ScanSource To Lay Off 200, Shutter Salesforce Deployment Unit Due To COVID-19

‘COVID has impacted our business in a dramatic way. And we‘ve continued to see a decline in revenue, which puts pressure on profitability. And so our basic message today is, we have to right-size the business. We have to match the spending to match the revenue,’ says ScanSource Chairman and CEO Mike Baur.

ScanSource on Thursday said that it is looking to cut 200 jobs as part of a $30 million expense reduction program as the COVID-19 pandemic continues to impact the distributor‘s business, particularly in the premise communications market.

The Greenville, S.C.-based distributor also said it would exit its Canpango Salesforce deployment business.

The company reported preliminary fourth fiscal quarter 2020 financials, saying that it expected GAAP net sales for the quarter of about $758 million, down about 21 percent over the same period of last year.

Non-GAAP net sales, which excludes its divestitures from its Canpango-branded Salesforce deployment services business, are expected to be about $636 million, down 19 percent over last year.

[Related: CRN Exclusive: ScanSource CEO Baur Says Channel Sales Force Reorganization Needs More Time]

This comes despite an expected 15-percent year-over-year rise in sales from its Intelisys telecom and cloud master agent business.

ScanSource Chairman and CEO Mike Baur told CRN in an exclusive interview that his company had warned about potential impacts of the COVID-19 coronavirus pandemic in May, noting that its sales this past April fell 22 percent compared to April 2019.

“We followed that call and started talking with customers about how the business is going, and as you can imagine, the channel has seen a significant impact,” Baur said. ”Our channel is not unique. COVID has impacted our business in a dramatic way. And we‘ve continued to see a decline in revenue, which puts pressure on profitability. And so our basic message today is, we have to right-size the business. We have to match the spending to match the revenue.”

The biggest impact to ScanSource from the pandemic is the distributor‘s decision to close its Canpango business. ScanSource in 2018 acquired Canpango, which provided deployment services to Salesforce customers.

John Eldh, ScanSource‘s senior executive vice president and chief revenue officer, told CRN that ScanSource expected better synergies and alignment with its Intelisys agents and a full solution between Salesforce and UCaaS and CCaaS offers.

“But we never got the lift that we thought we would,” Eldh said. ”And as a result, we never achieved profitability. So our key focus right now is to wind the business down, and when we say wind it down, we mean close it. The first priority is to take good care of customers that we are working with, that we have projects to complete. We‘re in the process of completing the projects. We’re keeping a small part of the team to do that.”

Going forward, ScanSource will bring Salesforce deployment services to its channel partners via third-party services, Eldh said.

“The offer to help our agents and our VARs is still there,” he said. ”We‘ll just do it through third parties. We’ll just essentially rent the services as we need them rather than own them.”

As a result of all the COVID-19 coronavirus impacts, ScanSource is laying off about 200 of 2,700 people worldwide, particularly in relation to the distributor‘s premise communications business, Baur said.

“With COVID, and with people working from home, office workers don‘t need a premise system,” he said. ”And so we continue to see a decline there. So we’ve continued to look at what investment in headcount can we either reallocate from that part of our business that wasn’t growing, or actually reduce headcount, because we cannot keep people employed in a business that’s continued to decline like the premise-based phone business has.”

Apart from the premises communications business, ScanSource also saw COVID-19-related impacts to its retail, hospitality, and restaurant businesses, where the distributor primarily works with solution providers servicing SMBs, Baur said.

“Think about all those small businesses that could not re-open, or re-opened partially,” he said. ”They‘re not buying technology unless it was to help with things like mobile ordering or curbside pickup. So we saw some offsets, but for sure the retail, hospitality, and lodging part of our business was hard-hit.”

Eldh said the drop in business was partially offset by growth in the physical security and work from home business.

“Also, things like healthcare, the grocery space, mobile technology, mobile scanners, barcode systems are a big growth area as people move towards contactless, order-on-line methods of buying things,” Eldh said.

Cloud-related businesses are also seeing growth, Eldh said.

“Things like UCaaS (unified communications as a service) and CCaaS (contact center as a service), the growth rates are just going through the roof,” he said. ”We are also finding that value-added deployment services are becoming a bigger and bigger growth area for us in areas like phone provisioning or complementary services for ISVs. And the last thing is emerging technologies, areas where we can help our partners help their customers with the impact from COVID. Things like thermal imaging cameras.”

The pandemic could result in further impacts to the IT business in general, Baur said

“We need to make sure that we can still bring our investors a profitable business and profitable results, and also provide opportunities for growth for our employees,” he said. ”So we believe the reduction from COVID is not over. We believe that we have multiple quarters to go.”