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- Continued debt reduction finishing quarter with a net cash position of $1.8 million

Thu, 02/11/2010 - 3:01pm
The Associated Press

Softchoice Corporation (TSX: SO), a leading North American provider of IT solutions and services, today reported financial results for the fourth quarter and fiscal year of 2009.

For the three-month period ended December 31st, 2009, Softchoice reported net earnings of US$7.1 million or US$0.39 per share (basic and fully diluted), compared to a net loss of US$21.9 million or US$(1.25) per share (basic and fully diluted) for the same period last year. Eliminating the impact of the goodwill impairment and foreign exchange impacts related to both intercompany and external debt incurred in the fourth quarter of 2008, adjusted earnings per share finished at US$0.30 per share (basic) for the quarter versus US$0.41 per share (basic) compared to the same quarter of the previous year. For the full year of 2009, net earnings were US$22.3 million (US$1.26 per share basic and fully diluted) compared to a loss of US$14.4 million (US$(0.82) per share basic and fully diluted) recorded for 2008. On an adjusted basis earnings per share finished at US$0.72 per share (basic) for the year versus US$0.90 per share (basic) compared to the previous year

During the quarter Softchoice reported revenues of US$283.9 million compared to revenues of US$335.0 million recorded for the same period last year. On a full year basis, Softchoice reported revenues of US$1,000.2 million compared to US$1,244.3 million recorded in the prior year.

Gross margins continued to improve, increasing 90 basis points to 13.9 percent compared to the fourth quarter of 2008. Management attributes the improvement in part to a 23 percent year over year increase in new Enterprise Agreement licensing sales in the U.S. and to the growth of solutions in the quarter. On a full year basis, gross margins have increased by 42 basis points.

Sales of non-Microsoft software continued to increase as a proportion of reported revenues, growing by 7 percent to account for 36 percent of revenues in the quarter compared to 29 percent recorded for the same period last year. Non-Microsoft software sales as a proportion of reported revenues have trended upwards since the second quarter of 2008 when they represented less than 26 percent of reported revenues.

"Through acquisitions and organic growth, we have steadily and strategically diversified our revenue base - both in terms of the breadth of our product offering and the depth of our relationship with the customer," said David MacDonald, President and CEO of Softchoice. "We believe this diversification has given us a unique and stable position from which to grow profitable market share as the IT cycle enters into its next phase of expansion."

During the quarter, Softchoice became the first North American-wide solution provider to attain complete authorization for all product segments contained within IBM's new Software Value Plus initiative, enhancing the Company's ability to support IBM's entire software solutions portfolio. As a top tier IBM partner, Softchoice is one of a select group of organizations capable of supporting the software requirements of IBM customers with operations in both the U.S. and Canada.

"Improving our ability to deliver a broad portfolio of complex, high value solutions is increasing our strategic value in the market and creating new opportunities to grow and diversify our business," added Mr. MacDonald. "With IBM software solutions, Windows 7, server and storage virtualization as well as cloud computing fueling the next industry growth cycle, we feel we are well positioned to serve our existing customers and increase our market share as organizations begin giving the green light to projects previously put on hold."

At the end of the quarter, total debt for the Company was US$16.8 million at the end of the quarter compared to US$54.1 million for the same period last year. The Company's net cash position for the quarter was US$1.8 million. This year end position reflects the Company's aggressive focus on cash management and the substantial cash flow generation capability of the Softchoice business model.

"As with the rest of the IT sector, we are seeing early signs of increased customer confidence," said Mr. MacDonald. "Technology spending in the U.S. is expected to grow by 6.6 percent in 2010 according to the most recent forecast issued by Forrester Research. We saw evidence of this in Q4 with a year-end increase in new Microsoft Enterprise Agreements as well as a sequential increase in non-Microsoft software sales. However, in our view, the growth in IT spending that is attributable to increased employment and sustainable economic expansion has yet to materialize."

Fourth-Quarter Highlights -- On November 20, 2009, the Company entered into a bought-deal financing

agreement whereby the Company issued a total of 2,250,000 common shares

at a price of C$7.75 for gross proceeds of C$17,437,500. --Hardware sales in Canada increased by 14 percent in the quarter. --For the second straight quarter, Softchoice was awarded Cisco's Gold

Star for Customer Satisfaction Excellence based on an assessment of the

quality of service the Company provides around the design and delivery

of advanced Cisco solutions. -- Channel Reseller News magazine and IT Canada honored Softchoice with a

'People's Choice Award' based on the results of a national survey of

more than 2000 IT decision makers -- At Microsoft Canada's annual IMPACT Awards, Softchoice was named 'Large

Account Reseller of the Year - Program Excellence' and for 'Customer

Acquisition and Retention'.

Conference Call Details

Softchoice will be hosting its 2009 year end and fourth quarter earnings call today at 5:00 pm EDT. The call will be hosted by David MacDonald, Softchoice's President and CEO and Chief Financial Officer, David Long. The conference call will begin with a brief 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://events.snwebcastcenter.com/softchoice/20100211/ (http://events.snwebcastcenter.com/softchoice/20100211/)

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 February 12th, 2010.

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 874 employees operating from more than 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) AS AT DECEMBER 31 2009 2008

----------- ----------- Assets Current assets Cash $ 18,601 $ 14,098 Accounts receivable (note 4) 185,278 241,581

net of allowance for doubtful accounts

of $3,967 (December 31, 2008 - $2,759) Inventories 1,151 1,722 Prepaids and other assets (note 5) 5,367 8,056 Future income taxes (note 6) 2,270 2,095 Income taxes recoverable - 254

----------- -----------

212,667 267,806 Restricted cash 500 - Property and equipment (note 7) 6,894 7,252 Goodwill (note 8) 11,063 10,172 Intangible assets (note 8) 44,866 49,923 Long-term accounts receivable 303 830 Deferred costs 1,676 2,377 Future income taxes (note 6) 16,220 17,401

----------- -----------

$ 294,189 $ 355,761

----------- -----------

----------- ----------- Liabilities Current liabilities Bank indebtedness (note 9) $ - $ 466 Accounts payable and accrued liabilities 173,676 227,884 Current portion of deferred revenue 3,309 5,033 Term debt - current (note 9) 4,104 $ 39,910 Income taxes payable 3,288 -

----------- -----------

184,377 273,293 Long-term liabilities Deferred lease inducements 480 483 Deferred revenue 303 830 Long-term debt (note 9) 12,671 13,717

----------- -----------

13,454 15,030 Total liabilities 197,831 288,323 Shareholders' Equity Capital stock (note 10) 25,842 9,827 Contributed surplus (note 11) 983 2,495 Retained earnings 64,263 42,000 Accumulated other comprehensive income 5,270 13,116

----------- -----------

69,533 55,116 Total shareholders' equity 96,358 67,438

----------- -----------

$ 294,189 $ 355,761

----------- -----------

----------- ----------- Commitments and contingencies (note 12) Related party transactions (note 17) See accompanying notes to consolidated financial statements.

Softchoice Corporation

Consolidated Statements of Earnings and Retained Earnings (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS) FOR THE YEARS ENDED DECEMBER 31 2009 2008

------------- ------------- Revenue Software $ 589,983 $ 675,570 Hardware 369,291 511,532 Agency fees 40,974 57,193

------------- -------------

1,000,248 1,244,295

------------- ------------- Cost of sales 857,979 1,072,492

------------- ------------- Gross profit 142,269 171,803

------------- ------------- Expenses Salaries and benefits 76,399 93,648 Selling, general and administrative 30,796 36,508 Amortization of property and equipment 2,907 2,640 Amortization of intangible assets (note 8) 7,949 8,173 Goodwill impairment (note 8) - 43,624 Resizing and refinancing charges (note 16) - 2,771

------------- -------------

118,051 187,364 Operating income (loss) 24,218 (15,561) Foreign currency exchange (gain) loss (12,649) 2,812 Interest expense 6,050 6,286 Other (income) expense (1,023) 171

------------- ------------- Earnings (loss) before income taxes 31,840 (24,830)

------------- ------------- Provision for (recovery of) income taxes

(note 6) Current 8,117 6,758 Future 1,460 (17,200)

------------- -------------

9,577 (10,442)

------------- ------------- Net earnings (loss) for the year 22,263 (14,388) Retained earnings - Beginning of year 42,000 61,587 Dividends (note 15) - (5,199)

------------- ------------- Retained earnings - End of year $ 64,263 $ 42,000

------------- -------------

------------- ------------- Net earnings (loss) per common share (note 10) basic $ 1.26 $ (0.82) diluted $ 1.26 $ (0.82) Basic weighted average number of shares

outstanding 17,628,735 17,472,170 Diluted weighted average number of shares

outstanding 17,708,738 17,554,049 See accompanying notes to consolidated financial statements.

Softchoice Corporation

Consolidated Statements of Cash Flows (IN THOUSANDS OF U.S. DOLLARS) FOR THE YEARS ENDED DECEMBER 31 2009 2008

------------- ------------- Cash provided by (used in) Operating activities Net (loss) earnings for the year $ 22,263 $ (14,388) Items not affecting cash

Amortization of property and equipment 2,907 2,640

Stock-based compensation (note 11) (1,420) 1,194

Future income taxes 1,460 (17,200)

Amortization of intangible assets 7,949 8,173

Goodwill impairment - 43,624

Unrealized foreign currency loss (9,112) 4,703

Loss (gain) loss on disposal of property

and equipment 35 (21)

------------- -------------

24,082 28,725 Net change in non-cash working capital items

relating to operations (note 18) 9,049 2,155

------------- -------------

33,131 30,880

------------- ------------- Financing activities

(Repayment) increase of bank indebtedness

(note 9) (466) 21,479

Repayment of long-term debt (note 9) (59,313) (3,747)

Increase in long-term debt (note 9) 17,683 -

Payment of cash dividend - (5,199)

Proceeds from issuance of common shares

(note 10) 15,624 565

------------- -------------

(26,472) 13,098

------------- ------------- Investing activities

Purchase of property and equipment (1,800) (4,790)

Purchase of intangible assets (1,163) (1,139)

Proceeds on disposal of property and

equipment 25 88

Restricted cash (500) -

Acquisition, net of cash acquired - (34,412)

------------- -------------

(3,438) (40,253)

------------- ------------- Effect of exchange rate changes on cash 1,282 (690)

------------- ------------- Increase in cash 4,503 3,035 Cash -Beginning of year 14,098 11,063

------------- ------------- Cash - End of year $ 18,601 $ 14,098 See accompanying notes to consolidated financial statements. Supplemental disclosures of cash flow information (note 18)

Softchoice Corporation

Consolidated Statements of Comprehensive Income and

Accumulated Other Comprehensive Income (IN THOUSANDS OF U.S. DOLLARS) AS AT DECEMBER 31 2009 2008

------------- ------------- Comprehensive Income Net earnings (loss) for the year $ 22,263 $ (14,388) Foreign currency translation adjustment (7,846) 10,566

------------- ------------- Comprehensive Income (loss) $ 14,417 $ (3,822)

------------- -------------

------------- ------------- Accumulated Other Comprehensive Income Balance - beginning of year $ 13,116 $ 2,550 Foreign currency translation adjustment (7,846) 10,566

------------- ------------- Balance - end of year $ 5,270 $ 13,116

------------- -------------

------------- -------------

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