- Gross profit increases by 12% YoY driven by an 18% increase in
Software & Cloud
- Customer base grows by 5% YoY with Revenue Retention Rate from
existing Customers at 100%
- Adjusted EBITDA increases by 18% YoY due to double-digit gross
profit growth, natural operating leverage and improved operational
efficiency
- Operating cash flow generation of $58 million powered reduction
in net leverage to 2.0x at June 30, 2024 versus pro forma 2.6x at
March 31, 2024
Softchoice Corporation (“Softchoice” or the “Company”) (TSX:
SFTC), a leading software- and cloud-focused IT solutions provider,
today announced its financial results for the second quarter (“Q2
2024”) ended June 30, 2024. Softchoice will hold a conference
call/webcast to discuss its results today, August 9, 2024, at 8:30
a.m. ET. Unless otherwise noted, all dollar ($) amounts are in U.S.
dollars.
Quarterly highlights1
- Gross profit increased by 12.3% year-over-year (“YoY”) with
17.5% growth in Software & Cloud and an 11.4% increase in
Services, driven by a larger customer base and deepening customer
relationships.
- Adjusted EBITDA increased by 18.5% to $29.5 million with margin
expanding by 165 bps to 31.7% due to double-digit gross profit
growth, natural operating leverage and improved operational
efficiency offsetting growth investments in our public cloud,
generative AI and SAM+ capabilities; income from operations
increased by 16.1% for the same reasons.
- Adjusted EPS on a diluted basis was $0.27 compared with $0.23
in Q2 2023; net income per share on a diluted basis was $0.20
compared with net income per share of $0.23 in Q2 2023 primarily
due to the impact of unrealized foreign exchange recorded in net
finance costs and higher interest expense.
- Operating cash flow increased to $58 million from $53 million
in Q2 2023 driven by increased EBITDA and improved working capital
management.
- Cash flow generation enabled reduction of net leverage to 2.0x
at June 30, 2024 from 2.6x at March 31, 2024 (pro forma for the
special dividend of C$4.00 paid April 12, 2024).
- Received the 2024 Microsoft Scale Solutions United States
Americas Partner of the Year Award and was named a finalist in the
Scale Solutions category globally and for Canada.
- Received the 2024 Google Cloud Public Sector Partner of the
Year award for Canada and was named VMware Geo Partner of the Year
(North America) by VMware by Broadcom.
- Named a Best Workplace in Canada™ by Great Place to Work® for
the 19th year in a row in April 2024, ranking 9th among large
employers.
Andrew Caprara, Softchoice’s Chief Executive Officer, said:
2
“We’re very pleased with the strong double-digit growth in our
top-line gross profit as we continued to benefit from our
investments in an expanded salesforce and technical expertise. We
recorded our best second quarter of customer growth since before
the pandemic and continued to drive deeper relationships with our
customers, as evidenced by our 100% revenue retention. Notably, we
saw strong growth in our strategic focus areas—workplace, public
cloud, and security solutions—within our core SMB and Commercial
sales channels. Additionally, our strong execution allowed us to
benefit from increased and accelerated technology partner
incentives against our 2024 performance milestones.
“The second quarter marked a milestone as the first full quarter
where Microsoft Copilot was available to most of our customers. We
have established a market-leading position in Copilot adoption
across the North American mid-market. While still early, we are
starting to see customers move from the pilot stage to production
use cases and enterprise-wide adoption.
“Looking ahead, our focus remains on building a world-class
culture to increase the engagement, retention and productivity of
our team members, expanding our customer base, and leveraging our
technical capabilities and unique go-to-market motion to deepen our
customer relationships over time.”
Dividends Update 2
- On August 8, 2024, the Board declared a quarterly dividend of
Cdn. $0.13 per Common Share for the period from July 1, 2024 to
September 30, 2024 to be paid on October 11, 2024 to shareholders
of record at the close of business on September 30, 2024,
representing an approximate 18% increase over Q3 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 June 30, 20241
- Revenue Retention Rate was 100%, with increased Customer
retention and the increase in Software & Cloud and Services
Gross Sales offsetting a decline in Hardware Gross Sales primarily
due to prevailing industry-wide weakness.
- Customers increased 5% to 5,020 at June 30, 2024, an increase
of 252 compared to June 30, 2023. Average TTM Customers increased
to 4,925 from 4,690 in the prior TTM period, an increase of 5%,
more than double the growth rate recorded in the prior TTM period
with the increased rate driven by investments in an expanded
frontline salesforce (“Account Executives”).
- Account Executives increased by 13% to 507 at June 30, 2024
compared with 450 a year prior. Average TTM Account Executives were
479, a 6% increase over the prior TTM period.
- Gross Profit per Customer was $68,000, consistent with the
prior TTM period.
- Gross profit increased by 5% to $335 million driven by an 11%
increase in Software & Cloud. In Constant Currency, gross
profit grew by 6%.
- Adjusted EBITDA increased by 11% to $96 million, or 28.6% of
gross profit. In Constant Currency Adjusted EBITDA increased by 10%
to $95 million, or 28.1% of gross profit.
- Net cash from operating activities increased 102% to $98
million due to an increase in profits and effective working capital
management. Free Cash Flow decreased to $41 million from $51
million in the prior TTM period with the increase in Adjusted
EBITDA offset by an increase of $15 million in cash taxes.
Financial Summary1
US$ M except per share amounts, percentages and ratios
Operations
Q2 2024
Q2 2023
Change %
Change in Constant Currency*
%
H1 2024
H1 2023
Change %
Change in Constant Currency*
%
Gross Sales
600.8
577.3
4.1%
1,081.2
1,083.3
(0.2)%
Net sales
193.0
207.6
(7.0)%
362.7
416.4
(12.9)%
Gross profit
93.1
82.9
12.3%
13.3%
169.7
157.1
8.0%
8.4%
as a percentage of Gross Sales
15.5%
14.4%
15.7%
14.5%
Adjusted EBITDA
29.5
24.9
18.5%
18.8%
44.7
39.4
13.2%
13.3%
as a Percentage of Gross Profit
31.7%
30.0%
26.3%
25.1%
Income from operations
22.0
19.0
16.1%
32.6
28.6
14.1%
Net income
12.1
14.1
(14.0%)
11.1
18.6
(40.5%)
Net income per Diluted Share
$0.20
$0.23
(13.0%)
$0.18
$0.31
(41.9%)
Adjusted Net Income
16.0
13.9
15.7%
20.5
21.0
(2.4%)
Adjusted EPS (Diluted)
$0.27
$0.23
17.4%
$0.34
$0.35
(2.9%)
Cash flow
Q2 2024
Q2 2023
Change %
TTM to Jun. 30, 2024
TTM to Jun. 30, 2023
Change %
Net cash provided by operating activities,
excluding change in non-cash operating working capital
9.7
18.6
(48.1%)
49.2
50.8
(3.0%)
Net cash provided by operating
activities
58.4
53.5
9.2%
98.2
48.6
102.1%
Free Cash Flow
41.0
51.3
(20.1%)
Quarterly dividend per share (based on
record date)
Cdn. $0.13
Cdn. $0.11
18.2%
Cdn. $0.48
Cdn. $0.40
20.0%
Financial Position, as at:
Jun. 30, 2024
Jun. 30, 2023
Loans and borrowings less Cash
178.2
72.7
Net leverage (Consolidated net debt** to
TTM Adjusted EBITDA ratio)
2.0
1.0
Gross Sales and Gross Profit by IT Solution Type and Sales
Channel
Q2 2024
Q2 2023
Change %
Change in Constant Currency*
%
H1 2024
H1 2023
Change %
Change in Constant Currency*
%
Gross Sales by IT Solution
Type*:
Software & Cloud
473.8
440.6
7.5%
831.8
805.1
3.3%
Services
30.3
27.6
9.7%
58.3
55.2
5.7%
Hardware
96.7
109.0
(11.3)%
191.0
223.1
(14.4)%
Gross Profit by IT Solution
Type:
Software & Cloud
68.6
58.4
17.5%
18.8%
121.6
106.8
13.9%
14.4%
as a percentage of Gross Sales
14.5%
13.2%
14.6%
13.3%
Services
9.0
8.1
11.4%
11.4%
17.0
16.0
6.4%
6.4%
as a percentage of Gross Sales
29.7%
29.3%
29.1%
28.9%
Hardware
15.5
16.5
(5.9)%
(5.3)%
31.1
34.4
(9.4)%
(9.2)%
as a percentage of Gross Sales
16.0%
15.1%
16.3%
15.4%
Gross Sales by Sales Channel*:
SMB
160.9
139.1
15.6%
295.3
247.0
19.6%
Commercial
335.8
323.1
3.9%
574.1
567.6
1.1%
Enterprise
104.2
115.0
(9.5)%
211.8
268.7
(21.2)%
Gross Profit by Sales Channel:
SMB
22.2
18.9
17.2%
14.8%
42.8
35.6
20.3%
16.5%
as a percentage of Gross Sales
13.8%
13.6%
14.5%
14.4%
Commercial
56.0
49.3
13.7%
16.0%
98.1
90.3
8.6%
10.7%
as a percentage of Gross Sales
16.7%
15.2%
17.1%
15.9%
Enterprise
14.9
14.7
1.3%
2.2%
28.8
31.2
(7.7)%
(7.4)%
as a percentage of Gross Sales
14.3%
12.8%
13.6%
11.6%
Amounts may not add to total due to
rounding
* Q2 2024 and H1 2024 in Constant Currency
are translated at the average foreign exchange rate of Q2 and H1
2023, which were $0.74 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 Q2 2024 results today at 8:30 a.m. (ET).
DATE: Friday, August 9, 2024
TIME: 8:30 a.m. Eastern Time
WEBCAST: https://app.webinar.net/oex80D9qn6p
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/4eSJEDS to receive an instant automated call
back. You can also dial direct to be entered to the call by an
Operator: 416-764-8659 or 1-888-664-6392.
TAPED REPLAY: 416-764-8677 or 1-888-390-0541, Replay Code
668550 # (Available until August 16, 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 June 30, 2024 and June 30,
2023 (the “Q2 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 Q2 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
June 30,
Six Months Ended
June 30,
Reconciliation of Net Sales to Gross
Sales
2024
2023
2024
2023
Net sales
192,976
207,555
362,736
416,371
Net adjustment for sales transacted as
agent
407,867
369,719
718,424
666,945
Gross Sales
600,843
577,274
1,081,160
1,083,316
Reconciliation of Operating Expenses to
Adjusted Cash Operating Expenses
Operating expenses
71,101
63,972
137,086
128,531
Depreciation and amortization
(2,439)
(4,428)
(4,852)
(9,169)
Equity-settled share-based compensation
and other costs(1)
(2,828)
(1,527)
(4,926)
(1,687)
Non-recurring compensation and other
(costs) recoveries (2)
(2,249)
1
(2,249)
(94)
Business transformation non-recurring
costs (3)
–
–
–
(3)
Non-recurring legal recovery
(4)
–
–
–
115
Adjusted Cash Operating
Expenses
63,585
58,018
125,059
117,693
Reconciliation of Income from
operations to Adjusted EBITDA
Income from operations
22,004
18,960
32,634
28,600
Depreciation and amortization
2,439
4,428
4,852
9,169
Equity-settled share-based compensation
and other
costs (1)
2,828
1,527
4,926
1,687
Non-recurring compensation and other
costs (2)
2,249
(1)
2,249
94
Business transformation non-recurring
costs (recoveries) (3)
–
–
–
3
Non-recurring legal recovery
(4)
–
–
–
(115)
Adjusted EBITDA
29,520
24,914
44,661
39,438
Adjusted EBITDA as a Percentage of
Gross Profit (5)
31.7%
30.0%
26.3%
25.1%
Reconciliation of Net Income to
Adjusted Net Income
Net income
12,132
14,110
11,104
18,647
Amortization of intangible
assets
581
2,825
1,166
5,989
Equity-settled share-based compensation
and other
costs (1)
2,828
1,527
4,926
1,687
Non-recurring compensation and other
costs (recoveries) (2)
2,249
(1)
2,249
94
Business transformation non-recurring
costs (3)
–
–
–
3
Non-recurring legal recovery
(4)
–
–
–
(115)
Loss on lease modification
–
–
–
4
Foreign exchange (gain) loss
(6)
(488)
(4,184)
3,446
(4,064)
Other non-recurring expense (7)
–
87
–
87
Related tax effects (8)
(1,253)
(494)
(2,402)
(1,342)
Adjusted Net Income
16,049
13,870
20,489
20,990
Weighted Average Number of Shares
(Basic)
60,328,918
57,886,682
60,071,621
57,972,248
Weighted Average Number of Shares
(Diluted)
60,456,327
60,235,769
60,199,030
60,321,335
Adjusted EPS (Basic) (9)
0.27
0.24
0.34
0.36
Adjusted EPS (Diluted) (9)
0.27
0.23
0.34
0.35
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
June 30,
2024
2023
Net cash provided by operating
activities
98,239
48,605
Adjusted for:
Change in noncash working
capital
(49,013)
2,166
Maintenance Capex
(3,146)
(3,847)
Principal lease payments
(4,905)
(4,902)
Realized foreign exchange (gain)
loss
(136)
9,310
Free Cash Flow
41,039
51,332
Notes (Refer to the Q2 2024 MD&A for description of
the sections with parentheses within these Notes)
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 Q2 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.
(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;
(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 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; and (xi) the leverage and range of net leverage and
the Company’s ability or desire to remain within any optimal
leverage parameters.
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 Q4 2023
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/20240809656071/en/
Investor Relations Tim Foran (416) 986-8515
investors@softchoice.com
Press Lauren Crawford (647) 216-4560
media@softchoice.com
Softchoice (TSX:SFTC)
Historical Stock Chart
From Oct 2024 to Nov 2024
Softchoice (TSX:SFTC)
Historical Stock Chart
From Nov 2023 to Nov 2024
