Softchoice Corp T.SFTC

Alternate Symbol(s): SFTCF

Technology

Softchoice Corporation is a Canada-based software-focused information technology (IT) solutions provider. The Company designs, procures, implements, and manages complex multi-vendor IT solutions. Its solutions include Cloud and Data Center, Collaboration and Digital Workplace, IT Asset Management, Network, and Security. Its Cloud and Data Center solutions include data center modernization; cloud migration, adoption and management; and application modernization. It helps organizations manage their IT assets, including software asset management (SAM) managed services for software used on-premises or in the cloud in line with IT asset management best practices. It offers a range of IT lifecycle services, professional services, and managed services. Its services include cloud migration services, cloud readiness review, cloud managed services, security technology review, and digital workplace solutions. Its subsidiaries include Softchoice LP, Softchoice EmployeeCo Inc., and others.

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Softchoice Corp

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Post by retiredcfon May 12, 2022 12:50pm

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Have a $34.00 target. GLTA

Softchoice Corp.

(SFTC-T) C$20.14

Q1/F22 Conference Call Highlights

Event

Softchoice's Q1/F22 conference call just ended.

Impact: MIXED

Below are key highlights from the conference call:

While Q1/F22 billings grew 11% y/y, highlighting a healthy demand environment, gross profit only grew 6% y/y, as gross profit was negatively impacted by ~$3mm due to:
- Slowing Canadian provincial public sector spend. Management was not sure
  
  if this was related to election activity. We also note that Softchoice benefitted from strong Canadian public sector sales last year.
- Timing of certain multi-year software renewals in the Enterprise channel (a timing issue, as Q1/F22 had less contracts up for renewal).
- Decline in Services gross profit (down 9% y/y) and margin (26.2% vs. 29.3% last year and our 29.5% estimate) due to accelerated additions to its Services engineering team. Management commented on the need to add staff to meet demand in the pipeline for new projects (including some larger than normal ones), however, there was a downward pressure on profitability/margins given it hadn't begun to recognize the related revenue.
- Adjusting for these items, gross profit growth would have been ~11% y/y, in- line with billings growth and our forecast.
Profitability was also negatively impacted by accelerated growth investments, including faster than anticipated recruitment (sales and technical sales), as well as higher commissions paid on billings in key strategic areas (cloud and managed/ professional services).
Given the accelerated investments in Q1 and robust sales pipeline heading into Q2, amongst other things, management expects growth rates to increase as the year progresses. Specifically, management expects Q2 gross profit growth to be slightly higher than Q1 with low- to mid-teens growth in Q3 and Q4.
Due to less seasonality in Adj. Cash OpEx, H1/F22 Adj. EBITDA is expected to be just over one-third of full year Adj. EBITDA with H2/F22 accounting for just under two-thirds. In the last three years, H2 Adj. EBITDA has accounted for ~52%-60% of Adj. EBITDA so the F2022 guidance is more back-end weighted than usual. While this may translate into increased risk (on Softchoice hitting its guidance), we note that prior years did not have the same potential benefit from Project Monarch.