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

While ScanSource saw overall net sales for its second fiscal quarter 2021 fall 2 percent over last year, its Intelisys master agent business grew 15 percent, leading to the possibility that the Intelisys business could one day exceed ScanSource’s product distribution business, Baur tells CRN.

Big Changes Set For ScanSource

ScanSource is showing a growing area of strength around its Intelisys master agent business.

The Greenville, S.C.-based distributor and master agent in mid-2016 acquired Intelisys as a way to expand into the fast-growing telecom business and give its channel partners a way to expand their offerings, and that part of the business saw a 15 percent jump in revenue during its second fiscal quarter 2021, which ended Dec. 31.

In fact, Intelisys now has a real possibility of growing to the point where its revenue exceeds revenue of ScanSource’s products distribution business, ScanSource CEO Mike Baur told CRN in an exclusive interview. Baur said that while his company ended its products distribution efforts in Europe and Latin America, the growth of Intelisys, and the hardware pull that sales of Intelisys services creates, bodes well for the company’s future.

“Will the Intelisys business, if it was billed out like the product business, be comparable?” he said. “Yeah, it will over time, absolutely. Growing at 15 percent, it’s going to grow faster than our products business. So, one day, Intelisys business, depending on how you measure it, absolutely could be as big as or bigger than our products business.”

The company this week reported second fiscal quarter 2021 finances, with total revenue for the quarter reaching $810.9 million, down about 2 percent over the same period as last year. GAAP net income for the quarter fell 5 percent, while non-GAAP net income fell 15 percent year-over-year.

For a look at how the distributor is transforming itself with the help of the industry’s largest master agent business, click through the slideshow.

ScanSource has seen a growth in solution provider numbers on both its ScanSource side and its Intelisys master agent side. How have they grown?

From our perspective, we’ve always been focused on making sure that channel partners of all types have opportunities to grow with and our suppliers. So we continue to see strong interest in the business that we began four years ago with Intelisys. ... The recruiting that we’re accomplishing year-over-year is just remarkable. It just points to the growth opportunities that we have to offer resellers of all kinds, whether they’re a traditional VAR, and agent, an ISV, we can service them in many, many ways.

How many partners recruited for Intelisys and for ScanSource’s non-Intelisys businesses?

I don’t have that number handy, but I think roughly we [saw] 22 percent recruitment over the prior year.

What’s behind the 15-percent year-over-year growth posted for Intelisys?

When you look at the stats that we shared (during the financial analyst call), especially in the areas of unified communications and unified communications as a service, contact center as a service, those kind of growth rates, 35 percent and 65 percent and overall Intelisys 15 percent, those are just incredible growth rates in a very large market as everybody and everything moves to some version of cloud technology, whether it’s all-cloud or hybrid cloud. So there’s no real news there. I think we’ve just got the best line card of suppliers who are looking to connect with our partner channel. And our partner channel gets a huge amount of their intelligence and direction and enablement from the Intelisys team across the board whether it’s our pre-sale engineering team of over 100 people, or whether it’s our sales team.

With the growth of Intelisys, is there a chance that ScanSource’s Intelisys business could be bigger than its more traditional solution provider business?

That’s an interesting question from the standpoint of how to measure size. On the one hand, the way we record revenue, and this is accounting-speak for a minute, but the revenue for Intelisys that we report doesn’t quite translate to the revenue for our products business. So, for example, if on an annual basis ScanSource’s product side does, pick a number, $4 billion, Intelisys if it was done in the same manner would be almost $2 billion. And so will the Intelisys business, if it was billed out like the product business, be comparable? Yeah, it will over time, absolutely. Growing at 15 percent, it’s going to grow faster than our products business. So, one day, Intelisys business, depending on how you measure it, absolutely could be as big as or bigger than our products business.

I hear a ‘but’ coming up.

Well, that’s just in accounting talk. The way I would look at it is this: We have seen that our products business is growing because of our Intelisys business. So we’re dragging the hardware business along in some cases even faster that we thought. So we’re actually seeing with the hardware growth, it may be a longer time than I would have thought [for the two businesses] to match up and be equal.

We think that’s good news. We think the more Intelisys we do, the more hardware we sell. We call [that hardware] ‘endpoints’ now. Cloud-enabled endpoints.

ScanSource in late 2020 exited the product distribution business in South America and Europe. Has the company done anything that might lead to pulling out of product distribution in the U.S. someday?

Absolutely not. What I was saying about the Intelisys business, which by the way only exists today in North America and Brazil, is it’s dragging through hardware. So it’s very complementary and very synergistic. We didn’t have that in Latin America, and we didn’t have that in Europe. And that was why we really made the decision. On a strategic basis, we didn’t see that our Intelisys-type business was going to emerge in a big way in Europe any time soon. And we can only have so many investments at one time. And [product distribution in Europe and Latin America] we couldn’t see strategically fitting, whereas we believe the U.S. hardware business is strong and growing.

And in Brazil. Brazil for sure. Brazil is probably the best example of the marriage of our hardware and our software-slash-Intelisys business because they continue to outperform every other distributor in Brazil.

How do you view the competitive environment ScanSource is facing today, particularly in North America?

In certain parts of our business, we have no one competitor that has everything we have. So we’re kind of in a unique position today. There is no strong product distributor that’s also in the master agency business of any size. So we believe that makes us unique. We’re the largest master agent by a factor of two. And we have a strong, profitable hardware business.

Today, we have to look at competitors on a product or a market basis. And we find, and this is the story of the quarter, we find that we are now starting to take market share and do a better job than a year ago. We said on the [Tuesday analyst] call, a year ago we were struggling through our reorganization and transformation. But we’re back.

ScanSource’s last acquisition was that of intY in mid-2019. Is acquisition a part of your growth strategy going forward?

[Acquisitions] would be the second use from our capital allocations going forward. The first use of our capital would be to fund growth in our existing business, which is growing very nicely right now. Second would be to certainly take a look at strategic opportunities to grow our business in the future through acquisition. So, in the future, yes.

And I would say, a year ago, we did not have any strategic plans to do acquisitions. We needed to get some things finished and accomplished in building our foundation for growth. So we’re now poised to grow in 2021 and 2022.

What are you seeing as the impact of the COVID-19 pandemic in 2021? What are you planning for?

We still have a challenge with predicting a quarter at a time for our investors. Really, it’s because the COVID impact affects our business in different places. We still believe we’re not out of it yet, and we’ve got more to go through. I would hope that by the Summertime that we would be able to have a much more clear understanding of where COVID still has an impact. So I would hope by the Summer we’ll be past the bulk of it.