Converge Solutions (CTS) Q3 2024 earnings summary

Executive summary

• Q3 2024 results were impacted by lower demand in North America and macroeconomic factors, leading to revenue of $630.7 million (down 11.2% year-over-year) and gross profit of $158.3 million (down 9.1%), with adjusted EBITDA at $32.1 million (down 22.2%).

• Strategic investment areas—AI, cloud, and cybersecurity—achieved double-digit growth in Q3, driving software and managed services revenue.

• Cash from operating activities reached $48.9 million in Q3, with a 152% cash conversion from Adjusted EBITDA; year-to-date cash from operations was $212 million, up $97 million year-over-year.

• Net debt reduced by $81.9 million since Q4 2023, now at $127.8 million; $61.7 million in capital returned to shareholders year-to-date.

• CEO transition completed ahead of schedule, with Greg Berard appointed to the Board.

Financial highlights

• Q3 2024 gross sales were $945.0 million, down 8.9% year-over-year; revenue was $630.7 million, down 11.2%.

• Gross profit margin for Q3 was 25.1%, up 60 bps year-over-year; adjusted EBITDA margin was 20.3%.

• Adjusted net income for Q3 was $23.2 million (EPS $0.12); net loss was $3.3 million.

• Year-to-date gross sales reached $3.0 billion, up 1.9% year-over-year, with organic growth of 2.0%.

• Net debt reduced by $81.9 million since Q4 2023; leverage ratio at quarter-end was 0.77x.

Outlook and guidance

• Q4 2024 revenue expected between $600–$646 million, gross profit $165–$178 million, and adjusted EBITDA $36–$47 million.

• FY2024 revenue guidance is $2,511–$2,558 million, gross profit $678–$691 million, and adjusted EBITDA $155–$166 million.

• Market uncertainty expected to persist through 2024; optimism for 2025 driven by device refresh cycles, Windows 11 upgrades, and continued growth in AI, cloud, and cybersecurity.

• Management expects to close remaining delayed hardware deals in Q4 and 2025.

• Focus remains on organic growth, maintaining net leverage ratio near 1.0x, and returning capital to shareholders.