Good day, ladies and gentlemen. Welcome to the ePlus Earnings Results Conference Call. As a reminder, this conference call is being recorded. I would 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 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 we might 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 be using 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. I'll give a recap of our fiscal third quarter 2025 highlights and an update on our business overall. Elaine will follow with a discussion of our financial results, and I will then conclude with an update of our current outlook. We continue to execute on our strategic priorities of expanding our footprint and customer base and broadening our suite of solution and service offerings as we are investing in the most promising growth areas. We continue to see the evolution of our industry transition to a more ratable consumption and subscription-based model, which has impacted the comparability of our quarterly results. As noted last quarter, our revenue trends reflects an acceleration of gross billings recorded on a net basis as well as a move towards more ratable revenue models. Software subscriptions orders have continued to increase year-over-year with these deals being recognized on a net basis or ratably. While this evolution helped to contribute to a flat year-over-year revenue, we delivered solid growth in gross billings, gross profit and gross margin. It is also a solid forward indicator for growth with our subscription orders up 51.4% year-over-year, accounting for almost 46% of our open orders currently compared to 31.7% last year and growth of over $100 million. On a consolidated basis, total revenues were flat as lower product sales were partially offset by faster-growing high-margin service revenue, which is partially reflected in our gross profit being up 5.3%. We believe customers are still digesting purchases from last year's inventory flush, primarily impacting our networking and data center cloud sales. The main factor, though, was that we had a much higher gross to net adjustment this year, which was up 840 basis points from the prior year and impacted…

Thank you, Mark, and thank you, everyone for joining us today. I will now review our financial performance for the third quarter of fiscal 2025. Consolidated net sales of $511 million were modestly above the $509.1 million reported in last year's third quarter. In our technology business, sales were flat year-over-year as a decline in product sales was more than offset by continued strength in services demand. The decline in product sales reflects a shift towards sales of third-party software and services resulting in higher netted down revenues, as Mark mentioned, as well as lower sales of product as a result of last year's supply chain easing, particularly from enterprise customers. Notably, gross billings growth of 6.6% year-over-year outpaced net sales growth, highlighting continued demand for ePlus' offerings and the netting down effect. Our strategic focus on services continues to deliver results as service revenue grew 52% in the quarter with strong contribution from both professional and managed services. The Professional Services segment benefited from the Bailiwick acquisition, while growth in the Managed Services segment was broad-based. Within our technology business, our two largest markets continue to be telecom, media and entertainment and technology, representing 24% and 17%, respectively of technology business net sales on a trailing 12-month basis. SLED, health care and financial services accounted for 16%, 13% and 10%, respectively, with the remaining 20% from other end markets. Our Financing segment posted a solid quarter with revenues of $17.8 million, up 19.8% from $14.9 million in last year's third quarter due to higher proceeds from sales of equipment and portfolio earnings. Consolidated gross profit grew 5.3% faster than our revenue growth to $140.9 million, representing a consolidated gross margin of 27.6%, up from 26.3% in the prior year. The 130 basis point expansion was primarily driven by higher…

Thank you, Elaine. We are investing both organically and inorganically to develop a portfolio that provides us with multiple levers for growth across a broad range of verticals to drive growth and diversification. Growth of our gross profit and services are key indicators of the success of our go-to-market plans and being a trusted adviser for our customers. Our recent results reflect both the vast growth of our services-led business model and the accelerating shift towards ratable subscription and as-a-service revenue recognition models. This has resulted in mixed results for the quarter, and we will continue to adapt and adjust as the market transitions. As a result, we are adjusting our fiscal 2025 financial outlook. Turning to guidance. We now forecast a revenue range of $2.07 billion to $2.11 billion for fiscal year 2025 and an adjusted EBITDA range of $165 million to $171 million. Our guidance reflects higher gross to net adjustments than previously expected and also factors in the near-term potential of tariffs and how this might affect short-term decisions. We will continue to monitor this closely and expect to share more insight at the time of our year-end conference call. We are making investments in the business, focusing on high growth areas where we seek the best return opportunities, and we are confident this will support our commitment to growth in 2025 and beyond. Our balance sheet and financial condition are healthy, which gives us a solid foundation for expansion. In conclusion, we remain confident in the growth opportunities for our business moving forward and our ability to execute. Operator, please open the line for questions.

Thank you. We will now begin our question-and-answer session. [Operator Instructions]. Your first question comes from the line of Maggie Nolan with William Blair. Please go ahead.

Hi, thank you. Can you talk a little bit about your expectations for product sales that are included in the guide and maybe a couple of quarters beyond that?

Sorry, Maggie, did you say -- we didn't hear you. Expectation for product sales in the quarter and then going forward? Or...

Yes, the fiscal fourth quarter and if you could go a couple of quarters beyond that kind of flesh out the trends, you're seeing given that it's been a weak spot.

Yes. It's actually -- I think we noted it on the last earnings call as well, Maggie, that there's a softening in the market around some of the hardware or product demands, if you will. We specifically saw it with some select enterprise accounts in this quarter. We would expect it to continue into next quarter. The other things that affected our, I'll say bottom line, not so much top line was some of the upfront gross margins on product sales that was more of an anomaly, but that was offset by the netted down revenues. The other interesting thing in play here, Maggie, is the market is really changing. The OEMs are going more to as-a-service consumption subscription model. So they're recognized on a net and ratable basis. I think you may have seen our netted down revenues; product sales were actually affected by 840 basis points. To put that in perspective, that's about $60 million in net sales that would have went to our top line if it were flat to last year. So it's a moving target. I would expect that they continue to be a soft demand for Q4 and then would expect it to start to pick up a little bit as we move into our Q1.

So on that last point, Mark, I mean, we've talked about the shift towards netted down product revenues. Are you calling an acceleration? Do you have an idea of maybe what might be driving that trend to accelerate at this moment in time?

Yes. We've seen a couple of different things, Maggie. One, we still don't know if it's a new trend. If you look at just the last two quarters, last quarters, our netted down revenues for product sales was affected by 940 basis points. This quarter, it was 840 basis points. That's significantly higher than last year and higher than what we were projecting in the beginning of the year. So there is that play. What's really happening here is the OEMs are changing how they're going to market. As we sell more software, that subscription normally recognized on a net or maybe an annual basis. So it's really the product mix and solutions that we're selling that's affecting this right now.

Okay. Thank you.

No problem. Good hearing from you, Maggie. We'll talk to you soon.

Your next question comes from the line of Greg Burns with Sidoti. Please go ahead.

Good afternoon. So I just wanted to talk, I guess, a little bit more about the demand environment. I know you've been kind of calling out this digestion of some of the product that's in the channel from the supply chain kind of improving over the last year. That seems to be lingering longer than probably we would have expected. So is there anything else going on? Are you -- what are you hearing from your customers? Like is it beyond that at this point? Is there other things driving the soft demand? Or is it really just kind of this digestion of product in the channel?

Yes. It's the digestion, Greg. We can see it specifically in the networking space and a few select enterprise customers. So it is around supply chain for the most part. There are things going on overall in the industry, I think, as with tariffs and Doge and everything else that's going on. I do think the election actually slowed things down a little bit for us in the beginning of the quarter. We did see our billings were flat to down in the October, November time frame and picked up in December. But we didn't pick up a lot of what I call the year-end flush or what we normally expect in this quarter. So those are still the cases there. We still, from a, I'll say, a customer set standpoint, both size and by vertical, we're pretty diversified. In fact, we've actually diversified more with the Bailiwick acquisition with some of their customers or expanded the verticals we were in, in some cases. So we feel somewhat protected long-term, but there are some things going on that are affecting decisions right now.

Okay. And then in terms of this ongoing shift towards more software subscription ratable models, can you just talk about like what the value proposition for a VAR is in that type of model? Is there an increased risk of maybe disintermediation over time? Can they go more easily direct to customers with that model?

No, no, Greg. In fact, it's actually an opportunity for us to build up our services. So in a lot of cases with the subscription, there's add-on services, there's renewals. There's what they call life cycle management. So you try to get them to adopt the technology or software, if you will, upsell additional features and an incremental services, maybe provide some type of staffing and/or managed service. So no, it's not -- it's no different in terms of -- with the subscription versus hardware, I believe, that would affect the channel.

Okay. Great. Thank you.

No problem. Thanks, Greg.

As there are no further questions at this time, I would like to turn the call back over to Mr. Mark Marron for closing remarks.

All right. Thank you, everybody. Look, I will reiterate, we still feel very strongly about our strategy and our focus areas that we're in. We're going to continue to build out our services-led model. Our services were up 52%. They were approximately 23% of our net sales this quarter. We'll continue to leverage our customer base and customer segments. Our strong balance sheet gives us flexibility to make inorganic and organic moves. So we feel good where we're positioned. And we've been in business for a long time. So we will adapt and adjust to this new norm short term and be able to make the moves that we need to make. So I want to thank everybody for joining us today and look forward to seeing or hearing you on the next call. Thank you.

That concludes today's meeting. Thank you for your participation. You may now disconnect.