Softchoice Announces 83 Percent Q2 Revenue Growth



    
    -   Hardware revenue grows 158 percent

    -   Gross profit expands 39 percent

    -   Acquisition-related costs and investments in the Solutions and
        Professional Services business segments are the principal causes of
        the decline in EBITDA(1) of 9 percent
    

    TORONTO, Aug. 12 /CNW/ - Softchoice Corp. (TSX: SO), a leading North
American provider of technology solutions and services, today announced
second-quarter revenue and net income results.
    For the three-month period ended June 30, 2008, revenues increased a
record 83 percent to US$334.4 million compared to US$182.5 million recorded
during the same time last year. Reported revenues in Canada and the U.S. grew
by 44 percent and 102 percent, respectively. Sales of hardware products in the
period grew by 158 percent year over year to US$125.2 million and accounted
for 37 percent of revenue versus 27 percent for the same time last year. The
strong revenue growth was fueled by acquisitions completed in the fourth
quarter of 2007 and the first quarter of 2008. Gross profit in the quarter
demonstrated strong growth, increasing by 39 percent over the prior year.
    For the second quarter, the Company reported net income of US$7.4 million
compared to net income of US$10.1 million recorded during the same time last
year. Earnings per share (basic) amounted to US$0.42 (US$0.42 per share fully
diluted) compared to US$0.58 (US$0.58 per share fully diluted) for the second
quarter of 2007.
    The decline in net income is due in part to anticipated costs associated
with integrating Softchoice's recent acquisitions and partly to increased
costs attributable to the Company's strategic investments in selectively
expanding its service offering beyond hardware and software to include
solutions and professional services. This expansion is aimed at simplifying
the customer's IT planning and administration at the same time that it
increases Softchoice's share of the customer's IT budget.
    In addition to the integration expenses highlighted above, costs in the
quarter also included a one-time adjustment to cost of sales of
US$1.0 million. As a result, EBITDA(1) results in the quarter were
US$16.3 million, representing a year-over-year decline of 9 percent. If EBITDA
results are normalized by excluding non-recurring expenses, EBITDA would have
been US$18.3 million, or 2 percent higher than that earned in the second
quarter of 2007.
    "Our recent acquisitions, particularly our acquisition of Optimus
Solutions, successfully demonstrate the growth potential that is available to
Softchoice by adding selected solutions and professional services to our
mid-market offerings," said David MacDonald, President and CEO of Softchoice.
"We have already built the branch network needed to bring this offering to our
customers and our recent acquisitions have given us the trained field
personnel to deliver these services. Our plan in the coming quarters is to
grow the revenue base and improve the productivity of these assets."
    Growth in hardware sales in the quarter included US$36.8 million
generated by Optimus Solutions and the balance attributed to the organic
growth of Softchoice's existing hardware business in the U.S. and to growing
sales to former NexInnovations customers.
    Sales of other software demonstrated strong growth, increasing by
40 percent in the quarter compared to the same period the prior year.
    "Our team at Optimus continues to drive exceptional growth, and the
number of former NexInnovations customers in Canada purchasing from Softchoice
has increased over the first quarter of 2008," added Mr. MacDonald. "We are
very encouraged by the value that we are seeing from our recent acquisitions,
particularly with respect to the diversification of our business both by
region and by the scope of our customer offering. We believe that in addition
to further cost synergies, there are meaningful revenue opportunities
available by increasing our penetration of the IT budgets of the roughly
60 percent of existing software customers who are not currently purchasing
hardware or engaging our professional services capabilities."

    Year-to-Date Results
    --------------------
    For the six-month period ended June 30, 2008, the Company reported net
income of US$9.1 million or US$0.52 per share (US$0.52 per share fully
diluted) on revenue of US$632.9 million compared to net income of
US$13.7 million or US$0.79 per share (US$0.79 per share fully diluted) on
revenue of US$351.5 million recorded during the same period the year prior.
    The decline in year-to-date earnings is due to factors similar to those
reported for the quarter, namely expected costs incurred from the process of
integrating the Company's recent acquisitions and the expansion of its
offerings to include Solutions and Professional Services.
    During the first half, hardware sales increased by 162 percent to
US$253.4 million compared to US$96.6 million recorded for the same period last
year.
    The Directors have declared a dividend in the amount of $0.10 per common
share payable on September 30, 2008 to shareholders of record at the close of
business on September 15, 2008.

    
    Additional Highlights

    -   Softchoice successfully completed the infrastructure integration of
        Software Plus and NexInnovations on schedule and expense reductions
        are on track.

    -   Softchoice was awarded Cisco Silver Partner Status in Canada in
        recognition of the Company's investments in the resources required to
        help organizations plan, design, implement and support Cisco's
        advanced technology solutions.

    -   The number of customers purchasing from Softchoice increased by
        10 percent in Canada and by 30 percent in the U.S. over the same
        period last year.

    -   Revenue from Optimus Solutions was $41.3 million in the quarter,
        generating revenue growth from that unit of 28 percent compared to
        the second quarter of 2007.

    -   In recognition of outstanding business performance, customer
        satisfaction and loyalty, Softchoice's U.S. East Region received the
        National SMS&P Partner of the Year award from Microsoft.

    (1) EBITDA is a non-GAAP term. See "Use of Non-GAAP Measures" outlined in
        the MD&A. The term "EBITDA" is a financial measure used in this news
        release that is not a standard measure under Canadian GAAP.
        Therefore, Softchoice's non-GAAP measures, as presented in this news
        release, may not be comparable to similar measures presented by other
        issuers. EBITDA refers to operating income of the Company determined
        in accordance with generally accepted accounting principles, before
        depreciation and amortization. Management believes that EBITDA is a
        useful supplemental measure of performance, and it is the primary
        basis on which management assesses financial performance and cash
        available for debt service, working capital, capital expenditures,
        income taxes and dividends. For the second quarter the Company
        reported EBITDA of $16.3 million which consists of operating income
        of $13.7 million and amortization costs of $2.6 million.
    

    Second-Quarter Earnings Conference Call
    ---------------------------------------
    Softchoice will hold a conference call to discuss its second-quarter
results today at 10 a.m. ET.
    Dave MacDonald, Softchoice's President and CEO, and Anne Brace,
Softchoice's Chief Financial Officer, will host the call. Steve Leslie,
Softchoice's Vice President of Sales will also be in attendance. The
conference call will begin with a brief presentation followed by a
question-and-answer session.
    To participate in the conference:

    Local/International: 416-849-6185
    North American Toll-Free: 1-866-443-4183

    To listen to the call and view the Web presentation:
    http://events.snwebcastcenter.com/softchoice/20080812/

    To ensure participation, please dial in at least 10 minutes prior to the
start of the conference at 10 a.m. ET.
    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 13, 2008.

    About Softchoice

    As one of North America's leading providers of technology products 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, IT asset management and professional services designed to help
customers save time, money and risk in purchasing and managing their IT
resources. Softchoice currently has 958 employees operating from 45 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 Statements

    This press release contains forward-looking statements that involve risks
and uncertainties. These forward-looking statements relate to, among other
things, plans and timing for the introduction and enhancement of our services,
and other expectations, intentions and plans contained in this press release
that are not historical fact. When used in this press release, the words
"anticipate," "expect" 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.



    
                           Softchoice Corporation
                         Consolidated Balance Sheets
                         ---------------------------
                       (in thousands of U.S. dollars)


                                                        June 30, December 31,
                                                           2008         2007
                                                     (unaudited)    (audited)

    ASSETS
    Current assets
      Cash                                          $    10,565  $    11,063
      Accounts receivable
       net of allowance for doubtful accounts
       of $2,751 (December 31, 2007 - $2,099)           252,849      214,103
      Inventories                                           918          172
      Prepaid expenses and other assets                   6,447        6,891
      Future income taxes                                 1,447        1,250
      Income taxes recoverable                            3,096            -
                                                    -------------------------
                                                        275,322      233,479


    Property and equipment                                9,070        8,406
    Goodwill (note 4)                                    62,459       44,720
    Intangible assets (note 4)                           50,191       31,996
    Future income taxes                                     768        1,225
                                                    -------------------------
                                                    $   397,810  $   319,826
                                                    -------------------------
                                                    -------------------------
    LIABILITIES
    Current liabilities
      Bank indebtedness (note 5)                    $    87,754  $    29,077
      Accounts payable and accrued liabilities          203,814      190,536
      Deferred revenue                                    3,627        2,964
      Income taxes payable                                    -           61
                                                    -------------------------
                                                        295,195      222,638
    Long-term liabilities
      Deferred lease inducements                            624          591
      Long-term debt (note 5)                            18,998       21,897
                                                    -------------------------
                                                         19,622       22,488

    Total liabilities                                   314,817      245,126

    Shareholders' equity
      Capital stock (note 6)                              9,825        9,220
      Contributed surplus (note 7)                        2,347        1,343
      Retained earnings(*)                               67,208       61,587
      Accumulated other comprehensive income (*)          3,613        2,550
                                                    -------------------------
                                                         82,993       74,700
                                                    -------------------------

                                                    $   397,810  $   319,826
                                                    -------------------------
                                                    -------------------------

    Contingencies (note 8)
    See accompanying notes to consolidated financial statements.
    (*) Accumulated other comprehensive income is comprised of foreign
    currency translation adjustments.


                           Softchoice Corporation
          Consolidated Statements of Earnings and Retained Earnings
          ---------------------------------------------------------
         (in thousands of U.S. dollars except per share information)
                                 (Unaudited)


                              3 month      3 month      6 month      6 month
                               period       period       period       period
                                ended        ended        ended        ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007

    Revenue
      Software            $   185,023  $   114,548  $   344,963  $   226,086
      Hardware                125,178       48,513      253,374       96,613
      Agency Fees              24,195       19,482       34,612       28,796
                          ---------------------------------------------------
                              334,396      182,543      632,949      351,495

    Cost of sales             280,898      144,175      540,241      288,371
                          ---------------------------------------------------

    Gross profit               53,498       38,368       92,708       63,124

    Expenses
      Salaries and benefits    26,315       14,221       50,598       25,518
      Selling, general and
       administrative          10,856        6,214       19,234       12,413
      Amortization of
       property and equipment     925          797        1,887        1,477
      Amortization of
       intangible assets        1,670          378        3,332          754
                          ---------------------------------------------------
                               39,766       21,610       75,051       40,162
                          ---------------------------------------------------

    Operating income           13,732       16,758       17,657       22,962

      Interest expense          1,547          238        3,332          671
      Other                        21         (220)        (508)        (474)
                          ---------------------------------------------------

    Earnings before income
     taxes                     12,164       16,740       14,833       22,765
                          ---------------------------------------------------

    Provision for (recovery
     of) income taxes
      Current                   4,590        6,990        5,475        9,510
      Future                      173         (338)         230         (491)
                          ---------------------------------------------------
                                4,763        6,652        5,705        9,019

    Net earnings for the
     period                     7,401       10,088        9,128       13,746

    Retained earnings -
     Beginning of period       61,535       48,302       61,587       46,136
      Dividends (note 9)       (1,728)      (1,629)      (3,507)      (3,121)
                          ---------------------------------------------------
    Retained earnings -
     End of period        $    67,208  $    56,761  $    67,208  $    56,761
                          ---------------------------------------------------
                          ---------------------------------------------------
    Net earnings per
     common share
     (note 10)
      Basic               $      0.42  $      0.58  $      0.52  $      0.79
      Diluted             $      0.42  $      0.58  $      0.52  $      0.79

      Basic weighted
       average number
       of shares
       outstanding         17,477,018   17,309,950   17,447,167   17,291,882
      Diluted weighted
       average number of
       shares outstanding  17,555,098   17,485,961   17,531,822   17,458,288

    See accompanying notes to consolidated financial statements.


                           Softchoice Corporation
                    Consolidated Statements of Cash Flows
                    -------------------------------------
                       (in thousands of U.S. dollars)
                                 (Unaudited)

                              3 month      3 month      6 month      6 month
                               period       period       period       period
                                ended        ended        ended        ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007

    Cash provided by (used in)

    Operating activities

    Net earnings for the
     period               $     7,401  $    10,088  $     9,128  $    13,746
    Items not affecting
     cash
      Amortization of
       property and
       equipment                  925          797        1,887        1,477
      Stock-based
       compensation (note 7)      628          332        1,046          332
      Future income taxes         173         (338)         230         (491)
      Amortization of
       intangible assets
       (note 4)                 1,670          378        3,332          754
      Unrealized foreign
       currency loss (gain)      (206)         (16)         668           71
      Loss on disposal of
       property and equipment       -           24            5           24
                          ------------ ------------ ------------ ------------
                               10,591       11,265       16,296       15,913

    Net change in non-cash
     working capital items
     relating to operations
     (note 14)                 (6,018)      16,319      (27,988)         234
                          ------------ ------------ ------------ ------------

                                4,573       27,584      (11,692)      16,147
                          ------------ ------------ ------------ ------------

    Financing activities
      Increase in bank
       indebtedness             2,553      (11,320)      59,997       (1,681)
      Decrease in
       long-term debt          (2,053)           -       (2,899)           -
      Payment of cash
       dividend                (1,728)      (1,629)      (3,507)      (3,121)
      Proceeds from issuance
       of common shares
       (note 6)                   335          148          563          246
                          ------------ ------------ ------------ ------------
                                 (893)     (12,801)      54,154       (4,556)
                          ------------ ------------ ------------ ------------

    Investing activities
      Purchase of property
       and equipment           (1,163)        (959)      (2,421)      (1,984)
      Proceeds on disposal of
       property and equipment       -            -           (5)           -
      Acquisition, net of
       cash acquired (note 3)    (360)           -      (40,399)           -
                          ------------ ------------ ------------ ------------
                               (1,523)        (959)     (42,825)      (1,984)
                          ------------ ------------ ------------ ------------

    Effect of exchange rate
     changes on cash              (26)         137         (135)         182
                          ------------ ------------ ------------ ------------

    Increase (decrease) in
     cash                       2,131       13,961         (498)       9,789

    Cash - Beginning of period  8,434        3,156       11,063        7,328
                          ------------ ------------ ------------ ------------

    Cash - End of period  $    10,565  $    17,117  $    10,565  $    17,117
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Interest paid         $       642  $       166  $     2,359  $       348
    Taxes paid            $     3,339  $     4,234  $     3,898  $     6,231




                           Softchoice Corporation
             Consolidated Statements of Comprehensive Income and
                   Accumulated Other Comprehensive Income
                       (in thousands of U.S. dollars)
                                 (Unaudited)


                              3 month      3 month      6 month      6 month
                               period       period       period       period
                                ended        ended        ended        ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
                          ------------ ------------ ------------ ------------
    Comprehensive Income
    Net earnings for the
     period               $     7,401  $    10,088  $    9,128   $    13,746
    Foreign currency
     translation adjustment      (506)         923       1,063         1,046
                          ------------ ------------ ------------ ------------

    Comprehensive Income  $     6,895  $    11,011  $   10,191   $    14,792
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Accumulated Other Comprehensive Income

    Balance - beginning of
     period                                         $    2,550   $     1,287
    Foreign currency translation adjustment              1,063         1,046
                                                    ------------ ------------

    Balance - end of period                         $    3,613   $     2,333
                                                    ------------ ------------
                                                    ------------ ------------

    

    %SEDAR: 00017915E




For further information:

For further information: Anne Brace, Chief Financial Officer, Softchoice
Corporation, (416) 588-9986, investor_relations@softchoice.com; Eric Gardiner,
Softchoice Corporation, (416) 588-9002 x2358, Contact Softchoice Corporate
Communications

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