Softchoice (SFTC) Q2 2024 earnings summary

Executive summary

• Q2 2024 gross profit grew 13% in constant currency (12% reported), led by 18–19% growth in Software & Cloud and 11% in services, offsetting hardware declines.

• Adjusted EBITDA increased 19% in constant currency (18% reported), with margin expansion of 150 basis points to 31.7%; operating cash flow rose 9% to $58 million.

• Customer base expanded 5% year-over-year, marking the best Q2 net customer growth in over five years, with strong U.S. momentum and 100% revenue retention.

• Recognized with multiple partner awards, including Microsoft, Google Cloud, Sophos, VMware, and Lenovo; named Best Workplace in Canada for the 19th consecutive year.

• Over C$390 million returned to shareholders since IPO, including a special C$4/share dividend in April 2024.

Financial highlights

• Q2 2024 gross profit: $93.1M (+12.3% YoY); Software & Cloud gross profit: $68.6M (+17.5% YoY); Services: $9.0M (+11.4% YoY); Hardware: $15.5M (-5.9% YoY).

• Adjusted EBITDA: $29.5M (+18.5% YoY), margin 31.7% of gross profit; operating income up 16%.

• Adjusted EPS (diluted) at $0.27 vs. $0.23 in Q2 2023; net income per share (diluted) at $0.20 vs. $0.23, impacted by FX and higher interest.

• Operating cash flow increased to $58 million in Q2 and doubled to $98 million LTM; free cash flow for TTM was $41 million.

• Net leverage reduced to 2.0x from 2.6x sequentially.

Outlook and guidance

• Aiming for gross profit growth to return to historical averages; H1 gross profit may be closer to 50% of full year due to incentive timing.

• Q3 gross profit seasonality expected to align with five-year average (~24% of full year); pipeline includes potential large deals for H2 2024.

• Focus on organic growth, expanding salesforce, and deepening customer relationships in AI, cloud, and security.

• Prudent cost management to keep H2 adjusted cash OpEx lower than H1 while maintaining growth investments.

• Net leverage expected to remain in the 1x–3x optimal range post-special dividend.