ScanSource will lay off 200 employees after seeing multiple areas of its business hit hard by the coronavirus pandemic.
Most of the workforce reductions took place on Tuesday, according to ScanSource CFO Gerry Lyons, with the remaining employees expected to leave soon after.
Scansource had a global workforce of 2,700 as of 30 June 2019, according to its annual report for fiscal '19.
The layoffs were made across multiple business units but focus on non-customer facing positions in the company as well as the distributor's Salesforce-focused Canpango division.
On a call to investors, ScanSource chief revenue officer John Eldh said the reductions include its sales support and sales administration roles, as well as staff in both sales and supply roles in its on-premise communications business.
Eldh also confirmed that the reductions focus on ScanSource's North American business, but will also affect its operations in Brazil.
ScanSource's POS (point of sale) Portal business will see headcount reductions in the single digits, but ScanSource's Intelisys business is unaffected
Winding down the Canpango business will affect 46 employees, ScanSource claims.
ScanSource said Canpango has not met its profitability and return thresholds, claiming there has been limited adoption of the unit's implementation and consulting services by the distributor's partner community.
Canpango is a Milwaukee-based Salesforce implementation business that ScanSource acquired in 2018. The purchase sought to add CRM capabilities to its UCaaS and CCasS business following its acquisition of Intelisys in 2016.
"Very little of the business [Canpango] were doing when we bought them was done through the Intelisys channel. We thought it would become an opportunity for Intelisys agents to add this to their solution set. It turns out it was not so down the middle of the road, so to speak.
"It was not as easy as it could have been to add this. We made the investment believing it would be difficult, but that we would have a profitable business just providing the existing Salesforce business opportunities," said ScanSource CEO Mike Baur in a Q&A session with investors.
"The reality is we hired additional talent to go after opportunities and we cannot afford as a company right now to have parts of our business losing money - and this one was. So we had to decide that we couldn't wait on the channel to adopt this opportunity; we can't see it changing in the near term so we had to make prudent decisions across the company and this was one of them.
Baur said ScanSource will explore partnering with third parties in order to continue to offer similar services to Canpango and accelerate CCaaS and UCaaS adoption among its partners once the business unit has closed.
The layoffs are part of a new expense reduction plan to align the cost structure of ScanSource's wholesale distribution business with its decreasing sales volumes.
As part of the cost saving plan, ScanSource's executive team has agreed to forgo a percentage of their base salaries until 31 December, with Baur forgoing 25 per cent of his salary, CFO Lyons 15 per cent and chief legal and strategy officer Matt Dean 10 per cent.
Cash retainers have also been cancelled for the company's board of directors until 31 December.
The measures hope to reduce ScanSource's annualised selling, general and administrative (SG&A) cost base by $30m.
The distributor is also hoping to return its operating profit margins to the mid three per cent range at least for some quarters during its 2021 fiscal year.
"Our belief is we will need to see more revenue than we're experiencing right now to achieve that," said the CEO. "Our idea would be, if we can see growth from here on the revenue line from this fourth quarter, then we will achieve the three and a half per cent line at some point."
The company is expecting to incur an $8m to $9m pre-tax charge related to severance and employee benefits for its fiscal Q1 2021 ending 31 September 2020.
The cuts came as the distributor published preliminary results for its fiscal Q4 for the three months ending 31 June 2020 which show an expected 21 per cent drop in GAAP net sales to $758m.
On a call to investors, CEO Mike Baur said the revenue decline was a result of a slowdown in business in its point of sale and barcode business as well as its premise-based communications business brought on by the COVID-19 crisis.
ScanSource's point of sale and barcode business is heavily weighted on resellers that service hospitality and retail verticals, claims Baur, which have been hard hit by the COVID-19 crisis.
He added that the distributor's customers in this space cater for smaller businesses in the retail sector which have been left worse off by the pandemic than larger firms such as CostCo.
Meanwhile a shift to remote working due to the COVID-19 crisis has caused ScanSource's premise-based communications business to rapidly decline over the last three months.
Baur added that, although ScanSource has seen high demand from selling handsets and headsets, its on-premise communications business has declined faster than he ever could have imagined this time last year.
ScanSource will look to help its retail and hospitality-focused partners to find new opportunities in adjacent business segments, said the CEO.
The CEO did however point to areas of growth for the South Carolina-based distributor. Its cloud-based Intelisys business grew revenues by 15 per cent during its fiscal Q3, while its physical security business also grew during the quarter.
ScanSource will continue to invest in the Intelisys business, and is looking to help the business hire new managers to on-board new partners in the value-added reseller space.
Update on sale of physical product business in Latin America and Europe
Last year, ScanSource announced plans to divest its hardware product business in Latin America and Europe. The total business up for sale is worth $623m in annual revenues and includes its point of sale, barcode and communications business.
The distributor gave an update in February claiming that it is closing in on a buyer for the unwanted business.
But CFO Lyons now claims that ScanSource is expecting to have reached an agreement with a buyer for its Latin American business by the end of next week, by 31 July.
The firm, however, claims that it is still "continuing to explore options" for its European operations.
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Distributor to wind down Canpango division and make layoffs as part of $30m cost reduction plan