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

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 Update2

• 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 http://investors.softchoice.com. 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 at https://emportal.ink/3u4ZXLk to receive an instant automated call back. You can also dial direct to be entered to 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 493447 # (Available until March 12, 2024)

Capitalized Terms

Capitalized terms used in this release and terms we use to describe our IT solution types, including Software & Cloud, Services, and Hardware and sales channels including SMB, Commercial, and Enterprise, as well as other measures such as Customer, Revenue Retention Rate, and Constant Currency, are described in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations the three months and year ended December 31, 2023 and December 31, 2023 (the “Q4 2023 MD&A”), and/or our annual information form dated March 29, 2023 (the “AIF”) filed on SEDAR (as defined below) and available on the Company’s investor relations website http://investors.softchoice.com.

1 Non-IFRS Measures

This news release makes reference to certain non-IFRS measures and other measures. These measures are not recognized measures under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures, including “Adjusted EBITDA”, “Adjusted EBITDA as a Percentage of Gross Profit”, “Adjusted Cash Operating Expenses”, “Adjusted Net Income (Loss)”, “Adjusted EPS”, “Free Cash Flow”, and “Gross Sales”. These non-IFRS measures and other measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. Our management uses these non-IFRS measures and other measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. We also believe that securities analysts, investors and other interested parties frequently use certain of these non-IFRS measures and other measures in the evaluation of issuers. As required by Canadian securities laws, we reconcile the non-IFRS measures to the most comparable IFRS measures. For more information on non-IFRS measures and other measures, see the Q4 2023 MD&A filed on SEDAR and available on the Company’s investor relations website http://investors.softchoice.com.

Reconciliations of Non-IFRS Financial Measures

The following measures are reported on a trailing twelve-month basis only:

Notes (Refer to the Q4 2023 MD&A for description of the sections with parentheses within these Notes)

2 Forward-Looking Statements

This news release contains “forward-looking information” within the meaning of applicable securities laws in Canada.

Forward-looking information may relate to our future business, financial outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, addressable markets, market share, budgets, operations, financial results, taxes, dividend policy, NCIB, operating environment, business plans and objectives. Particularly, information regarding our expectations of future results, performance, growth, achievements, prospects or opportunities or the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”, “financial outlook”, “forecasts”, “projection”, “prospects”, “strategy”, “intends”, “anticipates”, “does not anticipate”, “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might”, “will”, “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding possible future events or circumstances.

Forward-looking information may include, among other things: (i) the Company’s expectations regarding its financial performance and future market share growth, including among others, organic growth; (ii) the Company’s expectations regarding industry and market trends, growth rates and growth strategies; (iii) the Company’s business plans and strategies; (iv) the Company’s ability to retain customers and increase margin per customer; (v) the Company’s relationship and status with technology partners; (vi) the Company’s growth strategies, future organic growth, and competitive position in the IT industry; (vii) the Company’s dividend program, dividend rates, any special dividend and increases or progressive increases in dividends; (viii) the Company’s NCIB program and the purchase of Common Shares in connection with such program; (ix) the impact of macroeconomic conditions and remote and hybrid work on our business, financial position, results of operations and/or cashflows; (x) the Company’s use, adoption, integration and growth of AI tools, products, services and solutions, including any growth, leadership position or business changes resulting from AI or the AI solutions team; and (xi) the leverage and range of net leverage and the Company’s ability or desire to remain within any optimal leverage parameters.

Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as at the date such statements are made, and are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the risk factors described in our Q4 2023 MD&A and under “Risk Factors” in the AIF. A copy of the AIF can be accessed under our profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and on our website at investors.softchoice.com. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information, which speaks only as at the date made. Softchoice does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required under applicable securities laws.

About Softchoice

Softchoice (TSX: SFTC) is a software-focused IT 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. For more information, please visit www.softchoice.com.

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