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.
Highlights
-- Softchoice 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 Toll
866 212 4491 - North American Toll Free
Webcast URL:
http://www.snwebcastcenter.com/custom_events/softchoice-20120515/site/
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 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 1,100 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 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.
(i) Use of Non-GAAP Measures - Adjusted Net Earnings
Adjusted 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 Three months ended
per share amounts) March 31, % Change
2012 2011
--------------------------------------
Net earnings $ 5,143 $ 5,160 (0.3%)
Adjustments, net of income tax 736 988 (25.5%)
--------------------------------------
Adjusted net earnings $ 4,407 4,172 5.6%
--------------------------------------
Adjusted net earnings per share $ 0.22 $ 0.21 4.8%
--------------------------------------
--------------------------------------
(ii) Use of Non-GAAP Measures - Imputed Revenue
Microsoft 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.
-------------------------------------
-------------------------------------
Three months ended
(In thousands of U.S. dollars) March 31, % Change
2012 2011
-------------------------------------
Net sales, as reported $ 259,116 $ 249,718 3.8%
Microsoft Agency fees (11,337) (9,195) 23.3%
Microsoft imputed revenue 207,186 160,293 29.3%
Other imputed revenue 66,526 63,222 5.2%
-------------------------------------
Total revenue, including imputed
revenue $ 521,491 $ 464,038 12.4%
-------------------------------------
-------------------------------------
Interim Condensed Consolidated Financial Statements
(Expressed in U.S. dollars)
SOFTCHOICE CORPORATION
Three-month periods ended March 31, 2012 and 2011
(Unaudited)
SOFTCHOICE CORPORATION
Interim Condensed Consolidated Statements of Financial Position
(In thousands of U.S. dollars)
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2012 2011
----------------------------------------------------------------------------
Assets
Current assets:
Cash $ 42,089 $ 32,993
Trade and other receivables 249,437 306,434
Inventory 5,942 8,407
Work-in-progress 451 465
Deferred costs 1,047 2,591
Prepaid expenses and other assets 5,889 6,158
----------------------------------------------------------------------------
Total current assets 304,855 357,048
Non-current assets:
Long-term accounts receivable 139 643
Long-term prepaid expenses 1,958 1,821
Property and equipment 6,661 6,309
Goodwill 16,647 16,441
Intangible assets 45,061 46,203
Deferred tax assets 19,797 19,224
----------------------------------------------------------------------------
Total non-current assets 90,263 90,641
----------------------------------------------------------------------------
Total assets $ 395,118 $ 447,689
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Trade and other payables $ 233,541 $ 290,267
Deferred lease inducements 250 243
Deferred revenue 10,380 10,627
Income taxes payable 1,264 2,279
----------------------------------------------------------------------------
Total current liabilities 245,435 303,416
Non-current liabilities:
Deferred lease inducements 602 648
Deferred revenue 3,214 3,307
----------------------------------------------------------------------------
Total non-current liabilities 3,816 3,955
----------------------------------------------------------------------------
Total liabilities 249,251 307,371
Shareholders' equity:
Capital stock 26,502 26,548
Contributed surplus 3,798 3,274
Retained earnings 116,832 111,689
Accumulated other comprehensive loss (1,265) (1,193)
----------------------------------------------------------------------------
Total shareholders' equity 145,867 140,318
----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 395,118 $ 447,689
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 ended
March 31,
2012 2011
----------------------------------------------------------------------------
Net sales $ 259,116 $ 249,718
Cost of sales 210,247 205,804
----------------------------------------------------------------------------
Gross profit 48,869 43,914
Expenses:
Selling and marketing 29,907 26,632
Administrative 12,386 10,333
Other income (22) (121)
Other expenses 66 43
----------------------------------------------------------------------------
42,337 36,887
----------------------------------------------------------------------------
Income from operating activities 6,532 7,027
Finance costs 142 1,047
Finance income (961) (1,266)
----------------------------------------------------------------------------
Net finance income (819) (219)
----------------------------------------------------------------------------
Earnings before income taxes 7,351 7,246
Income tax expense 2,208 2,086
----------------------------------------------------------------------------
Net earnings 5,143 5,160
Other comprehensive loss:
Foreign currency translation adjustment (72) (355)
----------------------------------------------------------------------------
Total comprehensive income $ 5,071 $ 4,805
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per common share:
Basic (note 5) $ 0.26 $ 0.26
Diluted (note 5) 0.26 0.26
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SOFTCHOICE CORPORATION
Interim Condensed Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three-month period ended Number Capital Contributed
March 31, 2012 of shares stock surplus
----------------------------------------------------------------------------
Balance, January 1, 2012 19,837,211 $ 26,548 $ 3,274
Total comprehensive income
(loss):
Net earnings - - -
Other comprehensive loss:
Foreign currency
translation adjustment - - -
----------------------------------------------------------------------------
Total comprehensive income
(loss) - - -
Transactions with shareholders
recorded directly in equity:
Share-based payment
transactions - - 524
Repurchase of common shares (3,700) (46) -
----------------------------------------------------------------------------
(3,700) (46) 524
----------------------------------------------------------------------------
Balance, March 31, 2012 19,833,511 $ 26,502 $ 3,798
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cumulative Total
Three-month period ended translation Retained shareholders'
March 31, 2012 account earnings equity
----------------------------------------------------------------------------
Balance, January 1, 2012 $ (1,193) $ 111,689 $ 140,318
Total comprehensive income
(loss):
Net earnings - 5,143 5,143
Other comprehensive loss:
Foreign currency
translation adjustment (72) - (72)
----------------------------------------------------------------------------
Total comprehensive income
(loss) (72) 5,143 5,071
Transactions with shareholders
recorded directly in equity:
Share-based payment
transactions - - 524
Repurchase of common shares - - (46)
----------------------------------------------------------------------------
- - 478
----------------------------------------------------------------------------
Balance, March 31, 2012 $ (1,265) $ 116,832 $ 145,867
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three-month period ended Number Capital Contributed
March 31, 2011 of shares stock surplus
----------------------------------------------------------------------------
Balance, January 1, 2011 19,780,039 $ 26,016 $ 2,054
Total comprehensive income
(loss):
Net earnings - - -
Other comprehensive loss:
Foreign currency translation
adjustment - - -
----------------------------------------------------------------------------
Total comprehensive income
(loss) - - -
Transactions with shareholders
recorded directly in equity:
Share-based payment
transactions - - 356
Deferred share units
Exercised 52,573 461 (461)
----------------------------------------------------------------------------
52,573 461 (105)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, March 31, 2011 19,832,612 $ 26,477 $ 1,949
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cumulative Total
Three-month period ended translation Retained shareholders'
March 31, 2011 account earnings equity
----------------------------------------------------------------------------
Balance, January 1, 2011 $ (1,142) $ 89,569 $ 116,497
Total comprehensive income
(loss):
Net earnings - 5,160 5,160
Other comprehensive loss:
Foreign currency translation
adjustment (355) - (355)
----------------------------------------------------------------------------
Total comprehensive income
(loss) (355) 5,160 4,805
Transactions with shareholders
recorded directly in equity:
Share-based payment
transactions - - 356
Deferred share units
Exercised - - -
----------------------------------------------------------------------------
- - 356
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, March 31, 2011 $ (1,497) $ 94,729 $ 121,658
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SOFTCHOICE CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three-month periods ended
March 31,
2012 2011
----------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net earnings $ 5,143 $ 5,160
Adjustments for:
Depreciation of property and equipment 748 682
Share-based payment transactions 524 356
Income tax expense 2,208 2,086
Amortization of intangible assets 2,125 1,597
Unrealized foreign currency gain (1,004) (1,039)
Amortization of deferred financing costs - 357
Interest expense on financial liabilities 32 523
----------------------------------------------------------------------------
9,776 9,722
Change in non-cash operating working capital
(note 7) 4,636 6,014
----------------------------------------------------------------------------
14,412 15,736
Interest paid (32) (522)
Income taxes paid (3,835) (2,984)
----------------------------------------------------------------------------
Cash provided by operating activities 10,545 12,230
Financing 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 cash 8,876 9,902
Cash, beginning of year 32,993 35,752
Effect of exchange rate changes on cash 220 442
----------------------------------------------------------------------------
Cash, end of year $ 42,089 $ 46,096
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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