ePlus CEO: Diversified Business Model, Services Key To Success

‘Customers are taking advantage of our remote managed services, and we have the capabilities to provide security services and support solutions to create reliable hybrid work environments. Post-pandemic, work-from-home options are expected to be more prevalent than they were a year ago,’ says ePlus President and CEO Mark Marron.

ePlus Technology, a solution provider with a nationwide footprint that late last year celebrated its 30th year in business, Wednesday reported growth in revenue and profit amid the challenges wrought by the COVID-19 coronavirus pandemic.

ePlus President and. CEO Mark Marron Wednesday told financial analysts on the Herndon, Va.-based solution provider’s third fiscal quarter 2021 financial analyst conference call that there are some customers struggling because of COVID-19, particularly in the health-care vertical.

Furthermore, while enterprise customers have the cash to spend on IT, leading to increased spending by businesses with 1,000 or more employees, things are still slower with smaller customers, Marron said.

[Related: ePlus CEO Mark Marron: COVID-19 Forcing Changes In Customer Purchasing]

“I think the sales cycle in some of the smaller customers is a little bit longer,” he said. “And I think that will stay in place until we get some resolution on COVID-19.”

Providing services has been important in helping customers, Marron said.

“Our customers are taking advantage of our remote managed services, and we have the capabilities to provide security services and support solutions to create reliable hybrid work environments,” he said. “Post-pandemic, work-from-home options are expected to be more prevalent than they were a year ago. And with that, we expect this trend to become a longer-term growth driver.”

ePlus is ranked No. 35 on the CRN 2020 Solution Provider 500.

A number of factors contributed to ePlus’ financially successful third fiscal quarter 2021, which ended Dec. 31, Marron said.

Key to that success was the solution provider’s diversified business model, which includes a technology solutions business and a financial business, he said.

“Our third-quarter financial performance speaks to the strength and resilience of our diversified business model and the success we are seeing from our longer-term strategic focus on cloud, security, collaboration and related service offerings, all areas that have increased in importance and relevance in today’s business environment,” he said. “Our financing segment continues to provide a unique differentiator in the market and is helping to drive technology sales.”

ePlus has a diversified customer base and during the third fiscal quarter saw specific areas of strength from its large enterprise and upper midmarket customers, Marron said.

Services remains a growth area, especially annuity-quality managed services, Marron said. This was true for the third fiscal quarter despite the challenges from the pandemic, which limited on-site customer access for the company’s professional services and staffing, he said.

During the third fiscal quarter, ePlus acquired Rochester, N.Y.-based Systems Management Planning, which Marron said expanded its geographic footprint in upstate New York and the Northeast. Marron said Systems Management Planning is expected to add between $85 million and $100 million in annual adjusted gross billings to ePlus.

“[Systems Management Planning] builds on our collaboration expertise, staffing solutions and our remote management capabilities while adding to our growing base of enterprise and SLED customers,” he said. “We continue to evaluate synergistic acquisitions like [Systems Management Plannning] to broaden our geographic footprint and add offerings in high-quality professional staff.”

The acquisition closed Dec. 31 and was officially announced Jan. 4. ePlus Wednesday said that for the acquisition, the preliminary consideration transferred was $27.1 million and that the company incurred about $233,000 in acquisition-related expenses during the third fiscal quarter. ePlus is expecting Systems Management Planning to contribute between $85 million and $100 million in adjusted gross billings over the next 12 months.

While ePlus saw growth in its technology and services segments, the solution provider’s financing segment saw revenue decline 34.5 percent over the third fiscal quarter of 2020. Marron said the comparison was a tough one, however, given that the company has several large short-term transactions.

“We have long noted that our financing segment generates lumpy financial results, and we remain positive about the financing business,” he said.

The financing side of the business remains important to ePlus’ overall business, Marron said.

“Financing gives customers the ability to purchase or upgrade technology even with constrained budgets or cash flow, and our ability to provide flexible financing options can facilitate our technology business and is a competitive differentiator in the market,” he said.

ePlus had 1,586 employees at the end of December, including the 102 employees who came with the Systems Management Planning acquisition. This compared with a total of 1,602 employees at the end of 2019.

Marron said in response to a financial analyst’s question that ePlus will continue to realign its resources, and in particular its head count, based on what’s happening in the market.

“[It will be] based on what our customers are looking for, whatever challenges they have, whether it’s work-from-home, returning to work, cloud-related, security-related—we’re going to continually adjust and realign,” he said. “And we’re going to invest in the areas with the most margin growth, if you will, but also what our customers are expecting from ePlus.”

For its fiscal third quarter of 2021, ePlus reported consolidated net sales of $427.6 million, a decline of 0.3 percent over last year, which the company said was due primarily to the performance of its financing segment, where revenue fell 34.5 percent year over year to $12 million.

However, ePlus’ technology segment revenue rose 1.2 percent over last year to $415.6 million, with product revenue up 0.9 percent and services revenue up 3.3 percent.

ePlus’ largest end-user customer markets are telecom and media and entertainment, which account for 23 percent of revenue, and technology, which accounts for 18 percent of revenue, said Elaine Marion, ePlus’ CFO. State government accounted for 16 percent, local government 14 percent, and health care and financial services 13 percent, she said. The percentages were based on 12-month trailing trends, she said.

For the quarter, ePlus reported GAAP net earnings of $21.6 million, or $1.62 per share, up from last year’s $19.6 million, or $1.47 per share. On a non-GAAP basis, ePlus reported net earnings of $23.9 million, or $1.79 per share, up from last year’s $21.9 million, or $1.64 per share.