CIBCHave a $5.25 target. As a reminder, the SP of CTS was $3.67 the day BEFORE they announced the strategic review. GLTA
EQUITY RESEARCH
May 9, 2023 Flash Research
CONVERGE TECHNOLOGY SOLUTIONS
CORP.
First Look – Q1 Mixed; Strategic Process Completed
Conclusion: Converge posted a mixed Q1, with net revenue 7% above
consensus, but adj. EBITDA in line. While gross margin came in 60 bps
above consensus expectations, adj. EBITDA margin (as a % of gross profit)
was ~200 bps below expectations. With Q1 results, the company announced
the end of its strategic review and the appointment of Avjit Kamboj as CFO
(formerly CFO of DND). Converge also instituted a $0.01/share quarterly
dividend and announced the resumption of its NCIB. We will be looking for
further details on the demand environment, capital allocation, and profitability
on the call tomorrow at 8 a.m. ET.
Key Highlights:
Q1 Results: Net revenue of $678MM beat consensus ($632MM) and CIBCe
($639MM), while gross profit of $172MM also came in above both Street
($156MM) and CIBCe ($160MM). Adjusted EBITDA of $41MM was in line
with both the Street and CIBCe. FCF of $24MM was below consensus of
$35MM.
Strategic Process Completed – Business As Usual: Converge announced
the conclusion of its strategic review process. The company noted that it had
received a number of proposals but that none would be in its best interests.
The Board has accepted the Special Committee’s recommendation that the
company continue the execution of its business plans as an independent
company under the leadership of Group CEO Shaun Maine.
Avjit Kamboj Named New CFO: Converge announced that Avjit Kamboj will
join as the company’s new CFO, reporting to Shaun Maine. Avjit was
previously the CFO at Dye & Durham, and prior to that he had acted as the
first CFO of Converge. Interim CFO Matt Smith will remain at Converge as
VP, Finance, reporting to Avjit.
Revenue: Net revenue of $678MM beat consensus of $632MM and CIBCe
of $639MM. Product revenue of $537MM was in line with CIBCe ($539MM),
while Services revenue of $142MM was above CIBCe ($100MM). Backlog
increased to $527MM in Q1/22, up $48MM sequentially.
Profitability: Adj. EBITDA margin (as a % of gross profit) was 200 bps below
the Street and down 320 bps Y/Y.
Conference Call Details: Converge will be hosting a conference call at 8:00
a.m. ET on May 10 Webcast