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Press release from Marketwire

Softchoice Announces Third-Quarter Results

Tuesday, November 09, 2010

Softchoice Announces Third-Quarter Results16:19 EST Tuesday, November 09, 2010TORONTO, ONTARIO--(Marketwire - Nov. 9, 2010) - Softchoice Corporation (TSX:SO), a leading North American provider of IT solutions and services, today reported financial results for the third quarter of 2010.For the three-month period ended September 30, 2010, Softchoice reported net earnings of US$2.1 million, or US$0.11 per basic and fully diluted share, compared to net earnings of US$4.9 million or US$0.28 per basic and fully diluted share recorded for the same period last year. The difference in net earnings is due to a non-operating foreign exchange gain of US$1.6 million in the quarter compared to a gain of US$6.2 million for the same quarter last year. On an adjusted basis, earnings amounted to US$0.8 million, or US$0.04 per basic and fully diluted share, compared to US$0.5 million, or US$0.03 per basic and fully diluted share for the third quarter of 2009.During the quarter Softchoice reported revenues of US$255.2 million, representing an increase of 17 percent over the same period last year. Hardware sales showed strong growth, increasing by 22 percent in the quarter while sales of Microsoft licensing and other software grew by 17 percent and 10 percent, respectively, over the third quarter of 2009."Our focus on providing a broader portfolio of solutions and services has allowed us to deliver strong revenue growth in what is typically a quieter quarter for IT spending," said David MacDonald, President and CEO of Softchoice. "Increases in the sale of Microsoft licensing, PCs, servers and networking solutions reflect the value our customers see in consolidating solution design, implementation and large volume IT fulfillment through a single provider."Gross profit for the quarter was US$35.8 million, representing an increase of 16 percent over the same quarter of 2009. Eliminating the impact of foreign exchange, gross profit grew by 14 percent."We are building a superior platform to serve our customers - one that makes it simple to access deep technical expertise in more than forty markets across North America, as well as cost-effective fulfillment for leading vendor partners like Microsoft, HP, IBM, Cisco, VMware, Citrix and Data Domain," added David MacDonald. "While there is a short-term impact on our operating results, our investments in sophisticated presales and professional services resources are allowing Softchoice to stake a leadership position in the most strategic areas of IT. These include helping organizations modernize their data center environments in addition to desktop virtualization, private cloud computing, and mobility solutions, which are moving to the forefront as major growth drivers in our industry."Cash used in operating activities was US$16.7 million during the third quarter of 2010 compared to US$2.5 million in cash generated from operating activities for the same period last year. This decrease in cash is largely attributable to the timing of payments made to our major distributor partners in addition to the Company's decision to take advantage of early pay discounts offered by certain vendors.Quarterly Highlights- Revenue was higher across all product segments, with hardware solutions showing the largest product segment increase of 22 percent.- Cash flow from operations (excluding changes in non-cash working capital) was $4.1 million, an increase of 51 percent from the same quarter of the prior year.- The number of new customers taking advantage of Axis, Softchoice's online IT Asset Management-as-a-Service offering, increased by 29 percent compared to the third quarter of 2009.- Softchoice was named a "50 Most Engaged Workplace" by I Love Rewards(TM). The award recognizes top employers that display leadership and innovation towards engaging their employees.- During the quarter, 12 Softchoice employees travelled to Sri Lanka to build a new computer lab in the coastal city of Tangalle. The initiative is part of the Company's larger and ongoing philanthropic effort to provide access to technology in some of the world's poorest communities.Third Quarter Earnings Call DetailsSoftchoice Corporation will host its 2010 third-quarter earnings call on November 9, 2010 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/20101109/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 November 10, 2010.About SoftchoiceAs 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 providing access to one of the most comprehensive and cost-effective technology distribution networks in North America. With over 850 employees located in more than 40 branch offices, Softchoice manages the technology needs of more than 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 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 CORPORATIONThree-month and nine-month periods endedSeptember 30, 2010 and 2009(Unaudited)SOFTCHOICE CORPORATIONInterim Consolidated Balance Sheets(In thousands of U.S. dollars)(Unaudited) -------------------------------------------------------------------------------------------------------------------------------------------------------- September 30, December 31, 2010 2009----------------------------------------------------------------------------AssetsCurrent assets: Cash $ 26,814 $ 18,601 Accounts receivable, net of allowance for doubtful accounts of $5,043 (December 31, 2009 - $3,967) 168,666 185,278 Inventory 4,834 1,151 Prepaid expenses and other assets 4,382 5,367 Future income taxes 3,235 2,270 Income taxes recoverable 196 - --------------------------------------------------------------------------- 208,127 212,667Restricted cash 500 500Property and equipment 5,724 6,894Goodwill 11,163 11,063Intangible assets 40,757 44,866Long-term accounts receivable 1,375 303Deferred costs 136 1,676Future income taxes 15,886 16,220---------------------------------------------------------------------------- $ 283,668 $ 294,189--------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholder's EquityCurrent liabilities: Accounts payable and accrued liabilities $ 157,508 $ 173,676 Current portion of term debt (note 2) 4,104 4,104 Current portion of deferred revenue 2,268 3,309 Income taxes payable - 3,288 --------------------------------------------------------------------------- 163,880 184,377Deferred lease inducements 447 480Deferred revenue 146 303Term debt (note 2) 9,594 12,671Shareholder's equity: Capital stock (note 3) 26,016 25,842 Contributed surplus (note 4) 1,532 983 Retained earnings 77,292 64,263 Accumulated other comprehensive income 4,761 5,270 --------------------------------------------------------------------------- 109,601 96,358---------------------------------------------------------------------------- $ 283,668 $ 294,189--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to interim consolidated financial statements.SOFTCHOICE CORPORATIONInterim Consolidated Statements of Earnings andRetained Earnings(In thousands of U.S. dollars, except per shareinformation)(Unaudited)-------------------------------------------------------------------------------------------------------------------------------------------------------- Three-months ended Nine-months ended September 30, September 30, 2010 2009 2010 2009----------------------------------------------------------------------------Revenue: Software $ 133,026 $ 119,455 $ 495,347 $ 425,247 Hardware 114,240 93,431 319,898 260,191 Agency fees 7,903 5,842 33,880 30,921 -------------------------------------------------------------------------- 255,169 218,728 849,125 716,359Cost of sales 219,337 187,915 729,711 613,580----------------------------------------------------------------------------Gross profit 35,832 30,813 119,414 102,779Expenses Salaries and benefits 23,016 19,229 67,239 56,905 Selling, general and administrative 8,318 6,716 23,940 23,105 Amortization of property and equipment 663 762 2,104 2,185 Amortization of intangible assets 1,641 1,973 5,061 5,930 -------------------------------------------------------------------------- 33,638 28,680 98,344 88,125----------------------------------------------------------------------------Operating income 2,194 2,133 21,070 14,654Other expenses (income): Foreign exchange gain (1,611) (6,230) (1,047) (10,778) Interest expense 669 1,029 1,986 3,001 Other expense 499 476 729 1,150 -------------------------------------------------------------------------- (443) (4,725) 1,668 (6,627)----------------------------------------------------------------------------Earnings before income taxes 2,637 6,858 19,402 21,281Income taxes (recovery): Current 499 2,019 6,993 5,672 Future 29 (73) (620) 444 -------------------------------------------------------------------------- 528 1,946 6,373 6,116----------------------------------------------------------------------------Net earnings 2,109 4,912 13,029 15,165Retained earnings, beginning of period 75,183 52,253 64,263 42,000----------------------------------------------------------------------------Retained earnings, end of period $ 77,292 $ 57,165 $ 77,292 $ 57,165--------------------------------------------------------------------------------------------------------------------------------------------------------Net earnings per share (note 5): Basic $ 0.11 $ 0.28 $ 0.66 $ 0.87 Diluted 0.11 0.28 0.66 0.87 -------------------------------------------------------------------------- --------------------------------------------------------------------------Weighted average number of sharesoutstanding: Basic 19,779,359 17,496,807 19,777,635 17,496,807 Diluted 19,826,132 17,553,515 19,806,266 17,512,165 -------------------------------------------------------------------------- --------------------------------------------------------------------------See accompanying notes to interim consolidated financial statements.SOFTCHOICE CORPORATIONInterim Consolidated Statements ofComprehensive Income(In thousands of U.S. dollars)(Unaudited)-------------------------------------------------------------------------------------------------------------------------------------------------------- Three-months ended Nine-months ended September 30, September 30, 2010 2009 2010 2009----------------------------------------------------------------------------Net earnings $ 2,109 $ 4,912 $ 13,029 $ 15,165Other comprehensive income: Foreign currency translation adjustment (605) (3,921) (509) (6,716)----------------------------------------------------------------------------Total comprehensive income $ 1,504 $ 991 $ 12,520 $ 8,449--------------------------------------------------------------------------------------------------------------------------------------------------------Interim Consolidated Statements of Accumulated OtherComprehensive Income(In thousands of U.S. dollars)(Unaudited)-------------------------------------------------------------------------------------------------------------------------------------------------------- Nine-months ended September 30, 2010 2009----------------------------------------------------------------------------Balance, beginning of period $ 5,270 $ 13,116Foreign currency translation adjustment (509) (6,716)----------------------------------------------------------------------------Balance, end of period $ 4,761 $ 6,400----------------------------------------------------------------------------See accompanying notes to interim consolidated financial statements.SOFTCHOICE CORPORATIONInterim Consolidated Statements of Cash Flows(In thousands of U.S. dollars)(Unaudited)-------------------------------------------------------------------------------------------------------------------------------------------------------- Three-months ended Nine-months ended September 30, September 30, 2010 2009 2010 2009----------------------------------------------------------------------------Cash provided by (used in):Operating activities: Net earnings $ 2,109 $ 4,912 $ 13,029 $ 15,165 Items not involving cash: Amortization of property and equipment 663 762 2,104 2,185 Stock-based compensation 347 54 617 (1,499) Future income taxes 29 (73) (620) 444 Amortization of intangible assets 1,641 1,973 5,061 5,930 Unrealized foreign currency gain (1,056) (5,240) (833) (7,761) Amortization of capitalized loan fees 366 324 1,020 804 Loss (gain) on disposal of property and equipment - - 43 (2) ------------------------------------------------------------------------ 4,099 2,712 20,421 15,266 Net change in non-cash working capital (note 9) (20,843) (252) (7,517) 24,465 ------------------------------------------------------------------------ (16,744) 2,460 12,904 39,731Financing activities: Repayment of bank indebtedness - (5,515) - (40,317) Increase in bank indebtedness - - - (2,335) Repayment of long-term debt - - - (13,688) Increase in term debt (427) (1,480) (252) 18,121 Repayment of term debt (1,026) (1,026) (3,077) (2,713) Proceeds from issuance of common shares 10 - 106 - -------------------------------------------------------------------------- (1,443) (8,021) (3,223) (40,932)Investing activities: Purchase of property and equipment (379) (254) (892) (1,128) Purchase of intangible assets (348) (558) (774) (932) Proceeds on disposal of property and equipment - 32 - 61 -------------------------------------------------------------------------- (727) (780) (1,666) (1,999)Effect of exchange rate changes on cash 246 687 198 727----------------------------------------------------------------------------Increase (decrease) in cash (18,668) (5,654) 8,213 (2,473)Cash, beginning of period 45,482 17,279 18,601 14,098----------------------------------------------------------------------------Cash, end of period $ 26,814 $ 11,625 $ 26,814 $ 11,625--------------------------------------------------------------------------------------------------------------------------------------------------------Supplemental cash flow information: Interest paid $ 669 $ 1,029 $ 1,986 $ 3,001 Income taxes received - 6 - - Income taxes paid 4,538 - 10,460 2,525--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to interim consolidated financial statements.FOR FURTHER INFORMATION PLEASE CONTACT: Softchoice CorporationMedia ContactEric Gardiner, Manager of Communications416.588.9002 Ext. 2358Eric.gardiner@softchoice.com