Gross Sales increased 21% driven by 34% increase in Software
& Cloud
Gross profit increased 24% to $65 million with double digit
growth across all IT solutions and sales channels
Softchoice Corporation (“Softchoice” or the “Company”) (TSX:
SFTC) today announced its financial results for the quarter ended
September 30, 2021 (“Q3 2021”). The Company also reiterated its
2022 Outlook provided during its IPO. Unless otherwise noted, all
dollar ($) amounts are in U.S. dollars.
“Softchoice achieved strong third quarter organic growth
including a 24% increase in our gross profit, our key top line
measurement, driven by increasing customer consumption of cloud
products,” said Vince De Palma, Softchoice’s President & CEO.
“Our strategic focus in our hybrid multi-cloud,
collaboration/digital workplace, and software asset management
solutions, supported by significant investments we have made in our
technical and sales enablement resources, cloud strategies and
business transformation initiative Project Monarch, resulted in
record salesforce productivity in Q3 and increased customer
engagement, with net revenue retention over the last year rising to
108% and average gross profit per customer hitting record
levels.”
“We recorded double digit growth in gross profit across all of
our sales channels and greater than 20% growth in each of our
Software & Cloud, Services and Hardware IT solutions, the
latter despite the negative impact of ongoing hardware shortages
globally on sales,” added Bryan Rocco, Softchoice’s Chief Financial
Officer. “Our decline in Adjusted EBITDA was due to the impact of
foreign exchange, as well as increased operating expenses from our
ramp of sales-enablement investments to drive growth and certain
non-recurring professional fees incurred to support the
implementation of a new digital workflow platform for our managed
services offering. Additionally, in Q3 2020, we received $3.7
million in government wage subsidies which offset reported expenses
versus none in Q3 2021.”1
In Q4, the Company’s target remains to achieve double digit
year-over-year growth in gross profit, with seasonality expected to
remain consistent with historical periods with Q2 and Q4 being the
Company’s largest quarters. Combined with anticipated strong cash
flow generation, the Company expects to enter 2022 in a strong
financial position.
The Company also reiterated its financial outlook for 2022
today, remaining on track to realize the anticipated net benefits
of Project Monarch, driven primarily by top line gross profit
enhancements. The Company’s immediate focus going forward is on
continued execution, investments in sales enablement resources and
additional account executives, and realizing the full benefits from
Project Monarch to accelerate our growth and margins.
Financial Summary1
US$ M except per share amounts and
percentages
Q3 2021
Q3 2020
Growth %
YTD 2021
YTD 2020
Growth %
Gross Sales
426.4
351.0
21.5%
1,365.4
1,212.0
12.7%
Net sales
199.0
169.5
17.4%
644.9
605.4
6.5%
Gross profit
65.2
52.7
23.8%
201.2
172.8
16.4%
Adjusted EBITDA
11.3
13.1
(14.1%)
42.6
39.5
8.0%
Adjusted EBITDA as a % of Gross
Profit
17.3%
24.9%
21.2%
22.8%
Income (loss) from operations
4.6
1.4
228.0%
(7.5)
0.4
(1857.1%)
Net income (loss)
(2.2)
(0.9)
157.7%
(17.3)
(17.2)
0.7%
Net income (loss) per Diluted Share
(attributable to the Owners of the Company)
$(0.04)
$(0.03)
40.0%
$(0.37)
$(0.27)
36.1%
Adjusted Net Income
5.6
4.0
40.4%
20.0
15.6
27.7%
Adjusted EPS (Diluted)
$0.09
$0.07
24.9%
$0.36
$0.28
29.5%
* Adjusted EBITDA is not adjusted to subtract funds received
under the Canada Emergency Wage Subsidy (“CEWS”) program provided
by the federal government of Canada and therefore reflects the
lower operating costs resulting from the CEWS payments, including
$3.7 million in Q3 2020 and YTD 2020 (and $10.3 million in Q4 2020)
compared to nil in Q3 2021 and $0.7 million in YTD 2021.
Financial Position
The Company is in strong financial condition, including a $275
million revolving credit facility, with approximately $106.1
million in loans and borrowings outstanding at September 30, 2021.
Including internally generated cash flows, the Company anticipates
having significant resources with which to pursue growth
opportunities.
Net debt, equating to loans and borrowings plus lease
liabilities less cash-on-hand, was $127.8 million at September 30,
2021 compared to $190.6 million at December 31, 2020, with the
decline driven by proceeds from the IPO as well as net cash flows
from operating activities in the nine months ended September 30,
2021. The ratio of net debt to Adjusted EBITDA over the last twelve
months was 1.9x at September 30, 2021 compared to 2.9x at December
31, 2020.
Dividend
Softchoice anticipates paying quarterly cash dividends of
approximately C$0.07 per Common Share. The Company’s next cash
dividend, which will be for the period from October 1, 2021 to
December 31, 2021, is expected to be paid on or about January 14,
2022 to shareholders of record on December 31, 2021.
Our Outlook 1
Softchoice reiterated its 2022 financial outlook that was
included in its Prospectus (as defined below). For full-year 2022,
the Company is expecting:
- Gross Profit of over $300 million, representing a 12% CAGR from
2020 to 2022
- Adjusted EBITDA of $90 million to $100 million, inclusive of
~$25 million of Project Monarch Uplift
- Adjusted Free Cash Flow Conversion of approximately 90%
Our outlook is based on certain assumptions and factors
(including those relating to our view of the drivers of, and
expectations related to, our anticipated growth), including the key
assumptions and factors set out in the Prospectus under ‘Our
Outlook’. For important information on risk factors, refer to
“Forward Looking Information Disclaimer” later in this news
release.
Quarterly Conference Call
Softchoice’s management team will hold a conference call to
discuss our Q3 2021 results today, November 12, 2021, at 8:30 a.m.
ET.
DATE: Friday, November 12, 2021 TIME: 8:30 a.m.
Eastern Time DIAL-IN: 416-764-8659 or 1-888-664-6392,
Confirmation # 20486052 WEBCAST:
https://produceredition.webcasts.com/starthere.jsp?ei=1503888&tp_key=c516dcf88a
TAPED REPLAY: 416-764-8677 or 1-888-390-0541, Replay Code
486052 # (available until November 19, 2021)
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.
Capitalized Terms
Capitalized terms used in this release, including Project
Monarch, and terms we use to describe our IT solution types
including Software & Cloud, Services, and Hardware and sales
channels including SMB, Commercial, and Enterprise are described in
the Company’s Management’s Discussion and Analysis of Financial
Condition and Results of Operations for the three and nine-months
ended September 30, 2021 (the “Q3 2021 MD&A”), and/or defined
in the Company’s final initial public offering prospectus dated May
26, 2021 (the “Prospectus”) filed on SEDAR 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 “Adjusted EBITDA”, “Adjusted EBITDA as a
Percentage of Gross Profit”, “Adjusted Cash Operating Expenses”,
“Adjusted Net Income (Loss)”, “Adjusted EPS”, “Adjusted Free Cash
Flow Conversion”, and “Gross Sales”. 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
2021 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
2021
2020
2021
2020
Net sales
199,009
169,523
644,891
605,360
Net adjustment for sales transacted as
agent
227,417
181,490
720,475
606,614
Gross Sales
426,426
351,013
1,365,366
1,211,974
Reconciliation of Operating Expenses to
Adjusted Cash Operating Expenses
Operating expenses
60,566
51,244
208,630
172,423
Depreciation and amortization
(5,424)
(6,501)
(16,140)
(17,203)
Equity-settled share-based compensation
and other costs (1)
(498)
(1,057)
(29,180)
(9,310)
Non-recurring compensation and other costs
(2)
(163)
(633)
(682)
(1,423)
Business transformation non-recurring
costs (3)
(334)
(3,519)
(1,074)
(11,113)
IPO related costs (4)
(235)
–
(2,992)
–
Adjusted Cash Operating
Expenses
53,912
39,534
158,562
133,374
Reconciliation of Income (loss) from
operations to Adjusted EBITDA
Income (loss) from operations
4,618
1,408
(7,450)
424
Depreciation and amortization
5,424
6,501
16,140
17,203
Equity-settled share-based compensation
and other costs (1)
498
1,057
29,180
9,310
Non-recurring compensation and other costs
(2)
163
633
682
1,423
Business transformation non-recurring
costs (3)
334
3,519
1,074
11,113
IPO related costs (4)
235
–
2,992
–
Adjusted EBITDA
11,272
13,118
42,618
39,473
Adjusted EBITDA as a Percentage of
Gross Profit(5)
17.3%
24.9%
21.2%
22.8%
Reconciliation of Net Loss to Adjusted
Net Income
Net loss
(2,214)
(859)
(17,323)
(17,209)
Amortization of intangible assets.
3,281
4,349
9,779
10,676
Equity-settled share-based compensation
and other costs (1)
498
1,057
29,180
9,310
Non-recurring compensation and other costs
(2)
163
633
682
1,423
Business transformation non-recurring
costs (3)
334
3,519
1,074
11,113
IPO related costs (4)
235
–
2,992
–
Related party debt interest (6)
–
984
1,737
2,888
Subordinated debt interest (6)
–
255
446
747
Interest expense (recovery) on accretion
of non-interest bearing notes (7)
–
96
120
162
Extinguishment of deferred financing fees
(8)
–
–
1,621
–
Unrecoverable withholding taxes (9)
–
–
1,035
–
Loss on lease modification (10)
1,184
–
1,184
–
Foreign exchange loss (gain) (11)
4,044
(3,982)
(1,680)
4,200
Tax recovery on deferred tax liability
(12)
–
–
(2,863)
–
Related tax effects (13)
(1,911)
(2,054)
(8,021)
(7,672)
Adjusted Net Income
5,614
3,998
19,963
15,638
Weighted Average Number of Shares
(Basic)
59,070,380
45,039,549
51,366,389
45,126,350
Weighted Average Number of Shares
(Diluted)
63,447,117
56,452,755
55,743,126
56,539,555
Adjusted EPS (Basic) (14)
0.10
0.09
0.39
0.35
Adjusted EPS (Diluted) (14)
0.09
0.07
0.36
0.28
Notes (Refer to the Q3 2021 MD&A for description of the
bolded items and sections with parentheses within these
Notes)
(1)
These expenses represent costs recognized in connection with
the Legacy Option Plan and the new Omnibus Long-Term Equity
Incentive Plan (see Note 10 in the Interim Financial Statements for
additional details), 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. Included in YTD
2021, there was $16.9 million relating to certain payments made in
connection with extinguishment of certain equity-based entitlements
(the “Cash-Out Agreements”) in conjunction with the IPO. Other
costs relate to the employee investment plan and the long-term
profit-sharing plan, which were dissolved upon the completion of
the IPO, and fair value adjustments in relation to existing
equity-based arrangements. As a result of the IPO, a $6.1 million
fair value adjustment was triggered on an existing equity-based
arrangement which was dissolved thereafter. See “Share Information
Prior to the Completion of the Offering”.
(2)
These expenses include compensation costs relating to
severance and a one-time accrual recorded in Fiscal 2020 associated
with the set-up of a new corporate vacation policy. Other costs are
comprised of professional, legal, consulting, accounting and
management fees that are non-recurring and are sporadic in nature
as they primarily relate to costs incurred in connection with
shareholder distributions.
(3)
These costs relate to the implementation of Project Monarch
which were largely comprised of one-time third-party consulting
expenses, personnel costs for dedicated internal resources and
software related costs. All costs relating to Project Monarch were
segregated for tracking purposes and are monitored on a regular
basis. As at September 30, 2021, $48.7 million has been invested in
operating and capital expenditures for Project Monarch. See
“Summary of Factors Affecting Performance – Business Transformation
(Project Monarch)”.
(4)
In connection with the IPO, the Company incurred expenses
related to professional fees, legal, consulting, accounting and
compensation that would otherwise not have been incurred and
therefore are non-recurring. These costs have been separately
identified and adjusted for clarity. There were $253 of IPO related
costs which were incurred in Q1 2021 that were previously
classified under non-recurring compensation and other costs; these
costs have been reclassed into IPO related costs in YTD 2021.
(5)
Adjusted EBITDA as a Percentage of Gross Profit is
calculated as Adjusted EBITDA divided by gross profit. See
“Non-IFRS Measures – Adjusted EBITDA and Adjusted EBITDA as a
Percentage of Gross Profit”.
(6)
Related party and subordinated debt interest was settled at
the time of Offering. For additional details see “Related Party
Transactions”, “Subordinated Debt Information” and “Share
Information Prior to the Completion of the Offering”.
(7)
This represents the expense relating to the accretion of the
present value of the non-interest bearing notes recognized over the
term of the notes. These notes were settled at the time of
Offering. See also “Related Party Transactions”, “Subordinated Debt
Information” and “Share Information Prior to the Completion of the
Offering”.
(8)
As a result of the refinancing, the unamortized balance of
the deferred financing fees on the former revolving credit facility
and term credit facility of $1,621 were extinguished in Q2 2021.
(9)
Non-controlling interest portion of unrecoverable
withholding taxes on royalties. Non-controlling interest was
eliminated upon the IPO of the Company.
(10)
Loss on lease modification recognized in Q3 2021 as a result
the recognition of a sublease receivable for an office space that
has been subleased and the corresponding derecognition of a
right-of-use asset associated with this space.
(11)
Foreign exchange (gain) loss includes both realized and
unrealized amounts.
(12)
Tax recovery on deferred tax liability as a result of tax
rate change due to change from Canadian Controlled Private Company
to public company.
(13)
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.
(14)
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 (Loss) and Adjusted EPS”.
1 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, budgets, operations,
financial results, taxes, dividend policy, plans and objectives.
Particularly, information regarding our expectations of future
results, performance, 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,
including among others, net sales, gross profit, expenses, Adjusted
EBITDA, Adjusted Free Cash Flow Conversion and operations; (ii) the
Company’s expectations regarding industry trends, growth of our
addressable market, overall market growth rates and our growth
rates and growth strategies; (iii) our ability to maintain a highly
predictable and visible net sales outlook; (iv) our business plans
and strategies; (v) the continued success of our commercial model;
(vi) our expectations regarding growth in our customer base, our
ability to retain customers and increase margin per customer; (vii)
acceleration in growth of and adoption of new technologies; (viii)
our relationship with our technology partners; (ix) our ability to
continue to attract and retain talent; (x) our competitive position
in our industry; (xi) our intention to declare dividends; (xii) and
the long-term impact of COVID-19 on our business, financial
position, results of operations and/or cash flows.
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 Q2 2021
MD&A and under “Risk Factors” within the Prospectus. A copy of
the Prospectus can be accessed under our profile on the System for
Electronic Document Analysis and Retrieval (“SEDAR”) at
www.sedar.com 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.
About Softchoice
Softchoice (TSX: SFTC) is a software-focused IT solutions
provider that equips organizations to be agile and innovative, and
for their people to be engaged, connected and creative at work.
That means moving them to the cloud, helping them build the
workplace of tomorrow, and enabling them to make smarter decisions
about their technology portfolio. For more information, please
visit www.softchoice.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20211112005396/en/
Investor Relations Tim Foran (416) 986-8515
investors@softchoice.com
Media Relations Oindrila Hazra (416) 583-8046
oindrila.hazra@softchoice.com
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