A couple of major acquisitions is providing ScanSource with new long-term opportunities to grow, but investments related to that growth is weighing on the company's short-term financials.
ScanSource, the Greenville, S.C.-based value-added distributor, has in the last 21 months acquired Intelisys, a provider of telecom services through master agents, and POS Portal, a distributor of point-of-sale services for SMB merchants.
Those acquisitions have expanded not only the breadth of product offerings ScanSource provides its channel partners, but also expanded its actual channel to include traditional solution providers, telecom agents, MSPs, and ISOs (independent sales organizations), said Mike Baur, ScanSource CEO
That has also led to an increased footprint for the company in cloud services, Baur told analysts on Tuesday during the company's fiscal 2018 third quarter financial analyst conference call.
When ScanSource acquired Intelisys, the company's planning was focused around the carrier channel and a shift in that business from direct to more indirect sales, Baur said.
"What's really changed in the last nine months to a year has been the recognition that these cloud vendors that Intelisys has brought to the ScanSource community, focused on UCaaS specifically, unified communications-as-a-service, we're even more excited about that opportunity," he said. "And so that's where we're really trying to figure out how do we best take those products to market. Is it through the agents, and have them sell more cloud? Or is it also to sell it through VARs?"
Baur said a company like ScanSource cannot pick the winning route to market.
"But what is obvious is that every vendor that ScanSource has in that communications space has a hybrid offering, or they have a cloud or on-premises," he said. "And we want to do all of them."
As a result, Baur said, the company has had to change its go-to-market strategy.
"We having to provide a platform so we can sell premises-based equipment through an agent, but also have a VAR buy services through the agency model," he said. "So we want to have VARs sell agency products, and have agents sell VAR products. We don't know which channel the end-user prefers. We want to make sure we're in position with our key vendors to provide the route-to-market that the end-customer prefers. That turned out to be a bigger opportunity than we realized two years ago."
For its third quarter of fiscal 2018, which ended March 31, ScanSource reported sales of $895.6 million, up about 10 percent over the $813.5 million the distributor reported for the third quarter of fiscal 2017.
The company reported GAAP net income of $10.6 million, or 42 cents per share, down from last year's $12.4 million, or 49 cents per share. On a non-GAAP basis, net income was reported as $17.5 million, or 68 cents per share, up from the $16.4 million, or 65 cents per share, it reported last year.
Revenue results beat analyst expectations by nearly $17 million, while the non-GAAP earnings per share missed expectations by 2 cents, according to Seeking Alpha.
Baur said the drop in GAAP income stemmed from impacts caused by short-term increased investments in SG&A, or selling, general, and administrative expenses, related to its acquisitions.
"But we believe these are for the right long-term results of our investors," he said.
Looking forward, ScanSource expects fourth quarter fiscal 2018 sales to be in the range of $940 million to $1 billion, up from $917 million in its fourth quarter of fiscal 2017. Earnings per share on a GAAP basis is expected to be in the range of 48 cents to 54 cents, down from 74 cents in the prior year, while non-GAAP earnings per share are expected to range from 74 cents to 80 cents per share, up from 68 cents.