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Press release from Marketwire

Softchoice Reports Strong Q2 Results

Tuesday, August 10, 2010

Softchoice Reports Strong Q2 Results16:05 EDT Tuesday, August 10, 2010TORONTO, ONTARIO--(Marketwire - Aug. 10, 2010) - Softchoice Corporation (TSX:SO), a leading North American provider of IT solutions and services, today reported financial results for the second quarter of 2010. For the three-month period ended June 30th, Softchoice reported revenues of US$311.2 million, representing an increase of 11.4 percent compared to the same period last year. During the quarter, Softchoice generated net income of US$6.4 million, or US$0.32 per basic and fully diluted share versus net income of $12.6 million, or US$0.72 per basic and fully diluted share, recorded for the same time last year. The change in net income was significantly driven by a foreign exchange loss in the second quarter of this year of US$2.6 million compared to a foreign exchange gain in the second quarter of 2009 of US$6.1 million. Adjusting for the foreign exchange loss, earnings in the quarter amounted to US$8.5 million compared to US$8.1 million for the same period in 2009. On an adjusted EPS basis, the Company generated US$0.43 per basic and fully diluted share versus US$0.46 per basic and fully diluted share reported for the same period last year."Softchoice continues to benefit as the rebound in IT spending gains momentum," said David MacDonald, President and CEO of Softchoice. "We are coming into this technology spending cycle armed with a strategically focused services capability which positions us to add value to our customers, protect our gross margins and the fees we receive from the sale of Microsoft Enterprise Agreements and accelerate the expansion of our infrastructure solutions business." Revenue from hardware infrastructure solution sales grew by 21 percent; sales of Microsoft licensing grew 8 percent; and sales of other software solutions increased by 6 percent compared to the second quarter of the year prior. Gross profit for the quarter was $47.1 million, reflecting year-over-year increase of 14 percent. Margins continued to improve, increasing by 36 basis points over the same period last year. "Major releases like Windows 7 and Office 2010, along with paradigm shifts in computing represented by desktop, storage and server virtualization are serving as a tailwind for our industry," added Mr. MacDonald. "We believe these innovations will amplify and extend the current growth cycle for the IT sector. As these technologies move to the fore, our investments in solution design and implementation services will continue to enhance our value as we help organizations navigate from the client environment to new models of computing offered by 'the cloud'." In the quarter, cash flow from operations was $14.7 million, leaving the Company in a net cash position at the end of the quarter of $31 million. "Our second quarter solidifies a very successful first half of the year for Softchoice," said David Long, Senior Vice President Finance and Chief Financial Officer of Softchoice. "Our revenue increased 19 percent over the first half of 2009, operating income grew by more than 50 percent and adjusted net earnings were up by 60 percent."Highlights -- In recognition for delivering market-leading operational excellence in support of Microsoft technology, Softchoice received the Operational Excellence Award at Microsoft's 2010 Worldwide Partner Conference. -- The number of customers who took advantage of Softchoice's IT assessment services offerings increased by 33 percent in the first six months of 2010 compared to the same period last year. -- The number of organizations subscribing to Axis - Softchoice's online IT Asset Management-as-a-Service offering - increased by 16 percent compared to the first half of 2009. Second-Quarter Earnings Call DetailsSoftchoice Corporation will host its 2010 second-quarter earnings call today at 5:00 pm 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. Participant InformationLocal Dial in number: 416-800-1066Toll Free Dial in number: 1 866 212 4491Webcast URL: http://events.snwebcastcenter.com/softchoice/20100810/To ensure participation, please dial in at least 10 minutes prior to the start of the conference at 5:00 pm 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 August 11th, 2010.About SoftchoiceAs 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 872 employees operating from more than 40 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 StatementsThis 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 six-month periods ended June 30, 2010 and 2009 (Unaudited) SOFTCHOICE CORPORATION Interim Consolidated Balance Sheets (In thousands of U.S. dollars) (Unaudited) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- June 30, 2010 December 31, 2009 ---------------------------------------------------------------------------- Assets Current assets: Cash $ 45,482 $ 18,601 Accounts receivable, net of allowance for doubtful accounts of $4,782 (December 31, 2009 - $3,967) 202,225 185,278 Inventory 2,497 1,151 Prepaid expenses and other assets 5,533 5,367 Future income taxes 2,926 2,270 --------------------------------------------------------------------------- 258,663 212,667 Restricted cash 500 500 Property and equipment 5,872 6,894 Goodwill (note 2) 10,982 11,063 Intangible assets (note 2) 41,746 44,866 Long-term accounts receivable 974 303 Deferred costs 148 1,676 Future income taxes 16,198 16,220 ---------------------------------------------------------------------------- $ 335,083 $ 294,189 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Liabilities and Shareholder's Equity Current liabilities: Accounts payable and accrued liabilities $ 205,430 $ 173,676 Current portion of term debt (note 3) 4,104 4,104 Current portion of deferred revenue 2,780 3,309 Income taxes payable 3,787 3,288 --------------------------------------------------------------------------- 216,101 184,377 Deferred lease inducements 465 480 Deferred revenue 158 303 Term debt (note 3) 10,619 12,671 Shareholder's equity: Capital stock (note 4) 26,001 25,842 Contributed surplus (note 5) 1,191 983 Retained earnings 75,183 64,263 Accumulated other comprehensive income 5,365 5,270 --------------------------------------------------------------------------- 107,740 96,358 ---------------------------------------------------------------------------- $ 335,083 $ 294,189 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SOFTCHOICE CORPORATION Interim Consolidated Statements of Earnings and Retained Earnings (In thousands of U.S. dollars, except per share information) (Unaudited) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, 2010 2009 2010 2009 ---------------------------------------------------------------------------- Revenue: Software $ 188,588 $ 176,799 $ 362,321 $ 305,792 Hardware 105,671 87,183 205,658 166,760 Agency fees 16,953 15,290 25,977 25,079 --------------------------------------------------------------------------- 311,212 279,272 593,956 497,631 Cost of sales 264,075 237,962 510,374 425,665 ---------------------------------------------------------------------------- Gross profit 47,137 41,310 83,582 71,966 Expenses: Salaries and benefits 22,663 17,622 44,225 37,677 Selling, general and administrative 8,077 8,052 15,622 16,390 Amortization of property and equipment 664 707 1,441 1,427 Amortization of intangible assets (note 2) 1,585 2,011 3,420 3,953 --------------------------------------------------------------------------- 32,989 28,392 64,708 59,447 ---------------------------------------------------------------------------- Operating income 14,148 12,918 18,874 12,519 Other expenses (income): Foreign exchange loss (gain) 2,596 (6,165) 564 (4,549) Interest expense 644 1,138 1,317 1,972 Other expense 363 363 230 674 --------------------------------------------------------------------------- 3,603 (4,664) 2,111 (1,903) ---------------------------------------------------------------------------- Earnings before income taxes 10,545 17,582 16,763 14,422 Income taxes (recovery): Current 4,571 4,590 6,493 3,653 Future (414) 350 (650) 516 --------------------------------------------------------------------------- 4,157 4,940 5,843 4,169 ---------------------------------------------------------------------------- Net earnings 6,388 12,642 10,920 10,253 Retained earnings, beginning of period 68,795 39,611 64,263 42,000 ---------------------------------------------------------------------------- Retained earnings, end of period $ 75,183 $ 52,253 $ 75,183 $ 52,253 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net earnings per share (note 6): Basic $ 0.32 $ 0.72 $ 0.55 $ 0.59 Diluted 0.32 0.72 0.55 0.58 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Weighted average number of shares outstanding: Basic 19,778,789 17,496,807 19,776,459 17,496,807 Diluted 19,827,713 17,562,876 19,863,827 17,562,876 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SOFTCHOICE CORPORATION Interim Consolidated Statements of Comprehensive Income (In thousands of U.S. dollars) (Unaudited) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended June Six months ended June 30, 30, 2010 2009 2010 2009 ---------------------------------------------------------------------------- Net earnings $ 6,388 $ 12,642 $ 10,920 $ 10,253 Other comprehensive income: Foreign currency translation adjustment 916 (4,278) 95 (2,795) ---------------------------------------------------------------------------- Total comprehensive income $ 7,304 $ 8,364 $ 11,015 $ 7,458 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interim Consolidated Statements of Accumulated Other Comprehensive Income (In thousands of U.S. dollars) (Unaudited) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Balance, December 31, 2009 $ 5,270 $ 13,116 Foreign currency translation adjustment 95 (2,795) --------------------------------------------------------------------------- Balance, June 30, 2010 $ 5,365 $ 10,321 --------------------------------------------------------------------------- --------------------------------------------------------------------------- SOFTCHOICE CORPORATION Interim Consolidated Statements of Cash Flows (In thousands of U.S. dollars, except per share information) (Unaudited) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, 2010 2009 2010 2009 ---------------------------------------------------------------------------- Cash provided by (used in): Operating activities: Net earnings $ 6,388 $ 12,642 $ 10,920 $ 10,253 Items not involving cash: Amortization of property and equipment 664 707 1,441 1,427 Stock-based compensation 213 (1,275) 270 (1,552) Future income taxes (414) 350 (650) 516 Amortization of intangible assets 1,585 2,011 3,420 3,953 Unrealized foreign currency loss (gain) 1,732 (4,425) 222 (2,521) Amortization of capitalized loan fees 324 299 654 481 Loss (gain) on disposal of property and equipment - - 43 (2) Change in non-cash operating working capital (note 10) 4,170 29,847 13,325 24,717 --------------------------------------------------------------------------- 14,662 40,156 29,645 37,272 Financing activities: Repayment of bank indebtedness - (19,765) - (40,317) Increase in bank indebtedness - - - 3,180 Repayment of long- term debt - - - (13,688) Increase in term debt 657 (1,587) 176 19,601 Repayment of term debt (1,026) (1,026) (2,052) (1,687) Proceeds from issuance of common shares - - 97 - --------------------------------------------------------------------------- (369) (22,378) (1,779) (32,911) Investing activities: Purchase of property and equipment (254) (455) (513) (852) Purchase of intangible assets (277) (286) (425) (397) Proceeds on disposal of property and equipment - 25 - 29 --------------------------------------------------------------------------- (531) (716) (938) (1,220) Effect of exchange rate changes on cash (525) 75 (47) 40 ---------------------------------------------------------------------------- Increase in cash 13,237 17,137 26,881 3,181 Cash, beginning of period 32,245 142 18,601 14,098 ---------------------------------------------------------------------------- Cash, end of period $ 45,482 $ 17,279 $ 45,482 $ 17,279 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 617 $ 1,138 $ 1,317 $ 1,972 Income taxes paid 2,526 - 5,922 2,522 Income taxes received - 177 - - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- FOR FURTHER INFORMATION PLEASE CONTACT: Media Contact: Softchoice Corporation Eric Gardiner Manager of Communications 416.588.9002 Ext. 2358 Eric.gardiner@softchoice.com