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 — 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:
“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:
Balance Sheet and Liquidity
Dividend
2018 Financial Expectations
ConvergeOne management is reaffirming its full year 2018 financial outlook:
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)
ConvergeOne Holdings, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
ConvergeOne Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
ConvergeOne Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands)
(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)
(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.
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