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ScanSource: COVID-19 Impact Leads To Lower Revenue But Strengthened Operations

Increased reliance on digital technologies , combined with a push for work-from- home capabilities, is helping mitigate impacts from the coronavirus pandemic while making ScanSource stronger over time, CEO Mike Baur says.

ScanSource expects to see a continued negative impact from the COVID-19 coronavirus pandemic in the current quarter, but expects tha it and its solution provider customers will exit the pandemic in a stronger position.

Furthermore, said Mike Baur, chairman and CEO of Greenville, S.C.-based ScanSource, the distributor will look different after the pandemic as it increasingly focuses on bringing cloud and digital technologies to its channel partners.

Baur, in his prepared remarks Monday to financial analysts during the company's third fiscal quarter 2020 financial report, said ScanSource's priority is protecting the health and safety of its employees around the world. In March it started to implement a work-from-home program for them, he said..

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

"The global ScanSource team swiftly and seamlessly made the transition to work from home, and we are meeting the needs of our customers and suppliers with the same levels of productivity and service as if we were in the office," he said. "Our company culture remains strong because of how we have adapted using virtual tools and creativity to keep our employees connected."

ScanSource has established processes to maintain a clean, safe workplace, Baur said. "In most cases, we maintained our high service levels, although we have incurred higher expenses from additional staffing and expedited shipping," he said.

Despite the pandemic, ScanSource reached its forecast revenue for the third fiscal quarter, with growth across almost all of its technologies in North America and Brazil, Baur said.

"This included accelerated sales for work-from-home solutions from Jabra, Poly, HPE Aruba, Ring Central, Zoom and Microsoft as companies made the move to remote workers," he said.

Over the past few years, ScanSource has made several acquisitions that brought it expanded digital capabilities, Baur said.

"And as a result, we've gained great customer-facing software solutions," he said. "We recently brought together our software development teams from across the company, including software teams from Intelisys, intY, POS Portal and RPM [Software] to form a single software development group. This group will put their combined talent and efforts into delivering partner revenue growth, partner automation and partner-convenient solutions. We believe our software development group will be a competitive differentiator enabling us and our partners to strengthen customer relationships and drive more growth."

John Eldh, ScanSource's chief revenue officer, said during his prepared remarks that the third fiscal quarter was a time for solid growth in work from home, cloud and Software-as-a-Service technologies, as well as significant growth in work-from-home hardware products as cameras, speakers, headsets, mobile data collection devices, scanners and networking technologies, as well as a wide range of telemedicine technologies.

After the analyst conference call, Eldh separately told CRN that ScanSource is building a program for partners called "Go Remote" as part of the distributor's response to the COVID-19 pandemic.

Go Remote is aimed at providing channel partners with end-to-end solutions for their customers via a series of blogs, videos, webinars, collateral, and what the company calls the definitive guide of solutions and suppliers for going remote, Eldh said.

The Go Remote campaign also includes a full-day virtual summit scheduled for June 4, he said. "We're going to be giving keynotes from different partners and suppliers, and different discussions about different technologies to make the transition to work from home," he said.

ScanSource is also monitoring solution providers' financial health, and looking at how to support them, Eldh said

Given that most solution providers are small and midsize businesses that struggled to understand how to access government financial programs to help mitigate issues from the pandemic, ScanSource in March built a partner resource guide to help them navigate those programs, he said

The distributor this month is starting a program to help channel partners look at how they can come out of the pandemic healthier and stronger than before, Eldh said. The program will last 60 to 90 days, and will be extended if needed, he said.

"We are kicking off what we call a channel recovery program, which is going to be a multiweek program to help them understand how to navigate the current environment and also how to take advantage of sales, marketing and potential financial programs," he said.

Supply chains have recently started improving, Eldh said. At the start of the pandemic, he said ScanSource was seeing supply chain delays of three to four weeks, but that has recently shrunk to one to two weeks.

"Manufacturing facilities in Asia, and in particular China, are starting to come back online, and product is flowing to us much more consistently than in the early days," he said.

In the meantime, Eldh said, ScanSource is still iimplementing One ScanSource, a program to knock down the walls between the sales efforts of its various product groups to improve cross-selling of products to solution providers and to drive more intimacy in relationships with those partners and drive more consistent growth.

"There were walls that we had between technology segments," he said. "But now, our teams can sell across different technologies so that they can better solve their customer issues with solutions."

Looking forward, ScanSource is not providing guidance for its fourth fiscal quarter 2020, said Gerry Lyons, ScanSource's chief financial officer.

However, Lyons said, sales in April 2020 were 22 percent lower than sales in April 2019 and both total sales and earnings per share in the fourth fiscal quarter 2020 will be below those of the third fiscal quarter 2020.

For its third fiscal quarter 2020, which ended March 31, ScanSource reported GAAP revenue of $872.5 million, down 2 percent over the $893.4 million the distributor reported for its third fiscal quarter of 2019.

This includes barcode, networking and security revenue of $583.6 million, down 2.2 percent over last year, and communications and services revenue of $288.8 million, down 2.6 percent.

U.S. and Canada sales dipped 0.3 percent over last year to $670.2 million, while international sales fell 8.5 percent to $202.1 million.

On a non-GAAP basis, ScanSource reported revenue of $744.6 million, down 1 percent from the $752.8 million the company reported for the same period last year. Non-GAAP revenue excludes the foreign currency translation and revenue from certain parts of the company it is selling as well as revenue from acquisitions.

Net income on a GAAP basis for the quarter was reported as $1.7 million, or 7 cents per share, down significantly from last year's $11.7 million, or 45 cents per share. On a non-GAAP basis, net income was $9.3 million, or 37 cents per share, down year over year from $20.6 million, or 80 cents per share.

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