ePlus (PLUS) Q2 2027 earnings review
ePlus raises its full-year plan, but unsold inventory piles up
ePlus, a corporate computer hardware and services provider, returned to growth as cloud and cybersecurity demand offset weaker networking and consulting. Net sales rose 10% and profit per share excluding one-offs climbed 19%, beating what the company's own prior plan pointed to. Chief executive Mark Marron raised the full-year outlook, which by our math calls for second-half operating profit excluding one-offs to grow about 21%.
| Net sales | $667.9M +9.7% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $1.82 +19.0% from a year ago |
| Inventories | $271.4M +35.1% from March 2026 |
| Full-year sales and profit outlook | Raised sales to upper single digits; Adjusted EBITDA to low double digits |
⚖️ Verdict: 🟢 Bullish
The story got better because the company cleared its hardest comparison of the year, reversed last quarter's gross margin drop, and lifted its full-year targets. One caution: unsold inventory jumped 76% from a year ago by our math while customer billings grew only 4%, and service margins fell again on retail delays and contractor costs.
The question now is whether the swollen inventory is about to turn into billed sales or is stuck waiting on scarce memory chips. If parts arrive, second-half cash flow and shipments will jump; if shortages drag on, projects will slip into next year. The open-order figure on the call and third-quarter inventory will tell.
🐂 Bull Case
Cloud and Security Hardware Lifted the Full-Year Plan
ePlus resells computer hardware and software and sets up corporate networks. After sales barely grew in the first quarter against a tough comparison, chief executive Mark Marron said customer spending on artificial intelligence and cybersecurity lifted second-quarter results. The Virginia-based group also beat last year's steep second-quarter growth rates and raised its full-year outlook.
- Product segment sales: $547.1 million, up 12.8% from a year ago
- Cloud product sales: $178.6 million, up 39.2% from a year ago
- Security product sales: $72.7 million, up 10.3% from a year ago
- Other product sales: $43.0 million, up 166.5% from a year ago
- Financial services customer sales: $93.5 million, up 48.3% from a year ago
These gains matter because second-quarter sales a year ago had already jumped 23.4% on big enterprise deals, and operating profit excluding one-offs (Adjusted EBITDA) had climbed 61.6%. Clearing that high bar by 9.7% in sales and 14.3% in Adjusted EBITDA gave management enough confidence to lift its full-year targets across the board.
What to watch: open order backlog in the quarterly filing or conference call. A number that stays near or above $1.5 billion while product shipments rise would show new AI orders are replacing the ones ePlus just delivered.
Net-Basis Software Sales Reversed the Gross Margin Drop
When ePlus sells third-party software subscriptions and maintenance, it records only its fee as revenue rather than the full customer bill. That accounting lowers reported sales relative to gross billings (the total amount billed to customers), but it boosts gross margin. In the first quarter, gross margin had fallen in every division.
In the second quarter, product gross margin rose 1.3 percentage points from a year ago to 25.8%. The company said the gain came "due to a shift in product mix, and an increase in sales of third-party maintenance, subscriptions and services that are recognized on a net basis". Product net sales were 57.7% of product gross billings, up from 54.4% a year ago by our math.
That product rebound lifted company-wide gross margin by 0.4 percentage points to 27.0%. Selling and administrative costs (staff pay, commissions and overhead) rose 0.2 percentage points of revenue to 17.7%, while depreciation and amortization fell 0.3 points to 0.9%, so operating margin rose 0.4 points to 8.5%.
What to watch: product gross margin in the second half. Holding above 23% as large hardware projects ship would show that competitive pricing on big AI deals is not wiping out software fee gains.
Cash Covers Both the Daymark Deal and Buybacks
Since selling its domestic financing unit in June 2025, ePlus has used its cash pile for acquisitions, a quarterly dividend and share buybacks. In the second quarter, the company bought the assets of Daymark Solutions, a New England firm focused on "implementing and supporting complex hybrid cloud, cybersecurity, compliance, and data centers", Marron said.
At the same time, treasury stock on the balance sheet grew by $38.3 million over the first six months to $140.2 million. Because the group spent $20.8 million on buybacks in the first quarter, that leaves about $17.5 million of share repurchases in the second quarter by our math, alongside the $0.27 per share quarterly dividend. Even after those outlays and higher working capital, cash stood at $380.9 million.
What to watch: the purchase price and revenue contribution of Daymark Solutions in the quarterly filing. Disclosing how much revenue Daymark added will show how much of the full-year outlook raise is from businesses owned a year ago.
🐻 Bear Case
Inventory Swelled 76% While Customer Billings Slowed
"Record gross billings surpassed the prior year's record showing strong momentum reflecting our customer-first approach as we provide the products and services our clients require, particularly for Artificial Intelligence (AI) and Cybersecurity," chief executive Mark Marron said. Yet gross billings grew only 4.3% from a year ago to $1,066.8 million, and the press release gave no figure for open orders, which stood above $1.5 billion last quarter.
Meanwhile, unsold equipment on the balance sheet jumped. Inventories rose 35.1% from March 2026 to $271.4 million — and were up 76.1% from the $154.1 million held in September 2025 by our math — "due to several ongoing projects", the company said. Trade receivables (unpaid customer bills) also climbed 14.9% from March to $746.9 million.
A 76.1% rise in inventory alongside 4.3% billings growth means hardware is sitting in warehouses waiting on parts such as memory chips before ePlus can finish and bill the projects. That ties up cash and leaves the second-half outlook reliant on suppliers shipping the missing components on time.
What to watch: operating cash flow and inventory days in the quarterly filing. A drop in inventory during the third quarter would show those delayed projects are finally shipping to customers.
Retail Delays and Contractor Costs Hurt Services
ePlus runs two service divisions: professional services, which handles one-off consulting and installation projects, and managed services, which runs customer computer systems under multi-year contracts. Managed services has been a steady growth driver, but profitability in both divisions shrank again this quarter.
- Professional services revenue: $67.8 million, down 11.3% from a year ago
- Professional services gross margin: 35.4%, down 2.8 percentage points from a year ago
- Managed services revenue: $53.1 million, up 11.9% from a year ago
- Managed services gross margin: 28.8%, down 0.6 percentage points from a year ago
Professional services suffered "decreases in revenue and gross profit from project-related services due to delays from retail customers", the company said, as retail sales fell 12.7% to $35.0 million. Managed services grew fast, but its margin fell "mainly driven by increased third-party costs", so outside contractors are eating into the profit of the recurring revenue stream.
What to watch: service gross margins in the third quarter. Adding Daymark's consulting staff should help if retail delays ease, but another drop would show contractor costs are a lasting drag.
Networking and Telecom Sales Dropped Back into Decline
Networking equipment is ePlus's largest product line, and telecom, media and entertainment is its biggest customer group. After networking sales ticked up 2.5% in the first quarter, both areas fell back in the second quarter even as overall company sales rose.
Networking net sales fell 9.2% from a year ago to $234.4 million, and networking gross billings dropped 9.2% to $286.3 million. Sales to telecom, media and entertainment customers fell 12.9% to $153.9 million (after a 25.0% drop in the first quarter), while sales to state, local and education clients rose 5.3% to $91.9 million.
What to watch: networking gross billings in the third quarter. A recovery there is important because Cisco and other networking gear make up over aquarter of everything the IT reseller bills.
Prior-Period Accounting Revisions and Financing Write-Downs
Last quarter ePlus revised two years of past financial statements after miscalculating accrued product revenue. This quarter's tables carry a new footnote stating that figures for the three and six months ended September 30, 2026 reflect the "correction of certain misstatements in previously issued financial statements", which management called immaterial.
Separately, other expense included a $3.5 million write-down on an earn-out receivable from the 2025 sale of its domestic financing unit. That charge cut pre-tax profit growth from 10.2% by our math to 3.7% as reported. Also, short-term credit lines used to buy inventory (floor plan payables) rose from $119.7 million in March to $139.2 million.
What to watch: Note 2 of the second-quarter Form 10-Q. The note will show which lines were corrected and whether the company found any weaknesses in its internal accounting controls.
💲 Other KPIs
Up 7.5% from March 2026 ($240.1 million) and 5.9% from a year ago ($243.7 million) by our math, after barely moving in the first quarter. Contract liabilities are deferred revenue — cash customers have paid up front for maintenance and managed services not yet delivered — so the rise supports future service revenue.
Down 1.9% from 26.4 million shares a year ago, and down from 26.1 million in the first quarter. Total shares on the balance sheet fell from 26.3 million in March to 26.0 million as buybacks outpaced employee stock grants, adding nearly 2 percentage points to per-share profit growth.
🔮 Guidance
Raised. The outlook moved up from mid-single digits (about 5%) to upper single digits (about 8% at the middle of the range). Because first-half sales grew 5.2%, the new plan leaves about 10.9% growth for the second half by our math, up from 9.7% this quarter and including the Daymark acquisition.
Raised. Management lifted the plan from mid-single digits to upper single digits. First-half gross profit rose 5.0%, so hitting 8% for the full year requires about 11.2% growth in the second half by our math — matching this quarter's 11.2% pace.
Raised. The target for operating profit excluding one-offs stepped up from mid-single digits to low double digits (about 11.5% at the middle of the range). After 3.2% growth in the first half, the new plan implies about 21.4% growth in the second half by our math, helped by an easier fourth-quarter comparison.
❓ Key Questions
Where did the open order backlog end the quarter?
Last quarter management said open orders exceeded $1.5 billion, up more than $615 million from a year ago, but the press release gave no number. Knowing whether backlog grew or shrank as inventory jumped 35% vs March tells whether customers are still placing new AI orders.
How much does Daymark Solutions add to the outlook?
ePlus bought Daymark Solutions during the quarter and raised its full-year sales growth target by about 3 percentage points (roughly $75 million). Management did not disclose Daymark's annual sales, which is needed to separate underlying growth from acquired revenue.
What caused the new accounting revisions in Note 2?
A footnote says the September 2026 numbers were revised to correct immaterial misstatements in previously issued statements, one quarter after a separate revenue accrual revision. Investors need to know which lines changed and why misstatements keep appearing.
When will delayed retail consulting projects restart?
Professional services revenue fell 11.3% and its gross margin dropped 2.8 percentage points because retail clients delayed project work for a third straight quarter. Management has not said whether these contracts are cancelled or scheduled for the second half.