Post by
retiredcf on Mar 08, 2022 9:07am
CIBC 2
EQUITY RESEARCH
March 6, 2022 Earnings Update
SOFTCHOICE CORPORATION
Benefiting From Solid Demand + Project Monarch
Our Conclusion
Softchoice is seeing solid demand for its software, cloud and services
offerings, coupled with the realization of Project Monarch benefits. Gross
profit was up 31% Y/Y and the company increased its 2022 gross profit
outlook with Q4 results. We see Softchoice as well positioned to benefit from accelerating demand for cloud and digital solutions and see upside as the company expands its relationship with AWS and Google. We retain our Outperformer rating and C$31 price target.
Key Points
Q4/21 Results Solid, 2022 Guidance Increased: Softchoice reported gross
profit of $85.8 million, roughly 13% above consensus ($76 million) and 14% above our estimate ($75.4 million). Adjusted EBITDA of $26.5 million was above consensus ($23.6 million) and our estimate ($23.9 million). Adjusted EBITDA margins (as a percentage of gross profit) were 30.8%, slightly (30 bps) below consensus expectations. Softchoice increased its 2022 financial outlook, with the gross profit guidance increased to over $320 million (prior over $300 million). Adjusted EBITDA has been revised from $90 million-$100 million to ~30% of gross profit (implying over $96 million). Adjusted free cash flow conversion of ~90% was unchanged.
Well Positioned In Growth Areas: Softchoice is seeing high demand from
three focus areas: 1) hybrid cloud solutions, 2) security software, and
3) software solutions for digital workspaces. Softchoice saw an 86% increase in aggregate public cloud volumes on Microsoft, AWS and Google in 2021, up from a 65% increase in 2020. Softchoice is seeing an acceleration of cloud adoption from clients as they adopt to the changing hybrid work environment and look to save costs.
Solid Growth In Sales Productivity: Softchoice saw its gross profit per
executive increase 27% Y/Y to $751K. The company noted the benefit of
Project Monarch efficiencies and an expanded roster of technical experts to aid the sales process. Softchoice expects to reach its target of ~428 Account Executives at the end of 2023, noting that it has not experienced difficulty hiring. With a customer base skewed towards commercial and SMB, we believe that labour challenges at clients could be an incremental positive for Softchoice, driving Services revenue.
Executing On Project Monarch: Softchoice reiterated its expectation of $25 million in Project Monarch benefits in 2022. The company has seen gross profit benefits in 2021 from pricing alignment and procurement savings, and expects to realize further process streamlining and automation savings in 2022.