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Softchoice Corporation: Softchoice Reports Strong Second-Quarter Net Earnings

^{Published on 2009-08-11 18:18:14, Last Modified on 2009-08-11 18:18:26 - Market Wire}
 

TORONTO, ONTARIO--(Marketwire - Aug. 11, 2009) - Softchoice Corporation (TSX:SO), a leading North American provider of IT solutions and services, today reported financial results for the second quarter of 2009.

For the three-month period ended June 30th, 2009, Softchoice reported net earnings of US$12.6 million, or US$0.72 per share (basic and fully diluted), representing an increase of 71 percent compared to the same period last year. Net earnings in the quarter were helped in part by a large unrealized foreign exchange gain as the Canadian dollar appreciated by 8 percent compared to the first quarter of this year. If the foreign exchange impacts are eliminated, management estimates that earnings per share would have been $0.44 per share (basic) compared to $0.43 per share (basic) for the same period last year. For the first half of 2009, net earnings were US$10.3 million (US$0.59 per share basic, US$0.58 per share fully diluted), compared to US$9.1 million (US$0.52 per share basic and fully diluted) recorded for the first six months of 2008.

Softchoice reported revenues of US$279.3 million, representing a decline of 17 percent in the quarter compared to the same period the prior year. Reflecting weaker demand for Microsoft annuity licensing and weak hardware demand, consolidated gross profit declined by 23 percent to US$41.3 million compared to the second quarter of the prior year. Eliminating the impact of currency, revenues declined by 12 percent during the quarter compared to the same period in the prior year, and gross profit declined by 19 percent.

Softchoice has now completed the operational integration of the three businesses it acquired in late 2007 and early 2008 and the resulting cost-efficiencies have contributed to a major decline in Operating Expenses compared to the prior year. Total Operating Expenses for the quarter were US$28.4 million, representing a reduction of 28 percent compared to the same period last year. During the period, Softchoice paid down debt by $ 22.0 million, and increased cash by $17.0 million.

"With the integration cost-savings now locked into our operations, we believe we are very well positioned to deliver expected growth in revenue and gross profit as the North American IT market comes out of recession," said David MacDonald, President and CEO of Softchoice. "In the interim, by lowering our cost-base and enhancing our high performance sales and solutions delivery capability, we have demonstrated that we can be highly profitable and generate strong cash flows even during a period of weak economic activity."

On a year-over-year basis, the Company's balance sheet has strengthened and overall debt, largely used to finance the acquisitions made at the end of 2007 and early 2008, has decreased from US$106.8 million at the end of the second quarter of the prior year, to US$21.0 million by the end of the second quarter this year. Total debt outstanding at the end of the first quarter this year was US $40.5 million.

In addition to the planned integration cost-reductions, Softchoice took early and aggressive steps last fall to resize the Company's cost base in response to the economic slowdown. These measures, combined with its face-to-face sales model, local branch office presence in more than 40 markets across North America and the diversity of both its customer base and of its solutions and services offerings, helped to temper the effects of the slowdown in IT spending on the Company's financial performance.

Softchoice's Canadian business continues to be strong and performance levels in the quarter were consistent with the results achieved during a strong second quarter last year. However, reflecting general weakness in the US economy and the ongoing caution that U.S. corporations are showing towards refreshing their technology, the results of Softchoice's U.S. operations continue to be below last year's levels. While the Microsoft business showed marked improvement over the first quarter of this year, results were below those achieved in the second quarter last year. A major focus by the Company is being placed on accelerating Microsoft sales during the remainder of the year. In the second quarter, hardware sales continued to be weak in both Canada and the United States, and are expected to remain slow until corporations return to their pre-recession technology refresh cycles.

"While we can't predict when technology refresh cycles will return to normal, we see a number of forces - from the upcoming launch of Microsoft's Windows 7 operating system, to customers' adoption of innovations like server and desktop virtualization - that are expected to align to make the next cycle of IT spending growth stronger than the recovery experienced in other sectors of the economy," added Mr. MacDonald.

Second Quarter Highlights

- Despite a softening in customer technology spending, Softchoice's second quarter earnings grew slightly on a year-over-year basis based on the platform synergies gained through the Company's recent acquisitions.

- During the quarter, sales of non-Microsoft software increased by 8.5 percent compared to the same period the year prior.

- On July 2nd Softchoice announced the appointment of David A. Long to the position of Chief Financial Officer and Senior Vice President of Finance. Mr. Long will be commencing in his role on September 1st, 2009.

- During the quarter, Softchoice was recognized as the 'Top Revenue Generator - Over $1 Billion' for 2008, a special award presented in conjunction with the annual VAR Business 500 listing. VAR Business Magazine is the leading news and information source for the North American IT channel.

- Softchoice achieved Cisco Channel Customer Satisfaction Excellence, an honor recognizing the Company's record of outstanding service with respect to the design and delivery of Cisco solutions.

- Softchoice was selected as a global finalist for 'Large Account Reseller Partner of the Year' at the 2009 Microsoft Worldwide Partner Conference (WPC) Awards.

Second Quarter Earnings Call Details

Softchoice will be hosting its 2009 second-quarter earnings call on Wednesday August 12th at 1:00 pm EDT.

The call will be hosted by David MacDonald, Softchoice's President and CEO and interim Chief Financial Officer, Brian Brewer. The conference call will begin with a brief presentation followed by a question-and-answer session.

Participant Information

Local Toronto Access: 416-849-6185

Toll Free Access: 866-443-4183

Conference Reference ID: 9845865

Webcast URL:

[ http://events.snwebcastcenter.com/softchoice/20090812/ ]

To ensure participation, please dial in at least 10 minutes prior to the start of the conference at 1:00 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 13th, 2009.

About Softchoice

As 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 886 employees operating from over 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 Statements

This 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.

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

 June 30, December 31,
 2009 2008
 (unaudited) (audited)
ASSETS
Current assets
 Cash $ 17,279 $ 14,098
 Accounts receivable 178,558 241,581
 net of allowance for doubtful accounts of $3,280
 (December 31, 2008 - $2,759)
 Inventory 1,787 1,722
 Prepaid expenses and other assets 1,917 8,056
 Future income taxes 1,718 2,095
 Income taxes recoverable - 254
 ------------------------
 201,259 267,806

Property and equipment (note 2) 6,882 7,252
Goodwill (note 3) 10,452 10,172
Intangible assets (note 2, 3) 46,959 49,923
Long-term accounts receivable 617 830
Deferred costs 2,191 2,377
Future income taxes 17,317 17,401
 ------------------------

 $ 285,677 $ 355,761
 ------------------------
 ------------------------

LIABILITIES
Current liabilities
 Bank indebtedness (note 4) $ 8,246 $ 40,376
 Accounts payable and accrued liabilities 185,980 227,884
 Current portion of deferred revenue 3,476 5,033
 Income taxes payable 793 -
 ------------------------
 198,495 273,293

Long-term liabilities
 Deferred lease inducements 486 483
 Deferred revenue 617 830
 Long-term debt (note 4) 12,735 13,717
 ------------------------
 13,838 15,030

Total liabilities 212,333 288,323

Shareholders' equity
 Capital stock (note 5) 9,827 9,827
 Contributed surplus (note 6) 943 2,495
 Retained earnings 52,253 42,000
 Accumulated other comprehensive income (i) 10,321 13,116
 ------------------------
 62,574 55,116

Total shareholders' equity 73,344 67,438
 ------------------------
 $ 285,677 $ 355,761
 ------------------------
 ------------------------
Contingencies (note 7)
See accompanying notes to interim consolidated financial statements.
(i) 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 period 3 month period 6 month 6 month
 ended June 30, ended June 30, period ended period ended
 2009 2008 June 30, 2009 June 30, 2008

Revenue
 Software $ 176,799 $ 185,023 $ 305,792 $ 344,963
 Hardware 87,183 125,178 166,760 253,374
 Agency Fees 15,290 24,195 25,079 34,612
 -------------------------------------------------------------
 279,272 334,396 497,631 632,949

Cost of sales 237,962 280,898 425,665 540,241
 -------------------------------------------------------------

Gross profit 41,310 53,498 71,966 92,708

Expenses
 Salaries and
 benefits 17,622 26,315 37,677 50,598
 Selling,
 general and
 administrative 8,052 10,750 16,390 19,073
 Amortization
 of property
 and equipment 707 634 1,427 1,293
 Amortization
 of intangible
 assets (note
 3) 2,011 1,961 3,953 3,926
 -------------------------------------------------------------
 28,392 39,660 59,447 74,890
 -------------------------------------------------------------

Operating
 income 12,918 13,838 12,519 17,818

 Foreign
 exchange
 (gain) loss (6,165) 106 (4,549) 161
 Interest
 expense 1,521 1,547 3,154 3,332
 Other (20) 21 (508) (508)
 -------------------------------------------------------------

Earnings
 before income
 taxes 17,582 12,164 14,422 14,833
 -------------------------------------------------------------

Provision for
 income taxes
 Current 4,590 4,590 3,653 5,475
 Future 350 173 516 230
 -------------------------------------------------------------
 4,940 4,763 4,169 5,705

Net earnings
 for the period 12,642 7,401 10,253 9,128

Retained
 earnings -
 Beginning of
 period 39,611 61,535 42,000 61,587
 Dividends
 (note 8) - (1,728) - (3,507)
 -------------------------------------------------------------
Retained
 earnings - End
 of period $ 52,253 $ 67,208 $ 52,253 $ 67,208
 -------------------------------------------------------------
 -------------------------------------------------------------

Net earnings
 per common
 share (note 9)
 Basic $ 0.72 $ 0.42 $ 0.59 $ 0.52
 Diluted $ 0.72 $ 0.42 $ 0.58 $ 0.52

Basic weighted
 average number
 of shares
 outstanding 17,496,807 17,477,018 17,496,807 17,447,167
Diluted
 weighted
 average number
 of shares
 outstanding 17,562,876 17,555,098 17,562,876 17,531,822

See accompanying notes to interim consolidated financial statements.



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

 3 month period 3 month period 6 month 6 month
 ended June 30, ended June 30, period ended period ended
 2009 2008 June 30, 2009 June 30, 2008
Cash provided
 by (used in)

Operating
 activities
Net earnings
 for the period $ 12,642 $ 7,401 $ 10,253 $ 9,128
Items not
 affecting cash
 Amortization
 of property
 and equipment 707 925 1,427 1,887
 Stock-based
 (recovery)
 compensation
 (note 6) (1,275) 628 (1,552) 1,046
 Future income
 taxes 350 173 516 230
 Amortization
 of intangible
 assets (note
 3) 2,011 1,670 3,953 3,332
 Unrealized
 foreign
 currency
 (gain) loss (4,425) (206) (2,521) 668
 Gain on
 disposal of
 property and
 equipment - - (2) 5
 ------------ -------------- ------------- -------------
 10,010 10,591 12,074 16,296

Net change in
 non-cash
 working
 capital
 items relating
 to operations
 (note 13) 29,846 (6,018) 27,326 (27,988)
 ------------ -------------- ------------- -------------

 39,856 4,573 39,400 (11,692)
 ------------ -------------- ------------- -------------

Financing
 activities
 Repayment of
 bank
 indebtedness
 due to
 refinancing
 (note 4) (19,776) - (40,317) -
 Increase in
 bank
 indebtedness
 due to
 refinancing
 (note 4) - - 7,143 -
 Repayment of
 long-term debt
 due to
 refinancing
 (note 4) (2,302) - (13,688) -
 Increase in
 long-term debt
 due to
 refinancing
 (note 4) - - 11,823 -
 Increase in
 bank
 indebtedness - 2,553 - 59,997
 Repayment of
 long-term debt - (2,053) - (2,899)
 Payment of
 cash dividend - (1,728) - (3,507)
 Proceeds from
 issuance of
 common shares
 (note 5) - 335 - 563
 ------------ -------------- ------------- -------------
 (22,078) (893) (35,039) 54,154
 ------------ -------------- ------------- -------------

Investing
 activities
 Purchase of
 property and
 equipment (454) (1,032) (852) (1,824)
 Purchase of
 intangible
 assets (286) (131) (397) (597)
 Proceeds on
 disposal of
 property and
 equipment 25 - 29 (5)
 Acquisition,
 net of cash
 acquired - (360) - (40,399)
 ------------ -------------- ------------- -------------
 (715) (1,523) (1,220) (42,825)
 ------------ -------------- ------------- -------------

Effect of
 exchange rate
 changes on
 cash 75 (26) 40 (135)
 ------------ -------------- ------------- -------------

Increase
 (decrease) in
 cash 17,138 2,131 3,181 (498)

Cash -
 Beginning of
 period 141 8,434 14,098 11,063
 ------------ -------------- ------------- -------------

Cash - End of
 period $ 17,279 $ 10,565 $ 17,279 $ 10,565
 ------------ -------------- ------------- -------------
 ------------ -------------- ------------- -------------

Interest paid $ 1,138 $ 642 $ 1,972 $ 2,359
Taxes paid $ (177) $ 3,339 $ 2,522 $ 3,898



 Softchoice Corporation

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

 3 month period 3 month period 6 month period 6 month period
 ended June 30, ended June ended June 30, ended June 30,
 2009 30, 2008 2009 2008
 --------------- --------------- --------------- ---------------

Comprehensive
 Income
Net earnings
 for the
 period $ 12,642 $ 7,401 $ 10,253 $ 9,128
Foreign
 currency
 translation
 adjustment (4,278) (506) (2,795) 1,063
 --------------- --------------- --------------- ---------------

Comprehensive
 Income $ 8,364 $ 6,895 $ 7,458 $ 10,191
 --------------- --------------- --------------- ---------------
 --------------- --------------- --------------- ---------------

Accumulated
 Other
 Comprehensive
 Income

Balance -
 beginning of
 period $ 13,116 $ 2,550
Foreign
 currency
 translation
 adjustment (2,795) 1,063
 --------------- ---------------

Balance -
 end of
 period $ 10,321 $ 3,613
 --------------- ---------------
 --------------- ---------------