Release Date: November 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Converge Technology Solutions Corp (CTSDF, Financial) reported a 152% cash conversion from adjusted EBITDA to operating cash flow in Q3 2024.
- The company generated $48.9 million in cash from operating activities and $32.1 million in adjusted EBITDA during the quarter.
- Year-to-date, Converge Technology Solutions Corp (CTSDF) has generated $212 million in cash from operating activities, marking an 85% year-over-year increase.
- The company has reduced its net debt position by $82 million since the beginning of the year and $180 million since Q3 of 2023.
- Converge Technology Solutions Corp (CTSDF) has returned $61.7 million in capital to shareholders through dividends and share buybacks year-to-date.
Negative Points
- Q3 2024 financial results were affected by lower demand in North America due to macroeconomic factors, leading to results below guidance range.
- Gross sales declined by 8.9% year-over-year, with product sales, managed and professional services, and maintenance, support, and cloud all experiencing declines.
- Adjusted EBITDA decreased by 22.2% year-over-year, with a decline in adjusted EBITDA as a percentage of gross profit from 23.7% to 20.3%.
- The company experienced elongated customer decision-making and delays in projects, impacting deal velocity across the data center and device business.
- Converge Technology Solutions Corp (CTSDF) reported a net loss of $3.3 million in Q3 2024, including a $2 million loss from its portion of Portage's net loss.
Q & A Highlights
Q: To what extent is Converge pointing its sales force towards enterprise deals, and has there been any segmentation of the sales force?
A: Greg Berard, CEO, stated that Converge has not changed its market approach in 2024 but is considering adjustments for 2025 to ensure coverage of both mid-market and larger enterprise deals.
Q: Has the services revenue stabilized, and what are the long-term plans for the services business line?
A: Greg Berard, CEO, noted that while year-over-year numbers were down, there is momentum in Professional Services, and Managed Services grew double digits year-over-year. Investments in technical resources and new sellers are expected to drive growth.
Q: Can you provide insight into the impact of the 2023 backlog drawdown and the IBM factor for Q3 and Q4?
A: Greg Berard, CEO, explained that the backlog from 2023 is not as significant in 2024, which affects year-over-year comparisons. The IBM mainframe refresh cycle that benefited 2023 is absent in 2024.
Q: What is the outlook for 2025, and what are clients' buying priorities?
A: Greg Berard, CEO, expressed optimism for 2025, citing ongoing client conversations around AI, Cyber, and Cloud migrations. The Windows 11 upgrade cycle is expected to boost end-user device sales mid-to-late 2025.
Q: How is the current hardware mix structured, and what are the plans to diversify risk?
A: Greg Berard, CEO, detailed that the hardware business is divided into data center and device segments. The focus is on strategic investments in software, cloud, and managed services to diversify and drive growth.
Q: Are there any changes expected in vendor rebate structures given macro challenges?
A: Avjitpal Kamboj, CFO, stated that there are no expected changes. Rebates are tied to transactional and volume agreements, which remain consistent.
Q: How does Converge plan to handle pricing pressures in the market?
A: Avjitpal Kamboj, CFO, acknowledged pricing pressures but emphasized a services-led strategy to mitigate them. Increasing Professional and Managed Services will reduce reliance on resale margins.
Q: What are the expected benefits of the new ERP system?
A: Avjitpal Kamboj, CFO, highlighted that the ERP system will provide better visibility into sales orders, purchase orders, and margins, allowing for more detailed analysis and optimization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
