ePlus sees strong growth despite supply chain and workforce constraints
National solutions provider ePlus discovered that a growing managed services business combined with a focus on high value offerings such as security are key to building a better business, as evidenced by the company’s third fiscal quarter 2022. ‘business.
ePlus’ performance in the quarter highlights a combination of resilient IT spending by customers and the successful execution of its growth strategy to capture market share in the mid-market, enterprise and public sectors , said Mark Marron, president and CEO of the Herndon, Va.-based company. solution provider.
Customer demand was broad-based in the quarter, with growth across all customer size segments and nearly all end markets, Marron said Thursday in prepared remarks on the company’s quarterly financial analysts conference call. company.
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“Our above-market growth rates, despite ongoing supply chain challenges, demonstrate that our strategy to drive consulting, advisory and managed services; Security; and hybrid cloud solutions meet current demand from our customers,” 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’ service revenue grew 20% for the third quarter and year-to-date, Marron said.
“[This reflects] not only an increase in project-based professional services, but a continued increase in annuity-type bookings of managed services that create value and lasting client relationships, strengthening the bonds we have with our clients, as well as future revenue and a more predictable gross profit profile. … As our service revenues increase, they increase as a percentage of our total revenues,” he said.
Security continues to be a larger part of ePlus’ business and now accounts for about 20% of adjusted gross billings on a 12-month basis, Marron said.
“Customers are facing new regulations, ransomware issues and post-incident response, cybersecurity assurance requirements and staffing shortages,” he said. “We have programs in place to help organizations develop and manage the correct implementation of their security programs, which can be as simple as providing a gap analysis along with a deliverable roadmap to more comprehensive solutions that provide a full-time CISO (Chief Information Security) resource. with key deliverables associated with each functional area.
ePlus, which ranked No. 36 on CRN’s 2021 Solution Provider 500 rankings, also continues to see growing personalized demand for its consulting and advisory services, which in turn has helped boost gross margins. services, Marron said.
ePlus supports customers’ new, adaptable business models to help them modernize legacy applications and business processes, and either modernize their data centers or transition to a hybrid cloud environment, Marron said.
“At the same time, our financing segment offers unique differentiation from a competitive perspective,” he said. “As IT initiatives grow, expand and become more complex, our financing capabilities provide customers with additional flexibility when managing tighter IT budgets and spending plans.”
ePlus’ track record gives the company room to make targeted acquisitions, Marron said. “[But] we will continue to be disciplined in our approach to acquisitions.
Supply chain constraints will likely remain a headwind throughout the 2022 calendar, Marron said.
“We continue to work closely with our vendors and customers to resolve these issues, which in some cases require us to hold stock ordered ahead of large customer deployments,” he said. “This momentum, coupled with continued strong customer demand for IT equipment, has resulted in increased inventory levels which we believe will decline as supply chain constraints ease and business projects customers will be completed.”
During the conference call’s question and answer period, when asked about the impact of supply constraints, Marron said ePlus is trying not to leave revenue on the table despite these constraints.
“I think demand obviously outstrips supply,” he said. “I think there are obviously constraints. Deadlines change. … But we were lucky. The team has done a great job working with our vendor partners and customers to set expectations. So I think there may be leaks from Q3 to Q4 and then from Q4 to Q1, but I don’t think that’s anything significant, or that it hasn’t been significant at this point. And I don’t expect that to matter in the fourth quarter at this point.
Asked by an analyst about challenges with staffing shortages, Marron said attrition has increased somewhat from previous years.
“I think it’s a competitive market, both for new hires and for people who are likely to leave,” he said. “And with labor costs going up, I think it’s a bit more expensive with replacement terms or new hires. So it’s a bit difficult at this point.
For its fiscal 2022 third quarter, which ended Dec. 31, ePlus reported revenue of $494.8 million, up 15.7% from the $427.6 million reported by the company for its third fiscal quarter of 2021.
This included product revenue of $432.3 million, down from $375.5 million, and service revenue of $62.5 million, down from $52.1 million.
Total revenue exceeded analysts’ expectations of $41 million, according to Seeking Alpha.
ePlus reported net income of $26.4 million, or 98 cents per share on a GAAP basis, up from $21.6 million a year ago, or 81 cents per share.
On a non-GAAP basis, the company reported net income of $29.7 million, or $1.10 per share, compared with $23.9 million a year ago, or 89 cents per share. That $1.10 per share was 11 cents above analysts’ expectations, according to Seeking Alpha.
ePlus did not provide guidance for its fourth fiscal quarter of 2022.