GuruFocus -
- Gross Profit Increase: 10% increase in constant currency, driven by double-digit growth in software, cloud, and services offerings.
- Adjusted EBITDA Growth: 2% increase in the quarter, with stable adjusted EBITDA margin year-to-date compared to 2023.
- Adjusted EPS: 18 on a diluted basis, compared to 27 in Q3 2023.
- Net Income Per Share: 15 on a diluted basis, compared to 14 in Q3 of the prior year.
- Revenue Retention Rate: Returned to 105%, reflecting increased customer retention and growing spend with existing customers.
- Customer Base Expansion: Increased by more than 4% in Q3 and by 5% over the last 12 months.
- Operating Cash Flow: Stable year-over-year with improved working capital management.
- Software (ETR:SOWGn) and Cloud Growth Rate: 11.6% over the past year, higher than the historical CAGR over the prior six years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Softchoice Corp (TSX:SFTC) reported industry-leading double-digit organic growth in Q3 2024, driven by strong performance in software and cloud services.
- The company achieved a 10% increase in gross profit in constant currency, with significant contributions from software, cloud, and services offerings.
- Softchoice Corp (TSX:SFTC) expanded its customer base by more than 4% in Q3, with a 5% increase over the last 12 months, supported by a 43% increase in account executives over the past three years.
- The launch of the S+ Hub, a centralized subscription software management tool, has been well-received, with over 1,000 customers actively using it to optimize their software spend.
- The company has seen significant growth in its Microsoft (NASDAQ:MSFT) CSP revenue, which increased by more than 50% in 2023 and is expected to grow by approximately 25% in 2024.
- Adjusted EBITDA growth was modest at 2% in Q3 2024, partially offset by higher variable compensation and growth investments.
- Adjusted EPS on a diluted basis decreased to 18 cents from 27 cents in Q3 2023, impacted by higher taxes and financial expenses.
- The company anticipates Q4 seasonality to be lower than average, around 26% of full-year gross profit, due to earlier large orders and potential currency drag.
- Despite strong growth in software and cloud, hardware sales remain a smaller portion of the business and are expected to stabilize only in late 2025.
- Cash flow from operations has been pressured by a $20 million increase in cash taxes, impacting free cash flow.
A: Jonathan Roiter, CFO: The co-pilot adoption is spread across all sales channels, not just SMB. The real opportunity lies in increasing the number of seats. Many organizations didn't have budget allocations for AI in 2024, so widespread adoption is limited. However, with over a quarter of customers already starting, we expect seat numbers to increase in 2025 as budgets are built for AI.
Q: Could 2025 be a year of significant margin expansion beyond the historical 100 basis points?
A: Jonathan Roiter, CFO: While we don't provide explicit guidance, historically, we've added 100 basis points of operating leverage annually. 2024 was a year of increased investments to accelerate future growth. As these investments are largely behind us, we are confident in returning to historical growth rates and potentially exceeding the 100 basis points in some years.
Q: How did the large hardware order impact your quarterly results, and what are your expectations for hardware trends?
A: Andrew Caprara, CEO: The large hardware order was around a couple of million dollars and occurred in Q3 instead of Q4. While it contributed to results, we are seeing some stability in the hardware space, though we expect it to be lumpy and not a massive rebound.
Q: Can you update us on sales force efficiency and productivity?
A: Andrew Caprara, CEO: While overall gross profit per account executive has declined due to market conditions and a mix shift towards SMB, the underlying growth ramp for new account executives is equal or slightly improved compared to a few years ago. We are confident in adding more account executives as they are on the same productivity curve as before.
Q: What is the impact of the S+ Hub on customer retention and expansion?
A: Andrew Caprara, CEO: The S+ Hub is not revenue-generating in itself but aims to increase customer retention by providing a centralized platform for software management. It encourages customers to consolidate their software spend through Softchoice, enhancing stickiness and cross-selling opportunities. We plan to roll it out to all customers over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.