Gross profit increases by ~11% and Adjusted EBITDA by ~46%, driven by strong growth in Software & Cloud solutions

Softchoice Corporation (“Softchoice” or the “Company”) (TSX: SFTC) today announced its financial results for the first quarter ended March 31, 2023 (“Q1 2023”). Softchoice will hold a conference call/webcast to discuss its results today, May 12, 2023, at 8:30 a.m. ET. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

Q1 2023 Summary ¹

• Gross profit increased by 10.6% to $74.2 million, from $67.1 million in Q1 2023, driven by a 20.1% or $8.1 million increase in Software & Cloud solutions which more than offset a decline in Hardware sales consistent with industry trends.
• Gross profit was negatively impacted by approximately $2.0 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 Q1 2023 increased by 13.6% or $9.1 million in Constant Currency compared to Q1 2022 driven by 23.9% growth in Software & Cloud in Constant Currency.
• Adjusted EBITDA increased by 45.9% to $14.5 million, from $10.0 million in Q1 2022, due to the increase in gross profit, partially offset by a 4.5% increase 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 to $9.6 million from $3.8 million in Q1 2022.
• Net income increased to $4.5 million from $3.7 million in Q1 2022.
• Adjusted Net Income increased by 53.5% or $2.5 million to $7.1 million from $4.6 million in Q1 2022, driven by the increase in Adjusted EBITDA.
• Adjusted EPS on a diluted basis increased by 71.4% to $0.12 from $0.07 in Q1 2022 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”) over the trailing twelve months (“LTM”).

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

“We recorded a solid first quarter led by strong growth in our public cloud and software solutions, and continue to prove our value to our customers by helping them enable software-driven transformation and optimize their IT spend.”

Andrew Caprara, Softchoice’s President & Chief Operating Officer, said: ²

"Our investments in selling capacity and technical capabilities and resources helped us continue to grow our customer base, while also creating deeper engagement with existing customers. Our foundation of software, cloud and services was resilient, and our strategic focus on the most in demand solution areas puts us in a strong position to continue taking market share in the future.”

Dividends and NCIB Update ²

• On May 11, 2023, the Board declared a quarterly dividend of Cdn. $0.11 per Common Share for the period from April 1, 2023, to June 30, 2023, to be paid on July 14, 2023, to shareholders of record at the close of business on June 30, 2023. The dividend to which this notice relates is an eligible dividend for tax purposes.
• During Q1 2023, the Company repurchased and cancelled 561,334 Common Shares at an average price of Cdn. $17.61 per Common Share, under its NCIB program.

Supplementary Measures for the LTM period ended March 31, 2023

• Revenue Retention Rate was 105%, illustrating strong sales growth with existing Customers
• Gross profit increased by approximately 9.8% to $319.5 million from the prior LTM ended March 31, 2022, due to:
  • an increase in Customers to 4,799 as at March 31, 2023, an increase of 164, or 3.5%, over March 31, 2022
  • an increase in Gross Profit per Customer for the LTM ended March 31, 2023, to $68,000 from $63,000 for the LTM ended March 31, 2022
• Adjusted Free Cash Flow increased by 28.8% to $76.7 million, or 89% of Adjusted EBITDA, compared to $59.6 million, or 87% of Adjusted EBITDA, in the prior LTM period
  • Adjusted Free Cash Flow was used as follows: (i) approximately 21% was used to pay dividends to shareholders, (ii) 52% was used for share buybacks under the NCIB, and (iii) the remainder was used primarily for cash taxes and interest payments.

Financial Summary¹

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 Q1 2023 results today at 8:30 a.m. (ET).

DATE: Friday, May 12, 2023

TIME: 8:30 a.m. Eastern Time

WEBCAST: https://app.webinar.net/Q9adRYERpYk

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/3mggw3f 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 # 33864706

TAPED REPLAY: 416-764-8677 or 1-888-390-0541, Replay Code 864706 # (Available until May 19, 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, 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 quarter ended March 31, 2023 (the “Q1 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”, “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 Q1 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 Q1 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 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 Q1 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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