PCM CEO Upbeat As Company Continues Its Push For Higher Margin Services

El Segundo, Calif.-based PCM, formerly known as the hardware-focused reseller PC Mall, has gone far in its transformation to a high-value services and solutions provider, according to its Chairman and CEO Frank Khulusi.

PCM has transformed from the hardware reseller formerly known as PC Mall to a more high-value company, Khulusi said. The company became known as PCM in 2013.

[Related: PCM Claims En Pointe Overstated Profits, Stock Drops After Allegations Revealed]

The results of that transformation have been positive, Khulusi said. PCM saw gross margins grow to 15 percent for the first nine months of 2017. "[This is] among the best-in-class of our peers, and underscores the success of our strategy," he said.

In 2017, PCM entered the second phase of its transformation which is global and centered around cloud, security, and transformational consulting, Khulusi said. For instance, PCM just completed its Cisco Master Security specialization as a way to bring advanced security solutions to clients, he said.

"These investments are expanding the platform for our future growth, and are necessary for the long-term success of our business. To that end, we are aligning our resources that are important to our clients' businesses, such as the expansion of our U.K. segment, including the acquisition of the Stack Group at the end of September, and the recent hiring of many sales representatives that became available due to the insolvency of a U.K. competitor," Khulusi said.

PCM on Monday reported revenue for its third fiscal quarter of 2017, ended September 30, of $545.5 million, down about 7 percent from the $584.9 million the company reported in the year-ago quarter.

Software represented 29 percent of the company's gross billed revenue and grew 5 percent. The company reported an 8 percent growth in services revenue to $40.2 million.

PCM reported a net loss for the quarter of $841,000, or $0.07 a share on a GAAP basis. On a non-GAAP basis, net income was $4.3 million, or $0.34 a share.

Khulusi said the revenue drop included the "non-consolidation" of part of the sales to what he called the NCE (non-controlled entity) business.

That NCE business, which stems from a 49-percent passive equity interest in a minority-owned and woman-owned business which holds some contracts related to PCM's 2015 acquisition of En Point, caused a reduction of $30.9 million, or 5 percent of revenue, Khulusi said.

PCM in May claimed in court filings that it wouldn't have carried out its April 2015 acquisition of En Pointe if it had known the solution provider's true financial situation.

PCM revenue was also reduced by at least 3 percent due to the unanticipated results of two major hurricanes. When responding to analyst questions about the impact from Hurricane Harvey and Hurricane Irma, Khulusi said some sales were delayed by the hurricanes, while others were likely lost. "We have worked hard to optimize our core business and cost structure through targeted initiatives that should provide productivity improvements beginning in the fourth quarter, and continuing into 2018," PCM President Robert (Jay) Miley said.

"Together with our investments in cloud migration, security, managed services and software, the net result will be a transformed business model that we expect will be primed for long-term profitable and sustainable growth," Miley said.

Khulusi said PCM expects fourth fiscal quarter 2018 to show adjusted earnings per share of $0.55 to $0.61, which he said assumes flat revenue growth and gross margins of 14.25 percent to 14.75 percent.