Converge Technology Solutions Corp.

Ladies and gentlemen, please stand by your conference call will begin momentarily. Once again, ladies and gentlemen, please stay on the line. Good morning and welcome to the Converge Technology Solutions Corp first quarter 2022 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers 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'm required to provide the forward-looking statement respecting 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 production in the forward-looking information. Certain material factors or assumptions are applied in drawing a conclusion or making a forecast or a projection as reflected in the forward-looking information. Additional information about the material factors that could cause action 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 in the forward-looking information are contained and converges following with the Canadian Provincial Securities Regulators. Converge does not undertake to update any forward-looking statements. Such statements only speak as the date made. Today's discussion also refers to gross revenue, adjusted EBITDA, organic growth, 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 filings of the Canadian Provincial Securities Regulators for an explanation and reconciliation of IFRS measures. Thank you, Mr. Shawn Mayne. You may begin your conference.

Thank you. Good morning and thank you for attending today's Q1 earnings call. Those of you who recently participated on the 2021 full-year financial results will have noted that Converge exceeded street expectations with record Q4 revenues, growing 74% year-on-year despite industry-wide backlogs. Additionally, the company reported an annual increase in managed services revenue of 33% as well as 52% increase, in professional and other service revenue, and gross revenue by 9.6%. Convergys financial success over the past few years has resulted overall in a 49% three-year annual compound growth rate in revenue, while the three-year adjusted EBITDA compound growth rate was 79%. We also reported adjusted EPS of 35 cents and an increase of 26% from 2020. Over the first quarter of 2022, Converge has built upon this success by reporting net revenue growth of 77% year-on-year, including growing its Q1 professional and other services by 70% year-on-year. The company also reported a 60.8% year-over-year growth in gross profit alongside a 58% increase in adjusted EBITDA. Many of you are well aware of the industry-wide backlogs as discussed on our Q4 earnings call and as widely reported by analysts across the industry. In Q4, we reported an increase in the product backlog to approximately $350 million and compared to $250 million in Q3 2021. While our reported backlog has further increased to $472 million this quarter, it is important to note that $250 million worth of that Q4 backlog was delivered this quarter and invoiced, leaving $100 million of open orders carrying forward from Q4 into Q1. In Q1, our sales team impressively generated an additional $372 million in new backlog orders, which when added to the $203 million of net new invoice orders, equates to roughly $575 million of product demand generated in the first quarter of 2022. As I've noted previously, The company remains extremely confident in its ability to manage its supply chain, and we are using our strong balance sheet and influence to ensure that we are prioritized when products become available. We continue to view our backlog as deferred revenue rather than lost revenue and expect to see further growth in higher margin professional and other services in the next 12 months. As supply chains lessen and backlog is delivered to end users. Generally, assuming that the supply chain issues normalize in line with historical levels, we anticipate that we can achieve strong double-digit organic growth. In the meantime, our sales team continue to push high-margin business offerings least affected by supply chain constraints while working closely with our vendor partners on delivering expectations and solutions. Converge's sales and marketing teams organized 30 client-facing events with 25 partners featured over 600 external attendees, helping to drive 111 net new logos in Q1 of 2022. Regarding acquisitions, Converge acquired $742 million of gross revenue in North America and Europe through 2021, through nine acquisitions, which advance the Converge cybersecurity, advanced analytics, and managed services practice areas. Let me take this opportunity to remind everyone that Converge intends to add one billion of gross acquisition revenue in each of the next three years, contributing to the phase four goal of over five billion of run rate revenue by the end of 2025. In 2022, Converge has already closed approximately $399 million of last 12 months gross revenue and $29.4 million of adjusted EBITDA. Including recent strategic acquisitions, Converge has grown to over 300 salespeople supported by over 750 technical resources, including growing our security practice to 103 individuals and our data analytics practice to 85. In addition to our recent acquisitions, Converge recently announced the launch of a new service product, Converge Enterprise Cloud for IBM Guardian Insights, a cloud agnostic hosted and managed solution for data security and compliance. This new offering will allow clients to begin operations quickly, automate data compliance and security value, manage risk more effectively, and transaction from standard monitoring to active threat detection. CEC IGI strategically advances our mission to help companies modernize their security programs. With that being said, I would like to pass the call to Matt Smith to discuss our Q1 financial highlights and successes in further detail.

Thank you, Sean. As Sean mentioned, despite ongoing backlog challenges, we continue to generate strong revenue demand and revenue growth. In Q1, we grew net revenue 77% to $550 million compared to $310.2 million in Q1 last year. Q1 product revenue, which includes hardware and software, increased 80% to $453.3 million from $252.5 million over Q1 last year. Our product revenue growth was driven primarily by the 10 acquisitions completed since April 1 last year, including the PDS acquisition that we closed at the beginning of the year, as well as higher sales of devices to the Canadian government. Q1 professional and other services, which includes the net revenue from public cloud resale and product support, increased 70% to $70.2 million from $41.3 million last year. We attribute this growth primarily to increases in professional services associated with upfront configuration and integration services for on-premise projects that were previously on hold due to COVID, as well as continued growth in our consulting practice areas, including analytics. In Q1, we grew our net revenue for managed services, which are long-term contracts, 61% to $26.4 million from $16.4 million in Q1 last year. On an annualized recurring basis, our ARR for managed services at the end of Q1 grew to $105.8 million compared to $65.5 million last year. We are proud of the fact that we have achieved the milestone of $100 million in managed services ARR that we set out last year and are poised to show continued growth in this area in 2022 As backlog is delivered and we realize revenue from managed services over end user devices. At the end of Q1, our total gross recurring revenue was $423.4 million, made up of $109.6 million from public cloud, $208 million from software subscription, and the $106 million from managed services that I just mentioned. And as Sean has highlighted at the beginning of the call, despite the number of acquisitions we completed in the last 12 months, we still managed to grow gross revenue organically by 7.2% in Q1 compared to last year. As highlighted on our Q4 call, we attribute this growth to two key things. One, our ability to seamlessly integrate our acquired companies, and two, the strength and breadth of our various practice areas, including our cybersecurity, which we recently bolstered with the acquisition of CBI that we announced on April 1st. 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 in the current period as compared to the same period last year. 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 Q1, our gross profit increased 60.8% to $109 million, from $67.8 million for the same period in 2021, and gross profit margin was 20% compared to 22% last year. Our gross margin percentage for Q1 is lower due to the fact that we have acquired 10 companies since April 1 that sell proportionally more hardware and initially generate margins below 20%. Plus, Q1 was a device-heavy quarter, both driven by higher device sales to the Canadian government and device backlog delivered to customers in Q1, which are lower margins. Going forward, as we cross-sell higher margin cloud and managed services to customers of these companies, including the margin lift associated with the trailing services on product backlog, and increase sales for existing customers, we expect gross margins to increase. Q1 adjusted EBITDA increased 58% to $29.6 million compared to $18.8 million last year. As a percentage of revenue, adjusted EBITDA was 5.4% compared to 6.1% in Q1 last year. 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 27.2%, in line with 27.7% in Q1 last year. Our EBITDA margins in the interim is a direct result of the product mix highlighted above, as driven by recently acquired companies and the impact of lower margin devices delivered in the quarter. As we integrate operations of acquired companies and cross-sell managing cloud services to their customer base, and increase our gross profit with higher margin revenue, we would expect these measures to increase over time. Looking at our balance sheet, we finished the quarter in a strong cash position with over $217 million of cash on hand, with approximately $140 million in borrowing capacity under our ABL, and are well positioned to continue to execute on our acquisition targets in the balance of 2022. In Q1, we utilized the strength of our balance sheet and cash generation to purchase product directly from our OEMs in order to secure supply for customers, which, as Sean mentioned, allowed us to invoice and deliver on $250 million in backlog from Q4 and an additional $203 million of net new orders in Q1. This impact of purchasing direct from OEMs rather than through our typical channel partner is reflected in our uses of working capital in the quarter. However, as supply chains lessen, We will increasingly revert back to our regular channels and expect working capital to be a source of cash consistent with prior quarters. Lastly, in Q1, our adjusted free cash flow, which we calculate as adjusted EBITDA, less recurring capital expenditures and payments of lease liabilities, was $24.2 million, increasing from $14.7 million in Q1 last year. Adjusted free cash flow conversion, which we express as a percentage of EBITDA, was 82% in Q1, increasing from 78% 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 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 will turn the presentation back to Sean.