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ScanSource’s Baur: Amid An IT Talent Shortage, ‘Culture Is Everything’

‘People want to be part of a winning culture and a growth-oriented culture. And we’re doing both. I think people gravitate to this environment. I think the other part is, we are seeing, with our return-to-office strategy, we’re creating a lot of visibility in work-life balance or in the balance of where people have to work from,’ ScanSource CEO Mike Baur told CRN after the distributor’s fiscal year 2021 analyst call.

A big post-COVID recovery and a solid boost in its Intelisys master agent business’ annual recurring revenue helped ScanSource achieve a strong fiscal year 2021.

ScanSource did well across the board for all of fiscal 2021, which ended June 30, with the fourth quarter the real topper for the year, said Mike Baur, chairman and CEO of the Greenville, S.C.-based distributor.

The fourth fiscal quarter of 2021 saw ScanSource achieve outstanding sales and profitability growth to the point where sales topped its pre-COVID sales record, Baur said during prepared remarks during the company’s quarterly financial analyst conference call Tuesday.

[Related: ScanSource CEO Mike Baur: Intelisys Could One Day Exceed Product Business]

“During fiscal year 2021, ScanSource has demonstrated that our hybrid distribution model is winning in the marketplace,” Baur said. “Our talented team of sales, marketing and engineering professionals create hybrid solutions that allow our channel partners to meet the technology demands of end-user customers. We are enabling our channel partners to accelerate their transformation to an exciting and fast-growing digital world of opportunity.”

ScanSource is uniquely positioned to capitalize on the massive market shift to cloud, Everything as a Service and subscription-based models, Baur said.

“We’re gaining market share from competitors by creating demand for new opportunities that require our specialized expertise,” he said. “As we transition from the impacts of COVID on our business during FY 2021, we are prepared for the business opportunities ahead.”

The momentum ScanSource saw in fiscal year 2021 also gave the distributor the confidence in its growth and valuation creation opportunity to provide its first-ever annual outlook, Baur said.

In that outlook, he said ScanSource expects fiscal 2022 year-over-year net sales growth to be at least 5.5 percent, with adjusted EBITDA to be at least $135 million compared with $118 million in fiscal 2021.

John Eldh, ScanSource chief revenue officer, told CRN in a call after the financial results were released that he is “smiling from ear to ear” thinking about ScanSource breaking the $2 billion barrier in terms of Intelisys’ annual recurring revenue, which is the net billings between the suppliers and channel partners, for the first time.

That, Eldh said, compared with about $700 million when ScanSource acquired Intelisys in mid-2016 and about $1.6 billion in fiscal 2020. The annual recurring revenue is the commission it receives on those transactions, he said.

Several factors accounted for that growth, including ScanSource’s presence in large, relevant markets during the COVID-19 coronavirus pandemic, Eldh said.

“When COVID hit, people ended up working from home and working remote, and technologies such as UCaaS and CCaaS and even SD-WAN just became more and more mission-critical than ever before,” he said. “And those are areas where we have some of the leading relationships with the key suppliers in the marketplace.”

Another driver is ScanSource’s investment in Intelisys over the past few years, Eldh said.

“And we keep investing in it as a part of our hybrid growth strategy,” he said. “And those investments are paying off. We’re investing in salespeople. We’re investing in technical resources and engineers. We’re investing also in the tools that our partners use to help them shorten time to value, and shorten time to commission checks. So all these things combined are putting us in a great position to capitalize on the market opportunity.”

ScanSource’s Intelisys strength is not expected to dissipate as people return to work in a post-COVID-19 coronavirus pandemic world, Eldh said.

“I don’t see any signs of things slowing after COVID,” he said. “COVID was really the ignition for what I think of as the digital economy. And we play a big role in many of those areas. Infrastructure as a Service and some of these other technologies, they were large and they had momentum before COVID, and they’re even more important now.”

Baur told CRN that the IT talent shortage impacting the channel has not impacted ScanSource, which over the last year saw success in hiring personnel for its high-growth businesses like Intelisys.

“Culture is everything to people,” he said. “And people want to be part of a winning culture and a growth-oriented culture. And we’re doing both. And so I think people gravitate to this environment. I think the other part is, we are seeing, with our return-to-office strategy, we’re creating a lot of visibility in work-life balance or in the balance of where people have to work from, and greater flexibility is creating more enthusiasm in candidates that we’re the place they want to come and work.”

ScanSource over the last year hosted over 450 events for channel partners, a lot of which were focused on the skills, talent and human resources requirements necessary for partners to survive and thrive in both the COVID era and the digital era, Baur said.

“So we’re doing a lot to help them with recruiting and maintaining the right skill levels,” he said.

Eldh said that the supply chain issues weighing on much of the channel have had a relatively small impact on ScanSource.

“I go all the way back to the beginning of COVID, and we knew we were going into interesting times where we were going to have to be very thoughtful and very disciplined around our working capital management and inventory,” he said. “And so we’ve had a disciplined approach around inventory management of course for the long haul, but even more focused for the past year and a half due to COVID. I also think the supply chain constraints and challenges have made us better. Our supply teams and purchasing teams have gotten closer to suppliers to understand what’s happening with them and their pipeline.”

Eldh said he is pleased with the work the company has done in navigating the environment over the past several quarters, and that ScanSource’s sales team and its head of supplier services and purchasing teams did an outstanding job. The company as a result saw a negligible impact from supply constraints, he added.

When asked by an analyst about whether ScanSource’s market share in the last year is sustainable, Eldh said it is absolutely sustainable.

“COVID really was kind of an ignition point for digital transformation initiatives, as you know, all across the business,” he said. “And we play in many of the markets, large and growing, that impact people’s path to digital. And so yes, we had some wins because we had some inventory, which is great. But more so than that, we took share, we drove big deals, and we were able to execute [because of] some of the things Mike [Baur] talked about in the reorganization of the sales organization—a year and a half of really driving tighter, better and more aligned relationships with both our sales partners and our suppliers;and building deep, meaningful relationships.”

When asked whether ScanSource’s POS Portal point-of-sale and mobile payment business recovered from the pandemic, Eldh said that business was hit hard in the early days because the “Main Street” retail sector essentially shut down for a time.

“But as it began to reopen, we saw our revenues, our attach rate with services, and our volumes increase,” he said. “And actually, now we’re back to pre-COVID levels. And so we’re very excited about that business. And if you remember, that business is a business that drives higher margins for us due to services that we wrap around the hardware. And so we’re excited that Main Street is open, and we are definitely back in business there.”

For its fourth fiscal quarter 2021, ScanSource reported net sales of $852.7 million, up 34 percent over the $636.5 million the distributor reported for fiscal fourth quarter 2020.

This included barcode, networking and security revenue of $597.9 million, up 33.5 percent from last year’s $447.8 million, and worldwide communications and services revenue of $254.8 million, up 35.0 percent from last year’s $188.6 million.

For the quarter, ScanSource reported GAAP net income of $23.7 million, or 92 cents per share, up significantly from last year’s loss of $217.3 million, or $8.57 per share. On a non-GAAP basis, ScanSource reported adjusted EBITDA of $33.0 million, up from last year’s $12.3 million.

For all of fiscal 2021, ScanSource reported net sales of $3.15 billion, up 3.3 percent over the $3.05 billion the distributor reported for fiscal 2020.

This included barcode, networking and security revenue of $2.18 billion, up 3.9 percent from last year’s $2.09 billion, and worldwide communications and services revenue of $975.7 million, up 2.2 percent from last year’s $954.5 million.

For the year, ScanSource reported GAAP net income of $10.8 million, or 42 cents per share, up significantly from last year’s loss of $192.7 million, or $7.59 per share. On a non-GAAP basis, ScanSource reported adjusted EBITDA of $109.9 million for fiscal 2021, up from last year’s $97.0 million.

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