Softchoice Announces First Quarter 2024 Results

• Software & Cloud gross profit increases 9% YoY, driven by strong demand in SMB and Commercial channels for public cloud and security solutions
• Customer base grows by 5% YoY, driven by healthy growth in new accounts and higher customer retention, supported by an expanded salesforce
• Softchoice launches AI Solutions team and establishes leadership position in target market in consulting engagements that prepare customers for Copilot for Microsoft 365 adoption
• Adjusted EBITDA increases 4% YoY due to gross profit growth and cost containment
• LTM cash flow generation enables $24M return of capital to shareholders and $68M reduction in consolidated net debt with net leverage declining almost a full turn YoY to 0.7x at end of Q1

TORONTO: 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 19th year in a row in April 2024, ranking 9th 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: