ScanSource CEO Mike Baur, in an exclusive conversation with CRN, outlines how his company’s MicroAge acquisition will expand services opportunities for channel partners while minimizing potential channel conflicts, as well as fiscal first quarter 2027 rising revenue, earnings decline, and growth expectation in the quarters ahead.
ScanSource plans to keep MicroAge operating separately while tapping its services to help channel partners expand their businesses, with safeguards aimed at preventing the acquisition from putting the distributor in competition with its own partners.
That’s the word from ScanSource Chair and CEO Mike Baur, who told CRN Thursday following the company’s fiscal first-quarter 2027 financial report that the $220.5 million MicroAge acquisition brings new opportunities for solution providers and Intelisys advisors without changing MicroAge’s go-to-market model.
“We want to help our channel partners sell some technologies from the MicroAge portfolio, and we’re going to start some pilot programs now and test them to make sure that everyone understands how to do that,” he said.
[Related: ScanSource’s MicroAge Deal Aims To Expand Services, Drive Partner Revenue Growth: CEO]
Those opportunities include MicroAge’s AI assessment program and Amazon Web Services migration services, giving partners services to sell without having to invest in building them first. Integration of MicroAge into ScanSource will be limited to a few corporate and back-office functions.
To address potential channel conflict, ScanSource has added an ombudsman between the sales teams. Baur said customer overlap is small, but partners should flag conflicts.
“We’ve told our channel partners that if they have an account and MicroAge shows up, we will back off as soon as they tell us,” he said. “We will help if they need some assistance, but we won’t intentionally compete with any of our channels.”
Meanwhile, quarterly revenue rose as strong Cisco networking sales drove a lower-margin mix, causing earnings to fall, Baur said. Earnings were also hurt by bad debt tied to a Brazil customer, Oi S.A., he said.
“When you combine lower gross margins and higher SG&A, principally because of Brazil bad debt, that results in a lower operating profit and lower EBITDA,” he said.
Baur expects a more typical sales mix over the next three quarters and top- and bottom-line growth, with updated annual guidance reflecting MicroAge and confidence in the outlook.
There’s a lot going on at ScanSource. To learn more, read CRN’s complete conversation with Baur, which has been lightly edited for clarity.
The big news is that ScanSource’s first fiscal quarter 2027 revenue is up, but earnings are down. What happened on the earnings side?
The revenue we had was really a result of really strong demand and a different mix of revenue than we might typically have, which means a lower-margin mix of revenue. Historically, when we have that happen, our gross margins are lower. These are products [mainly] in our Cisco networking area as a focus. So strong Cisco networking products sales led to a lower gross margin for our business, and that was that. That was a big story. [And] if you look out the rest of the year, we reiterated our guidance and raised it, basically because of MicroAge, but also because we believe this quarter was unusual due to some timing of large deals. We think the next three quarters will look different, more like what we’re used to showing. That’s the gross margin. The gross margins are lower.
And then we had an SG&A (selling, general, and administrative expenses) situation with some bad debt in Brazil with a significant customer, Oi S.A. That particular bad debt was significant for ScanSource, and so it really affected our profitability for the quarter. When you combine lower gross margins and higher SG&A, principally because of Brazil bad debt, that results in a lower operating profit and lower EBITDA.
The other big ScanSource news is the company’s $220.5 million MicroAge acquisition, which closed September 1. How is ScanSource integrating MicroAge? How much of the original MicroAge is still intact?
We’ve decided to not integrate MicroAge. Our idea from the beginning was to leave MicroAge as a separate business and let them continue to operate the way they have. What we plan to do is to use their team, and as they add more resources, have those resources assist ScanSource channel partners, whether they’re solution providers under our specialty segment or more like advisors under our Intelisys segment. We want to help our channel partners sell some technologies from the MicroAge portfolio, and we’re going to start some pilot programs now and test them to make sure that everyone understands how to do that. But the main answer to your question is, other than a few corporate roles like legal and finance, very few integration points. It would only be in a couple of back-office areas. Nothing from the go-to-market side.
MicroAge has its own end customer base. What happens to that business, given that ScanSource is not an end customer-focused company?
That’s right. That’s why we’re leaving them separate. They’ve got separate leadership, and they will continue to operate that business. From our due diligence, we were able to determine that the customers they have been selling to for many years do not conflict with the existing ScanSource channel partners. So there’s very little overlap when we compare the MicroAge customer base, the end users that they’ve sold to, and what we believe the ScanSource traditional channel partners sell to. And we’ve told our channel partners that if they have an account and MicroAge shows up, we will back off as soon as they tell us. We will help if they need some assistance, but we won’t intentionally compete with any of our channels.
So in this case, it’d be up to the channel partner to let ScanSource know that MicroAge showed up?
That’s right. And what we’ve done to help is, we’ve added a resource that’s going to be kind of the ombudsman between the ScanSource and MicroAge sales teams to make sure we have a route to flag any customers that might be in conflict.
What are the chances that a ScanSource channel partner might walk into a MicroAge customer?
It happens in the local MicroAge geographic area, which is heavily in Arizona and some in Southern California, where we have a lot of partners too. But when we looked at the overlap today, out of millions of end customers in the U.S., it’s only in the hundreds. Very small.
Does ScanSource protect MicroAge sales reps from another ScanSource partner coming in or not?
Our idea is, if the MicroAge sales rep is already in there, they’re going to continue to sell. There would be no reason for us to have them do anything different. So their model is still the same because remember they’re selling products today that are not in the ScanSource portfolio. So these are sellers that are not selling our mobility products. They’re not selling our security camera products. There’s a slight amount of overlap, but very small. It’s not strategic that a channel partner from our traditional ScanSource business would be competing with a MicroAge rep with the same products and services. They might both be in there, but with different product sets and different services. We do expect some of that will happen.
Yet with ScanSource’s convergence push, trying to get more of its traditional partners to sell more IT products and vice versa, could ScanSource legacy partners and MicroAge reps run into each other more and more going forward?
I think it’s possible. But again, the history has been they don’t. MicroAge reps would [more likely] run into companies like Insight or CDW and Connection. Those are the companies they’re mostly running into, which are not our traditional partners.
Does the acquisition of MicroAge change ScanSource’s convergence strategy?
It won’t change the convergence strategy with one exception. We believe there are some services that the channel partners, whether they’re traditional solution providers or advisors under the Intelisys channel, we believe all of them need more services to sell. But they typically don’t want to invest in all the services early on until they’re sure there’s enough revenue. So, for example, we think MicroAge’s AI assessment program and Amazon Web Services migration services will be very beneficial to the channel partners. Those things are all new for ScanSource to offer our channel, and we believe channel partners will embrace them.
We’re coming up close to the end of 2026. What are some strategic priorities you have set for 2027?
Our guidance reflects strong growth for the rest of the year on the top line and growth on the bottom line. We’ve got three-year strategic goals that we are still very happy with. We believe investors like those three-year goals, and we believe we can still make great progress towards those three-year goals with what we have to do in the next three quarters. So Q2, between now and December, we’ll be executing our plan. We believe the results we show when we talk to you again in February will be indicative of that. Top line growth and bottom line growth will be reflective of what we’ve given as our annual guidance that we just updated today.
