Converge Technology Solutions Corp

TSX:CTS

Earnings Call Transcript 2020-Q4

[Operator]

Good evening. Welcome to the Converge Technology Solutions Corp. Fourth Quarter 2020 Results Conference Call. [Operator Instructions]Your main host today are Sean Maine, Chief Executive Officer; and Carl Smith, Chief Financial Officer.Before we begin, I am required to provide the forward-looking statements, 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 or projection 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 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 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 adjusted EBITDA, which is a non-IFRS measure, and has no standardized meaning. Please refer to the Converge filing in Canadian provincial securities, regulators for an explanation and reconciliation to IFRS measures.Thank you. Mr. Shaun Maine, you may begin your conference.

[Shaun Peter Maine, CEO & Director]

Thank you. Good evening, everyone, and thank you for taking the time to participate on today's call. As I will discuss in further detail, the Converge team had a truly transformative year executing on our phase 3 objectives of cross-sell, integration, acquisitions and taking steps to strengthen our balance sheet and reduce our interest costs. To do all of this in a normal year would be impressive. But to do it all during the pandemic, while maintaining over 90% annual adjusted EBITDA growth, as we have done every year we have been in existence, is truly remarkable.I want to begin by expressing my deepest gratitude to our entire family of employees who have remained driven and dedicated throughout these unprecedented times. Furthermore, I would like to pay tribute to the robust relationships Converge has built with industry partners whose collaboration has allowed us to meet the needs of our valued customers. And to the strong and growing list of customers, an impressive number of whom are new to Converge over the past 12 months and many who have been with us for years, I thank you for the trust you continue to place in us. We're excited to watch your success and to continue to grow with you.In what follows, I will discuss the ways in which Converge has grown successfully, both organically and inorganically, over the past year and will explore the noteworthy achievements our team has secured through their unwavering commitment to the company and to our valued shareholders. Despite pausing on acquisitions during Q2 and Q3 last year due to COVID-19, Converge continued to progress and expand its acquisition pipeline and maintained on pace with our stated goal of 4 to 6 acquisitions per year by closing 4 acquisitions in Q4, increasing the total for the -- for 2020 to 5 acquisitions. We are also off to a strong start for 2021 having closed 2 acquisitions in Q1. These acquisitions have added more than CAD 300 million in trailing 12-month revenue and added key capabilities in target markets.Unique Digital and Accudata extend Converge's reach into the Texas marketplace, which contains 4 of the 10 largest cities in the U.S., and adds key networking and security capabilities around Cisco, VMware, Dell and Palo Alto. CarpeDatum adds key analytics capabilities, Workgroup Connections brings the IBM software and AWS skill sets to our central and western regions, while Vivvo builds out the capabilities around identity and trust ecosystems in our Converge Trust Platform.As impressive as our growth was through acquisition, it is the organic growth that we experienced in Q4 despite the pandemic and the activities that are the foundation for future organic growth that I really want to focus on. I have talked previously about how Converge has a unique approach of selling into the mid-market, inviting customers to attend vendor-funded workshops to allow our world-class experts to help them with the latest multi-cloud technologies from Red Hat and VMware.Despite the pandemic, in 2020, Converge led 14 workshops with over 400 clients to show how Ansible and OpenShift can help them utilize a multi-cloud architecture through containers, giving them access to Amazon, Google and Microsoft public clouds. This approach and leading with cybersecurity solutions was instrumental in achieving 71 net new logos in Q4 alone. That is 71 new customers that Converge has never done business with before. This is an astounding number of net new logos for a single quarter and a key reason why Converge is the fastest-growing IT service provider in North America as recognized by Channel Reseller News.Another organic growth tool that our President, Greg Berard, has very successfully introduced to facilitate cross-sell, especially with new acquisitions, is executive briefings. In Q4, our executives, led by Greg, gave 223 executive briefings to customers to help our sales executives showcase the range of Converge offerings and how we can help customers in their cloud journey with analytics, cybersecurity, DevOps and managed services.In just one of these 223 briefings, 5 multimillion-dollar projects were identified in new areas from a customer that had done $17 million of business with us already last year. These executive briefings have also accelerated our software growth, which is both profitable and leads to enhanced stickiness with clients. In 2020, we experienced 23% year-on-year IBM software growth with 43% new license growth, highlighting the need for software security and cloud pack solutions.For our new acquisitions, in particular, who may not yet be familiar with the breadth of Converge's offerings, these executive briefings are an incredible engine for organic growth and cross-sell. Converge has also put together 17 technical assessments, which are also key for enabling cross-selling. This is where our presales engineers take paid engagements to provide a road map to our clients for solutions around multi-cloud, software asset management, analytics and security.In Q4, we delivered 75 of these technical assessments. And these, along with the executive briefings and workshops, have given us a backlog where our presales request tool is showing over 3,000 requests from our sales team on new cross-selling opportunities. This bodes extremely well for Converge's organic growth in 2021.A key element of our acquisition strategy has been prioritizing acquisition candidates by their mid-market customer base in specific sectors, which has shown to be very important in the context of COVID-19 where customer diversification and a focus on resilient industries has been important factors in our success. For the 12 months ended December 31, 22% of Converge's revenue came from the financial sector; 20% from government and state, local and education or the SLED sector; 18% from technology; 13% from health care; and 9% from manufacturing. To further exemplify the diversity of Converge's primarily mid-market customer base, during 2020, 141 of our customers purchased at least 1 million of our products and services, and our top 10 customers make up approximately 20% of our year-to-date revenue.As impressive as our acquisitions, organic growth and cross-sell has been, the ability to integrate 10 U.S. back offices and our 2 Canadian back offices during lockdown with people working remotely has been truly remarkable. In addition to removing $20 million of cost, there is now a platform and process for integration, meaning that all subsequent North American acquisitions can be integrated with the first 12 months of being acquired.In addition to dramatically strengthening our balance sheet with a series of equity raises, Q4 also saw the company transition to a $140 million ABL or lending facility with a syndicate of Canadian banks having an interest rate of between 2.5% and 3%. This occurred in addition to paying out our standing debentures and convertible debenture, generating approximately over $8 million in annualized interest savings.Touching upon recurring revenue, this remains a key metric of our success and is generally led by our cloud services. In Q4 2020, our gross annual recurring revenue was $255.7 million, up 46% from the $175.5 million in Q4 2019. This is made up of $56 million of private cloud and managed services annual recurring revenue, which are typically on 3-year contracts and paid monthly; $60 million of gross public cloud annualized recurring revenue, which are typically on 3-year contracts and paid monthly; and $140 million of gross software subscriptions, which are typically paid annually.Our Managed Service pipeline continues to grow with over 190 active opportunities we are working to close. And we have been winning deals around our broader offerings with a good example being the $1.8 million 5-year managed security deal we won with a large U.S. insurance company in Q4. Also, our TrustBuilder group was greatly enhanced through the December acquisition of Vivvo Applications Studio and their Vivvo Trust Platform, combined now called Converge Trust platform.I would like to thank the team at PROMPT and the members of the Gatineau ecosystem working towards establishing a cybersecurity innovation zone there for the support of TrustBuilder, and we are now in discussions with PROMPT to include the intellectual property acquired from Vivvo into this work. This is a key development for us because we see verifiable credentials and blockchain as being core to the next-generation citizen identity and access management, or CIAM, solutions.As the March 4 Angus Reid Institute study performed with AWS reported, 4 out of 5 Canadians view digital access to government services as a priority. And 9 out of 10 want taxpayer dollars spent on securing personal information. In normal times, adoption of new technology can be labored since people resist change. With the need for COVID testing verification and COVID passports, technology around CIAM is being introduced, which accelerates Converge's Trust Platform deployment.Added to this, our existing world-class development AI practice recently built an application to support a home health test, which will allow for people to safely return to work, attend sporting events, get on airplanes, eat at restaurants and generally go to public places safely. This application uses visual AI, runs in a HIPAA-compliant public cloud and is deployed using modern DevSecOps. Combining Converge's professional services and analytics capabilities with our Trust Platform is a powerful combination for solutions in 2021.On that note, I would like to pass the call to our Chief Financial Officer, Carl Smith, to discuss our financials in further detail.

[Carl Smith, Chief Financial Officer]

Thank you, Shaun. Fourth quarter revenue increased 35% to $289 million compared to $214 million last year. By industry, the breakdown for the quarter was approximately 25% financial sector, 24% government and SLED, 15% technology and 7% from health care. For the 12 months ended December 31, revenue increased 38% to $949 million from $688 million last year.Our gross profit in Q4 increased 33% to $70.9 million from 53.3% last year. Our gross profit margin was 24.5% compared to 24.9% last year. For the 12 months ended December 31, gross profit increased 44% to $233 million from $161 million last year, and our gross profit margin was 24.6% compared to 23.5% last year.SG&A for the 3 and 12 months ended December 31 was $$49.2 million and $177.7 million, respectively, increasing from $42.8 million and $133.9 million last year. SG&A increased due to the acquisitions during the fourth quarter. And as Shaun noted earlier, during the year, we removed $20 million of annualized cost savings. And in Q4 of FY '20, our SG&A was approximately 17% of sales compared to 20% last year.Adjusted EBITDA for the quarter increased over 98% to $23.4 million compared to $11.8 million last year. And for the year, our adjusted EBITDA increased by 91% to $60.5 million compared to $31.6 million last year.Sequentially, in Q4, our finance expense, which is primarily interest expense, decreased to $3.7 million from $5.1 million in Q3. This is a result of the interest savings related to the refinancing of the ABL and the payment of some debt. We would expect further decrease in that in Q1 as the full impact of the savings will be realized.At the end of the fiscal year, our cash balance was $64.8 million compared to $20.6 million last year, and our borrowings were $139.2 million compared to $156.7 million last year.On that note, I'll pass it back to you, Shaun.

[Shaun Peter Maine, CEO & Director]

Thanks, Carl. As the momentum of Converge has continued to advance for many of the reasons discussed today, CTS witnessed impressive traction with the investment community throughout 2020. We started the year with a single analyst covering the Converge story as firms and stakeholders awaited our 2019 full year financials. Fast forward to today, and we now have 7 analysts covering the company with further eyes and interest on our story.Since last March, the company has raised over $195 million through a series of oversubscribed equity financings, ranging from $8.3 million raise last February at $1.30 per share to $86.5 million raised this past January at $4.85 per share. Through these public offerings, the company has added valuable institutional investors to our existing shareholder base, while also improving our balance sheet and providing acquisition capital to fuel further growth.In addition to being named an OTC Best 50 company, Converge was recognized as a Venture 50 winner for the second year in a row, witnessing a share price increase of 255% and a market cap increase of 525% throughout 2020. While we absolutely appreciate the support the venture exchange provided to us as a publicly traded company, our recent graduation to the TSX represents a natural progression for the company to expand our reach across the broader investment community while improving liquidity for our valued shareholders.With this impressive increase in our stock price and market capitalization, I have often had to correct people when they mentioned to me that our stock price has had a good run, noting it is our earnings that have had a good run and our stock price is still struggling to keep up. You might have noted that Jennifer Radman of Caldwell Investments identified us as one of her top picks as featured on BNN 2 weeks ago. But it is also noteworthy that her 2 other stock picks were also value plays, Magna and Stelco. I mention this as context to the recent volatility in our share price and the volatility in the market generally.Over the past several months, we have seen a number of technology-related growth stocks achieve meteoric share price gains with many stocks trading at high double-digit multiples of revenue. Some would argue that these multiples are unsustainable in the long run, which might help explain some of the recent market activity. We feel it's important to point out that Converge's multiple, whether based on revenue or adjusted EBITDA, remains orders of magnitude below the multiples of many of these companies, which we believe should position Converge well as investors assess their portfolios.While we don't provide guidance, I can say that I have never been as excited about the prospects for the company as I am today, and I remain convinced that the market will ultimately reward the company for continuing to deliver strong growth for the benefit of our shareholders.With that being said, I would like to open the floor to questions, operator.

[Operator]

[Operator Instructions] Your first question comes from Robert Young with Canaccord.

[Robert Young, Director]

Maybe the first place I'll start would be around the product revenue was a little higher than expected. The -- would that be driven potentially by a rebound in the economy as vaccine rollout starts with U.S., in particular, maybe Texas, in Q1 may be a driver given that's opened up for you? I know that's begun to open up there. Or is there some other factor like acquisitions that would have driven that line?

[Shaun Peter Maine, CEO & Director]

Yes. Thanks, Rob. Yes, so as we've noted before, in Q4, when vaccines were announced, projects that were pushed off in Q2 and Q3 were brought forward and there is a mix issue. Also, I'll highlight that Northern Micro did -- had an extremely strong kind of device year as well. So it was a combination of pull forward of products. Again, we still have very strong and robust software and services sales, but also, you are correct that there was a stronger hardware component there as well.

[Robert Young, Director]

Is that something that you're seeing continuing as you move into 2021?

[Shaun Peter Maine, CEO & Director]

Yes. So as I mentioned, because there was -- so some people are under the misnomer that COVID increased IT services sales. Actually, Gartner has -- last year, that the market declined by 3.3%, and they have enterprise software this year growing at 8.5%, hardware by 7%. So there is projects that were pushed off. I believe you will see, according to Gartner, into 2021, an increase in both hardware and software from projects that were pushed off, especially during Q2 and Q3.

[Robert Young, Director]

Okay. Okay. And then just the disclosure around the private cloud and Managed Services component of services revenue. I think you said it was $56 million. That's down just a little bit quarter-over-quarter. Is that seasonality? Or is there something else [indiscernible]?

[Shaun Peter Maine, CEO & Director]

Yes. So a little bit of transition there. I think you'll see that, that's more of an anomaly, and you'll see that, that's a key area of growth for us in 2021. So yes, you are correct, but I think you'll see strong growth of that in 2021.

[Robert Young, Director]

Okay. Maybe last question before I pass it off. A lot of commentary from IBM talking about embracing the channel more under a new sales strategy. Are you seeing any benefits there? I know IBM is an important partner in channel for you. And so are you seeing that impact your business?

[Shaun Peter Maine, CEO & Director]

Yes. We are extremely important partner for IBM. So in the top 6 partners, we're the only one that experienced growth in 2020. And the initiatives -- so a lot of the campaigns that we run, I've highlighted the Red Hat workshops we run around OpenShift and Ansible. Like we have a great partnership where they fund that growth, and it's really been recognized that our ability to cross-sell, especially software across the channel and these cloud packs. So the fact that they're moving more to the channel and given how much of our revenue, about 1/3 comes from IBM, that's an extremely powerful driver for our growth. As they split off their 2 units and really embrace the channel, David La Rose, who runs channels there, talks about how going from basically 15% through the channel up to 60%. So yes, that is definitely a tailwind for us going into 2021.

[Operator]

We have a following question from Suthan Sukumar with Eight Capital.

[Suthan Sukumar, Principal]

Congrats on a strong quarter. So the first question I had was on the Managed Services side of the business. It sounds like you guys are seeing some growing traction here and you have a growing pipeline of business in this segment. Can you touch on -- with respect to the pipeline, can you touch on what the mix is between kind of existing customers versus net new customers in this pipeline? And can you provide an update on the IBM, the iSeries opportunity that you guys have touched on previously?

[Shaun Peter Maine, CEO & Director]

Yes. So the iSeries opportunity are all net new customers. That's not a segment. So we were providing a lot of DR capabilities around iSeries. But a lot of the iSeries hosting around Infor with Google tends to be a larger customer base than our traditional base. So that is really kind of a net new.As I mentioned, we went and had a session with all of the Google sales reps and engineers around this as well as the Infor reps. So the pipeline is definitely building around the iSeries solution. There is an onboarding leg from when you start an onboarding process to when you go live with revenue, and that can be up to a quarter. So you will see a lag, but that is a very strong offering. And alongside with that is the new offerings that we've had around service desk, where we're triaging problems on behalf of our customers, the Helpdesk, as well as then managed network, managed security and managed end user. And as I've talked about in previous calls, we're around 40% gross profit on these offerings. We aim to get that to 50% by the end of this year and is the key area of investment for us in 2021.

[Suthan Sukumar, Principal]

Okay. Great. That's helpful. Second question I had was on Vivvo. And you kind of touched on this a little earlier with respect to Vivvo and some of the progress with integration with the Trust Platform. What does go-to-market look like from here? And what are some of the initial use cases and customers that you can bring to market first with this solution?

[Shaun Peter Maine, CEO & Director]

So the traditional use cases have all been around the -- process ecosystems around citizens and citizens' ecosystems. We started off with a lot of customer-supplier relationships where government organizations interacting with their suppliers.Really, what COVID's done is bring a whole bunch of new use cases around health care, and Vivvo has an install base of customers in Saskatchewan with -- around the health care service that makes them really well suited to be able to quickly deploy them on their platform and then combine that with the Becker-Carroll toolkit.And really where our -- these use cases are really helping us to demonstrate to partners, here's how this works. And so for us, the channel for the Trust Platform is really multifold. One is the Converge family, our 300 sellers in our DevOps group, who's -- again, one of the biggest demands out there right now is for apps around COVID testing, COVID solutions. And we've been using some of the visual AI tools to help on testing recognition and then passing it back to the platform is a wonderful combination.But also, if you look at the other channels, such as Bell and Rogers or EY, Deloitte, PwC, these are all channels for both the platform and the toolkit. And so that's really where -- and as our AGM will kind of go through some metrics to gauge that growth, they're much more like a software company. And the services component are really being done by partners, whether that be Converge or be other partners as well. So the gross profit around the platform is much higher than our traditional more services, more like the kind of CGI-type service kind of models. These are more like software-type gross profit model that you drive from that and recurring models for them.

[Suthan Sukumar, Principal]

Great. That's helpful. The last question for me, I guess I want to touch on the M&A outlook. Could you provide some color on what you guys are seeing today in the valuation environment and how that might have changed over the course of the pandemic and what the impact has been on your pipeline? And has there been any change in the size or profile of the targets that you're looking at now, especially now with your focus also being expanded into the European market?

[Shaun Peter Maine, CEO & Director]

So as far as North America goes, we've always said 4 to 6 a year. Again, we had a very big backlog that we were working through in Q4, and we're still working through that in Q1 in North America. As far as the -- we can now acquire larger companies that I wouldn't have felt comfortable with, say, in phase 1 because they might have dominated our overall portfolio. Now you can take on, we say, companies between $75 million and $200 million. I can take ones at the higher end of that in North America, while still not disrupting our overall company.In Europe, we've stated that starting off in Germany and the U.K., in Q2, we'll be looking to buy companies between EUR 75 million and EUR 200 million in Germany, GBP 75 million to GBP 200 million in the U.K. And it's a little bit different in that when you go to those countries, the first acquisition becomes a platform and then the synergies come after that. We'll be putting our admin in Ireland and our technical resources in Eastern Europe.And so this is something that until we close the first one, we wanted to do that before we kind of give guidance to. In addition to the 4 to 6 in North America, what does that look like in Europe? We've been building up a pipeline since November. We're now -- they're now actionable. Again, using very similar techniques to the way we built the pipeline in North America. We've been very successful in doing that in Europe. And so we should be on track to be there or thereabouts.It does take longer to close acquisitions in Europe than it does in North America. There's just more steps to go through. So it's not as straightforward from LOI to close. We can do them as quick as 45 days in North America, whereas, I would say, it's probably going to be double the time frame in Europe.But again, the opportunity is very apparent there and the amount of companies in our sweet spot is -- again, there's a tremendous opportunity there. And note that I believe that most of the analysts -- we've kind of dissuaded from really putting any European acquisitions into the forecast until we closed one. But as we do that, we'll be trying to give guidance for, in addition to the 4 to 6 in North America, what do we feel we'll be doing in Europe on an ongoing basis.

[Operator]

Your next question comes from Daniel Rosenberg with Paradigm Capital.

[Daniel Rosenberg, Analyst]

Nice to see the organic growth in the quarter. I had a question regarding the integration comments you had in your preamble. So you mentioned now having a platform to rapidly integrate with M&A. I was wondering what does the ramp of cross-selling look like. Is that something that you would say the sales force would be fully equipped to start selling Managed Services at your targeted companies? Is that a 3-month ramp, 6-month ramp or that year ramp? What does that look like?

[Shaun Peter Maine, CEO & Director]

It's a day 1 ramp. So very differently from the integration on the back-office side is the -- so we've always, from day 1, stated that the cross-sell was our priority. The back-office integration is something completely separate. And this is really some of the beauty that -- what Greg Berard, our President, has created.The moment we buy a company, we don't expect those sellers and engineers to know the breadth of our portfolio. They have to know enough to identify opportunities so that they can bring in our practice areas and they can provide the deep expertise. Where our sellers and our engineers have great client knowledge of their environment and their processes, our technical expertise can go in and sell.The mistake a lot of companies have made in trying to train up people to sell solutions is they leave them on an island to do it by themselves. And of course, they're not going to be world experts in Ansible and OpenShift and some of the solutions that we bring to bear, analytics and cybersecurity, like Snowflake or Watson. They just won't know those technologies.So our model is they identify them and bring in the experts, and that is such a -- more powerful model to allow you to quickly -- so understand, 71 net new logos in 1 quarter is an astonishing number. And so this ability to buy companies and immediately be able to use the practice areas to go in and sell to their account things they have never sold before, including Managed Services. So it's a very different model.And again, we talked about how the workshops that we hold, we bring our mid-market customers to us as opposed to going to them, which wouldn't be very efficient. So the way we're selling is very different than the textbook model that you would sell to large enterprise, and that's why we're able to cross-sell so effectively.

[Daniel Rosenberg, Analyst]

And then just one modeling question. So you guys are scaling becoming more profitable. On the taxes, they're moved up this quarter. How should we think about modeling your tax exposure for next year?

[Shaun Peter Maine, CEO & Director]

That's a wonderful question for Carl. Carl, all you.

[Carl Smith, Chief Financial Officer]

Thanks. So yes, Q4, we had slightly higher taxes. But on a cash taxable basis, we're still around, call it, between 12% and maybe as high as 15% for the next probably year or 2. And then it is -- we go through some of the losses that we've acquired, then we'll probably get up closer to the 21%, which is the U.S. rate, say, in year 3, year 4 from now.

[Daniel Rosenberg, Analyst]

Okay. Congrats on a good quarter.

[Operator]

We have a following question from Nick Agostino with Laurentian Bank.

[Nick Agostino]

I guess, Shaun, a question for you with regards to -- I see in your MD&A, you guys expecting remote support to continue to be strong in 2021. And I'm just wondering if that narrative is changing or maybe what your observations are in the last month or so as we're seeing some economies open up. I know Texas is a state for you guys where you have exposure. I'm just wondering if that -- if you're seeing a change in mix shift as economies open up as to where enterprises are looking to spend their dollars as the pandemic, hopefully, becomes more of a rearview mirror thing?

[Shaun Peter Maine, CEO & Director]

Yes. So Nick, one of the things that we're seeing is there's definitely a permanent change in the ways that certain companies and technology companies are leading the way are viewing work from anywhere.So I kind of used the example, Oracle has said they're not renewing any leases worldwide. So there's a company and there are tens of thousands of employees that all of their infrastructure was built around data centers and intranets and high bandwidth there. Now for the future, they now are work from anywhere.The infrastructure required, the security model, a zero trust model, higher bandwidth in solutions that are in a remote setting, this is not changing. And so I think the bigger change is the companies that were delaying spend because of uncertainty in the marketplace are now spending. But I think there's a dramatic transformation in what was the data center into a multi-cloud kind of environment, much more heavily reliant on VDI or virtual desktops, much more reliant on a new security model.And I can't stress high enough how technologies like our Trust Platform that -- this model that you used to rely on logging into your e-mail for a 2-factor authentication with access control lists that existed in this environment that you were then a trusted user, that doesn't exist in this new world, and there has to be a whole new way of thinking about how people interact in the security model.One of the -- we have a world-class cybersecurity group and one of the greatest ways that we've been getting new customers is triaging security flaws. You hear about various attacks from whether it be other governments or just new models, and there's just a new way that security has to be addressed. So I do not see this -- everyone going back to the way it was, I don't think -- I think there's some permanent changes in the marketplace and in the way especially employers are going to be supporting their employees and that it will be much more of a work-from-anywhere-type manner.Definitely, there'll be people back in offices. I completely agree with that, but there's a different model that will really be promoted and rolled out. So I do not think you're just going to see, oh, flick a switch and you're back to normal.

[Nick Agostino]

Okay. I appreciate that. And then just maybe switching gears to the Accudata transaction. I thought it was interesting the sizable earn-out and the fact that it's related to -- potentially related to a recovery in the price of oil. I think that transaction is about 1.5 month old on your books. Just in the last month, the price of oil has been fairly -- very strong for that matter. Just wondering if you could maybe provide some preliminary observations on that Accudata if, in fact, they're starting to see some of their former oil and gas customers come back to them.

[Shaun Peter Maine, CEO & Director]

So they are a world-class kind of network provider. And again, Cisco master security specialist, Palo Alto specialist and so have really high-end skills. And they had about 30% to 35% of their business in oil that just kind of really was heavily impacted last year.There is a lag time, though, between prices. The reason prices are so high is because things -- it takes a while to get online. So I believe there will be a lag. You're seeing some green shoots there, but definitely not a flick a switch and they're back. So I think it will take a while.I think Q2 is really kind of the time -- so traditionally in these companies, Q4 is by far the biggest, Q2 is another significant quarter. And I think Q2 is when you'll start to see the results of a sustained price increase if it's maintained. Then because of the lag time in developing and opening up capacity, I think you'll be kind of looking into Q2. So you're seeing some green shoots now, but you won't see the revenue dramatically change, I think, until the Q2 time frame for that industry.

[Nick Agostino]

Okay. And then just one last one. Just given the gap between transactions or acquisitions during the course of 2020, are we safe to assume that everything that was done in, say, Q1 or up until Q1 of last year, you've pretty much were able to recoup all the margin benefit from all those transactions, and that when it comes to any further margin lift, it really -- we should be looking more so on the -- I guess, the last 7 you've done, which were late Q4 and early Q1?

[Shaun Peter Maine, CEO & Director]

So remember, though, that the lift that we're going to get through cross-sell will not be realized. The lift we get through rebates and the back-office integration, that's absolutely correct. So the whole walk from 3% EBITDA up to 6.5%, absolutely, that will be the newer ones because we have integrated all the other ones. We still have to do the new ones. But it's the cross-sell that really the higher gross profit associated with cloud services and Managed Services that really will continue to drive on that platform. But the -- we've now said in the first 12 months, we'll be able to get those rebates and other synergies from the front and back-office synergies of the new ones, you're absolutely correct there.

[Operator]

We have a following question from Steven Li with Raymond James.

[Steven Li, Director & Equity Research Analyst]

A couple of questions from me. Shaun, last year, you called out the $20 million integration synergies, which you delivered on. Based on the acquisitions you've made so far, is there an amount of synergies you want to call out going into the new year?

[Shaun Peter Maine, CEO & Director]

Not yet. So there will -- again, there will be definitely a significant amount during the year. But we haven't -- so we haven't finished off getting through our acquisition backlog yet. And now that we have a platform to acquire to, there will be kind of timings for those.So I wouldn't want to call that out yet, but I do think the next question about how do you get from 3% to 6.5% is valid. So if you look at that gross profit percentage in the first year after acquisition, we should be able to get them to 6.5% gross profit -- sorry, EBITDA margins.

[Steven Li, Director & Equity Research Analyst]

Okay. Got it. And then maybe for Carl, it looks like you consumed quite a bit of cash flow this quarter. Is that usually the case for your Q4s? Or is there anything you want to call out, Carl?

[Carl Smith, Chief Financial Officer]

Thanks, Steven. I think we had a bit of an anomaly just in some of the collections on the accounts receivable, just on timing. So typically, working capital for us is a source of funds and consistently a source of funds. In Q4, it wasn't probably for the first time in a long time. I would expect that to normalize again in Q1. So nothing specific, just a little bit of timing difference that caused a short-term cash use for working capital.

[Shaun Peter Maine, CEO & Director]

And let me just add to that. So Steven, do realize that we closed Vicom on December 31, and therefore, its balance sheet was added to ours on December 31 before we were able to work through the kind of working capital transition. So that balance sheet would have been included as well, just to add to Carl's comments.

[Steven Li, Director & Equity Research Analyst]

Okay. Got it. So we might see a big swing in Q1 then in working capital?

[Carl Smith, Chief Financial Officer]

Yes, I would expect it to normalize again.

[Steven Li, Director & Equity Research Analyst]

Okay. Perfect. And then, Carl, also, I know Shaun gave the recurring revenue, the gross recurring revenue annualized. Do you have the net recurring revenue annualized for Q4?

[Carl Smith, Chief Financial Officer]

I can get that for you a little bit later on. I just don't have it right in front of me.

[Steven Li, Director & Equity Research Analyst]

Okay. I'll follow-up with you.

[Operator]

Your next question comes from Anja Soderstrom.

[Anja Marie Theresa Soderstrom, Senior Equity Research Analyst]

Congratulations on a great quarter and year and continued execution. A lot of the questions were asked already, but I wanted to ask you a bit more about your entry into Europe. Is that included in your $2 billion run rate goal for 2022? Or is that going to be added to that?

[Shaun Peter Maine, CEO & Director]

Yes. So right now, if you look at kind of what we said on the call that we've kind of added $300 million since the beginning of Q4 in kind of run rate revenue. So if you take that on, and then, say, we kind of say per year, you can kind of model in CAD 400 million a year as kind of the average in the 4 to 6 acquisitions.When you look at the target that we have for Europe, those are -- if they're in euro or in sterling, your -- the conversion into Canadian dollars means that if you're buying something, call it, EUR 100 million, EUR 150 million or GBP 100 million, GBP 150 million, those numbers go up quite dramatically. And so if we're to buy a couple in Europe, then that will definitely increase dramatically the revenue that will be impacted on a run rate basis for 2021.Again, you won't see the full impact of those as we're just getting started in Q2, and you'll have some later on in the year, but that will definitely impact those -- the run rate revenue for 2021.

[Anja Marie Theresa Soderstrom, Senior Equity Research Analyst]

Okay. And in terms of acquisitions in North America, are you still looking to expand territories there or is it more about capabilities?

[Shaun Peter Maine, CEO & Director]

It won't be about capabilities. We feel very good about our capabilities, especially in some of the tuck-in acquisitions we did in Q4. But what I've always said is those NFL cities, when you look at that map and I'm not in that NFL city, that's my target. So we feel that continuing on 4 to 6 a year. We're still not through our backlog, working through our backlog yet. So we'll continue to work through our backlog. Probably take a pause then as we focus in on Europe and then continue on again.But my target is more about customers and cities. Culture always being the first thing that comes to mind. But capabilities, we feel very good about the capabilities we possess in North America.

[Anja Marie Theresa Soderstrom, Senior Equity Research Analyst]

Okay. And then so how should we then think about acquisitions and entering Europe? Would that also then be territories and you will be cross-selling then the capabilities you already built up?

[Shaun Peter Maine, CEO & Director]

Correct. So again, we haven't given any guidance until we nail -- sorry, closed the first acquisition. So I think what we'll do is we'll kind of wait to talk a little bit further on the European strategy when we close the first one because until you close the first one, right now, I'm making assumptions on timing on how long it takes to close on price and the rest. So we feel it will be better to guide -- we have some plans that we're looking to put in place. But again, based on the acquisitions and the geographies, that will tweak those plans left and right. And so we'll feel more comfortable about stating those plans once we've landed the first acquisition. So we'll have to defer to those.

[Operator]

There are no further questions at this time. Please proceed.

[Shaun Peter Maine, CEO & Director]

Great. So thank you to everyone for participating on today's call. Whether you've been with us from day 1 or are new to the story, it has been my pleasure updating you on our strongest year yet I look forward to updating our shareholders again when we announce our next quarterly call, and thank you for your continued support. Good night.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines. Have a great day.