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Softchoice Announces Second Quarter 2022 ResultsSoftchoice Corporation ("Softchoice" or the "Company") (TSX: SFTC) today announced its financial results for the quarter ended June 30, 2022 ("Q2 2022"). Softchoice will hold a conference call/webcast to discuss its results today, August 12, 2022, at 8:30 a.m. ET. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars. Selected Q2 2022 Financial Highlights
Selected Q2 2022 Business Highlights
Commenting on Q2 2022 and the Company's 2022 outlook, Vince De Palma, Softchoice's President & Chief Executive Officer, said: "We recorded a healthy second quarter of organic growth driven by our Software & Cloud IT solutions, notably from public cloud consumption and workplace software sales. Demand has been resilient as organizations continued to prioritize IT investments to increase flexibility, agility and security, so that they can compete and win in their markets. We continued to drive higher customer retention and engagement, resulting in record revenue retention, and returned to growth in our customer base in Q2, driven by our expanded frontline salesforce. "We are maintaining our top line gross profit growth outlook for 2022 as we continue to see robust demand. However, we have lowered our Adjusted EBITDA margin expectations for fiscal 2022. We outperformed in recruiting and retaining talent in high-growth areas of our business which, while beneficial over the long run, is a temporary drag on earnings in this fiscal year. We are also seeing modest impacts from wage inflation and are taking a more cautious view on the relative contribution to our gross profit from certain areas of our business, which carry a higher EBITDA margin. All things considered, our talent investments are positively impacting our customers and our business, and we are confident in our organization's ongoing ability to drive sustained profitable growth." Please refer to the cautionary statements under "Forward-Looking Statements" of this press release. Financial Summary1
* Amounts may not add to total due to rounding Financial Position The Company ended Q2 2022 in strong financial condition, with approximately $200 million in available funds from cash on hand and through its $275 million revolving credit facility. Including internally generated cash flows, the Company anticipates having significant resources with which to pursue growth opportunities and enhance shareholder returns. The Company had approximately $83.6 million in loans and borrowings outstanding at the end of Q2 2022. Net debt, equating to loans and borrowings plus lease liabilities less cash-on-hand, was $95.7 million at June 30, 2022. Net debt decreased from $108.4 million at March 31, 2022 due primarily to cash generated by operating activities in Q2 2022. The quarter end ratio of net debt to Adjusted EBITDA for the trailing twelve-months ended June 30, 2022 was 1.3x compared with 1.6x at March 31, 2022 and 1.2x at December 31, 2021. Dividend The Board has declared a quarterly cash dividend of C$0.09 per common share of the Company (each, a "Common Share") for the period from July 1, 2022 to September 30, 2022, to be paid on October 14, 2022 to shareholders of record at the close of business on September 30, 2022. The Dividend to which this notice relates is an eligible dividend for tax purposes. NCIB On March 3, 2022, the Board approved the commencement of a normal course issuer bid ("NCIB") through the facilities of the TSX and/or alternative Canadian trading systems to purchase and cancel up to 3,018,528 of the Company's Common Shares, representing approximately 10% of the public float of 30,185,282, during the twelve-month period commencing on March 8, 2022 and ending March 7, 2023. During the three and six-month periods ended June 30, 2022, 695,426 Common Shares and 824,412 Common Shares, respectively were repurchased and cancelled under the NCIB. In connection with the NCIB, the Company entered into an automatic purchase plan effective as of March 8, 2022 with a designated broker which allows for the purchase and cancellation of Common Shares, subject to certain trading parameters, by the Company's designated broker during times when Softchoice would ordinarily not be active in the market due to applicable regulatory restrictions or self-imposed blackout periods. Outside of these periods, the Common Shares will be repurchased by the Company at our discretion under the NCIB. Our Outlook 2 The following outlook supersedes all prior statements made by the Company and is based on current expectations. The Company has revised its financial outlook for the fiscal year ending December 31, 2022 based on its results for the six months ended June 30, 2022. We are maintaining our gross profit growth outlook but reducing our Adjusted EBITDA margin outlook as a result of accelerated growth investments, including in advanced value services, public cloud capabilities, and sales capacity, along with cost pressure in pockets of our organization due to the inflationary environment. We are also taking a more cautious view on the relative contribution to gross profit from certain areas of our business which carry a higher EBITDA margin. See also "Forward-Looking Statements" below for further details on assumptions underlying our financial outlook. Softchoice is revising its 2022 financial outlook as follows:
The outlook above constitutes forward-looking information within the meaning of applicable securities laws and is based on a number of assumptions and risks described under the heading "Forward-Looking Statements" of this press release. The Company's outlook also constitutes "financial outlook" within the meaning of applicable securities laws and is provided for the purposes of assisting the reader in understanding the Company's financial performance and measuring progress toward management's objectives and the reader is cautioned that it may not be appropriate for other purposes. Quarterly Conference Call Softchoice's management team will hold a conference call to discuss our second quarter 2022 results today at 8:30 a.m. (ET). DATE: Friday, August 12, 2022 TIME: 8:30 a.m. Eastern Time DIAL-IN: 416-764-8659 or 1-888-664-6392, Confirmation # 75636215 WEBCAST: https://produceredition.webcasts.com/starthere.jsp?ei=1556709&tp_key=f414f1961f TAPED REPLAY: 416-764-8677 or 1-888-390-0541, Replay Code 636215 # (Available until August 19, 2022) 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. Capitalized Terms Capitalized terms used in this release, including Project Monarch, and terms we use to describe our IT solution types including Software & Cloud, Services, and Hardware and sales channels including SMB, Commercial, and Enterprise are described in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations for the three- and six-months ended June 30, 2022 (the "Q2 2022 MD&A"), and/or defined in our annual information form dated March 29, 2022 (the "AIF") filed on SEDAR 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", "Adjusted Free Cash Flow Conversion", 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 Q2 2022 MD&A filed on SEDAR and available on the Company's investor relations website http://investors.softchoice.com Reconciliations of Non-IFRS Financial Measures
Notes (Refer to the Q2 2022 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, budgets, operations, financial results, taxes, dividend policy, NCIB, business plans and objectives. Particularly, information regarding our expectations of future results, performance, 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 outlook, including among others, net sales, gross profit, gross profit growth rates, expenses, Adjusted EBITDA, Adjusted EBITDA to Gross Profit margin, Adjusted Free Cash Flow Conversion, operations, the number of account executives and employees, organic growth and Adjusted EBITDA margin expansion; (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 and dividend rates; (viii) the Company's NCIB program and the purchase of Common Shares in connection with such programs; and (ix) the long-term impact of COVID-19 on our business, financial position, results of operations and/or cash flows; (x) M&A opportunities; and (xi) the materialization of the expected benefits of Project Monarch. 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 Q2 2022 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. In addition to the forward-looking information cautions described above, the outlook set forth herein includes Gross Profit, Adjusted EBITDA as a Percentage of Gross Profit and Adjusted Free Cash Flow Conversion, in each case, for Fiscal 2022. Key underlying drivers for our forecast include: (i) the expected growth of our addressable market; (ii) the expected growth of our salesforce and improvements of our salesforce productivity; (iii) the expected growth in our customer base and wallet share amongst existing customers; and (iv) our view of the drivers of, and expectations related to, our anticipated growth as well as certain cost management measures and operational efficiencies we expect to realize. A significant portion of the increase in Gross Profit and Adjusted EBITDA for Fiscal 2022 is attributable to the procurement savings, pricing margin improvements, and business growth and reduced revenue leakage and expected net workforce efficiencies anticipated to result from Project Monarch. To the extent that these underlying drivers and benefits are not realized as expected, our Gross Profit, Adjusted EBITDA, Adjusted EBITDA as a Percentage of Gross Profit and, as a result, our Adjusted Free Cash Flow Conversion, during the relevant period will be adversely affected. The underlying assumptions relating to future results are inherently uncertain and are subject to significant business, economic, financial, regulatory, market and competitive risks, including risks that our initiatives or projects (including Project Monarch) do not result in the growth and increase in efficiencies anticipated, and could cause actual results to differ materially. If we do not achieve the anticipated results, we may modify or discontinue certain of our other planned business initiatives. In light of the foregoing, investors are urged to put these statements in context and not to place undue reliance on them. 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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