ePlus CEO Says He’s Confident Firm Will Weather The COVID-19 Storm

But Mark Marron, ePlus president and CEO says ‘some headwinds’ are inevitable as ‘our customers determine their IT spending plans in the post-COVID-19 environment.’

National IT solution provider ePlus is well-positioned to forge its way through the COVID-19 pandemic as it focuses on leading-edge technologies, even as the company took a “modest” sales hit from the global crisis, President and CEO Mark Marron said.

"We do expect some headwinds as our customers determine their IT spending plans in the post-COVID-19 environment," said Marron, president and CEO of the Herndon, Va.-based firm, Thursday during the company’s fourth quarter earnings call. "But we are confident that our focus on the right solution sets and customer segments, along with our dedicated staff, will enable us to weather the storm and remain a key partner to our customers."

Marron said COVID-19 had a “modest impact” on revenue at the company: "Some non-critical orders were delayed or deferred by customer choice or supply chain constraints, but were partially offset by additional spend on investments required to support their remote workforce, transition, and related IT projects."

The company reported 13 percent year-over-year revenue growth for the quarter, which ended March 31, which reflected a modest impact from the COVID-19 coronavirus pandemic in the last few weeks of the quarter when the pandemic really took place.

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ePlus' digital infrastructure, security, cloud, and networking solutions were in high demand as clients adjusted to the COVID-19 environment, and will continue to be relevant as enterprises transition to the new normal, Marron said.

Operating in this new environment brings many challenges, Marron said.

"We will continue to adjust our solutions to meet customer and marketplace demands," he said. "For example, supporting a hybrid workforce increases and changes the security posture and cost structure for many of our customers, with more data exchanged over home networks and personal devices and in the public cloud. Our recently announced public cloud managed services solutions addresses head-on the most critical issues of cloud cost optimization, cloud security monitoring, and cloud data protection faced by our customers in this new environment.”

One area that saw high demand because of the pandemic was ePlus' consultative offerings in the security area. Marron said sales of ePlus' security products and services increased 15 percent in fiscal year 2020 compared to fiscal year 2019, accounting for about 19 percent of its adjusted gross billings.

Marron cited the example of an unnamed long-term large financial industry customer, which was able to shift 40,000 employees to work-from-home status in a short period with ePlus' help.

"By leveraging cloud and VDI technologies, [the solution] enables remote workers to access business applications, [to] be able to provision new users in any location and maintain business continuity," he said.

Services revenue, which grew about 9 percent year-over-year in the fourth quarter, did well in the face of the pandemic, Marron said.

"We continue to build out our service offerings that are in most demand including managed services, help desk, cloud, and other hosted offerings, which fulfill client needs while building out our annuity quality revenue base," he said.

Looking forward, however, there is still much uncertainty around how the pandemic will impact ePlus and the IT industry, Marron said.

"The pandemic's effect on the overall economy and IT spending is uncertain," he said. "Future IT spending will be determined in part by how quickly the country reopens and the pace of economic recovery or conversely the length of an economic downturn."

ePlus has minimal exposure to some of the hardest hit industries such as small business, retail, travel, and hospitality, while some of its customers in the technology, communications, video gaming, and healthcare may actually benefit from the pandemic, Marron said.

Elain Marion, ePlus' chief financial officer, said the company believes COVID-19 had a minimal downward effect on its fourth quarter fiscal 2020 sales.

"As this pandemic is unprecedented, we are uncertain as to how it will affect demand in fiscal 2021," Marion said. "As you are aware, we focus on innovative solutions for medium and large commercial businesses, as well as state, local, and higher education customers, and will continue to monitor and adjust for the pandemic's impact on our business."

Marron said that, while he expects drivers of demand in fiscal years 2020 including digital transformation, cloud, and security are expected to continue in the long-term, ePlus remains cautious about the economy and demand environment in the near-term.

"We believe we are well positioned and remain confident that we can adjust and adapt for the challenges in the COVID-19 year and beyond.

Marron, when asked by a financial analyst about how ePlus' business dynamics changed towards the end of the fiscal quarter, said that the solutions that ePlus has been offering for years such as digital infrastructure, cloud, and data center, were still strong during the quarter.

"Once COVID-19 hit and it became clear that everybody had to work from home, we were adjusting pretty quickly with work from home solutions as it relates to VDI, as it relates to collaboration tools, cloud, security," he said. "And we also saw a lot of customers really starting to take advantage of digital transformation."

Of the 12 weeks in the quarter, first nine to ten weeks were not impacted by the pandemic, Marron said.

"In the last few weeks, there were some adjustments with trying to get customers up to speed with their work from home solutions, taking advantage of the cloud, and trying to help them with their digital footprint. ... Our annuity services, managed services were strong both in terms of from a rev rec (revenue recognition) as well as from a billing standpoint," he said.

ePlus actually saw minimal impact in April, but given that it was only one full month into the pandemic, he warned against using it to predict future results.

"I think you know, as well as I do a lot of the analysts, some of the bigger OEMs, some of our peers are talking about declining in this quarter and beyond," he said. "So, I think, for the quarter, April held up well, and some of that's due to, I believe, some of the pipeline established as well as some of the COVID spend that customers. And then we're going to have to see as we move throughout this quarter and throughout the year where things take us."

Marron, responding to an analyst's question about ePlus' priorities going forward, said that the company will continue to look for growth from both an organic and an M&A (mergers and acquisition) perspective.

I want to be clear, though," he said. "I think the M&A market has changed a little bit. I do believe there will be consolidation, but also I think there is going to be some time between the companies that are being acquired of where there numbers are now and where they might be in the future, but it is still something we are going to consider.

When another analyst asked what ePlus' profitable leasing business might look like after the COVID-19 coronavirus pandemic, Marron said that customers looking for IT on an opex (operating expense) model will continue to be open to leasing, but only time will show the size of the impact.

"The other thing I do want to point out though that's important is you've got to watch the credit markets," he said. [And] last year was a really nice year for our finance team that had some large transactions that will be tough to replicate. That would be the big picture message, if I had, from our financing perspective."

For its fourth fiscal quarter 2020, which ended March 31, ePlus reported total revenue of $366.5 million, up 13 percent from the $325.4 million the company reported for its fourth fiscal quarter 2019. This included product revenue of $317.6 million, up from last year's $280.5 million, and services revenue of $48.9 million, up from last year's $45.0 million.

The company reported fiscal fourth quarter 2020 GAAP net earnings of $13.2 million, or 99 cents per share, down from last year's net earnings of $15.1 million, or $1.12 per share. On a non-GAAP basis, ePlus reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $23.5 million, up from last year's $19.6 million.

For all of fiscal 2020, ePlus reported revenue of $1.59 billion, up 16 percent from the $1.37 billion it reported for fiscal year 2019. This included product revenue of $1.40 billion, up from last year's $1.22 billion, and services revenue of $193.1 million, up from last year's $149.5 million.

ePlus reported GAAP net earnings for the year of $69.1 million, or $5.15 per share, up from last year's net earnings of $63.2 million, or $4.65 per share. On a non-GAAP basis, ePlus reported adjusted EBITDA of $119.4 million, up from last year's $100.4 million.