Softchoice Corp. (TSX: SO), a leading North American provider of technology solutions and services, today announced its financial results for the third quarter of 2008.
Highlights
- Gross profit increases 42 percent to US$35.5 million over Q3 2007
- Served customer base increases seven percent in Canada and by 24 percent in the U.S.
- Net loss of US$1.7 million or US$0.09 per basic share (basic)
- 6.5 percent headcount reduction in early Q4 expected to save US$8 million annually
- Debt refinancing is progressing well with advanced discussions with major financial institutions.
Strategic Initiatives
In response to the prospect of a prolonged period of weakness in the general North American economy, Softchoice management implemented a number of measures subsequent to the end of the third quarter to conserve cash and further strengthen the Company's balance sheet.
1. On October 20th the Company announced that it had implemented a workforce reduction that decreased the employee headcount by approximately 6.5 percent and is expected to reduce compensation costs by $8 million annually. Total restructuring charges of approximately US$2 million are expected to be incurred in the fourth quarter of 2008;
2. In light of the current financial and economic uncertainty, and considering the long-term importance of a strong balance sheet, the Board of Directors has decided to suspend its quarterly dividend of CAD$0.10 per share. On an annual basis, this measure conserves US$7 million in cash;
3. The Company is in the process of refinancing the term debt due December 31st, 2008 with a combination of an increased Asset Backed Lending (ABL) facility for CAD $120 million and a CAD$25 million subordinated term debt. We expect to close both facilities in the fourth quarter;
4. The integrations of NexInnovations and Software Plus have been completed on schedule and the integration of Optimus Solutions is on track for completion in Q4 2008;
5. The planned expansion of the Optimus business model has commenced with the implementation of a pilot program in Texas.
"We grew our top line results in Q3; however, due to the slowing economy we have not generated the returns we expected," noted David MacDonald, Softchoice's President and CEO. "While we remain confident in our business model and the technology industry's ability to weather a difficult economic environment, we have moved swiftly to reduce costs and prepare ourselves for a challenging year in 2009. In addition, we have made significant progress in preparing our balance sheet to refinance our debt without issuing dilutive equity."
"I am very pleased with the progress that we have made in negotiating an expanded CAD $120 million ABL facility along with a subordinated debt facility," noted Anne Brace, Softchoice's Chief Financial Officer. "This capital structure is well suited to Softchoice because the ABL debt facility can expand and contract with the Company's working capital requirements."
Quarterly Results
For the three-month period ended September 30th, 2008 the Company reported third quarter net loss of US$1.7 million or US$0.09 per share basic (US$0.09 per share fully diluted) on revenue of US$276.4 million compared to net income of US$3.0 million or US$0.18 per share basic (US$0.17 per share fully diluted) on revenue of US$159.4 million recorded during the same period the year prior.
During the quarter, revenue increased by 73 percent, gross profit increased by 42 percent and the number of customers increased by 17 percent on a year over year basis. The gross margin percentage declined by three percent to 13 percent from 16 percent and EBITDA(1) margin declined to 1.0 percent from 4.0 percent for the same period last year. The decrease in gross margin percent is attributable to a change in the product mix as well as lower margins on certain Microsoft products.
The increase in revenue, gross profit and customers is attributable to business acquisitions, increased market share and organic growth in the markets served by the Company. The decrease in EBITDA margin is mainly attributable to increased salaries and benefits due to the increased employee base prior to the implementation of the above mentioned workforce reduction initiative. The net loss is attributable to lower EBITDA margins and increased financing and amortization costs resulting from the acquisitions.
Hardware sales demonstrated strong growth in the quarter, increasing by 143 percent to US$128 million over the same period in 2007. Hardware sales in the U.S. and Canada increased by 126 percent and 187 percent, respectively.
Year-to-Date Results
For the nine-month period ended September 30th, 2008, the Company reported net income of US$7.5 million or US$0.43 per share basic (US$0.43 per share fully diluted) on revenue of US$909.3 million compared to net income of US$16.8 million or US$0.97 per share basic (US$0.96 per share fully diluted) on revenue of US$510.9 million recorded in the prior year.
During the first nine months of 2008, hardware sales grew by 156 percent on a consolidated basis compared to the same period last year. Growth in hardware sales in the U.S. was 133 percent, while Canadian growth in hardware sales was 186 percent compared to the same period last year. -- www.cnxmarketlink.com
Comment and add to the story without registration, but keep the comments meaningful please. Links are not accepted.
