Q1 Marks Third Consecutive Billion Dollar
Gross Sales1 Quarter
TORONTO, and GATINEAU, QC,
May 9,
2024 /PRNewswire/ - Converge Technology Solutions
Corp. ("Converge" or "the Company") (TSX:CTS)
(FSE:0ZB) (OTCQX:CTSDF) is pleased to provide its financial results
for the three month period ended March 31,
2024. All figures are in Canadian dollars unless otherwise
stated.
First Quarter 2024 Highlights (year-over-year, unless
otherwise noted):
- Gross sales1 of $1.01
billion, an increase of $40.7
million or 4.2%;
- Gross sales organic growth1 of 4.2% and gross profit
organic growth1 of 2.1%;
- Revenue of $628.8 million, a
decrease of $49.4 million;
- Gross profit increased 2.1% to $175.3
million, representing a gross margin of 27.9%;
- Adjusted EBITDA1 increased 2.9% to $42.2 million;
- Net loss of $3.5 million, an
increase in loss of $0.1
million;
- Cash from operating activities was $110.9 million, an increase of $82.2 million, compared to $28.8 million for the comparative period in the
prior year; and
- Reduced net debt1 by $190
million year-over-year and by $79
million compared to Q4 FY23 to $130.8
million, compared to $321.2
million as at Q1 FY23 and $209.8
million as at Q4 FY23.
"With our 3rd consecutive quarter of Billion-dollar sales and
strong cash generation, we continue to demonstrate our position as
a leading IT Service Provider," said Shaun
Maine, Group CEO. "Our Advise, Implement and Manage
go-to-market strategy continues to drive our cross-sell efforts
towards higher margin solutions and offerings across our key
practice areas, demonstrated by our strong software sales during
the quarter. In addition, the tailwinds of AI infrastructure
spending, high-performance compute and cyber solutions are helping
to offset generalized device weakness which is expected to turn as
we enter a new refresh cycle towards the later part of this
year."
Financial Summary
for the Three Months Ended March 31,
|
|
In $000s except per
share amount
|
2024
$
|
2023
$
|
Gross Sales
|
1,005,989
|
965,258
|
Revenue
|
628,766
|
678,198
|
Gross profit
(GP)
|
175,272
|
171,588
|
Gross profit (GP)
%
|
27.9 %
|
25.3 %
|
Adjusted
EBITDA
|
42,209
|
41,004
|
Adjusted EBITDA as a %
of GP
|
24.1 %
|
23.9 %
|
Net loss
|
(3,540)
|
(3,361)
|
Adjusted net
income[1]
|
22,707
|
24,441
|
Adjusted
Earnings per Share[1]
|
0.11
|
0.12
|
|
|
|
|
1
|
This is a Non-IFRS
measure (including non-IFRS ratio) and not a recognized, defined or
a standardized measure under IFRS. See the "Non-IFRS Financial
Measures" section of this press release for definitions, uses and a
reconciliation of historical non-IFRS financial measures to the
most directly comparable IFRS financial measures.
|
Subsequent to Quarter-End
- On May 8, 2024, the Board
declared a quarterly dividend of $0.015 per common share to be paid on
June 6, 2024 to shareholders of
record at the close of business on May 23,
2024.
Financial Outlook
Converge is providing financial guidance for the three months
ended June 30, 2024 as follows:
|
Q2 2023
Actual
|
Q2 2024
Expected
|
Gross profit
|
$171.6
million
|
$175 million - $182
million
|
Adjusted
EBITDA
|
$41.2
million
|
$43 million - $46
million
|
Conference Call Details:
Date: Thursday, May
9th, 2024
Time: 8:00 AM Eastern Standard
Time
Participant Webcast Link:
Webcast Link – https://app.webinar.net/1A08yeayG6V
Participant Dial-in Details with Operator
Assistance:
Conference ID: 01139
Toronto: 1-289-819-1350
North American Toll Free: 1-800-836-8184
International Toll-Free Numbers:
Germany: 498005889782
Ireland: 35315251826
Spain: 34917918582
Switzerland: 41432107274
United Kingdom: 448002797040
You may register and enter your phone number to receive an
instant automated call back
via https://emportal.ink/3U6LCs8
Recording Playback:
Webcast Link - https://app.webinar.net/1A08yeayG6V
Toronto: 1-289-819-1450
North American Toll Free: 1-888-660-6345
Replay Code: 01139 #
Expiry Date: May 16, 2024
Please connect at least 15 minutes prior to the conference call
to ensure time for any software download that may be required to
access the webcast. A live audio webcast accompanied by
presentation slides and archive of the conference call and webcast
will be available by visiting the Company's website
at https://convergetp.com/investor-relations/.
About Converge
Converge Technology Solutions Corp. is a services-led,
software-enabled, IT & Cloud Solutions provider focused on
delivering industry-leading solutions. Converge's global approach
delivers advanced analytics, artificial intelligence (AI),
application modernization, cloud platforms, cybersecurity, digital
infrastructure, and digital workplace offerings to clients across
various industries. The Company supports these solutions with
advisory, implementation, and managed services expertise across all
major IT vendors in the marketplace. This multi-faceted approach
enables Converge to address the unique business and technology
requirements for all clients in the public and private sectors. For
more information, visit convergetp.com.
Summary of Condensed
Consolidated Interim Statements of Financial Position
(expressed in thousands of Canadian dollars)
|
|
|
March 31,
2024
$
|
December 31,
2023
$
|
Assets
|
|
|
Current
|
|
|
|
Cash
|
158,056
|
169,872
|
|
Restricted
cash
|
559
|
547
|
|
Trade and other
receivables
|
820,584
|
814,231
|
|
Inventories
|
86,051
|
73,166
|
|
Prepaid expenses
and other assets
|
26,608
|
26,528
|
|
|
1,091,858
|
1,084,344
|
Non-current
|
|
|
|
Other assets
|
51,235
|
53,579
|
|
Property, equipment and
right-of-use assets, net
|
76,840
|
75,488
|
|
Intangible assets,
net
|
361,510
|
375,181
|
|
Goodwill
|
572,725
|
564,770
|
Total
assets
|
2,154,168
|
2,153,362
|
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
|
Trade and other
payables
|
1,015,537
|
913,994
|
|
Other financial
liabilities
|
64,036
|
54,095
|
|
Deferred
revenue
|
61,061
|
59,325
|
|
Borrowings
|
16,304
|
1,664
|
|
Income taxes
payable
|
16,282
|
9,286
|
|
|
1,173,220
|
1,038,364
|
Non-current
|
|
|
|
Other financial
liabilities
|
57,789
|
57,668
|
|
Borrowings
|
272,518
|
378,007
|
|
Deferred tax
liabilities
|
64,103
|
67,168
|
Total
liabilities
|
1,567,630
|
1,541,207
|
|
|
|
|
Shareholders'
equity
|
|
|
|
Common
shares
|
575,507
|
599,434
|
|
Contributed
surplus
|
11,742
|
10,970
|
|
Accumulated other
comprehensive income
|
12,102
|
3,963
|
|
Deficit
|
(37,140)
|
(28,167)
|
Total equity
attributable to shareholders of Converge
|
562,211
|
586,200
|
Non-controlling
interest ("NCI")
|
24,327
|
25,955
|
|
586,538
|
612,155
|
Total liabilities
and shareholders' equity
|
2,154,168
|
2,153,362
|
Summary of Condensed
Consolidated Interim Statements of Income and Comprehensive
Income (expressed in thousands of Canadian
dollars)
|
|
For the three months
ended March 31,
|
2024$
|
2023
$
|
|
|
|
Revenue
|
|
|
Product
|
486,110
|
536,689
|
Service
|
142,656
|
141,509
|
Total
revenue
|
628,766
|
678,198
|
Cost of
sales
|
453,494
|
506,610
|
Gross
profit
|
175,272
|
171,588
|
|
|
|
Selling, general and
administrative expenses
|
135,893
|
132,033
|
Income before the
following
|
39,379
|
39,555
|
|
|
|
Depreciation and
amortization
|
24,213
|
25,890
|
Finance
expense
|
8,427
|
9,350
|
Acquisition,
integration, restructuring and other
|
3,588
|
4,284
|
Change in fair value of
contingent consideration
|
2,144
|
-
|
Share-based
compensation
|
772
|
848
|
Other expense,
net
|
207
|
2,469
|
Income (loss) before
income taxes
|
28
|
(3,286)
|
Income tax
expense
|
3,568
|
75
|
|
|
|
Net
loss
|
(3,540)
|
(3,361)
|
Net loss attributable
to:
|
|
|
Shareholders of
Converge
|
(1,912)
|
(1,957)
|
Non-controlling
interest
|
(1,628)
|
(1,404)
|
|
(3,540)
|
(3,361)
|
Other comprehensive
income (loss)
|
|
|
Item that may be
reclassified subsequently to income (loss):
|
|
|
Exchange differences
on translation of foreign operations
|
8,139
|
2,173
|
|
4,599
|
(1,188)
|
Comprehensive income
(loss)
|
|
|
Comprehensive income
(loss) attributable to:
|
|
|
Shareholders of
Converge
|
6,227
|
216
|
Non-controlling
interest
|
(1,628)
|
(1,404)
|
|
4,599
|
(1,188)
|
|
|
|
Net loss per share –
basic and diluted
|
(0.01)
|
(0.01)
|
Weighted average number
of shares outstanding – basic and diluted
|
203,681,626
|
208,971,019
|
Summary of Condensed
Consolidated Interim Statements of Cash Flows
(expressed in thousands of Canadian
dollars)
|
|
For the three months
ended March 31,
|
2024
$
|
2023
$
|
|
|
|
Cash flows from
operating activities
|
|
|
Net loss
|
(3,540)
|
(3,361)
|
Adjustments to
reconcile net loss to net cash from operating activities
|
|
|
Depreciation and
amortization
|
27,044
|
27,549
|
Unrealized foreign
exchange loss
|
-
|
2,463
|
Share-based
compensation expense
|
772
|
848
|
Finance
expense
|
8,427
|
9,350
|
Loss on sale of
property and equipment
|
61
|
-
|
Change in fair value
of contingent consideration
|
2,144
|
-
|
Income tax
expense
|
3,568
|
75
|
|
38,476
|
36,924
|
Changes in non-cash
working capital items
|
73,122
|
(1,236)
|
|
111,598
|
35,688
|
Income taxes
paid
|
(663)
|
(6,925)
|
Cash from operating
activities
|
110,935
|
28,763
|
|
|
|
Cash flows used in
investing activities
|
|
|
Purchase of property,
equipment and intangible assets
|
(1,858)
|
(5,106)
|
Proceeds on disposal of
property and equipment
|
-
|
68
|
Payment of contingent
consideration
|
(3,164)
|
(8,960)
|
Payment of deferred
consideration
|
(7,865)
|
(25,654)
|
Payment of NCI
liability
|
-
|
(29,994)
|
Cash used in
investing activities
|
(12,887)
|
(69,646)
|
|
|
|
Cash flows (used in)
from financing activities
|
|
|
Transfers (to) from
restricted cash
|
(3)
|
216
|
Interest
paid
|
(6,773)
|
(7,877)
|
Dividends
paid
|
(2,034)
|
-
|
Payments of lease
liabilities
|
(5,088)
|
(5,135)
|
Repurchase of common
shares
|
(2,296)
|
-
|
Repayment of notes
payable
|
(39)
|
(40)
|
Net (repayment of)
proceeds from borrowings
|
(96,271)
|
34,199
|
Cash (used in) from
financing activities
|
(112,504)
|
21,363
|
|
|
|
Net change in cash
during the period
|
(14,456)
|
(19,520)
|
Effect of foreign
exchange on cash
|
2,640
|
(1,342)
|
Cash, beginning of
period
|
169,872
|
159,890
|
Cash, end of
period
|
158,056
|
139,028
|
Non-IFRS Financial Measures
This press release refers to certain performance indicators
including Adjusted EBITDA, gross profit, gross sales, gross sales
organic growth, net debt, adjusted net income ("Adjusted Net
Income") and adjusted earnings per share ("Adjusted
EPS") that do not have any standardized meaning prescribed
by IFRS and may not be comparable to similar measures presented by
other companies. Management believes that these measures are
useful to most shareholders, creditors, and other stakeholders in
analyzing the Company's operating results and can highlight
trends in its core business that may not otherwise be apparent when
relying solely on IFRS financial measures. The Company also
believes that securities analysts, investors and other interested
parties frequently use non-IFRS measures in the evaluation of
issuers.
Management also uses non-IFRS measures in order to facilitate
operating performance comparisons from period to period, prepare
annual operating budgets and assess the ability to meet
capital expenditure and working capital requirements. These
non-IFRS financial measures should not be considered as an
alternative to the consolidated income (loss) or any other measure
of performance under IFRS. Investors are encouraged to review the
Company's financial statements and disclosures in their entirety,
are cautioned not to put undue reliance on non-IFRS measures and
view them in conjunction with the most comparable IFRS financial
measures.
Please see "Non-IFRS Financial & Supplementary Financial
Measures" and "Summary of Consolidated Financial Results" in the
Company's most recent Management's Discussion and Analysis, which
is available on the Company's profile on SEDAR+ at
www.sedarplus.ca, for further details on certain non-IFRS measures,
which information is incorporated by reference herein.
Adjusted EBITDA
Adjusted EBITDA represents net income or loss adjusted to
exclude amortization, depreciation, interest expense and net
finance expense, foreign exchange gains and losses, other expenses
and income, share-based compensation expense, income tax expense,
change in fair value of contingent consideration, and acquisition,
integration, restructuring and other expenses. Acquisition and
transaction related costs primarily consists of acquisition-related
compensation tied to continued employment of pre-existing
shareholders of the acquiree not included in the total purchase
consideration and professional fees. Integration costs primarily
consist of professional fees incurred related to integration of
acquisitions completed. Restructuring costs mainly represent
employee exit costs as a result of synergies created from
acquisitions and organizational changes.
Adjusted EBITDA is not a recognized, defined, or standardized
measure under IFRS. The Company's definition of Adjusted EBITDA
will likely differ from that used by other companies and therefore
comparability may be limited.
Adjusted EBITDA should not be considered a substitute for or in
isolation from measures prepared in accordance with IFRS.
The IFRS measure most directly comparable to Adjusted
EBITDA presented in the Company's financial statements is net
(loss) income before taxes.
The Company has reconciled Adjusted EBITDA to the most
comparable IFRS financial measure as follows:
For the three months
ended March 31,
|
2024
$
|
2023
$
|
Net income (loss)
before taxes
|
28
|
(3,286)
|
Depreciation and
amortization
|
24,213
|
25,890
|
Depreciation included
in cost of sales
|
2,830
|
1,455
|
Finance
expense
|
8,427
|
9,350
|
Acquisition,
integration, restructuring and other
|
3,588
|
4,284
|
Change in fair value of
contingent consideration
|
2,144
|
-
|
Share-based
compensation expense
|
772
|
848
|
Other expense,
net
|
207
|
2,463
|
Adjusted
EBITDA
|
42,209
|
41,004
|
Adjusted EBITDA as a % of Gross
Profit1
The Company believes that Adjusted EBITDA as a % of gross profit
is a useful measure of the Company's operating efficiency and
profitability. This is calculated by dividing Adjusted EBITDA by
gross profit.
Adjusted Net Income and Adjusted EPS
Adjusted Net Income represents net income (loss) adjusted to
exclude acquisition, integration, restructuring and other expenses,
change in fair value of contingent consideration, amortization of
acquired intangible assets, unrealized foreign exchange gain/loss,
and share-based compensation. The Company believes that Adjusted
Net Income is a more useful measure than net income as it excludes
the impact of one-time, non-cash and/or non-recurring items that
are not reflective of Converge's underlying business performance.
Adjusted EPS is calculated by dividing Adjusted Net Income by the
total weighted average shares outstanding on a basic and diluted
basis. The IFRS measure most directly comparable to Adjusted
Net Income presented in the Company's financial statements is net
income (loss) and net income (loss) per share.
The Company has provided a reconciliation to the most comparable
IFRS financial measure as follows:
For the three months
ended March 31,
|
2024
$
|
2023
$
|
Net (loss)
|
(3,540)
|
(3,361)
|
Acquisition,
integration, restructuring and other
|
3,588
|
4,284
|
Change in fair value of
contingent consideration
|
2,144
|
-
|
Amortization on
intangible assets
|
19,586
|
20,207
|
Foreign exchange
loss
|
157
|
2,463
|
Share-based
compensation
|
772
|
848
|
Adjusted Net
Income
|
22,707
|
24,441
|
Adjusted EPS
(Basic)
|
0.11
|
0.12
|
Leverage Ratio
The Company defines leverage ratio as net debt (current and
non-current borrowings less cash) divided by trailing twelve months
Adjusted EBITDA.
Gross sales and gross sales organic growth
Gross sales, which is a non-IFRS measure, reflects the gross
amount billed to customers, adjusted for amounts deferred or
accrued. The Company believes gross sales is a useful alternative
financial metric to net revenue, the IFRS measure, as it better
reflects volume fluctuations as compared to net revenue. Under the
applicable IFRS 15 'principal vs agent' guidance, the principal
records revenue on a gross basis and the agent records commission
on a net basis. In transactions where Converge is acting as an
agent between the customer and the vendor, net revenue is
calculated by reducing gross sales by the cost of sale
amount.
The Company has provided a reconciliation of gross sales to
revenue, which is the most comparable IFRS financial measure, as
follows:
For the three months
ended March 31,
|
2024
$
|
2023
$
|
Product
|
701,451
|
665,310
|
Managed services and
professional services
|
122,253
|
119,467
|
Maintenance, support
and cloud solutions
|
182,285
|
180,481
|
Gross sales
|
1,005,989
|
965,258
|
Less: adjustment for
sales transacted as agent
|
377,223
|
287,060
|
Revenue
|
628,766
|
678,198
|
Organic Growth
The Company measures organic growth at the gross sales and gross
profit levels, and includes the contributions under Converge
ownership in the current and comparative period(s). In calculating
organic growth, the Company therefore deducts gross sales and gross
profit generated from all corresponding prior comparable
pre-acquisition period(s) from the current reporting period(s)
included in the consolidated results.
Gross sales organic growth is calculated by deducting prior
period gross sales, from current period gross sales for the same
portfolio of companies. Gross sales organic growth percentage is
calculated by dividing organic growth by prior period reported
gross sales.
For the three months
ended March 31,
|
2024
$
|
2023
$
|
Gross sales
|
1,005,989
|
965,258
|
Less: gross sales from
companies not owned in comparative period
|
-
|
245,630
|
Gross sales of
companies owned in comparative period
|
1,005,989
|
719,628
|
Prior period gross
sales
|
965,258
|
673,929
|
Organic Growth -
$
|
40,731
|
45,699
|
Organic Growth -
%
|
4.2 %
|
6.8 %
|
Gross profit organic growth is calculated by deducting prior
period gross profit, from current period gross profit for the
same portfolio of companies. Gross profit organic growth percentage
is calculated by dividing organic growth by prior period reported
gross profit.
For the three months
ended March 31,
|
2024
$
|
2023
$
|
Gross profit
|
175,272
|
171,588
|
Less: gross profit from
companies not owned in comparative period
|
-
|
44,597
|
Gross profit of
companies owned in comparative period
|
175,272
|
126,991
|
Prior period gross
profit
|
171,588
|
109,045
|
Organic Growth -
$
|
3,684
|
17,946
|
Organic Growth -
%
|
2.1 %
|
16.5 %
|
Forward-Looking Information
This press release contains certain "forward-looking
information" and "forward-looking statements" (collectively,
"forward-looking statements") within the meaning of
applicable Canadian securities legislation regarding Converge and
its business. Any statement that involves discussions with respect
to predictions, expectations, beliefs, plans, projections,
objectives, assumptions, future events or performance (often but
not always using phrases such as "expects", or "does not expect",
"is expected" "anticipates" or "does not anticipate", "plans",
"budget", "scheduled", "forecasts". "estimates", "believes" or
"intends" or variations of such words and phrases or stating that
certain actions, events or results "may" or "could", "would",
"might" or "will" be taken to occur or be achieved) are not
statements of historical fact and may be forward-looking
statements.
Specifically, statements regarding Converge's forecast on gross
profit and Adjusted EBITDA, expectations of future results,
performance, prospects, the markets in which it operates, or about
any future intention with regard to its business and acquisition
strategies are considered forward-looking information. The
foregoing demonstrates Converge's objectives, which are not
forecasts or estimates of its financial position, but are based on
the implementation of its strategic goals, growth prospects, and
growth initiatives. The forward-looking information, including
management's assessments of, and outlook for, gross profit
and Adjusted EBITDA, are based on management's opinions, estimates
and assumptions, including, but not limited to: (i) Converge's
results of operations will continue as expected, (ii) the Company
will continue to effectively execute against its key strategic
growth priorities, (iii) the Company will continue to retain and
grow its existing customer base and market share, (iv) the Company
will be able to take advantage of future prospects and
opportunities, and realize on synergies, including with respect of
acquisitions, (v) there will be no changes in legislative or
regulatory matters that negatively impact the Company's business,
(vi) current tax laws will remain in effect and will not be
materially changed, (vii) economic conditions will remain
relatively stable throughout the period, (vii) the industries
Converge operates in will continue to grow consistent with past
experience, and (ix) those assumptions described under the heading
"About Forward-Looking Information" in the Company's Management's
Discussion and Analysis for the three months ended March 31,
2024. While these opinions, estimates and assumptions are
considered by the Company to be appropriate and reasonable in the
circumstances as of the date of this press release, they are
subject to known and unknown risks, uncertainties, assumptions and
other factors that may cause the actual results, levels of
activity, performance, or achievements to be materially different
from those expressed or implied by such forward-looking
information.
The forward looking information, including the achievement of
target gross profit and Adjusted EBITDA set out above, are subject
to significant risks including, without limitation: that the
Company will be unable to effectively execute against its key
strategic growth priorities, including in respect of acquisitions;
the Company will be unable to continue to retain and grow its
existing customer base and market share; risks related to the
Company's business and financial position; that the Company may not
be able to accurately predict its rate of growth and profitability;
risks related to economic and political uncertainty; income tax
related risks; and those risk factors discussed in greater detail
under the "Risk Factors" section of the Company's most recent
annual information form and under the heading "Risks and
Uncertainties" in the Company's most recent Management's Discussion
and Analysis, which are each available under the Company's profile
on SEDAR+ at www.sedarplus.ca. Many of these risks are beyond the
Company's control.
If any of these risks or uncertainties materialize, or if the
opinions, estimates or assumptions underlying the forward-looking
information prove incorrect, actual results or future events might
vary materially from those anticipated in the forward-looking
information. Although the Company has attempted to identify
important risk factors that could cause actual results to differ
materially from those contained in forward-looking information,
there may be other risk factors not presently known to the Company
or that the Company presently believes are not material that could
also cause actual results or future events to differ materially
from those expressed in such forward-looking information.
Although the Company bases these forward-looking statements on
assumptions that it believes are reasonable when made, the Company
cautions investors that forward-looking statements are not
guarantees of future performance and that its actual results of
operations, financial condition and liquidity and the development
of the industry in which it operates may differ materially from
those made in or suggested by the forward-looking statements
contained in this press release. In addition, even if the Company's
results of operations, financial condition and liquidity and the
development of the industry in which it operates are consistent
with the forward-looking statements contained in this press
release, those results of developments may not be indicative of
results or developments in subsequent periods.
There can be no assurance that such information will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such information. No
forward-looking statement is a guarantee of future results.
Accordingly, you should not place undue reliance on forward-looking
information, which speaks only as of the date made. The
forward-looking information contained in this press release
represents the company's expectations as of the date specified
herein, and are subject to change after such date. However, the
Company disclaims any intention or obligation or undertaking to
update or revise any forward-looking information or to publicly
announce the results of any revisions to any of those
statements, whether as a result of new information, future events
or otherwise, except as required under applicable securities laws.
Comparisons of results for current and any prior periods are not
intended to express any future trends or indications of future
performance, unless specifically expressed as such, and should only
be viewed as historical data.
All of the forward-looking information contained in this press
release is expressly qualified by the foregoing cautionary
statements.
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SOURCE Converge Technology Solutions Corp.