ConvergeOne Announces First Quarter 2018 Financial Results
ConvergeOne Announces First Quarter 2018 Financial Results
First quarter 2018 revenue of $306.3 million
Adjusted EBITDA per credit agreement of $28.9 million
Adjusted earnings per diluted share of $0.19
Reaffirms Full Year 2018 Guidance
EAGAN, Minn., May 10, 2018 /PRNewswire/ -- ConvergeOne Holdings, Inc. (NASDAQ: CVON, CVONW) ("ConvergeOne" or the "Company"), a leading global IT services provider of collaboration and technology solutions, today announced financial results for the first quarter ended March 31, 2018.
First Quarter 2018 Highlights:
-- Total revenue of $306.3 million, an increase of 67.4% year-over-year.
-- Services revenue of $164.9 million, accounting for 53.8% of total
revenue.
-- Collaboration revenue of $201.4 million, accounting for 65.7% of total
revenue.
-- GAAP net income of $8.8 million. GAAP net loss to common shareholders of
$116.6 million, which includes $125.4 million of earnout consideration
or net loss per diluted share of $2.26. ((1) )
-- Adjusted EBITDA per credit agreement of $28.9 million, an increase of
86.8% year-over-year.
-- Adjusted net income of $11.1 million, Adjusted earnings per diluted
share ("Adjusted EPS") of $0.19.
"We are off to a great start in 2018 with strong growth in our Services and Collaboration revenues, including growth in our Avaya business, led by continued expansion with new and existing clients and strategic acquisitions," said John A. McKenna Jr., Chairman and CEO, ConvergeOne. "The momentum we experienced in 2017 continues to build in 2018 driven by our industry-leading solutions, engineering expertise, and service excellence which transform our clients' complex and mission-critical collaboration environments."
First Quarter 2018 Financial Results:
-- Total revenue for the quarter ended March 31, 2018 was $306.3 million
compared to $183.0 million in the first quarter of 2017.
-- Services revenue for the first quarter of 2018 was $164.9 million,
an increase of 73.6% compared to $95.0 million in the first quarter
of 2017. Services revenue accounted for 53.8% of total revenue
compared to 51.9% in the first quarter of 2017.
-- Technology Offerings revenue for the first quarter of 2018 was
$141.5 million, an increase of 60.8% compared to $88.0 million in
the first quarter of 2017.
-- Gross Profit for the quarter ended March 31, 2018 was $88.4 million
compared to $53.3 million in the first quarter of 2017. Gross margin for
the first quarter of 2018 was 28.9% compared to 29.1% for the first
quarter of 2017.
-- Services gross profit was $52.5 million for the first quarter of
2018, compared to $34.1 million in the first quarter of 2017.
-- Technology Offerings gross profit was $35.8 million for the first
quarter of 2018, compared to $19.2 million in the first quarter of
2017.
-- GAAP net income, before the presentation effect of earnout
consideration, was $8.8 million for the quarter ended March 31, 2018,
compared to a GAAP net loss of $3.1 million in the first quarter of
2017. GAAP net loss to common shareholders, including the presentation
effect of $125.4 million of earnout consideration for earnings per share
purposes, was $116.6 million for the quarter ended March 31, 2018,
compared to a GAAP net loss of $3.1 million in the first quarter of
2017.( (1)) First quarter 2018 GAAP net loss to common shareholders
includes $5.8 million of transaction costs primarily related to the
business combination of Forum Merger Corporation and ConvergeOne, the
acquisition of Arrow Electronics' Systems Integration Business and
integration costs associated with previous acquisitions. First quarter
2018 GAAP net loss to common shareholders also includes a $16.1 million
preliminary bargain purchase gain related to the Company's acquisition
of Arrow Electronics' Systems Integration Business.
-- Adjusted EBITDA per credit agreement for the quarter ended March 31,
2018 was $28.9 million, compared to Adjusted EBITDA per credit agreement
of $15.4 million in the first quarter of 2017.
-- Adjusted net income for the quarter ended March 31, 2018 was $11.1
million, or $0.19 per diluted share based on 57.5 million
weighted-average diluted common shares outstanding, compared to $3.5
million in the first quarter of 2017. ((1))
-- Cash provided by operating activities for the first quarter of 2018 was
$15.5 million, and capital expenditures totaled $2.6 million, compared
with cash used in operating activities of $1.6 million and capital
expenditures of $1.8 million in the first quarter of 2017.
Balance Sheet and Liquidity
-- At March 31, 2018, ConvergeOne had $11.7 million in cash, compared to
$13.5 million at the end of 2017. Net of debt issuance costs, total debt
outstanding at March 31, 2018 was $640.9 million, compared to $572.1
million at the end of 2017.
-- On April 10, 2018, the Company replaced its prior $561 million term loan
and repaid $90 million of revolver debt with a new $670 million term
loan due April 2025. Interest payable on the new $670 million term loan
is based on LIBOR plus 375 basis points.
Dividend
-- On May 8, 2018, ConvergeOne's Board of Directors declared a regular
quarterly cash dividend of $0.02 per share to be paid on June 15, 2018
to stockholders of record as of May 25, 2018. ConvergeOne's Board of
Directors anticipates declaring this dividend in future quarters on a
regular basis; however, future declarations are subject to Board of
Directors' approval and may be adjusted as business needs or market
conditions change.
2018 Financial Expectations
ConvergeOne management is reaffirming its full year 2018 financial outlook:
-- Revenue is expected to be in the range of $1,450 to $1,550 million.
-- Gross profit margin is expected to be in the range of 29.5% to 30.5%.
-- Adjusted EBITDA per credit agreement is expected in the range of $155 to
$165 million.
-- Adjusted Net Income is expected to be in the range of $70 to $78
million.
-- Adjusted EPS is expected to be in the range of $0.98 to $1.08 based on
72.5 million weighted average shares outstanding on a diluted basis.
Earnings Teleconference Information
ConvergeOne will discuss its first quarter 2018 financial results during a teleconference today, May 10, 2018, at 8:00 AM ET. The conference call can be accessed at (866) 777-2509 (domestic) or (412) 317-5413 (international), conference ID# 10119893. A replay of the conference call will be available through 8:00 PM ET May 17, 2018 at (877) 344-7529 (domestic) or (412) 317-0088 (international). The replay passcode is 10119893. The call will also be broadcast simultaneously at https://investor.convergeone.com/. Following the completion of the call, a recorded replay of the webcast will be available on ConvergeOne's website.
About ConvergeOne
Founded in 1993, ConvergeOne is a leading global IT services provider of collaboration and technology solutions for large and medium enterprises with decades of experience assisting customers to transform their digital infrastructure and realize a return on investment. Over 9,200 enterprise and mid-market customers trust ConvergeOne with collaboration, enterprise networking, data center, cloud and security solutions to achieve business outcomes. Our investments in cloud infrastructure and managed services provide transformational opportunities for customers to achieve financial and operational benefits with leading technologies. ConvergeOne has partnerships with more than 300 global industry leaders, including Avaya, Cisco, IBM, Genesys and Microsoft to customize specific business outcomes. We deliver solutions with a full lifecycle approach including strategy, design and implementation with professional, managed and support services. ConvergeOne holds more than 6,000 technical certifications across 1,700 engineers throughout North America including three Customer Success Centers. More information is available at www.convergeone.com.
Footnotes
(1) In the first quarter of 2018, the
Company recorded total earnout
consideration of $126.9 million
related to the merger of Forum
Merger Corporation and ConvergeOne,
as the March 31, 2018 last twelve
months pro forma EBITDA, as
calculated in accordance with the
merger agreement, was in excess of
$155.0 million, and therefore, the
first two tranches of the earnout
have been deemed to be achieved.
The earnout consideration was
recorded as an equity transaction
of $125.4 million and compensation
expense of $1.5 million. For
accounting presentation purposes,
the equity portion of the earnout
consideration is reflected as a
reduction of the net income
available to common shareholders
for the first quarter of 2018.
Forward Looking Statements
This press release includes "forward-looking statements" regarding ConvergeOne with respect to its financial condition, its results of operations, its intended future capital return and its next quarterly cash dividend; its anticipated achievement of the targets related to the earnout under the merger agreement with Forum Merger Corporation; and its financial outlook for 2018. These forward-looking statements reflect ConvergeOne's current views and information currently available. This information is, where applicable, based on estimates, assumptions and analysis that ConvergeOne believes, as of the date hereof, provide a reasonable basis for the information contained herein. Forward-looking statements can generally be identified by the use of forward-looking words such as "may", "will", "would", "could", "expect", "intend", "plan", "aim", "estimate", "target", "anticipate", "believe", "continue", "objectives", "outlook", "guidance" or other similar words, and include statements regarding ConvergeOne's plans, strategies, objectives, targets and expected financial performance.
These forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are outside the control of ConvergeOne. These risks, uncertainties, assumptions and other important factors include, but are not limited to: (1) the possibility that ConvergeOne may be adversely affected by economic, business, and/or competitive factors; (2) ConvergeOne's ability to identify and integrate acquisitions and achieve expected synergies and operating efficiencies in connection with acquired businesses; (3) changes in applicable laws or regulations; and (4) other risks and uncertainties indicated from time to time in the reports ConvergeOne files with the Securities and Exchange Commission ("SEC") as well as those under "Risk Factors" included in the Registration Statement on Form S-1, as amended (File No. 333-223837), filed by ConvergeOne with the SEC.
Actual results, performance or achievements may differ materially, and potentially adversely, from any projections and forward-looking statements and the assumptions on which those vary from forward-looking statements are based. There can be no assurance that the data contained herein is reflective of future performance to any degree. You are cautioned not to place undue reliance on forward-looking statements as a predictor of future performance as projected financial information, cost savings, synergies and other information are based on estimates and assumptions that are inherently subject to various significant risks, uncertainties and other factors, many of which are beyond our control. All information herein speaks only as of (1) the date hereof, in the case of information about ConvergeOne, or (2) the date of such information, in the case of information from persons other than ConvergeOne. Except as required under applicable law, ConvergeOne undertakes no duty to update or revise the information contained herein.
Use of Non-GAAP Financial Measures
To supplement the financial measures presented in the Company's press release in accordance with accounting principles generally accepted in the United States ("GAAP"), ConvergeOne also presents the following non-GAAP measures of financial performance: Adjusted EBITDA, Adjusted EBITDA per credit agreement, Adjusted net income, and Adjusted EPS.
A "non-GAAP financial measure" refers to a numerical measure of the Company's historical or future financial performance, financial position, or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in the Company's financial statements. The Company provides certain non-GAAP measures as additional information relating to its operating results as a complement to results provided in accordance with GAAP and should not be considered a measure of the Company's liquidity. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for or superior to, the financial information presented in accordance with GAAP. There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled, used by other companies and therefore should not be used to compare the Company's performance to that of other companies.
The Company has presented: Adjusted EBITDA, Adjusted EBITDA per credit agreement, Adjusted net income, and Adjusted EPS as non-GAAP financial measures in this press release. The Company defines adjusted EBITDA as net income (loss) plus (a) total depreciation and amortization, (b) interest expense and other, net, and (c) income tax expense, as further adjusted to eliminate non-cash stock-based compensation expense, acquisition accounting adjustments, transaction costs, and other one-time nonrecurring costs. The Company defines Adjusted EBITDA per credit agreement as Adjusted EBITDA plus (a) Board of Directors related expenses (b) one time and non-recurring process and efficiency improvements, (c) pro forma synergies, and (d) EBITDA per acquisition. The Company defines Adjusted net income as net income (loss) adjusted to exclude (a) amortization of acquisition-related intangible assets, (b) amortization of debt issuance costs, (c) non-cash share-based compensation expense, (d) costs related to debt refinancing, (e) acquisition accounting adjustments, (f) transaction costs, (g) other costs, and (h) the income tax impact associated with the foregoing items. The Company defines Adjusted EPS as Adjusted net income divided by weighted shares outstanding on a diluted basis.
The Company believes the use of non-GAAP financial measures, as a supplement to GAAP measures, is useful to investors in that they eliminate items that are either not part of the Company's core operations or do not require a cash outlay, such as stock-based compensation. ConvergeOne management uses these non-GAAP financial measures when evaluating the Company's operating performance and for internal planning and forecasting purposes. The Company believes that these non-GAAP financial measures help indicate underlying trends in the Company's business, are important in comparing current results with prior period results, and are useful to investors and financial analysts in assessing the Company's operating performance.
The Company has not reconciled its Adjusted EBITDA per credit agreement and Adjusted Net Income 2018 outlook to GAAP net income, or its Adjusted EPS 2018 outlook to GAAP EPS, because the reconciling items between such GAAP and Non-GAAP financial measures cannot be reasonably predicted or accurately forecasted due to the uncertain of timing and the magnitude of the reconciling items, and therefore, is not available without unreasonable effort.
ConvergeOne Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
As of As of
March 31, December 31,
2018 2017
---- ----
(unaudited)
Assets
Current Assets
Cash $11,702 $13,475
Trade accounts receivable, less allowances 325,059 289,236
Inventories 20,873 14,717
Prepaid expenses and other current assets 16,424 9,294
Deferred customer support contract costs 45,078 35,151
Income tax receivable 16,862 10,576
Total current assets 435,998 372,449
------- -------
Other Assets
Goodwill 332,761 331,456
Finite-life intangibles, net 174,210 173,642
Property and equipment, net 35,783 36,659
Deferred customer support contract costs, noncurrent 4,618 3,915
Non-current income tax receivable 2,624 2,620
Total other assets 549,996 548,292
------- -------
Total assets $985,994 $920,741
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Current maturities of long-term debt $5,652 $5,652
Accounts payable 181,250 157,778
Customer deposits 27,299 22,498
Accrued compensation 18,710 34,522
Accrued other 39,880 27,362
Earnout consideration payable 66,000 -
Deferred revenue 94,066 68,127
Total current liabilities 432,857 315,939
------- -------
Long-Term Liabilities
Long-term debt, net of debt issuance costs and current maturities 635,277 566,424
Deferred income taxes 10,823 18,056
Long-term income tax payable 1,479 1,563
Deferred revenue and other long-term liabilities 15,144 13,118
Total long-term liabilities 662,723 599,161
------- -------
Commitments and Contingencies
Stockholders' Equity (Deficit)
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding
- -
Common stock, $0.0001 par value; 1,000,000,000 shares authorized; 74,862,501 shares issuable and outstanding as of March 31, 2018*;
39,860,610 shares issued and outstanding as of December 31, 2017**
7 4
Class B convertible common stock, $0.0001 par value; 16,000,000 nonvoting shares authorized; 6,585,546 nonvoting shares issued and outstanding as of December 31,
2017**
- 1
Subscription receivable from related party - (1,805)
Additional paid-in capital 60,984 13,464
Accumulated deficit (170,577) (6,023)
Total stockholders' equity (deficit) (109,586) 5,641
-------- -----
Total liabilities and stockholders' equity (deficit) $985,994 $920,741
======== ========
* Includes 5,162,500 shares
issuable per Note 2
** Retroactively restated for the
effect of the reverse
recapitalization
ConvergeOne Holdings, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
---------
2018 2017
---- ----
Revenue
Technology offerings $141,454 $87,965
Services 164,887 95,001
Total revenue 306,341 182,966
------- -------
Cost of revenue
Technology offerings 105,606 68,744
Services 112,350 60,929
Total cost of revenue 217,956 129,673
------- -------
Gross profit
Technology offerings 35,848 19,221
Services 52,537 34,072
Total gross profit 88,385 53,293
------ ------
Operating expenses
Sales and marketing 46,554 30,168
General and administrative 28,544 11,909
Transaction costs 5,847 1,113
Depreciation and amortization 11,339 7,026
Total operating expenses 92,284 50,216
Operating income (loss) (3,899) 3,077
------ -----
Other (income) expense
Interest income (48) (3)
Interest expense 11,228 8,996
Preliminary bargain purchase gain (16,058) -
Other expense, net 17 -
Other (income) expense, net (4,861) 8,993
------ -----
Income (loss) before income taxes 962 (5,916)
Income tax benefit (7,844) (2,795)
Net income (loss) 8,806 (3,121)
----- ------
Earnout consideration (125,441) -
Net loss to common shareholders $(116,635) $(3,121)
========= =======
Net loss per common share:
Basic and diluted $(2.26) $(0.08)
====== ======
Weighted average number of shares outstanding:
Basic and diluted 51,622,386 39,881,456
========== ==========
ConvergeOne Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three months ended
March 31,
---------
2018 2017
---- ----
Cash Flows from Operating Activities
Net income (loss) $8,806 $(3,121)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Preliminary bargain purchase gain (16,058) -
Depreciation of property and equipment in operating expense 2,607 1,396
Depreciation of property and equipment in cost of revenue 1,459 333
Amortization of finite-life intangibles 8,732 5,629
Change in fair value of acquisition-related contingent consideration (586) -
Deferred income taxes (3,466) (1,213)
Amortization of debt issuance costs 441 906
Stock-based compensation expense 6,386 156
Other (142) -
Changes in assets and liabilities, net of business acquisition in 2018:
Trade accounts receivable 28,761 21,065
Inventories (3,521) 877
Prepaid expenses, deferred customer support contract costs and other (4,264) (1,771)
Income tax receivable (6,290) -
Accounts payable and accrued expenses (12,930) (31,007)
Customer deposits 4,801 2,993
Income tax payable (84) (1,581)
Deferred revenue and other long-term liabilities 829 3,740
Net cash provided by (used in) operating activities 15,481 (1,598)
------ ------
Cash Flows from Investing Activities
Purchases of property and equipment (2,644) (1,824)
Acquisition of business, net of cash acquired (29,926) -
Net cash used in investing activities (32,570) (1,824)
------- ------
Cash Flows from Financing Activities
Proceeds from term notes, less discount - 10,000
Proceeds from revolving credit agreement 99,000 18,000
Repayment of revolving credit agreement (29,000) (18,000)
Repurchase of common stock - (385)
Payment of deferred financing costs (175) (404)
Deferred offering costs - (1,592)
Payment on long-term debt (1,413) (857)
Proceeds from subscription receivable 1,805 -
Proceeds from Forum cash 135,335 -
Payment of reverse recapitalization costs (19,582) -
Payment to former C1 Securityholders (170,654) -
Net cash provided by financing activities 15,316 6,762
------ -----
Net increase (decrease) in cash (1,773) 3,340
Cash - beginning of the period 13,475 9,632
Cash - end of the period $11,702 $12,972
======= =======
ConvergeOne Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands)
Three months ended
March 31,
---------
2018 2017
---- ----
Adjusted EBITDA Reconciliation:
Net Income (loss) $8,806 $(3,121)
Total depreciation and amortization (a) 12,798 7,358
Other (income) expense, net 11,197 8,993
Preliminary bargain purchase gain (16,058) -
Income tax benefit (7,844) (2,795)
------ ------
EBITDA 8,899 10,435
Adjustments:
Stock-based compensation expense 6,386 156
Acquisition accounting adjustments (b) 1,564 (6)
Transaction costs (c) 5,847 1,113
Other Costs (d) 335 1,383
--- -----
Adjusted EBITDA 23,031 13,081
Additional Adjustments:
Board of Directors related expense 41 48
One time and non-recurring process & efficiency improvements (e) 909 787
Pro Forma synergies (f) 2,726 1,533
EBITDA per acquisition (g) 2,160 -
Adjusted EBITDA per Credit Agreement $28,867 $15,449
======= =======
(a) Depreciation and amortization
equals the sum of depreciation and
amortization included in total
operating expenses and
depreciation and amortization
included in total cost of revenue.
(b) Acquisition accounting
adjustments include charges
associated with non-cash
acquisition accounting fair value
adjustments to deferred revenue
and deferred customer support
costs.
(c) Transaction costs of (1) $5.8
million for the three months ended
March 31, 2018 include $3.0
million related to transaction-
related professional fees,
including legal, accounting, tax,
and advisory fees, $1.8 million of
acquisition-related integration
costs, and acquisition-related
expenses of $1.0 million related
to severance charges and employee
retention bonuses, and (2) $1.1
million for the three months ended
March 31, 2017 include
acquisition-related expenses of
$0.4 million related to
transaction-related professional
fees and expenses, including
legal, accounting, tax, and
advisory fees, $0.6 million of
acquisition-related integration
costs and acquisition-related
expenses of $0.1 million related
to employee retention bonuses.
(d) Other costs of (1) $0.3
million for the three months ended
March 31, 2018 represent payments
to Clearlake for advisory and
consulting services pursuant to
its management and monitoring
services agreement which was
terminated in connection with the
Business Combination, and (2) $1.4
million for the three months ended
March 31, 2017 include expenses of
$1.0 million related to severance
and related legal expenses and
$0.4 million related to payments
to Clearlake for advisory and
consulting services pursuant to
its management and monitoring
services agreement.
(e) One time and non-recurring
process and efficiency
improvements of $0.9 million in
the three months ended March 31,
2018 primarily related to Cloud
product development activities
related to the launch of our Cloud
Platforms. One time and non-
recurring process and efficiency
improvements costs for the three
months ended March 31, 2017
include $0.5 million of Cloud
product development activities
related to the launch of our Cloud
platforms, $0.2 million related to
strategic initiatives and $0.1
million related to rating agency
fees.
(f) Pro Forma synergies represent
unrealized cost synergies of
acquired companies post-close.
(g) EBITDA per acquisition is the
acquired companies EBITDA prior to
the company's ownership.
ConvergeOne Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands except per share amounts)
Three Months Ended
March 31,
---------
2018 2017
---- ----
Adjusted Net Income Reconciliation:
Net Income (loss) $8,806 $(3,121)
Adjustments:
Amortization of intangible assets 8,732 5,629
Amortization of debt issuance costs 441 906
Costs related to debt refinancing - 556
Stock-based compensation expense 6,386 156
Acquisition accounting adjustments 1,564 (6)
Transaction costs 5,847 1,113
Preliminary bargain purchase gain (16,058) -
Other costs 335 1,383
Income tax impact of adjustments (4,980) (3,081)
------ ------
Total adjustments 2,267 6,656
Adjusted Net Income $11,073 $3,535
======= ======
Adjusted Net Income per share
Basic $0.21
=====
Diluted $0.19
=====
Weighted average number of shares outstanding (a):
Basic Shares 51,622
======
Diluted Shares 57,516
======
(a) The weighted average diluted
shares includes the effect of the
common share equivalents for the
quarter. The amount differs from
diluted shares in the financial
statements, as common share
equivalents were excluded for
financial reporting purposes, due
to the anti-dilutive effect
since there was a net loss to
common shareholders.
Three Months Ended
March 31,
---------
2018 2017
---- ----
Revenue 306,341 182,966
Acquisition Accounting Adjustments 1,564 23
----- ---
Adjusted Revenue 307,905 182,989
Contacts:
Media Contacts:
Scott Clark
Vice President, Marketing, ConvergeOne
651.393.3957
sclark@convergeone.com
Investor Relations:
William Maina
ICR for ConvergeOne
(646) 277-1236
investor@convergeone.com
View original content with multimedia:http://www.prnewswire.com/news-releases/convergeone-announces-first-quarter-2018-financial-results-300646073.html
SOURCE ConvergeOne Holdings, Inc.
