Arbitrator Rules PCM Can Exit Troublesome BPO Contract In En Pointe Spat

PCM has received a favorable ruling in the feud over its 2015 En Pointe acquisition, enabling the solution provider to get out from under a business process outsourcing (BPO) deal gone sour.

The El Segundo, Calif.-based company, No. 25 on the 2017 CRN Solution Provider 500, said an arbitrator has ruled that its contract with Pakistani business process outsourcing partner Ovex Technologies terminates no later than Aug. 18, Chief Financial Officer Brandon LaVerne told Wall Street analysts Wednesday.

At that point, LaVerne said PCM plans to move the services from the Ovex contract to Manilla, Philippines. En Pointe acquired a 70 percent stake in Ovex in 2006, and the company had been a captive supplier of low-cost sales, purchasing, operations, help desk, accounting and IT services since then.

[Related: PCM Claims En Pointe Overstated Profits, Stock Drops After Allegations Revealed]

Nonetheless, LaVerne said PCM expects to achieve cost savings by moving the BPO work to the Philippines, where the company already has a presence.

"Management attention has been diverted a little bit to deal with this, but we've been able to mitigate any operational issues to date, and we expect to mitigate any operational issues going forward," PCM CEO Frank Khulusi said during the company's earnings call.

LaVerne said during the earnings call that certain people and companies have been "colluding to raid Ovex employees and misappropriate our confidential information and trade secrets."

PCM is currently embroiled in four lawsuits across four different jurisdictions related to the En Pointe acquisition, and spent $1.4 million in its most recent quarter on litigation costs related to M&A activity, LaVerne said. That's up from a litigation spend of just $200,000 a year ago, according to LaVerne.

Specifically, PCM filed a lawsuit in Orange County (Calif.) Court in February against Imran Yunus, its former director of government sales who came over in the En Pointe acquisition but left in December 2016 to join Auburn, Wash.-based competitor Zones, No. 32 on the 2017 CRN Solution Provider 500. PCM accused Yunus of taking confidential information from PCM and using it to solicit clients on Zones' behalf.

In June 2017, PCM widened its lawsuit to include claims against Ovex, Zones and former En Pointe CEO Bob Din, who are accused of conspiring to raid PCM of its Pakistani office and divert its business to Zones' Pakistani operation.

"Ovex employees have consistently described a coordinated plan by Ovex's executive management … to work with U.S.-based competitor Zones, and its Pakistani affiliate Zones PK, and help Zones PK hire away virtually all of Ovex's workforce, while taking En Pointe's [now part of PCM] confidential information with them to Zones PK," Simon Abuyounes, PCM's executive vice president of IT and operations, wrote in a May 30 declaration.

Ovex, Zones, and Collab9 – an En Pointe subsidiary affiliated with Bob Din – didn't immediately respond to requests for comments. Collab9 filed a lawsuit against PCM in Delaware Superior Court in December 2016, accusing PCM of underpaying its agreed-upon earn-out payments, while Ovex initiated proceedings against PCM in Pakistan's Islamabad High Court in June for alleged breach of contract.

PCM saw sales for the quarter ended June 30 drop to $560.1 million, down 4 percent from $581 million during the year-ago quarter. That fell well short of Seeking Alpha's projection of $595.7 million.

Net income fell to $2.5 million, or 19 cents a diluted share, down 66.2 percent from $7.4 million, or 71 cents a diluted share, the year prior. On a non-GAAP basis, net income fell to $6.3 million, or 47 cents per diluted share, down 24.5 percent from $8.3 million, or 68 cents per diluted share, the year prior. That edged out analysts expectations of 46 cents per diluted share.

PCM's stock remained unchanged at $19.75 in after-hours trading. Earnings were announced after the market closed Wednesday.

PCM saw sales in its commercial segment fall to $439.5 million, down 1 percent, due to the transfer of some customer contracts to a minority and women-owned business. Public sector sales sunk to $76.8 million, down 22 percent thanks to a shift in sales mix toward products reported on a net basis.

Canada sales jumped to $43.6 million, up 18 percent, due to increased sales of products and services across all business units. And PCM's United Kingdom business generated $362,000 of revenue in its first quarter of operations.

PCM's strongest product categories included delivered services – where sales grew by 20 percent – and servers, where sales climbed by 24 percent. The company's top vendors were Microsoft, Dell, HP Inc., Cisco Systems, Apple, Lenovo and Hewlett Packard Enterprise, which LaVerne said collectively represented 62 percent of PCM's gross billed revenue in the quarter.

For the coming quarter, PCM expects adjusted earnings of between 56 and 62 cents per share on low-to-mid single digit revenue growth.