Converge Technology Solutions Reports Strong Q1 2023 Results and Declares Quarterly Cash Dividend
Q1-2023 Financial Highlights:
- Gross sales1 for Q1-23 of
$965.3 million $673.9 million $291.4 million 43% - Gross Profit of
$171.6 million $109.0 million $62.6 million 57% - Organic gross profit growth1 increased to
16.5% from13.9% in Q1-22 - Cash flow from operating activities generated
$28.8 million $30.2 million $59.0 million - Adjusted EBITDA1 of
$41.2 million $29.6 million 39% - Net revenue for Q1-23 of
$678.2 million 37% over Q1-22 - Product backlog2 grew by
$48M $527M - Adjusted EPS1 of
$0.12 $0.10 - Achieved 103 net new logos in Q1-23
"We are successfully executing against our strategy to demonstrate continued expansion in profitability and cash generation, each reaching new highs during Q1 despite current macro-economic conditions," stated Mr. Shaun Maine, Converge Group CEO. "While the overall market is expected to remain relatively flat in 2023, with particular challenges at the large enterprise customer level, we anticipate that we will gain market share organically, clearly positioning us as the preferred partner among mid-market customers, and that we'll see further organic gross profit growth throughout the remainder of 2023 and beyond."
________________________ |
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 news release for definitions, uses and a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures. |
2 Product backlog is calculated as purchase orders received from customers not yet delivered at the end of the fiscal period. |
Q1-2023 Business Highlights & Subsequent to Quarter
- Announced the conclusion of the strategic review process and the dissolution of the Special Committee
- The Board has declared a quarterly dividend of
$0.01 - Announced the re-commencement of the Company's normal course issuer bid ("NCIB")
- Announced the appointment of Avjit Kamboj to Chief Financial Officer, a finance and technology executive with over 16 years of experience in capital and international markets
- Converge subsidiary Stone Group earned Global winner Green World Awards 2023 and Global Silver Winner in Corporate Social responsibility Category; the Company plans on releasing further ESG details at upcoming AGM on June 20, 2023
"With the success of our cross-selling strategy, the Company will be prioritizing organic growth over inorganic growth moving forward," continued Mr. Maine. "The Company is also pleased to announce the appointment of Mr. Avjit Kamboj today as Chief Financial Officer. After leading finance in the early phase of Converge's growth, Mr. Kamboj will re-join the executive leadership team of Converge reporting into myself as Group CEO."
Capital Management Initiatives
In light of the Company's positive net cash flow and on-going cash generation, the Board of Directors has authorized the initiation of a quarterly dividend. The Board has declared a dividend of
The Company also intends to resume purchases under the NCIB that commenced on August 11, 2022. The NCIB terminates one year after its commencement, or earlier if the maximum number of common shares under the NCIB have been purchased or the NCIB is terminated at the option of the Company. As of the date hereof, 6,464,124 common shares of a maximum of 10,744,818 common shares have been repurchased by the Company under the NCIB.
Conference Call Details:
Date: Wednesday, May 10th, 2023
Time: 8:00 AM Eastern Time
Participant Webcast Link:
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North American Toll Free: 888-390-0605
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Expiry Date: May 17th, 2023
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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, 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 Consolidated Statements of Financial Position
(expressed in thousands of Canadian dollars)
March 31, 2023 | December 31, 2022 | ||
Assets | |||
Current assets | |||
Cash | $ 139,028 | $ 159,890 | |
Restricted cash | 5,105 | 5,230 | |
Trade and other receivables | 784,096 | 781,683 | |
Inventories | 157,608 | 158,430 | |
Prepaid expenses and other assets | 25,139 | 23,046 | |
1,110,976 | 1,128,279 | ||
Long-term assets | |||
Property, equipment, and right-of-use assets, net | 79,897 | 88,352 | |
Intangible assets, net | 446,961 | 463,751 | |
Goodwill | 566,996 | 563,848 | |
Other non-current assets | 12,061 | 4,646 | |
$ 2,216,891 | $ 2,248,876 | ||
Liabilities | |||
Current liabilities | |||
Trade and other payables | $ 828,000 | $ 824,924 | |
Borrowings | 460,221 | 421,728 | |
Other financial liabilities | 66,741 | 123,932 | |
Deferred revenue and other liabilities | 60,484 | 60,210 | |
Income taxes payable | 5,402 | 7,112 | |
1,420,848 | 1,437,906 | ||
Long-term liabilities | |||
Other financial liabilities | 64,551 | 77,183 | |
Deferred tax liability | 98,513 | 102,977 | |
$ 1,583,912 | $ 1,618,066 | ||
Shareholders' equity | |||
Common shares | 599,233 | 595,019 | |
Contributed surplus | 8,767 | 7,919 | |
Exchange rights | - | 1,705 | |
Accumulated other comprehensive income | 15,881 | 13,708 | |
Deficit | (20,398) | (18,441) | |
Total equity attributable to shareholders of Converge | 603,483 | 599,910 | |
Non-controlling interest | 29,496 | 30,900 | |
632,979 | 630,810 | ||
2,216,891 | $ 2,248,876 | ||
Summary of Consolidated Statements of Loss and Comprehensive Loss
(expressed in thousands of Canadian dollars)
Three months ended March 31, | ||||||
2023 | 2022 | |||||
Revenues | ||||||
Product | $ | 536,689 | $ | 397,392 | ||
Service | 141,509 | 96,648 | ||||
Total revenue | 678,198 | 494,040 | ||||
Cost of sales | 506,610 | 384,995 | ||||
Gross profit | 171,588 | 109,045 | ||||
Selling, general and administrative expenses | 132,033 | 80,412 | ||||
Income before the following | 39,555 | 28,633 | ||||
Depreciation and amortization | 25,890 | 14,480 | ||||
Finance expense, net | 9,350 | 1,818 | ||||
Special charges | 4,284 | 5,722 | ||||
Share-based compensation expense | 848 | 1,212 | ||||
Other expense | 2,469 | 6,403 | ||||
Loss before income taxes | (3,286) | (1,002) | ||||
Income tax expense | 75 | 1,406 | ||||
Net loss | $ | (3,361) | $ | (2,408) | ||
Net loss attributable to: | ||||||
Shareholders of Converge | (1,957) | (1,794) | ||||
Non-controlling interest | (1,404) | (614) | ||||
$ | (3,361) | $ | (2,408) | |||
Other comprehensive loss | ||||||
Exchange (gain) loss on translation of foreign operations | (2,173) | 6,587 | ||||
Comprehensive loss | $ | (1,188) | $ | (8,995) | ||
Comprehensive loss attributable to: | ||||||
Shareholders of Converge | 216 | (8,381) | ||||
Non-controlling interest | (1,404) | (614) | ||||
$ | (1,188) | $ | (8,995) | |||
Adjusted EBITDA3 | $ | 41,208 | $ | 29,649 | ||
Adjusted EBITDA as a % of Gross Profit3 | 24.0 % | 27.2 % | ||||
____________________________ |
3 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 news release for definitions, uses and a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures. |
Summary of Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
For the three months | |||||||
2023 | 2022 | ||||||
Cash flows from (used in) operating activities | |||||||
Net loss | $ | (3,361) | $ | (2,408) | |||
Adjustments to reconcile net loss to net cash from operating activities | |||||||
Depreciation and amortization | 27,549 | 15,340 | |||||
Unrealized foreign exchange losses | 2,463 | 6,669 | |||||
Share-based compensation expense | 848 | 1,212 | |||||
Finance expense, net | 9,350 | 1,818 | |||||
Income tax expense | 75 | 1,406 | |||||
36,924 | 24,037 | ||||||
Changes in non-cash working capital items | |||||||
Trade and other receivables | (2,441) | (27,773) | |||||
Inventories | 1,328 | 6,549 | |||||
Prepaid expenses and other assets | (1,426) | (1,429) | |||||
Trade and other payables | 781 | (29,383) | |||||
Income taxes payable | (6,925) | (753) | |||||
Other financial liabilities | 356 | 1,917 | |||||
Deferred revenue and customer deposits | 166 | (3,385) | |||||
Cash from (used in) operating activities | 28,763 | (30,220) | |||||
Cash flows used in investing activities | |||||||
Purchase of property and equipment | (5,106) | (11,356) | |||||
Proceeds on disposal of property and equipment | 68 | 177 | |||||
Repayment of contingent consideration | (8,960) | (10,134) | |||||
Repayment of deferred consideration | (25,654) | (1,740) | |||||
Repayment of NCI liability | (29,994) | - | |||||
Business combinations, net of cash acquired | - | (67,926) | |||||
Cash used in investing activities | (69,646) | (90,979) | |||||
Cash flows from financing activities | |||||||
Transfers from (to) restricted cash | 216 | (63,493) | |||||
Interest paid | (7,877) | (956) | |||||
Payments of lease liabilities | (5,135) | (2,728) | |||||
Repayment of notes payable | (40) | (121) | |||||
Net proceeds from borrowings | 34,199 | 162,468 | |||||
Cash from financing activities | 21,363 | 95,170 | |||||
Net change in cash during the period | (19,520) | (26,029) | |||||
Effect of foreign exchange on cash | (1,342) | (5,500) | |||||
Cash, beginning of period | 159,890 | 248,193 | |||||
Cash, end of period | $ | 139,028 | $ | 216,664 | |||
Non-IFRS Financial Measures
This release refers to certain performance indicators including Adjusted EBITDA that does 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 results. 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.
Adjusted EBITDA
Adjusted EBITDA represents net income or loss adjusted to exclude amortization, depreciation, interest expense and finance costs, foreign exchange gains and losses, share-based compensation expense, income tax expense, and special charges. Special charges consist primarily of restructuring related expenses for employee terminations, lease terminations, and restructuring of acquired companies, as well as certain legal fees or provisions related to acquired companies. From time to time, it may also include adjustments in the fair value of contingent consideration, and other such non-recurring costs related to restructuring, financing, and acquisitions.
The Company uses Adjusted EBITDA to provide investors with a supplemental measure of its operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company 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 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.
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. Investors are encouraged to review the Company's financial statements and disclosures in their entirety and are cautioned not to put undue reliance on non-IFRS measures and view them in conjunction with the most comparable IFRS financial measures.
The Company has reconciled Adjusted EBITDA to the most comparable IFRS financial measure as follows:
For the three months ended March 31, | ||
2023 | 2022 | |
Net loss before taxes | $ (3,286) | $ (1,002) |
Finance expense | 9,350 | 1,818 |
Share-based compensation expense | 848 | 1,212 |
Depreciation and amortization | 25,890 | 14,480 |
Depreciation included in cost of sales | 1,659 | 751 |
Foreign exchange loss | 2,463 | 6,668 |
Special charges | 4,284 | 5,722 |
Adjusted EBITDA | $ 41,208 | $ 29,649 |
Adjusted EBITDA as a % of Gross Profit
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 (Loss) and Adjusted Earnings per Share ("EPS")
Adjusted Net Income (Loss) represents net income (loss) adjusted to exclude special charges, amortization of acquired intangible assets, and share-based compensation. The Company believes that Adjusted Net Income (Loss) is a more useful measure than net income (loss) 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 (Loss) by the total weighted average shares outstanding on a basic and diluted basis.
The Company has provided a reconciliation to the most comparable IFRS financial measure as follows:
For the three months | ||
ended March 31, | ||
2023 | 2022 | |
Net loss | $ (3,361) | $ (2,408) |
Special charges | 4,284 | 5,722 |
Amortization of acquired intangible assets | 20,208 | 11,316 |
Foreign exchange loss | 2,463 | 6,668 |
Share-based compensation | 848 | 1,212 |
Adjusted Net Income: | $ 24,442 | $ 22,510 |
Basic | 0.12 | 0.10 |
Diluted | 0.12 | 0.10 |
Gross sales and gross sales for organic growth
Gross sales, which is a non-IFRS measurement, 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 net revenue, which is the most comparable IFRS financial measure, as follows:
For the three months ended March 31, | ||
2023 | 2022 | |
Product | $ 665,310 | $ 453,389 |
Managed services | 40,636 | 33,983 |
Third party and professional services | 259,312 | 186,557 |
Gross sales | $ 965,258 | $ 673,929 |
Adjustment for sales transacted as agent | 287,060 | 179,889 |
Net revenue | $ 678,198 | $ 494,040 |
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 companies that were acquired in the current reporting period.
Gross sales organic growth is calculated by deducting prior period gross sales, as reported in the Company's public filings, 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.
The following table calculates gross sales organic growth for Q123:
For the three months ended March 31, | Q1 2023 | Q1 2022 |
Gross sales | $ 965,258 | $ 673,929 |
Less: gross sales from companies not owned in comparative period | 245,630 | 188,685 |
Gross sales of companies owned in comparative period | $ 719,628 | $ 485,244 |
Prior period gross sales | 673,929 | 408,100 |
Organic Growth - $ | $ 45,699 | $ 77,144 |
Organic Growth - % | 6.8 % | 18.9 % |
Gross profit organic growth is calculated by deducting prior period gross profit, as reported in the Companies public filings, 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, | Q1 2023 | Q1 2022 |
Gross profit | $ 171,588 | $ 109,045 |
Less: gross profit from companies not owned in comparative period | 44,597 | 31,808 |
Gross profit of companies owned in comparative period | 126,991 | 77,237 |
Prior period gross profit | 109,045 | 67,797 |
Organic Growth - $ | $ 17,946 | $ 9,440 |
Organic Growth - % | 16.5 % | 13.9 % |
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. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Except as required by law, Converge assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change. The reader is cautioned not to place undue reliance on forward-looking statements.
For a detailed description of the risks and uncertainties facing the Company and its business and affairs, readers should refer to the Company's filings statement available on SEDAR under the Company's profile at www.sedar.com including its most recent Annual Information Form, its Management Discussion and Analysis and its Annual and Quarterly Financial Statements.
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SOURCE Converge Technology Solutions Corp.
