National solution provider ePlus found a growing managed services business combined with a focus on high-value offerings such as security are keys to building a better business, as evidenced by the company’s third fiscal quarter 2022.
ePlus’ performance in the quarter highlights a combination of resilient IT spending by customers and the successful execution of its growth strategy to capture share in midmarket, enterprise, and public sectors, said Mark Marron, president and CEO of the Herndon, Va.-based solution provider.
Customer demand was broad-based during the quarter, with growth across all customer size segments and nearly all end markets, Marron said Thursday in his prepared remarks during the company’s quarterly financial analyst conference call.
“Our higher-than market-growth rates, despite continuing supply chain challenges, demonstrate that our strategy to drive consultative, advisory, and managed services; security; and hybrid cloud solutions is delivering what our customers demand today,” he said. “We are confident that ePlus remains well-positioned for the future with a strong balance sheet, deep engineering expertise, and unique value-added financing alternatives.”
During the quarter, ePlus’ services revenue rose 20 percent for both the third quarter and year-to-date, Marron said.https://0ddd00c34f10e1d344defc5874288422.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
“[This reflects] not only increased project-based professional services, but a continuing increase in managed services annuity-type bookings which creates value and sticky customer relationships, strengthening the ties we have with our customers, as well as driving more predictable future revenue and gross profit profile. … As our service revenue scales, it increases as a percentage of our total revenue,” he said.
Security continues to be a bigger part of ePlus’ business, and now accounts for about 20 percent of adjusted gross billings on a trailing 12-month basis, Marron said.
“Customers are dealing with new regulations, ransomware concerns, and post-incident response, cybersecurity insurance requirements, and staffing shortages,” he said. “We have built programs to help organizations develop and manage proper implementation of their security programs, which may be as simple as providing a gap analysis along with a deliverable roadmap to more extensive solutions that provide full-time CISO (chief information security officer) resource with key deliverables associated with each functional area.”
ePlus, which ranked No. 36 on CRN’s 2021 Solution Provider 500, also continues to see growing custom demand for its consultative and advisory services, which in turn has helped increase gross margins from services, Marron said.
ePlus is supporting customers’ new adaptable business models to help them modernize legacy applications and business processes, and either modernizing their data centers or moving to hybrid cloud environment, Marron said.
“At the same time, our financing segment provides unique differentiation from a competitive standpoint,” he said. “As IT initiatives grow and scope and complexity, our financing capabilities offer customers additional flexibility as they manage tighter capital IT budgets and spending plans.”
ePlus’ balance sheet gives the company the ability to make targeted acquisitions, Marron said. “[But] we will continue to be disciplined in our approach to acquisitions.
Supply chain constraints are likely to remain a headwind throughout calendar 2022, Marron said.
“We continue to work in close partnership with our vendors and customers to navigate these issues, which in some cases require us to hold ordered inventory in advance of large customer deployments,” he said. “This dynamic, coupled with continued strong customer demand for IT equipment, has led to heightened inventory levels that we expect will diminish as supply chain constraints ease and customer projects are completed.”
During the question and answer period of the conference call, when asked about the impact of supply constraints, Marron said ePlus tries to not leave revenue on the table despite those constraints.
“I think demand is obviously outpacing supply,” he said. “I think there are obviously constraints. Lead times are changing. … But we’ve been lucky enough. The team has done a really nice job of working with both our vendor partners and our customers on setting expectations. So I think there may be some that leak over from Q3 to Q4, and then Q4 to Q1, but I don’t think it’s anything material, or it hasn’t been material at this point. And I‘m not expecting it to be material in Q4 at this point.”
When asked by an analyst about the challenges around staffing shortages, Marron said that attrition is up somewhat over previous years.
“I think it is a competitive market, both for new hires as well as for people that may potentially leave,” he said. “And with labor costs heading up, I do think it’s a little more expensive with replacement terms or new hires. So it is a little bit challenging at this point.”
For its third fiscal quarter 2022, which ended December 31, ePlus reported revenue of $494.8 million, up 15.7 percent from the $427.6 million the company reported for its third fiscal quarter 2021.
That included product revenue of $432.3 million, up from $375.5 million, and service revenue of $62.5 million, up from $52.1 million.
Total revenue beat analysts expectations by $41 million, according to Seeking Alpha.
ePlus reported net earnings of $26.4 million, or 98 cents per share on a GAAP basis, up from last year’s $21.6 million, or 81 cents per share.
On a non-GAAP basis, the company reported net earnings of $29.7 million, or $1.10 per share, up from last year’s $23.9 million, or 89 cents per share. That $1.10 per share was 11 cents higher than analyst expectations, according to Seeking Alpha.
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