Converge Technology Solutions Corp CTSDF

RE:TD

[Possibleidiot01]

retiredcf wrote:

Converge Technology Solutions

(CTS-T) C$4.88

Q4/F23 First Take: In-Line Quarter; Expecting a Solid Year Ahead

 

Event

This morning, Converge reported its Q4/F23 results.

Conference Call: 1-888-390-0605. 
 

Impact: SLIGHTLY POSITIVE
 

Our take. Given the Q4 pre-announcement, there was not too much to note in the

Q4 release at first glance. The Q1/F24 guidance was better than expected, but it

implies a continued deceleration in organic growth and flattish margins. Interestingly,

Converge provided F2024 guidance that was in-line with expectations that at the mid-

point, implies a deceleration in organic growth to ~6% and an ~140 bps improvement

in Adjusted EBITDA margins.
 

Gross profit and Adjusted EBITDA in-line. Q4/F23 gross profit of $181.5mm

and Adjusted EBITDA of $46.5mm were in-line with guidance and TD/consensus.

Adjusted EBITDA margins were 25.6%, flat y/y.
 

Product backlog was $412mm, down ~14% y/y and q/q. Organic growth remains choppy. Organic growth was 5.7% y/y on a gross profit basis, down from 10.1% last quarter and has varied from 2.5% in Q2/F23 to 16.5% in Q1/F23 this year. There is similar volatility in organic growth on a gross revenue basis (10.9% y/y this quarter).
 

Strong FCF driven by a reduction in sharp reduction in inventory levels. FCF

was $99.1mm, driven by an ~$92mm tailwind from a reduction in inventory levels to

$73.2mm (down 54% y/y and 56% q/q). This follows the $84mm payables tailwind

last quarter. Net debt fell to $263.4mm (from $357.8mm last quarter), resulting in

leverage of ~1.6x exiting Q4/F23.
 

Q1/F24 and F2024 guidance in-line to better-than-expected. Q1/F24 guidance:

Gross profit of $170mm-$178mm (TD: $174.4mm/consensus: $170.6mm).

Adjusted EBITDA of $40mm-$44mm (TD: $43.4mm/consensus: $39.8mm).

F2024 guidance:

Gross profit of $735mm-$760mm (TD: $734.3mm/consensus: $742.2mm).

Adjusted EBITDA of $185mm-$198mm (TD: $191.8mm/consensus: $191.2mm).

At the mid-point, the Q1/F24 guidance implies organic gross profit growth of ~1% y/

y, a second quarter of decelerating growth, with Adjusted EBITDA margins of 24.1%,

flattish with F2023 levels.
 

At the mid-point, the F2024 guidance implies organic growth of ~6%, down from ~8%

in F2023, with Adjusted EBITDA margins of ~25.6%, up from 24.2% in F2023 but

slightly below F2022 at ~25.9%.

Problem here.

Previous report had Converge ended the quarter with

$307.5MM in net debt, with leverage of 1.2x down sequentially from 1.8x. NOT 1.6 that this analyst has and the net debt is vastly different as well.

And in the news release , it's not 1.6 X ;"Reduced net debt ¹ by $52.0 million year-over-year and by $97.7 million compared to Q3, FY23 to $209.8 million , representing a Leverage Ratio ¹ of 1.23x as at December 31, 2023 ;