Converge Technology Solutions Corp CTSDF

Primary Symbol: T.CTS

Technology Information Technology Services

Converge Technology Solutions Corp. is a services-led, software-enabled, information technology (IT) and cloud solutions provider. Its global approach delivers advanced analytics, artificial intelligence (AI), application modernization, cloud platforms, cybersecurity, digital infrastructure, and digital workplace offerings to clients across various industries. It supports these solutions with advisory, implementation, and managed services across all IT vendors in the marketplace. Its segments include Converge Hybrid IT Solutions (Converge), and Portage Software-as-a-Solution (SaaS) Solutions. Converge is focused on delivering advanced analytics, application modernization, cloud, cybersecurity, digital infrastructure, digital workplace, and managed services offerings and provision of hardware and software products and solutions to clients across various industries and organizations. SaaS is focused on digital transactions between individuals, businesses, and government organizations.

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Converge Technology Solutions Corp

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Post by retiredcfon May 09, 2024 10:13am

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Post# 36030969

TD

Q1/F24 FIRST LOOK: IN-LINE QUARTER, STRONG FCF, BUT Q2 GUIDANCE DISAPPOINTS

THE TD COWEN INSIGHT

Q1 was a mixed bag, with GP and Adj. EBITDA generally in-line. FCF was very strong again, aided by another payables-driven tailwind (like in Q3/F23), helping reduce leverage to ~1.1x, and the quarterly dividend was increased by 50% to $0.015/share (~1% yield). However, Q2 guidance was modestly below expectations (by ~2.5%-3%) and implies a continued deceleration in organic growth and flat margins.

Event: This morning, Converge reported its Q1/F24 results. Conference Call: 8:00 a.m. ET (Dial-in: 1-800-836-8184; Confirmation #: 01139. Webcast link here).

Impact: MIXED

Gross profit and Adjusted EBITDA generally in-line. Q1/F24 gross profit was $175.3mm (TD: $176.2mm/consensus: $173.6mm) and Adjusted EBITDA was $42.2mm (TD: $43.6mm/ consensus: 41.3mm).

Organic growth continues to decelerate. Organic growth was 2.1% y/y on a gross profit basis, down from 5.7% last quarter and 10.1% in Q3/F23, and 4.2% y/y on a gross revenue basis (vs. 10.9% y/y last quarter).

FCF was strong yet again helping lower leverage. FCF was $97.2mm, aided by another payables tailwind (similar to Q3/F24) amounting to $68.6mm. Net debt fell to $185.0mm (from $265.1mm last quarter), resulting in leverage of ~1.1x (vs. ~1.6x last quarter).

Dividend increased; should limit share buyback activity. The quarterly dividend was increased to $0.015/share (was $0.01/share), with the higher dividend to be paid on June 6 to shareholders of record as of the close of May 23. The implied yield is ~1%, which is still amongst the lowest in the peer group.

We note that Converge has been very active with its NCIB, particularly following the Q4 release in early March. However, the increased dividend should limit share buybacks to ~ $28mm/year due to one of its debt covenants.

Q2/F24 guidance slightly below expectations. Q2/F24 guidance:

Gross profit of $175mm-$182mm (TD: $184.1mm/consensus: $183.8mm).
- Implies organic growth of ~(0.4%) to ~3.6%.
- At the mid-point, Q2 guidance implies a continued deceleration in organic growth.
Adjusted EBITDA of $43mm-$46mm (TD: $46.7mm/consensus: $45.6mm).