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Press release from Marketwire

Softchoice Announces First Quarter Earnings

- Gross profit grows 11.3 percent - Gross margins up 130 basis points - U.S. revenues increase 28 percent

Monday, May 14, 2012

Softchoice Announces First Quarter Earnings21:51 EDT Monday, May 14, 2012TORONTO, ONTARIO--(Marketwire - May 14, 2012) - Softchoice Corporation (TSX:SO), a North American provider of technology solutions and services, today reported earnings for the first quarter of 2012.For the three month-period ended March 31st, 2012, Softchoice reported net earnings of US$5.1 million compared to net earnings of $5.2 million for the same period the year prior. Eliminating the impact of foreign exchange gains and losses, adjusted net earnings(i) amounted to US$4.4 million, or US$0.22 per share (basic and fully diluted) compared to US$4.2 million, or US$0.21 per share (basic and fully diluted) recorded for the same period the year prior, representing an increase of 5.6 percent. The lower than anticipated earnings growth is attributed to unexpected delays in contract negotiations between the Canadian federal government and key software publishers.Softchoice's first quarter net revenues increased 3.8 percent to US$259.1 million compared to US$249.7 million reported for the same period in 2011. Net revenues from the company's U.S. operations demonstrated particularly strong growth, increasing by 28 percent year-over-year."Despite the challenges in Canada, the ongoing integration of the business of UNIS LUMIN, and the investments we're making in the cloud to drive our future growth, we continued to deliver earnings growth and are well-positioned to improve upon our performance for the balance of the year," said David MacDonald, President and CEO of Softchoice. "I am pleased to say that our U.S. operations exceeded expectations, our expanded coverage of the small and medium-size business segment is fueling gains in our Microsoft market share and sales of enterprise software, server, storage and networking solutions continue to post double-digit growth."Revenues from the company's professional services business grew by 50 percent in the period reflecting the impact of the acquisition of the business of UNIS LUMIN, while sales of enterprise software, servers, storage and networking increased by 17 percent. Sales of Microsoft grew 8 percent compared to the same quarter the year prior, while total Microsoft revenue, including imputed revenue(ii), grew by 22 percent."We have made great progress with the integration of the business of UNIS LUMIN as we strengthen our ability to meet the growing demand for Managed Services as well as expertise in the design and delivery of advanced networking solutions," added Mr. MacDonald. "While still early, we are already realizing some of the cross-selling synergies we anticipated as we begin extending the full-value of our combined capabilities to legacy Softchoice and UNIS LUMIN customers."At the end of the quarter, cash on hand was US$42.1 million, with cash flow from operations of $10.5 million, and total debt of nil.HighlightsSoftchoice recently launched Key Stone Essentials, a Managed Services offering designed to improve network uptime while allowing organizations to devote more time to driving their IT strategy. For the seventh consecutive year, Softchoice was named one of Canada's Best Workplaces by the Globe and Mail newspaper. Softchoice was ranked among Canada's 10 largest Information and Communications Technology companies (ICT) and was named the country's second largest Professional Services organizations, according to the Branham Group's definitive annual listing of leading ICT organizations. Softchoice AGM and 2012 First Quarter Earnings Call Softchoice will host its Annual General Meeting tomorrow, Tuesday May 15, 2012 at 10:00 a.m. at the Westin Harbour Castle Hotel in Pier 7 & 8. The hotel is located at 1 Harbour Square in downtown Toronto. The meeting will run from 10:00 am to 12:00 pm. Presenters will include Bill Linton, Chairman of the Softchoice Board, and President and CEO, David MacDonald.The quarterly earnings conference call will take place the same day at 8:00 a.m. The conference call will begin with a brief presentation followed by a question and answer period.Participant Dial in Numbers:416 800 1066 - North American Toll866 212 4491 - North American Toll FreeWebcast URL: To ensure participation, please dial in at least 10 minutes prior to the start of the conference at 8:00 a.m. 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 May 16th, 2012.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 access to one of the most comprehensive and cost-effective technology distribution networks in North America. With over 1,100 employees located in more than 40 branch offices, Softchoice manages the technology needs of thousands of 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.(i)Use of Non-GAAP Measures - Adjusted Net EarningsAdjusted net earnings eliminate the after-tax impact related to any foreign exchange gain or loss on the cash, intercompany debt and external debt denominated in a currency other than the Company's functional currency. Adjusted net earnings highlight underlying business performance by adjusting for the impact of these currency changes.(In thousands of U.S. dollars, except per share amounts)Three months ended March 31,% Change20122011Net earnings$5,143$5,160(0.3%)Adjustments, net of income tax736988(25.5%)Adjusted net earnings$4,4074,1725.6%Adjusted net earnings per share$0.22$0.214.8%(ii) Use of Non-GAAP Measures - Imputed RevenueMicrosoft imputed revenue is defined as the price paid by the customer to Microsoft for sales of Enterprise Agreements ("EAs") that are transacted through Softchoice sales representatives plus the gross amount billed to customers for Software Assurance ("SA") agreements.Microsoft pays Softchoice an agency fee or commission for sales of EAs, and therefore Softchoice does not reflect the imputed revenue in the revenue line for these transactions but records only the agency fees earned within revenue. Microsoft imputed revenue allows for better comparability between fiscal periods since an increase in the product mix of EAs and SA agreements would make it appear that Softchoice is selling fewer products, when that would not be the case. Management believes that an EA often provides a more cost-effective solution for customers, particularly in the small and medium business ("SMB") market.Other imputed revenue includes the difference between what the Company invoices customers for non-Microsoft maintenance contracts and the net amount that is reflected in the financial statements. Management believes that reporting the imputed revenue for these arrangements is helpful to investors to put the Company's trade accounts receivable and trade payables balances into context. The Company records these arrangements on a net basis, as an agent, rather than on a gross basis, as a principal in the transaction, as the services are provided primarily by third parties.The table below shows total revenue, including imputed revenue, for the first quarter compared to the same period of the prior year.(In thousands of U.S. dollars)Three months ended March 31,% Change20122011Net sales, as reported$259,116$249,7183.8%Microsoft Agency fees(11,337)(9,195)23.3%Microsoft imputed revenue207,186160,29329.3%Other imputed revenue66,52663,2225.2%Total revenue, including imputed revenue$521,491$464,03812.4%Interim Condensed Consolidated Financial Statements(Expressed in U.S. dollars)SOFTCHOICE CORPORATIONThree-month periods ended March 31, 2012 and 2011(Unaudited)SOFTCHOICE CORPORATIONInterim Condensed Consolidated Statements of Financial Position(In thousands of U.S. dollars)(Unaudited)March 31,December 31,20122011AssetsCurrent assets:Cash$42,089$32,993Trade and other receivables249,437306,434Inventory5,9428,407Work-in-progress451465Deferred costs1,0472,591Prepaid expenses and other assets5,8896,158Total current assets304,855357,048Non-current assets:Long-term accounts receivable139643Long-term prepaid expenses1,9581,821Property and equipment6,6616,309Goodwill16,64716,441Intangible assets45,06146,203Deferred tax assets19,79719,224Total non-current assets90,26390,641Total assets$395,118$447,689Liabilities and Shareholders' EquityCurrent liabilities:Trade and other payables$233,541$290,267Deferred lease inducements250243Deferred revenue10,38010,627Income taxes payable1,2642,279Total current liabilities245,435303,416Non-current liabilities:Deferred lease inducements602648Deferred revenue3,2143,307Total non-current liabilities3,8163,955Total liabilities249,251307,371Shareholders' equity:Capital stock26,50226,548Contributed surplus3,7983,274Retained earnings116,832111,689Accumulated other comprehensive loss(1,265)(1,193)Total shareholders' equity145,867140,318Total liabilities and shareholders' equity$395,118$447,689The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.SOFTCHOICE CORPORATIONInterim Condensed Consolidated Statements of Comprehensive Income(In thousands of U.S. dollars, except per share information)(Unaudited)Three-month periods ended March 31,20122011Net sales$259,116$249,718Cost of sales210,247205,804Gross profit48,86943,914Expenses:Selling and marketing29,90726,632Administrative12,38610,333Other income(22)(121)Other expenses664342,33736,887Income from operating activities6,5327,027Finance costs1421,047Finance income(961)(1,266)Net finance income(819)(219)Earnings before income taxes7,3517,246Income tax expense2,2082,086Net earnings5,1435,160Other comprehensive loss:Foreign currency translation adjustment(72)(355)Total comprehensive income$5,071$4,805Net earnings per common share:Basic (note 5)$0.26$0.26Diluted (note 5)0.260.26 SOFTCHOICE CORPORATIONInterim Condensed Consolidated Statements of Changes in Equity(In thousands of U.S. dollars)(Unaudited)CumulativeTotalThree-month period endedNumberCapitalContributedtranslationRetainedshareholders'March 31, 2012of sharesstocksurplusaccountearningsequityBalance, January 1, 201219,837,211$26,548$3,274$(1,193)$111,689$140,318Total comprehensive income (loss):Net earnings----5,1435,143Other comprehensive loss:Foreign currency translation adjustment---(72)-(72)Total comprehensive income (loss)---(72)5,1435,071Transactions with shareholders recorded directly in equity:Share-based payment transactions--524--524Repurchase of common shares(3,700)(46)---(46)(3,700)(46)524--478Balance, March 31, 201219,833,511$26,502$3,798$(1,265)$116,832$145,867CumulativeTotalThree-month period endedNumberCapitalContributedtranslationRetainedshareholders'March 31, 2011of sharesstocksurplusaccountearningsequityBalance, January 1, 201119,780,039$26,016$2,054$(1,142)$89,569$116,497Total comprehensive income (loss):Net earnings----5,1605,160Other comprehensive loss:Foreign currency translation adjustment---(355)-(355)Total comprehensive income (loss)---(355)5,1604,805Transactions with shareholders recorded directly in equity:Share-based payment transactions--356--356Deferred share unitsExercised52,573461(461)---52,573461(105)--356Balance, March 31, 201119,832,612$26,477$1,949$(1,497)$94,729$121,658 SOFTCHOICE CORPORATIONInterim Condensed Consolidated Statements of Cash Flows(In thousands of U.S. dollars)(Unaudited)Three-month periods ended March 31,20122011Cash provided by (used in):Operating activities:Net earnings$5,143$5,160Adjustments for:Depreciation of property and equipment748682Share-based payment transactions524356Income tax expense2,2082,086Amortization of intangible assets2,1251,597Unrealized foreign currency gain(1,004)(1,039)Amortization of deferred financing costs-357Interest expense on financial liabilities325239,7769,722Change in non-cash operating working capital (note 7)4,6366,01414,41215,736Interest paid(32)(522)Income taxes paid(3,835)(2,984)Cash provided by operating activities10,54512,230Financing activities:Repayment of loans and borrowings-(1,276)Repurchase of common shares(46)-Cash used in financing activities(46)(1,276)Investing activities:Purchase of property and equipment(1,009)(578)Purchase of intangible assets(614)(474)Cash used in investing activities(1,623)(1,052)Increase in cash8,8769,902Cash, beginning of year32,99335,752Effect of exchange rate changes on cash220442Cash, end of year$42,089$46,096FOR FURTHER INFORMATION PLEASE CONTACT: Eric GardinerMedia Contact: Softchoice CorporationManager of Communications416.588.9002 Ext.