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Good morning. My name is Kelsey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Softchoice Q1 2022 Earnings Conference Call. [Operator Instructions] Bryan Rocco, Softchoice's CFO, you may begin your conference.
Great. Thank you, operator, and good morning, everyone. Welcome to Softchoice's Q1 2022 conference call for the period ended March 31, 2022. A reminder that for the purpose of today's recording today is Thursday, March 12, 2022. We I'm joined today by Vince De Palma, Softchoice's President and CEO; and Andrew Caprara, our COO. After prepared remarks, we will open it up for analyst questions. 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 2 and relevant disclaimers can be found in the company's MD&A, which is available on our website. And 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 Vince.
Thanks, Bryan, and welcome, everybody. I look forward to speaking with you today about our financial performance and operational highlights and to answer your questions. I'll start on Slide 4. I want to start by summarizing our Q1 performance and our full year outlook. Our Q1 billings growth of 11% is in line with our GP outlook of over 11.5% for the full year 2022, demonstrating the underlying strength in the business. We will explain in a minute why that did not translate into double-digit gross profit growth. We are ahead of schedule in our investments in sales and technical sales talent that fuel our organic growth strategy, showing the robustness of our ability to attract and retain talent and setting us up for strong performance in the remainder of the year, though resulting in a short-term negative impact to our EBITDA as these resources get onboarded and move towards productivity. And we have a robust sales pipeline as we entered Q2. Due to these factors and the fact that we remain on track in realizing the full $25 million of net benefits from Project Monarch, we are therefore reaffirming our 2022 outlook and restating our expectation noted on our last call that our growth rates will progress through the year as we realized the benefit of our investments. So now let's dive a little bit deeper into the Q1 results. In terms of our top line gross profit, although Software & Cloud grew 11%, our gains here were partially offset by lower growth in Hardware due to global supply chain constraints as well as a decline in Services gross margin, resulting in an overall 6% gross profit growth in Q1. Additionally, I want to share 2 specific factors that impacted gross profit by approximately $3 million in the quarter. We do not anticipate these to reoccur, and they do not impact our full year growth outlook. First, volumes were impacted by slowing provincial public sector spend in Canada, along with volume declines with a small number of customers in our enterprise channel. The latter impacted by timing of certain multiyear software renewals. Second, Services gross profit declined due to accelerated additions to areas of our services engineering team. As I stated earlier, we are ahead of schedule in our talent investments that fuel our organic growth strategy. Following multiple quarters of solid growth in services billings, we needed to hire more people to staff the projects we have won as well as part of our strategy to increase our advanced services delivery capabilities. The flipside of that success is a short-term drag on our gross profit since these resources are accounted for in our cost of sales. However, due to the backlog of projects already booked and in progress, along with strong double-digit growth in services billings in Q1, as well as a healthy pipeline, we expect to see these investments accelerate gross profit growth in the back half of 2022. For low gross profit, Q1 was impacted by higher cash operating expenses of just under $4 million, but these are investments that are anticipated to pay off in the back half of 2022. First, we were incredibly successful in ramping our sales and technical sales team members in Q1 at a faster pace than anticipated, including making fantastic progress on hitting our target recruitment of account executives, which I will describe in detail in a couple of slides. Second, we incurred certain personnel costs that were accelerated into Q1, including commissions related to elevated billings in strategic focus areas that yield higher commission rates. And lastly, there were some timing issues with certain operating expenses that should reverse in the remainder of the year. The combination of the above impact to our gross profit and increased OpEx resulted in adjusted EBITDA being flat year-over-year, excluding wage subsidies received in 2021. However, we remain confident in our full year outlook as Q1 is a very small seasonal quarter from an EBITDA perspective and the underlying drivers of our Q1 performance that I just described do not lower our expectations for the remainder of the year. In terms of operational highlights, over the past year, the increase in our sales support and technical sales resources has driven record customer engagement with our gross profit per customer increasing 21% over the prior LTM period. Continued high customer retention and increased engagement drove a 112% revenue retention rate, which we are very pleased with. And our gross profit per account executive increased 25% over the prior LTM period, which is the highest in the company history. In terms of capital allocation, along with our growth investments, we have been active in our share buyback program since its launch in March. Additionally, in Q1, we announced a 29% increase in our quarterly dividend to CAD 0.09, which was paid in April. And today, we declared the same dividend for the Q2 period to be paid in July. The increased return of capital to shareholders reflects the expected significant increase in our cash flows in 2022 included in our outlook. In 2022, we continued to generate recognition within our industry and beyond, as noted on Slide 5. This is a credit to the depth and breadth of our capabilities and our culture of excellence, which enables the success of our customers' organizations, their IT teams and our people. For example, we have been working with a large financial institution to help them solve for a matrix and siloed cloud spend across their divisions, each with competing priorities and programs exacerbated by misalignment between the business, operations and IT. Our solution designed by our FinOps practice within our Digital Acceleration business unit included a better operating model and optimized workflows, which helped our customers avoid $5 million in cloud costs. Outcomes like this exemplify our purpose for unleashing the potential of people and technology. When it comes to the latter, in Q1, we built on our Google Premier Partner status by earning the Elite Managed Services Provider or MSP designation in the Google Cloud Partner Advantage program, which recognizes our success in enabling cloud transformation at scale with technical expertise in Google Cloud platform and is validated by real-life customer engagements. We continue to grow our technical expertise and partner certifications, including across the 3 major hyperscalers. We were already a top tier partner for Microsoft Azure and an Azure Expert MSP, and through our strategic collaboration agreement with AWS, we expect to achieve a similar MSP designation with them in the future. Subsequent to quarter end, we were also named VMware's Global Partner of the Year, which is an incredible distinction we achieved for delivering the most value and impact to our customers by utilizing VMware to deliver on-prem to cloud migrations. As you may recall, on our last earnings webcast, we provided some case studies of how we helped customers move to the cloud using VMware Solutions. When it comes to our people, so far, in 2022, we have received 2 prestigious workplace recognitions. We were named a Best Workplace in Canada by the Great Place to Work Institute for the 17th consecutive year based on feedback from our people and an in-depth review of our culture and employment practices. And we once again received a perfect score on the Human Rights Campaign's Corporate Equality Index, and were named the Best Place to Work for LGBTQ Equality. Softchoice's recognized brand and culture, combined with our strategic focus on advanced IT solutions has allowed us to stand out in a competitive labor market as evidenced by our successful recruiting. To provide some detail on our recruiting success on Slide 6, we outlined where we have been making growth investments in our team members. As you can see on the left-hand side of this slide, since the end of 2020, when we saw customer spending rebound, we have ramped investment in our technical capabilities, including adding almost 100 technical experts that support our account executives. You can also see that we have added almost 15 members to our sales team, including 20 additional sales support and 28 more account executives, more on the latter in a bit. These additional sales and technical sales resources continue to drive record sales force productivity with our gross profit per account executive reaching $761,000 over the last 12 months, a 25% increase over the prior LTM period, which you can see on the right-hand side of the slide. The increase in resources has also continued to drive record customer engagement by providing our sales team with the capabilities go deeper with our customer base. As outlined on Slide 7, our LTM gross profit per customer reached a record $63,000. And our revenue retention rate on an LTM basis was 112%, reflecting both high customer retention and increasing sales to existing customers. Beginning in the second half of 2021, we began to ramp our account executives, the sales team members with quarterback relationships with our customers, and we made 13 net additions in 2021 as can be seen on Slide 8. In Q1 of this year, we accelerated this ramp and added another net 15 AEs in the first quarter alone. We ended the quarter with 411 account executives and are therefore ahead of plan on achieving our target of reaching 423 to 433 AEs by the end of 2022. These new account executives are still ramping up their books of business, and so their contribution is negative to EBITDA in the beginning months. But this will be an exciting accelerant to the growth in our customer base and correspondently gross profit as they become productive later in 2022. I'll now turn it over to Bryan for a deeper look at our financial results and our outlook. Bryan?
Great. Thanks, Vince. I'll start on Slide 9 with a look at our top line gross profit. Overall gross profit increased 6% driven by 11% growth in our Software & Cloud solutions. The increase in Software & Cloud was driven by high growth in our public cloud and security solutions. Hardware also contributed to gross profit growth despite ongoing supply chain constraints that continue to impact hardware sales. We don't foresee our supply constrained backlog in Hardware reversing in 2022, though it would provide a modest upside if conditions do improve. Services gross margin, our gross profit declined in Q1 for the reasons that had been outlined at the top of the call. By sales channel, Q1 growth was driven by the SMB channel, both commercial and enterprise channels were stable year-over-year for the reasons that Vince outlined. We continue to expect growth across all channels on a full year basis, driven in part by our continued investment and growth of our AEs and technical capabilities in all 3 channels. As seen on Slide 10, our growth in gross profit was driven by a similar 7% increase in our gross sales, which is how we measure customer volumes. Similar to prior periods, growth was driven by our Software & Cloud solutions, which increased 10%. Now turning to Slide 11, adjusted EBITDA decreased by 5% to $10.0 million from $10.5 million in Q1 of 2021, but was essentially flat year-over-year, excluding the $500,000 of CEWS subsidies received in Q1 of 2021. Our $4 million growth in gross profit was offset by an approximate $4 million increase in adjusted cash operating expenses. This increase was in higher personnel costs driven by the higher head count related to the company's growth investments. Adjusted free cash flow was 87% of adjusted EBITDA over the LTM period or approximately $60 million, as noted on Slide #12. Over the past year, after interest and taxes and some nonrecurring costs, free cash flow was used to significantly reduce debt, initiate our quarterly dividend to shareholders, which was increased in Q1 and undertake our ongoing share buyback program. We ended Q1 in strong financial condition with approximately $189 million in available funds from cash on hand and through our $275 million revolving credit facility. Including internally generated cash flows, we anticipate having significant resources with which to pursue growth opportunities and enhance shareholder returns. And as noted on our last call, our capital allocation priorities in 2022 will be focused on our growth investments, including ramping of our sales force as well as paying our dividend and continuing our share buyback program. We will also review potential bolt-on acquisitions that would enhance our advanced IT solutions capabilities and accelerate growth. Now turning to our outlook on Slide 13. So given Q1 performance and continued strong billings activity, today, we reiterated our 2022 outlook. As noted on our last call, we expect Q1 to be our lowest quarter due to seasonality in our business and we've restated that our top line gross profit growth rates are anticipated to increase through the year as a result of our investments taking hold. Therefore, we anticipate slightly higher growth in gross profit in Q2 than in Q1 before moving into low to mid-teens in Q3 and Q4, respectively. As cash OpEx has less seasonality, we therefore anticipate H1 adjusted EBITDA will be just over 1/3 of the full year EBITDA with H2 being around 2/3 of the full year. So in closing we remain confident in our 2022 outlook and are incredibly excited about the future. And with that, I will turn it over to the operator for Q&A. Operator?
[Operator Instructions] Your first question comes from David Kwan from TD Securities.
I appreciate the color just on the impacts that you saw that hit the Q1 results here. But I was curious to get your commentary on the Software & Cloud net sales as quarterly decline. How much of that was kind of mix that could possibly, I guess, been impacted by the netting down impact versus anything else?
Can you repeat the last part of the question, David, we couldn't hear you clearly.
Yes. Let me repeat the entire one. It's just related to the Software & Cloud net sales this quarter and the decline that you saw year-over-year. I was just curious to what extent that might have been impacted by any netting down activity versus something else?
Yes. So in Q1, we saw the continued theme of more netting down within our Software & Cloud business that has a dragging impact on net sales. And so how we look at and analyze our business' gross profit and our GP for Software & Cloud grew 11%. If you want to look at the more relevant indicator of volume growth for Software & Cloud and sales, I'd look at gross sales, which is where we saw around 10% growth. And so the decline in Software & Cloud net sales is attributed to an increased mix of netting down, which is, like I said, consistent with what we've reported in the past few quarters and is expected to continue to be honest.
And maybe looking out beyond the challenges that you saw in Q1 and maybe even looking at this -- looking at I guess, beyond this year and given the reaffirmed guidance. I was wondering how sustainable do you think double-digit organic growth in your gross profits are looking out to say, 2023 and beyond?
Yes. So we've got various slides in our earnings deck around our growth engine and the levers that we intend to pull. And so we obviously, we have outlook or guidance for 2022, that's over 11.5% growth. But we're focused on driving long-term sustainable growth. We've got a huge TAM where we've got a small market share, and we think we've got an opportunity to continue to grow our market share. And we've invested in the fastest-growing subsegments of the industry. And so when you combine that with the growth investments that we've been making, especially for the last year and we doubled down as you heard in kind of Q1 here, we think we're well positioned to drive sustainable long-term growth.
And 2 more questions. Just as more and more employees kind of head back to the office, have you seen any material changes in your business or customer behavior?
Yes. David, it's Andrew Caprara calling. I would say one of the things that we're starting to see is that organizations are having to adapt to a true hybrid collaboration experience. The reality is in the past 2 years almost that most organizations had almost an exclusively remote experience, which was actually a lot easier to operate in, because everybody was equal on the screen here. And now organizations are trying to figure out how do they create the environment for folks who really do collaboration well remotely. And so that's an exciting place for us, because implementing something like Teams or Webex or Zoom was actually probably the easier part during the pandemic, and now we're moving towards how do we do the optimization and how do we help customers adopt and get the most out of the features that they're not using to properly do that kind of collaboration. And so, I think there's an exciting opportunity for us given our huge base of customers using these kinds of technologies like Microsoft Teams to go in there and help with that optimization, which then leads to other conversations about security, data access and availability and potentially other application work.
That's helpful. Just the last question here. Can you talk about how you decide to allocate capital between say, buying back shares versus increasing the dividend? I know your leverage levels continue to trend downward here and should have a lot more free cash flow to redeploy as you head into the second half of this year and may be into 2023.
Yes. So we've got a slide in there, and we did speak about it on our kind of Q4 earnings call, but we've got our capital allocation priorities. And first and foremost, is making sure we're making growth investments to, again, drive sustainable profitable growth in our business, so that includes adding AEs and technical resources.
And then beyond that, we do pay our quarterly dividend, which we did increase in our March call, and that was a reflection of increased profitability and expectations that we had for free cash flow and growth in our free cash flow in 2022. And then beyond that, we have been active in the market with our share buyback program. So we announced it in March, we can buy back up to 3 million shares. Through the last 2 months, we've repurchased around 300,000 shares, around 10% of the buyback program, and we expect to continue to be active on that program for 2022. Our leverage, you're right, there is some seasonality with our working capital where leverage can move around and -- where we had working capital outflow in Q1, which is normal, but it increased our leverage slightly. But we're still conservatively leveraged and we think we're well capitalized to be able to take advantage of opportunistic M&A opportunities that may arise as well.
Thank you, and your next question comes from Brian Essex from Goldman Sachs.
I apologize if it's been asked before, I'm jumping around on a few calls. But maybe if you could give us a little bit of color on the hardware line and maybe to get a sense of where you're seeing the pressure in that market, competence and the durability of outline for the rest of the year? Just to maybe get a sense of what's in the pipeline so we can kind of monitor any pressure in the market going forward?
Brian, it's Andrew. I would say at this point, we've not seen any material change to the trends that we've seen around supply chain constraints in our business over the last several quarters. So at this point, we continue to flush through backlog from previous periods, but create sort of adequate on backlog going forward. And I don't think any of us have a great sense on when we think this will change. We've -- I was on calls with some of our top hardware partners actually just yesterday. And even they're saying they're struggling with their own business and their own production to predict when exact turn around. So we think of this as a potential tailwind at some point as this starts to catch up. We just can't predict when that's going to be at this point.
That's helpful. Any kind of color you can provide on what segments of hardware that you're exposed to that are seeing the pressure? Is it more kind of on the storage side or network infrastructure side just to get a sense of where that's coming from?
Yes. So this is Bryan here. I could jump in. So we still see pressure in kind of both of those areas of devices and kind of networking infrastructure. It did alleviate slightly on the devices side, but we do continue to see kind of pressures and longer lead times across the board. And so, we didn't see a pickup from even on the devices side in Q1. And overall, as Andrew noted, like conditions remain stable. Our -- what we call our constrained hardware backlog increased slightly in Q1, and we're probably seeing a little more pressure on the networking side than the devices, but things can change pretty quickly and that's where we are at right now.
That's helpful. And maybe to follow up, in terms of the deals that you're seeing overall as we kind of go into 2Q and the backlog that you're building on the software side, were there any kind of push deals into 2Q? And maybe a little color on the visibility into the backlog, that gives you more confidence in the 2Q reacceleration?
Brian, it's Vince. So we always have a robust pipeline and you always get into those interesting situations where a deal could close late in the quarter and you book it, you may even bill it, but you can't recognize the revenue necessarily because you haven't actually performed the service, so we had some of that. But also, we have what I would call a very robust pipeline of some large transformational projects with customers. So I mentioned that when I talked about the Services business and how we have staffed up in Q1, our engineering talent, particularly in our professional services organization. Because of the amount of deals we book and billed in the last couple of quarters as well as we look at our pipeline and seen the potential work ahead of us. So I would say we have a very good pipeline of very good opportunities for us to continue to pursue in Q2 and beyond.
So it sounds like maybe normal, like amount of deal fluctuation between quarters, but mostly transformational pipeline. Is that fair?
Yes. I'd say it's a normal phenomenon. You have that every quarter. So there's nothing unusual about Q1 in terms of deals that may have -- you also have deals that you were hoping to close in Q1 that slipped to Q2. But that happens every quarter. So there's nothing unusual in Q1 with regards to that.
I'll just quickly add, as Vince said on the call, we invested heavily in some of our advanced services personnel on our team to really do the kinds of transformational projects that we want to do with our customers going forward. These are much larger than what we've done in the past with customers and much more transformational. And so, as we staff that team up, we expect that business to grow as the year goes on and that's why it's a bit of a drag in Q1 as we hired all these folks. But we're really, really excited about the kinds of work that we're going to be doing for customers going forward at an even greater pace.
And your next question comes from Gavin Fairweather from Cormark.
I thought I'd just start on the macro environment, which continues to be pretty dynamic here. I mean it seems like demand for IT broadly remains pretty strong, but I'm curious if you've noted any changes in market demand kind of across regions or customer segments that you'd call out?
Gavin, it's Vince. The short answer is no. The customer demand is strong. Andrew highlighted what's going on with digital workplace and collaboration and the conversations we're having with customers about how to create a truly great experience for their employees that are working in a hybrid environment with some people in the office and some people still remote. We're seeing continued interest amongst our customer base and migration to the cloud, particularly when you think about some of the hardware spaces especially on the servers and storage people are more and more and more interested in moving up [indiscernible]. So that is very robust. And as Andrew also pointed out, some of these more advanced projects we're working on with customers. So the short answer is customer demand remains strong, and it's up to us to capture those opportunities with our customers. We're very excited about what we're seeing in the marketplace.
That's helpful. And then just a quick one on that renewal in the enterprise segment that seemed to, I guess, not renew. Were they just switching to another software platform? Can you provide some color there on a few of those enterprise customers?
Yes. Gavin, the reality is those are multiyear commitments. There's 3 or 5-year contracts. And so, this is really -- essentially, most of them are 3-year contracts. So 3 years ago, we signed fewer than we did 4 years ago, but that creates a year-over-year compare for this year versus last year's renewals that had far fewer falling into this calendar year. So they're still with us. They're still great customers. We still own those contracts. We just had fewer of them renewing. And the way that these work obviously is that you've got much more of a financial incentive at time of renewal as the partner on those agreements. And we just had fewer in Q1. So it really is a timing thing. We don't expect -- it's not like a 2022 in the year -- for the rest of the year is depressed of every quarter. That was really just a phenomenon in Q1.
That's helpful. And then just on the Microsoft repricing, obviously, the 365 licenses per seat are going up. How will that kind of flow through to your businesses, given your base of licenses kind of under management. And secondly, I know that you're a strong leader in kind of the E5 class, and it seems like the pricing is designed to push more people into that cost. Will that create opportunities for you as these pricing changes are rolled out.
Yes. Gavin, I would say on the latter -- let me start, the first question, the answer is it kind of depends, as you know, some of the Microsoft business we transact directly with customers where we have pricing control and other parts of it, if it's an enterprise agreement style. Microsoft controls the pricing, and we are in the referral fee on that. And so sometimes that essentially means, well, if it's a percentage then technically, yes, if the price goes up, we still are in the same percentage and so marginally that would be beneficial for us. So overall, I would say I wouldn't use it as a massive driver that's going to make a huge change in our financial position, but it could be potentially slightly positive. But the second part of your question is what I'm really excited about because we've spent the last 3 years building deep capabilities in helping customers envision and implement changes to their environment to drive the solutions in Microsoft E5, and so by creating this tighter gap between the E3 and the E5 license, the incentive is absolutely there for the customer to take a look at this. And we've built a whole bunch of services and assessments to scan a customer's software environment to understand what they're using and to look for opportunities to consolidate that down to fewer providers and save them money overall. And often, what we find actually is that the gap for them to upgrade from E3 to E5 can be offset by cost savings with other software titles already in their environment. And then we've got the capabilities to show them that and then to do the implementation and migration work and implement this properly. So we think we're -- as you said, one of the leaders in helping customers across North America get the most out of the E5 and security features in the Office suite. And So this is a really exciting opportunity for us that we're actively pursuing right now.
And then just a quick last one for me. Just the commissions and strategic areas. Not sure if you can share kind of what areas you're trying to drive revenue and not sure if it would be maybe GCP or AWS and should we think about those kind of commissions in the strategic areas recurring here going forward, And that's it for me.
Yes. It's basically in 2 or 3 areas, Gavin. It's in the cloud. So all of our cloud business, whether it be with Microsoft Azure, GCP or AWS. So those are more heavily emphasized in our commission plans and services, both professional services and managed services because particularly on the managed service side as well as the cloud side, they tend to be multiyear agreements, which are a recurring revenue stream. So we've placed greater emphasis in our commission plans on those type of arrangements with the customers where we can get a multiyear contract that gives us that recurring revenue. So those would be the 3 primary that have the emphasis in our commission plans.
And your next question comes from John Shao from National Bank.
The first one is, would you be able to provide an update on the breakeven trajectory of the newly hired AE. I remember back in the IPO, it was around 14 months to breakeven. So any update on this number this quarter? And also is there any chance to potentially accelerate this trajectory?
John, it's Vince. So no real update on the breakeven on timeframe for when we start new AEs. And that breakeven might vary depending on the sales channel we're talking about. But in general, it's sort of a year in terms of breakeven. Now they get productive well before that, but they don't break even until sort of that 1-year mark, 12 to 14 months. But we are constantly working to say, how do we do a better job of sales enablement? How do we do a better job of onboarding our account executives as well as the technical sales resources we have to support them. So that's a collaboration between our sales team, Andrew's organization, where he has a lot of resources to help with sales enablement as well as our human resource function, which we call people in growth that helps with sales enablement. So we're always trying to figure out how do you get these people to be more productive quicker, and how do you enable them to have these very complicated conversations with customers early on in their tenure. But there's no real change to that breakeven mark at this point in time. So it's still in that 12 to 14-month mark.
Just a modeling question for me. You mentioned accelerated condition this quarter. So is there a way we can quantify the impact so we can better tweak our model for Q2?
Yes. So for Q2, it will depend on the mix of business. So Vince noted the areas where we saw those accelerated commissions. And even during the call at the top of the call, he noted kind of the strong billings performance in our services business and then you would have seen kind of the [ RevRec ] gross profit performance like that, right? And So if we continue to see that, we could continue to see kind of elevated commission again in Q2, but we're not providing kind of guidance by quarter by solution type. In Q1, it was roughly around over $1 million or so on the commission. So that's one piece of information you may be able to use.
And your last question comes from Martin Toner from ATB Capital.
Can you talk a little bit about if the inflationary environment or the softening in your customers' businesses and it had any impact on the rate of gross profit growth for you guys in the quarter?
Martin, it's Vince. So I'd say the short answer is no. And as I mentioned at the top of the call, our billings growth was 11%, right? And for the reasons I cited at the top of the call, that didn't translate into double-digit GP growth. So we saw robust bookings activity, robust billings activity and 6% GP growth. So the inflationary environment, if anything, is probably a help in many ways, I think Gartner has pointed out that many CIOs are struggling with hiring talent in their organizations and more and more, they're looking to other parties like ourselves to help them with their digital transformation agenda, whether that be on the digital workplace and collaboration side or on the overall hybrid multi-cloud environment. So I think that's actually a help to our business. And I think there's other industry pundits that argue the same. So we view that as probably a positive in our business dynamics, not a negative.
Got you. And can you comment on your ability, I mean you guys have talked a lot about how Monarch improves ability to take price in certain areas. Can you comment on your ability to take price in this environment?
Yes. So we, through Monarch, have enabled our sales team to have better information at their fingertips so that when they have opportunities with customers, they can optimize win rates as well as optimize margins. And there's always a delicate balance between the 2. And So the technology we installed through Monarch is given our individual salespeople, our AEs, our account managers, better information on how to price each and every opportunity. It gives our sales managers better information on how they can look at each member of their team and say, how well are the sellers doing in regards to that delicate balance between robust win rates and strong margin management. So Monarch has been very instrumental in that. That is a big part of the GP uplift associated with Project Monarch. And as I mentioned on the last earnings call, I'm going to reiterate again, we're actually ahead of schedule on the pricing uplift we're seeing as associated with Project Monarch versus the original business case. And then when we look at Project Monarch overall, we are on plan to deliver the $25 million of EBITDA uplift in 2022 that we've discussed in the past.
Can you talk about customer health by customer type and size and would you call out any vertical as being particularly strong or weak?
Yes. So I wouldn't call out any verticals that were unusual with the one exception of the Canadian provincial governments seemed to slow down in Q1. We're not 100% sure if it's related to the elections or not, but there's something that sort of slowed down in the Canadian provincial governments. It's not just Ontario, it's several of the governments that seem to have all experienced that. But other than that, I would not point to any other vertical where there was either a slowdown or an accelerant versus normal growth rates.
Okay. And was currency a bit of a drag this quarter?
No. Currency didn't really have any impact. So as a reminder, like we are relatively hedged when the Canadian dollar strengthens, we see a slight benefit on GP growth, but that's offset on the cost side. When we look at it year-over-year in Q1, it had very immaterial impact on both GP and operating expenses and not EBITDA. So not part of the story, like we saw more volatility in 2021, where it did have more of an impact in each of those lines and slight impact on EBITDA, but not in Q1'20.
Last one for me. I see that revenue retention rate of 112%, why is it higher than, what drives that number being higher than gross profit growth overall? And apologies if I missed an explanation of this earlier?
Well, the revenue retention rate is an LTM metric. And So we measure it in and kind of what is our revenue or gross sales with our customers from a year ago or the customers a year ago versus today in the LTM period. So the year-over-year spend for that same cohort of customers. And So you can see on a quarterly basis where it kind of the growth in GP in the quarter could be higher or lower than the LTM retention. So I would look at more at our LTM. It's really growth sales growth year-over-year, and it would be kind of north of what's implied in the 112% net revenue retention.
And there are no further questions at this time. Mr. De Palma, you may proceed your conference.
Okay. Thank you, everyone, for joining us today. We look forward to having some follow-up conversations, and we look forward to seeing you all at our Q2 call in August. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines. Have a great day.