Converge Technology Solutions Corp T.CTS

RE:TD

[fdfd12]

TD lowered their target to $12 today.

retiredcf wrote: Have a $13.00 target but still being cautious about supply-chain concerns. Not surprising after previously being humbled with their overly optimistic targets for the likes of XBC and AT (both of which I also own). GLTA

Converge Technology Solutions

(CTS-T) C$10.66

Q4/F21 First Take: Results in Line with Pre-release

Event

Converge reported its Q4/F21 results yesterday after market close. Conference Call: 8.00 a.m. ET (Dial-in: 1 888 708-0720; ID: 5783149). Impact: NEUTRAL

Q4/F21 results in line with the pre-release. Q4/F21 revenue of $505.0mm, gross profit $115.9mm, and Adjusted EBITDA of $34.7mm were in line with the preliminary results released last month (details here).

 Revenue grew 74% y/y, primarily driven by acquisitions.
 Product revenue of $413mm (up 71% y/y), in line with our $417mm estimate

 Third-party and professional services revenue of $69.7mm (up 104% y/y), above our $61mm estimate.

 Managed services revenue of $22.4mm (up 56% y/y), slightly below our $24mm estimate.

• Gross revenue was $645mm, up 54% y/y.

• Gross profit was $115.9mm (up 63% y/y), with gross margins of 22.9%, in line with our 23.0% estimate, but down from 24.5% last year due to elevated acquisition activities in 2021 (i.e., greater contribution of lower-margin hardware revenue from acquired companies).

• Adjusted EBITDA was $34.7mm (up 48% y/y), with Adjusted EBITDA margins of 6.9%, in line with our 6.7% estimate, but down from 8.1% last year due to the lower gross margins. Converge looks to be realizing cost synergies from its acquisitions, with SG&A expenses as a percentage of revenue continuing to decrease y/y.

• FCF was $12.2mm and net cash was $229mm, up from $192mm last quarter, aided by the net proceeds from the $35mm private placement for Portage CyberTech (~53% owned). Q1/F22 to-date, Converge has announced three acquisitions with a combined purchase price of ~$80mm.

• Converge added 95 net new logos in Q4/F21, in line with 97 last quarter, with almost 400 net new logos added in 2021.

• Over 70% of the companies it has acquired have been integrated into its platform (ERP).

  No change in the outlook. There were no changes announced in the company's Phase 4 growth plan.

  Our take. Converge delivered a solid Q4/F21 that came in ahead of expectations (relative to our estimates and consensus before the preliminary results announcement), following a couple of quarters that missed consensus. The elevated backlog (~$350mm) could provide a nice tailwind later this year, but supply-chain concerns (China, Ukraine) could linger longer than expected.