• 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)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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 ("Softchoice U.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 December 31, 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 IFRS 9 in its financial statements for the annual period beginning on January 1, 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 January 1, 2013.  As the amendments only require changes in the presentation of items in other comprehensive income, the Company does not expect the amendment to IAS 1 to have material impact on the interim consolidated financial statements.

(iv) IFRS 10, Consolidated Financial Statements ("IFRS 10"), and amended IAS 27 (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

(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 property and equipment are located as follows:

Geographic segments of goodwill are as follows:

Geographic segments of intangible assets are as follows:

(b) Economic dependence

Approximately 32% and 32% of the Company's net sales for the three-month periods ended September 30, 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

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 December 31.

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.

SOURCE Softchoice Corporation