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Microsoft No Drag On En Pointe's Surging Sales, Profits
En Pointe experienced stratospheric sales and profit growth before being acquired by PCM, despite fee cutbacks and increased competition in Microsoft's top partner program.
The Gardena, Calif.-based company, No. 42 on the 2014 CRN Solution Provider 500, nearly tripled its net earnings for two years running and delivered revenue growth well over 20 percent in 2014. That's according to three years of newly released financial documents filed with the U.S. Securities and Exchange Commission on Wednesday as a condition of PCM's purchase of En Pointe in March.
"Our business is on fire," former En Pointe CEO Bob Din told CRN in January. "Every facet of our Microsoft business is growing like crazy. We're winning business in all areas, including solution sales and professional services."
The financial figures -- which weren't available until now since En Pointe was private -- back Din up. En Pointe's services sales grew by more than 14 percent, to $17 million, in 2014, though services still made up less than 4 percent of the solution provider's overall revenue.
Though En Pointe did not provide specific Microsoft sales figures, the solution provider said its three largest vendors accounted for 60 percent of total product purchases in 2014. En Pointe was one of Microsoft's largest Office 365 partners and one of just 15 Licensing Solution Providers (LSPs), which are the only Microsoft partners authorized to handle software volume licensing transactions.
Los Angeles County picked En Pointe in June 2014 to implement more than 100,000 Office 365 seats, a deal worth $72 million in licensing revenue alone. The solution provider is also one of just a handful of partners Microsoft allows to sell Surface tablet/PC hybrids.
The solution provider's rise in net earnings -- profits grew from $774,000 in 2012 to $2.23 million in 2013 to $6 million in 2014 -- stands in stark contrast to another one of Microsoft's top LSP partners, Insight Enterprises.
Tempe, Ariz.-based Insight, No. 13 on the 2015 CRN SP 500, took an $11 million to $14 million hit in gross profits in 2014 and is expecting a $5 million to $10 million hit in 2015 from cuts to Microsoft's cloud sales commissions and Office 365 incentive fees.
LSPs used to have the volume licensing market to themselves, partners told CRN in January, but Microsoft has consistently been cutting their fees in recent years. The vendor has also allowed members of its Cloud Solution Provider program to sell cloud software to customers and handle other matters that used to be the sole domain of LSPs.
PCM, No. 29 on the 2015 CRN SP 500, paid just $15 million upfront for En Pointe, even though the company's 2014 sales topped $392 million. But PCM will also pay En Pointe 22.5 percent of future adjusted gross profit and 10 percent of certain service revenue for the next three years. En Pointe is operating as an indirect subsidiary of PCM and has maintained its own brand identity since closing in early April.
The deal should give PCM a much-needed shot in the arm. Profits for the El Segundo, Calif.-based solution provider in the 2014 fiscal year lagged behind En Pointe by more than $500,000, despite its having a revenue base nearly 3.5 times En Pointe's size.
The difference was even more visible in the first quarter of fiscal 2015: En Pointe made $1.1 million, while PCM lost $3.6 million. And while En Pointe delivered sales growth of 22.1 percent in 2014, PCM's sales actually fell by 0.3 percent, to $1.36 billion.
PCM, however, has a head start on En Pointe when it comes to services revenue -- the solution provider had 8.6 percent of its 2014 revenue coming from delivered services and an additional 6.1 percent coming from manufacturer service and warranty. The company didn't return a call or email for comment Thursday.
PCM is also a Microsoft LSP, even though its largest vendors in 2014 were Hewlett-Packard and Apple, which represented, respectively, 18 percent and 15 percent of PCM's 2014 sales.
Sources told CRN in November that Microsoft was looking to reduce its number of U.S. LSPs from 15 to six by the end of this month as the Redmond, Wash.-based vendor looks to put greater emphasis on cloud, mobility and services sales.
CRN reported in November that Microsoft was considering revoking CompuCom's LSP status because the Dallas-based company wasn't meeting revenue targets or investing enough in technical certifications.
Recent acquisitions have culled the LSP ranks. CompuCom on March 16 sold its Microsoft software business, contract management and software portfolio services to Waukesha, Wis.-based SoftwareONE, which was already a Microsoft LSP. And PCM's acquisition of En Pointe -- which was announced just a few hours later on the same day -- brought together another two Microsoft LSPs.
PUBLISHED JUNE 18, 2015