Softchoice Announces First Quarter 2024 Results

Softchoice Corporation (“Softchoice” or the “Company”) (TSX: SFTC) today announced its financial results for the first quarter (“Q1 2024”) ended March 31, 2024. Softchoice will hold a conference call/webcast to discuss its results today, May 8, 2024, at 8:30 a.m. ET. Unless otherwise noted, all dollar ($) amounts are in U.S. dollars.

Quarterly highlights¹

• Gross profit increased 3.3% year-over-year (YoY) with 9.4% growth in Software & Cloud, driven by a larger customer base and solid demand across strategic focus areas including public cloud and security solutions, which offset industry-wide Hardware spending reductions and the non-recurrence of two large software-related orders of approximately $3.4 million of gross profit on $31 million in Gross Sales recognized in Q1 2023.

• Adjusted EBITDA increased 4.3% to $15.1 million due to operating leverage, prudent cost containment and lower variable compensation offsetting the Company’s growth investments including an expanded salesforce and the launch of an Artificial Intelligence (“AI”) Solutions team.

• Income from operations increased 10.3%, benefiting from lower amortization expense.

• Net loss per share on a diluted basis was $0.02 compared with net income per share of $0.08 in Q1 2023 due to higher unrealized foreign exchange losses and deferred tax expense, while Adjusted EPS on a diluted basis was $0.07 compared with $0.12.

• Signed new strategic partnership framework agreement with Microsoft to further enhance our capabilities and capacity to develop, sell, and deliver Microsoft’s cloud and digital workplace AI and security solutions, including Microsoft Copilot.

• Launched SAM+, a suite of software asset management solutions and services to efficiently manage the complexities of subscription-based licensing.

• Received the 2024 Google Cloud Public Sector Partner of the Year award for Canada and was named VMware Geo Partner of the Year (North America) by VMware by Broadcom.

• Subsequent to the quarter, was named a Best Workplace in Canada™ by Great Place to Work® for the 19^th year in a row in April 2024, ranking 9^th among large employers.

Andrew Caprara, Softchoice’s Chief Executive Officer, said: ²

“We executed successfully in the first quarter on our three strategic priority areas that we outlined for 2024. We continued building a world-class culture, recording increases in our overall team member retention, salesforce tenure and internal engagement scores, as well as having been named a top 10 workplace in Canada by Great Place to Work®, recognizing our outstanding employee experience and workplace culture. Secondly, our customer growth has returned to pre-pandemic levels driven by a combination of higher retention underpinned by better satisfaction rates, and success in increasing new buying accounts across all sales channels driven by our expanded salesforce. Thirdly, our investments in advanced technical capabilities continued to drive deeper customer relationships and growth in our strategic focus areas of secure, AI-powered cloud and digital workplace solutions supported by our advanced software asset management methodology and capabilities.

”Customer demand for generative AI has been rapidly accelerating, which we are converting through the adoption of Copilot for Microsoft 365. We’ve taken a leadership position in this space, as measured by the volume of consulting engagements that prepare customers for Copilot adoption. And with the launch of our AI Solutions team in Q1, supported by the activation of our strategic partnership agreement with Microsoft, our focus is on moving customers from generative AI planning and pilot phases into more complex and long-term transformation programs.”

Dividends Update ²

• On May 7, 2024, the Board declared a quarterly dividend of Cdn. $0.13 per Common Share for the period from April 1, 2024 to June 30, 2024 to be paid on July 12, 2024 to shareholders of record at the close of business on June 28, 2024, representing an approximate 18% increase over Q2 2023. The dividend to which this notice relates is an eligible dividend for tax purposes.

Supplementary Measures for the trailing twelve months (LTM) period ended March 31, 2024¹

• Revenue Retention Rate was 98%, with the decline in Hardware Gross Sales offsetting increased Customer retention and increased Software & Cloud Gross Sales. SMB and Commercial revenue retention continued to trend at or above 100%, offset by a decline in Enterprise revenue retention driven by a decrease in Hardware Gross Sales.

• Customers increased 4.6% to 4,952 at March 31, 2024, an increase of 216 compared to March 31, 2023, driven by an expanded salesforce.

• Account Executives increased by 12% to 508 at March 31, 2024 compared with 453 a year prior. Average LTM Account Executives were 465, a 5% increase over the prior LTM period.

• Gross Profit per Customer declined to approximately $67,000 from $69,000 in the prior LTM period primarily due to a decrease in Hardware Gross Profit Per Customer stemming from industry wide weakness.

• Net cash from operating activities increased 148% to $93.3 million due to an increase in profits and effective working capital management. Free Cash Flow decreased by 9.3% to $48.8 million with the increase in Adjusted EBITDA offset by higher tax payments.

Quarterly Conference Call

Softchoice’s management team will hold a conference call to discuss our Q1 2024 results today at 8:30 a.m. (ET).

DATE: Wednesday, May 8, 2024

TIME: 8:30 a.m. Eastern Time

WEBCAST: https://app.webinar.net/D4y2dzOQ387

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/3PKSecU 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.

TAPED REPLAY: 416-764-8677 or 1-888-390-0541, Replay Code 504830 # (Available until May 15, 2024)

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 three months ended March 31, 2024 and March 31, 2023 (the “Q1 2024 MD&A”), and/or our annual information form dated March 27, 2024 (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 “Gross Sales”, “Adjusted EBITDA”, “Adjusted EBITDA as a Percentage of Gross Profit”, “Adjusted Cash Operating Expenses”, “Adjusted Net Income (Loss)”, “Adjusted EPS”, and “Free Cash Flow”. 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 2024 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 2024 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, Normal Course Issuer Bid (“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, dividend rates, any special dividend and increases or progressive increases in dividends; (viii) the Company’s NCIB program and the purchase of Common Shares in connection with such program; (ix) the impact of macroeconomic conditions and remote and hybrid work on our business, financial position, results of operations and/or cashflows; (x) the use, adoption, integration and growth of AI tools, products, services and solutions, including any growth, leadership position or business changes resulting from AI or the AI solutions team; and (xi) the leverage and range of net leverage and the Company’s ability or desire to remain within any optimal leverage parameters.

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 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.sedarplus.ca 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- and cloud-focused IT solutions provider that equips organizations to be agile, innovative, and secure, and people to be engaged, connected and creative at work. We do this by delivering secure, AI-powered cloud and digital workplace solutions supported by our advanced software asset management methodology and capabilities. Through our ROI customer success framework, we create value for our customers by reducing their IT spending, optimizing their technology, and supporting business-driven innovation. We are a highly engaged, high-performing team that is welcoming, inclusive, and diverse in thought and experience, and are a certified Great Place to Work® in Canada and the United States. To learn more about us, visit www.softchoice.com.

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