Converge Technology Solutions Corp.

Good morning. Welcome to the Converse Technology Solutions Corp fourth quarter and 2021 fiscal year results conference call. All alarms are placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, simply press the pound key. Your main hosts today are Shawn Main, Chief Executive Officer, and Matt Smith, Interim Chief Financial Officer. Before we begin, I am required to provide the forward-looking statement with respect to forward-looking information which is made on behalf of Converge and all of its representatives that are on this call. All statements made on this call will contain forward-looking information. The actual results could differ materially from a conclusion, forecast, or production in the forward-looking information. Certain material factors or assumptions are applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information, are contained in Converge's filings with the Canadian Provincial Securities Regulators. Converge does not undertake to update any forward-looking statements. Such statements only speak as of the date made. Today's discussion also refers to gross revenue, adjusted EBITDA, organic growth, and adjusted free cash flow, and adjusted free cash flow conversion, which are non-IFRS measures and has no standardized meaning. Please refer to Converge's filing of Canadian Provincial Securities Regulations for any explanation and reconciliation to IFRS measures. Thank you. Mr. Shawn Mayne, you may begin your conference.

Thank you. Good morning, and thank you for participating on today's Q4 and 2021 Financial Year Earnings Call. In what follows, I will provide a business update on the fourth quarter and fiscal year, beginning with commentary on our earnings success, including our organic growth, and will discuss additions to our leadership team who are helping to contribute to such success, along with the reinforcement of the Converge corporate culture through various ESG initiatives. Furthermore, I will discuss the Converge acquisition strategy in further detail including commentary on the European expansion, integration successes, and the establishment of our subsidiary Portage CyberTech. Additionally, Matt Smith will provide more detailed commentary surrounding the Converge Q4 and fiscal year financial results. Reflecting historically for a moment, in 2020, Converge advanced its business strategy by expanding acquisitions into the largest North American cities, while establishing the roadmap for successfully cross-selling and realized cost synergies through these integration efforts. Throughout 2021, Converge fine-tuned its acquisition strategy towards advancing high-demand practice areas such as cybersecurity, advanced analytics, and managed services, while simultaneously executing on ERP and PSA integrations. These combined efforts contributed to a 61% increase in revenue to $1.5 billion for the fiscal year end, December 31st. Managed service revenue increased 33% to $75.9 million, and professional and other service revenue increased 52% to $215.7 million. Despite the acquisitive nature of Converge, including the nine acquisitions completed throughout 2021, the company was able to grow gross revenue organically by 9.6% through the various efforts discussed driven by dedicated work of employees and leadership team. Expanding on the Converge leadership team, as recently announced by the company, Converge appointed John Telsch as our chief revenue officer, and it should be noted that an announcement on a new CFO will be imminent. John is a senior executive who brings more than 40 years of leadership and growth experience to his role and will be invaluable alongside President Greg Berard in developing the Converge global strategy, overseeing profit alignment, and connecting various revenue-related functions. John joins Converge following a 40-year career with IBM, most recently as general manager of technology sales across the U.S., Canada, and Latin America. And with such an established reputation, we remain enthusiastic for the cutting-edge advantage this will create. Additionally, earlier in 2021, Thomas Volk and Doris Alvarez joined the Converge leadership team to guide the entry into the European markets. Doris is a highly experienced executive known as a growth generator and transformational leader who has served in various international roles, while Thomas is a senior executive with unique experience leading global enterprises and mid-market companies in both CEO and officer roles in Europe and the U.S. Doris and Thomas' efforts were integral to the platform acquisition of RedNet and complementary acquisition of VisuCom subsequent to the quarter, and will continue to be value-add in shaping the managed services and European strategy in the years ahead. Here at Converge, we live by being better together, and we remain confident that the strong foundation of our corporate culture bodes well for employee retention and recruitment, which is how we have successfully expanded our team while also maintaining high employee morale. Initiatives that contribute to this reality and support employees' wellness include our Women for Women Committee, our diversity and inclusion programs, and employee appreciation and awareness resources. We highly regard our Women for Women empowerment group, which was created to give the identified female population of Converge a voice and time to invest in leadership development, while receiving professional advice from female executives and fellow employees. Women for Women offers informative seminars, public forums, thought-provoking book clubs, and has plans for a company mentorship program in the future. Furthermore, Converge aims to be a diverse and inclusive workplace, with mindful hiring practices. The diversity and inclusion program at Converge was created from the understanding that our employees are our greatest asset. It is our belief that a bias-free and a diverse work environment not only fosters a culture of equality, but on value across the entire organization. The DEI Council focuses on two main components of training and education. Training and education efforts offered our employees and managers a safe space to learn, ask questions, and have meaningful conversations about the human experience throughout the year, including topics such as leading an inclusive culture and the glossary of terms. The rate at which Converge completes acquisitions may be perceived as a potential challenge to a successful integration and a barrier to consistent culture. However, the company strives to create synergies and capture opportunities for adopting meaningful policies, processes, and initiatives already in place at the various subsidiaries to positively impact the Converge culture. It should be noted that the acquisition team strategically pursues targets with complementary corporate values and seeks to build from the exemplary ESG policies that put people and the environment first. We are appreciative for the mutually beneficial opportunities to learn from one another, and at this time, I would like to recognize the humanitarian efforts in Germany where leadership has taken Ukrainian refugees into their homes at this time of crisis. Exemplary acts such as these demonstrate the proactive leadership and care that the Converge team strives for in all of its undertakings, and we are truly pleased with the portfolio of companies we have built to date. As a reminder, the Converge acquisition strategy is driven by components including culture, customer, geography, and capabilities. Through 2021, Converge added nine additional acquisitions to its portfolio of companies. which devoted particular attention to expanding the capabilities of advanced analytics through the addition of LPA and Carpe Datum. Converge strengthened managed service offerings through the acquisition of Exactly IT and Viacom. And lastly, advanced customer exposure through a multitude of efforts, including the addition of Dasher, a Silicon Valley-based digital transformation expert. Overall, The focus when completing a transaction is to deconstruct the organization so to allocate their sales teams to the appropriate regions while driving cross-selling opportunities and navigate the technical experts to their designated practice areas. The accumulation of efforts to date has resulted in over 300 salespeople within the organization supported by over 700 technical resources. It is significant to highlight at this point that the company has established a converged integration team specializing and focusing solely on increasing the pace and scale of acquisition integration across all areas of the business, including culture, finance, IT, sales, and operations. During the quarter, the integrations team migrated five additional subsidiaries to our designated CRM system, equating to 16 total navigations to date. Furthermore, a new converged standard ERP system including automation frameworks development and configurations was rolled out to 17 subsidiaries to date. Complementing these efforts, our HR team successfully navigated all Canadian subsidiaries along with 19 U.S. subsidiaries to a common payroll and are targeting the remaining companies by the end of Q3. On the back of creating the converged European Advisory Board, Converg completed its platform European acquisition of RedNet, an IT service provider headquartered in Mainz, Germany. Such expansion has greatly increased Converg's ability to serve clients globally and has added an established European management team familiar with operating in key verticals within our customer matrix, including education, healthcare, and government, which are all positioned within stable industries with accelerated IT expenditure needs. Subsequent to Q4, Converged acquired German-based organization VisuCom, a trusted supplier of media devices for the education and public sector, directly complementing the core business of RedNet. With that being said, Converged plans to further expand operations across the UK and Northern European regions, the Benelux region, mirroring the North American strategy executed over the past three years. While management continues to diversify its efforts over various regions, the acquisition pipeline for both North America and Europe remains strong, especially given the company's cash flow position. The company anticipates adding $1 billion of acquisition revenue in each of the next three years, and currently there are seven transactions moving from LOI to close, with three in North America to be announced shortly and four in Europe targeting Q2 announcements. On that note, I would like to pass the call to our Interim Chief Financial Officer, Matt Smith, to discuss our financials in further detail.

Thank you, Sean. We are extremely proud of our continued year-over-year revenue growth. In Q4, we grew net revenue 74% to $505 million compared to $289.6 million last year, and on a full-year basis, net revenue grew by 61% to $1.5 billion from $948.8 million in 2020. Q4 product revenue, which includes hardware and software, increased 71% to $412.9 million from $241.1 million over Q4 last year and was $1.2 billion for 2021 compared to $752.2 million last year, an increase of 65%. Our product revenue growth reflects the impact of the nine acquisitions completed in 2021 and the overall strengthening of the IT market as COVID restrictions were lifted and demand for convergers products and services increased. Q4 Professional and other services, which includes the net revenue from public cloud resale and software support, increased 104% to $69.7 million from $34.2 million last year. Year over year, this revenue grew 52% to $215.7 million from $141.7 million in 2020. We attribute this to large on-premise projects that required in-person services that had previously been put on hold due to COVID that started to be implemented in 2021. We expect to see further growth in higher margin professional and other services in 2022 as supply chain challenges lessen. In Q4, we grew our managed services, which are long-term contracts, 56% to $22.4 million from $14.3 million in Q4 last year. And for the full year 2021, revenue increased 33% to $75.9 million from $56.9 million in 2020. On an annualized recurring basis, our ARR for managed services at the end of the year grew to $89.5 million compared to $57.2 million last year. Including the acquisition of PDS that we announced at the beginning of 2022, we begin this year with over $100 million in managed services ARR and are poised to show continued growth in this area in 2022 as backlog decreases and devices are delivered to end users including through our IBM Power Managed Services offering. And as Sean highlighted, despite the number of acquisitions made in 2021, we still managed to grow growth revenue organically by 9.6% on a full year basis. We attribute this growth to two things. One, our ability to seamlessly integrate our acquired companies, and two, the strength and breadth of our various practice areas. This allows us to execute our cross-selling product and services and expand customers' digital infrastructure. As a reminder, We calculate organic growth for those companies that Converge has owned for at least three months at the reporting date, based on their pro forma gross revenue for 2021 as compared to 2020 had we actually acquired them on January 1. We believe that the three-month rule provides a good representation of the acquisition under Converge ownership, and in doing so, we can begin to evaluate the acquired company from an organic growth standpoint. For Q4, our gross profit increased 63% to $115.9 million from $70.9 million for the same period in 2020, and gross profit margin was 23% compared to 24% last year. For the full year 2021, gross profit increased 48% to $345.7 million from $233 million in 2020, and gross profit margin was 23% compared to 25%. Last year, our higher gross margin illustrated how we're able to successfully transition the companies we acquire from lower margin businesses that sell primarily hardware to higher margin software and services businesses through cross-sell. For 2021, margins are lower due to the fact that we've acquired nine companies that sell mainly hardware. However, as we cross-sell higher margin cloud and manage services to customers of these companies and increase sales to our existing customers as they expand their cloud-based IT infrastructure, we expect gross margins to increase. Q4 adjusted EBITDA increased 48% to $34.7 million compared to $23.4 million last year, and increased 55% year-over-year to $94 million. As a percentage of revenue, adjusted EBITDA was 7% compared to 8% last year, and unchanged at 6% on a full-year basis. As a percentage of gross profit, or GP, which we believe to be a telling indicator of the company's overall operating efficiency and profitability, adjusted EBITDA was 30% compared to 33% 33% in Q4 last year, but increased to 27% of GP for full year 2021 from 26% in 2020. As we integrate operations of acquired companies and cross-sell managed cloud services to the customer base and increase our gross profit with higher margin revenue, we would expect these measures to increase over time. Q4 interest and finance expense was 2.1 million compared to 3.7 million last year, and on a full year basis was 7.8 million, decreasing by approximately 12 million in 2020. These significant savings are largely as a result of our lower-cost ABL facility, which, as we announced in Q4 last year, has been switched from a specialty lender to a syndicate of Canadian banks, including CIBC, Scotiabank, and Laurentian Bank. In November 2021, we announced that we upsized this facility from $190 million to $300 million and also added JP Morgan to our syndicate of banks. Shifting to our balance sheet, we finished the quarter in a strong cash position with over $248 million of cash on hand and were undrawn on our ABL with $300 million in borrowing capacity available and are well positioned to continue to execute on our acquisition targets in 2022. In Q4, our adjusted free cash flow, which we calculated as adjusted EBITDA, less capital expenditures and payments of lease liabilities, was $29 million, increasing from $17.5 million in Q4 last year. Adjusted free cash flow conversion, which we express as a percentage of EBITDA, was 84% in Q4, increasing from 75% last year. On our full year basis, adjusted free cash flow increased to $77.7 million from $45.8 million in 2020, and the conversion percentage was 83% as compared to 76% last year. We believe that adjusted EBITDA is a good proxy for cash generation, and as such, adjusted free cash flow conversion is a useful metric that demonstrates the rate at which the company can convert adjusted EBITDA to cash. The increase in these measures for the three and 12-month periods is attributable to the company's strong continued adjusted EBITDA growth and effective management of working capital while generally maintaining low CapEx requirements. And with that, I'll pass the presentation back to Sean.