Softchoice Announces 2023 Results

• Achieves record annual gross profit driven by double-digit growth in Software & Cloud accelerated by our advanced services offering
• Drives 190 basis points of Adjusted EBITDA margin expansion while increasing sales capacity and launching Artificial Intelligence (“AI”) solutions team to accelerate future growth
• Generates $100M in Net cash provided by operating activities
• Announces 18% increase in quarterly dividend, third consecutive increase since IPO
• Announces special dividend of Cdn. $4.00 per share

TORONTO: Softchoice Corporation (“Softchoice” or the “Company”) (TSX: SFTC) today announced its financial results for the fourth quarter (“Q4 2023”) and full year ended December 31, 2023. The Company also declared (i) a quarterly dividend of Cdn. $0.13 per Common Share, an increase over last quarter; and (ii) a Cdn. $4.00 per Common Share special dividend as further detailed below. Softchoice will hold a conference call/webcast to discuss its results today, March 5, 2024, at 8:30 a.m. ET. Except where noted, all dollar ($) amounts are in U.S. dollars.

Financial results highlights1

Q4 2023 compared with Q4 2022

• Solid demand across strategic focus areas drove a 5.9% increase in Gross Sales, including broad-based growth of 11.1% in Software & Cloud and 6.2% in Services.
• Gross Profit growth of 1.3% was lower than Gross Sales primarily due to a decline in Services gross profit, stemming from a non-recurring $2.7 million reduction in cost of sales recorded in the prior year, including a variable compensation accrual reversal.
• Adjusted EBITDA was $28.4 million, a decline of 9.9%, or $3.1 million, mainly due to a variable compensation accrual reversed in the prior year.
• Net income per share on a diluted basis was $0.32 and Adjusted EPS on a diluted basis was $0.31 compared with $0.30 and $0.32, respectively in Q4 2022.

2023 compared with 2022

• Record Gross Profit with growth of 4.7%, or $14.8 million, in Constant Currency, (a 3.3% or $10.4 million increase on a reported basis) driven by double-digit growth in Software & Cloud solutions.
• Adjusted EBITDA increased 10.8%, or $8.8 million, to $90.6 million, or 28.1% of gross profit, up from $81.8 million or 26.2% of gross profit.
• Adjusted EBITDA margin increased by 190 basis points driven by an ongoing focus on capturing operational leverage and efficiencies as well as a foreign exchange benefit, which enabled an increase in sales capacity and the launch of an AI solutions team to accelerate future growth.
• Income from operations grew by 31.2% to $70.6 million, resulting in Net income per share on a diluted basis of $0.78 (an increase of 122.9%) and Adjusted EPS on a diluted basis of $0.90 (an increase of 12.5%).
• High cash conversion of profits combined with effective working capital management delivered Net cash provided by operating activities of $100 million, with $30 million returned to shareholders via quarterly dividends and share buybacks, and net debt reduction of approximately $70 million, resulting in net leverage at December 31, 2023 of 0.4x versus 1.3x the prior year.

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

“Our record performance in 2023 validates our strengths in our strategic focus areas of cloud, digital workplace, and software asset management, all of which are underpinned by security, and our investments in driving organic growth by continuously adding to our sales capacity and technical capabilities. These investments are helping us build a highly recurring, consumption-based Software & Cloud business that achieved double-digit gross profit growth in 2023, outpacing our average growth rate in those solutions compared to the prior five years. This growth offset the impact of industry-wide challenges within the wider Hardware market, resulting in our organic growth rate exceeding major competitors in our markets.

“We are continuing to grow our sales capacity, rolling out innovations in our software asset management and services offerings, and investing in our AI solutions. Since the launch of Copilot for Microsoft 365 last November, we have seen extraordinary customer interest in identifying use cases and preparing their IT environments for AI applications. As one of the largest software and cloud solution providers in the North American mid-market, we are well positioned to become a leader in driving adoption of Copilot for Microsoft 365 and deliver full next-generation cloud and workplace AI solutions across Microsoft Azure, AWS, and Google Cloud Platform.”

Jonathan Roiter, Softchoice’s Chief Financial Officer, said:

“Our ongoing systematic approach towards improving operational execution drove a significant increase in our Adjusted EBITDA margin in 2023 as well as record profits and cash flow, which in turn allowed us to reduce our leverage to only 0.4x while returning $30 million in capital to our shareholders. We achieved this while simultaneously increasing our salesforce and technical talent and growing our customer base at pre-pandemic levels. Our focus on organically growing our business also generated high returns on invested capital that we believe are best-in-class.

“Reflecting confidence in our long-term growth strategy and ability to generate significant free cash flow, our Board has approved our third annual increase to our quarterly dividend, which is now 86% higher than when we first launched it following our IPO in 2021. Beginning the year with minimal debt and the proven capability to deleverage, we are also pleased our Board has approved a special dividend of $4.00 per share. The primary focus of our balanced capital allocation framework is to continue to fund organic growth investments, followed by progressively increasing annually our quarterly dividend, deleveraging our balance sheet and lastly opportunistic M&A, with excess capital returned to shareholders all within our view of an optimal net leverage range of approximately 1x to 3x.”

Quarterly Dividends and Share Buyback Update 2

• On March 4, 2024, the Board declared a quarterly dividend of Cdn. $0.13 per Common Share for the period from January 1, 2024 to March 31, 2024 to be paid on April 12, 2024 to shareholders of record at the close of business on March 28, 2024, representing an approximate 18% increase over Q1 2023. The dividend to which this notice relates is an eligible dividend for tax purposes. This is the third consecutive year that the Board has approved a two-cent increase in quarterly dividends since the Company went public in 2021.
• During Q4 2023 and Fiscal 2023, the Company repurchased and cancelled 180,736 and 945,073 Common Shares, respectively, at an average price of Cdn. $16.53 and $17.32 per Common Share, respectively, under its NCIB program. Since March 13, 2023, the beginning of the current NCIB term, the Company has repurchased and cancelled a total of 423,409 Common Shares at an average price of Cdn. $16.78. The Board has approved the renewal of the NCIB upon expiry of the current NCIB for up to 2.5% of the issued and outstanding Common Shares, subject to approval by the Toronto Stock Exchange (“TSX”).

Special Dividend 2

• The Board has also declared a special dividend of Cdn. $4.00 per Common Share to be paid on April 12, 2024 to shareholders of record at the close of business on March 28, 2024.
• Based on current shares outstanding and foreign exchange rate of $0.74 CAD/USD, the aggregate amount of the special dividend to be paid is estimated to be approximately $180 million; such payment is anticipated to be made using a combination of cash on hand and the Corporation’s revolving term loan (the “Credit Facility”). On March 4, 2024, the Company increased its Credit Facility commitment by $50 million using a portion of the available $100 million accordion feature.
• The special dividend to which this notice relates is an eligible dividend for tax purposes.

Supplementary Measures for the year ended December 31, 20231

• Revenue Retention Rate was 98%, with the decline in Hardware Gross Sales offsetting increased Customer retention and increased Software & Cloud Gross Sales. SMB and Commercial revenue retention continued to trend at or above 100%, offset by a decline in Enterprise revenue retention driven by a decrease in Hardware Gross Sales.
• Customers grew by 4.6% to 4,908 as at December 31, 2023, an increase of 214 versus December 31, 2022, supported by a 6.6% increase in average Account Executives (“AEs”) to 454.
• AE headcount was 497 at December 31, 2023, an increase of 57 or 13.0% versus December 31, 2022.
• Free Cash Flow increased by 20.7% to $57.3 million. Free Cash Flow is a non-IFRS measure. As of Q4 2023, the Company has replaced its previous metric Adjusted Free Cash Flow with Free Cash Flow as defined in this quarter’s Management’s Discussion and Analysis.

Financial Summary1

US$ M except per share amounts, percentages and ratios

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

Quarterly Conference Call

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

DATE: Tuesday, March 5, 2024

TIME: 8:30 a.m. Eastern Time

WEBCAST: https://app.webinar.net/VeDM7Po4RxG

A link to the webcast will also be available on the Events page of the Investors section of Softchoice’s website at Visualizza la versione completa sul sito