Intelisys partners helped drive a 17% net sales growth in the ScanSource communications and cloud business last quarter.

ScanSource reported growth and increased optimism in its fiscal year third-quarter earnings Tuesday. ScanSource reported year-over-year 16% net sales growth and 21% gross profit growth. In addition, the distributor has raised its fiscal year 2022 guidance from a 7% net sales growth to at least 10%.

Net sales totaled $846 million, which dipped from $864 million the previous quarter. However, ScanSource shrank its operating expenses to record $107 million in gross profit.

ScanSource’s modern communications and cloud segment grew 17% year-over-year in net sales, to almost $343 million. The communications and cloud unit includes Intelisys and cloud distributor IntY, as well as hardware communication vendors like Avaya and Cisco.

Intelisys respectively grew 18.2% year-over-year in net sales.

ScanSource’s Mike Baur

ScanSource CEO Mike Baur said Intelisys represents the fastest growing part of his company’s business. Baur said recurring revenue now represents 25% of ScanSource’s profit. ScanSource acquired Intelisys in 2016.

“Our hybrid distribution strategy is working, as evidenced by our sustainable, more profitable business model,” Baur said on an earnings call.

ScanSource’s John Eldh

Executives also reported a “modest benefit” from increases in supplier prices. Namely, ScanSource reported supplier price increases of “approximately 45 basis points.” ScanSource chief financial officer Steve Jones said most hardware suppliers have listed increase prices.

“From a margin perspective, that can be temporary as we blow through inventory, and we get kind of a timing benefit,” Jones told Channel Futures in an interview.

ScanSource’s specialty technology practice totaled $503 million in quarterly net sales — 15% year-over-year growth.

Hybrid Distribution

ScanSource president John Eldh told analysts that larger deals have helped drive growth. He said suppliers are prioritizing allocation to enterprise-focused VARs. And he said many of these VARs are selling both hardware and software.

For example, Eldh said one communications-focused VAR recently sold a 22,000-location retail customer hardware, software and cloud connectivity. In addition, a mobility and barcoding VAR helped a 3,000-plus site construction company with surveillance cameras, SIM cards, connectivity and remote monitoring.

Baur said ScanSource’s long-term pedigree on the hardware side has allowed it financially support agents that want to adopt hardware sales.

“When they want to expand their business and move into something new, they typically have a hard time qualifying with traditional distributors to buy hardware,” Baur told Channel Futures. “We help them do that, because we can actually help finance some of these partners by giving them a loan against their recurring revenue that they’re already doing with us.”

Baur told Channel Futures that his team balks at the term “brokerage,” that many firms formerly known as master agents have adopted.

“We think ‘brokers’ suggest that we don’t provide a lot of value. There’s no brokers out there who actually can finance the channel, and we can,” he said.

Partner Perspective

MacroNet is a platinum sales partner for Intelisys. President and founder Scott Bryan said his team has stayed busy as customers return to the office.

“We are seeing dramatic spikes in network utilization in newly repopulated offices as workers return to the workspace and leverage cloud-based applications and unified communications,” Bryan told Channel Futures. “Our consultants at Macronet Services are helping clients calculate a new baseline of WAN utilization that has proven out to be 2x the pre-pandemic baseline in some cases. This, obviously, has really ramped up our sourcing work for WAN links across our client base.”

MacroNet’s Scott Bryan

Bryan said MacroNet continues to see strong activity on the UCaaS and CCaaS sides, with UCaaS engagements growing in depth.

“In the CCaaS space, we are still engaged in migrating over legacy call center environments and even transitioning some clients to their second generation CCaaS solutions,” he said. “For CCaaS, we are focused on building roadmaps that match the latest CCaaS offerings with our clients business strategy and goals. Hot areas include omnichannel, AI, gamification, and custom integrations.”

MacroNet also employs an audio/visual team, which provides a service that many agencies to do not provide. In addition, it recently launched a new cloud-based sourcing tool to help its consultants intermediate between customers and suppliers.

“This is really helping us fine tune and streamline the design and sourcing process in collaboration with smaller clients and even with sourcing teams at larger enterprises who rely on us for our deep vendor knowledge and technical experience,” Bryan said.

Enterprise Growth

Dan Marsh is a managing partner at Avail Partners, another platinum Intelisys sales agent. He said the current state of the labor market has given increased partner traction in enterprise accounts.

“C-Level and decision makers are acknowledging the reality that to keep their business growing and support IT operations, partnering and outsourcing to third party vendors can be a more effective path to success. Many enterprise level companies can’t provide competitive hiring packages, training programs and inspiring work environments for IT engineers. On top of that, the ability to utilize cloud services and software-as-a-service lowers the need to have large internal teams and provides benefits of transferring risk away from internal resources and services,” Marsh said.

He added that although most vendors can provide the resources and processes required to help those customers, those clients need help evaluating vendors.

“For example, who is the right vendor? What is a fair market price? Is the vendor properly aligned with a client’s strategic goals and technical requirements? Consulting firms like Avail are constantly shopping the market and providing due diligence on these vendors, evaluating their capabilities, and providing cost analysis on the multiple operational models that exist. Speed matters in today’s competitive marketplace.  Enterprises can’t just hire, buy equipment and attempt to DIY – like they did 10 or 20 years ago. There are too many born-in-the-cloud competitors who are already leveraging these new trends. Using trusted advisors, agents and consultants is an excellent way for enterprise companies to evaluate vendor options and reduce challenges of the current labor market,” he said.

This trend, Marsh said is contributing to the growth of the ScanSource business.