Mitel's acquisition of ShoreTel will give new life to comms business - ScanSource CEO

New vendor relationships could offset last year's struggles brought on by Avaya bankruptcy

Mitel's acquisition of Shoretel could provide a welcome lift to ScanSource's comms business, which saw declining margins in the firm's fiscal year ending 30 June as a result of one of its key vendors - Avaya - going bankrupt.

For its first fiscal quarter ending 30 September, ScanSource hit sales of $924.6m (£704.6m), a one per cent year-on-year decline, while non-GAAP operating income - which excludes acquisition costs - increased by 15 per cent to $30.6m. GAAP operating income however nosedived by 67 per cent to $7.6m.

On an earnings call transcribed by Seeking Alpha, CEO of ScanSource Mike Baur said that fewer big deals in North America resulted in the firm missing its sales forecast, as a number of larger federal deals have been postponed until the next its next fiscal quarter.

When the firm announced its full-year results in August, the CEO said that Avaya's bankruptcy - which was announced in January - caused net sales to slip as large enterprise customers reported that end users were delaying upgrading and expansion decisions.

But Baur claims that Mitel's acquisition of ShoreTel, which was announced at the end of July, will give ScanSource the opportunity to offset margin declines and create new avenues for revenue.

"During the quarter, the on-boarding of ShoreTel direct partners to ScanSource for their premises business continues as planned, and we have invested in dedicated resources to provide a higher [level] of value-added services," he said.

"Our focus on [a] higher services mix in our communications business also contributed to better [gross] margins this quarter. As Mitel completed its acquisition of ShoreTel on 25 September, we see an even stronger and clearer opportunity to drive revenue growth through new channel programmes."

Baur went on to explain that banking on more vendor partners in the comms space will help bring ScanSource's comms business back to growth.

"In the [comms] segment we've had some tremendous changes from our vendor landscape… and I think that has contributed to some of the changes that we delivered," he said.

"We've got a significant vendor, as we all know. A year ago we went through some struggles and at the same time we were bringing on some new vendors. So as we have worked through this past 12 months I would say we are starting to see the benefit of bringing on some additional opportunities to replace some of the areas where we had some margin degradation."

ScanSource is expecting to hit sales of $950m to $1.01bn for its second quarter of the fiscal year.