Converge Technology Solutions Corp CTSDF

CIBC

[retiredcf]

October 24, 2024 Flash Research
CONVERGE TECHNOLOGY SOLUTIONS
CORP

Preliminary Q3 Results Miss, And Below Guide
Conclusion

Converge released preliminary Q3/24 results that were 10% below the Street
on gross profit and 27% below the Street on adj. EBITDA, citing a weaker-
than-expected demand environment and delayed hardware refresh cycles.
The press release suggests that some of these delayed projects have shifted
into Q4 and F2025. Converge did not provide segmented results, but noted
that cloud and software revenue grew Y/Y. Typically lower hardware revenue
drives a better margin mix, so the adj. EBITDA miss is a surprise. Amid a
challenging demand environment Converge had already reduced its full-year
guide with Q2 results and the preliminary Q3 results have come as a
surprise. The company did not provide an update on its F2024 annual
guidance with the release. Converge will report Q3 results on November 12
pre-market.

Key Points
What’s The Event? Converge reported preliminary Q3/24 results that were
well below the previous guide for the quarter. Gross profit is now expected to
be $158MM-$158.5MM vs. the prior guide of $172MM-$178MM and 10%
below the Street ($175MM) and 9% below CIBCe ($174MM) at the midpoint.
Adj. EBITDA is now expected to be $31.8MM-$32.3MM vs. the prior guide of
$43MM-$47MM and 27% below the Street and CIBCe ($44MM/$44MM) at
the midpoint. Revenue is now expected to be $630MM-$631MM vs. the prior
guide of $636MM-$658MM, 2% below the Street and CIBCe ($645MM/
$640MM). The company also released a CFO guide of $48MM-$49MM, 3%
above the Street at $47MM.

Macro Headwinds: The company cited adverse macroeconomic conditions,
with certain customers delaying project spend into Q4 or 2025. Demand was
lower Y/Y in North America for data, networking, and storage solutions. The
company is also continuing to see delayed hardware refresh cycles, with
some customers delaying until 2025 in advance of wider availability of AI
devices. Segmented preliminary results have not been provided, but
Converge noted Y/Y growth in cloud and software revenue. The company
also announced the completion of its new ERP system, on schedule, which
we expect will contribute to better efficiency and cash flow performance.

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[dogatcat]

Wait till it goes to $1 and buy the scraps.