‘Our Strategy Is Working’: ePlus Touts Annuity Services, Backlog In Q4

‘Whether it‘s private, public, or hybrid cloud, data center, cybersecurity, or managed services, our expanded breadth of integrated services and solutions is resonating with our customers who increasingly seek to partner with a skilled IT service partner to achieve their business objectives and maximize their return on investment,’ says ePlus CEO, President, and Director Mark Marron.

Managed services and recurring revenue along with a burgeoning financing business are increasingly feeding growth at ePlus.

ePlus CEO, President, and Director Mark Marron Wednesday told analysts in his prepared remarks during the Herndon, Va.-based solution provider’s fiscal year 2022 financial analyst conference call that the fourth fiscal quarter and full year results shows the strength of ePlus’ differentiated business model that combines its successful technology services and financing and its strategic focus on capturing emerging high-growth opportunities in fast-moving markets.

“In short, our strategy is working, and ePlus is gaining market share as evidenced by our results in the fourth quarter and for our fiscal year,” Marron said.

[Related: ePlus Reports Strong Growth Despite Supply Chain, Staffing Constraints]

A big highlight of the quarter was the further expansion of ePlus’ annuity quality revenue resulting from broad gains in managed services, help desk services, and staffing driven in part by the IT talent shortage, Marron said.

As customers optimize their IT spend via outsourced services to manage day-to-day IT operations, ePlus has the right mix of best-in-class services to capitalize on this favorable long-term trend,” he said.

“Whether it‘s private, public, or hybrid cloud, data center, cybersecurity, or managed services, our expanded breadth of integrated services and solutions is resonating with our customers who increasingly seek to partner with a skilled IT service partner to achieve their business objectives and maximize their return on investment,” he said.

That resulted, he said, in a 19-percent growth in services business sales in fiscal 2022, particularly in recurring long-term services, such as managed help desk and staffing as compared to project-driven services, he said.

“This is a positive trend as annuity quality services tend to have higher margins and more predictable financial performance,” he said.

ePlus’ service business growth also reflects the solution provider’s expanded capabilities focused on critical IT functions such as cloud-hosted services, security, and network monitoring that are often too complex and costly to manage internally, Marron said.

“As organizations and enterprises increasingly outsource these and other IT functions, it will favorably impact our financial results by enhancing both our top line growth and our profitability given the higher margins associated with these services,” he said.

Fiscal year 2022 saw the IT spending gain momentum as the economy recovered and customers returned to a more normalized work environment, and that increase should continue into fiscal 2023, Marron said.

“We expect this trend to continue into this year as well, spurred by our customers‘ digital transformation initiatives and growing need to support more adaptable business models,” he said. “I am encouraged by the strength of our open orders and backlog, which reflect the continued high level of demand for our products, services and solutions that will drive growth in fiscal 2023.”

Unfortunately, that growth is impacted by extended lead times due to tight supply chains and product availability, Marron said.

“As a result, while we anticipate solid top line growth in fiscal 2023, we expect that time lines for IT project implementations will be extended, creating revenue headwinds as we move throughout the year,” he said.

When asked by an analyst what customers are saying about lead time, Marron said customers are asking about lead times based on the different solutions being suggested or provided.

“I think our team, the ePlus team, has done a really nice job of setting expectations with those customers and then working with the different OEMs to get the products and solutions where services are included out the door in a timely fashion. ... I think this is going to go through at least the end of this year, if not longer. So customers are, I guess, I don‘t want to say aware of it and dealing with it, but that’s probably the best way to say it at this point.”

In his prepared remarks, Marron also said ePlus continues to evaluate a range of potential acquisition targets to enhance growth and geographic presence.

“Our focus remains primarily on bolt-on acquisition opportunities in high-growth market segments,” he said. “Our strong balance sheet supports our ongoing M&A efforts, and our newly expanded credit facility provides additional liquidity and flexibility that we can draw on as needed.”

When asked by an analyst about the IT talent shortage, Marron said ePlus is seeing some real nice staffing opportunities where it is placing multiple people for long-term projects with our customers.

“So the demand is nice and the [talent shortage] does affect us,” he said. “Our margins were down a little bit, and that‘s really just a short term thing as it relates to services in terms of adjusting our bill rates and things like that. So it affected our margins a little bit this quarter. I don’t see that as a long-term thing, but the demand is there.

When asked for details on supply and demand and impact of supply issues, Marron said that while server and storage supplies for the most part are fine, the industry continues to see supply issues with wireless products, security appliances, and especially networking gear.

“I think some of that is pent-up demand in terms of customers as they return to work in these hybrid work models and they need networking and connectivity and security and things like that,” he said. “The hesitancy, if that‘s the right way to say it, as it relates to the supply chain is, I think you’ll hear from all the OEMs and our peers that everybody is just nervous that it hasn‘t lessened. You still got Ukraine-Russia war going on, you’ve got the China lockdown. So there‘s just a lot of variables that are beyond our control.”

For its fourth fiscal quarter 2022, which ended March 31, ePlus reported sales of $451.5 million, up 57 percent from the $352.6 million the company reported for its fourth fiscal quarter 2021.

That includes $389.9 million in product revenue, up from $299.8 million, and services revenue of $62.6 million, up from $52.9 million.

The company also reported GAAP net earnings of $24.2 million or 91 cents per share, up from last year’s $15.6 million or 58 cents per share. On a non-GAAP basis, the company reported net earnings of $27.1 million or $1.01 per share, up from last year’s $19.0 million or 71 cents per share.

For all of fiscal 2022, ePlus reported revenue of $1.8 billion, up about 12.5 percent over the $1.6 billion the company reported for 2021. This included product revenue of $1.6 billion, up from $1.4 billion, and services revenue of $240.6 million, up from $202.2 million.

Net earnings on a GAAP basis for the year were reported as $105.6 million or $3.93 per share, up from last year’s $77.4 million or $2.77 per share. On a non-GAAP basis, ePlus reported net earnings of $118 million or $4.39 per share, up from last year’s $85.6 million or $3.19 per share.