Softchoice Corporation
TSX : SO

Softchoice Corporation

May 06, 2009 06:40 ET

Softchoice Announces First-Quarter Earnings

TORONTO, ONTARIO--(Marketwire - May 6, 2009) - Softchoice Corporation (TSX:SO), a leading North American provider of IT solutions and services, today reported financial results for the first quarter of 2009.

Softchoice reported consolidated revenue of US $218.4 million, a decline of 27 percent in the quarter compared to the same period in the prior year. Due to the relative strength of the Microsoft business and improved margins, consolidated gross profit (US$30.7 million) declined 22 percent compared to the first quarter of the prior year. On a constant currency basis, gross profit declined 16 percent resulting in a loss in the quarter of US$2.4 million. Excluding the tax adjusted non-cash foreign exchange loss, adjusted earnings in the quarter were a loss of US$0.8 million.

"In spite of a severe downturn in technology spending in the quarter, our focus on aggressive cost management has allowed us to mitigate our loss during what we expect will be the most difficult period of our fiscal year," said David MacDonald, President and CEO of Softchoice.

On a year-over-year basis, Softchoice's balance sheet has strengthened and overall debt, largely used to finance the acquisitions made at the end of 2007 and early 2008, has decreased by 62 percent from the total reported in the first quarter of the prior year. This includes debt repayment in the amount of US$13 million dollars made in the quarter using cash available from the Company's operations. Total debt outstanding at the end of the quarter was US $40.5 million.

In addition to the US$6 million cost reduction plan implemented in the fourth quarter of 2008, additional measures were implemented in the first quarter, which are expected to save the Company between US$3 million and US$4 million over the balance of 2009.

Softchoice's local branch office presence in more than 40 markets across North America and the increasing diversity of the Company's solutions and services offerings tempered the effects of the slowdown in IT spending. Softchoice's Canadian business moderated the declines in the U.S. market as did continued resilience in software sales, which accounted for 64 percent of the Company's revenues in the quarter. Seasonal purchasing trends are expected to continue to favor the second quarter as a result of the proportion of Microsoft sales that occur in this period. Management is optimistic that with the seasonality of the business, the incremental cost-reduction initiatives taken in the first quarter have positioned us well to retain our customers and capitalize on the growth opportunities of our expanded solutions capability.

Quarterly Highlights

- Softchoice entered into long-term credit agreements with Bank of America, N.A. and HSBC Capital (Canada) Inc. to provide the Company with access to up to C$140 million in debt financing, replacing its existing asset-backed loan (ABL) and short-term debt facilities.

- Total debt was US$40.5 million at the end of the quarter, reflecting a decrease of 62 percent from the total debt of $105.4 million reported in the first quarter of the prior year.

- Softchoice announced the release of its 2008 Corporate Sustainability Report. Softchoice is the first North American Value Added Reseller to produce a report in keeping with the Global Reporting Initiative (GRI) guidelines - considered the international standard for the transparent and reliable reporting of economic, environmental and social performance indicators.

- For the fourth year in a row, Softchoice was named one of Canada's Best Workplaces by the Great Places to Work Institute and the Globe and Mail newspaper.

- During the quarter, Softchoice announced the launch of a new offering called 'IT Asset Management-as-a-Service' (ITAMaaS) that combines all the elements of an effective IT asset management strategy in one affordable package.

- For the fourth consecutive year, Softchoice was named Canada's Top Solution Provider by Computer Dealer News magazine.

Softchoice to Host Virtual Annual General Meeting and Q1 Earnings Call on May 6th, 2009

Softchoice will be hosting its Annual General Meeting of Shareholders and first-quarter earnings review beginning at 10:00 am EDT on Wednesday May 6th, 2009, at the TSX Broadcast Center Gallery located at 130 King Street West in Toronto.

Presenters will include Lawrence Tapp, Chairman of the Board for Softchoice, David MacDonald, Softchoice's President and CEO and interim Chief Financial Officer, Brian Brewer.

Softchoice will be combining both the AGM presentation and a review of its first-quarter earnings in a single presentation. Those unable to attend the live event will be able to access the presentation virtually by using the conference call and Web information provided below.



Participant Information

Conference Call information:
Local Toronto access: 416-849-6186
Toll Free access: 866-443-4184
Conference Reference ID: 4949996

Webcast URL:

http://events.snwebcastcenter.com/softchoice/20090507/index.php

To ensure participation, please dial in at least 10 minutes prior to the
start of the conference at 10:00 am EDT.

For those unable to attend the call, a link will be made available on the
Softchoice website to an archived web and audio version on May 7th, 2009.


About Softchoice

As one of North America's leading providers of technology solutions and services, Softchoice helps businesses and organizations of all sizes to select, acquire and manage their software and hardware technology resources. Softchoice offers a full range of capabilities, including face-to-face consultations and IT asset management services designed to help customers save time, money and risk in IT procurement. Softchoice currently has 888 employees operating from 43 branch offices located in major cities across the U.S. and Canada.

Softchoice stock is listed on the Toronto Stock Exchange (TSX) under the trading symbol "SO." The common shares of Softchoice are not registered under the U.S. Securities Act of 1933 and are not publicly traded in the United States.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to expectations, intentions and plans contained in this press release that are not historical fact. When used in this press release, the words "anticipate," "expect", "will" and similar expressions generally identify forward-looking statements. These statements reflect our current expectations and are subject to a number of risks and uncertainties including, but not limited to, change in technology and general market conditions, many of which are set out or incorporated by reference in the Company's latest Annual Information Form. Due to the many risks and uncertainties, Softchoice cannot assure that the forward-looking statements contained in this press release will be realized.



Softchoice Corporation
Consolidated Balance Sheets
------------------------------
(in thousands of U.S. dollars)


March 31, December 31,
2009 2008
(unaudited) (audited)
ASSETS
Current assets
Cash $ 142 $ 14,098
Accounts receivable 177,880 241,581
net of allowance for doubtful accounts
of $3,196 (December 31, 2008 - $2,759)
Inventories 1,520 1,722
Prepaid expenses and other assets 2,925 8,056
Future income taxes 1,910 2,095
Income taxes recoverable 3,746 254
--------------------------------
188,123 267,806

Property and equipment (note 2) 6,784 7,252
Goodwill (note 3) 10,024 10,172
Intangible assets (note 2, 3) 47,766 49,923
Long-term accounts receivable 483 830
Deferred costs 2,486 2,377
Future income taxes 17,399 17,401
--------------------------------

$ 273,065 $ 355,761
--------------------------------
--------------------------------


LIABILITIES
Current liabilities
Bank indebtedness (note 4) $ 27,042 $ 40,376
Accounts payable and accrued liabilities 160,585 227,884
Current portion of deferred revenue 4,694 5,033
--------------------------------
192,321 273,293

Long-term liabilities
Deferred lease inducements 557 483
Deferred revenue 483 830
Long-term debt (note 4) 13,449 13,717
--------------------------------
14,489 15,030

Total liabilities 206,810 288,323

Shareholders' equity
Capital stock (note 5) 9,827 9,827
Contributed surplus (note 6) 2,218 2,495

Retained earnings 39,611 42,000
Accumulated other comprehensive income (i) 14,599 13,116
--------------------------------
54,210 55,116

Total shareholders' equity 66,255 67,438
--------------------------------
$ 273,065 $ 355,761
--------------------------------
--------------------------------

Contingencies (note 7)
See accompanying notes to consolidated financial statements.
(i) Accumulated other comprehensive income is comprised of foreign currency
translation adjustments.



Softchoice Corporation
Consolidated Statements of (Loss) Earnings and Retained Earnings
----------------------------------------------------------------
(in thousands of U.S. dollars except per share information)
(Unaudited)



3 month period 3 month period
ended March ended March
31, 2009 31, 2008

Revenue
Software $ 128,993 $ 163,653
Hardware 79,576 124,483
Agency Fees 9,789 10,418
--------------------------------
218,358 298,554

Cost of sales 187,704 259,343
--------------------------------

Gross profit 30,654 39,211

Expenses
Salaries and benefits 20,053 24,285
Selling, general and administrative 9,954 8,378
Amortization of property and equipment 719 660
Amortization of intangible assets
(note 3) 1,943 1,964
--------------------------------
32,669 35,287
--------------------------------

Operating income (loss) (2,015) 3,924

Interest expense 1,633 1,785
Other (488) (529)
--------------------------------

Earnings (loss) before income taxes (3,160) 2,668
--------------------------------

Provision for (recovery of) income taxes
Current (937) 884
Future 166 57
--------------------------------
(771) 941

Net (loss) earnings for the period (2,389) 1,727

Retained earnings - Beginning of period 42,000 61,587
Dividends (note 8) - (1,779)
--------------------------------
Retained earnings - End of period $ 39,611 $ 61,535
--------------------------------
--------------------------------
Net (loss) earnings per common share
(note 9)
Basic $ (0.14) $ 0.10
Diluted $ (0.14) $ 0.10
Basic weighted average number of shares
outstanding 17,496,807 17,416,882
Diluted weighted average number of
shares outstanding 17,526,633 17,533,707

See accompanying notes to consolidated financial statements.



Softchoice Corporation
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
(Unaudited)

3 month period 3 month period
ended March ended March
31, 2009 31, 2008

Cash provided by (used in)

Operating activities
Net (loss) earnings for the period $ (2,389) $ 1,727
Items not affecting cash
Amortization of property and equipment 719 660
Stock-based (recovery) compensation
(note 6) (277) 418
Future income taxes 166 57
Amortization of intangible assets
(note 3) 1,943 1,964
Unrealized foreign currency loss 1,905 875
(Gain) loss on disposal of property
and equipment (2) 5
-------------- --------------
2,065 5,706

Net change in non-cash working capital
items relating to operations (note 13) (2,521) (21,970)
-------------- --------------

(456) (16,264)
-------------- --------------

Financing activities
Repayment of bank indebtedness due to
refinancing (note 4) (40,317) -
Increase in bank indebtedness due to
refinancing (note 4) 26,919 -
Repayment of long-term debt due to
refinancing (note 4) (13,688) -
Increase in long-term debt due to
refinancing (note 4) 14,125 -
Increase in bank indebtedness - 57,444
Repayment of long-term debt - (846)
Payment of cash dividend - (1,779)
Proceeds from issuance of common
shares (note 5) - 228
-------------- --------------
(12,961) 55,047
-------------- --------------

Investing activities
Purchase of property and equipment (508) (1,258)
Proceeds on disposal of property and
equipment 4 (5)
Acquisition, net of cash acquired - (40,039)
-------------- --------------
(504) (41,302)
-------------- --------------

Effect of exchange rate changes on cash (35) (109)
-------------- --------------

Decrease in cash (13,956) (2,628)

Cash - Beginning of period 14,098 11,063
-------------- --------------

Cash - End of period $ 142 $ 8,435
-------------- --------------
-------------- --------------

Interest paid $ 834 $ 1,717
Taxes paid $ 2,699 $ 559



Softchoice Corporation
Consolidated Statements of Comprehensive (Loss) Income and
Accumulated Other Comprehensive Income
(in thousands of U.S. dollars)
(Unaudited)

3 month period 3 month period
ended March ended March
31, 2009 31, 2008

-------------- --------------

Comprehensive (Loss) Income
Net (loss) earnings for the period $ (2,389) $ 1,727
Foreign currency translation adjustment 1,483 1,569
-------------- --------------

Comprehensive (Loss) Income $ (906) $ 3,296
-------------- --------------
-------------- --------------

Accumulated Other Comprehensive Income

Balance - beginning of period $ 13,116 $ 2,550
Foreign currency translation adjustment 1,483 1,569
-------------- --------------

Balance - end of period $ 14,599 $ 4,119
-------------- --------------
-------------- --------------


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