Softchoice Announces Second Quarter 2024 Results

• Gross profit increases by 12% YoY driven by an 18% increase in Software & Cloud
• Customer base grows by 5% YoY with Revenue Retention Rate from existing Customers at 100%
• Adjusted EBITDA increases by 18% YoY due to double-digit gross profit growth, natural operating leverage and improved operational efficiency
• Operating cash flow generation of $58 million powered reduction in net leverage to 2.0x at June 30, 2024 versus pro forma 2.6x at March 31, 2024

Softchoice Corporation (“Softchoice” or the “Company”) (TSX: SFTC), a leading software- and cloud-focused IT solutions provider, today announced its financial results for the second quarter (“Q2 2024”) ended June 30, 2024. Softchoice will hold a conference call/webcast to discuss its results today, August 9, 2024, at 8:30 a.m. ET. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

Quarterly highlights1

• Gross profit increased by 12.3% year-over-year (“YoY”) with 17.5% growth in Software & Cloud and an 11.4% increase in Services, driven by a larger customer base and deepening customer relationships.
• Adjusted EBITDA increased by 18.5% to $29.5 million with margin expanding by 165 bps to 31.7% due to double-digit gross profit growth, natural operating leverage and improved operational efficiency offsetting growth investments in our public cloud, generative AI and SAM+ capabilities; income from operations increased by 16.1% for the same reasons.
• Adjusted EPS on a diluted basis was $0.27 compared with $0.23 in Q2 2023; net income per share on a diluted basis was $0.20 compared with net income per share of $0.23 in Q2 2023 primarily due to the impact of unrealized foreign exchange recorded in net finance costs and higher interest expense.
• Operating cash flow increased to $58 million from $53 million in Q2 2023 driven by increased EBITDA and improved working capital management.
• Cash flow generation enabled reduction of net leverage to 2.0x at June 30, 2024 from 2.6x at March 31, 2024 (pro forma for the special dividend of C$4.00 paid April 12, 2024).
• Received the 2024 Microsoft Scale Solutions United States Americas Partner of the Year Award and was named a finalist in the Scale Solutions category globally and for Canada.
• Received the 2024 Google Cloud Public Sector Partner of the Year award for Canada and was named VMware Geo Partner of the Year (North America) by VMware by Broadcom.
• Named a Best Workplace in Canada™ by Great Place to Work® for the 19th year in a row in April 2024, ranking 9th among large employers.

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

“We’re very pleased with the strong double-digit growth in our top-line gross profit as we continued to benefit from our investments in an expanded salesforce and technical expertise. We recorded our best second quarter of customer growth since before the pandemic and continued to drive deeper relationships with our customers, as evidenced by our 100% revenue retention. Notably, we saw strong growth in our strategic focus areas—workplace, public cloud, and security solutions—within our core SMB and Commercial sales channels. Additionally, our strong execution allowed us to benefit from increased and accelerated technology partner incentives against our 2024 performance milestones.

“The second quarter marked a milestone as the first full quarter where Microsoft Copilot was available to most of our customers. We have established a market-leading position in Copilot adoption across the North American mid-market. While still early, we are starting to see customers move from the pilot stage to production use cases and enterprise-wide adoption.

“Looking ahead, our focus remains on building a world-class culture to increase the engagement, retention and productivity of our team members, expanding our customer base, and leveraging our technical capabilities and unique go-to-market motion to deepen our customer relationships over time.”

Dividends Update2

• On August 8, 2024, the Board declared a quarterly dividend of Cdn. $0.13 per Common Share for the period from July 1, 2024 to September 30, 2024 to be paid on October 11, 2024 to shareholders of record at the close of business on September 30, 2024, representing an approximate 18% increase over Q3 2023. The dividend to which this notice relates is an eligible dividend for tax purposes.

Supplementary Measures for the trailing twelve months (TTM) period ended June 30, 20241

• Revenue Retention Rate was 100%, with increased Customer retention and the increase in Software & Cloud and Services Gross Sales offsetting a decline in Hardware Gross Sales primarily due to prevailing industry-wide weakness.
• Customers increased 5% to 5,020 at June 30, 2024, an increase of 252 compared to June 30, 2023.
  Average TTM Customers increased to 4,925 from 4,690 in the prior TTM period, an increase of 5%, more than double the growth rate recorded in the prior TTM period with the increased rate driven by investments in an expanded frontline salesforce (“Account Executives”).
  
• Account Executives increased by 13% to 507 at June 30, 2024 compared with 450 a year prior. Average TTM Account Executives were 479, a 6% increase over the prior TTM period.
• Gross Profit per Customer was $68,000, consistent with the prior TTM period.
• Gross profit increased by 5% to $335 million driven by an 11% increase in Software & Cloud. In Constant Currency, gross profit grew by 6%.
• Adjusted EBITDA increased by 11% to $96 million, or 28.6% of gross profit. In Constant Currency Adjusted EBITDA increased by 10% to $95 million, or 28.1% of gross profit.
• Net cash from operating activities increased 102% to $98 million due to an increase in profits and effective working capital management. Free Cash Flow decreased to $41 million from $51 million in the prior TTM period with the increase in Adjusted EBITDA offset by an increase of $15 million in cash taxes.

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 Q2 2024 results today at 8:30 a.m. (ET).

DATE: Friday, August 9, 2024

TIME: 8:30 a.m. Eastern Time

WEBCAST:https://app.webinar.net/oex80D9qn6p

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/4eSJEDS 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 668550 # (Available until August 16, 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, Gross Profit per 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 for the three months ended June 30, 2024 and June 30, 2023 (the “Q2 2024 MD&A”), and/or our annual information form dated March 27, 2024 (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 “Gross Sales”, “Adjusted EBITDA”, “Adjusted EBITDA as a Percentage of Gross Profit”, “Adjusted Cash Operating Expenses”, “Adjusted Net Income (Loss)”, “Adjusted EPS”, and “Free Cash Flow”. 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 Q2 2024 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 Q2 2024 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, Normal Course Issuer Bid ("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 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.sedarplus.ca 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- and cloud-focused IT solutions provider that equips organizations to be agile, innovative, and secure, and people to be engaged, connected and creative at work. We do this by delivering secure, AI-powered cloud and digital workplace solutions supported by our advanced software asset management methodology and capabilities. Through our ROI customer success framework, we create value for our customers by reducing their IT spending, optimizing their technology, and supporting business-driven innovation. We are a highly engaged, high-performing team that is welcoming, inclusive, and diverse in thought and experience, and are a certified Great Place to Work® in Canada and the United States. To learn more about us, visit www.softchoice.com.

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