-- Third quarter adjusted net income grows 47 percent -- Net sales for the third quarter up 7 percent year-over-year -- Margins continue to improve, reflecting impact of growing Services business -- Softchoice declares third-quarter dividend in the amount CAD $0.07 per common share TORONTO, Nov. 13, 2012 /CNW/ - Softchoice Corporation (TSX: SO), a North American provider of technology solutions and services, today reported earnings for the third quarter of 2012. For the three-month period ended September 30(th) 2012, Softchoice reported net income of US$5.5 million compared to a net loss of US$0.5 million for the same period in the prior year. Eliminating the impact of foreign exchange gains and losses, adjusted net income grew 47 percent in the period, increasing to US$4.0 million, or US$0.20 per share (basic and fully diluted), compared to adjusted net income of US$2.7 million, or US$0.14 per share (basic and fully diluted) recorded in the third quarter of 2011. Third quarter net sales grew 7 percent to US$243.6 million. Sales of Enterprise Software, Servers, Storage and Networking solutions made steady gains in the period, increasing 15 percent year-over-year while sales of Microsoft grew by 7 percent. Reflecting the impact of the acquisition of UNIS LUMIN, the Company's Services business continued to record strong growth, increasing 59 percent compared to the same quarter in the prior year. "Our solid earnings performance reflects our focus on productivity, managing expense growth and expanding the proportion of high value solutions and services in our revenue mix," said David MacDonald, President and CEO of Softchoice. "Moreover, we are now starting to realize the anticipated synergies of our acquisition of UNIS LUMIN, which includes leveraging key assets to bring game-changing offerings to market like the successful introduction of Softchoice Cloud and Keystone Managed Services." Third quarter earnings before interest, taxes, depreciation and amortization ("EBITDA") margin increased 20 basis points to 3.7 percent, reflecting the first year-over-year improvement following the acquisition of UNIS LUMIN. "While we are aware of the existing macroeconomic uncertainty, our focus on high growth areas of technology like Microsoft solutions, cloud, networking and mobile computing positions us well to outpace the industry growth rate for the balance of the year," added Mr. MacDonald. "With the most significant impact of Microsoft's fee changes largely behind us, warm reception to new product releases like System Center and Windows 8, and our expanded coverage of the small and medium-size business segment, we are also confident in our ability to continue to grow our business and market share with Microsoft while leveraging these opportunities to drive incremental solutions and Services revenue." On August 8, 2012, the Company reinstated its quarterly dividend in the amount of CAD $0.07 per common share. The declaration of the third quarter's dividend will be the second dividend declared since this reinstatement. This dividend will be payable on December 14, 2012 to shareholders of record as of November 30, 2012. At the end of the quarter, Softchoice had cash on hand of US$51.6 million compared to $44.0 million ending the third quarter of 2011 and total debt of nil. Cash flow generated from operations increased by $2.5 million from the third quarter of 2011 to approximately US$6 million. Operating Highlights -- Reported net income for the third quarter increased to $5.5 million or $0.28 per share from a net loss of $0.5 million or $0.02 per share in 2011, principally driven by strong sales generated through Microsoft solutions, Enterprise Software, Servers, Storage and Networking solutions and Services. -- Adjusted net income amounted to almost $4 million or $0.20 per share in the third quarter of 2012 compared to $2.7 million or $0.14 per share, representing growth of 47 percent or 43 percent per share. -- Total revenue, including imputed revenue, grew to US$0.5 billion, representing a year-over-year increase of 23 percent. -- Gross profit increased by $5.3 million or 13 percent in the third quarter of 2012 when compared to the same period in 2011. -- Driven by strong growth in gross profit, consolidated third quarter EBITDA were almost $9 million in the third quarter, an increase of $1.0 million or 12 percent from the same period in the prior year. -- Revenues from Softchoice's Canadian operations increased by 20 percent in the quarter when expressed in Canadian dollars, reflecting the positive contribution of the acquisition of UNIS LUMIN. -- On July 18, 2012 the Company launched Softchoice Cloud - a secure online platform that simplifies the purchase, deployment, management and support of Software-as-a-Service (SaaS) applications. Softchoice Third Quarter Earnings Call Details Softchoice Corporation will host its third-quarter earnings call on November 14, 2012 at 8:00 am ET. 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 Information: Local Dial in number:416 800 1066 Toll Free Dial in number:1 866 212 4491 Webcast URL: http://www.snwebcastcenter.com/custom_events/softchoice-20121114/site/ To ensure participation, please dial in at least 10 minutes prior to the start of the conference at 8:00 am 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 November 15, 2012. About Softchoice As 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 1,200 employees, 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 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. Interim Consolidated Financial Statements (Expressed in U.S. dollars) SOFTCHOICE CORPORATION Three-month and nine-month periods ended September 30, 2012 and 2011 (Unaudited) SOFTCHOICE CORPORATION Interim Condensed Consolidated Statements of Financial Position (In thousands of U.S. dollars) (Unaudited) September 30, December 31, 2012 2011 Assets Current assets: Cash $ 51,607 $ 32,993 Trade and other receivables 227,789 306,434 Inventory 4,018 8,407 Work-in-progress 568 465 Deferred costs 919 2,591 Prepaid expenses and other assets 6,790 6,158 Income taxes receivable 1,735 - Total current assets 293,426 357,048 Non-current assets: Long-term accounts receivable 279 643 Long-term prepaid expenses 2,019 1,821 Property and equipment 5,900 6,309 Goodwill 16,830 16,441 Intangible assets 42,722 46,203 Deferred tax assets 18,758 19,224 Total non-current assets 86,508 90,641 Total assets $ 379,934 $ 447,689 Liabilities and Shareholders' Equity Current liabilities: Trade and other payables $ 207,297 $ 290,267 Deferred lease inducements 229 243 Deferred revenue 8,800 10,627 Income taxes payable - 2,279 Total current liabilities 216,326 303,416 Non-current liabilities: Deferred lease inducements 502 648 Deferred revenue 3,855 3,307 Total non-current liabilities 4,357 3,955 Total liabilities 220,683 307,371 Shareholders' equity: Capital stock 26,971 26,548 Contributed surplus 3,894 3,274 Retained earnings 129,571 111,689 Accumulated other comprehensive (1,185) (1,193) loss Total shareholders' equity 159,251 140,318 Total liabilities and shareholders' $ 379,934 $ 447,689 equity The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. SOFTCHOICE CORPORATION Interim Condensed Consolidated Statements of Comprehensive Income (In thousands of U.S. dollars, except per share information) (Unaudited) Three-month periods Nine-month periods ended ended September 30, September 30, 2012 2011 2012 2011 Net sales $ 243,591 $ 227,364 $ 756,874 $ 730,028 Cost of sales 197,541 186,649 605,283 589,887 Gross profit 46,050 40,715 151,591 140,141 Operating expenses Selling and 29,069 23,666 88,743 76,665 marketing Administrative 11,008 11,259 35,874 33,171 40,077 34,925 124,617 109,836 Income from operating 5,973 5,790 26,974 30,305 activities Finance costs 122 5,121 394 5,607 Finance income (2,057) (2) (1,805) (47) Other expenses 14 254 (207) 176 (income) (1,921) 5,373 (1,618) 5,736 Income before 7,894 417 28,592 24,569 income taxes Income tax 2,384 889 9,316 8,933 expense Net income 5,510 (472) 19,276 15,636 (loss) Other comprehensive income: Foreign currency 197 487 8 76 translation adjustment Total comprehensive $ 5,707 $ 15 $ 19,284 $ 15,712 income Net earnings (loss) per common share: Basic (note 5) $ 0.28 $ (0.02) $ 0.97 $ 0.79 Diluted (note $ 0.28 $ (0.02) $ 0.96 $ 0.79 5) The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. SOFTCHOICE CORPORATION Interim Condensed Consolidated Statements of Changes in Equity (In thousands of U.S. dollars, except for number of share amounts) (Unaudited) Nine-month period Number Capital Contributed Cumulative Retained Total ended translation shareholders' September 30, of shares stock surplus account earnings equity 2011 Balance, January 19,780,039 $ 26,016 $ 2,054 $ (1,142) $ 89,569 $ 116,497 1, 2011 Total comprehensive income: Net income - - - - 15,636 15,636 Other comprehensive income: Foreign currency - - - 76 - 76 translation adjustment Total comprehensive - - - 76 15,636 15,712 income Transactions with shareholders recorded directly in equity: Contributions by and distributions to owners: Share options 8,599 108 (41) - - 67 exercised Share-based payment - - 1,261 - - 1,261 transactions Transfer from contributed 52,573 461 (461) - - - surplus 61,172 569 759 - - 1,328 Balance, September 30, 19,841,211 $ 26,585 $ 2,813 $ (1,066) $ 105,205 $ 133,537 2011 Cumulative Total Nine-month period Number Capital Contributed translation Retained shareholders' ended September 30, of shares stock surplus account earnings equity 2012 Balance, January 19,837,211 $ 26,548 $ 3,274 $ (1,193) $ 111,689 $ 140,318 1, 2012 Total comprehensive income: Net income - - - - 19,276 19,276 Other comprehensive income: Foreign currency - - - 8 - 8 translation adjustment Total comprehensive - - - 8 19,276 19,284 income Transactions with shareholders recorded directly in equity: Contributions by and distributions to owners: Share options 40,151 515 (193) - - 322 exercised Share (68,200) (92) (716) - - (808) repurchase Share-based payment - - 1,529 - - 1,529 transactions Dividends - - - - (1,394) (1,394) declared (28,049) 423 620 - (1,394) (351) Balance, September 30, 19,809,162 $ 26,971 $ 3,894 $ (1,185) $ 129,571 $ 159,251 2012 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. SOFTCHOICE CORPORATION Interim Condensed Consolidated Statements of Cash Flows (In thousands of U.S. dollars) (Unaudited) Three-month periods Nine-month periods ended ended September 30, September 30, 2012 2011 2012 2011 Cash provided by: Operating activities: Net income $ 5,510 $ (472) $ 19,276 $ 15,636 (loss) Adjustments for: Depreciation of property 799 663 2,356 2,392 and equipment Share-based payment 526 224 1,529 1,261 transactions Income tax 2,384 889 9,316 8,933 expense Amortization of 2,189 1,528 6,424 4,305 intangible assets Unrealized foreign (1,899) 3,460 (1,688) 2,154 currency (gain) loss Interest expense on 2 434 52 1,442 financial liabilities Amortization of deferred - 369 - 1,096 financing costs Change in non-cash operating 1,718 (555) (1,104) (11,681) working capital (note 7) 11,229 6,540 36,161 25,538 Interest paid (2) (442) (52) (1,443) Income taxes (5,206) (2,538) (12,553) (9,510) paid Cash provided by 6,021 3,560 23,556 14,585 operating activities Financing activities: Repayment of loans and - (278) - (2,696) borrowings Repurchase of common shares (243) - (808) - (note 4) Payment of (1,394) - (1,394) - dividends Proceeds from issuance of 138 57 322 67 common shares Cash used in financing (1,499) (221) (1,880) (2,629) activities Investing activities: Purchase of property and (225) (299) (1,775) (1,716) equipment Purchase of intangible (473) (651) (2,250) (1,666) assets Restricted - 500 - 500 cash Cash used in investing (698) (450) (4,025) (2,882) activities Increase in cash 3,824 2,889 17,651 9,074 Cash, beginning 46,764 42,510 32,993 35,752 of period Effect of exchange rate 1,019 (1,387) 963 (814) changes on cash Cash, end of $ 51,607 $ 44,012 $ 51,607 $ 44,012 period The accompanying notes are an integral part of these unaudited interim consolidated financial statements. SOFTCHOICE CORPORATION Notes to Interim Condensed Consolidated Financial Statements (In thousands of U.S. dollars, except per share information) Three-month and nine-month periods ended September 30, 2012 and 2011 1. Nature of operations Softchoice Corporation (the "Company") was formed on May 15, 2002 pursuant to an amalgamation with Ukraine Enterprise Corporation. The Company was incorporated under the Canada Business Corporations Act. The Company is a North American business-to-business direct marketer of information technology ("IT") hardware, software and services to small, medium and large businesses and public sector institutions. The Company's United States operations are carried on by a subsidiary ("SoftchoiceU.S."), a corporation incorporated under the laws of the State of New York. On December 10, 2007, the Company incorporated a wholly owned subsidiary, Softchoice Holdings Corporation ("Holdco"). Holdco is incorporated under the laws of the State of Delaware. The consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the "Company"). The Company's registered office is located at 173 Dufferin Street, Suite 200, Toronto, Ontario. 2. Basis of preparation (a)Statement of compliance These unaudited condensed consolidated interim financial statements for the three-month and nine-month periods ended September 30, 2012 have been prepared in accordance with IAS 34, Interim Financial Reporting a basis consistent with the accounting policies disclosed in the annual audited consolidated financial statements for the year ended December 31, 2011. They do not include all of the information required for full annual audited financial statements and should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011. The policies applied in these interim consolidated financial statements are based on International Financial Reporting Standards ("IFRS") issued and outstanding as of November 13, 2012, the date the Board of Directors approved the interim consolidated financial statements for issue. (b)Basis of presentation The unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances are eliminated on consolidation. The unaudited condensed interim consolidated financial statements have been prepared primarily under the historical cost convention. The following items are carried at fair value: (i)Financial instruments carried at fair value through profit or loss ("FVTPL"). (ii)Liabilities for cash-settled share-based payment awards. The Company's financial year corresponds to the calendar year. The unaudited condensed interim consolidated financial statements are prepared in thousands of U.S. dollars except per share information. The unaudited interim consolidated statements of comprehensive income are presented using the functional classification for expenses. 3. Significant accounting policies The same accounting policies and methods of computation are followed in the unaudited condensed consolidated interim financial statements as compared with the Company's most recent audited consolidated financial statements including the notes, for the year ended December31, 2011. (a)New standards and interpretations yet to be adopted: A number of new standards, and amendments to standards and interpretations, are not yet effective for the nine-month period ended September 30, 2012, and have not been applied in preparing these condensed consolidated interim financial statements. The following is a summary of recent accounting pronouncements that may affect the Company: (i)In November 2009, the International Accounting Standards Board ("the IASB") issued IFRS 9 Financial Instruments ("IFRS 9") as part of the first phase of its project to replace IAS 39 Financial Instruments: Recognition and Measurement. The standard released in 2009 establishes the classification and measurement of financial assets: amortized cost and fair value. In October 2010, the IASB amended IFRS 9 for added disclosures about investments in equity instruments measured at fair value in Other Comprehensive Income, and included guidance on the classification and measurement of financial liabilities. In December 2011, the IASB issued an amendment to IFRS 9 to defer the mandatory effective date to annual periods beginning on or after January 1, 2015, with early adoption permitted. The Company intends to adopt IFRS9 in its financial statements for the annual period beginning on January1, 2015. The Company is currently assessing the impact of adoption of IFRS 9. (ii)IFRS 13, Fair Value Measurement ("IFRS 13"), which is applicable to annual reporting periods beginning on or after January 1, 2013, defines fair value, sets out in a single IFRS framework for measuring fair value, and requires disclosures about fair value measurements. The Company intends to adopt IFRS 13 prospectively in its interim consolidated financial statements for the annual period beginning on January 1, 2013. The extent of the impact of adoption of IFRS 13 has not yet been determined. (iii)In June 2011, the IASB published amendments to IAS 1, Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income ("IAS 1"), which are effective for annual periods beginning on or after July 1, 2012. The amendments require that an entity present separately the items of other comprehensive income that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. The Company intends to adopt the amendments in the interim consolidated financial statements for the annual period beginning on January1, 2013. As the amendments only require changes in the presentation of items in other comprehensive income, the Company does not expect the amendment to IAS1 to have material impact on the interim consolidated financial statements. (iv)IFRS 10, Consolidated Financial Statements ("IFRS 10"), and amended IAS27 (2011), Separate Financial Statements: IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The Company intends to adopt this standard and amendment in the interim consolidated financial statements for the annual period beginning on January 1, 2013. The Company is currently assessing what impact the application of these standards or amendments will have on the consolidated financial statements of the Company. 4. Normal course issuer bid ("NCIB") On August 13, 2012, the Company renewed its NCIB for an additional one-year period, expiring on August 12, 2013. As approved by the TSX, the Company is authorized to purchase up to 1,585,403 shares, representing approximately 8 percent of the 19,813,500 common shares that were issued and outstanding as of July 31, 2012, or up to 10 percent of the Company's public float for the same period. Any daily repurchase will be limited to a maximum of 6,191 common shares, representing 25 percent of the average daily trading volume of the common shares on the TSX for the six month period ended July 31, 2012. During the third quarter and the first nine months of 2012, the Company repurchased 21,900 shares at a weighted average price of $11.32 per share and 68,200 shares at a weighted average price of $11.69 per share for cancellation under the NCIB. The Company recorded $30 and $92 for the three-month and nine-month periods ended September 30, 2012, as a reduction of share capital, respectively. The net excess of the repurchase price over the carrying value per share is allocated to contributed surplus. No common shares were repurchased for cancellation during the comparable periods in 2011. 5. Net earnings per common share (a) Weighted average number of shares: Three-month periods Nine-month periods ended ended September 30, September 30, 2012 2011 2012 2011 Issued, beginning of 19,813,500 19,833,862 19,837,211 19,780,039 period Effect of stock 3,512 1,960 13,924 37,940 options exercised Effect of repurchase of (3,186) - (21,471) - common shares Weighted average number 19,813,826 19,835,822 19,829,664 19,817,979 of shares - basic Dilutive effect of assumed 180,854 - 194,704 30,387 exercise of stock options Weighted average number 19,994,680 19,835,822 20,024,368 19,848,366 of shares - diluted Net income $ 5,510 $ (472) $ 19,276 $ 15,636 (loss) Net earnings (loss) per common share: Basic $ 0.28 $ (0.02) $ 0.97 $ 0.79 Diluted $ 0.28 $ (0.02) $ 0.96 $ 0.79 (b)Diluted earnings per share Diluted earnings per share is determined by adjusting the net income attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all dilutive potential common shares, which comprise deferred share units and stock options granted to executives and employees. The market value of the dilutive options is determined using the average closing price of the shares during the period. The total number of anti-dilutive stock options that were out of the money and contingently issuable shares in which performance achievement conditions had not been met, were excluded from the calculation for the three-month and nine-month periods ended September 30, 2012, was 623,753 (2011 - 500,000). 6. Operating segments The Company has one reportable segment in which the assets, operations and employees are located in Canada and the United States. Net sales are attributed to customers based on where the products are shipped or where the services are provided. (a) Geographic information Geographic segments of net sales are as follows: Three-month periods ended Nine-month periods ended September 30, September 30, 2012 2011 2012 2011 Canada((1)) $ 98,473 $ 82,814 $ 317,452 $ 309,692 United States 145,118 144,550 439,422 420,336 $ 243,591 $ 227,364 $ 756,874 $ 730,028 ((1)) In Canadian dollars net sales for the three-month periods ended September 30, 2012 and 2011 are $97,830 and $81,228 respectively and for the nine-month periods ended September 30, 2012 and 2011 are $318,045 and $302,871 respectively. Geographic segments of property and equipment are located as follows: September 30, December 31, 2012 2011 Canada $ 5,099 $ 5,272 United States 801 1,037 $ 5,900 $ 6,309 Geographic segments of goodwill are as follows: September 30, December 31, 2012 2011 Canada $ 11,895 $ 11,506 United States 4,935 4,935 $ 16,830 $ 16,441 Geographic segments of intangible assets are as follows: September 30, December 31, 2012 2011 Canada $ 20,677 $ 20,997 United States 22,045 25,206 $ 42,722 $ 46,203 (b)Economic dependence Approximately 32% and 32% of the Company's net sales for the three-month periods ended September30, 2012 and 2011, respectively and approximately 32% and 34% of the Company's net sales for the nine-months periods ended September 30, 2012 and 2011, respectively, relate to products published by one software publisher, Microsoft Corporation. 7. Change in non-cash operating working capital Three-month periods ended Nine month periods ended September 30, September 30, 2012 2011 2012 2011 Trade and other $ 35,811 $ 12,408 $ 81,676 $ 12,764 receivables Inventory (1,379) 131 4,467 (393) Work-in-progress (13) - (83) - Deferred costs (266) 6,143 1,674 5,418 Prepaid expenses 508 46 (784) (410) and other assets Long-term accounts (277) 340 172 1,993 receivable Long-term prepaid (137) - (137) - expenses Trade and other (32,457) (18,846) (86,269) (31,240) payables Deferred revenue (20) (742) (1,644) 330 Deferred lease (52) (35) (176) (143) inducements $ 1,718 $ (555) $ (1,104) $ (11,681) 8. Seasonality The Company's sales tend to follow a quarterly seasonality pattern that is typical of many companies in the IT industry. In the first quarter of the year, sales to the Canadian government tend to be higher as March 31 marks the fiscal year end for the federal government. A significant portion of the Company's revenue is derived from the sale of Microsoft products. Historically, the Company has benefited from the sales and marketing drive that has been generated by Microsoft sales representatives in the second quarter of the year leading up to Microsoft's fiscal year end on June 30. Sales in the third quarter of the year tend to be lower than other quarters due to the general reduction in activity resulting from summer holiday schedules. This slowdown is offset somewhat by the fiscal year end of the U.S. federal government on September 30. In the fourth quarter of the year, the Company typically experiences higher sales as many customers complete their IT purchases in advance of their fiscal year end of December31. 9. Subsequent event On, November 13, 2012, the Board of Directors declared a dividend of Canadian dollar $0.07 per common share. Total dividends of approximately Canadian dollar $1.4 million will be distributed on December 14, 2012 to shareholders of record at the close of business on November 30, 2012. 10. Comparative figures Certain 2011 figures have been reclassified to conform with the financial statement presentation adopted in 2012. Media Contact Eric Gardiner Manager of Communications 416.588.9002 Ext. 2358 firstname.lastname@example.org SOURCE: Softchoice Corporation To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/November2012/13/c7582.html CO: Softchoice Corporation ST: Ontario NI: SOF ERN -0- Nov/13/2012 22:50 GMT
Softchoice Announces Third-Quarter Earnings
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