Converge Technology Solutions Corp.: Converge Technology Solutions Reports Fourth Quarter and Fiscal Year 2021 Financial Results

TORONTO and GATINEAU, Québec, March 22, 2022 (GLOBE NEWSWIRE) -- Converge Technology Solutions Corp. ("Converge" or "the Company") (TSX:CTS) (FSE:0ZB) (OTCQX:CTSDF) is pleased to provide its financial results for the three and twelve month period ended December 31, 2021. All figures are in Canadian dollars unless otherwise stated.

For the three-month period ended December 31, 2021 ("Q4-2021") and full year 2021 ("FY21"), Converge reports the following financial highlights:

• Q4-2021 net revenue increased 74% over the same quarter last year ("Q4-2020") to $505.0 million
• Q4-2021 gross profit increased 63% over Q4-2020 to $115.9 million
• Q4-2021 Adjusted EBITDA¹ increased 48% to $34.7 million from $23.4 million in Q4-2020
• FY21 net revenue increased 61% to $1,527.8 billion compared to last year ("FY20")
• FY21 gross profit increased 48% to $345.7 million from FY20
• FY21 Adjusted EBITDA¹ increased 55% to $94.0 million from FY20
• For Q4-2021, the Company generated Adjusted Free Cashflow and Adjusted Free Cash Flow Conversion¹ of $29.0 million and 84%, respectively, increasing from $17.5 million and 75% in Q4-2020
• Organic growth for FY21¹ was approximately 9.6%
• Reported Adjusted EPS¹ of $0.12 per share for Q4-2021, and $0.35 per share for FY21, increasing from $0.12 per share and $0.27 per share for Q4-2020 and FY20, respectively
• Bookings backlog² increased to approximately $350 million in Q4 2021 compared to approximately $250 million in Q3 2021
• Closed three bought deal financings in FY21 for cumulative gross proceeds of approximately $518.0 million in equity financings, which on a price per-share basis, increased from $4.85 in January 2021 to $10.55 in September 2021
  

Q4-2021 & FY21 Business Highlights

• Completed nine acquisitions throughout 2021, including REDNET GmbH, an IT solutions provider focused on serving clients in Germany's public sector, and serves as a platform acquisition in Europe for further growth
• Enhanced the analytics practice and managed services offerings, and deepened customer relationships through key North American acquisitions, including CarpeDatum LLC, Accudata Systems, Inc., Dasher Technologies, Inc., ExactlyIT, Inc., Vicom Infinity and Infinity Systems Software, Inc., and LPA Software Solutions, LLC
• In response to customer demand, we expanded our cybersecurity capabilities across identity and data protection, risk and compliance, security intelligence and analytics, and threat assessments, partnering with a few of our key strategic partners
• Achieved 95 net new logos in Q421 resulting in nearly 400 new logos throughout the fiscal year
• Formed majority owned cybersecurity-focused SaaS entity, Portage CyberTech Inc. and closed a $35 million non-brokered private placement
• As at the end of FY21, we have integrated over 70% of our companies onto our platform and we continue to integrate our sales organization by region and build our international platform of over 700 technical resources to better serve our customers for advanced analytics, cybersecurity, cloud, and managed services
• Announced a new Google Cloud Marketplace solution, Converge Enterprise Cloud - IBM Power for Google Cloud (IP4G) allowing Converge and Google Cloud the ability to provide infrastructure-as-a-service solution to clients across North America and Europe
• Expanded ABL Credit Facility from $190 million to $300 million in December 2021 in an agreement with syndicate of banks led by CIBC, and added J.P. Morgan Chase & Co. to the Company's syndicate of banks
• Graduated to the TSX from the TSX Venture Exchange in Q1 2021 and added to the S&P/TSX Composite Index in Q3 2021
  

Subsequent to Quarter in 2022

• Appointed John Teltsch to the Company's Senior Leadership team as Chief Revenue Officer, who will work closely with President Greg Berard on profit alignment and global strategy
• Converge completed additional acquisitions of Paragon Development Systems, Inc., a Wisconsin-based digital transformation specialist, and added a complementary European acquisition in Visucom GmbH, a Germany-based supplier in media devices within the education and public sector
• Portage CyberTech Inc. concluded Phase 1 of its growth strategy upon completing the acquisition of 1CRM Systems Corp. a Canadian SaaS-based software provider
• CRN has named Converge to its Managed Service Provider (MSP) 500 list in the Elite 150 category for 2022 and featured Converge on its 2022 Tech Elite 250 list recognizing the highest level of technical certifications from leading technology suppliers

"The Company has added strategic acquisitions throughout the year expanding on high impact solution areas such as data analytics, AI, cloud, and cybersecurity while simultaneously rolling out various managed services and expanding offerings into Europe with the platform acquisition of REDNET GmbH," stated Shaun Maine, CEO of Converge. "To achieve the net new logos and organic growth the Company has reported, while managing backlog and inventory challenges, really speaks to the level of commitment and success our employees strive for and reinforces the strength of our corporate culture. Additionally, we have rolled out various committees that are focused on wellness and inclusion initiatives, to progress employee satisfaction and awareness. I believe it is safe to say that Converge has advanced its business strategy beyond expectations for 2021 and will continue to do so throughout 2022, as we leverage our industry leaders including Doris Albiez, Thomas Volk, and John Teltsch who provide invaluable leadership to our family of companies and overall global strategy."

Conference Call Details:

Date: Wednesday, March 23^rd, 2022
Time: 8:00 AM Eastern Time

Participant Dial-in Numbers:
Webcast Link - https://edge.media-server.com/mmc/p/jwxb2nux
Toll Free - North America ([phone]
Toll Free - International [phone]
Germany - 0800 181 5287
United Kingdom - 0800 028 8438
Conference ID: 5783149

Recording Playback Numbers:

Toll Free - [phone]
Alternative Number - [phone]
Conference ID: 5783149
Expiry Date: March 30^th, 2022

A live audio webcast and archive of the conference call will be available by visiting the Company's website at https://convergetp.com/investor-relations/. Please connect at least 15 minutes prior to the conference call to ensure time for any software download that may be needed to hear the webcast.

About Converge
Converge Technology Solutions Corp. is a software-enabled IT & Cloud Solutions provider focused on delivering industry-leading solutions and services. Converge's global solution approach delivers advanced analytics, application modernization, cloud, cybersecurity, digital infrastructure, and digital workplace offerings to clients across various industries. The Company supports these solutions with advisory, implementation, and managed services expertise across all major IT vendors in the marketplace. This multi-faceted approach enables Converge to address the unique business and technology requirements for all clients in the public and private sectors. For more information, visit convergetp.com.

For further information contact:

Converge Technology Solutions Corp.
Email: [e-mail]
Phone: [phone]

Summary of Consolidated Statements of Financial Position
(expressed in thousands of Canadian dollars)

		December 31, 2021			December 31, 2020
Assets
Current assets
	Cash	$	248,193		$	64,767
	Trade and other receivables		416,499			364,308
	Inventories		104,254			37,868
	Prepaid expenses and other assets		11,762			10,376
			780,708			477,319
Long-term assets
	Property, equipment, and right-of-use assets, net		30,642			23,558
	Intangible assets, net		233,586			108,926
	Goodwill		323,284			110,068
	Other non-current assets		617			749
		$	1,368,837		$	720,620
Liabilities and shareholders' equity
Current liabilities
	Trade and other payables	$	519,434		$	398,003
	Borrowings		816			133,281
	Other financial liabilities		29,407			22,125
	Deferred revenue and other liabilities		27,581			17,376
	Income taxes payable		13,977			764
			591,215			571,549
Long-term liabilities
	Other financial liabilities		85,296			28,858
	Borrowings		412			5,882
	Deferred tax liability		43,086			12,584
		$	720,009		$	618,873
Shareholders' equity
	Common shares		633,489			135,354
	Contributed surplus		2,325
	Exchange rights		2,396			4,853
	Foreign exchange translation reserve		329			817
	Deficit		(25,050	)		(39,277	)
Total equity attributable to shareholders of Converge			613,489			101,747
Non-controlling interest			35,339
			648,828			101,747
		$	1,368,837		$	720,620

Summary of Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(expressed in thousands of Canadian dollars)

		Three months ended December 31,						Twelve months ended December 31,
		2021			2020			2021			2020
Revenues
Product	$	412,916		$	241,091		$	1,236,300		$	750,232
Service		92,067			48,466			291,541			198,567
Total revenue		504,983			289,557			1,527,841			948,799
Cost of sales		389,090			218,630			1,182,137			715,793
Gross profit		115,893			70,927			345,704			233,006
Selling, general and administrative expenses		81,440			49,179			254,805			177,697
Income before the following		34,453			21,748			90,899			55,309
Depreciation and amortization		11,925			5,262			36,473			21,466
Finance expense, net		2,125			3,719			7,801			19,672
Special charges		2,595			7,149			19,701			15,063
Share-based compensation expense		1,132			-			2,325			-
Other expense		6,108			1,723			625			1,609
Income (loss) before income taxes		10,568			3,895			23,974			(2,501	)
Income tax expense		3,488			2,945			7,608			1,674
Net income (loss)	$	7,080		$	950		$	16,366		$	(4,175	)
Net income (loss) attributable to:
Shareholders of Converge		6,660			950			15,946			(4,175	)
Non-controlling interest		420			-			420			-
	$	7,080		$	950		$	16,366		$	(4,175	)
Other comprehensive income (loss)
Exchange (gain) loss on translation of foreign operations		465			(1,151	)		488			(748	)
Comprehensive income (loss)	$	6,615		$	2,101		$	15,878		$	(3,427	)
Comprehensive income (loss) attributable to:
Shareholders of Converge		6,195			2,101			15,458			(3,427	)
Non-controlling interest		420			-			420			-
	$	6,615		$	2,101		$	15,878		$	(3,427	)
Adjusted EBITDA3	$	34,685		$	23,375		$	94,035		$	60,493
Adjusted EBITDA as a % of Gross Profit4		30.0	%		33.0	%		27.0	%		26.0	%

Summary of Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)

		For the three months ended December 30,						For the twelve months ended December 30,
		2021			2020				2021			2020
Cash flows from (used in) operating activities
Net income (loss)	$	7,080		$	950			$	16,366		$	(4,175	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation and amortization		12,952			6,772				39,587			27,049
Unrealized foreign exchange losses		5,670			-				645			-
Share-based compensation expense		1,132			-				2,325			-
Finance expense, net		2,125			3,719				7,801			19,672
Change in fair value of contingent consideration		(1,138	)		-				5,100			1,127
Income tax expense		3,488			2,945				7,608			1,674
		31,309			14,386				79,432			45,347
Changes in non-cash working capital items
Trade and other receivables		(56,013	)		(163,213		)		37,051			(117,266	)
Inventories		(25,255	)		(9,732		)		(56,545	)		(10,890	)
Prepaid expenses and other assets		5,435			2,254				989			7,181
Trade and other payables		74,508			128,892				25,802			123,619
Income taxes payable		(2,426	)		(1,781		)		(5,039	)		(2,626	)
Other financial liabilities		(1,877	)		(1,302		)		-			(1,289	)
Deferred revenue and customer deposits		(7,748	)		2,762				5,375			7,529
Cash from (used in) operating activities		17,933			(27,734		)		87,065			51,605
Cash flows used in investing activities
Purchase of property and equipment		(2,648	)		(3,660		)		(6,310	)		(4,991	)
Proceeds on disposal of property and equipment		(364	)		(162		)		187			90
Repayment of contingent consideration		-			4				(5,502	)		(4,244	)
Repayment of deferred consideration		-			(4,577		)		(5,627	)		(13,654	)
Business combinations, net of cash acquired		(16,256	)		(37,093		)		(260,550	)		(43,793	)
Cash used in investing activities		(19,268	)		(45,488		)		(277,802	)		(66,592	)
Cash flows from financing activities
Transfers to restricted cash		11,467 -			8,367				-			8,117 -
Interest paid		(103	)		(2,441		)		(5,742	)		(14,860	)
Payments of lease liabilities		(3,043	)		(2,204		)		(10,044	)		(9,706	)
Proceeds from issuance of common shares and warrants		-			43,210				493,883			103,597
Proceeds from equity funding by a non-controlling interest		33,200			-				33,200			-
Repurchase of common shares		-			-				-			(2,125	)
Repayment of notes payable		(296	)		(4,369		)		(4,086	)		(4,626	)
Repayment of debentures		-			(3,896		)		-			(3,896	)
Repayment of borrowings		(379	)		38,052				(135,827	)		(17,965	)
Cash from financing activities		40,846			76,719				371,384			58,536
Net change in cash during the period		39,511			3,497				180,647			43,549
Effect of foreign exchange on cash		1,680			2,219				2,779			628
Cash, beginning of period		207,002			59,051				64,767			20,590
Cash, end of period	$	248,193		$	64,767			$	248,193		$	64,767

Non-IFRS Financial Measures

This news release refers to certain performance indicators including "Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA)", "Adjusted Free Cash Flow", "Adjusted Free Cash Flow Conversion", "Adjusted Net Income (Loss)" and "Adjusted Earnings per Share", "Gross Revenue", and "Organic Growth" which are not recognized under IFRS and do not have any standardized meaning prescribed by IFRS. Converge's method of calculating such non-IFRS measures and ratios may differ from methods used by other companies and therefore may not be comparable to similar measures presented by other companies. Management believes that these measures are useful to most shareholders, creditors, and other stakeholders in analyzing the Company's operating results, and can highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers.

Management also uses non-IFRS measures and ratios in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess the ability to meet capital expenditure and working capital requirements. These non-IFRS financial measures and ratios are furnished to provide additional information and should not be considered in isolation or as an alternative to the consolidated income (loss) or any other measure of performance under IFRS. Investors are encouraged to review the Company's financial statements and disclosures in their entirety and are cautioned not to put undue reliance on non-IFRS measures and ratios and view them in conjunction with the most comparable IFRS financial measures.

Adjusted EBITDA

Adjusted EBITDA represents net income (loss) or income adjusted to exclude amortization, depreciation, interest expense and finance costs, foreign exchange gains and losses, share-based compensation expense, income tax expense, and special charges. Special charges consist primarily of restructuring related expenses for employee terminations, lease terminations, and restructuring of acquired companies, as well as certain legal fees or provisions related to acquired companies. From time to time, it may also include adjustments in the fair value of contingent consideration, and other such non-recurring costs related to restructuring, financing, and acquisitions.

Adjusted EBITDA is not a recognized, defined, or standardized measure under IFRS. The Company's definition of Adjusted EBITDA will likely differ from that used by other companies and therefore comparability may be limited. Adjusted EBITDA should not be considered a substitute for or in isolation from measures prepared in accordance with IFRS.

The Company has reconciled Adjusted EBITDA to the most comparable IFRS financial measure as follows:

	For the three months ended December 31,					For the twelve months ended December 31,
		2021		2020			2021		2020
Net income (loss) before taxes	$	10,568	$	3,895		$	23,974	$	(2,501	)
Finance expense		2,125		3,719			7,801		19,672
Share-based compensation expense		1,132		-			2,325		-
Depreciation and amortization		11,925		5,262			36,473		21,466
Depreciation included in cost of sales		671		1,058			3,114		5,109
Foreign exchange loss		5,669		3,486			647		2,878
PPP loan forgiveness		-		(1,194	)		-		(1,194	)
Special charges		2,595		7,149			19,701		15,063
Adjusted EBITDA	$	34,685	$	23,375		$	94,035	$	60,493

Adjusted Free Cash Flow and Adjusted Free Cash Flow Conversion

The Company calculates Adjusted Free Cash Flow as Adjusted EBITDA less: (i) capital expenditures ("Capex") and (ii) lease payments relating to the IFRS 16 lease liability ("IFRS 16 Lease Liability"). Capex and IFRS 16 Lease Liability cash outflows are found in the cash flows from investing activities and cash flows from financing activities sections of the Company's consolidated statements of cash flows, respectively. Adjusted Free Cash Flow is a useful measure that allows the Company to primarily identify how much pre-tax cash is available for continued investment in the business and for the Company's growth by acquisition strategy.

Management also believes that Adjusted EBITDA is a good proxy for cash generation and as such, Adjusted Free Cash Flow Conversion is a useful metric that demonstrates that the rate at which the Company can convert Adjusted EBITDA to cash.

The following table provides a calculation for Adjusted Cash Flow and Adjusted Cash Flow Conversion for the Q4-2021 and FY21:

	For the three months ended December 31,						For the twelve months ended December 31,
		2021			2020			2021			2020
Adjusted EBITDA	$	34,685		$	23,375		$	94,035		$	60,493
Capex		(2,648	)		(3,660	)		(6,310	)		(4,991	)
Payment of lease liabilities		(3,043	)		(2,204	)		(10,044	)		(9,706	)
Adjusted Free Cash Flow	$	28,994		$	17,511		$	77,681		$	45,796
Adjusted Free Cash Flow Conversion		84	%		75	%		83	%		76	%

Adjusted EBITDA as a % of Gross Profit

The Company believes that Adjusted EBITDA as a % of Gross Profit is a useful measure of the Company's operating efficiency and profitability. This is calculated by dividing Adjusted EBITDA by gross profit.

Adjusted Net Income (Loss) and Adjusted Earnings per Share ("EPS")

Adjusted Net Income (Loss) represents net income (loss) adjusted to exclude special charges, amortization of acquired intangible assets, and share-based compensation. The Company believes that Adjusted Net Income (Loss) is a more useful measure than net income (loss) as it excludes the impact of one-time, non-cash and/or non-recurring items that are not reflective of Converge's underlying business performance. Adjusted EPS is calculated by dividing Adjusted Net Income (Loss) by the total weighted average shares outstanding on a basic and diluted basis.

The Company has provided a reconciliation to the most comparable IFRS financial measure as follows:

	For the three months				For the twelve months
	ended December 31,				ended December 31,
		2021		2020		2021		2020
Net income (loss)	$	7,080	$	950	$	16,366	$	(4,175	)
Special charges		2,595		7,149		19,701		15,063
Amortization of acquired intangible assets		9,021		3,617		26,438		14,213
Foreign exchange loss		5,669		3,486		647		2,879
Share-based compensation		1,132		-		2,325		-
Adjusted Net Income:	$	25,497	$	15,202	$	65,477	$	27,980
Basic		0.12		0.12		0.35		0.27
Diluted		0.12		0.11		0.35		0.27

Gross revenue and Gross revenue for organic growth

Gross revenue, which is a non-IFRS measurement, reflects the gross amount billed to customers, adjusted for amounts deferred or accrued. The Company believes gross revenue is a useful alternative financial metric to net revenue, the IFRS measure, as it better reflects volume fluctuations as compared to net revenue. Under the applicable IFRS 15 'principal vs agent' guidance, the principal records revenue on a gross basis and the agent records commission on a net basis. In transactions where Converge is acting as an agent between the customer and the vendor, net revenue is calculated by reducing gross revenue by the cost of sale amount. Gross revenue for organic growth is calculated as i) the actual gross revenue for companies owned by Converge for at least three months that is included in the Company's financial results for the year then ended, plus ii) for those acquisitions that occurred after January 1 and that have been under Converge ownership for at least three months, the pro forma gross revenue contribution had they been owned for the full fiscal year.

The Company has provided a reconciliation of gross revenue to net revenue, which is the most comparable IFRS financial measure, as follows:

	For the three months				For the twelve months
	ended December 31,				ended December 31,
		2021		2020		2021		2020
Product	$	412,916	$	241,091	$	1,236,300	$	750,232
Managed services		24,577		15,485		84,961		58,949
Third party and professional services		207,736		163,631		653,529		488,172
Gross revenue	$	645,229	$	420,207	$	1,974,790	$	1,297,353
Adjustment for sales transacted as agent		140,246		130,650		446,949		348,554
Net revenue	$	504,983	$	289,557	$	1,527,841	$	948,799

The Company measures organic growth on an annual basis, at the gross revenue level, and includes companies that Converge has owned for at least three months. Once a company is acquired, there is lead time required to integrate and regionalize the acquired work force, align rebate programs, and begin to execute on cross-selling opportunities. Management believes that three months provides a good representation of the acquisition under Converge ownership and can begin to evaluate the acquired company from an organic growth standpoint. Organic growth is calculated by deducting prior year pro forma gross revenues from current year gross revenue for organic growth. Organic growth % is calculated by dividing organic growth by prior year pro forma gross revenues, as follows:

The following table calculates organic growth for FY21:

		2021
Gross revenue	$	1,974,790
Less: gross revenues of Companies below three months ownership		1,693
Gross revenue included in actual results	$	1,973,097
Add: pro forma gross revenue		302,693
Gross revenue for organic growth	$	2,275,790
Prior year pro forma gross revenues		2,077,111
Organic Growth - $	$	198,679
Organic Growth - %		9.6	%

Forward-Looking Information

This press release contains certain "forward-looking information" and "forward-looking statements" (collectively, "forward-looking statements") within the meaning of applicable Canadian securities legislation regarding Converge and its business. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected" "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts". "estimates", "believes" or intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could, "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while the Company considers reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Except as required by law, Converge assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change. The reader is cautioned not to place undue reliance on forward-looking statements.

For a detailed description of the risks and uncertainties facing the Company and its business and affairs, readers should refer to the Company's filings available on SEDAR under the Company's profile at www.sedar.comincluding its most recent Annual Information Form, its Management Discussion and Analysis and its Annual and Quarterly Financial Statements.

¹ This is a Non-IFRS measure (including non-IFRS ratio) and not a recognized, defined or a standardized measure under IFRS. See the Non-IFRS Financial Measures section of this news release for definitions, uses and a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures.
² Bookings backlog is calculated as purchase orders received from customers not yet delivered at the end of the fiscal period
³ Non-IFRS measure. See "Adjusted EBITDA" under the Non-IFRS Financial Measures section of this news release.
⁴ Non-IFRS measure. See "Adjusted EBITDA as a % of Gross Profit" under the Non-IFRS Financial Measures section of this news release.