TORONTO, Aug. 26, 2016 /CNW/ - Pivot Technology Solutions,
Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its
results for the second quarter ended June
30, 2016.
Financial Highlights Q2 2016
- Revenues of $373.7 million, up
4.4% compared to Q2 2015, attributable primarily to strong product
sales.
- Product sales of $331.1 million,
up 5.4% compared to Q2 2015.
- Service revenues down 2.2% to $39.9
million compared to Q2 2015.
- Gross profit up $1.3 million, or
2.9%, to $46.6 million from the same
period in the prior year.
- Gross margin for the quarter was 12.5%, down slightly from
12.7% in Q2 2015.
- Adjusted EBITDA* came in at $9.1
million, down 8.0% from Q2 2015.
- Excluding changes in non-cash working capital balances, the
Company generated $5.6 million in
cash from operating activities, as compared to $5.9
million for the same period last year.
- As previously announced, the Company was informed by Austin
Ribbon & Computer Supplies that it intended to terminate its
distribution, licensing and administrative services agreements with
Pivot, effective August 31,
2016. In relation to the anticipated decrease in future
revenue and gross profit related to this entity, the Company
conducted an interim impairment test. Accordingly, Pivot
recorded a non-cash impairment charge of $3.8 million.
Q2 Operational Highlights & Events Subsequent to the
Quarter
- The Company announced Board and Management changes.
Kevin Shank has taken over as CEO
from Warren Barnes, who remains
affiliated with the Company as a Board member and consultant,
effective May 1, 2016. Mr.
Shank was also elected to the Board of Directors.
- Mr. Wade Dawe was elected as a
new member to Pivot's Board of Directors at the Company's Annual
and Special Meeting of Shareholders.
- The Company appointed Brian
Kyle, former CFO of Teranet and TSX listed DH Corporation as
its new CFO.
- The Company announced that its Board of Directors has approved,
under its dividend policy, a quarterly cash dividend on the common
shares of the Company in the amount of CAD $0.01 per
common share (CAD $0.04 per share annualized), payable
on September 15, 2016, to holders of record at the close of
business on August 31, 2016.
Financial Highlights H1 2016
- Revenues of $706.5 million, up
8.0% compared to H1 2015, attributable primarily to strong product
sales.
- Product sales of $622.9 million,
up 9.3% compared to H1 2015.
- Service revenues relatively stable, down 0.2%, or $0.2 million, to $79.2
million compared to H1 2015.
- Gross profit up $7.1 million, or
9.2%, to $84.6 million from the same
period in the prior year.
- Gross margin for the six months ended June 30, 2016 was 12.0%, up slightly from 11.8%
in H1 2015.
- Adjusted EBITDA* came in at $10.6
million, down 5.8% from H1 2015.
- Excluding changes in non-cash working capital balances, the
Company generated $6.5 million in
cash from operating activities, as compared to $7.1
million for the same period last year.
Management Commentary
"Our earlier investments in our sales organization helped
deliver positive growth for our core IT infrastructure products and
solutions business during the quarter." stated Kevin Shank, CEO of Pivot. During this
same timeframe, the investments made in driving professional and
product related services didn't yield that same growth, thus our
services business was relatively flat for the quarter.
We will continue to invest in product and professional services as
part of our core business, as these services are very important in
securing new product sales and preserving gross margin. Volumes in
this area are subject to some volatility, based on the
infrastructure we're selling to our customers in any given
quarter."
He continued, "With that said, we are now beginning to invest in
leadership, capabilities, tools, and capacity to build and deliver
an expanded suite of managed service offerings. We believe
this segment represents a very significant growth opportunity for
the Company in the future, in particular among our strong and
growing existing customer base. While this transition will
take time, we believe that the higher-margin, recurring-revenue
nature of managed services should drive sustainable growth of
profitability as this segment of our business grows."
"We are more positive with how our expense base is trending in
Q2 versus Q1. Additionally, we are shifting our investment to
more closely align with our strategy, investing in, and allocating
resources to those areas where we anticipate being able to drive
profitable, sustainable growth into the future. Going into
Q3, while too early to make projections on revenue and
profitability, we are witnessing a business climate in line with
historically typical market activity."
Q2 2016 Financial Review
Revenues came in at $373.7
million, up $15.8 million, or
4.4% from Q2 2015. Revenue growth was attributable
predominantly to increased product sales, which came in at
$331.1 million, up $17.0 million, or 5.4% over Q2 of 2015.
The net increases in product sales over the prior year quarter
was due primarily to major customers, with a growth of $22.0 million, which more than offset a
$5.0 million fall in product sales to
non-major customers. While the Company did sell less to non-major
accounts overall during the quarter, this was predominantly due to
the Texas market, where Pivot is
experiencing a cautious investment climate related to depressed oil
prices. Outside of Texas,
the business climate continued to be healthy, and the Company
achieved growth in its non-major accounts also, as Pivot continues
to deepen existing relationships and engage with new
customers.
A modest fall was recorded for the Company's services business,
which saw revenues 2.2% behind last year's comparable period at
$39.9 million. However, quarter
over quarter First Call and maintenance contract revenue increased
$0.2 million, offset by a decline in
professional and project related services revenues of $1.1 million.
Gross profit of $46.6 million was
up 2.9%, or $1.3 million, from Q2
2015. Gross profit margin of 12.5% was down slightly from
12.7% in Q2 2015 due to a higher contribution from sales to major
customers, which carry a lower margin.
The Company recorded adjusted EBITDA* for Q2 2016 of
$9.1 million, down 8.0%, or
$0.8 million, from Q2 2015, as the
increase in gross profit was offset by higher operating expenses,
due primarily to investments in infrastructure to help drive and
carry growth, as well as a non-cash charge related to the Company's
stock option plan.
Selling and administrative expenses for Q2 2016 increased by
6.0%, or $2.1 million, to
$37.5 million, as compared to Q2 2015
due to the reasons referenced above.
On June 1, 2016, the Company was
informed by Austin Ribbon & Computer Supplies that it intended
to terminate its distribution, licensing and administrative
services agreements with Pivot. The termination of the
agreements indicates the business unit will experience significant
decreases in expected future revenues and gross profit. As
such, the Company reviewed its business forecast and performed an
interim impairment test. The Company concluded that the
recoverable amount based on the value in use impairment test was
less than the carrying amount, and accordingly recorded an
impairment charge of $3.8 million,
consisting of a write off of goodwill of $1.3 million and a reduction of other intangibles
of $2.5 million during the three
month period ended June 30,
2016. Total gross sales reported by Pivot in respect of
Austin Ribbon were approximately $23.1
million for the three month period ending June 30, 2016, and $47.2
million year to date. Austin Ribbon's sales efforts
were concentrated in the state of Texas, serving both public and private
organizations.
Excluding changes in non-cash working capital balances, the
Company generated $5.6 million in
cash from operating activities, as compared to $5.9 million for the same period last year.
As at June 30, 2016, total cash on
hand was $18.9 million, up from
$8.0 million as at December 31, 2015.
Cash used in investing activities decreased by $0.2 million compared to the same period in the
prior year. The decrease is due primarily to a reduction in
capital expenditures, as substantial investments were made in the
comparable prior year period due to costs incurred for a new, state
of the art warehouse and integration center.
H1 2016 Financial Overview
Revenues for the six months ended June
30, 2016 increased by $52.2
million, or 8.0%, to $706.5
million, as compared to the same period last year.
Compared to the same period in the prior year, product sales
increased by 9.3%, or $53.1 million,
to $622.9 million, driven both by
non-major customer growth of $26.7
million and major customer growth of $26.4 million.
Service revenue remained relatively stable, decreasing
marginally by 0.2%, or $0.2 million,
on a year over year basis to $79.2
million, as compared to H1 2015. For the period, a
$1.4 million fall in professional
services and staffing revenue was offset to a large extent by a
$1.2 million increase in First Call
and maintenance contract revenues. Service revenues accounted
for 11.2% of total revenue, down from 12.1% in 2015.
Revenue growth and a slight increase in gross profit margin to
12.0% from 11.8% last year, resulted in gross profit of
$84.6 million, up by 9.2%, or
$7.1 million compared to the same
period in the previous year.
Adjusted EBITDA* for H1 2016 fell by $0.7
million, or 5.8% to $10.6
million, attributable to investments made in the
organization to drive and carry growth going forward.
Excluding changes in non-cash working capital balances, the
Company generated $6.5 million in
cash from operating activities, as compared to $7.1
million for the same period last year, attributable to higher
operating expense related to investments in people to drive and
carry growth going forward.
Normal fluctuations in revenue performance, which are
commonplace in the industry, drive significant movements in working
capital, in particular with regards to accounts receivable,
inventory and accounts payable. Consequently, movements in
working capital balances are largely volume related, however, the
Company focuses on driving improvement in its business processes to
optimize the use of its secured borrowing facilities and
effectively manage working capital. As such, the Company uses
the average undrawn availability on existing, secured credit
facilities as a key measure of liquidity, which for the first six
months of fiscal 2016 stood at $59.5
million, as compared to $25.4
million for the comparable period in 2015.
Conference Call
DATE:
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Friday, August 26,
2016
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TIME:
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11:00 a.m.
ET
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DIAL IN
NUMBER:
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+1
647-427-7450
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+1
888-231-8191
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TAPED
REPLAY:
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416-849-0833 or
1-855-859-2056
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Available from August
26, 2016 14:00 ET to September 9, 2016 23:59 ET
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Reference number:
62629856
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Subsequently, a recording of the call will be posted on the
Company's website: www.pivotts.com.
About Pivot Technology Solutions, Inc.
Together with
its portfolio companies and partners, Pivot delivers solutions that
enable organizations to design, build, implement and maintain
computing and communication infrastructure that addresses their
unique business needs. Pivot's approach supports improvement of
business performance, helps organizations reduce capital and
operating expenses, and accelerates the delivery of new products
and services to end-customers. With over 2,000 customers,
many of whom are Fortune 1000 companies, Pivot extends its value
added solutions to help organizations of all sizes improve
operating efficiency, reduce complexity and enhance service
delivery through virtualization and cloud computing. Pivot
enables businesses to extend their enterprise through mobility
solutions to better connect business partners and customers.
Pivot has offices throughout North
America and can be found online at www.pivotts.com.
Forward Looking Statements
This news release contains
statements that, to the extent they are not recitations of
historical fact, may constitute "forward-looking statements" within
the meaning of applicable Canadian securities laws. Forward-looking
statements include statements regarding the payment of a quarterly
cash dividend on September 15, 2016,
growth opportunities, sustainable growth and growth of
profitability, expansion of Pivot's services business, continued
innovation, capitalizing on opportunities in the higher-margin
managed services segment, continued execution on Pivot's
verticalization strategy, and the assumptions underlying any of the
foregoing. Pivot uses words such as "may", "would", "could",
"will", "likely", "expect", "believe", "intend", "anticipate" and
similar expressions to identify forward-looking statements. Any
such forward-looking statements are based on assumptions and
analyses made by Pivot in light of its experience and its
perception of historical trends, current conditions and expected
future developments, including the assumption that opportunities
identified by Pivot may lead to expansion of its services and
cross-selling opportunities across the business, continued
innovation by Pivot that the general business climate will not
deteriorate, that the Company will be in a financial position to
pay a dividend on September 15, 2016
and in subsequent periods, that such payment will be permitted
under the Company's credit facilities, as well as other factors
Pivot believes are appropriate under the relevant circumstances.
However, whether actual results and developments will conform to
Pivot's expectations and predictions is subject to any number of
risks, assumptions and uncertainties. Many factors could
cause Pivot's actual results to differ materially from those
expressed or implied by the forward-looking statements contained in
this news release. These factors include, without limitation:
uncertainty in the global economic environment; delays in the
purchasing decisions of Pivot's customers; the competition Pivot
faces in its industry and/or marketplace; the possibility of
technical, logistical or planning issues in connection with the
deployment of Pivot's products or services; the possibility that
Pivot will not be able to further align its support functions with
the selling and delivery arms of the business; uncertainty with
respect to the ability of the Company to pay a quarterly dividend
under its credit facilities; the possibility that Pivot will be
unable to capitalize on opportunities it has identified in the
manner and timeframe anticipated, and the possibility that Pivot
will not be able to successful in sustaining growth or growing its
profitability. The "forward-looking statements" contained
herein speak only as of the date of this press release and, unless
required by applicable law, the Company undertakes no obligation to
publicly update or revise such information, whether as a result of
new information, future events or otherwise.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Pivot Technology Solutions, Inc.
SELECTED FINANCIAL INFORMATION
Full financial statements and related Management Discussion
and Analysis can be found on SEDAR and the Company's website
www.pivotts.com
All figures are in US $'000s
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Three months
ended
June 30,
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Six months ended
June 30,
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(unaudited)
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(unaudited)
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2016
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2015
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2016
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2015
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Revenues
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373,708
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357,882
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706,495
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654,255
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Cost of
sales
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327,072
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312,580
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621,856
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576,757
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Gross
profit
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46,636
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45,302
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84,639
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77,498
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Selling and
administrative expenses
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37,513
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35,382
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74,065
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66,269
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Adjusted
EBITDA*
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9,123
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9,920
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10,574
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11,229
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Depreciation and
amortization
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2,979
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3,200
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5,858
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6,285
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Transaction
costs
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164
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125
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355
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142
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Interest
expense
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1,147
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1,831
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2,185
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3,668
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Impairment
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3,838
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-
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3,838
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-
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Change in fair value
of liabilities
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22
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113
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705
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838
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Other (income)
expense
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(430)
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112
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1,013
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113
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Income (loss) before
income taxes
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1,403
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4,539
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(3,380)
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183
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Provision for income
taxes
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1,618
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1,876
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590
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627
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Net and comprehensive
income (loss)
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(215)
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2,663
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(3,970)
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(444)
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*Non-IFRS Financial Measures
The Company internally
measures its performance and results of initiatives through a
number of measures that are not recognized under IFRS and may not
be comparable to similar measures used by other
companies.
*Adjusted EBITDA
In the Company's financial
reporting, adjusted EBITDA is a non-IFRS measure which is defined
as gross profit less selling and administrative expenses, and
corresponds to income before income taxes, depreciation and
amortization, transaction costs, interest expense, change in fair
value of liabilities and other income or expense. Management
believes this is an important indicator as adjusted EBITDA excludes
items that are either non-cash expenses, items that cannot be
influenced by management in the short term, and items that do not
impact core operating performance, demonstrating the Company's
ability to generate liquidity through operating cash flow to fund
working capital needs, service outstanding debt and fund future
capital expenditures. Adjusted EBITDA is also used by
investors and analysts for the purposes of valuing an issuer.
The intent of adjusted EBITDA is to provide additional useful
information to investors and analysts and is also used by
management as an internal performance measurement. Adjusted
EBITDA is not a recognized measure under IFRS, has no standardized
meaning and is therefore unlikely to be comparable to similar
measures used by other companies. Readers are cautioned that
this term should not be construed as an alternative to net income
determined in accordance with IFRS.
The following provides a reconciliation of adjusted EBITDA* to
loss before income taxes:
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Three months
ended
June 30,
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Six months ended
June 30,
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(unaudited)
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(unaudited)
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2016
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2015
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2016
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2015
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Income (loss) before
income taxes
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1,403
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4,539
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(3,380)
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183
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Impairment
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3,838
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-
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3,838
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-
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Depreciation and
amortization
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2,979
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3,200
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5,858
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6,285
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Transaction
costs
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164
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125
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355
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142
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Interest
expense
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1,147
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1,831
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2,185
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3,668
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Change in fair value
of liabilities
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22
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113
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705
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838
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Other (income)
expense
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(430)
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112
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1,013
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113
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Adjusted
EBITDA*
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9,123
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9,920
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10,574
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11,229
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SOURCE Pivot Technology Solutions, Inc.