ScanSource has confirmed layoff plans and temporary executive compensation cuts, and the distributor will close its Canpango consulting business (focused on the Salesforce cloud) as part of a $30 million expense reduction plan. Still, ScanSource continues to invest in growth businesses -- particularly Intelisys, which remains a solid performer amid the economic turbulence.
The announcement offers a timely reality check for the IT channel, where the coronavirus economy continues to pressure thousands of partners and suppliers.
Within the channel, ScanSource is widely considered a well-run, smartly focused business. But that wasn't enough to fully shield the company from recent economic pressures.
ScanSource Cost Cuts: Five Areas of Focus
ScanSource's $30 million cost reduction plan includes:
- 10% to 25% salary reductions for the Executive team through December 31, 2020;
- elimination of cash retainers for the Board of Directors through December 31, 2020;
- cost savings measures related to discretionary SG&A expenses;
- a reduction in workforce in North America, excluding the Intelisys business; and
- the wind-down of the Canpango professional services business.
Salesforce acquired the Canpango business in 2018 for the company's Salesforce implementation and cloud consulting expertise. Fast forward to present day. Canpango achieved "limited adoption by ScanSource’s partner community." As a result, ScanSource will now partner with third-parties for CCaaS and UCaaS, the company says.
ScanSource Explains Cost Cuts
The overall cost cuts are designed to "better align the cost structure for its wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic," ScanSource said. "As part of the plan, ScanSource will continue to invest in its higher growth agency business -- Intelisys. Strong growth for the Intelisys business has continued, even with the COVID-19 pandemic."
In a prepared statement about the changes, ScanSource CEO Mike Baur said:
“Taking these measures, most of all letting go valued and dedicated members of our team, is very difficult. We are incredibly grateful to these employees for their service to ScanSource, and deeply appreciate their loyalty and hard work to move ScanSource forward.”
ScanSource: Preliminary Q4 Fiscal Year 2020 Net Results
A closer look at ScanSource's financial performance further explains why the company is making the cost cuts.
Indeed, Scan Source expects fourth quarter fiscal year 2020 GAAP net sales to be approximately $758 million, down 19 percent year over year.
But here again, Intelisys was the bright spot -- delivering Q4 2020 net sales growth of about 15 percent year over year.
ScanSource expects to provide full fourth quarter and fiscal year 2020 results on August 25, 2020. The company did not disclose how many employees would be cut.
Dozens of technology companies have cut staff and/or temporarily cut executive compensation amid the coronavirus economy. The cuts have even hit some MSP- and cloud-focused technology companies that lean on popular recurring revenue business models.