Softchoice announces dividend increase and renews share buyback program

Softchoice Corporation (“Softchoice” or the “Company”) (TSX: SFTC) today announced its financial results for the fourth quarter (“Q4 2022”) and full year (“Fiscal 2022”) ended December 31, 2022. Softchoice will hold a conference call/webcast to discuss its results today, March 9, 2022, at 8:30 a.m. ET. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

Q4 2022 Summary ¹

• Gross profit increased to $86.2 million, compared to $85.8 million in the fourth quarter of 2021 (“Q4 2021”), driven by growth in Services and Software & Cloud. Gross profit was negatively impacted by approximately $2.3 million in the quarter due to the strengthened U.S. dollar, specifically by the translation of gross profit generated in Canada into the Company's reporting currency of U.S. dollars.
  • Gross profit in Q4 2022 increased by 3.2%, or $2.7 million, in Constant Currency when compared to Q4 2021.
  • Q4 2021 benefited from large Hardware and Software & Cloud solution purchases from a few Enterprise customers, which helped drive an exceptional 31% year-over-year increase in that period. The decline from these few customers in Q4 2022 partially offset solid 10.5% gross profit growth, in Constant Currency, across the remaining customer base led by double digit growth in Software & Cloud.
• Adjusted EBITDA increased by 19.1% to $31.5 million compared to $26.5 million in Q4 2021 due to the increase in gross profit and a reduction in Adjusted Cash Operating Expenses. Foreign exchange fluctuations had an immaterial impact on Adjusted EBITDA as the negative impact on gross profit was offset by a similar reduction in Adjusted Cash Operating Expenses.
• Income from operations increased by $14.6 million to $25.3 million, from $10.7 million in Q4 2021.
• Net income increased by $10.8 million to $18.2 million from $7.4 million in Q4 2021.
• Adjusted Net Income increased by 13.5% or $2.3 million to $19.5 million from $17.2 million in Q4 2021, driven primarily by the increase in Adjusted EBITDA partially offset by an increase in income tax expense.
• Adjusted EPS on a diluted basis increased by 18.5% to $0.32 from $0.27 in Q4 2021 due to the increase in Adjusted Net Income combined with a reduction in the total weighted average number of common shares of the Company (each, a “Common Share”) outstanding reflecting the Company’s repurchase and cancellation of Common Shares under its Normal Course Issuer Bid (“NCIB”) in Fiscal 2022.

Fiscal 2022 Summary ¹

• AE headcount finished December 31, 2022 at 440, above the end-of-year target of 423 to 433 AEs, compared with 396 AEs as at December 31, 2021.
• Number of Customers grew to 4,758 as of December 31, 2022, an increase of 120 over December 31, 2021.
• The Revenue Retention Rate was 106% in Fiscal 2022, illustrating strong sales growth with existing Customers.
• Gross profit increased by 8.8% to $312.3 million, compared to $287.0 million in Fiscal 2021, driven by 12.2% growth in Software & Cloud solutions. The increase in Software & Cloud was supported by strong growth in our public cloud and security software solutions.
  • Gross profit increased by 10.4% in Constant Currency when compared to Fiscal 2021.
• Adjusted EBITDA increased by 18.4% to $81.8 million, from $69.1 million in Fiscal 2021, as the increase in gross profit was partially offset by an increase in Adjusted Cash Operating Expenses which were driven by higher personnel costs as a result of growth investments made in 2022.
  • Foreign exchange fluctuations had an immaterial impact on Fiscal 2022 Adjusted EBITDA.
• Income from operations increased by $50.6 million to $53.8 million, from $3.2 million in Fiscal 2021.
• Net income increased by $31.8 million to $21.8 million from a net loss of $10.0 million in Fiscal 2021.
• Adjusted Net Income increased by 33.9% or $12.5 million to $49.5 million from $37.0 million in Fiscal 2021 driven primarily by the increase in Adjusted EBITDA partially offset by an increase in income tax expense.
• Adjusted EPS on a diluted basis increased by 23.1% to $0.80 compared to $0.65 in Fiscal 2021.
• Net cash from operating activities was $40.0 million in 2022 compared to $53.7 million in 2021, with the decrease relating to working capital items.
• Adjusted Free Cash Flow increased by 20.9% to $72.4 million, or 89% of Adjusted EBITDA, compared to $59.9 million, or 87% of Adjusted EBITDA, in Fiscal 2021 and was used as follows in 2022: (i) approximately 22% was used to pay dividends to shareholders, (ii) 49% was used for share buybacks under the NCIB, and (iii) the remainder was used primarily for cash taxes and interest payments.
• As of December 31, 2022, the Company had approximately $90 million in loans and borrowings outstanding, an increase of approximately $22 million from a year earlier with the increase due to certain one-time cash costs in 2022.
• The Company ended Fiscal 2022 in strong financial condition, with approximately $186 million in available funds from cash on hand and through its $275 million revolving credit facility.

Dividends and NCIB Update ²

• The Company’s Board of Directors (the “Board”) approved an approximate 22% increase in quarterly cash dividends for 2023 to Cdn. $0.11 per Common Share compared to Cdn. $0.09 per share in 2022.
• The Board approved the renewal of the Company’s NCIB share buyback program.

Vince De Palma, Softchoice’s Chief Executive Officer, said:

“We recorded positive organic growth and solid free cash flow generation in 2022 despite a slower than anticipated fourth quarter. Growth in the year was driven by increased demand for our Software & Cloud solutions, notably in our focus areas of public cloud, security, and workplace. A healthy mix of increased sales to existing customers and contribution from new customers drove our growth, reflecting the benefits of the investments we’ve made in our expanded sales and technical teams. We continued to deepen our relationships with our technology partners and grow Softchoice’s reputation as an employer of choice for key sales and technical talent.”

Andrew Caprara, Softchoice’s President & Chief Operating Officer, said:

"We executed well on our growth strategy in 2022, including increasing our frontline salesforce significantly which, resulted in a return to growth of our customer base, especially in the second half as more of these new AEs reached higher productivity levels. We also expanded our specialized sales support and technical teams to advance our IT Solutions capabilities, which helped us achieve record gross profit per customer. The combination of a larger customer base and our proven ability to drive deeper engagements with our customers positions us well for strong organic growth in the future. Reflecting confidence in our long-term growth strategy and ability to increase free cash flow generation, our Board has approved another dividend increase in 2023 and the continuance of our share buyback program to enhance shareholder returns.”

Dividend ²

On March 8, 2023, the Board declared a quarterly dividend of Cdn. $0.11 per Common Share for the period from January 1, 2023, to March 31, 2023, to be paid on April 14, 2023, to shareholders of record at the close of business on March 31, 2023, representing an increase of approximately 22% compared to the Cdn. $0.09 quarterly dividend paid for the same period in 2022. The Dividend to which this notice relates is an eligible dividend for tax purposes.

Normal Course Issuer Bid ²

During Q4 2022 and Fiscal 2022, the Company repurchased and cancelled 909,268 and 2,378,783 Common Shares respectively at an average price of Cdn. $17.29 and $19.60 per Common Share, respectively. As of March 7, 2023, the end of the current NCIB term, the Company repurchased and cancelled a total of 2,900,447 Common Shares at an average price of Cdn. $19.27.

On March 8, 2023, the Board approved the renewal of our NCIB through the facilities of the Toronto Stock Exchange (“TSX”) and/or alternative Canadian trading systems to purchase and cancel up to 2,901,668 of the Common Shares, representing 5% of the issued and outstanding number of Common Shares as of February 28, 2023 of 58,033,366, during the twelve-month period commencing March 13, 2023, and ending March 12, 2024.

In connection with the NCIB renewal, the Company entered into an automatic share purchase plan effective as of March 13, 2023 with a designated broker which allows for the purchase for 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.

Quarterly Conference Call

Softchoice’s management team will hold a conference call to discuss our fourth quarter and Fiscal 2022 results today at 8:30 a.m. (ET).

DATE: Thursday, March 9^th, 2023

TIME: 8:30 a.m. Eastern Time

WEBCAST: https://app.webinar.net/gx7ORVjRbLZ

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://bit.ly/3WRVvIa 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, Confirmation # 60499833

TAPED REPLAY: 416-764-8677 or 1-888-390-0541, Replay Code 499833 # (Available until March 16, 2023)

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 for the year ended December 31, 2022 (the “Q4 2022 MD&A”), and/or our annual information form dated March 29, 2022 (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”, “Adjusted Free Cash Flow”, “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 Q4 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

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

Notes (Refer to the Q4 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, operating environment, 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, 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 and dividend rates; (viii) the Company’s NCIB program and the purchase of Common Shares in connection with such program; and (ix) the impact of macroeconomic conditions and remote and hybrid work on our business, financial position, results of operations and/or cashflows.

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 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. 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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