Softchoice Announces Second Quarter 2024 Results
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Softchoice Announces Second Quarter 2024 Results

CIO Review

● 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

TORONTO---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.

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