FOR IMMEDIATE RELEASE
August 9, 2022 – TORONTO, ONTARIO, CANADA and GATINEAU, QUÉBEC, CANADA – Converge Technology Solutions Corp. (“Converge” or “the Company”) (TSX:CTS) (FSE:0ZB) (OTCQX:CTSDF) is pleased to provide its financial results for the three and six months ended June 30, 2022. All figures are in Canadian dollars unless otherwise stated.
Financial Summary
Financial highlights for the three-month period ended June 30, 2022 (“Q2-2022”):
- Q2-2022 net revenue increased 73% over the same quarter last year (“Q2-2021”) to $596.7 million
- Q2-2022 gross profit increased 70% over last year to $133.2 million
- Adjusted EBITDA1 increased 80% to $39.2 million from $21.7 million last year
- For Q2-2022, the Company generated Adjusted Free Cashflow and Adjusted Free Cash Flow Conversion [1] of $33.8 million and 86%, respectively
- Reported Adjusted EPS1 of $0.14 per share for Q2-2022 increasing by 75% from $0.08 per share in Q2-2021 [1] for Q2-2022 was approximately 8.5%
- Product Bookings backlog [2] increased to approximately $507 million in Q2-2022 compared to $472 million in Q1-2022, after clearing $375 million worth of Q1 backlog during the quarter
- Q2-2022 Services Backlog [2] was approximately $71 million compared to $45 million in Q1-2022
- Achieved 109 net new logos in Q2-2022, securing 220 net new logos in H1-2022
[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] Bookings backlog is calculated as purchase orders received from customers not yet delivered at the end of the fiscal period.
Q2-2022 Business Highlights & Subsequent to Quarter
- Acquired approximately $939.2 million of LTM gross revenue and $56.0 million EBITDA through 8 acquisitions year-to-date including Paragon Development Systems, Inc. (“PDS”); Visucom GmbH (“Visucom”); 1CRM Systems Corp. (“1CRM”); Creative Breakthroughs, Inc. (“CBI”); Interdynamix Systems (IDX); Solutions Notarius Inc. (“Notarius”); Gesellschaft für digitale Bildung, Institur für modern Bildung, and DEQSTER (collectively “GfdB”); and Technology Integration Group (“TIG”).
- Announced a refinanced, five-year $500 million global revolving credit facility (the “Global Credit Facility”), led by J.P. Morgan and Canadian Imperial Bank of Commerce as joint lead arrangers with the Bank of Nova Scotia, the Toronto-Dominion Bank, and the Bank of Montreal participating in the lender group
- The Global Credit Facility includes an uncommitted accordion feature of $100 million, for a total borrowing capacity of up to $600 million; double the Company’s existing ABL credit facility of $300 million
- Converge announced TSX approval of Normal Course Issuer Bid to commence August 11, 2022 allowing the Company to purchase for cancellation up to an aggregate of 10,744,818 common shares
- Expanded Converge Board of Directors with addition of Dr. Toni Rinow, bringing more than 20 years of international experience as a transformational finance and business leader
- Converge ranked within the top 40 for both CRN® 2022 Solution Provider 500 list and CRN Fast Growth 150 list and placed eighth on 2022 CDN Top 100 Solution Providers
“We continue to report record financial results, and I am incredibly proud that Converge grew by over 70% year-over-year across revenue, gross profit and Adjusted EBITDA,” said Shaun Maine, CEO of Converge. “Despite the macroeconomic challenges faced in the consumer market, business demand for digital transformation and hybrid IT solutions remains robust while the deep technical skills that Converge possesses surrounding analytics, cybersecurity, cloud and managed services remain scarce, especially in the mid-market. I’m proud of the fact that the Company has executed on our stated acquisition plans, closing 8 acquisitions to date including GfdB and TIG completed after quarter end, equating to approximately $939 million in LTM gross revenue and $56 million in Adjusted EBITDA year-to-date. Our North American team continues to refine their acquisition, integration, and cross-selling strategies, and it is my great pleasure to announce that in addition to Greg Berard’s role as President, he will now become the North American CEO to clarify his operational role in North America to customers, partners and employees.”
Conference Call Details:
Date: Wednesday, August 10th, 2022
Time: 8:00 AM Eastern Time
Participant Webcast Link:
Webcast Link – https://edge.media-server.com/mmc/p/v2nkhevw
Participant Dial-in Details:
If you prefer to access via dial-in, please register using the following link:
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Once registered, you will receive a unique dial-in number and PIN. To avoid delays we encourage participants to register a minimum of fifteen minutes ahead of the scheduled start time. Registration is now open.
Recording Playback:
A recording of the webcast will be available after the call using the following link:
Webcast Link – https://edge.media-server.com/mmc/p/v2nkhevw
Expiry Date: August 10th, 2023
About Converge
Converge Technology Solutions Corp. is a software-enabled IT & Cloud Solutions provider focused on delivering industry-leading solutions and services. Converge’s global solution approach delivers advanced analytics, application modernization, cloud, 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.
For further information contact:
Converge Technology Solutions Corp.
Email: [email protected]
Phone: 416-360-1495
Summary of Consolidated Statements of Financial Position (expressed in thousands of Canadian dollars)
Summary of Consolidated Statements of Income and Comprehensive Income (expressed in thousands of Canadian dollars)
[2] Non-IFRS measure. See “Adjusted EBITDA” under the Non-IFRS Financial Measures section of this news release.
[3] Non-IFRS measure. See “Adjusted EBITDA as a % of Net Revenue” under the Non-IFRS Financial Measures section of this news release.
[4] Non-IFRS measure. See “Adjusted EBITDA as a % of Gross Profit” under the Non-IFRS Financial Measures section of this news release.
Summary of Consolidated Statements of Cash Flows (expressed in thousands of Canadian dollars)
Non-IFRS Financial Measures
This news release refers to certain performance indicators including “Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA)”, “Adjusted Free Cash Flow”, “Adjusted Free Cash Flow Conversion”, “Adjusted Net Income ” and “Adjusted Earnings per Share”, “Gross Revenue”, and “Organic Growth” which are not recognized under IFRS and do not have any standardized meaning prescribed by IFRS. Converge’s method of calculating such non-IFRS measures and ratios may differ from methods used by other companies and therefore 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 and ratios 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 and ratios are furnished to provide additional information and should not be considered in isolation or 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 and are cautioned not to put undue reliance on non-IFRS measures and ratios and view them in conjunction with the most comparable IFRS financial measures.
Adjusted EBITDA
Adjusted EBITDA represents net income (loss) or income 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.
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 Company has reconciled Adjusted EBITDA to the most comparable IFRS financial measure as follows:
Adjusted Free Cash Flow and Adjusted Free Cash Flow Conversion
The Company calculates Adjusted Free Cash Flow as Adjusted EBITDA less: (i) recurring capital expenditures (“Recurring Capex”) and (ii) lease payments relating to the IFRS 16 lease liability (“IFRS 16 Lease Liability”). Management defines Recurring Capex as the actual capital expenditures which are required to maintain the Company’s existing and ongoing operations in its normal course of business. Recurring Capex excludes one-time expenditures to support growth initiatives that the Company categorizes as non-recurring in nature. Adjusted Free Cash Flow is a useful measure that allows the Company to primarily identify how much pre-tax cash is available for continued investment in the business and for the Company’s growth by acquisition strategy.
Management also believes that Adjusted EBITDA is a good proxy for cash generation and as such, Adjusted Free Cash Flow Conversion is a useful metric that demonstrates that the rate at which the Company can convert Adjusted EBITDA to cash.
The following table provides a calculation for Adjusted Cash Flow and Adjusted Cash Flow Conversion:
Adjusted EBITDA as a % of Net Revenue
The Company believes that Adjusted EBITDA as a % of Net Revenue is a useful measure of the Company’s operating efficiency and profitability. This is calculated by dividing Adjusted EBITDA by net revenue.
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 and Adjusted Earnings per Share (“EPS”)
Adjusted Net Income represents net income adjusted to exclude special charges, amortization of acquired intangible assets, 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 Company has provided a reconciliation to the most comparable IFRS financial measure as follows:
Gross revenue and Gross revenue for organic growth
Gross revenue, which is a non-IFRS measurement, reflects the gross amount billed to customers, adjusted for amounts deferred or accrued. The Company believes gross revenue 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 revenue by the cost of sale amount. Gross revenue for organic growth is calculated as i) the actual gross revenue for companies owned by Converge for at least three months that is included in the Company’s financial results for the year then ended, plus ii) for those acquisitions that occurred after January 1 and that have been under Converge ownership for at least three months, the pro forma gross revenue contribution had they been owned for the full fiscal year.
The Company has provided a reconciliation of gross revenue to net revenue, which is the most comparable IFRS financial measure, as follows:
The Company measures organic growth on an annual basis, at the gross revenue level, and includes companies that Converge has owned for at least three months. Once a company is acquired, there is lead time required to integrate and regionalize the acquired work force, align rebate programs, and begin to execute on cross-selling opportunities. Management believes that three months provides a good representation of the acquisition under Converge ownership and can begin to evaluate the acquired company from an organic growth standpoint. Organic growth is calculated by deducting prior year pro forma gross revenues from current year gross revenue for organic growth. Organic growth % is calculated by dividing organic growth by prior year pro forma gross revenues, as follows:
The following table calculates organic growth for Q2-2022:
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 the Company considers 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 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.
