Converge Technology Solutions Corp.: Converge Technology Solutions Reports Second Quarter 2023 Financial Results

TORONTO and GATINEAU, QC, Aug. 9, 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 three and six months period ended June 30, 2023 ("Q2-23"). All figures are in Canadian dollars unless otherwise stated.

Financial Summary

In $000s except per share amounts		Q2 2023	Q2 2022		H1 2023	H1 2022
Gross Sales1		957,219	729,678		1,922,477	1,403,607
Revenue		665,813	515,196		1,344,011	1,009,236
Gross profit (GP)		175,672	133,152		347,260	242,196
Gross profit (GP) %		26.4 %	25.8 %		25.8 %	24.0 %
Adjusted EBITDA1		41,527	39,187		82,735	68,836
Adjusted EBITDA1 as a % of GP		23.6 %	29.4 %		23.8 %	28.4 %
Adjusted EBITDA1 as a % of Revenue		6.2 %	7.6 %		6.2 %	6.8 %
Net (loss) income		(4,495)	11,678		(7,856)	9,270
Adjusted net income1		$25,124	29,900		$49,565	52,410
Adjusted EPS1		$0.12	$0.14		$0.24	$0.24

Q2-23 Financial Highlights:

• Gross sales¹ of $957.2 million compared to $729.7 million in Q2-22; an increase of $227.5 million or 31%
• Gross services sales¹ of $317.2 million increased by 33% year-over-year
• Gross Profit of $175.7 million compared to $133.1 million in Q2-22; an increase of $42.5 million or 32%
• Organic gross profit growth for Q2-23 was 2.5% driven by 14.4% increase in services organic gross profit
• Adjusted EBITDA1 of $41.5 million, increasing from $39.2 million in Q2-22 by 6%
• Revenue for Q2-23 of $665.8 million, an increase of 29% over Q2-22
• Product Bookings backlog² at the end of Q2-23 was $447.6 million
• Achieved 112 net new logos³ in Q2-23, securing 215 net new logos in H1-23

___________________________________

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 for North America Region.

³ Statistic based on North American Region.

Q2-23 Business Highlights & Subsequent to Quarter

• Board of Directors authorize second quarter dividend of $0.01 per common share to be paid on September 22^nd, 2023 to shareholders of record at the close of business on September 8^th, 2023
• Converge concluded its previously announced NCIB program after purchasing 4.28 million shares throughout Q2-23
• The Company announced that the Toronto Stock Exchange approved the Company's Notice of Intention to make a Normal Course Issuer Bid. Pursuant to the NCIB, the Company may purchase for cancellation up to an aggregate of 19,427,276 common shares. All common shares acquired by the Company under the NCIB will be cancelled

"Converge continued to execute on its cross-sell strategy throughout the second quarter and drove high value solutions with clients by leveraging our advisory, implementation, and managed services across all practice areas. Today 60% of Converge sales representatives in North America are now driving more than 4 solution areas with their clients," said Greg Berard, Converge Global CEO. "In today's IT environment, Converge continues to shape and transform innovation, revolutionizing client-technology interactions. A distinguishing reason clients continue to partner with Converge is our ability to provide end-to-end solutions for cloud, hardware, and software, all while leveraging the technical expertise required for effective professional and managed services. Converge has built a unique set of skills supported by foundational partnerships across Analytics, AI, Cloud, and Cybersecurity and will continue to develop leading solutions to adapt with our clients' growing needs. I am extremely proud of our team's performance which has resulted in record gross profit in Q2-23."

Conference Call Details:
Date: Wednesday, Aug 9^th, 2023
Time: 8:00 AM Eastern Time

Participant Webcast Link:
Webcast Link - https://app.webinar.net/gkXqYQ1YE8v
Participant Dial-in Details with Operator Assistance:
Conference ID: 70789128
Toronto: 416-764-8609
North American Toll Free: 888-390-0605

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

You may register and enter your phone number to receive an instant automated call back via
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Recording Playback:
Webcast Link - https://app.webinar.net/gkXqYQ1YE8v
Toronto: 416-764-8677
North American Toll Free: 1-888-390-0541
Replay Code: 789128 #
Expiry Date: August 16^th, 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)

					June 30, 2023	December 31, 2022
Assets
Current
Cash					$ 78,443	$ 159,890
Restricted cash					2,611	5,230
Trade and other receivables					781,330	781,683
Inventories					160,411	158,430
Prepaid expenses and other assets					23,337	23,046
					1,046,132	1,128,279
Non-current
Other assets					17,943	4,646
Property, equipment, and right-of-use assets, net					73,659	88,352
Intangible assets, net					419,403	463,751
Goodwill					561,283	563,848
Total assets					$ 2,118,420	$ 2,248,876
Liabilities
Current
Trade and other payables					$ 814,855	$ 824,924
Other financial liabilities					63,082	123,932
Deferred revenue					47,475	60,210
Borrowings					398	421,728
Income taxes payable					7,816	7,112
					933,626	1,437,906
Non-current
Other financial liabilities					51,701	77,183
Borrowings					429,909	-
Deferred tax liabilities					88,278	102,977
Total liabilities					$ 1,503,514	$ 1,618,066
Shareholders' equity
Common shares					604,144	595,019
Contributed surplus					9,243	7,919
Exchange rights					-	1,705
Accumulated other comprehensive income					156	13,708
Deficit					(27,186)	(18,441)
Total equity attributable to shareholders of Converge					586,357	599,910
Non-controlling interest				28,549		30,900
					614,906	630,810
Total liabilities and shareholders' equity					$ 2,118,420	$ 2,248,876

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

	Three months ended June 30,						Six months ended June 30,
		2023		2022			2023		2022
Revenues
Product	$	511,597	$	410,361		$	1,048,286	$	807,753
Service		154,216		104,835			295,725		201,483
Total revenue		665,813		515,196			1,344,011		1,009,236
Cost of sales		490,141		382,044			996,751		767,040
Gross profit		175,672		133,152			347,260		242,196
Selling, general and administrative expenses		136,699		95,823			268,732		176,235
Income before the following		38,973		37,329			78,528		65,961
Depreciation and amortization		26,893		17,178			52,783		31,657
Finance expense, net		10,652		3,094			20,002		4,912
Special charges		13,292		5,559			17,576		11,280
Share-based compensation		1,117		1,685			1,965		2,897
Other (income) expenses		(6,529)		(3,265)			(4,060)		3,138
Income before income taxes		(6,452)		13,078			(9,738)		12,077
Income tax (recovery) expense		(1,957)		1,400			(1,882)		2,807
Net (loss) income	$	(4,495)	$	11,678		$	(7,856)	$	9,270
Net (loss) income attributable to:
Shareholders of Converge		(3,548)		12,017			(5,505)		10,223
Non-controlling interest		(947)		(339)			(2,351)		(953)
	$	(4,495)	$	11,678		$	(7,856)	$	9,270
Other comprehensive (loss) income
Item that may be reclassified subsequently to income:
Exchange differences on translation of foreign operations		(15,725)		5,554			(13,552)		(1,034)
		(15,725)		5,554			(13,552)		(1,034)
Comprehensive (loss) income	$	(20,220)	$	17,232		$	(21,408)	$	8,236
Comprehensive (loss) income attributable to:
Shareholders of Converge		(19,273)		17,571			(19,057)		9,189
Non-controlling interest		(947)		(339)			(2,351)		(953)
		(20,220)		17,232			(21,408)		8,236
Adjusted EBITDA		41,527		39,187			82,735		68,836
Adjusted EBITDA as a % of Gross Profit		23.6 %		29.4 %			23.8 %		28.4 %
Adjusted EBITDA as a % of Revenue		6.2 %		7.6 %			6.2 %		6.8 %

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,
			2023		2022		2023		2022
Cash flows (used in) from operating activities
Net (loss) income		$	(4,495)	$	11,678	$	(7,856)	$	9,270
Adjustments to reconcile net (loss) income to net cash from operating activities
Depreciation and amortization			29,235		18,739		56,785		33,969
Unrealized foreign exchange (gains) losses			(5,281)		(2,968)		(2,818)		3,701
Share-based compensation expense			1,117		1,685		1,965		2,897
Finance expense, net			10,652		3,094		20,002		4,912
Gain on sale of property and equipment			(598)		-		(598)		-
Change in fair value of contingent consideration			6,551		-		6,551		-
Income tax (recovery) expense			(1,957)		1,400		(1,882)		2,807
			35,224		33,628		72,149		57,556
Changes in non-cash working capital items			(40,349)		9,214		(41,585)		(44,290)
			(5,125)		42,842		30,564		13,266
Income taxes paid			(4,520)		(16,272)		(11,446)		(17,025)
Cash (used in) from operating activities			(9,645)		26,570		19,118		(3,759)
Cash flows used in investing activities
Purchase of property and equipment			(2,091)		(3,123)		(7,197)		(14,479)
Proceeds on disposal of property and equipment			3,681		-		3,749		178
Payment of contingent consideration			(975)		-		(9,935)		(10,168)
Payment of deferred consideration			(4,066)		(5,208)		(29,720)		(6,948)
Payment of NCI liability			-		-		(29,994)		-
Business combinations, net of cash acquired			-		(131,545)		-		(199,471)
Cash used in investing activities			(3,451)		(139,876)		(73,097)		(230,888)
Cash flows (used in) from financing activities
Transfers from (to) restricted cash			2,371		58,980		2,587		(4,513)
Interest paid			(7,365)		(2,102)		(15,242)		(3,058)
Dividend paid			(2,067)		(1,100)		(2,067)		(1,100)
Payments of lease liabilities			(5,089)		(2,304)		(10,224)		(5,032)
Repurchase of common shares			(14,230)		-		(14,230)		-
Repayment of notes payable			(40)		(38)		(80)		(159)
Net (repayment) proceeds from borrowings			(22,815)		22,351		11,384		184,819
Cash (used in) from financing activities			(49,235)		75,787		(27,872)		170,957
Net change in cash during the period			(62,331)		(37,519)		(81,851)		(63,690)
Effect of foreign exchange on cash			1,746		4,526		404		(328)
Cash, beginning of period			139,028		217,168		159,890		248,193
Cash, end of period		$	78,443	$	184,175	$	78,443	$	184,175

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 June 30,		For the six months ended June 30,
	2023	2022	2023	2022
Net income (loss) before taxes	$ (6,452)	$ 13,078	$ (9,738)	$ 12,077
Finance expense	10,652	3,094	20,002	4,912
Share-based compensation expense	1,117	1,685	1,965	2,897
Depreciation and amortization	26,893	17,178	52,783	31,657
Depreciation included in cost of sales	2,342	1,561	4,002	2,312
Foreign exchange loss (gain)	(6,317)	(2,968)	(3,855)	3,701
Special charges	13,292	5,559	17,576	11,280
Adjusted EBITDA	$ 41,527	$ 39,187	$ 82,735	$ 68,836

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 six months
	ended June 30,		ended June 30,
	2023	2022	2023	2022
Net (loss) income	$ (4,495)	$ 11,678	$ (7,856)	$ 9,270
Special charges	13,292	5,559	17,576	11,280
Amortization of acquired intangible assets	21,527	13,946	41,735	25,262
Foreign exchange loss	(6,317)	(2,968)	(3,855)	3,701
Share-based compensation	1,117	1,685	1,965	2,897
Adjusted Net Income:	$ 25,124	$ 29,900	$ 49,565	$ 52,410
Basic	0.12	0.14	0.24	0.24

Gross sales and gross sales for organic growth

Gross sales, which is a non-IFRS measurement, reflects the gross amount billed to customers, adjusted for amounts deferred or accrued. The Company believes gross sales 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 sales by the cost of sale amount.

The Company has provided a reconciliation of gross sales 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,
		2023	2022	2023	2022
Product		$ 639,996	$ 491,821	$ 1,305,306	$ 945,210
Managed services		45,182	32,268	85,818	66,251
Third party and professional services		272,041	205,589	531,353	392,146
Gross sales		$ 957,219	$ 729,678	$ 1,922,477	$ 1,403,607
Adjustment for sales transacted as agent		(291,406)	(214,482)	(578,466)	(394,371)
Net Revenue		$ 665,813	$ 515,196	$ 1,344,011	$ 1,009,236

Organic Growth

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

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

The following table calculates gross sales organic growth for three and six months ended June 30, 2023:

		For the three months		For the six months
		ended June 30,		ended June 30,
		2023	2022	2023	2022
Gross sales		$ 957,219	$ 729,678	$ 1,922,477	$ 1,403,607
Less: gross sales from companies not owned in comparative period		214,227	215,748	459,857	404,433
Gross sales of companies owned in comparative period		$ 742,992	$ 513,930	$ 1,462,620	$ 999,174
Prior period gross sales		729,678	452,120	1,403,607	860,220
Organic Growth - $		$ 13,314	$ 61,810	$ 59,013	$ 138,954
Organic Growth - %		1.8 %	13.7 %	4.2 %	16.2 %

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.

		For the three months		For the six months
		ended June 30,		ended June 30,
		2023	2022	2023	2022
Gross profit		$ 175,672	$ 133,152	$ 347,260	$ 242,196
Less: gross profit from companies not owned in comparative period		39,239	40,737	83,836	72,545
Gross profit of companies owned in comparative period		$ 136,433	$ 92,415	$ 263,424	$ 169,651
Prior period gross profit		133,152	78,244	242,197	146,041
Organic Growth - $		$ 3,281	$ 14,171	$ 21,227	$ 23,610
Organic Growth - %		2.5 %	18.1 %	8.8 %	16.2 %

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: [e-mail], Phone: [phone]

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