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
In
$000s except per share amounts |
Q2 2022 |
Q2 2021 |
Growth % |
H1 2022 |
H1 2021 |
Growth % |
Gross revenues |
|
729,678 |
|
|
452,120 |
|
61 |
% |
|
1,403,607 |
|
|
860,220 |
|
63 |
% |
Net revenues |
|
596,656 |
|
|
345,307 |
|
73 |
% |
|
1,146,693 |
|
|
655,509 |
|
75 |
% |
Gross profit (GP) |
|
133,152 |
|
|
78,244 |
|
70 |
% |
|
242,196 |
|
|
146,040 |
|
66 |
% |
Gross profit (GP) % |
|
22.3 |
% |
|
22.7 |
% |
|
|
21.1 |
% |
|
22.3 |
% |
|
Adjusted EBITDA |
|
39,188 |
|
|
21,720 |
|
80 |
% |
|
68,837 |
|
|
40,488 |
|
70 |
% |
Adjusted EBITDA as a % of
GP |
|
29.4 |
% |
|
27.8 |
% |
|
|
28.4 |
% |
|
27.7 |
% |
|
Adjusted EBITDA as a % of Net
Revenue |
|
6.6 |
% |
|
6.3 |
% |
|
|
6.0 |
% |
|
6.2 |
% |
|
Net income |
|
11,678 |
|
|
1,025 |
|
1039 |
% |
|
9,270 |
|
|
4,690 |
|
98 |
% |
Net income per diluted
share |
$0.05 |
|
$0.01 |
|
400 |
% |
$0.05 |
|
$0.03 |
|
67 |
% |
Adjusted net income |
|
29,900 |
|
|
14,148 |
|
111 |
% |
|
52,410 |
|
|
26,164 |
|
100 |
% |
Adjusted EPS |
$0.14 |
|
$0.08 |
|
75 |
% |
$0.24 |
|
$0.16 |
|
50 |
% |
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 Conversion1 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
- Organic gross revenue growth1 for Q2-2022 was approximately
8.5%
- Product Bookings backlog2 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 Backlog2 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, 2022Time: 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:Telco registration link -
https://register.vevent.com/register/BI707975370dcf415a8327af0e0d732e8d
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/v2nkhevwExpiry 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: investors@convergetp.comPhone:
416-360-1495
Summary of Consolidated Statements of
Financial Position(expressed in thousands of
Canadian dollars)
|
June 30, 2022 |
|
December 31, 2021 |
|
Assets |
|
|
Current
assets |
|
|
|
Cash |
$ |
184,175 |
|
$ |
248,193 |
|
|
Restricted cash |
|
4,375 |
|
|
- |
|
|
Trade and other
receivables |
|
597,468 |
|
|
416,499 |
|
|
Inventories |
|
119,264 |
|
|
104,254 |
|
|
Prepaid
expenses and other assets |
|
17,855 |
|
|
11,762 |
|
|
|
|
923,137 |
|
|
780,708 |
|
Long-term
assets |
|
|
|
Property, equipment, and
right-of-use assets, net |
|
49,097 |
|
|
30,642 |
|
|
Intangible assets, net |
|
355,968 |
|
|
233,586 |
|
|
Goodwill |
|
421,786 |
|
|
323,284 |
|
|
Other non-current assets |
|
609 |
|
|
617 |
|
|
|
$ |
1,750,597 |
|
$ |
1,368,837 |
|
|
|
|
|
Liabilities and shareholders’ equity |
|
|
Current
liabilities |
|
|
|
Trade and other payables |
$ |
647,488 |
|
$ |
519,434 |
|
|
Borrowings |
|
192,257 |
|
|
816 |
|
|
Other financial
liabilities |
|
31,926 |
|
|
29,407 |
|
|
Deferred revenue |
|
52,391 |
|
|
27,581 |
|
|
Income
taxes payable |
|
7,297 |
|
|
13,977 |
|
|
|
|
931,359 |
|
|
591,215 |
|
Long-term
liabilities |
|
|
|
Other financial
liabilities |
|
86,347 |
|
|
85,296 |
|
|
Borrowings |
|
80 |
|
|
412 |
|
|
Deferred tax liability |
|
72,850 |
|
|
43,086 |
|
|
|
$ |
1,090,636 |
|
$ |
720,009 |
|
|
|
|
|
Shareholders'
equity |
|
|
|
Common shares |
|
633,809 |
|
|
633,489 |
|
|
Contributed surplus |
|
5,222 |
|
|
2,325 |
|
|
Exchange rights |
|
2,076 |
|
|
2,396 |
|
|
Accumulated other
comprehensive (loss) income |
|
(705 |
) |
|
329 |
|
|
Deficit |
|
(14,827 |
) |
|
(25,050 |
) |
Total
equity attributable to shareholders of Converge |
|
625,575 |
|
|
613,489 |
|
Non-controlling interest |
|
34,386 |
|
|
35,339 |
|
|
|
|
659,961 |
|
|
648,828 |
|
|
|
$ |
1,750,597 |
|
$ |
1,368,837 |
|
Summary of Consolidated Statements of
Income and Comprehensive Income(expressed in
thousands of Canadian dollars)
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
Product |
$ |
491,821 |
|
$ |
281,287 |
|
$ |
945,210 |
|
$ |
533,794 |
|
Service |
|
104,835 |
|
|
64,020 |
|
|
201,483 |
|
|
121,715 |
|
Total revenue |
|
596,656 |
|
|
345,307 |
|
|
1,146,693 |
|
|
655,509 |
|
Cost of sales |
|
463,504 |
|
|
267,063 |
|
|
904,497 |
|
|
509,469 |
|
Gross profit |
|
133,152 |
|
|
78,244 |
|
|
242,196 |
|
|
146,040 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
95,823 |
|
|
57,630 |
|
|
176,235 |
|
|
107,273 |
|
Income before the following |
|
37,329 |
|
|
20,614 |
|
|
65,961 |
|
|
38,767 |
|
Depreciation and amortization |
|
17,178 |
|
|
7,898 |
|
|
31,657 |
|
|
14,386 |
|
Finance expense, net |
|
3,094 |
|
|
1,727 |
|
|
4,912 |
|
|
4,147 |
|
Special charges |
|
5,559 |
|
|
5,354 |
|
|
11,280 |
|
|
8,405 |
|
Share-based compensation expense |
|
1,685 |
|
|
- |
|
|
2,897 |
|
|
- |
|
Other
(income) expenses |
|
(3,265 |
) |
|
1,913 |
|
|
3,138 |
|
|
3,006 |
|
Income before income taxes |
|
13,078 |
|
|
3,722 |
|
|
12,077 |
|
|
8,823 |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
1,400 |
|
|
2,697 |
|
|
2,807 |
|
|
4,133 |
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
11,678 |
|
$ |
1,025 |
|
$ |
9,270 |
|
$ |
4,690 |
|
Net income (loss) attributable to: |
|
|
|
|
|
|
|
|
Shareholders of Converge |
|
12,017 |
|
|
1,025 |
|
|
10,223 |
|
|
4,690 |
|
Non-controlling interest |
|
(339 |
) |
|
- |
|
|
(953 |
) |
|
- |
|
|
$ |
11,678 |
|
$ |
1,025 |
|
$ |
9,270 |
|
$ |
4,690 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Exchange differences on translation of foreign operations |
|
5,883 |
|
|
820 |
|
|
(1,034 |
) |
|
618 |
|
Comprehensive income |
$ |
17,561 |
|
$ |
1,845 |
|
$ |
8,236 |
|
$ |
5,308 |
|
Comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
Shareholders of Converge |
|
17,900 |
|
|
1,845 |
|
|
9,189 |
|
|
5,308 |
|
Non-controlling interest |
|
(339 |
) |
|
- |
|
|
(953 |
) |
|
- |
|
|
$ |
17,561 |
|
|
1,845 |
|
|
8,236 |
|
|
5,308 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA2 |
$ |
39,188 |
|
$ |
21,720 |
|
$ |
68,837 |
|
$ |
40,488 |
|
Adjusted EBITDA as a % of Net
Revenue3 |
|
6.6 |
% |
|
6.3 |
% |
|
6.0 |
% |
|
6.2 |
% |
Adjusted EBITDA as a % of Gross
Profit4 |
|
29.4 |
% |
|
27.8 |
% |
|
28.4 |
% |
|
27.7 |
% |
___________________________________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)
|
|
For the three months ended June 30, |
|
For the six months ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
Net income |
$ |
11,678 |
|
$ |
1,025 |
|
|
9,270 |
|
$ |
4,690 |
|
Adjustments to reconcile net
income to net cash from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
18,739 |
|
|
9,070 |
|
|
33,969 |
|
|
16,311 |
|
Unrealized foreign exchange losses (gains) |
|
(2,968 |
) |
|
1,954 |
|
|
3,701 |
|
|
2,966 |
|
Share-based compensation expense |
|
1,685 |
|
|
- |
|
|
2,897 |
|
|
- |
|
Finance expense, net |
|
3,094 |
|
|
1,727 |
|
|
4,912 |
|
|
4,147 |
|
Change in fair value of contingent consideration |
|
- |
|
|
- |
|
|
- |
|
|
597 |
|
Income tax expense |
|
1,400 |
|
|
2,697 |
|
|
2,807 |
|
|
4,133 |
|
|
|
33,628 |
|
|
16,473 |
|
|
57,556 |
|
|
32,844 |
|
Changes in non-cash working
capital items |
|
|
|
|
|
|
|
|
Trade and other receivables |
|
(48,366 |
) |
|
36,224 |
|
|
(76,139 |
) |
|
59,019 |
|
Inventories |
|
4,709 |
|
|
(12,019 |
) |
|
11,258 |
|
|
(24,187 |
) |
Prepaid expenses and other assets |
|
(3,186 |
) |
|
264 |
|
|
(4,615 |
) |
|
(301 |
) |
Trade and other payables |
|
45,753 |
|
|
(30,462 |
) |
|
16,370 |
|
|
(65,601 |
) |
Income taxes payable |
|
(16,272 |
) |
|
(2,474 |
) |
|
(17,025 |
) |
|
(1,979 |
) |
Other financial liabilities |
|
319 |
|
|
1,871 |
|
|
2,236 |
|
|
1,871 |
|
Deferred revenue and customer deposits |
|
9,985 |
|
|
13,833 |
|
|
6,600 |
|
|
17,513 |
|
Cash from (used in) operating activities |
|
26,570 |
|
|
23,710 |
|
|
(3,759 |
) |
|
19,179 |
|
|
|
|
|
|
|
|
|
|
Cash flows used in
investing activities |
|
|
|
|
|
|
|
|
Purchase of property and
equipment |
|
(3,123 |
) |
|
(1,111 |
) |
|
(14,479 |
) |
|
(2,851 |
) |
Proceeds on disposal of
property and equipment |
|
- |
|
|
43 |
|
|
178 |
|
|
131 |
|
Repayment of contingent
consideration |
|
- |
|
|
(2,134 |
) |
|
(10,168 |
) |
|
(5,502 |
) |
Repayment of deferred
consideration |
|
(5,208 |
) |
|
(624 |
) |
|
(6,948 |
) |
|
(3,748 |
) |
Business combinations, net of cash acquired |
|
(131,545 |
) |
|
(85,956 |
) |
|
(199,471 |
) |
|
(96,150 |
) |
Cash used in investing activities |
|
(139,876 |
) |
|
(89,782 |
) |
|
(230,888 |
) |
|
(108,120 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
|
|
|
|
Transfers to (from) restricted
cash |
|
58,980 |
|
|
49,671 |
|
|
(4,513 |
) |
|
- |
|
Interest paid |
|
(2,102 |
) |
|
(2,619 |
) |
|
(3,058 |
) |
|
(5,078 |
) |
Dividend paid |
|
(1,100 |
) |
|
- |
|
|
(1,100 |
) |
|
- |
|
Payments of lease
liabilities |
|
(2,304 |
) |
|
(2,133 |
) |
|
(5,032 |
) |
|
(4,417 |
) |
Net proceeds from issuance of
common shares and warrants |
|
- |
|
|
164,482 |
|
|
- |
|
|
245,422 |
|
Repayment of notes
payable |
|
(38 |
) |
|
(642 |
) |
|
(159 |
) |
|
(3,414 |
) |
Net proceeds from (repayment
of) borrowings |
|
22,351 |
|
|
(87,791 |
) |
|
184,819 |
|
|
(83,549 |
) |
Cash from financing activities |
|
75,787 |
|
|
120,968 |
|
|
170,957 |
|
|
148,964 |
|
|
|
|
|
|
|
|
|
|
Net change in cash
during the period |
|
(37,519 |
) |
|
54,896 |
|
|
(63,690 |
) |
|
60,023 |
|
Effect of foreign exchange on
cash |
|
4,526 |
|
|
1,595 |
|
|
(328 |
) |
|
133 |
|
Cash, beginning of period |
|
217,168 |
|
|
68,432 |
|
|
248,193 |
|
|
64,767 |
|
Cash, end of period |
$ |
184,175 |
|
$ |
124,923 |
|
$ |
184,175 |
|
$ |
124,923 |
|
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:
|
For the three monthsended June
30, |
For the six monthsended June
30, |
|
|
2022 |
|
|
2021 |
|
2022 |
|
2021 |
Net income before taxes |
$ |
13,078 |
|
$ |
3,722 |
$ |
12,077 |
$ |
8,823 |
Finance expense |
|
3,094 |
|
|
1,727 |
|
4,912 |
|
4,148 |
Share-based compensation expense |
|
1,685 |
|
|
- |
|
2,897 |
|
- |
Depreciation and amortization |
|
17,178 |
|
|
7,898 |
|
31,657 |
|
14,386 |
Depreciation included in cost of sales |
|
1,561 |
|
|
1,065 |
|
2,312 |
|
1,760 |
Foreign exchange loss (gain) |
|
(2,967 |
) |
|
1,954 |
|
3,702 |
|
2,966 |
Special charges |
|
5,559 |
|
|
5,354 |
|
11,280 |
|
8,405 |
Adjusted EBITDA |
$ |
39,188 |
|
$ |
21,720 |
$ |
68,837 |
$ |
40,488 |
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:
|
For the three monthsended June
30, |
For the six monthsended June
30, |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Adjusted
EBITDA |
$ |
39,188 |
|
$ |
21,720 |
|
$ |
68,837 |
|
$ |
40,488 |
|
|
|
|
|
|
Capex |
|
(3,123 |
) |
|
(1,111 |
) |
|
(5,857 |
) |
|
(2,851 |
) |
Payment of lease liabilities |
|
(2,304 |
) |
|
(2,133 |
) |
|
(5,032 |
) |
|
(4,417 |
) |
Adjusted Free Cash Flow |
$ |
33,761 |
|
$ |
18,476 |
|
$ |
57,948 |
|
$ |
33,220 |
|
Adjusted Free Cash Flow Conversion |
|
86 |
% |
|
85 |
% |
|
84 |
% |
|
82 |
% |
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:
|
For the three months |
For the six months |
ended June 30, |
ended June 30, |
|
|
2022 |
|
|
2021 |
|
2022 |
|
2021 |
Net income |
$ |
11,678 |
|
$ |
1,025 |
$ |
9,270 |
$ |
4,691 |
Special charges |
|
5,559 |
|
|
5,354 |
|
11,281 |
|
8,405 |
Amortization of acquired
intangible assets |
|
13,946 |
|
|
5,815 |
|
25,262 |
|
10,102 |
Foreign exchange (gain)
loss |
|
(2,968 |
) |
|
1,954 |
|
3,700 |
|
2,966 |
Share-based compensation |
|
1,685 |
|
|
- |
|
2,897 |
|
- |
Adjusted Net Income: |
$ |
29,900 |
|
$ |
14,148 |
$ |
52,410 |
$ |
26,164 |
Basic |
|
0.14 |
|
|
0.08 |
|
0.24 |
|
0.16 |
Diluted |
|
0.14 |
|
|
0.08 |
|
0.24 |
|
0.15 |
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:
|
For the three months |
For the six months |
ended June 30, |
ended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Product |
$ |
491,821 |
$ |
281,287 |
$ |
945,210 |
$ |
533,794 |
Managed services |
|
32,268 |
|
17,990 |
|
66,251 |
|
38,420 |
Third party and professional
services |
|
205,589 |
|
152,843 |
|
392,146 |
|
288,006 |
Total |
$ |
729,678 |
$ |
452,120 |
$ |
1,403,607 |
$ |
860,220 |
Adjustment for sales transacted as agent |
|
133,022 |
|
106,813 |
|
256,914 |
|
204,711 |
Net revenue |
$ |
596,656 |
$ |
345,307 |
$ |
1,146,693 |
$ |
655,509 |
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:
|
Q2(3-month) |
|
Gross revenue |
$ |
729,678 |
|
Less:
gross revenues of Companies below three months ownership |
|
34,913 |
|
Gross revenue included in actual results |
|
694,765 |
|
Add: pro forma gross
revenue |
|
- |
|
Gross revenue for organic growth |
|
694,765 |
|
Prior
period pro forma gross revenues |
|
640,091 |
|
Organic Growth - $ |
$ |
54,674 |
|
Organic Growth - % |
|
8.5 |
% |
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. 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.
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