Mr. Andrew Caprara reports

SOFTCHOICE ANNOUNCES THIRD QUARTER 2023 RESULTS

Softchoice Corp. has released its financial results for the third quarter ended Sept. 30, 2023 (Q3 2023). Softchoice will hold a conference call/webcast to discuss its results today, Nov. 9, 2023, at 8:30 a.m. ET. Unless otherwise noted, all amounts are in United States dollars.

Q3 2023 summary:

• Continued constant currency double-digit gross profit growth in software and cloud, and strong services performance drove an overall 4.3-per-cent, or $3.2-million, increase in gross profit, or a 3.3-per-cent, or $2.5-million, increase on a reported basis.
• Operating leverage and cost containment drove an increase in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of 48.8 per cent to $22.7-million, or 29 per cent of gross profit, from $15.3-million, or 20 per cent of gross profit, in Q3 2022.
• Income from operations grew by 188.6 per cent over Q3 2022 to $18.3-million, driving an increase in net income per share on a diluted basis to 14 cents from negative 14 cents in Q3 2022, and adjusted EPS (earnings per share) on a diluted basis to 23 cents from 14 cents in Q3 2022.
• High cash conversion delivered LTM (last 12 months) cash flow from operating activities of $96.2-million, which was used to return $39-million of capital to shareholders through quarterly dividends and share buy backs, and reduce net debt by approximately $63-million, resulting in net leverage decreasing to 1.1 times at Sept. 30, 2023, versus 2.1 times the prior year.

Andrew Caprara, Softchoice's chief executive officer, said:

"We continued to successfully deliver on our growth strategy in the third quarter. We grew our customer base, driven by the increased capacity and tenure of our sales teams. We also increased our average gross profit per customer by supporting our salesforce with advanced technical and specialty sales expertise to drive deeper engagements, and deliver higher-margin and stickier IT [information technology] solutions. Demand from mid-market customers for our mission-critical solutions has remained robust, translating into strong growth in the number of public cloud customers, more zero-trust security engagements and our customers adopting more advanced workplace software packages, all of which provide a pipeline for more recurring revenue. Additionally, we see great potential for generative AI [artificial intelligence] in the coming years, and we continue to engage with our customers to help them prepare their IT environments and implement Microsoft Copilot and Google's Duet AI."

Jonathan Roiter, Softchoice's chief financial officer, said:

"We delivered solid top-line gross profit growth in the third quarter, driven by our resilient software-and-cloud-focused business model, despite industry-wide temporary weakness in hardware purchases, which we expect to lap in 2024, as well as a difficult comparator in Q3 2022, which benefited from large software and cloud sales to enterprise customers. Combined with prudent expense management and lower variable compensation, this drove strong profit growth and margin expansion. We ended the quarter in a robust financial position, with significant flexibility to enhance shareholder value through a balanced allocation of capital to growth investments and returning capital to shareholders. Due to the sustained customer demand we are experiencing for our core solutions, we are currently investing to increase our sales capacity significantly by the end of the year."

Dividends and normal course issuer bid (NCIB) update

On Nov. 8, 2023, the board declared a quarterly dividend of 11 Canadian cents per common share for the period from Oct. 1, 2023, to Dec. 31, 2023, to be paid on Jan. 12, 2024, to shareholders of record at the close of business on Dec. 29, 2023, representing an approximate 22-per-cent increase over Q3 2022. The dividend to which this notice relates is an eligible dividend for tax purposes.

During Q3 2023, the company repurchased and cancelled 51,336 common shares at an average price of $15.13 (Canadian) per common share, under its normal course issuer bid program.

Supplementary measures for the LTM period ended Sept. 30, 2023:

• Revenue retention rate was 94 per cent, with SMB (small-to-medium sized business) and commercial revenue retention continuing to trend above 100 per cent, offset by a decline in enterprise revenue retention driven by a decline in gross sales in that channel related to the decline in hardware sales, as well as some large, lower gross margin software and cloud sales recorded in the prior LTM period.
• Gross profit increased by 3.1 per cent to $321.5-million from $312-million in the prior LTM period, due to an increase in:
  • Customers to 4,938 as at Sept. 30, 2023, an increase of 220, or 4.7 per cent, over Sept. 30, 2022.
  • Gross profit per customer to approximately $67,000 from approximately $66,000 in the prior LTM period.
• Adjusted EBITDA increased by 22.1 per cent to $93.7-million from $76.7-million in the prior LTM period.
• Adjusted free cash flow increased by 24.3 per cent to $84.7-million, or 90 per cent of adjusted EBITDA, from $68.1-million, or 89 per cent of adjusted EBITDA, in the prior LTM period:
  • Adjusted free cash flow was used as follows: (i) approximately 21 per cent was used to pay dividends to shareholders; (ii) 25 per cent was used for share buybacks under the NCIB; (iii) 25 per cent for cash taxes and interest payments; and (iv) the remainder primarily to reduce debt.

Board update

The company is pleased to announce the appointment of John MacIntyre to its board of directors. Mr. MacIntyre is co-founder and partner at Birch Hill Equity Partners. "I'm excited to join Softchoice's board, and look forward to contributing to its continued growth and delivery of long-term shareholder value," said Mr. MacIntyre. Prior to Birch Hill, he co-founded the Canadian mid-market private equity group within TD Capital. Mr. MacIntyre currently serves on the board of TD Bank and Sport Maska Inc., the parent company of CCM Hockey, and previously served as chair of HomeEquity Bank. Mr. MacIntyre will replace Felix-Etienne Lebel as lead independent director of Softchoice's board, and chair of the corporate governance and nominating committee of the board. The board wishes to thank Mr. Etienne-Lebel for his service on the board.

Quarterly conference call

Softchoice's management team will hold a conference call to discuss its Q3 2023 results today at 8:30 a.m. (ET).

Date:  Thursday, Nov. 9, 2023

Time:  8:30 a.m. ET

Webcast:  access on-line

A link to the webcast will also be available on the events page of the investors section of Softchoice's website. 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 on-line to receive an instant automated call back. You can also dial direct to be entered into 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 954157 followed by the pound key (available until Nov. 16, 2023)

About Softchoice Corp.

Softchoice is a software-focused information technology 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.

We seek Safe Harbor.