Softchoice Corporation

Good morning. My name is Ludi and I'll be your conference operator today. At this time, I would like to welcome everyone to the SOP Choice Q1 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number two. Thank you. I would now like to turn the conference over to Tim Perrin. Investor Relations, please go ahead.

Thank you, Ludi, and good morning, everyone. Welcome to SoftChoice's Q1 2024 conference call for the period ended March 31st, 2024. A reminder, for the purpose of the recording, today is Wednesday, May 8th, 2024. The company will make forward-looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause the actual results to differ materially from those projected. The company undertakes no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our earnings press release today, as well as in our filings with Canadian securities and regulatory authorities. Also, our commentary today will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two and relevant disclaimers can be found in the company's MD&A, which is available on our investor website. Unless otherwise noted, percentage growth rates that we refer to today are for the identified period ending March 31, 2024, compared with the same period ending March 31, 2023. Finally, please note that because the company reports in U.S. dollars, All amounts discussed today are in U.S. dollars unless otherwise indicated.

With that, I will now turn the call over to Tanger. Thanks, Tim. Welcome, everybody. I'm also joined today by Jonathan Reuter, our CFO. In our first quarter, we continue to execute our strategy, driving both positive financial results for the quarter and progress on our longer-term growth drivers. We've recorded a healthy 9% increase in software and cloud gross profit and a 3% increase in total gross profit. This increase, combined with prudent cost management, drove a 4% increase in our adjusted EBITDA and a 10% increase in our operating income. Organic growth strategy is continuing to generate a very high return on invested capital that we believe is best in class and is producing market share gains versus competitors. Driven by strong operating cash flow generation over the past year, we ended the quarter in an excellent financial position with only 0.7 turns of net leverage. almost a full turn less than a year ago. We have tremendous flexibility to continue our balanced allocation of capital to internal investments that are going to drive sustainable, profitable growth, while also returning significant capital to shareholders. Consistent with that approach, post Q1 in April, we paid our regular quarterly dividend, which has been increased by 18% over 2023, and is now 86% higher than when we first launched it following our IPO in 2021. We also issued a special dividend to our shareholders of four Canadian dollars per share, or more than 240 million Canadian dollars. Including share buybacks, we've now returned more than 385 million Canadian dollars in capital to shareholders since our IPO in 2021. Now let's turn to our growth strategy and our three strategic pillars, which I've shared with you in the past. They are building a world-class culture, growing our customer base, and deepening our customer relationships with our integrated software cloud and services solutions. Now, beginning with building a world-class culture. Culture is critical for us because our customers place a lot of trust in our team members to help them succeed. Our high-performing, highly engaged, and long-tenured team is a clear differentiator within our target U.S. and Canadian mid-market. And our people are a critical reason that our average customer tenure is now almost 10 years. Engagement and tenure, including in sales and technical roles, will become ever more important to our customers as they deal with the increasing complexity of their IT environments and the rapid release of new technology that they need to evaluate and incorporate. In April, we were ranked number nine for large employers and number one among TSX-listed companies on this year's Best Workplaces in Canada list by Great Place to Work. This is an achievement that I'm very proud of. In fact, we're one of only two companies to rank on this list for 19 consecutive years. And it's our exceptional team that drives account growth, which leads me to our second strategic pillar, growing our customer base. We recorded our best first quarter of net customer growth since 2019, driven by strong new account growth and increased customer retention and satisfaction. And customer growth has returned to pre-pandemic levels of about 5% year over year. And importantly, that new account growth was broad-based across all sales channels. To give you an example of how we're winning new customers, we're helping one fast-growing US-based marketing technology company supercharge the productivity of their workforce, which has grown rapidly from 500 to 1,500 employees over the last two years. Microsoft referred them to us after their existing partner couldn't help them integrate Microsoft 365 into their critical business processes. While we analyzed their strategy and their operating model, we designed and delivered an integration plan tailored to each persona group in the business, setting the stage for even more future work, including a co-pilot initiative. Our success in account growth was also driven by our strategy to expand our frontline sales force, which has increased by 12% over the past year and over 35% since our IPO. It also reflects strong ties with our technology partners, who are a key source of customer referrals for us as they value our mid-market scale, our ongoing investments in enhancing our certifications and capabilities, and in our ability to deliver integrated solutions. In the first quarter, we announced a strategic partnership framework agreement with Microsoft to further enhance our capabilities and capacity to develop, sell, and deliver Microsoft's cloud and digital workplace AI and security solutions. We also received the 2024 Google Cloud Public Sector Partner of the Year Award for Canada and were named VMware Geo Partner of the Year for all of North America by VMware by Broadcom. Our ongoing recognition from our partners illustrates the deep relationships we've built with them, their confidence in our delivery and value add capabilities, and their consideration of soft choice as a preferred IT solutions provider. And it's those capabilities that enable us to deepen our customer relationships, which is our third strategic pillar. In the first quarter, our investments in advanced technical capabilities continue to drive these deeper relationships and growth in our strategic focus areas, which are secure AI-powered cloud and digital workplace solutions supported by our advanced software asset management methodology and capabilities. Notable drivers of growth in Q1 included continued success in our cloud solutions. both in having more customers trust us to help them manage their cloud spend after procuring it through us, and also through our data and application modernization solutions that help customers build more agile IT environments. These in turn run more workloads in the cloud and increase consumption. This is especially needed with the SMB and commercial customer segments where many customers need and value that critical expertise. Additionally, We saw strength in our Microsoft Workplace solutions business as more customers leveraged the E5 solution suite, which allows us to not only right-size their overall software spend, but also to do the services to implement solutions in areas like cybersecurity and data and analytics, areas that are especially important in preparing to take advantage of the power of co-pilot AI. For example, this quarter, we helped one Canadian chemical manufacturer understand the impact of co-pilot on end-user productivity Like many companies, their CIO had a transformation agenda, but with not a matching budget. However, we used our asset optimization assessment, which is part of our software asset management portfolio, to identify redundant software spend, which we eliminated by standardizing on Microsoft 365, enabling the customer to use those savings to fund the copilot project. And as I noted on our last call, Customer demand for generative AI has been rapidly accelerating, and we've taken a leadership position here, as measured by the volume of consulting engagements that prepare customers for co-pilot adoption, and with the number of customers already using our services being well ahead of our internal target. However, the financial benefit is currently still small, as customers are only using a limited number of co-pilot licenses, while we're helping them identify use cases and prepare their IT environment before a broad co-pilot rollout. We're encouraged with the broad spectrum of use cases that we're proving out with our customers that will lead to wider and deeper customer adoption in the future. With the launch of our AI solutions team in Q1, our focus is on moving customers from Gen AI planning and pilot phases into more complex and long-term transformation programs. As an example, our AI solutions team recently helped one well-known industrial organization based in southern Ontario reduce their operating costs and improve business processes by using AI to make their HR, procurement, and supply chain more efficient. However, our customers first asked was simply to help them save money by downgrading from Microsoft E5 to E3. But we showed them how E5 and Copilot could help their teams. We worked with Microsoft to get deployment vouchers for E5 security and Copilot services, and this led to them renewing their E5 and purchasing Copilot licenses. Both of these are prime examples of how we help our customers through our deep licensing knowledge and our deep services capabilities. This ability to help customers fund co-pilot through other software rationalization solutions is a significant differentiator that we have over pure play service providers. With respect to AI application services, our strength as a leader in hybrid multi-cloud solutions is a great advantage. Getting the most out of AI requires a complex bridge between the power of the new AI model with the data and applications that already exist in the customer's IT environment. for which we are uniquely positioned to help. And we keep adding and developing talented people that help customers build solutions on these amazing large language models. We're enabling a major Canadian university to improve public health outcomes by analyzing and predicting the effectiveness of intervention programs from around the world by building a cloud native platform on AWS to ingest and analyze massive amounts of data from research institutions globally. This will then fuel their research and produce more data driven and proven recommendations. What you see in all of our customer examples are a couple of important things. The first is that customers often come to us with a challenge and sometimes what they believe the solution is. We're able to help them step back, understand the bigger picture, and then create a personalized solution using our proven and repeatable methodologies. And two, that through our engagement on one or two areas of a customer's IT environment, we earn their trust to deliver value at scale, which is obviously beneficial to them, but also to our partners and to us. With that, I'll now turn it over to Jonathan.