EPLUS INC Q2 FY2025 earnings call

• Expanded solution and service offerings via acquisition of Bailiwick, focusing on AI, cloud, etc. - Service revenue grew 46%, with managed services up 28% and managed service bookings up 48% trailing 12 months. - Acquisition of Bailiwick broadens portfolio, expands North American footprint. - Progress in AI initiatives, launched AI experience center with Digital Realty. - Security gross billings up 15.8% and 21.4% trailing 12 months. - Balance sheet provides financial flexibility for growth initiatives.

Consolidated net sales were $515.2 million in the second quarter of fiscal 2025, down 12.3% from $587.6 million in the prior year. Technology business net sales were $493.3 million vs $571.9 million prior year. Service revenue grew 46% to $104 million, driven by professional and managed services. Financing segment net sales were $21.9 million, up from $15.7 million prior year. Gross profit increased 2.5% to $148 million, with gross margin at 28.7% (up 410 basis points). For the six months ended September 30, 2024, consolidated net sales were $1.06 billion vs $1.16 billion prior year. Technology business net sales were $1.03 billion vs $1.14 billion prior year. Consolidated gross margin was 26.7% (up 200 basis points).

• Modified 2025 adjusted EBITDA guidance to $195 million to $205 million. - Tightened net sales guidance to be similar to last fiscal year, reflecting tough product sales compare, industry transition to gross to net, and economic uncertainty.

• Economic uncertainty. - Industry transition to ratable revenue models and netted down revenues. - Macro factors like election, tariffs, interest rates impact. - AI spending currently a headwind.

Q: Just in terms of the product sale demand or product demand you saw in the quarter.

A: Mark Marron mentioned tough compare, softer enterprise demand, gross to net impact with 940 basis points difference.

Q: When we look at just the Bailiwick acquisition, how much revenue is -- is that going to contribute for the updated guidance for revenue this year?

A: Mark said Bailiwick was immaterial in Q2, ~$85 million in second half, expands offerings but takes time to acclimate.

Q: The next question comes from the line of Victor Santiago with Stifel about OpEx impact of Bailiwick and gross margin.

A: Mark said OpEx uptick in Q3 due to full quarter headcount and acquisition-related expenses, and gross margins likely tighter in second half as product and services up.

Q: Unidentified Analyst: Can you guys talk about what assumptions you've made around the macro and updated outlook and just provide a little bit more detail there?

A: Mark mentioned hardware challenges in Q3, tough compare for finance, election impact, AI spending as headwind.

Q: Unidentified Analyst: Any early client feedback that you've received on the Bailiwick acquisition?

A: Mark said internally excited about Bailiwick team, management, offerings, and customer base, with positive deals in process.