Softchoice Corporation
TSX : SO

Softchoice Corporation

November 08, 2011 17:32 ET

Softchoice Announces Strong Profitability Growth for the Third Quarter of 2011

- Revenue grows 16.3 percent

- EBITDA grows 75.7 percent in the quarter

- Softchoice announces acquisition of UNIS LUMIN

- The Company renegotiates its ABL credit facility for a new five-year term and secures the option for early repayment of its term loan

TORONTO, ONTARIO--(Marketwire - Nov. 8, 2011) - Softchoice Corporation (TSX:SO), a leading North American provider of technology solutions and services, today reported its financial results for the third quarter of 2011.

For the three-month period ended September 30, 2011, the Company reported revenue of US$227.4 million compared to US$195.5 million for the third quarter of 2010, representing an increase of 16.3 percent. Due to fluctuations in foreign exchange between periods, Softchoice reported a net loss of US$0.47 million compared to net earnings of US$2.1 million for the same quarter the year prior. Adjusting for the impact of foreign exchange gains and losses, net earnings in the quarter amounted to US$2.7 million, or US$0.14 per share (basic and fully diluted), compared to adjusted net earnings of US$0.8 million, or US$0.04 per share (basic and fully diluted) for the third quarter of 2010. Adjusted net earnings per share grew 250.0 percent year-over-year.

Microsoft sales demonstrated strong growth, increasing by 46.9 percent in the quarter, while sales of hardware infrastructure solutions and other software grew by 6.7 percent and 4.3 percent, respectively. Softchoice's U.S. operations reported solid growth with revenues increasing 28.1 percent compared to the same period the year prior.

"Our performance reflects the traction our expanded telesales organization is now starting to generate for our business," said David MacDonald, President and CEO of Softchoice. "Our increased coverage of the small and medium business segment is fuelling strong gains in our Microsoft market share. This is consistent with our strategy of leveraging our strength in Microsoft as an entry point for the introduction of other value-added solutions and services over time."

Gross profit was US$40.7 million in the quarter, representing an increase of 13.7 percent compared to gross profit of US$35.8 million reported for the third quarter of 2010. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 75.7 percent to US$8.0 million delivering a 120 basis point year-over-year increase in EBITDA margin to 3.5 percent.

"With the acquisition of UNIS LUMIN, one of the country's most-respected networking and managed services companies, we have bolstered our position as Canada's preeminent provider of IT solutions and services," added Mr. MacDonald. "We are delighted to welcome our new team and to take another step in shifting our business toward higher margin projects such as networking and converged infrastructure that emphasize deep expertise in pre-sales, professional services and technical consulting."

Softchoice is also pleased to announce that it has renegotiated its existing asset-backed loan agreement for a five-year term reflective of current market rates and covenants. The Company has also secured an option with HSBC Capital to repay its five-year term loan by November 30th, 2011. Management notes that the early retirement of this loan will have a positive effect on the Company's financial performance in 2012. As at September 30, 2011, Softchoice had a net cash position of $34.7 million.

Softchoice's interim consolidated financial statements and MD&A are available at http://www.softchoice.com/about/ir/ and www.sedar.com.

Additional Quarterly Highlights

  • Softchoice announced the acquisition of UNIS LUMIN which greatly expands Softchoice's professional services capabilities while providing the technology foundation to support the Company's future cloud offerings.
  • Softchoice's U.S. operations recorded strong growth with sales of Microsoft software, non-Microsoft software and hardware solutions increasing by 67.7 percent, 22.1 percent, and 6.3 percent, respectively.
  • Softchoice strengthened its Board with the election of Mary Ritchie and Carol S. Perry to its Board of Directors.
  • Softchoice was presented with the 2011 VMware Integration Award by Trend Micro in acknowledgement of the Company's growth and expertise in providing security solutions for virtualized environments.

Third Quarter Earnings Call Participant Details

Softchoice will host its third-quarter earnings call on November 9, 2011 at 8:00 am EDT.

The call will be moderated by David MacDonald, Softchoice's President and CEO and Chief Financial Officer, David Long. The conference call will begin with a brief web presentation followed by a question-and-answer session.

Third Quarter Earnings Call Details

Local Dial in number: 416 800 1066

Toll Free Dial in number: 1 866 212 4491

Webcast URL: http://www.snwebcastcenter.com/custom_events/softchoice-20111109/site/

To ensure participation, please dial in at least 10 minutes prior to the start of the conference at 8:00 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 November 10, 2011.

About Softchoice

As a leading North American provider of technology solutions and services, Softchoice combines the efficiency and reliability of a national IT supplier with the personal touch and technical expertise of a local solutions provider. Softchoice's holistic approach to technology includes solution design, implementation and asset management services, as well as access to one of the most comprehensive and cost-effective technology distribution networks in North America. With over 950 employees located in more than 40 branch offices, Softchoice manages the technology needs of almost 15,000 corporate and public sector organizations across the United States 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.

Interim Consolidated Financial Statements (Expressed in U.S. dollars)
SOFTCHOICE CORPORATION
Three-month and nine-month periods ended September 30, 2011 and 2010
(Unaudited)
SOFTCHOICE CORPORATION
Interim Consolidated Statements of Financial Position
(In thousands of U.S. dollars)
(Unaudited)
September 30, December 31,
2011 2010
Assets
Cash$44,012 $35,752
Trade and other receivables (note 8) 207,855 224,168
Inventory 1,237 881
Deferred costs 1,713 7,082
Prepaid expenses and other assets 3,203 2,881
Total current assets 258,020 270,764
Restricted cash (note 7) - 500
Long-term accounts receivable (note 8) 778 2,771
Property and equipment 5,647 5,748
Goodwill 11,109 11,383
Intangible assets 37,010 41,155
Deferred tax assets (note 15) 19,206 19,023
Total non-current assets 73,750 80,580
Total assets$331,770 $351,344
Liabilities and Shareholders' Equity
Trade and other payables$183,312 $217,888
Provisions 679 98
Loans and borrowings (note 9) 3,967 3,961
Deferred lease inducements 292 193
Deferred revenue 2,168 1,899
Income taxes payable 1,870 2,320
Total current liabilities 192,288 226,359
Deferred lease inducements 636 217
Loans and borrowings (note 9) 5,309 8,271
Total non-current liabilities 5,945 8,488
Total liabilities 198,233 234,847
Capital stock (note 10) 26,585 26,016
Contributed surplus 2,813 2,054
Retained earnings 105,205 89,569
Accumulated other comprehensive loss (1,066) (1,142)
Total shareholders' equity 133,537 116,497
Total liabilities and shareholders'
equity

$

331,770

$

351,344
Related party transactions (note 12)
Subsequent events (note 17)
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
SOFTCHOICE CORPORATION
Interim Consolidated Statements of Comprehensive Income
(In thousands of U.S. dollars, except per share information)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
Net sales$227,364 $195,484 $730,028 $630,371
Cost of sales 186,649 159,656 589,887 511,162
Gross profit 40,715 35,828 140,141 119,209
Expenses:
Selling and marketing (note 4) 23,666 23,551 76,665 68,927
Administrative (note 4) 11,259 10,038 33,171 29,657
Other income - (15) - (722)
Other expenses 254 - 176 42
35,179 33,574 110,012 97,904
Results from operating activities 5,536 2,254 30,129 21,305
Finance costs (note 5) 5,121 1,197 5,607 3,541
Finance income (note 6) (2) (1,555) (47) (1,231)
Net finance costs (income) 5,119 (358) 5,560 2,310
Earnings before income taxes 417 2,612 24,569 18,995
Income tax expense (note 15) 889 518 8,933 6,314
Net earnings (loss) for the period (472) 2,094 15,636 12,681
Other comprehensive income (loss):
Foreign currency translation adjustments487 (604) 76 (509)
Total comprehensive income$15 $1,490 $15,712 $12,172
Net earnings (loss) per common share:
Basic (note 11)$(0.02) $0.11 $0.79 $0.64
Diluted (note 11) (0.02) 0.11 0.79 0.64
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
SOFTCHOICE CORPORATION
Interim Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
Nine-month period ended September 30, 2011 Number
of shares
Share capital Contributed
surplus
Cumulative
translation
account
Retained
earnings
Total
shareholders'
equity
Balance, January 1, 2011 19,780,039 $26,016 $2,054 $(1,142) $89,569 $116,497
Total comprehensive income
for the period:
Profit or loss 15,636 15,636
Other comprehensive
income:
Foreign currency
translation
adjustment








76




76
Total comprehensive income
for the period



76

15,636

15,712
Transactions with shareholders
recorded directly in equity:
Contributions by and
distributions to owners:
Share options exercised 8,599 108 (41) 67
Share-based payment
transactions



1,261



1,261
Deferred share
units exercised

52,573

461

(461
)


61,172 569 759 1,328
Balance, September 30, 2011 19,841,211 $26,585 $2,813 $(1,066) $105,205 $133,537

Nine-month period ended September 30, 2010

Number
of shares

Share
capital

Contributed
surplus
Cumulative
translation
account

Retained
earnings
Total
shareholders'
equity
Balance, January 1, 2010 19,759,189 $25,842 $983 $ $69,504 $96,329
Total comprehensive income
for the period:
Profit or loss 12,681 12,681
Other comprehensive
income:
Foreign currency
translation
adjustment








(509
)



(509
)
Total comprehensive income
for the period



(509
)
12,681

12,172
Transactions with shareholders
recorded directly in equity:
Contributions by and
distributions to owners:
Share options exercised 20,850 174 (68) 106
Share-based payment transactions 796 796
Deferred share
units exercised






20,850 174 728 902
Balance, September 30, 2010 19,780,039 $26,016 $1,711 $(509) $82,185 $109,403
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

To view a link of the Interim Consolidated Statements of Changes in Equity, please visit the following link: http://media3.marketwire.com/docs/SOequity1108.pdf.

SOFTCHOICE CORPORATION
Interim Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
Cash provided by (used in):
Operating activities:
Net earnings (loss) for the period $(472) $2,094 $15,636 $12,681
Adjustments for:
Depreciation of property and
equipment

663

663

2,392

2,104
Share-based transactions 224 329 1,261 796
Income taxes expense 889 518 8,933 6,314
Amortization of intangible assets 1,528 1,641 4,305 5,061
Unrealized foreign currency loss (gain) 3,460 (1,064) 2,154 (892)
Amortization of deferred financing cost 369 349 1,096 1,009
Interest expense on financial liabilities 434 695 1,442 2,057
Loss on disposal of property
and equipment

-

-

-

42
7,095 5,225 37,219 29,172
Change in non-cash operating
working capital (note 14)

(555
)
(16,758
)
(11,681
)
(3,763
)
6,540 (11,533) 25,538 25,409
Interest paid (442) (669) (1,443) (1,986)
Income taxes paid (2,538) (4,539) (9,510) (10,519)
3,560 (16,741) 14,585 12,904
Financing activities:
Repayment of loans and borrowings (278) (1,453) (2,696) (3,329)
Proceeds from issuance of common shares
57

9

67

106
(221) (1,444) (2,629) (3,223)
Investing activities:
Purchase of property and equipment (299) (379) (1,716) (892)
Purchase of intangible assets (651) (349) (1,666) (774)
Restricted cash 500 - 500 -
(450) (728) (2,882) (1,666)
Net increase (decrease) in cash during the period 2,889 (18,913) 9,074 8,015
Cash, beginning of period 42,510 45,482 35,752 18,601
Effect of exchange rate changes on cash (1,387) 245 (814) 198
Cash, end of period $44,012 $26,814 $44,012 $26,814
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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