ScanSource CEO: ‘COVID Has Impacted Our Business In A Dramatic Way’

The COVID-19 coronavirus pandemic is taking its toll on ScanSource, which is laying off 200 people and winding down its Salesforce deployment services business after reporting a significant preliminary fourth quarter drop in sales, Baur tells CRN.

Bending With The Pandemic

The COVID-19 pandemic has hit ScanSource hard. So hard, in fact, that the Greenville, S.C.-based distributor this week reported preliminary fourth fiscal quarter 2020 sales on a GAAP basis are expected to fall 21 percent over the same period last year.

In response, ScanSource said it will implement a plan to cut $30 million in expenses, lay off about 200 people, and close its Canpango business, which it acquired in 2018 as a way for it to enter the Salesforce deployment services business. However, the company said its Intelisys telecom and cloud services master agent business is growing, and it will continue investing in that growth.

ScanSource Chairman and CEO Mike Baur Thursday talked with CRN about the COVID-19 pandemic and its impact on the distributor, including a breakdown of how it is affecting the different parts of ScanSource‘s business, in particular how the work-from-home push is destroying the premise communications business.

For a look at how the pandemic is impacting ScanSource, and by extension how it might impact your own business, turn the page.

In a nutshell, what's behind the $30-million expense reduction plan?

Back in May, when we last talked to our investors, we were reporting on our March quarter, and we were talking about the impact of COVID. And we said in early May that for the month of April, our business was already down then about 22 percent. 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. 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.

ScanSource is planning to let go about 200 of its 2,700 employees. Where will the biggest impacts to headcount come from?

We looked very carefully to make sure we will not impact the areas of growth of the company, and also the areas that are really customer-specific and important. One of the areas that we have been talking about for a while that has been declining is the premise communication business. With COVID, and with people working from home, office workers don‘t need a premise system. 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.

That doesn‘t mean that that’s the only area that is under pressure. If you look at our wholesale distribution business, which is our business that does not include Intelisys, we’ve made adjustments to make sure that if our business is down, as we’ve reported today, we can still bring our investors a profitable business and profitable results, and also provide opportunities for growth for our employees.

Apart from the premise communications business, what other parts of ScanSource's business were hit hard by COVID?

Some of the key areas that we have always been in, including retail, hospitality, restaurants, retailers. We‘re not into big box retail business, we’re in the SMB side. Think about all those small businesses that could not re-open, or re-opened partially. 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.

Secondly, the manufacturing business has been hard-hit in many areas. Our VARs sell into all parts of manufacturing and distribution. So it was across many of our segments.

But the opposite is, we have areas in our hardware business that believe can still grow.

With the other cuts going on, why is ScanSource investing in its Intelisys master agent business?

Intelisys is still a strategic growth opportunity for ScanSource. [In four years now], what we have learned is that, if we add more people, in this case more channel managers, we can do a great job of attracting, recruiting, managing, developing, and then on-boarding partners. And we have continued to see VARs are very interested in developing a recurring revenue stream of business, even more so now with COVID. We were appointed a Zoom distributor earlier this year, so we have the best line card of suppliers in cloud, in carrier, SD-WAN, you name it. We have a tremendous opportunity for VARs to move into recurring revenue through our Intelisys business mode. So we‘re going to add more channel managers to do that.

Anything else?

We made an investment a couple years ago in a tool called RPM, which is the industry-leading commission payment tool. We believe this gives us a significant advantage, and more importantly our agents. Our agents have told us we have the most accurate payments of commissions, and we are the most timely in paying commissions. And if you‘re an agent, you don’t bill the end user. You depend on your master agent to send you a check every month. And we lead the industry in providing that service.

Having RPM is an advantage, but also we need a strong back-office team because we have to do a lot of research when suppliers don‘t pay like they’re supposed to. Sometimes they make mistakes. And we’ve learned that, if we have a strong back-office team, which again means people, we can satisfy our agent and our VAR customers.

So we‘re pleased to be able to continue to invest, even during COVID. And even with other parts of our business down 20 percent, we still believe investing in Intelisys is the right move.