ScanSource (SCSC) to Reduces Expenses by $30M, Sees Q4 Revs Above Views

ScanSource, Inc. (Nasdaq: SCSC) announced actions to address the business impacts of the COVID-19 pandemic and prepare for the next phase of growth.

These actions include a $30 million expense reduction plan designed to better align the cost structure for its wholesale distribution business with lower sales volumes as a result of the COVID-19 pandemic. 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.

The expense reduction plan includes (i) 10% to 25% salary reductions for the Executive team through December 31, 2020, (ii) elimination of cash retainers for the Board of Directors through December 31, 2020, (iii) cost savings measures related to discretionary SG&A expenses, (iv) a reduction in workforce in North America, excluding the Intelisys business and (v) the wind-down of the Canpango professional services business.

“Taking these measures, most of all letting go valued and dedicated members of our team, is very difficult,” said Mike Baur, Chairman and CEO, ScanSource, Inc. “We are incredibly grateful to these employees for their service to ScanSource, and deeply appreciate their loyalty and hard work to move ScanSource forward.”

These actions are expected to reduce the Company’s annualized SG&A cost base by approximately $30 million. In the first quarter of fiscal year 2021, the Company anticipates recording an estimated pre-tax cash charge of approximately $8 to $9 million, consisting of severance and related employee benefits. The Company expects to complete substantially all of the workforce reduction of approximately 200 positions by the end of the September 2020 quarter.

Wind-Down of the Canpango Professional Services Business
ScanSource has initiated actions to close Canpango, its Salesforce implementation and consulting business. In August 2018, ScanSource acquired Canpango to help partners build out their customer relationship management capabilities as part of a CCaaS solution. There has been limited adoption by ScanSource’s partner community. With input from valued partners, ScanSource has shifted its focus to delivering a more targeted set of services to support CCaaS and UCaaS business growth through partnerships with third parties.

As a result of winding down the Canpango business, which includes completing existing contracts over the next few months, ScanSource expects to record a pre-tax non-cash charge of approximately $2 million as of June 30, 2020.

Update on Preliminary Fourth Quarter Fiscal Year 2020 Net Sales
Subject to completion of financial reporting and review procedures, ScanSource announced that it expects fourth quarter fiscal year 2020 GAAP net sales to be approximately $758 million and non-GAAP net sales excluding the Planned Divestitures to be approximately $636 million (*** consensus is $708.7 million). This represents a 21% decline year-over-year for quarterly GAAP net sales and a 19% decline year-over-year for quarterly non-GAAP net sales, excluding the negative impact of foreign currency translation. For the Intelisys business, fourth quarter fiscal year 2020 net sales increased approximately 15% year-over-year. ScanSource expects to provide full fourth quarter and fiscal year 2020 results on August 25, 2020.

Conference Call
ScanSource will be hosting a conference call to discuss the expense reduction plan today, July 23, 2020, at 5:00 PM ET. The live conference call is accessible by telephone at 1-866-861-6865 or 1-765-507-2651 (passcode: ScanSource). A webcast of the call will be available for all interested parties and can be accessed at www.scansource.com (Investor Relations section). The webcast will be available for replay for 60 days.

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