Softchoice (SFTC) Q2 2024 earnings summary

Executive summary

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

• Adjusted EBITDA increased 18–19% with margin expansion to 31.7%, and operating income rose 16%.

• Customer base expanded 5%+ year-over-year, marking the best Q2 net customer growth since before the pandemic.

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

• Recognized with multiple partner awards, including Microsoft, Google Cloud, Sophos, VMware, and Lenovo.

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: $22.0M (+16.1% YoY).

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

• Operating cash flow increased to $58M from $53M year-over-year; LTM operating cash flow doubled to $98.2M.

• Net leverage reduced to 2.0x from 2.6x in three months.

Outlook and guidance

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

• H1 expected to represent about 50% of full-year gross profit due to incentive acceleration; Q3 seasonality to align with 5-year average.

• Pipeline includes potential large deals that could provide upside in H2 2024.

• 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.