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Greenville Business Magazine

ScanSource Initiates $30 Million Expense Reduction Plan

Jul 23, 2020 03:35PM ● By David Dykes

By David Dykes

Greenville-based ScanSource, Inc. (Nasdaq: SCSC), a leading provider of technology products and solutions, said it was taking actions, including an approximate 200-employee reduction in its North American workforce and executive team salary cuts, to address the business impacts of the Covid-19 pandemic and prepare for the next phase of growth.

The actions are part of 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 pandemic, company officials said.

As part of the plan, ScanSource will continue to invest in its higher growth agency business, Intelisys, the officials said. Strong growth for the Intelisys business has continued, even with the pandemic, ScanSource said.

The expense reduction plan includes (i) 10 percent to 25 percent 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 selling, general and administrative 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, ScanSource's chairman and CEO. “We are incredibly grateful to these employees for their service to ScanSource, and deeply appreciate their loyalty and hard work to move ScanSource forward.”

The actions are expected to reduce the company’s annualized SG&A cost base by approximately $30 million, ScanSource officials said.

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, ScanSource said. The company said it expects to complete substantially all of the workforce reduction of approximately 200 positions by the end of the September 2020 quarter.

ScanSource said it 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. 

With input from 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, company officials said.

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.

ScanSource said 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. 

That represents a 21 percent decline year-over-year for quarterly GAAP net sales and a 19 percent decline year-over-year for quarterly non-GAAP net sales, excluding the negative impact of foreign currency translation. company officials said. 

For the Intelisys business, fourth quarter fiscal year 2020 net sales increased approximately 15 percent year-over-year, the officials said.

ScanSource expects to release full fourth quarter and fiscal year 2020 results on August 25, 2020.

Founded in 1992, ScanSource was named one of the 2019 Best Places to Work in South Carolina and on FORTUNE magazine’s 2020 List of World’s Most Admired Companies. ScanSource ranks #654 on the Fortune 1000.

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