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

‘We believe that, after investing in cloud, networking, and security upgrades as a result of the early COVID-19 remote workforce initiatives, many customers turn to upgrading their end-user devices, which are typically sold at lower margins and require less services,’ says Mark Marron, ePlus CEO.

ePlus’ second fiscal quarter 2021 featured strong execution in a challenging business environment due in large part to the COVID-19 coronavirus pandemic, said CEO Mark Marron.

Marron, speaking to analysts late Wednesday during the Herndon, Va.-based solution provider’s quarterly financial conference call, said during his prepared remarks that ePlus’ team continues to operate effectively and support customers with the products and services they require for remote and hybrid workforces.

“We have continuously adjusted our go-to-market plans and services delivery models to meet the challenges of the current environment. ... And we have the engineering and vendor credentials to pivot and adjust to changing requirements in the most relevant areas, such as cloud, security, digital transformation, and collaboration,” he said.

[Related: ePlus CEO Mark Marron: Solution Providers Key To Helping Customers ‘Navigate The Next’]

During its second fiscal quarter, ePlus saw increases in both its product sales and services revenue over last year, Marron said. The solution provider also saw year-on-year growth in services during the quarter of 2.8 percent, he said. However, the company saw an impact on its professional and staffing services as the COVID-19 pandemic limits access to customer facilities and can slow down projects, he said.

An increase during the quarter for product sales to enterprise customers put pressure on ePlus’ margins, Marron said.

“We believe that, after investing in cloud, networking, and security upgrades as a result of the early COVID-19 remote workforce initiatives, many customers turn to upgrading their end-user devices, which are typically sold at lower margins and require less services,” he said. “In addition, there was a very strong demand in the state, local, and education space for these types of products.”

ePlus saw its operating expenses and other costs fall 4.2 percent over the prior quarter mainly because of reduced travel, entertainment, and marketing expenses because of the pandemic, Marron said.

“While we expect some of the cost to return once the pandemic passes, we continue to seek to optimize costs by taking additional actions, including reducing our facilities costs,” he said.

Marron, responding to an analyst question, said that the company’s managed services and enhanced maintenance services did well during the second fiscal quarter, and was a key factor in keeping services relatively flat.

“We did see where there were some projects where customers were just buying products in some of the enterprise accounts,” he said. “And we also saw some of the what I‘d call ‘project services’ and staffing was actually down year-over-year, mainly due to not being able to get on site at our customer sites.”

However, Marron said, ePlus has not had to decrease its services pricing.

“If you‘re providing the right value from a consultative and annuity, the customers are willing to pay for it because they need the service,” he said. “So, haven’t seen anything dramatically related to any kind of what I’d call price reductions in that space.”

Marron, responding to an analyst question, said ePlus saw increased demand for commodity hardware devices during the second fiscal quarter due to the COVID-19 coronavirus pandemic.

“We moved away from the commodity play years ago and kind of try to move towards further value-add with the services and higher-end kind of value products,” he said. “With that said, in the new market that we‘re in with COVID, we’ve had some of our bigger customers looking for some serious laptop orders that we’ve been able to fulfill, as you know, at lower margins. With that said, though, we’re still fulfilling infrastructure needs for our customers, so as they’re building up their devices and working from home, we’re building out their infrastructure. We’re supporting a lot of customers’ move to the cloud. And then, we’re seeing a lot in the collaboration and security space as well. So it’s kind of across the board what we’re seeing there.”

Customers’ budget priorities are also changing because of the pandemic, particularly in terms of accelerating digital transformation, Marron said.

“If you think of what we‘re going through with COVID and how hard it is to predict and all the uncertainty there, then you throw in the election and not knowing what’s going to happen with the HEROES (Health and Economic Recovery Omnibus Emergency Solution) Act or the stimulus, which could help with some of the spending and some of the verticals that we play in, it’s kind of tough to predict,” he said. “We are seeing that the enterprise seems to have the budget to be able to make the purchases they need to make. And others, it’s on a case-by-case basis. But we are seeing some budgets being extended and some sales cycle being extended due to COVID.”

When another analyst asked about how the COVID-19 coronavirus pandemic is impacting mergers and acquisitions, Marron said that the opportunities in this area have not really slowed down.

“Where it gets tougher is, normally, you‘d go and do your due diligence on site, and with COVID, with all the regulations across state lines, it makes it a little bit more difficult and probably extends the timeline in doing M&A, based on having to do a lot of it virtual versus face-to-face,” he said. “And then, also, understanding [that] when you’re acquiring a company, you kind of want to sit across from the people and get to know them and have them get to know you to feel good. So some of that has obviously slowed down due to COVID.”

Elaine Marron, chief financial officer of ePlus, said during her prepared remarks that the solution provider’s consolidated head count at the end of September 2020 was 1,497, which was down 8.1 percent compared to last year’s 1,629 employees, and down 2.5 percent compared to the first fiscal quarter.

“Most of our employees continue to work from home, except for certain roles in our configuration centers, those on-site at our customer locations, and those who have voluntarily returned to our headquarters,” Elaine Marron said.

When asked about the headcount reduction, Mark Marron said ePlus is realigning resources as customers focus on security and the cloud.

“We‘ve made some decisions with underperformers ... and through attrition where we haven’t backfilled,” he said. “So we’ve been able to pare back the headcount that way, in a logical way. We’ve made the commitment to our employees that we’re keeping everybody and doing everything in our power, but we’re still going to continue to manage to the business. The other thing is we do have recs open, so there are hires that we want to make.”

For its second fiscal quarter 2020, ePlus reported total sales of $433.1 million, up 5.2 percent from the $411.6 million the company reported in the second fiscal quarter 2020. This included product revenue of $369.9 million, up 5.8 percent, service revenue of $49.4 million, up 2.8 percent, and financing revenue of $13.7 percent, down 9 percent.

For the quarter, GAAP net earnings reached $19.8 million, or $1.48 per share, down slightly from the $20.1 million, or $1.51 per share the company posted in second fiscal quarter 2019. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $44.6 million, down from last year’s $35.4 million.