This analyst has never been much of a fan but as with TD, it seems that the initial move downward out the gate this morning was something of an overreaction. GLTA
CORP. Q1/24 First Look: Mixed Q1
Conclusion
Converge posted mixed Q1 results, with gross profit in line with consensus
and adjusted EBITDA 2% ahead of expectations. Adjusted EBITDA margin
(as a % of gross profit) was ~40 bps above expectations. However, organic
gross profit growth was 2.1% Y/Y, down ~400 bps sequentially. Converge
also released its Q2 outlook, with consensus currently at the top of the range
for both gross profit and adjusted EBITDA. The company did not execute on
any M&A in Q1 as it continues to focus on integration and organic growth.
We will be looking for further details on the demand environment, with net
revenue 7% below consensus driven by a 9% Y/Y decline in product sales,
as well as an update on capital allocation on the call today at 8 a.m. ET.
Key Highlights
Q1 Results: Net revenue of $629MM was 7% below consensus and 8%
below our estimate ($674MM/$685MM). Gross profit of $175MM was in line
with consensus ($175MM) and 2% above our estimate ($171MM). Adjusted
EBITDA of $42.2MM was 2% above the Street and 4% above our estimate
($41.4MM/$40.4MM).
Q2 Outlook: CTS announced its Q2 outlook, guiding to gross profit of
$175MM-$182MM and adjusted EBITDA of $43MM-$46MM. Consensus is at
the top end of the range, with the Street expecting gross profit of $182MM
and adjusted EBITDA of $46MM.
Revenue: Net revenue of $629MM was 7% below consensus ($674MM).
Converge had net product revenue of $486MM, down 9% Y/Y. Services
revenue of $143MM was up 1% Y/Y, driven by inorganic growth. Organic
gross revenue growth was 4.2%, down 260 bps Y/Y.
Profitability: Gross margin of 24.1% was 40 bps above consensus and up
20 bps Y/Y. Organic gross profit growth came in at 2.1% Y/Y, compared to
16.5% in the prior year. Adjusted EBITDA of $42.2MM was 2% above the
Street at $41.4MM. EBITDA margin was 6.7% of revenue, 60 bps above the
Street and up 70 bps Y/Y.
Cash Flow: Converge had $110.9MM in cash flow from operations in the
quarter, up from $28.8MM in Q1/23. Free cash flow (CFO less capex less
lease payments) was $104MM, up from $18.6MM in Q1/23. FCF benefitted
from $73M of working capital inflows in the quarter vs. $1M of outflows in
Q1/23. FCF per share was $0.51, up from $0.09 in Q1/23. The company did
not spend on M&A in the quarter, but repaid $96MM in debt. Converge
ended the quarter with $307.5MM in net debt, with leverage of 1.3x.
Conference Call Details: Converge will be hosting a conference call at
8:00 a.m. ET today