CORP Q4/23 First Look: 2024 Outlook In Line
Conclusion: Converge posted Q4 results that were at the top end of its
pre-announcement last month, with gross profit and adjusted EBITDA
roughly in line with consensus. Adjusted EBITDA margin (as a % of gross
profit) was ~10 bps above expectations. Organic gross profit growth was 6%
Y/Y and the company did not undertake any M&A in Q4 as it continues to
focus on integration and organic growth. The company also released a 2024
outlook that was roughly in line with consensus at the mid-point. We will be
looking for further details on the 2024 outlook and demand environment on
the call today at 8 a.m. ET.
Key Highlights
Q4 Results: Net revenue of $651MM was 8% below consensus ($709MM).
Gross profit of $182MM was in line with consensus ($181MM) and 2% above
our estimate ($177MM). Adjusted EBITDA of $46.5MM was in line with the
Street and 4% above our estimate ($46.1MM/$44.9MM).
2024 Outlook: CTS announced its 2024 outlook, guiding to gross profit of
between $735MM-$760MM and adjusted EBITDA of between
$185MM-$198MM, both in line with consensus at the mid-points
($740MM/$191MM). The company also provided a Q1/24 outlook and
expects gross profit of between $170MM-$178MM and adjusted EBITDA of
between $40MM-$44MM, with gross profit in line with consensus and
adjusted EBITDA slightly ahead at the mid-point ($173MM/$40MM).
Revenue Miss: Net revenue of $651MM was 8% below consensus
($709MM). Converge had net product revenue of $491MM, down 3% Y/Y.
Services revenue of $160MM was up 20% Y/Y, driven by inorganic growth.
Backlog ended Q4/23 at $412MM, down 16% sequentially. Organic gross
revenue growth was 11% in the quarter.
Profitability Improving: Gross margin of 27.9% was 240 bps above
consensus and up 150 bps Y/Y. Organic gross profit growth came in at 5.7%
Y/Y. Adjusted EBITDA of $46.5MM was in line with the Street at $46.1MM.
EBITDA margin was 7.1% of revenue, 60 bps above the Street and up
40 bps Y/Y.
Cash Flow: Converge had $114.5MM in cash flow from operations in the
quarter, up from $30.4MM in Q4/22. Free cash flow (CFO less capex less
lease payments) was $107.0MM, up from $21.5MM in Q4/22. The company
did not spend on M&A in the quarter. Converge ended the quarter with
$307.5MM in net debt, with leverage of 1.2x down sequentially from 1.8x.
With the quarter, the company declared a quarterly dividend of $0.01.
Conference Call Details: Converge will be hosting a conference call at
8:00 a.m. ET today