ScanSource CEO Q&A: Major Expectations For Another Record Quarter

Baur's Busy Quarter

The past few months have been anything but boring for distributor ScanSource, based in Greenville, S.C. The company is coming off its second straight quarter of strong revenue, even while it was absorbing three acquisitions and completing a tough SAP installation in its North American operations.

And, with the SAP project behind them, company executives say, they expect to report another strong quarter in February when they discuss their 2016 second-quarter numbers (The quarter will end Dec. 31). ScanSource executives have forecast a revenue range of $900 million to $980 million, with earnings per share between 72 cents and 80 cents. In the first quarter of the 2016 cycle, ScanSource brought in close to $871 million in revenue and earnings per share of 68 cents.

ScanSource CEO Mike Baur talked with CRN after last week's earnings call. He addressed several issues, notably his company's most recent of three 2015 acquisitions, Cisco videoconferencing distributor KBZ, along with ScanSource's work with EMV (EuroPay, MasterCard and Visa), the chip-and-PIN technology being installed in point-of-sale terminals.

Here are some insights he shared with CRN.

What's new on the rate of adoption of EMV as it would impact ScanSource?

What's interesting about it for us is the actual payment terminals that are sold from VeriFone and Ingenico, the two largest brands, historically were sold directly to retailers outside of a VAR channel. So about a year and a half to two years ago, we embarked on a strategy to engage our channel partners into the reselling and support of payment processing terminals, knowing that there was this huge replacement of old technology coming, which has started to happen. So that's why it has become new and incremental revenue for ScanSource because it's new and incremental for many of our customers.

Are companies in your reseller channel seeing an uptick in work?

Yes, they are. [For example], to put in a payment terminal … requires, as you can imagine, change of software at retail, the back office, as well as … putting in an entirely new solution at the point of sale, including not only terminals but all the other things that a retailer might, or a hospitality provider, for that matter, might engage in, including new technology like this. So, it actually ends up driving additional revenue beyond just the payment terminal point.

How does the rest of the fiscal year look when it comes to sales? Where do you see the best areas for opportunity?

For us … we have been saying for several quarters that the networking products for ScanSource have been very strong. If you look at our line card of networking vendors, you can see some names that you would recognize. … Aruba, Ruckus, Cisco … [and] more niche-y companies. … We've got quite the line card of wired and wireless networking vendors and we have seen a significant growth in that space for several quarters and we expect that to continue for quite a while.

In your fourth quarter of 2015, you mentioned that your sales force was a little hard to reach because of training. Did that change at all during the first quarter of the 2016 fiscal year?

It did. They probably worked just as hard because they were still learning this new SAP system. (laughs) I laugh about it, but it was hard. Our teams had trained on the system in the June quarter, then actually had to use it in the September quarter, and as I indicated on our call, we didn't have a perfect-execution quarter, but we have had such loyal customers and vendors. Our sales reps, frankly, worked a lot longer hours than our prime management teams throughout the September quarter, just using the new system. So, we think we improved and we're improving every month.

Now that you've had KBZ for less than two months, what are your expectations for that unit in the second quarter?

We believe that they have a very good business. We didn't buy a business that was struggling, so they were executing very well. … There have been no personnel changes at all. [Founder Ken Zorzi and his son, Vice President Kyle Zorzi, have worked together] for many years. So I would say … it's business as usual with a stronger balance sheet, and as we've acquired other distributors like them over the years, we have found that they can start selling more product to more customers on the part of ScanSource because we have more inventory availability and more credit availability than a small, privately held company would have.

You mentioned sales in Brazil during the call. What are your biggest opportunities there now and how might that spill over to other countries in the region?

There are two businesses that I talked about: one is our point of sale/bar code, and [the other] is our [networking and communications]. And the bar-code and point-of-sale business … [and] fiscal printers; that business was pretty much a Brazil-only opportunity, meaning the fiscal printers.

Outside of Brazil, with bar code/POS, we are expanding and putting more resources into Mexico. I think the Mexico market is opportunistic for ScanSource now, as well as Colombia and Peru and Chile. So, what we're seeing is that … because of some Brazil-specific economic issues, the markets outside of Brazil are actually pretty good. So we are putting more resources there in bar code and in our [networking and communications] business. But I would say that the Latin America business outside of Brazil is still a much smaller business for ScanSource today, although that is growing much faster than inside Brazil.