Converge Technology Solutions Reports Fourth Quarter and


TORONTO and GATINEAU, Québec, March 22, 2022 (GLOBE NEWSWIRE) — 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 twelve month period ended December 31, 2021. All figures are in Canadian dollars unless otherwise stated.

For the three-month period ended December 31, 2021 (“Q4-2021”) and full year 2021 (“FY21”), Converge reports the following financial highlights:

  • Q4-2021 net revenue increased 74% over the same quarter last year (“Q4-2020”) to $505.0 million
  • Q4-2021 gross profit increased 63% over Q4-2020 to $115.9 million
  • Q4-2021 Adjusted EBITDA1 increased 48% to $34.7 million from $23.4 million in Q4-2020
  • FY21 net revenue increased 61% to $1,527.8 billion compared to last year (“FY20”)
  • FY21 gross profit increased 48% to $345.7 million from FY20
  • FY21 Adjusted EBITDA1 increased 55% to $94.0 million from FY20
  • For Q4-2021, the Company generated Adjusted Free Cashflow and Adjusted Free Cash Flow Conversion1 of $29.0 million and 84%, respectively, increasing from $17.5 million and 75% in Q4-2020
  • Organic growth for FY211 was approximately 9.6%
  • Reported Adjusted EPS1 of $0.12 per share for Q4-2021, and $0.35 per share for FY21, increasing from $0.12 per share and $0.27 per share for Q4-2020 and FY20, respectively
  • Bookings backlog2 increased to approximately $350 million in Q4 2021 compared to approximately $250 million in Q3 2021
  • Closed three bought deal financings in FY21 for cumulative gross proceeds of approximately $518.0 million in equity financings, which on a price per-share basis, increased from $4.85 in January 2021 to $10.55 in September 2021

Q4-2021 & FY21 Business Highlights

  • Completed nine acquisitions throughout 2021, including REDNET GmbH, an IT solutions provider focused on serving clients in Germany’s public sector, and serves as a platform acquisition in Europe for further growth
  • Enhanced the analytics practice and managed services offerings, and deepened customer relationships through key North American acquisitions, including CarpeDatum LLC, Accudata Systems, Inc., Dasher Technologies, Inc., ExactlyIT, Inc., Vicom Infinity and Infinity Systems Software, Inc., and LPA Software Solutions, LLC
  • In response to customer demand, we expanded our cybersecurity capabilities across identity and data protection, risk and compliance, security intelligence and analytics, and threat assessments, partnering with a few of our key strategic partners
  • Achieved 95 net new logos in Q421 resulting in nearly 400 new logos throughout the fiscal year
  • Formed majority owned cybersecurity-focused SaaS entity, Portage CyberTech Inc. and closed a $35 million non-brokered private placement
  • As at the end of FY21, we have integrated over 70% of our companies onto our platform and we continue to integrate our sales organization by region and build our international platform of over 700 technical resources to better serve our customers for advanced analytics, cybersecurity, cloud, and managed services
  • Announced a new Google Cloud Marketplace solution, Converge Enterprise Cloud – IBM Power for Google Cloud (IP4G) allowing Converge and Google Cloud the ability to provide infrastructure-as-a-service solution to clients across North America and Europe
  • Expanded ABL Credit Facility from $190 million to $300 million in December 2021 in an agreement with syndicate of banks led by CIBC, and added J.P. Morgan Chase & Co. to the Company’s syndicate of banks
  • Graduated to the TSX from the TSX Venture Exchange in Q1 2021 and added to the S&P/TSX Composite Index in Q3 2021

Subsequent to Quarter in 2022

  • Appointed John Teltsch to the Company’s Senior Leadership team as Chief Revenue Officer, who will work closely with President Greg Berard on profit alignment and global strategy
  • Converge completed additional acquisitions of Paragon Development Systems, Inc., a Wisconsin-based digital transformation specialist, and added a complementary European acquisition in Visucom GmbH, a Germany-based supplier in media devices within the education and public sector
  • Portage CyberTech Inc. concluded Phase 1 of its growth strategy upon completing the acquisition of 1CRM Systems Corp. a Canadian SaaS-based software provider
  • CRN has named Converge to its Managed Service Provider (MSP) 500 list in the Elite 150 category for 2022 and featured Converge on its 2022 Tech Elite 250 list recognizing the highest level of technical certifications from leading technology suppliers

“The Company has added strategic acquisitions throughout the year expanding on high impact solution areas such as data analytics, AI, cloud, and cybersecurity while simultaneously rolling out various managed services and expanding offerings into Europe with the platform acquisition of REDNET GmbH,” stated Shaun Maine, CEO of Converge. “To achieve the net new logos and organic growth the Company has reported, while managing backlog and inventory challenges, really speaks to the level of commitment and success our employees strive for and reinforces the strength of our corporate culture. Additionally, we have rolled out various committees that are focused on wellness and inclusion initiatives, to progress employee satisfaction and awareness. I believe it is safe to say that Converge has advanced its business strategy beyond expectations for 2021 and will continue to do so throughout 2022, as we leverage our industry leaders including Doris Albiez, Thomas Volk, and John Teltsch who provide invaluable leadership to our family of companies and overall global strategy.”

Conference Call Details:

Date: Wednesday, March 23rd, 2022
Time: 8:00 AM Eastern Time

Participant Dial-in Numbers:
Webcast Link – https://edge.media-server.com/mmc/p/jwxb2nux
Toll Free – North America (+1) 888 708 0720
Toll Free – International (929) 517 9011
Germany – 0800 181 5287
United Kingdom – 0800 028 8438
Conference ID: 5783149

Recording Playback Numbers:

Toll Free – (855) 859 2056
Alternative Number – (404) 537 3406
Conference ID: 5783149
Expiry Date: March 30th, 2022

A live audio webcast and archive of the conference call will be available by visiting the Company’s website at https://convergetp.com/investor-relations/. Please connect at least 15 minutes prior to the conference call to ensure time for any software download that may be needed to hear the webcast.

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.com
Phone: 416-360-1495

Summary of Consolidated Statements of Financial Position
(expressed in thousands of Canadian dollars)

  December 31, 2021 December 31, 2020
Assets    
Current assets    
  Cash $ 248,193   $ 64,767  
  Trade and other receivables   416,499     364,308  
  Inventories   104,254     37,868  
  Prepaid expenses and other assets   11,762     10,376  
      780,708     477,319  
Long-term assets    
  Property, equipment, and right-of-use assets, net   30,642     23,558  
  Intangible assets, net   233,586     108,926  
  Goodwill   323,284     110,068  
  Other non-current assets   617     749  
    $ 1,368,837   $ 720,620  
       
Liabilities and shareholders’ equity    
Current liabilities    
  Trade and other payables $ 519,434   $ 398,003  
  Borrowings   816     133,281  
  Other financial liabilities   29,407     22,125  
  Deferred revenue and other liabilities   27,581     17,376  
  Income taxes payable   13,977     764  
      591,215     571,549  
Long-term liabilities    
  Other financial liabilities   85,296     28,858  
  Borrowings   412     5,882  
  Deferred tax liability   43,086     12,584  
    $ 720,009   $ 618,873  
       
Shareholders’ equity    
  Common shares   633,489     135,354  
  Contributed surplus   2,325    
  Exchange rights   2,396     4,853  
  Foreign exchange translation reserve   329     817  
  Deficit   (25,050 )   (39,277 )
Total equity attributable to shareholders of Converge   613,489     101,747  
Non-controlling interest   35,339    
      648,828     101,747  
    $ 1,368,837   $ 720,620  

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,
 
    2021     2020     2021     2020  
                 
Revenues                
Product $ 412,916   $ 241,091   $ 1,236,300   $ 750,232  
Service   92,067     48,466     291,541     198,567  
Total revenue   504,983     289,557     1,527,841     948,799  
Cost of sales   389,090     218,630     1,182,137     715,793  
Gross profit   115,893     70,927     345,704     233,006  
                 
Selling, general and administrative expenses   81,440     49,179     254,805     177,697  
Income before the following   34,453     21,748     90,899     55,309  
Depreciation and amortization   11,925     5,262     36,473     21,466  
Finance expense, net   2,125     3,719     7,801     19,672  
Special charges   2,595     7,149     19,701     15,063  
Share-based compensation expense   1,132         2,325      
Other expense   6,108     1,723     625     1,609  
Income (loss) before income taxes   10,568     3,895     23,974     (2,501 )
                 
Income tax expense   3,488     2,945     7,608     1,674  
                 
Net income (loss) $ 7,080   $ 950   $ 16,366   $ (4,175 )
Net income (loss) attributable to:                
Shareholders of Converge   6,660     950     15,946     (4,175 )
Non-controlling interest   420         420      
  $ 7,080   $ 950   $ 16,366   $ (4,175 )
Other comprehensive income (loss)                
Exchange (gain) loss on translation of foreign operations   465     (1,151 )   488     (748 )
Comprehensive income (loss) $ 6,615   $ 2,101   $ 15,878   $ (3,427 )
Comprehensive income (loss) attributable to:                
Shareholders of Converge   6,195     2,101     15,458     (3,427 )
Non-controlling interest   420         420      
  $ 6,615   $ 2,101   $ 15,878   $ (3,427 )
                 
Adjusted EBITDA3 $ 34,685   $ 23,375   $ 94,035   $ 60,493  
Adjusted EBITDA as a % of Gross Profit4   30.0 %   33.0 %   27.0 %   26.0 %
                 

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,
    2021     2020     2021     2020  
                 
Cash flows from (used in) operating activities                
Net income (loss) $ 7,080   $ 950   $ 16,366   $ (4,175 )
Adjustments to reconcile net income (loss) to net cash from operating activities                
Depreciation and amortization   12,952     6,772     39,587     27,049  
Unrealized foreign exchange losses   5,670         645      
Share-based compensation expense   1,132         2,325      
Finance expense, net   2,125     3,719     7,801     19,672  
Change in fair value of contingent consideration   (1,138 )       5,100     1,127  
Income tax expense   3,488     2,945     7,608     1,674  
    31,309     14,386     79,432     45,347  
Changes in non-cash working capital items                
Trade and other receivables   (56,013 )   (163,213 )   37,051     (117,266 )
Inventories   (25,255 )   (9,732 )   (56,545 )   (10,890 )
Prepaid expenses and other assets   5,435     2,254     989     7,181  
Trade and other payables   74,508     128,892     25,802     123,619  
Income taxes payable   (2,426 )   (1,781 )   (5,039 )   (2,626 )
Other financial liabilities   (1,877 )   (1,302 )       (1,289 )
Deferred revenue and customer deposits   (7,748 )   2,762     5,375     7,529  
Cash from (used in) operating activities   17,933     (27,734 )   87,065     51,605  
                 
Cash flows used in investing activities                
Purchase of property and equipment   (2,648 )   (3,660 )   (6,310 )   (4,991 )
Proceeds on disposal of property and equipment   (364 )   (162 )   187     90  
Repayment of contingent consideration       4     (5,502 )   (4,244 )
Repayment of deferred consideration       (4,577 )   (5,627 )   (13,654 )
Business combinations, net of cash acquired   (16,256 )   (37,093 )   (260,550 )   (43,793 )
Cash used in investing activities   (19,268 )   (45,488 )   (277,802 )   (66,592 )
                 
Cash flows from financing activities                
Transfers to restricted cash   11,467 –   8,367         8,117 –
Interest paid   (103 )   (2,441 )   (5,742 )   (14,860 )
Payments of lease liabilities   (3,043 )   (2,204 )   (10,044 )   (9,706 )
Proceeds from issuance of common shares and warrants       43,210     493,883     103,597  
Proceeds from equity funding by a non-controlling interest   33,200         33,200      
Repurchase of common shares               (2,125 )
Repayment of notes payable   (296 )   (4,369 )   (4,086 )   (4,626 )
Repayment of debentures       (3,896 )       (3,896 )
Repayment of borrowings   (379 )   38,052     (135,827 )   (17,965 )
Cash from financing activities   40,846     76,719     371,384     58,536  
                 
Net change in cash during the period   39,511     3,497     180,647     43,549  
Effect of foreign exchange on cash   1,680     2,219     2,779     628  
Cash, beginning of period   207,002     59,051     64,767     20,590  
Cash, end of period $ 248,193   $ 64,767   $ 248,193   $ 64,767  

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 (Loss)” 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 months
ended December 31,
For the twelve months
ended December 31,
    2021   2020     2021   2020    
Net income (loss) before taxes $ 10,568 $ 3,895   $ 23,974 $     (2,501 )  
Finance expense   2,125   3,719     7,801   19,672    
Share-based compensation expense   1,132       2,325      
Depreciation and amortization   11,925   5,262     36,473   21,466    
Depreciation included in cost of sales   671   1,058     3,114   5,109    
Foreign exchange loss   5,669   3,486     647   2,878    
PPP loan forgiveness     (1,194 )     (1,194 )  
Special charges   2,595   7,149     19,701   15,063    
Adjusted EBITDA $ 34,685 $ 23,375   $ 94,035 $ 60,493    

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 Q4-2021 and FY21:

  For the three months
ended December 31,
For the twelve months
ended December 31,
    2021     2020     2021     2020    
Adjusted EBITDA $ 34,685   $ 23,375   $ 94,035   $ 60,493    
           
Capex   (2,648 )   (3,660 )   (6,310 )   (4,991 )  
Payment of lease liabilities   (3,043 )   (2,204 )   (10,044 )   (9,706 )  
Adjusted Free Cash Flow $ 28,994   $ 17,511        $ 77,681   $ 45,796    
Adjusted Free Cash Flow Conversion   84 %   75 %   83 %   76 %  

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,
    2021   2020   2021   2020  
Net income (loss) $ 7,080 $ 950 $ 16,366 $     (4,175 )
Special charges   2,595   7,149   19,701   15,063  
Amortization of acquired intangible assets   9,021   3,617   26,438   14,213  
Foreign exchange loss   5,669   3,486   647   2,879  
Share-based compensation   1,132     2,325    
Adjusted Net Income: $ 25,497 $ 15,202 $ 65,477 $ 27,980  
Basic   0.12   0.12   0.35   0.27  
Diluted        0.12        0.11        0.35          0.27  

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 twelve months
ended December 31, ended December 31,
    2021   2020   2021   2020
Product $ 412,916 $ 241,091 $ 1,236,300 $ 750,232
Managed services   24,577   15,485   84,961   58,949
Third party and professional services   207,736   163,631   653,529   488,172
Gross revenue $ 645,229 $ 420,207 $ 1,974,790 $ 1,297,353
Adjustment for sales transacted as agent   140,246   130,650   446,949   348,554
Net revenue $ 504,983 $ 289,557 $ 1,527,841 $ 948,799

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 FY21:

    2021  
Gross revenue $ 1,974,790  
Less: gross revenues of Companies below three months ownership   1,693  
Gross revenue included in actual results $ 1,973,097  
Add: pro forma gross revenue   302,693  
Gross revenue for organic growth $ 2,275,790  
Prior year pro forma gross revenues   2,077,111  
Organic Growth – $ $ 198,679  
Organic Growth – %   9.6 %

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.

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
3 Non-IFRS measure. See “Adjusted EBITDA” 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.

Converge Technology Solutions



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