optimistic about the rest of this year. And I think that kind of shows in our guidance.

Okay. And then the leverage, obviously coming through really nicely now. How should we think about leverage versus need to invest. Obviously, there's a lot of growth opportunities out there for you, particularly maybe now with AI becoming more of a meaningful driver. So how should we think about leverage and how much the margins could expand from, I guess, where you're guiding to for this year?

Yes. So 2 things there, Greg. One, I think you can expect operating leverage for a little period of time here. But as we've talked about on previous calls, we're a growth company. We're in -- after selling a finance, we're in a pretty strong, I'll say, cash position that we have a lot of flexibility in terms of how we can go grab market share, expand our footprint, our customer base, and that could be through organic hires, which we will be making to kind of build out our services and AI capabilities and also through acquisitions.

So short term, I think you continue to see some operating leverage, but we're still going to be active in looking at where we can build out our footprint and customer base, both organically and inorganically.

That is all the questions that we have. I would like to turn it back over to Mark Marron for closing remarks.

Okay. Thank you, operator. Everybody, thank you for joining us on the call today. Once again, we feel good about what the team put up this quarter and for the first half and want to thank you for joining us on this call. Take care, and have a great holiday season, if you can. Take care.

This concludes today's conference. You may disconnect.