Operator: Good evening. Welcome to the Converge Technology Solutions Corp. First Quarter 2021 Results Conference Call. Your main hosts today are Shaun 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.

Shaun Maine: Thank you, Carl.

Good afternoon everyone. And thank you for participating on today’s Q1 earnings call. I recently had the opportunity to discuss the transformative year Converge experienced in 2020, executing on our Phase 3 objectives of cross-sell, acquisitions and integrations, strengthening our balance sheet and reducing our interest costs. I am honored to provide an update on how that momentum has successfully carried us into the new year, resulting in historic Q1 results yet again. In what follows, I will provide a business update on the quarter and conclude with commentary on our European expansion.

I'd like to begin by once again thanking all of our employees and customers who continue to drive our success despite the various challenges we continue to face at the societal level. Let me start by congratulating our team on winning five IBM awards at IBM Think, IBM's annual partner event, which we announced earlier today. In addition to winning a 2021 IBM Beacon Award, Converge, has been named the Top North America Sell Business Partner of the Year, the Top North America IBM and Red Hat Synergy Partner of the Year, the winner of the IBM Data and AI Business Unit Excellence Award for Cloud Pak for Data and the winner of the IBM Business Unit Excellence Award

for Protect: Digital Trust. It was the most awards won by any IBM partner and shows how significant our position is in Hybrid IT and cloud-enabling software in North America. With IBM splitting its organization into two on July 1, it will become even more reliant on partners like Converge.

Following the model that Red Hat has commercialized so successfully, especially into mid-market accounts. Let me note that all this progress you'll hear about today and the fantastic numbers the company continues to deliver quarter after quarter as a result, has happened despite the global pandemic and the disruption it has caused. I am so proud of our management team and our family of companies in the way they have not only used exceptional customer service to implement hybrid IT solutions for our customers, despite these disruptions, but also how we've been able to bring together our unique capabilities to provide solutions that will help us all get back to a more normal life. Converge recently issued a press release, discussing our partnership with the Lucira Health, a medical technology company focused on the development and commercialization of transformative and innovative infectious disease test kits. Our involvement with the launch of the Lucira Check It Test Kit, which is the first FDA EUA authorized single-use over the counter molecular diagnostic test kit for COVID-19, which can be self-administered by individuals at home is something I'm incredibly honored to be able to speak about today.

Carl Smith: Thank you, Shaun. First quarter revenue increased 28% to $310.2 million, compared to $241.5 million last year. Product revenue which includes hardware and software increased 33% to $252 million from $190 million last year, primarily due to higher device sales to the Canadian government and the impact of acquisitions. Managed services, which are long-term contracts, increased 21% to $16.4 million and $13.5 million last year, primarily due to organic growth in our managed and cloud services to our customers. On an annualized basis, our managed services at the end of the quarter was over $65 million.

Professional and other services, which include professional and staffing services and the net revenue from public cloud resell and software support increased 10% to $41 million from $37 million last year. And as Shaun mentioned by industry, the breakdown was 13% from financial, 22% from government, 25% technology, and 12% healthcare. Our gross profit for Q1 increased 24% to $67.8 million from $54.8 million last year. Gross margin was 21.9%, compared to 22.7% last year. Our gross margin percentage decrease was due to a combination of high device sales to the Canadian government, which is lower margin, but high volume and the impact of recent acquisitions that sell primarily hardware.

Shaun Maine: Thanks, Carl. As we look forward, we're going to complete my original three phase plan for Converge by the end of 2021. The next phase will be the growth of the company from $2 billion in annual revenue to $5 billion in annual revenue in approximately a four-year period. This plan will rely on our European expansion and growth in our managed services. And I will be outlining these plans at our AGM on June the 23.

With that being said, I would like to open the floor to the questions.

Operator: Thank you. Your first question comes from Rob Young from Canaccord Genuity. Rob, please go ahead.

Rob Young: Hi.

Good evening. I'd like to start with your view on where organic growth in 2021 can go in context, particularly in the product side, in context with the expectation for better IT hardware spend and digital transformation. And then also taking into consideration of chips shortage, which is impacting some of the hardware side of the business, I don't know if that's going to have an impact on your business. If you could give us a view on where organic growth may go on product that would be helpful?

Shaun Maine: Great. So, Rob, as you know, product for us is a combination of hardware and software.

And on the software side last year during the pandemic, we grew by 23% on the software side. We would expect to increase that as an industry last year, the IT industry shrunk by 3.5%, enterprise software most analysts have it growing at 8.5%. We're a lot further ahead of that selling into the mid markets. So, we'll expect that to grow. On the product side, the high kind of have numbers in the 7%, again, will be much higher than that as well.

And just to make the comment when you look at year-on-year comparisons, you go back to last year in Q1, a lot of people pulled hardware spend and software spend into Q1 because they were afraid of supply chain disruption in Q2. So last year, if you look at our financials, our Q1 was $241. I believe our Q2 was around $227. Here this year, you're back to a more of a normal buying pattern where Q2 should be stronger than Q1. And then by comparison that much stronger again.

So combined with the very stimulant U.S. environment, I made the comment about some industries that were hard hit are now starting to invest heavily preparing for opening. You would expect extremely robust spending across the whole IT services sector. And as the fastest growing IT service provider in North America, you would expect us to grow that much quicker. Does that help to answer your question, Rob?

Rob Young: Yes, very helpful.

The chip shortage, is that something that you think has an impact on your business at all?

Shaun Maine: So, we're hearing about some delays in certain product lines as a larger provider. We take priority and usually where you see that happen more is on large enterprise customers, which we have less of. So, with something we're monitoring very closely and again, we had when – during the pandemic, when people had difficulty sourcing products, we were always top of the line and we always found a way to get it done. So, our customers did not suffer. And because of that service level, I think we built a lot of loyalty during the pandemic in the same way, where there are chips shortages, we will always have priority and we'll find a way to get to our customers.

We are hearing about lengthier delays on normal shipments, but where we need to find things and expedite, we can. But again, I think it will probably hit the people in the kind of large enterprise sector more than the mid-market.

Rob Young: Great. And then I know you don't give guidance on this, but I was hoping you could give a little bit of color on the cadence of EBITDA margins through the year, because a couple of large acquisitions at the beginning of the year and Dasher has better EBITDA margins, I think, in general, but there you've got a lot of our revenue falling into the business at the front end. And so, I was just hoping you could give a sense of how you see that playing out through the year and then I'll pass the line.

Shaun Maine: Yes. So, a couple of things there is, remember rebates have a material impact 1.5% of sales are volume rebates. And the day after, sorry, the 30 days after we acquire a company, there'll be top tier certified. And therefore, we're realizing that. So, you start that clock.

And then recall that we just talked about $8 million of cost savings in Q1. And you recall last year in Q2, we took cost out and then you saw the impact in Q3. So, on EBITDA margins, the synergy impact will be felt, and you'll see that next quarter. And you'll see it more dramatically in Q3 as our back-office integration also takes place to that. But also recall the executive briefings.

I was on our QBR calls on Friday and Monday, listening to these companies that we've only had for a quarter or less than a quarter. And with Dasher, for a month, talk about the executive briefings, bring in our senior executives that know the breadth of our services because there's no way a new acquisition would know them and them bringing in cross selling analytics, cybersecurity, DevOps and managed services into their existing accounts. That's the really impressive part. So again, we're giving the stats on here are the numbers and they are throughout all the regions and meaningful into those top customers of all of those acquisitions. So, you would absolutely expect to see dramatic improvements as we go through the year.

The nice part of it last year, because we didn't acquire any companies in Q2 and Q3. You're – you really saw the lift through the cost out and the rebates and the cross sell. You'll see – we've been very front end focused in our acquisitions this year. And so, as you go Q2, Q3, Q4, you'll see the exact same walk.

Rob Young: Great.

Thanks a lot for all the color. I'll pass the line.

Shaun Maine: Thanks, Rob.

Operator: Your next question comes from Kevin Krishnaratne from Desjardins. Kevin, please go ahead.

Kevin Krishnaratne: Hey, there guys. Good evening. A few questions for you on managed services. So, I think you mentioned growth 21% year-over-year, I'm wondering if you can give us an update on the iSeries service, any updates there I think you started that early days at the end of last year. I'm wondering where you're at this point in time and what you see, how you see that evolving this year?

Shaun Maine: Yes.

So, Kevin, great. It's a really differentiated service and thank you for mentioning it. So, we started off with a large retailer in the Northeast as our first onboarded customer. The one thing that we're seeing is demand is extremely high to get these larger customers onboarded is taking longer than we had anticipated in that. They – with especially with COVID, some of the restrictions on access in the migrations have been difficult.

We definitely expect that to accelerate as the U.S. has opened up. And we're already seeing that into Q2. So, in Q1, it wasn't as dramatic. As we had hoped as we kicked things off kind of last Q3 and Q4, but as the year progresses, I would definitely see that because demand is very high there as you know, only IBM, Sirius and ourselves can provide these services.

And we're definitely in a predominant position there around Google and Infor to offer that, especially around the Infor solution and it's a differentiated service and it's something we're leading in Europe as well. But the one factor that delays the recurring revenue piece is the onboarding piece, which is professional services, but that has taken longer than I had anticipated for it originally.

Kevin Krishnaratne: Okay, understood. Thanks for that. You mentioned a lot of great metrics in terms of the cross selling, all of this and executive briefings and tech workshops that you're offering.

Can you talk to us about the share of wallet? So, if you acquire a company and then within a month, you're cross selling. Do you have any way of giving us an example or a rough estimate of the amount of IT budgets spend at your end customers that you're expanding? Did Dasher maybe it only had 5% of the IT budget now with the cross selling they're able to double that to 10% or I'm just throwing out some numbers there, but if anything, you can provide us with any color there in terms of budget expansion would be helpful.

Shaun Maine: So, one of the things is the very first step that we try to do is change the engagement for – if you're selling infrastructure only into an account is to get to the application developers, because if you're going to have a cloud conversation or managed service conversation, it's not with the infrastructure people it's too late. And that's why we always lead with Red Hat and VMware. So, the most effective things that we do are things like do a software asset management audit because we know we can save money, people in licenses or the workshops that have been so successful around things like Ansible and OpenShift, Red Hat, Kubernetes implementation, or around via VMware’s managed services to get to the application developers because who we're competing with are the internal IT groups.

It's not an external provider that's providing these things. It's – they're trying to do it with their internal IT groups, and they're not well equipped to do this. So, by leading with DevOps, and then you're part of the conversation when they go to look to deploy it, public cloud, private cloud, your own managed service. Whereas if you're in talking to the infrastructure group, it's only after the application guys have decided that this is going to be in our data center, that it gets passed to them. So, you would never have that conversation.

So, by having an executive briefing, the infrastructure guy that they're selling into usually brings his boss along because our sales rep is bringing their boss along. So that's kind of mirroring it. And it's usually the boss that says, you know what? You have all these capabilities. I wasn't aware of that you need to talk to our software application group or our software asset management group. And that's the really the meaningful, so it doesn't start off with immediately multi-million-dollar contracts, because a lot of the software sales, in the DevOps sales, professional services, you start with licensing, but it changes the engagement.

And then that's where you lead to the conversations around cloud and professional services around analytics, cybersecurity and DevOps to keep that wallet share going and more software sales. So that kind of is leading you down the path. It's not as easy to kind of say, Hey, same-store sales go by 2x. It's more how you engage the account with who and then how it builds from there. Does that help Kevin?

Kevin Krishnaratne: Yes.

No. That's helpful to understand the process. I know it's a little bit more complex than we think. So, thanks for all that color. One more for me, just on M&A, you did highlight quite well machine that you've got here in North America, I'm wondering as you contemplate Europe, how much of that process can be leveraged there? You talked about, the plugging into the ERP system, mid-market it kind of makes sense.

How do we think about any potential nuances there as you move into Europe on that model?

Shaun Maine: Great question. So, we spent a lot of time on this. The first company let's say it's in Germany. Well, there won't be the same synergies in that country. It'll be acquisition two to 10 that we'll have the synergies because per country, in the front office side, there are things that have to be done in country.

The back office, so Cory Reid, our COO is that of Ireland will be having our back office shared service center out of Ireland for Europe. And that'll be shared through multiple countries, but you will not see the same efficiencies that we get in North America through these acquisitions that I'm talking about, you won't see with the first acquisition in country, but you will on the subsequent ones.

Kevin Krishnaratne: Okay. Nope. All makes sense.

Thanks for all the color and congrats on a good quarter. I'll pass the line.

Shaun Maine: Thanks, Kevin.

Operator: Your next question comes from Rob Goff from Echelon Capital. Rob, please go ahead.

Rob Goff: Thank you very much for the question. Perhaps I would follow-up on the European acquisitions. You talked about the efficiencies on the first purchase. Could you also talk to whether or not the working capital savings are available to you in Europe as they are in North America?

Shaun Maine: Yes, another great question. So yes, they are.

There are some different dynamics and one of the biggest growth areas currently in Europe is in government and government unlike the U.S. government, more like Canada includes healthcare and schools and therefore post pandemic, there's a lot of government funding into these areas. And so, we're starting off with companies that are more feeding into those sectors. Unlike Canada, the U.S., those sectors don't tend to pay as timely. And so, there is very important to match the working capital terms.

And this is where the wonderful partnership that we have with Ingram Micro has been extremely helpful as we've moved our payment terms 75 days and the same kind of arrangements available to us in Europe that really solve some of the problems that are faced by some of these companies in having to use working capital for expansion where that isn't an issue for us. So absolutely able to use them and I would think extremely valuable in Europe, especially to government customers.

Rob Goff: Excellent. And sticking with the working capital, perhaps Carl, could you talk to the sources and uses within working capital for you and what you may see looking ahead this year?

Carl Smith: Sure. So normally working capital for us is a really significant source of cash.

In Q1, you'll notice that it wasn't that was kind of a one-off. We won a really large contract with the Canadian government for devices great contract. But for that, we had to actually procure the devices directly from the OEM and had payment terms of 45 days rather than the typical 75 days that we get out of Ingram. And then a large part of that was delivered through the end of the quarter. And some of it's still in inventory that was delivered early in Q2.

So, this quarter, I actually had my working capital being a use of funds, which meant typically it's a source. I would expect that Rob to completely normalize in Q2 and we'll go back to generating significant amounts.

Rob Goff: Thank you. I will hand back.

Shaun Maine: Thanks, Rob.

Operator: Your next question comes from Steven Li from Raymond James. Steven, please go ahead.

Steven Li: Thank you. Hey Shaun, Carl. Hey, Carl just on that last question.

So that large contract so you could procure that from Ingram that gives you 75 days.

Carl Smith: We could have done this one, Steven. This is like a brand-new contract that we won. We did procure it from the OEM. And with Northern Micro selling into the Canadian government specifically, it is really a Q1 heavy quarter and it was a really strong quarter for us.

So great on the revenue – great adding to my EBITDA, but it did use up very temporarily some cash in my working capital. So that'll all normalize by Q2.

Steven Li: Okay. Got it. And the front office, the cost that's being taken out the $8 million.

So, this is from Q1 base like Q1 2021 cost base?

Carl Smith: Yes. Yes. Q1 2021 cost base. So, this is in addition to everything that we did in 2020. This is brand new from the new acquisitions that have been brought on board.

Steven Li: All right. That's great. And then Carl, I know you gave the gross ARR, do you have the annualized net recurring revenue as well for the quarter? Thank you.

Carl Smith: For the managed services, I gave is about $65 million. The total net annualized recurring revenue was probably around $120 million.

Steven Li: $120 million? Okay. All right. Thank you.

Carl Smith: I can get back to you a little later on, but it significantly higher than what it was in Q4.

Steven Li: Okay.

That's great. Thanks.

Operator: Your next question comes from Gavin Fairweather from Cormark Securities. Gavin, please go ahead.

Gavin Fairweather: Hey there, can you hear me?

Shaun Maine: Hey Gavin.

Yes.

Gavin Fairweather: Okay, great. Looks, I just wanted to touch space on the Think conference, obviously a pretty big deal for IBM and anyone involved in that ecosystem. From my rating of it, the headlines seem to be that they're doubling down on kind of channel, cloud packs and AI. Maybe you can just discuss kind of any incremental takeaways or opportunities that you walked away from that that maybe were new for you?

Shaun Maine: Yes.

So, you've pointed out to the real ones. So, realize that Red Hat was 80% through the channel. IBM and this is partially because of some issues they had in years past were only 15% through the channel, and they're really trying to address that part of it is getting rid of their direct salesforce at particularly into mid-market. But also, as aggressively investing in the channel, that means giving accounts that they used to have direct to channel partners. We are, as you see, we grew our software revenue by 23% last year.

So, cloud packs, AI, everything that's really important to IBM is really important to us. And on the software side, we make great margins and they have great products that we're selling into there, led by the Red Hat solutions. So, it's a great partnership for us. It is really meaningful this split because again, IBM used to compete with a channel. This will be meaningful as more; the Red Hat management moves into the top chairs at IBM embracing the channel.

And David La Rose, who runs channels is committed to getting that 15% up to 60%. And last year they tried some things, but again, they tended to get a little bit in their own way. This split on July the first is extremely meaningful. And partners like ourselves like we are extremely well positioned. No one controls their channel more than IBM.

Registrations are meaningful as far as margins go and therefore to be the predominant player for IBM, especially on the software side in North America will be a real windfall for us in 2021.

Gavin Fairweather: Great. Congrats on all the awards at the conference and also on a great quarter.

Shaun Maine: Thanks, Gavin.

Operator: Your next question comes from Suthan Sukumar from Eight Capital.

Please go ahead.

Suthan Sukumar: Good evening, Shaun, Carl, and congrats on a strong quarter. First question I had was on the managed services side. It's good to see another quarter of steady consistent growth. And you guys talked to – you guys have talked at length about this being a key growth area for the business.

Aside from the iSeries opportunity, how are you investing in this opportunity further from an organic standpoint and what expectations do you have for growth this year?

Shaun Maine: So, we've stated that we want to get our managed services revenue up to an annualized rate of $100 million by the end of this year, but it's a key area of investment and that's organically, that's acquisition. That's even bringing on people with experience to our Board. It's a major – as we said, the pot of gold at the end of the rainbow is managed services. So, this will drive significant EBITDA margins that are recurring repeatable high margin revenues. So, it's an area of great investment.

We'll be talking a lot more in detail about this on at the AGM on June 23 as we kind of map out our next three and four years. But yes, for this year, the target is a $100 million of managed services revenue by the end of the year on an annualized basis.

Suthan Sukumar: Okay, great. And you guys touched on some of the success you're having with analytics in the mid-market, what are the capabilities and expertise do you see as relevant in the mid-market, and something that you would look to fold in either via kind of building in-house or through M&A.

Shaun Maine: I love, I mean the Lucira Health, do you realize – this is how unique Converge we get pigeonholed.

You buy resellers, your reseller. When you look at, we have our own IP around trust ecosystems and identity, you have your analytics piece to recognize things like barcodes and individuals, you've got your dev ops people writing applications to do this quickly in response to a need around a real high growth area, and then enabling cloud to store data and records, to enable a managed service, to manage this on behalf of our customers. Those capabilities are with just such a wonderful use case to think of how different that is than the companies you see around. Softchoice has been making some noise around. Those kinds of companies just don't have a capability to deliver those kinds of solutions.

The CGIs of the world they actually do. But they only focus on the kind of the large enterprise space. To have these capabilities and to be this nimble, to deliver those kinds of solutions, it's just a wonderful use case of the kinds of things, the ways we're helping our customers by combining these capabilities, which are rare. Like you do not see PC data scientists grow on trees, like that is not a skillset you can get into the mid-market and by us, not just having them, but embedding them into solutions that involve the other areas, that's much more like a systems integrator, CGI, but to do it cost-effectively into the mid-market, by the way, our salesforce can introduce us into accounts, I mean, define these opportunities, that's to me is the real differentiator for Converge.

Suthan Sukumar: Got it.

That makes sense. And so, it sounds like you will continue to be looking out for kind of key capabilities here to kind of layer into the mix. Is that how we should be thinking about?

Shaun Maine: Yes, especially around our managed services, so where – like, there was no other provider was providing verification of identity. Okta does a super job on the identity space, but we partner with them to provide that verification piece. And that was really the missing piece where we find gaps that our main providers cannot provide and especially as it is required for our managed services, in this case, it was building trust ecosystems.

That's where we'll invest in our own IP and technology.

Suthan Sukumar: Got it. Perfect. That's helpful. And the last question for me is, I guess, on M&A just want to touch on the European opportunity can you talk to on how large is a pipeline of targets that you're looking at now? And what is the evaluation environment also look like now compared to what it was last quarter?

Shaun Maine: Yes.

So again, we met with 64 companies in Germany created this shortlist of 16 have 400 MBA and are working with the close acquisitions this quarter. Extremely impressed by the quality of companies that were coming about with, and we need to thank our, our vendor partners our IBM partners or Red Hat partners, or VMware partners and our own ecosystem in Ingram for helping to introduce us to these, I got to say that Doris Alvarez has done a super job. Again, she's been in the channel in Germany for 35 years, so she knows these companies extremely well. But again, the quality and the growth of some of these companies, especially the ones providing services into the government space healthcare education, it's very impressive. And again, although we say we'd like to get them under six times, we're still working to get the same valuations we get in North America.

Again, I haven't closed anything yet. So, until I do that'll be the basis, but we're looking to do that this quarter at the latest, or it will be in the next quarter, but it's going very well have some tremendous companies and I'm really excited by what Europe is going to bring.

Suthan Sukumar: Great. Thank you, guys. I’ll pass the line.

Operator: Your next question comes from Anja Soderstrom from Sidoti. Anja, please go ahead.

Anja Soderstrom: Hi, thank you for taking my questions. And congratulations on another great quarter. If you can just talk a little bit about that large government contracts you had in the first quarter was that an insulated contract or is there more to come there that might keep the hardware elevated? Or how should we think about that?

Shaun Maine: Yes, so the government just tends to spend more in Q1.

Thrilled to get those deals. The opportunity when you have device sales, is can we add managed end user sales to those? So, by themselves device sales, aren't that interesting high-volume kind of lower margin. But if we can add managed service to that, they will become, but really, it's a very heavily Q1 focused around the government spending pattern here in Canada that you'll see the majority of that. So again, it's something that didn't exist a year ago that we've added around the government. And especially, I think, this is they're looking at more longer-term, a lot of the work-from-home initiatives and how they are enabling things and refreshes.

So definitely took advantage of that. But really the opportunity for us is how can we add a lot of managed services around those endpoint devices? But yes, it's a Q1 focused Anja.

Anja Soderstrom: Okay. And managed services is an upsell that comes later then, or…

Shaun Maine: Correct. So, when you have those, it's something that we're working on in some of the European targets that we're going at are offering these.

And so, as part of our overall trying to get managed services into every aspect of our business, that's a key one where some of these targets that we're looking to acquire in Europe are already doing this. Can we offer those to our Canadian customers as well?

Anja Soderstrom: Okay, thank you. And then also you have a really good playbook for North American in terms of acquisitions, and you're very familiar with the competitive landscape here and everything. But what do you expect from Europe in terms of a different landscape or different culture, or how are you sort of embracing that?

Shaun Maine: That's a different culture, but the one thing I was shocked at, so Becklar has bought a hundred companies they are the major player there in Germany. And so, I thought they would have picked over the German market.

But when you go, you find out that Becklar favors it's top 12 and therefore no companies in the mid-market between €75 million and €200 million of annual Euro annual spend, wants to be bought by Becklar because they're going to become a second-class citizen. And Cancom after they lost their CEO last Q1, they haven't been on a growth path. So, I was amazed at how wide open the opportunity was for us to acquire quality companies in Germany. Absolutely there is a different culture. And rather than having the fast talking Canadian, talking to them having , who have known them for 30 to 35 years is much more effective as an introduction to gain comfort because the same way I know the North American ones, she knows the German ones.

I am quite more familiar with the UK marketplace, but the German ones has done a fabulous job in getting some real quality companies that are into our pipeline. So yes, it's different. Culture is different. The way we approach it, the playbook is different in Europe and North America. But also, we'll be looking to add experienced European executives to our Board and our management team because like you say, we've all done this many times ourselves, so we'll be looking to add people that have done this before to our management team and Board as well as we expand into Europe, the opportunity is tremendous.

It's tremendous this year. Some great targets, but we'll be looking to definitely add to our skillsets here around that as we move on.

Anja Soderstrom: Okay. And you talking about adding executives I know you have the European Advisory Board. Can you just give us some color on the composition of that and what you expect from that?

Shaun Maine: So, give me until the AGM.

So, at the AGM, I'm going to – you’ve got a lot of exciting announcements to make. I'll give you that, that'll be the teaser. So, June 23 will be our AGM if you can give me till then I can make a proper announcement.

Anja Soderstrom: Okay. Well, looking forward to the AGM, I might cancel my Netflix till then.

And in terms of Lucira Health partnership has that open any other doors for you since you announced, like, has that led to other…

Shaun Maine: Absolutely.

Anja Soderstrom: Similar companies?

Shaun Maine: So, into Canadian government sources, as well as through that partnership, the credibility that's given us, so we have a wonderful toolkit called a TrustBuilder tool kit that other global SI can use. But showcasing these capabilities to other partners or other solutions that we're providing. I mean, this sort of helps a great partner. So obviously you are expanding that relationship and not just to stadiums and to sports fans, but to other venues and concerts.

And there's all kinds of different marketplaces that we're looking to first in the states, which is really ahead of the game, as far as using these over in Europe that tends to be some reluctance to using COVID passports to gain access. But in U.S., it's definitely there. Canada is just, I guess, further behind, as far as the vaccine programs, but I'm sure there'll be those opportunities. And what the credibility that's given us is made as part of conversations that otherwise being validated has been very meaningful. So, I mean, again, this is a real pressing problem, but it's not just the technology in IP that we own.

It's the capabilities around it. Like when you have all those different pieces, when you realize just to recognize a barcode, well, that's our analytics guys had stuff off the shelf to go, yes, here is this we'll compare it, we'll look it up. Like, how is that the software development piece, and the technology piece and the hosting piece, the cloud piece, there's a lot of pieces you put together to form one of these solutions. It really showcased how wide the capabilities Converge has. So yes, because of the credibility of that, though, it means that there's a lot more doors that have opened for us.

Anja Soderstrom: Okay. Thank you. That was all for me.

Operator: Your next question comes from Daniel Rosenberg from Paradigm Capital. Daniel, please go ahead.

Daniel Rosenberg: Thanks. I had a quick question around the managed services opportunity within the core customer base. I was wondering outside of the, you mentioned 80 new logos and of course acquiring a bunch of new relationships as you expand, but other customers you have, let's say from a year ago or two years ago, has the opportunity been across – has cross selling occurred fully in terms of what managed services offering they can buy, or how much more of that customer wallet share is there for you to capitalize on in the future?

Shaun Maine: Yes so, it's a tremendous path. It does take longer to get managed services accounts. So usually, you start somewhere else and get there.

And in fact, the best managed services customer to sell into is one that you already provide a great service into. So, there is a slower burn to get there, but it's by having the capabilities and start with even service desk. So, really, the upsell on our iSeries is hostings first, then it's service desk where we triaged problems. Is it us, is it Google, is it in4? Then it's managed network. Okay, you need that high bandwidth between all of us like you get in your intranet, let us provide that for you.

Then it's managed security, making sure there's no intrusion at the same high-level security you have intranet versus in across the wider area network. And then there's managed end user. But that's all the build and it's a multi-year build. So, I wish it was a lot quicker. We're very impatient company, but there a slow burn and you grow this, we will be making a lot of investments in this area that we'll be announcing in the following quarters and at the AGM to really accelerate this growth.

But it's not the same kind of pace that you get with the software which you can be much quicker. We lead in there, we're a hybrid ITP capability, but on the managed services side, there is a longer progression. And there's also, as I was mentioning to Kevin before the migration of services and managed services does take longer to get to the recurring revenue piece. So again, tremendous opportunity, not as quick as some of the other things we do.

Daniel Rosenberg: And then as it relates to servicing that opportunity could you speak to retaining talent and attracting talent? What that employee market looks like as you look out there today and the opportunities you see ahead and being able to service?

Shaun Maine: So, we're really fortunate, especially on the managed services side that we have managed documents SOC like really strong key capabilities that in the right regions where other not as competitive, when you bought 19 companies and we had we've acquired 11 data centers.

So, the consolidating them back to five, you can choose areas where they're not as competitive. A lot of our consolidation has come from these small companies have put all their staff where their front office is. And when you buy four companies in New York and you buy a bunch in California, well, guess what? Those are the most expensive places in the planet. So that's probably not where you want to host a lot of your data center staff which also, there's a cost arbitrage. And then there's also the competition.

Although I will say the availability of talent pre-COVID and post-COVID are dramatically different and that sort of post-COVID still going on, of course, but as things open up and that the job market, we had negative 4% tech employment which means you basically had to steal someone from a job to get them to another job. And in particularly New York and California being the worst environments for that, whereas because of the dislocation, just in certain sectors, some really good people ended up being dislocated and therefore it did provide more of a cushion in the job market to find good people. So, I think again, on the managed services side, I’d say different story when you're looking at some high-end data scientists and cyber security people, et cetera, from the managed services side we haven't had those issues.

Daniel Rosenberg: Okay, great. Thanks for taking my questions.

Shaun Maine: Thanks Daniel.

Operator: Your next question comes from Nick Agostino from Laurentian Bank of Canada. Nick, please go ahead.

Nick Agostino: Yes. Good evening, gentlemen.

I guess two questions on my part. First on the Lucira, given I think, Shaun, you mentioned that you're touching many, many parts of that potential, I guess, validation process. Is there something different in the business model here as to how you are going to recognize revenue? Is it just on a piecemeal for devices when the solution is downloaded or installed? Are you getting paid a little bit on transactions? Just any color there that might differentiate this opportunity versus your more traditional ITSP opportunities?

Shaun Maine: Yes, so really it is – this brought together a lot of capabilities all started off really PS-led go solve the customers’ problem, help people be able to use this, to get back to stadiums. Now, as we're expanding, we're looking into build this into much more of a managed service to say, great, this works now, how do you make this work and over time, how can you reuse those for that that pass for not just for getting into a sports stadium, but into different events? So, widening it out, service levels, et cetera. So definitely started PF heavy now moving to what are we're working Lucira Health to provide? How is this a managed service? What are the other things we can do? But we started with the solution in mind, which is always the way we approach things.

And then look, how do we expand that to much more of a recurring revenue and offering a service and expanding that service, but start it off with a solution of mind.

Nick Agostino: Okay. But is there opportunity to get paid per transaction?

Shaun Maine: Absolutely is and so that as you offer it has a managed service. So, it started off just PS engagement, but there's all kinds of things. The management of this amount of data is extreme, and therefore it lends itself to cloud because that's where you store all your unstructured data.

So, one of our largest customers, 23andMe is ancestry data. So, this I don't view as such a different kind of solution that you'd say I've got all this unstructured data and then what are the useful things you do with it? But yes, started off to solve the problem and then build up that recurring revenue model with a managed service. But that's not where it started, that's where it gets to.

Nick Agostino: Okay. And then second question for Carl, just looking at your gross margin for the quarter 21.9%.

I recognize it was hardware heavy because of the large government contract. Can you maybe just give us a sense what a more normalized quarter, what the gross margins would have been, had the quarter been more normalized in terms of the mix?

Carl Smith: Sure. So, if you look at sort of last year kind of a good gauge because we hadn't been doing many acquisitions. Last year, our Q1 was our lowest gross margin and it will be again this year. We would expect Q2, Q3, Q4 to trend up.

We have a quality number of companies. So, our gross margin probably won't be as high on a quarterly basis this year initially as it was last year, but tending towards Q4 it would be back to where it was.

Nick Agostino: Okay. But just trying to understand how much that hardware contract depressed the Q1 gross margins, do you have any color on that?

Carl Smith: At least by a percentage.

Nick Agostino: Okay.

Then that's it for me. Thank you.

Operator: There are no further questions at this time. I'll now turn it back to Shaun. Go ahead.

Shaun Maine: Thanks, Carl. And thank you to everyone for participating on today's call. It's been my pleasure updating you on the undeniable momentum that has carried us into yet another successful quarter. I look forward to updating our shareholders again at our AGM. And thank you all for your continued support.

Good night.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.