SFTC Softchoice Corporation

• Gross profit increases by 10% YoY in Constant Currency driven by double-digit growth in Software & Cloud and Services
• Customer base expands by 4% YoY at Sep. 30 with TTM Revenue Retention Rate from existing Customers increasing to 105%
• Adjusted EBITDA increases by 2% YoY driven by gross profit growth; net income increases 8%

Softchoice Corporation (“Softchoice” or the “Company”) (TSX: SFTC), a leading software- and cloud-focused IT solutions provider, today announced its financial results for the third quarter (“Q3 2024”) ended September 30, 2024. Softchoice will hold a conference call/webcast to discuss its results today, November 8, 2024, at 8:30 a.m. ET. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

Quarterly highlights1

• Gross profit increased by 8.9% year-over-year (“YoY”), or 9.6% in Constant Currency, including double-digit growth in Software & Cloud and Services.
  • Gross profit growth was driven by a combination of 4.3% YoY Customer growth and expanded margin per Customer, including increased revenue retention from existing Customers, supported by a 7% increase in our technical expert team members.
  • The continued increase in customers in 2024 has enabled an 18% YoY increase in our frontline salesforce, a facilitator of future growth.
• Adjusted EBITDA increased by 2.2% to $23.2 million as gross profit growth more than offset higher variable compensation and strategic growth investments including an expanded salesforce and technical expert team members.
• Income from operations decreased by 1.6% despite the growth in Adjusted EBITDA primarily driven by an increase in equity settled share-based compensation.
• Adjusted EPS on a diluted basis was $0.18 compared with $0.23 in Q3 2023 with the increase in Adjusted EBITDA offset by higher tax and financial expenses; net income per share on a diluted basis was $0.15 compared with $0.14 in Q3 2023.
• Named Cisco Canada’s Commercial Impact Partner of the Year recognizing Softchoice as a top-performing partner for commercial customers across Canada.
• Launched SAM+ Hub, a new self-serve centralized and intelligent subscription software management tool for customers. This digital tool is part of the previously announced launch of SAM+, a suite of software asset management solutions and services to efficiently manage the complexities of subscription-based licensing.

Andrew Caprara, Softchoice’s Chief Executive Officer, said: 2

“We’re pleased to report that we again delivered industry leading organic growth in the third quarter, including double-digit increases in strategic focus areas. Our strategic growth investments and expanded frontline salesforce and technical experts, combined with our growing importance to vendors, is accelerating customer growth and increasing customer margins.”

“With the successful launch of our internally developed SAM+ Hub portal, more than a thousand customers are already actively using it to optimize their software spend. This tool differentiates us in the market by providing an unmatched level of insight into a customer's software and cloud environment, enabling us to consolidate management of more of our customer’s software titles and serving as a customer acquisition channel.”

Dividends Update 2

• On November 7, 2024, the Board declared a quarterly dividend of Cdn. $0.13 per Common Share for the period from October 1, 2024 to December 31, 2024 to be paid on January 10, 2025 to shareholders of record at the close of business on December 31, 2024, representing an approximate 18% increase over Q4 2023. The dividend to which this notice relates is an eligible dividend for tax purposes.

Supplementary Measures for the trailing twelve months (TTM) period ended Sep. 30, 20241

• Gross profit increased by 6% to $342.2 million in TTM ended September 30, 2024, reflecting a similar increase in Gross Sales, driven by a 12% increase in Software & Cloud partially offset by a 6% decline in Hardware stemming from industry-wide weakness. In Constant Currency, gross profit grew by 8%. Gross profit was driven by a combination of increased Customers and higher Gross Profit per Customer:
  • Gross Profit per Customer increased to $69 thousand in TTM ended September 30, 2024. Revenue Retention Rate was 105%, due to increased Customer retention and Software & Cloud and Services Gross Sales offsetting a decline in Hardware Gross Sales primarily due to prevailing industry-wide weakness.
  • Average TTM Customers increased approximately 5% to 4,945 from 4,715 in the prior TTM period.
• Average TTM Account Executives were 497, a 10% increase over the prior TTM period.
• Adjusted EBITDA increased by 3% to $96 million, or 28.1% of gross profit.
• Net cash from operating activities increased 2% to $98 million due to an increase in working capital inflow offsetting higher taxes and interest paid. Free Cash Flow, which excludes the impact of working capital changes, decreased to $33 million from $62 million in the prior TTM period with the increase in Adjusted EBITDA more than offset by an increase in cash taxes, operating expenses and interest.

Financial Summary1

US$ M except per share amounts, percentages and ratios

Operations

Q3 2024

Q3 2023

Change %

Change in Constant Currency* %

YTD 2024

YTD 2023

Change %

Change in Constant Currency* %

Gross Sales

628.6

522.6

20.3%

 

1,709.7

1,605.9

6.5%

 

Net sales

189.2

182.2

3.9%

 

551.9

598.5

(7.8)%

 

Gross profit

85.2

78.2

8.9%

9.6%

254.9

235.4

8.3%

8.8%

as a percentage of Gross Sales

13.6%

15.0%

 

 

14.9%

14.7%

 

 

Adjusted EBITDA

23.2

22.7

2.2%

1.6%

67.9

62.2

9.2%

9.0%

as a Percentage of Gross Profit

27.3%

29.0%

 

 

26.6%

26.4%

 

 

Income from operations

18.0

18.3

(1.6%)

 

50.6

46.9

8.0%

 

Net income

9.0

8.4

8.0%

 

20.1

27.0

(25.4%)

 

Net income per Diluted Share

$0.15

$0.14

7.1%

 

$0.33

$0.46

(28.3%)

 

Adjusted Net Income

10.9

13.6

(19.9%)

 

31.4

34.6

(9.3%)

 

Adjusted EPS (Diluted)

$0.18

$0.23

(21.7%)

 

$0.52

$0.59

(11.9%)

 

Cash flow

Q3 2024

Q3 2023

Change %

TTM to Sep. 30, 2024

TTM to Sep. 30, 2023

Change %

Net cash provided by operating activities, excluding change in non-cash operating working capital

8.7

16.7

(47.9%)

41.2

65.0

(36.6%)

Net cash (used in) provided by operating activities

(11.0)

(11.2)

1.9%

98.5

96.2

2.3%

Free Cash Flow

 

 

 

33.5

61.7

(45.7%)

Quarterly dividend per share (based on record date)

Cdn. $0.13

Cdn. $0.11

18.2%

Cdn. $0.50

Cdn. $0.42

19.0%

Financial Position, as at:

Sep. 30, 2024

Sep. 30, 2023

Loans and borrowings less Cash

198.7

87.3

Consolidated net debt** to Adjusted EBITDA ratio

2.2

1.1

Gross Sales and Gross Profit by IT Solution Type and Sales Channel

 

Q3 2024

Q3 2023

Change %

Change in Constant Currency* %

YTD 2024

YTD 2023

Change %

Change in Constant Currency* %

Gross Sales by IT Solution Type*:

 

 

 

 

 

 

 

 

Software & Cloud

478.5

394.4

21.3%

 

1,310.3

1,199.5

9.2%

 

Services

31.9

27.9

14.5%

 

90.2

83.0

8.7%

 

Hardware

118.2

100.3

17.8%

 

309.2

323.4

(4.4)%

 

 

 

 

 

 

 

 

 

 

Gross Profit by IT Solution Type:

 

 

 

 

 

 

 

 

Software & Cloud

58.5

53.2

9.9%

10.8%

180.1

160.0

12.5%

13.2%

as a percentage of Gross Sales

12.2%

13.5%

 

 

13.7%

13.3%

 

 

Services

9.3

7.9

18.3%

18.3%

26.3

23.8

10.3%

10.3%

as a percentage of Gross Sales

29.2%

28.3%

 

 

29.2%

28.7%

 

 

Hardware

17.4

17.2

1.5%

2.0%

48.5

51.5

(5.8)%

(5.5)%

as a percentage of Gross Sales

14.7%

17.1%

 

 

15.7%

15.9%

 

 

 

 

 

 

 

 

 

 

 

Gross Sales by Sales Channel*:

 

 

 

 

 

 

 

 

SMB

183.6

140.9

30.3%

 

478.9

387.9

23.5%

 

Commercial

278.0

261.1

6.5%

 

852.1

828.7

2.8%

 

Enterprise

166.9

120.5

38.5%

 

378.7

389.2

(2.7)%

 

 

 

 

 

 

 

 

 

 

Gross Profit by Sales Channel:

 

 

 

 

 

 

 

 

SMB

23.8

19.1

25.0%

23.7%

66.7

54.7

21.9%

19.0%

as a percentage of Gross Sales

13.0%

13.5%

 

 

13.9%

14.1%

 

 

Commercial

43.9

43.0

2.3%

4.2%

142.0

133.3

6.6%

8.6%

as a percentage of Gross Sales

15.8%

16.5%

 

 

16.7%

16.1%

 

 

Enterprise

17.5

16.2

7.6%

7.2%

46.3

47.4

(2.5)%

(2.4)%

as a percentage of Gross Sales

10.5%

13.5%

 

 

12.2%

12.2%

 

 

Amounts may not add to total due to rounding

* Q3 2024 and YTD 2024 in Constant Currency is translated at the average foreign exchange rate of Q3 and YTD 2023, which were $0.75 and $0.74 CAD/USD, respectively.

** Consolidated net debt equates to loans and borrowings plus lease liabilities less cash-on-hand

Quarterly Conference Call

Softchoice’s management team will hold a conference call to discuss our Q3 2024 results today:

DATE: Friday, Nov. 8, 2024

TIME: 8:30 a.m. Eastern Time

WEBCAST: https://app.webinar.net/jMArBdrODGy

A link to the webcast will also be available on the Events page of the Investors section of Softchoice’s website at http://investors.softchoice.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 90 days.

DIAL-IN: To join the conference call without operator assistance, you may register and enter your phone number at https://emportal.ink/47V3KKL to receive an instant automated call back. You can also dial direct to be entered to the call by an Operator: 1-437-900-0527 or 1-888-510-2154.

TAPED REPLAY: 1-289-819-1450 or 1-888-660-6345, Replay Code 44176 # (Available until Nov. 15, 2024)

Capitalized Terms

Capitalized terms used in this release and terms we use to describe our IT solution types, including Software & Cloud, Services, and Hardware and sales channels including SMB, Commercial, and Enterprise, as well as other measures such as Customer, Gross Profit per Customer, Revenue Retention Rate, and Constant Currency, are described in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended September 30, 2024 and September 30, 2023 (the “Q3 2024 MD&A”), and/or our annual information form dated March 27, 2024 (the “AIF”) filed on SEDAR+ (as defined below) and available on the Company’s investor relations website http://investors.softchoice.com.

1 Non-IFRS Measures

This news release makes reference to certain non-IFRS measures and other measures. These measures are not recognized measures under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures, including “Gross Sales”, “Adjusted EBITDA”, “Adjusted EBITDA as a Percentage of Gross Profit”, “Adjusted Cash Operating Expenses”, “Adjusted Net Income (Loss)”, “Adjusted EPS”, and “Free Cash Flow”. These non-IFRS measures and other measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. Our management uses these non-IFRS measures and other measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. We also believe that securities analysts, investors and other interested parties frequently use certain of these non-IFRS measures and other measures in the evaluation of issuers. As required by Canadian securities laws, we reconcile the non-IFRS measures to the most comparable IFRS measures. For more information on non-IFRS measures and other measures, see the Q3 2024 MD&A filed on SEDAR+ and available on the Company’s investor relations website http://investors.softchoice.com.

Reconciliations of Non-IFRS Financial Measures

(Information in thousands of U.S. dollars, unless otherwise stated)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Reconciliation of Net Sales to Gross Sales

2024

2023

2024

2023

Net sales

189,175

182,153

551,911

598,524

Net adjustment for sales transacted as agent

439,382

340,406

1,157,806

1,007,351

Gross Sales

628,557

522,559

1,709,717

1,605,875

 

Reconciliation of Operating Expenses to Adjusted Cash Operating Expenses

 

 

 

 

Operating expenses

67,215

59,975

204,301

188,506

Depreciation and amortization

(2,323)

(2,203)

(7,175)

(11,372)

Equity-settled share-based compensation and other costs(1)

(2,411)

(930)

(7,337)

(2,617)

Non-recurring compensation and other costs (2)

(501)

(1,323)

(2,750)

(1,417)

Business transformation non-recurring costs (3)

–

–

–

(3)

Non-recurring legal recovery (4)

–

–

–

115

Adjusted Cash Operating Expenses

61,980

55,519

187,039

173,212

 

 

 

 

 

Reconciliation of Income from operations to Adjusted EBITDA

 

 

 

 

Income from operations

17,983

18,267

50,617

46,867

Depreciation and amortization

2,323

2,203

7,175

11,372

Equity-settled share-based compensation and other

costs (1)

2,411

930

7,337

2,617

Non-recurring compensation and other costs (2)

501

1,323

2,750

1,417

Business transformation non-recurring costs (3)

–

–

–

3

Non-recurring legal recovery (4)

–

–

–

(115)

Adjusted EBITDA

23,218

22,723

67,879

62,161

Adjusted EBITDA as a Percentage of Gross Profit (5)

27.3%

29.0%

26.6%

26.4%

 

 

 

 

 

Reconciliation of Net Income to Adjusted Net Income

 

 

 

 

Net income

9,025

8,353

20,129

27,000

Amortization of intangible assets

582

590

1,748

6,579

Equity-settled share-based compensation and other

costs (1)

2,411

930

7,337

2,617

Non-recurring compensation and other costs (2)

501

1,323

2,750

1,417

Business transformation non-recurring costs (3)

–

–

–

3

Non-recurring legal recovery (4)

–

–

–

(115)

Loss on lease modification

–

–

–

4

Foreign exchange (gain) loss (6)

(888)

3,553

2,558

(511)

Other non-recurring expense (7)

(30)

–

(30)

87

Related tax effects (8)

(678)

(1,120)

(3,080)

(2,462)

Adjusted Net Income

10,923

13,629

31,412

34,619

Weighted Average Number of Shares (Basic)

60,329,788

58,509,606

60,158,305

58,153,336

Weighted Average Number of Shares (Diluted)

60,498,438

59,298,269

60,326,955

58,941,998

Adjusted EPS (Basic) (9)

0.18

0.23

0.52

0.60

Adjusted EPS (Diluted) (9)

0.18

0.23

0.52

0.59

The following measures are reported on a trailing twelve-month basis only:

Reconciliation of Net Cash Provided by Operating Activities to

Free Cash Flow

Trailing Twelve-Months Ended September 30,

2024

2023

Net cash provided by operating activities

98,452

96,242

Adjusted for:

 

 

Change in noncash working capital

(57,231)

(31,264)

Maintenance Capex

(3,261)

(3,287)

Principal lease payments

(4,835)

(4,864)

Realized foreign exchange loss

345

4,845

Free Cash Flow

33,470

61,672

 

 

 

Notes (Refer to the Q3 2024 MD&A for description of the sections with parentheses within these Notes)

(1)

These expenses represent costs recognized in connection with the Company’s legacy option plan and omnibus long-term equity incentive plan, pursuant to which options granted are fair valued at the time of grant using the Black-Scholes option pricing model and adjusted for any plan modifications, and expenses related to Restricted share units (“RSUs”) and Deferred share units (“DSUs”). Beginning in Q3 2023, these expenses include the employer match contributions to the ESPP.  

(2)

These expenses include compensation costs relating to severance and other costs comprised of professional, legal, consulting, accounting and management fees that are non-recurring and are sporadic in nature.  

(3)

All non-recurring costs relating to the business transformation initiative were segregated for tracking purposes and are monitored on a regular basis. The costs relate to the implementation and system enhancements for the business transformation. A total of $51 million was invested in operating and capital expenditures towards the business transformation initiative and related system enhancements.

(4)

The Company has settled certain legal claims, without admission of liability or wrongdoing, in respect of U.S. wage and hour disputes and In Q1 2023, the Company received $0.1 million related to this matter.

(5)

Adjusted EBITDA as a Percentage of Gross Profit is calculated as Adjusted EBITDA divided by gross profit. See “Non-IFRS Measures and Other Measures – Non-IFRS Measures – Adjusted EBITDA and Adjusted EBITDA as a Percentage of Gross Profit”.

(6)

Foreign exchange (gain) loss includes both realized and unrealized amounts.

(7)

Other non-recurring expense represents costs the Company incurred in connect with the tax reorganization that occurred at the time of the IPO. In Q3 2024, this includes proceeds from the sale of fully depreciated assets.

(8)

This relates to the tax effects of the adjusting items, which was calculated by applying the statutory tax rate of 26.5% and adjusting for any permanent differences and capital losses.

(9)

Basic Adjusted EPS is calculated using the weighted average number of shares outstanding during the period. Diluted Adjusted EPS includes the dilutive impact of the stock options in addition to the weighted average number of shares outstanding during the period. See “Non-IFRS Measures and Other Measures – Non-IFRS Measures – Adjusted Net Income and Adjusted EPS”.

2 Forward-Looking Statements

This news release contains “forward-looking information” within the meaning of applicable securities laws in Canada.

Forward-looking information may relate to our future business, financial outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, addressable markets, market share, budgets, operations, financial results, taxes, dividend policy, Normal Course Issuer Bid ("NCIB"), operating environment, business plans and objectives. Particularly, information regarding our expectations of future results, performance, growth, achievements, prospects or opportunities or the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”, “financial outlook”, “forecasts”, “projection”, “prospects”, “strategy”, “intends”, “anticipates”, “does not anticipate”, “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might”, “will”, “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding possible future events or circumstances.

Forward-looking information may include, among other things: (i) the Company’s expectations regarding its financial performance and future market share growth, including among others, organic growth, market share gains and margin expansion; (ii) the Company’s expectations regarding industry and market trends, growth rates and growth strategies; (iii) the Company’s business plans and strategies; (iv) the Company’s ability to retain customers, expand the customer base, deepen customer relationships and increase margin per customer; (v) the Company’s relationship and status with technology partners; (vi) the Company’s growth strategies, future organic growth, and competitive position in the IT industry; (vii) the Company’s dividend program, dividend rates, any special dividend and increases or progressive increases in dividends; (viii) the Company’s NCIB program and the purchase of Common Shares in connection with such program; (ix) the impact of macroeconomic conditions and remote and hybrid work on our business, financial position, results of operations and/or cashflows; (x) the use, adoption, integration and growth of AI tools, products, services and solutions, including any growth, leadership position or business changes resulting from AI or the AI solutions team; (xi) the leverage and range of net leverage and the Company’s ability or desire to remain within any optimal leverage parameters; and (xii) the impact of the SAM+ Hub, including any resultant improvements in customer experience, customer acquisition and the consolidation and increase of customer software titles.

Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as at the date such statements are made, and are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the risk factors described in our Q3 2024 MD&A and under “Risk Factors” in the AIF. A copy of the AIF can be accessed under our profile on the System for Electronic Document Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca and on our website at investors.softchoice.com. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information, which speaks only as at the date made. Softchoice does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required under applicable securities laws.

About Softchoice

Softchoice (TSX: SFTC) is a software- and cloud-focused IT solutions provider that equips organizations to be agile, innovative, and secure, and people to be engaged, connected and creative at work. We do this by delivering secure, AI-powered cloud and digital workplace solutions supported by our advanced software asset management methodology and capabilities. Through our ROI customer success framework, we create value for our customers by reducing their IT spending, optimizing their technology, and supporting business-driven innovation. We are a highly engaged, high-performing team that is welcoming, inclusive, and diverse in thought and experience, and are a certified Great Place to Work® in Canada and the United States. To learn more about us, visit www.softchoice.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241108180806/en/

Investor Relations Tim Foran investors@softchoice.com Press Cheryl Salman Director, Communications and Brand media@softchoice.com