Executive Summary

Mixed Q3: Net sales were flat at $511.0M (+0.4% YoY), but gross profit rose 5.3% to $140.9M with gross margin expanding 130 bps to 27.6% as services mix increased and more revenue was recognized on a net basis . EPS fell to $0.91 (GAAP) and $1.06 (non-GAAP) on higher OpEx from headcount and acquisition amortization .
Guidance reset: FY25 net sales now $2.07–$2.11B and adjusted EBITDA $165–$171M (lowered from $195–$205M in Q2 and $200–$215M in Q1), reflecting higher gross-to-net adjustments and near-term tariff risk commentary .
Services strength vs product softness: Services revenue +52% YoY to $113.6M, while product sales -9.5% YoY; technology gross billings +6.6% YoY to $849.5M despite flat reported net sales, underscoring mix/netting dynamics .
Key drivers/risks: Accelerating shift to ratable/subscription “netted-down” revenues reduced reported product net sales by ~~840 bps YoY (~~$60M top-line impact), ongoing enterprise hardware digestion, and higher OpEx from Bailiwick integration; catalysts include AI/Security/Cloud services momentum and strong financing segment .

What Went Well and What Went Wrong

What Went Well
- Services momentum: Services revenue rose 52% YoY to $113.6M; professional services +73.6% (Bailiwick), managed services +27.5% . “Our services business… increased 52% in the third quarter” — CEO Mark Marron .
- Margin expansion: Consolidated gross margin expanded 130 bps YoY to 27.6% on higher product margins and mix of netted-down software/maintenance and services .
- Financing segment outperformance: Net sales +19.8% to $17.8M; gross profit +16.9% to $15.8M; operating income +23.5% to $11.6M .
What Went Wrong
- Product softness and mix headwinds: Product sales -9.5% YoY to $379.5M amid enterprise demand softness and higher share of netted-down software/maintenance; professional services margin fell to 40.1% and managed services margin to 29.8% on mix .
- Higher operating expenses: OpEx +17.3% YoY to $112.4M driven by added headcount from Bailiwick and prior acquisition, pressuring operating income (-25.1% to $28.5M) and EPS ($0.91 vs $1.02) .
- Gross-to-net acceleration pressured reported sales: Gross-to-net impact on product sales rose ~840 bps YoY, lowering reported net sales by about $60M; management expects softer hardware demand into Q4 before improving in Q1 .

Financial Results

Overall P&L trend (quarters shown oldest → newest)

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Net Sales ($M)	$544.5	$515.2	$511.0
Gross Profit ($M)	$134.5	$148.0	$140.9
Gross Margin (%)	24.7%	28.7%	27.6%
Operating Income ($M)	$35.5	$42.7	$28.5
Net Earnings ($M)	$27.3	$31.3	$24.1
Diluted EPS (GAAP)	$1.02	$1.17	$0.91
Diluted EPS (Non-GAAP)	$1.13	$1.36	$1.06
Adjusted EBITDA ($M)	$43.1	$52.1	$39.1

Revenue mix and billings

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Product Revenue ($M)	$466.3	$411.5	$397.3
Services Revenue ($M)	$78.2	$103.7	$113.6
Technology Gross Billings ($M)	$833.7	$808.2	$849.5

Q3 FY25 segment detail (YoY view)

Segment	Q3 FY24	Q3 FY25
Technology Net Sales – Product ($M)	$419.5	$379.5
Technology Net Sales – Prof. Services ($M)	$40.0	$69.5
Technology Net Sales – Managed Services ($M)	$34.6	$44.2
Product Margin (%)	21.9%	22.1%
Prof. Services Margin (%)	43.3%	40.1%
Managed Services Margin (%)	31.8%	29.8%
Financing Net Sales ($M)	$14.9	$17.8
Financing Gross Profit ($M)	$13.5	$15.8

Q3 FY25 technology gross billings by type (YoY)

Type	Q3 FY24 ($M)	Q3 FY25 ($M)
Networking	$251.3	$214.8
Cloud	$181.6	$207.8
Security	$189.5	$190.8
Collaboration	$23.2	$22.4
Other	$55.5	$76.5
Total Product Billings	$701.0	$712.2
Services Billings	$96.0	$137.3
Total Gross Billings	$797.0	$849.5

KPIs and balance sheet (Q3 FY25)

KPI	Value
Gross-to-net impact on product sales	+840 bps YoY; ~-$60M top-line impact
Subscription orders growth and mix	+51.4% YoY; ~46% of open orders
Headcount	2,291 total; +394 YoY (355 customer-facing)
Cash and Cash Equivalents	$253.1M
Inventory	$99.0M
Cash Conversion Cycle	32 days vs 54 prior year

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Sales	FY25	“Similar to FY24” (Q2)	$2.07–$2.11B (Q3)	Updated/Specified (implies tightening)
Adjusted EBITDA	FY25	$195–$205M (Q2)	$165–$171M (Q3)	Lowered
Net Sales	FY25	+3% to +6% vs FY24 (Q1)	“Similar to FY24” (Q2)	Lowered
Adjusted EBITDA	FY25	$200–$215M (Q1)	$195–$205M (Q2) → $165–$171M (Q3)	Lowered sequentially

Management noted the inability to reconcile adjusted EBITDA to GAAP for FY25 guidance due to variability in items like unusual gains/losses, taxes, interest, share-based comp, and acquisition-related expenses .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1, Q2)	Current Period (Q3)	Trend
Shift to ratable/subscription; netted-down revenue	Q1: Mix shift and ratable recognition pressuring reported sales; services/recurring growth emphasized . Q2: Gross-to-net adjustment +940 bps YoY impacting reported product sales .	Gross-to-net +840 bps YoY; ~-$60M top-line impact; acceleration vs last year noted .	Accelerating netting impact
AI initiatives and pipeline	Q1: AI Ignite interest; customers early-stage; bookings in managed services strong . Q2: Launched AI Experience Center; trained sales; AI elongating cycles .	Continued AI focus incl. Secure GenAI; internal AI use; 76% IT leaders not AI-mature per survey .	Building capability; early monetization
Hardware/product demand	Q1: Post-supply-chain digestion; softer enterprise hardware . Q2: Softer-than-expected hardware; tough comps .	Expect soft hardware into Q4; improvement by Q1; networking particularly weak .	Near-term soft, stabilizing later
Macro/tariffs/election	Q2: Economic uncertainty; tariff considerations; seasonality in H2 .	FY guide reflects tariff risk; election slowed decisions early in quarter .	Caution near term
Services mix and managed services	Q1: Managed services net sales +28% YoY; bookings +~70% . Q2: Managed services +27.6% YoY; bookings +48% TTM .	Services +52% YoY; organic managed services +28%; new Juniper Mist support launched .	Positive, expanding scope
Financing segment	Q1: Revenue +6.4%; EBITDA +24.3% . Q2: Revenue +39.7%; strong transactional gains .	Revenue +19.8%; gross profit +16.9%; operating income +23.5% .	Strong contributor

Management Commentary

“Our third quarter results reflect the benefit of our investment in services and the continuing industry shift toward ratable, subscription and ‘as a service’ revenue recognition.” — Mark Marron, CEO .
“Subscription orders up 51.4% year-over-year, accounting for almost 46% of our open orders… gross to net adjustment… up 840 basis points… impacted our top line revenues by approximately $60 million.” — Mark Marron .
“Consolidated gross margin was 27.6%, up from 26.3% in the prior year… driven by higher product margins… [and] mix to third-party maintenance and subscriptions.” — CFO Elaine Marion .
“We now forecast… revenue range of $2.07 billion to $2.11 billion… adjusted EBITDA range of $165 million to $171 million… reflects higher gross to net adjustments… and near-term potential of tariffs.” — Mark Marron .
“We expanded Managed Services with support for Juniper Mist… leveraging Marvis AI… to enhance end-user experiences and streamline IT operations.” — Managed Services VP release .

Q&A Highlights

Hardware/product demand outlook: Management expects soft product demand to persist into Q4, with potential improvement into Q1; networking and select enterprise customers remain weak as they digest prior purchases .
Gross-to-net dynamics: Netted-down product revenue impact was +840 bps YoY this quarter (vs +940 bps in Q2), reducing reported top-line by ~-$60M; mix shift toward software subscriptions and third-party maintenance driving the change .
VAR disintermediation risk under subscription models: Management sees opportunity to attach services (renewals, lifecycle management, staffing/managed services), not risk of being bypassed .
Macro considerations: Election timing and tariff uncertainty slowed decisions early in the quarter; demand improved in December but lacked typical year-end flush .

Estimates Context

Wall Street consensus (S&P Global) for Q3 FY25 revenue and EPS was unavailable at time of retrieval due to data access limits; as a result, we cannot quantify beats/misses vs consensus for Q3. We will update when S&P Global data is accessible. Management did not provide quarterly guidance but reduced FY25 revenue and adjusted EBITDA targets as noted above .

Key Takeaways for Investors

Services-led model is working: Services +52% YoY and continued managed services expansion (including Juniper Mist support) underpin structurally higher gross margins and more recurring revenue, even as reported net sales are pressured by netted-down recognition .
Near-term EPS pressure: Higher OpEx from Bailiwick integration and headcount, combined with product margin/volume dynamics, pressured operating income and EPS; expect Q4 product softness before a potential Q1 recovery .
Guidance reset is the stock catalyst: The sequential reduction from $200–$215M (Q1) → $195–$205M (Q2) → $165–$171M (Q3) adjusted EBITDA and explicit revenue range is likely the primary driver of sentiment and model resets near term .
Monitor gross-to-net headwind: Elevated gross-to-net adjustments materially reduce reported top-line; track signs of stabilization as OEM mix and subscription penetration normalize; watch software mix and ratable deals .
Financing segment remains a bright spot: Consistent growth in financing net sales, gross profit, and operating income provides diversification and earnings support .
AI opportunity is building but early: Strong customer interest and capability build-out (AI Ignite, Secure GenAI, Experience Center) could translate to services and infrastructure projects over time; cycles may be elongated near term .
Balance sheet provides flexibility: $253.1M cash, improved cash conversion, and lower inventories support continued organic investment and selective M&A as services scale .

Appendix: Additional Q3 Details and Prior Quarter Context

Q3 FY25 end-market mix within Technology: TME $126.2M (-9.6% YoY), SLED $71.4M (+18.8%), Technology $71.3M (-15.1%), Healthcare $58.7M (+5.7%), Financial Services $46.2M (+19.1%), All other $119.3M (+2.7%) .
Prior quarters snapshot: Q1 FY25 net sales $544.5M (-5.2% YoY), EPS $1.02; Q2 FY25 net sales $515.2M (-12.3% YoY), EPS $1.17; both quarters reflected services growth with product softness and rising netted-down recognition .

EPLUS INC (PLUS)·Q3 2025 Earnings Summary