ScanSource To Recruit More Communications VARs Sourcing Directly From Vendors Today

ScanSource is working with a couple of its communications vendors to help transition some of their larger resellers to distribution-led relationships.

The Greenville, S.C.-based distributor said it is putting initiatives in place to ensure top-tier channel partners are amicable sourcing through a distributor rather than directly from the vendor, according to CEO Mike Baur.

"We don't think it's going to be a difficult conversation," Baur told Wall Street analysts Tuesday.

[RELATED: Intelisys To Roll Out Robust Program For Top 50 ScanSource Partners]

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ScanSource is currently coordinating with a few vendors around plans that would either strongly encourage or require direct VARs to begin working with a distributor, Baur said. Some communications vendors have always had a reasonable amount of direct VAR business, he said.

Although ScanSource has had similar opportunities throughout its 25-year history, Baur said it's the first time in at least a year that the company is seeing growth in vendors shifting from one-tier channels to a distribution-led model. Baur said he expects to see more vendors shifting their larger channel accounts to distribution going forward.

ScanSource said sales for the quarter ended Dec. 31 sunk to $904.8 million, down 8.9 percent from $993.5 million the year prior. This fell well short of Seeking Alpha's estimate of $962.6 million.

Earnings for the quarter jumped to $23 million, or $0.91 a diluted share, up 11.5 percent from $20.7 million, or $0.77 a diluted share, last year. On a non-GAAP basis, however, earnings tumbled to $19.1 million, or $0.75 a diluted share, down 19.5 million from $23.7 million, or $0.88 cents a share, last year. This beat Seeking Alpha's earnings estimate of $0.72 a share.

Baur loves the idea of replicating the success of ScanSource's August 2016 acquisition of master agent Intelisys by purchasing additional service-oriented, high-margin, recurring revenue businesses that would be complementary to the distributor's existing hardware practice.

"We've always used acquisition to give us a jumpstart and reduce the amount of time it takes to get relevant in a market," Baur said.

ScanSource has therefore identified several potential targets that are in the services space and similar to Intelisys, Baur said.

The distributor has made 25 acquisitions over the years to either purchase highly-successful smaller franchises in ScanSource's core practice areas that are unable to independently fund further growth, or to purchase companies that will get ScanSource into new geographies. Additional opportunities abound for ScanSource to get into spaces that are complementary to what the distributor does today, Baur said.

Barcoding, networking and security revenue plummeted to $595.4 million, down 13.7 percent from $689.5 million due to delays in a couple of KBZ deals and unusual supply constraints in a couple of geographies.

Meanwhile, communications and services revenue ticked up to $309.4 million, up 1.8 percent from $303.9 million last year thanks to growth in enterprise voice and video services and the newly-acquired Intelisys business.

On a geographic basis, ScanSource's U.S. sales fell to $667.8 million, down 9.2 percent from $735.6 million last year. Similarly, international sales slipped from $237 million, down 8.1 percent from $257.9 million a year ago.

ScanSource's shares remained unchanged at $40.10 in after-hours trading. Earnings were announced after the market closed Tuesday.

For the next quarter, ScanSource expects non-GAAP diluted earnings per share between $0.62 and $0.69 a share on sales of between $800 million and $860 million. That compares to a Thomas Reuters earnings projection of $0.69 a share on sales of $824.5 million.