MSPs become a “source of growth” for the distributor


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Joseph F. Kovar

“What we’re seeing in the UK and Brazil is that this idea of ​​ScanSource providing additional capabilities, and it’s more in the recurring revenue and software as a service area, those capabilities, that we’re really starting barely operating in the United States, bring us MSP customers,” said Mike Baur, CEO of ScanSource.

ScanSource senior executives said Tuesday that a hybrid distribution strategy helps the company differentiate itself from its peers while propelling it to strong growth.

John Eldh, president of Greenville, SC-based ScanSource, told CRN after the company released its third quarter 2022 financial report that key to ScanSource’s growth in the quarter was its hybrid distribution strategy and the helps its channel partners to connect devices to the cloud. .

“When we talk about hybrid distribution strategy, we’re really talking about enabling our partners to deliver technology solutions based on end-user customer requirements,” Eldh said. “And typically that means a combination of client hardware, software, connectivity, and cloud services. And our job is really to make it easier to put all of that together to enable our partners and help remove the friction and complexity from the whole process for them, and help them shorten their time to value creation and income.

[Related: GTDC’s Frank Vitagliano: Distribution Key To Digital Transformation, Supply Chains, As-A-Service Models]

Eldh said ScanSource’s hybrid distribution strategy is differentiated because of the community of channels it serves.

“We have customers, whether it’s the VAR community, the agent community or MSPs. … What separates us is the emphasis on specialization,” he said. “And we are not a general distributor. We are specialized and highly concentrated in areas that provide us with a differentiated level of expertise.

Eldh gave two examples of how ScanSource envisions hybrid distribution.

The first was a communications solutions provider working with an end-user retailer that was transitioning from on-premises communications to a cloud-based solution for 2,200 locations, with ScanSource providing technical support and facilitating support through all of its vendors to create a solution Communication. which included hardware, software and connectivity.

The second was a mobility and barcode solutions provider that was implementing an outdoor video surveillance solution for a construction company at over 3,000 sites. Eldh said the partner needed connectivity for the solution to the cloud. ScanSource helped with a solution that included surveillance cameras, cellular SIM cards, connectivity and remote monitoring.

“We think these were all good examples of the strength of our hybrid capabilities and our specialist capabilities,” he said. “And it really gives a better sense of how we’re helping our VARs drive their own recurring revenue strategies, and helping them drive growth and success.”

ScanSource President and CEO Mike Baur, when asked by CRN about the impact of the Tech Data and Synnex merger into TD Synnex, said his team normally declines to comment on competitors.

“For us, it was a great quarter of growth,” Baur said. “And we are focusing on our hybrid strategy and continuing to help our partners grow in this market.”

At the same time, Baur said, ScanSource doesn’t really compete with generalist distributors like TD Synnex because ScanSource is much more specialized than those generalist distributors.

However, he says, he still believes history shows that consolidation is not in the best interest of the industry.

“I’ve been doing this for about 35 years,” he says. “There has never been a time when consolidation brings more value to the channel. The chain doesn’t benefit from consolidation, just the big guys getting bigger. The IT channel benefits from innovation and additional value creation. And we’ve never seen that when we have consolidation on the supplier side, or on the distributor side, or even on the partner side, on the VAR side. It just doesn’t happen. We think there will always be consolidation. But we think you can have too much in an industry, and that doesn’t create innovation.

Baur also told CRN that MSPs are a growing part of ScanSource’s business, especially since ScanSource acquired UK-based MSP distributor intY. But while ScanSource has many MSPs in the UK and Brazil, MSPs have not been the primary route to market for the distributor in the US.

However, said Baur, that is changing.

“What we’re seeing in the UK and Brazil is that this idea of ​​ScanSource providing additional capabilities, and it’s more into recurring revenue and the software-as-a-service area, those capabilities, that we’re really starting barely operating in the United States, bring us MSP customers,” he said. “They want to do business with ScanSource, so that’s a source of growth for the business.

That said, platform provider MSP Kaseya’s planned acquisition of rival Datto has no direct impact on ScanSource as the distributor does not work directly with either, Baur said.

“But I certainly think the MSP market is interesting. … From a global partner opportunity, I think our MSP partners have been very successful for many, many years. It will be interesting to see if consolidation brings innovation.

For now, recurring revenue is an increasingly important part of ScanSource’s business, Baur said. Gross profit from recurring revenue has risen from zero before 2016, when ScanSource acquired chief agent Intelisys, to 25% today, he said.

“And the reason that’s really important to the channel is that we’re seeing more and more of our distribution partners who were traditionally VARs are excited to add recurring revenue to their business,” he said. he declares. “And we believe this hybrid distribution model of combining recurring revenue and hardware is something ScanSource can do better than anyone else in the industry. We are delighted with the growth. [This quarter] the growth of our Intelisys business was 18%. This strong recurring revenue growth that we are experiencing is proof that our hybrid distribution model is working.

For its fiscal 2022 third quarter, which ended March 31, ScanSource reported total revenue of $846.0 million, up 15.9% from the reported $729.9 million by the company for its third fiscal quarter 2021.

That total included sales of $503.1 million for its specialty technology solutions business, up 15.3% from a year ago, and $342.9 million for its modern communications business and cloud, up 16.9%.

The retailer also reported net income on a GAAP basis of $23.5 million, or 91 cents per share, compared to $13.1 million last year, or 51 cents per share. On a non-GAAP basis, the company reported net income of $26.9 million, or $1.04 per share, compared with $18.2 million a year ago, or 71 cents per share.

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