Converge Technology Solutions (CTS – Toronto) reported preliminary unaudited results for Q4 and the full year 2021 that far surpassed analyst estimates.
Q4 2021
- The IT and cloud solutions provider posted fourth quarter revenue of $497.5 million to C$504.5 million, up 73% from the C$289.6 million in the prior year's quarter.
- Gross profit in Q4 was C$114.0 million to C$116.0 million, up 62% over Q4 2020.
- Converge reported adjusted EBITDA in the fourth quarter of C$32.1 million to C$34.8 million, 43% better than the prior year's quarter.
- The company generated C$17.8 million in free cash flow during the quarter.
Full year 2021
- For the full year, the company reported revenue of C$1,520.4 million to C$1,527.4 million, up 61% over 2020's revenue.
- Gross profit was C$343.8 million to C$345.8 million, an increase of 48% over 2020.
- Adjusted EBITDA was C$91.4 million to C$94.1 million for the full year 2021, a 53% improvement over the previous year.
- Free cash flow was C$86.9 million for the full year.
Converge will report its fully audited numbers on March 22, 2022, after the market close.
Investment thesis
Converge has been a poster child for the TSX Venture Exchange. The company graduated from Canada's public venture capital marketplace to the Toronto Stock Exchange just over a year ago on Feb. 11, 2021, and doubled in price in the first seven months of trading.
The stock has traded down 22% since peaking at C$13.09 in September 2021, and we think it may be attractive at these levels.
This is a bit of a contrary play from a technical angle, as the stock is challenging support at current levels, but we think there are several fundamental factors in the company's favor.
- Strong performance in 2021, overcoming challenges of COVID-19.
- C$350 million in order backlog as of December 31, 2021.
- 2021 also shows that the company is well positioned to benefit as corporations continue to beef up their IT spend to accommodate remote working and other redesigned business practices.
- Demonstrated record of successfully integrated multiple acquisitions, with 27 such purchases since October 2017.
- C$248 million in cash on the balance sheet as of December 31, 2021, with $300 million of additional capacity available under an asset-based lending credit facility.
Note: This article was edited on Feb. 24, 2022, to include a stock chart.
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Source: Equities News
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