Softchoice CEO De Palma Talks IPO Timing And The Accelerated Demand For Cloud And Collaboration Technology

‘We are a software-focused IT solutions company. We equip organizations to be agile and innovative. So what that means is we create success for our customers by helping them move to the cloud, by helping them build the digital workplace of tomorrow, and by enabling them to make smarter decisions about their technology,’ Softchoice CEO Vince De Palma tells CRN.

IPO: Next Stage In Softchoice’s Evolution

Softchoice just went public in a quiet way. The Toronto-based cloud and software giant and software sales pioneer, ranked No. 32 on the CRN 2021 Solution Provider 500 list, started trading under the symbol “SFTC” on Friday on an “if, as and when issued” basis, and on Tuesday completed the IPO. However, due to COVID-19 coronavirus pandemic restrictions, it had to pass on the normal in-person ringing of the iconic bell to open the Toronto Stock Exchange, leaving CEO Vince De Palma (pictured) instead participating in a virtual ringing of the bell.

That did not lessen the importance of the IPO, however. Softchoice and primary investor Birch Hill Equity sold 17.5 million common shares for gross proceeds of C$350 million, or about $249 million, with Softchoice selling 4.375 million shares and Birch Hill 12.135 million shares.

More importantly, the IPO brings Softchoice into the spotlight at a time when its cloud-focused services and software capabilities are in high demand as businesses invest heavily in digital transformation. De Palma told CRN that investment was well under way before the pandemic started and the pandemic only accelerated the push. “We’ve seen demand come back and companies returning to their digital transformation journey, and they are continuing to be hyper-focused on, ‘How do I leverage the cloud to become more agile and innovative? How do I get the bang for the buck in the money I’m spending on collaboration technology in terms of improving the customer’s employee experience as well as improving employee productivity?’” he said.

Here is what De Palma had to say about Softchoice’s plans for 2021, the importance of digital transformation and more.

How would you describe Softchoice?

We are a software-focused IT solutions company. We equip organizations to be agile and innovative. So what that means is we create success for our customers by helping them move to the cloud, by helping them build the digital workplace of tomorrow, and by enabling them to make smarter decisions about their technology.

Softchoice is based in Toronto. How big a part of your business is the U.S. market?

Overall, we’re a profitable growth company, which is always a good thing, and with strong financial performance. We have about 1.7 billion [U.S. dollars] in gross sales, about $238 million in gross profit, and very strong free cash flow. About 57 percent of our net sales are in the U.S. and 43 percent in Canada.

As far as being the No. 1 Microsoft cloud deployment partner and the No. 1 Microsoft Azure partner, is that for all of North America?

Yes. And that’s not our statistics. Those are statistics that we get from Microsoft. So they’re the ones who ranked us as No. 1 in those categories.

How did the company get to be No. 1 in those categories?

Over the last several years, we’ve really turned our company into much more of a software-focused IT solutions provider focused in three areas. One is helping customers take advantage of the cloud. What does that mean for their data center? What does that mean for their network? Secondly, helping them with their digital workplace and collaboration technology. That’s only been magnified by COVID-19 as companies took their workforces remote. And third is leveraging our 30-year history of being excellent at software asset management. So when you look at those three things combined, our three main focus areas, clearly Microsoft has a lot of technology that fits into that. Microsoft Azure in the cloud, Microsoft Office 365, and other things in digital collaboration, just like the [Teams] technology we’re using right now on digital workplace and collaboration technology. So Microsoft’s a great partner, along with many other technology partners we work with, and they fit clearly into our main focus areas.

You mentioned COVID-19. How has that impacted your market and your business over the last year?

I’d say three quick things on that. So definitely, when COVID hit last year, there was the mad scramble for companies to take their workforces remote. And they did so by using technology like [Teams], deploying it if they didn’t have it, as well as equipping their team members or employees with the right laptops and so forth. And then COVID definitely had an impact in 2020 in terms of ... delayed and deferred spending. But at the same time, they realized they needed to continue their digital transformation journeys. So there was that initial thrust in March and April, which sort of decreased a little bit in the summer months, and in Q4 demand picked back up. And in Q1 of this year, we actually had strong growth. We had year-over-year growth of 11 percent. And so, we’ve seen demand come back and companies returning to their digital transformation journey, and they are continuing to be hyper-focused on, ‘How do I leverage the cloud to become more agile and innovative? How do I get the bang for the buck in the money I’m spending on collaboration technology in terms of improving the customer’s employee experience as well as improving employee productivity?’

How far along that journey do you think your customers are? Do they still have a long way to go?

Some customers were starting their journey well before COVID on all those areas I just discussed. COVID certainly accelerated and magnified the need to have the right technology for remote work. We see strong demand for 2021 and beyond. Let me give you two examples of that. One of the major cloud providers, AWS, has said, and this is their quote, not our quote, that they believe only 4 percent of commercial workloads that are in companies’ data centers have actually migrated to the cloud. So they would argue that we’re still in the early days of customers making that transition to the cloud. We would tend to agree with that in terms of what we’re seeing in our customers. And second, companies deployed collaboration technology like [Teams], but they’re really using it primarily for video capabilities. And there’s much more that Teams and Cisco Webex and other collaboration technologies can offer companies. So what we’re doing with them is helping them drive the adoption of some of the other features of these technologies to improve employee experience and employee productivity in terms of their ability to collaborate remotely. So if anything, it’s accelerated the demand for cloud and collaboration technology.

Is Softchoice a profitable company?

We’re very proud of the fact that we are a growing profitable company. So as you may have seen in our prospectus, we have right around $1.7 billion in gross sales, about $238 million in gross profit and very strong free cash flow. We also gave guidance in our prospectus about what we see in the next two years. We projected double-digit organic growth of over 12 percent. And we projected 2022 adjusted EBITDA of between $90 [million] to $100 million, with adjusted EBITDA being our key bottom-line metric.

You mentioned organic growth. Is Softchoice an acquisitive company? Have you made a lot of acquisitions in the past?

We have not made any acquisitions in the last eight years. Prior to that, there were a handful of acquisitions, but in the last eight years, no. And everything we talked about in our prospectus is laser-focused on driving the success of our customers, as well as the success of our people. And that we believe will continue to allow us to drive consistent double-digit organic growth. And that’s what we’re focused on for the time being.

We’ve seen a lot of roll-up in the channel with smaller solution providers being acquired by larger solution providers, and the small and large ones being acquired by private equity. There’s a lot of private equity out there chasing the channel. How might that impact some of your plans going forward?

There are a couple of things. One, you have to remember, 70 percent of Softchoice’s business is cloud-, software- and services-focused. The remaining 30 percent is the hardware we sell along with some of these solutions we talked about. A lot of the roll-ups that you’re seeing are largely local regional hardware value-added resellers. And that’s not something we’re going focus on. We’re a software-focused IT solutions provider, as I said, with 70 percent of our business in cloud and software and services. So it’s not that we won’t ever make an acquisition, but the type of acquisition we possibly could make is if we found an asset that enhanced our capabilities to help customers with their cloud journey, then that could be something we might consider because we would either have to build those capabilities or buy those capabilities. But we’re not going to pursue a roll-up strategy.

Why did Softchoice go public now?

We have been on a growth journey, and we believe the IPO is a natural evolution of this growth we’ve been on. And partly because the IPO opens us up to more investment that will allow us to add to this growth. So the timing just seemed right. And so we felt this was a good time to do that as a natural evolution as a company.

The first half of 2021 is nearly behind us. How do you see the market for the rest of 2021 moving?

As I mentioned, in Q1 of this year, we had a really strong quarter. We drove 11 percent year-over-year growth in terms of our gross profit. And we do believe that reinforces that customers have come back in terms of pursuing their digital transformation agendas. And that reinforces our confidence in our double-digit growth outlook. So we’re very optimistic that we will drive over 12 percent organic growth between this year and next year.

You said 70 percent of Softchoice’s business is in cloud software and services. Do you expect that percentage to grow in the future? Do you see a day where maybe hardware is not even a part of your business at all?
I think hardware will always be part of our business because we provide integrated solutions to our customers. And so when you’re talking about digital collaboration, it’s not just putting up a Microsoft Teams or Cisco Webex environment, you have got to make sure that the employees have the right hardware to be able to access that technology from any place, anywhere, at any time. So we do work with virtual desktops, for example, that are very important as part of that solution. And when helping companies with their hybrid multi-cloud journey, that’s inclusive of public cloud and private cloud. So a lot of companies still are going to keep some workloads and applications in their proprietary data centers. And so there’s often a refresh of that data center on more modern hardware technology.

So we think hardware will always be a part of our business. But to answer your question directly, I do believe [the non-hardware] percentage will go up because we are so hyper-focused on the cloud and software asset management and digital workplace. But I don’t think it’s ever going to get to where hardware is not a significant part of our business.

We’ve been talking a lot about Microsoft. What about Softchoice’s partnerships with other public cloud providers, particularly AWS or Google Cloud?

We partner with a large number of organizations that are aligned to our area of focus. Our partners [include] some of the large providers like Microsoft, Cisco, VMware, AWS and Google. So [it’s important] for us to be able to deliver a hybrid cloud solution. Many customers are demanding that they have multiple public clouds in their environment because not all clouds are the same. Some are better for some things than others. And so customers oftentimes want to have a little bit of AWS, a little bit of Google, and perhaps a little bit of Microsoft Azure. And so we have capabilities and competencies in all three of those and in other enabling technologies like VMware, Red Hat and so forth. And then we also partner with many specialized companies like FireEye and CrowdStrike. Those are leaders in the cybersecurity space, and everything we do around cloud and digital workplace and collaboration has security embedded in it.

What else would you like people to know about Softchoice?

I just want everyone at Softchoice who’s going to read this article hopefully realize that we’ve got to remain laser-focused on the success of our customers. And we will also remain laser-focused on the success of our people. And if we do that, that will allow us to do great things for our customers, which will allow us to drive double-digit organic growth. And that will allow us to be successful as a company. We like to say, ‘success fully realized’ for our customers as well as our people. So I just wanted to add that little bit in there, because it’s going to be important for our team members to know that’s also what we’re focused on.