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Converge Technology Solutions Reports Record Q4 and FY2022

15 marzo 2023 | 22.09
LETTURA: 19 minuti

TORONTO and GATINEAU, QC, March 15, 2023 /PRNewswire/ -- Converge Technology Solutions Corp. ("Converge" or "the Company") (TSX: CTS) (FSE: 0ZB) (OTCQX: CTSDF) is pleased to provide its financial results for the full fiscal year ("FY22") and three-month periods ended December 31, 2022 ("Q4-22").  All figures are in Canadian dollars unless otherwise stated.

FY 2022 Financial Highlights:

11 11211

"In 2022, Converge grew faster than any comparable public provider globally, expanding gross profit by 59% year-over-year, translating to gross profit organic growth of 10.5%", said Shaun Maine, CEO of Converge. "And, we expect to continuously improve on these results in 2023, outpacing the market on growth by expanding on high-value solution areas such as data analytics, AI, cloud, and cybersecurity while simultaneously rolling out various managed services and continuing to expand our offerings into Europe."

____________________________

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

Q4-2022 Financial Highlights:

1131

 "We are successfully executing against our strategy, while managing backlog and inventory challenges, demonstrating the resilience of our offering despite current macro-economic conditions," continued Maine. "We are pleased to report that over 90% of the Q4 backlog has been shipped in the first quarter of 2023, which we expect will contribute to a strong Q1 2023. We anticipate Q1 financial performance to be closer to Q4, as compared to historical trends where Q1 has been seasonally about 20% to 25% lower than Q4. While the overall market is expected to remain flat in 2023, we anticipate that we will gain market share organically, and that we'll see improvements in our gross profit and Adjusted EBITDA1 margins."

Q4-2022 & FY22 Business Highlights

th

___________________________

3  Bookings represents the gross contracted revenue based on actual revenue recognized in the period, plus the change in bookings backlog from the prior quarter

Subsequent developments

"Richard advanced our finance organization with best-in-class processes during his tenure with us and made a long-lasting positive impact on Converge", said Maine. "I personally want to thank Richard for all that he has done for Converge and wish him all the best in his recovery.  Matt has proven himself as a strong finance executive and I am confident in Matt's ability to step up and lead our finance organization again."

Software net-down change

In Q4, the Company adopted an accounting policy change in response to emerging IFRS guidance that introduced new interpretations of a company's role when it resells certain OEM software licenses, for companies that previously reported software revenue on a gross basis, to move to net treatment ("software net-down"). The accounting policy change is applied to the full-year audited 2022 results and 2021 for comparative purposes. Additionally, the quarterly impacts of the software net-down to the Company's 2022 and 2021 reported results have been included as an appendix within, and can also be found in the Company's Q4 and FY22 MD&A.

The following table details the impact of the software net-down change on the Company's Q4-22 and FY22 and prior year reported net revenue:

Q4-22

Q4-21

Balance pre-accounting policy change

Impact of policy change

Net revenue reported

Reclassified

Product

$     638,261

(130,631)

$     507,630

$    353,884

Managed services

33,344

-

33,344

22,372

Third party and professional services

99,953

-

99,953

69,695

Total net revenue

$     771,558

(130,631)

$     640,927

$    445,951

FY22

FY21

Balance pre-accounting policy change

Impact of policy change

Net revenue reported

Reclassified

Product

$     2,057,477

(356,810)

$    1,700,667

$   1,038,197

Managed services

119,630

-

119,630

75,886

Third party and professional services

344,350

-

344,296

215,654

Total net revenue

$     2,521,457

(356,810)

$    2,164,647

$   1,329,737

Conference Call Details:

Date: Thursday, March 16th, 2023Time: 8:00 AM Eastern Time

Participant Webcast Link:Webcast Link - https://app.webinar.net/KZ5EdX0d7Yn

Participant Dial-in Details:Confirmation #: 72210906Toronto: 416-764-8609North American Toll Free: 888-390-0605

International Toll-Free Numbers:Germany: 08007240293Ireland: 1800939111Spain: 900834776Switzerland: 0800312635United Kingdom: 08006522435

You may register and enter your phone number to receive an instant automated call back without operator assistance via https://emportal.ink/3k71T12.

Recording Playback:Webcast Link -  https://app.webinar.net/KZ5EdX0d7YnToronto: 416-764-8677North American Toll Free:  1-888-390-0541Replay Code: 210906 #Expiry Date: March 23rd, 2023

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, 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)

December 31, 2022

December 31, 2021

Assets

Current assets

 Cash

$              159,890

$              248,193

 Restricted cash

5,230

-

 Trade and other receivables

781,683

416,499

 Inventories

158,430

104,254

 Prepaid expenses and other assets

23,046

11,762

1,128,279

780,708

Long-term assets

Property, equipment, and right-of-use assets, net

88,352

30,642

Intangible assets, net

463,751

233,586

Goodwill

563,848

323,284

Other non-current assets

4,646

617

$           2,248,876

$           1,368,837

Liabilities

Current liabilities

Trade and other payables

$              824,924

$              519,434

Borrowings

421,728

816

Other financial liabilities

123,932

29,407

Deferred revenue and other liabilities

60,210

27,581

Income taxes payable

7,112

13,977

1,437,906

591,215

Long-term liabilities

Other financial liabilities

77,183

85,296

Borrowings

-

412

Deferred tax liability

102,977

43,086

$            1,618,066

$              720,009

Shareholders' equity

Common shares

595,019

633,489

Contributed surplus

7,919

2,325

Exchange rights

1,705

2,396

Accumulated other comprehensive income

13,708

329

Deficit

(18,441)

(25,050)

Total equity attributable to shareholders of Converge

599,910

101,747

Non-controlling interest

30,900

630,810

648,828

$          2,248,876

$           1,368,837

Summary of Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)(expressed in thousands of Canadian dollars)

Three months ended December 31,

Twelve months ended December 31,

2022

2021

2022

2021

Revenues

  Product

$

507,630

$

353,884

$

1,700,667

$

1,038,196

  Service

133,297

9,2067

463,980

291,541

Total revenue

640,927

445,951

2,164,647

1,329,737

Cost of sales

472,011

330,058

1,613,879

984,033

Gross profit

168,916

115,893

550,768

345,704

Selling, general and administrative expenses 

126,377

81,440

413,644

254,805

Income before the following

42,539

34,453

137,124

90,899

Depreciation and amortization

20,363

11,925

75,114

36,473

Finance expense, net

9,062

2,125

19,860

7,801

Special charges

18,654

2,595

38,146

19,701

Share-based compensation expense

1,422

1,132

5,594

2,325

Other expense (income)

2,057

6,108

(20,375)

625

Income before income taxes

(9,019)

10,568

18,785

23,974

Income tax (recovery) expense

(4,363)

3,488

(4,059)

7,608

Net income

$

(4,656)

$

7,080

$

22,844

$

16,366

Net income (loss) attributable to:

      Shareholders of Converge

(3,528)

6,660

27,283

15,946

      Non-controlling interest

(1,128)

420

(4,439)

420

$

(4,656)

$

7,080

$

22,844

$

16,366

Other comprehensive income (loss)

Exchange differences on translation of foreign operations

(14,238)

465

(13,379)

488

Comprehensive income

$

9,582

$

6,615

$

36,223

$

15,878

Comprehensive income (loss) attributable to:

      Shareholders of Converge

10,710

6,195

40,662

15,458

      Non-controlling interest

(1,128)

420

(4,439)

420

$

9,582

$

6,615

$

36,223

$

15,878

Adjusted EBITDA1

$

43,064

$

34,685

$

142,868

$

94,035

Adjusted EBITDA as a % of Gross Profit1

25.5 %

30.0 %

25.9 %

27.0 %

Summary of Consolidated Statements of Cash Flows(expressed in thousands of Canadian dollars

For the three months ended December 30,

For the twelve months

ended December 30,

2022

2021

2022

2021

Cash flows from operating activities

Net income (loss)

$

(4,656)

$

7,080

$

22,844

$

16,366

Adjustments to reconcile net income (loss) to net cash from operating activities

Depreciation and amortization

21,994

12,952

80,065

39,587

Unrealized foreign exchange (gains) losses

951

5,670

(19,581)

645

Share-based compensation expense

1,422

1,132

5,594

2,325

   Finance expense, net

9,062

2,125

19,860

7,801

   Change in fair value of contingent consideration

14,033

(1,138)

14,033

5,100

   Income tax (recovery) expense

(4,363)

3,488

(4,059)

7,608

38,443

31,309

118,756

79,432

Changes in non-cash working capital items

(8,048)

(13,376)

(77,170)

7,633

Cash from operating activities

30,395

17,933

41,586

87,065

Cash flows used in investing activities

Purchase of property and equipment

(5,131)

(2,648)

(23,942)

(6,310)

Proceeds on disposal of property and equipment 

475

(364)

299

187

Repayment of contingent consideration

-

-

(10,135)

(5,502)

Repayment of deferred consideration

(4,521)

-

(11,501)

(5,627)

Business combinations, net of cash acquired

(64,466)

(16,256)

(418,147)

(260,550)

Cash used in investing activities

(73,643)

(19,268)

(463,426)

(277,802)

Cash flows from financing activities

Transfers from (to) restricted cash

(39)

11,467

(4,411)

-

Interest paid

(6,022)

(103)

(10,309)

(5,742)

Dividend paid

4

-

(1,084)

-

Payments of lease liabilities

(3,796)

(3,043)

(12,290)

(10,044)

Proceeds from issuance of common shares and warrants

-

-

-

493,883

Proceeds from equity funding by a non-controlling interest

-

33,200

-

33,200

Repurchase of common shares

(9,461)

-

(40,000)

-

Repayment of notes payable

(40)

(296)

(236)

(4,086)

Repayment of borrowings

46,734

(379)

404,640

(135,827)

Cash from financing activities

27,380

40,846

336,310

371,384

Net change in cash during the period

(15,868)

39,511

(85,530)

180,647

Effect of foreign exchange on cash

3,529

1,680

(2,773)

2,779

Cash, beginning of period

172,229

207,002

248,193

64,767

Cash, end of period

$

159,890

$

248,193

$

159,890

$

248,193

Appendix: Quarterly impact of software net-down on Q4 FY22 and historical results

The following table illustrates the impact of the software net-down accounting change on the Company's trailing eight quarters:

 For the three months ended

Q4

2022

Q32022

Q22022

Q12022

Q42021

 Q3

 2021

Q2

2021

 Q1

2021

Net revenues, previously reported

771,558

603,206

596,656

550,037

504,983

367,349

345,307

310,202

Impact of software net-down

(130,631)

(88,721)

(81,460)

(55,998)

(59,032)

(65,548)

(31,264)

(42,260)

Net revenues, adjusted

640,927

514,485

515,196

494,039

445,951

301,801

314,043

267,942

Gross Profit (unchanged)

168,916

139,654

133,152

109,045

115,893

83,771

78,244

67,797

Gross Margin, previously reported

22 %

23 %

22 %

20 %

23 %

23 %

23 %

22 %

Impact of software net-down

4 %

4 %

3 %

2 %

3 %

5 %

2 %

3 %

Gross Margin, adjusted

26 %

27 %

26 %

22 %

26 %

28 %

25 %

25 %

 

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 December 31,

For the twelve months

ended December 31,

2022

2021

2022

2021

Net income (loss) before taxes

$     (9,019)

$     10,568

$      18,785

$    23,974

Finance expense

9,062

2,125

19,860

7,801

Share-based compensation expense

1,422

1,132

5,594

2,325

Depreciation and amortization

20,363

11,925

75,114

36,473

Depreciation included in cost of sales

1,631

671

4,950

3,114

Foreign exchange loss (gain)

951

5,669

(19,581)

647

Special charges

18,654

2,595

38,146

19,701

Adjusted EBITDA

$     43,064

$    34,685

$   142,868

$    94,035

Adjusted Free Cash Flow and Adjusted Free Cash Flow Conversion

The Company calculates Adjusted Free Cash Flow as Adjusted EBITDA less: (i) capital expenditures ("Capex") and (ii) lease payments relating to the IFRS 16 lease liability ("IFRS 16 Lease Liability"). Capex and IFRS 16 Lease Liability cash outflows are found in the cash flows from investing activities and cash flows from financing activities sections of the Company's consolidated statements of cash flows, respectively. 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 for the Q4-222 and FY22:

For the three months

ended December 31,

For the twelve months

ended December 31,

2022

2021

2022

2021

Adjusted EBITDA

$   43,064

$     34,685

$    142,868

$  94,035

  Capex

(2,597)

(2,648)

(11,219)

(6,310)

  Payment of lease liabilities

(3,796)

(3,043)

(12,290)

(10,044)

Adjusted Free Cash Flow

$   36,671

$   28,994

$   119,359

$   77,681

Adjusted Free Cash Flow Conversion

85 %

84 %

84 %

83 %

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

For the twelve months

ended December 31,

ended December 31,

2022

2021

2022

2021

Net income (loss)

$     (4,656)

$     7,080

$     22,844

$       16,366

Special charges

18,654

2,595

38,146

19,701

Amortization of acquired intangible assets

16,502

9,021

59,549

26,438

Foreign exchange loss (gain)

951

5,669

(19,481)

647

Share-based compensation

1,422

1,132

5,594

2,325

Adjusted Net Income:

$     32,873

$     25,497

$     106,552

$        65,477

     Basic

0.16

0.12

0.50

0.35

     Diluted

0.16

0.12

0.49

0.35

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.  

The Company has provided a reconciliation of gross revenue to net revenue, which is the most comparable IFRS financial measure, as follows:

Q4 2022

Q4 2021

Without policy change

Software net-down

Reported

Adjusted

Product

$     638,261

-

$     638,261

$    412,916

Managed services

36,244

-

36,244

24,577

Third party and professional services

282,298

-

282,298

204,658

Total gross revenue

$     956,803

-

$     956,803

$    642,151

Adjustment for sales transacted as agent

185,245

130,631

315,876

196,200

Net revenue

$     771,558

(130,631)

$     640,927

$    445,951

 

FY 2022

FY 2021

Without policy change

Software net-down

Reported

Adjusted

Product

$     2,057,477

-

$     2,057,477

$    1,236,301

Managed services

138,176

-

138,176

88,782

Third party and professional services

895,328

-

895,328

649,707

Total gross revenue

$     3,090,981

-

$     3,090,981

$    1,974,790

Adjustment for sales transacted as agent

569,524

356,810

926,334

645,053

Net revenue

$     2,521,457

(356,810)

$     2,164,647

$    1,329,737

 

Organic Growth

The Company measures organic growth at the gross revenue 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 revenue and gross profit generated from companies that were acquired in the current reporting period(s).

Gross revenue organic growth is calculated by deducting prior period gross revenues, as reported in the Company's public filings, from current period gross revenue for the same portfolio of companies. Gross revenue organic growth percentage is calculated by dividing organic growth by prior period reported gross revenues.

The following table calculates gross revenue organic growth for FY22:

FY22

Gross revenue

$    3,090,981

Less: gross revenue from companies not owned in comparative period

945,777

Gross revenue of companies owned in comparative period

$    2,145,204

Prior period gross revenue

1,974,790

Organic Growth - $

$    170,414

Organic Growth - %

8.6 %

 

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.

The following table calculates gross profit organic growth for FY22:

FY22

Gross profit

$     550,766

Less: gross profit from companies not owned in comparative period

168,825

Gross profit of companies owned in comparative period

381,941

Prior period gross profit

345,705

Organic Growth - $

$       36,236

Organic Growth - %

10.5 %

Pro-forma Adjusted EBITDA

The following table provides a reconciliation of reported Adjusted EBITDA to the calculated pro-forma Adjusted EBITDA of the Company as at December 31, 2022:

$

Adjusted EBITDA – FY22

142,868

Add:

  Pro-forma contribution from acquisitions

16,489

   Annualized SG&A savings from cost take-out

7,295

  Other expected synergies

959

Total pro-forma adjustments

24,743

Pro-forma Adjusted EBITDA

167,611

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.

CONTACT:  Converge Technology Solutions Corp., Email:  investors@convergetp.com, Phone:  416-360-1495

View original content:https://www.prnewswire.co.uk/news-releases/converge-technology-solutions-reports-record-q4-and-fy2022-301773480.html

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