Converge Reports Third Quarter 2024 Results
Year-to-date cash generated from operating activities increased by $97 million to $212 million, enabling continued net debt1 reduction and a return of $61.7 million in capital to shareholders1
Announces Completion of Group CEO Transition and Appoints Greg Berard, CEO to the Company's Board of Directors
TORONTO and GATINEAU, QC, Nov. 12, 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 and nine months period ended September 30, 2024. All figures are in Canadian dollars unless otherwise stated.
Third Quarter 2024 Highlights (year-over-year, unless otherwise noted):
Gross sales1 of $945.0 million, a decrease of $91.8 million or 8.9%;
Gross sales organic growth1 of (8.4%) and gross profit organic growth1 of (7.3%);
Revenue of $630.7 million, a decrease of $79.4 million or 11.2%;
Gross profit decreased 9.1% to $158.3 million, representing a gross margin of 25.1%;
Adjusted EBITDA1 decreased 22.2% to $32.1 million;
Cash from operating activities was $48.9 million, a decrease of $47.1 million, compared to $95.9 million for the comparative period in the prior year;
Returned $10.0 million of capital to shareholders1 as compared to $3.1 million return of capital to shareholders in Q3 FY23; and
Reduced net debt1 by $30 million from $157.9 million at Q2 2024; maintaining a leverage ratio1 below 1.0x.
Year-To-Date 2024 Highlights (year-over-year, unless otherwise noted):
Gross sales1 of $3.0 billion, an increase of $55.4 million or 1.9%;
Gross sales organic growth1 of 2.0% and gross profit organic growth1 of (1.0%);
Revenue of $1.9 billion, a decrease of $142.8 million;
Gross profit decreased 1.6% to $512.8 million, representing a gross margin of 26.8%;
Adjusted EBITDA1 decreased 3.5% to $119.4 million;
Net loss of $171.8 million, an increase in loss of $160.6 million, driven by the non-cash impairment charge on the Germany segment of $176.1 million;
Returned $61.7 million of capital to shareholders1 as compared to $19.4 million return of capital to shareholders for the comparative period in prior year;
Cash from operating activities was $212.4 million, an increase of $97.3 million, compared to $115.1 million for the comparative period in the prior year; and
Reduced net debt1 by $81.9 million to $127.8 million, from $209.8 million at Q4 2023.
"While adverse macroeconomic conditions led to delays in hardware spending that impacted our third quarter results, we have already closed about 25% of the deals contributing to our gross profit shortfall and expect to close the remainder in Q4 and 2025. Meanwhile, we continued to see double-digit growth in our strategic investment areas—AI, cloud, and cybersecurity, driving growth in software and managed services revenue in the third quarter of 2024," said Greg Berard, CEO. "Our robust cash flow generation is a testament to our financial strength, and we are committed to executing a strategic and disciplined capital allocation approach to drive long-term value creation. This will be achieved through targeted, high-impact growth investments, while simultaneously returning a significant amount of capital to shareholders."
Financial Summary
In $000s except per share amounts
3-month
Q3 2024
3-month
Q3 2023
9-month
Q3 2024
9-month
Q3 2023
Gross Sales1
945,006
1,036,760
3,014,662
2,959,258
Revenue
630,690
710,106
1,911,303
2,054,117
Gross profit (GP)
158,257
174,090
512,813
521,351
Gross profit (GP) %
25.1 %
24.5 %
26.8 %
25.4 %
Adjusted EBITDA1
32,114
41,258
119,430
123,789
Adjusted EBITDA as a % of GP1
20.3 %
23.7 %
23.3 %
23.7 %
Net loss
(3,309)
(3,316)
(171,812)
(11,174)
Adjusted net income1
23,237
20,622
84,703
70,187
Adjusted EPS1
0.12
0.10
0.42
0.34
Subsequent to Quarter-End
On November 11, 2024, the Board declared a quarterly dividend of $0.015 per common share to be paid on December 28, 2024 to shareholders of record at the close of business on December 10, 2024.
Financial OutlookConverge is providing financial guidance for the three months ended December 31, 2024 and fiscal year ended December 31, 2024 as follows:
(expressed in millions of Canadian dollars)
Q4 2023 Actual
Q4 2024 Expected
FY 2023 Actual
FY 2024 Expected
Revenue
$651.1
$600 - $646
$2,705.2
$2,511 - $2,558
Gross profit
$181.5
$165 - $178
$702.9
$678 - $691
Adjusted EBITDA
$46.5
$36 - $47
$170.3
$155 - $166
Note: Q4 2023 Actual and FY 2023 Actual include results of Portage CyberTech Inc. ("Portage") which has been deconsolidated on June 27, 2024.
Completion of Group CEO TransitionConverge is announcing today that the previously disclosed Group CEO transition plan has progressed ahead of schedule. As a result, the Board of Directors (the "Board") has accepted Shaun Maine's decision to step down as Group CEO and member of the Board, effective immediately. Greg Berard, currently CEO of Converge, has been appointed as a member to the Company's Board of Directors.
"On behalf of the Board, I want to thank Shaun for his visionary leadership and the profound impact he's had since co-founding the Company in 2017," said Thomas Volk, Chair of the Board. "We are pleased to welcome Greg Berard as the newest member of the Board. Greg's leadership as operational CEO has been a tremendous asset to the Company, and we look forward to the fresh perspectives and wealth of experience that he will bring to the Board."
Conference Call Details:Date: Tuesday, November 12th, 2024Time: 8:00 AM Eastern Standard Time
Participant Webcast Link: Webcast Link, https://app.webinar.net/kPR1pwqzK50
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International Toll-Free Numbers:Germany: 498005889782Ireland: 35315251826Spain: 34917918582Switzerland: 41432107274United Kingdom: 448002797040
You may register and enter your phone number to receive an instant automated call back via https://emportal.ink/3BJcbwy.
Recording Playback:Webcast Link - https://app.webinar.net/kPR1pwqzK50 Toronto: 1-289-819-1450North American Toll Free: 1-888-660-6345Replay Code: 71060 #Expiry Date: November 19th, 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) (unaudited)
September 30, 2024
$
December 31,2023
$
Assets
Current
Cash
180,464
170,419
Trade and other receivables
775,026
803,652
Inventories
71,753
73,166
Prepaid expenses and other assets
34,111
26,528
1,061,354
1,073,765
Non-current
Investment in associates
27,909
-
Unbilled receivables and other assets
202,290
64,158
Property, equipment and right-of-use assets, net
66,621
75,488
Intangible assets, net
272,646
375,181
Goodwill
385,022
564,770
Total assets
2,015,842
2,153,362
Liabilities
Current
Trade and other payables
976,301
853,655
Other financial liabilities
43,799
54,095
Deferred revenue
61,872
59,325
Borrowings
25,754
1,664
Income taxes payable
-
9,286
1,107,726
978,025
Non-current
Accrued liabilities and other payables
180,704
60,339
Other financial liabilities
41,955
57,668
Borrowings
282,589
378,007
Deferred tax liabilities
43,396
67,168
Total liabilities
1,656,370
1,541,207
Shareholders' equity
Common shares
557,292
599,434
Contributed surplus
15,347
10,970
Accumulated other comprehensive income
13,009
3,963
Deficit
(226,176)
(28,167)
Total equity attributable to shareholders of Converge
359,472
586,200
Non-controlling interest ("NCI")
-
25,955
359,472
612,155
Total liabilities and shareholders' equity
2,015,842
2,153,362
Summary of Condensed Consolidated Interim Statements of Income and Comprehensive Income(expressed in thousands of Canadian dollars) (unaudited)
Three months ended
September 30,
Nine months ended
September 30,
2024
2023
2024
2023
Revenue
Product
500,881
559,646
1,503,439
1,607,932
Service
129,809
150,460
407,864
446,185
Total revenue
630,690
710,106
1,911,303
2,054,117
Cost of sales
472,433
536,016
1,398,490
1,532,766
Gross profit
158,257
174,090
512,813
521,351
Selling, general and administrative expenses
129,042
134,935
400,878
403,667
Income before the following
29,215
39,155
111,935
117,684
