TORONTO, Nov. 28, 2016 /CNW/ - Pivot Technology Solutions,
Inc. (TSX-V: PTG), a leading provider of IT infrastructure
solutions and services, today reported its financial results for
the three months ended September 30,
2016 and provided an update on the delivery of its value
creation strategy. All figures are in US dollars unless otherwise
stated.
Results for the third quarter and first nine months of 2016 were
significantly affected by the previously announced termination of
the Company's distribution, licensing and administrative services
agreement with Austin Ribbon & Computer Supplies Inc., now
known as GTS Technology Solutions, Inc. ("GTS"). Through the
termination process, Pivot determined that a loss of control
occurred effective July 1,
2016. As such, the assets and liabilities of GTS were
derecognized as of that date. A loss of $7.2
million was recorded in the third quarter of 2016 and a
related impairment charge of $0.9
million was taken. Total impairment charges for 2016
related to this termination were $4.8
million. The Company has commenced a lawsuit seeking damages
and other relief for breaches of various contracts, statutory
violations and torts against GTS.
Third Quarter Overview
- Revenue was $365.5 million, 11.8%
lower than in Q3 2015 or 4.0% lower excluding GTS
- Gross profit of $42.9 million was
up 5.4% over Q3 2015 or 17.9% excluding GTS
- Gross profit margin was 11.7% compared to 9.8% in Q3 2015 and
was 11.7% compared to 9.5% in Q3 2015 excluding GTS
- Adjusted EBITDA1 was $6.3
million, flat with Q3 2015, while Adjusted
EBITDA1 excluding GTS was 11.0% higher than a year
ago
- Net loss was $3.2 million
($0.02 per share) primarily as a
result of GTS compared to a net loss of $2.6
million in Q3 2015 ($0.02 per
share)
- The Company declared and paid a quarterly common share dividend
of C$0.01 on September 15, 2016
First Nine Months Overview
- Revenue was $1.1 billion,
unchanged from 2015 and was up 4.6% excluding GTS
- Gross profit of $127.5 million
was up 7.9% over the same period of 2015 or 12.9% excluding
GTS
- Gross profit margin of 11.9% was up from 11.1% in the same
period of 2015 and was 11.9% compared to 11.0% a year ago excluding
GTS
- Adjusted EBITDA1 was $16.9
million, 3.8% below the same period of 2015, while Adjusted
EBITDA1 excluding GTS was 0.9% lower than a year
ago
- Net loss was $7.2 million
($0.04 per share) primarily as a
result of GTS, compared to a net loss of $3.1 million ($0.02
per share) in the same period of 2015
1 Non-IFRS Measure. See Non-IFRS Measures Section of this
news release
Management Commentary
"Despite the significant impact of GTS, Pivot's gross profit and
gross margins increased and we made good progress in advancing our
services strategy," said Kevin
Shank, President and Chief Executive Officer. "Based on
customer receptivity to our offerings, and our growing services
pipeline of opportunities, we are confident that we can enhance
longer-term performance by aggressively applying our strategic
plan."
Central to the Company's plan to drive longer-term growth and
earnings is its services strategy, which encompasses four
disciplines (end user, network, data centre and collaboration) and
five channels: fulfillment services, professional services,
deployment services, workforce services and managed services. In
the third quarter, services revenues increased 10.9% over the third
quarter of 2015 excluding GTS
"Pivot is in transition and is making progress toward
entrenching the new disciplines that are necessary to deliver
better and more consistent performance in our services business and
across all operations," said Brian
Kyle, Chief Financial Officer. "A key objective is to add
more recurring revenue – with a better margin profile – as a means
of driving free cash flow and reducing our sensitivity to customer
capital spending cycles. In this context, third quarter services
revenue was a step in the right direction and we have a roadmap
we're following to create sustainable momentum. "
Third Quarter Summary
(In thousands of $US except
per share amounts)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
|
(unaudited)
|
(unaudited)
|
|
2016
|
2015
|
2016*
|
2015*
|
2016
|
2015
|
2016*
|
2015*
|
|
|
|
|
|
|
|
|
|
Revenues
|
365,473
|
414,517
|
365,473
|
380,866
|
1,071,968
|
1,068,772
|
1,024,743
|
979,323
|
Cost of
sales
|
322,616
|
373,866
|
322,616
|
344,517
|
944,472
|
950,623
|
903,163
|
871,664
|
Gross
profit
|
42,857
|
40,651
|
42,857
|
36,349
|
127,496
|
118,149
|
121,580
|
107,659
|
Selling and
administrative expenses
|
36,540
|
34,320
|
36,540
|
30,658
|
110,605
|
100,589
|
104,901
|
90,837
|
Adjusted
EBITDA
|
6,317
|
6,331
|
6,317
|
5,691
|
16,891
|
17,560
|
16,679
|
16,822
|
Depreciation and
amortization
|
2,345
|
3,409
|
|
|
8,203
|
9,694
|
|
|
Transaction
costs
|
347
|
289
|
|
|
702
|
431
|
|
|
Interest
expense
|
1,173
|
1,789
|
|
|
3,358
|
5,457
|
|
|
Impairment
|
950
|
-
|
|
|
4,788
|
-
|
|
|
Change in fair value
of liabilities
|
(488)
|
930
|
|
|
217
|
1,768
|
|
|
Loss of
control
|
7,249
|
-
|
|
|
7,249
|
-
|
|
|
Other
expense
|
88
|
2,624
|
|
|
1,101
|
2,737
|
|
|
Loss before income
taxes
|
(5,347)
|
(2,710)
|
|
|
(8,727)
|
(2,527)
|
|
|
(Recovery) of
provision for income taxes
|
(2,108)
|
(104)
|
|
|
(1,518)
|
523
|
|
|
Net and comprehensive
loss
|
(3,239)
|
(2,606)
|
|
|
(7,209)
|
(3,050)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.02)
|
$
|
(0.02)
|
|
|
$
|
(0.04)
|
$
|
(0.02)
|
|
|
Diluted
|
$
|
(0.02)
|
$
|
(0.02)
|
|
|
$
|
(0.04)
|
$
|
(0.02)
|
|
|
Cash and cash
equivalents
|
7,537
|
12,543
|
|
|
7,537
|
12,543
|
|
|
Total
assets
|
447,121
|
491,472
|
|
|
447,121
|
491,472
|
|
|
Total long-term
financial liabilities
|
-
|
-
|
|
|
-
|
-
|
|
|
Cash dividends
declared on preferred shares
|
-
|
-
|
|
|
-
|
461
|
|
|
Cash dividends
declared on common shares
|
1,292
|
950
|
|
|
3,553
|
-
|
|
|
|
Note:
Amounts presented are in thousands of U.S. dollars, except per
share amounts
|
*Amounts exclude the
activity of GTS
|
Total third quarter revenues of $365,473 decreased 11.8%, or $49,044 compared to Q3 2015. Excluding the
quarter-over-quarter impact of the loss of control over GTS, total
revenue in the quarter decreased $15,393 or 4.0%, primarily due to a decline in
product revenue, partially offset by higher service revenue.
Product revenue of $327,528
decreased $45,429 in the third
quarter or 12.2% compared to Q3 2015. Excluding the
quarter-over-quarter impact of the loss of control over GTS, total
product revenue in the third quarter decreased $16,805 or 4.9% compared to the same period in
the prior year due to a decline in revenues to major customers.
Service revenues of $35,537
declined by $1,520 or 4.1% in the
third quarter of 2016 compared to the same period of 2015.
Excluding the quarter-over-quarter impact of the loss of control
over GTS, third quarter 2016 service revenues increased
$3,507 or 10.9% compared to the same
period in the prior year due to the timing of deployment of
service-related activities.
Other revenue of $2,408 for the
third quarter decreased 46.5% compared to the comparable prior-year
period primarily due to lower product revenue. Other revenue was
not impacted by the loss of control over GTS in the quarter or for
the year to date.
Excluding the impact of the loss of control over GTS, the ratio
of revenue attributable to major and non-major customers in the
third quarter of 2016 was 35:65 versus 46:54 in the corresponding
period of 2015. The change was primarily due to timing of revenue
to large customers.
In general, changes in revenue quarter over quarter are
attributable to a number of factors, including, but not limited to,
timing of major projects and replenishments, vendor incentive
programs, competitive pressures in the market and timing of service
delivery.
Third quarter 2016 cost of sales of $322,616 decreased by $51,250 or 13.7% quarter over quarter, while
gross profit of $42,857 increased
$2,206 or 5.4%. Excluding the
impact of the loss of control over GTS, cost of sales was down 6.4%
quarter over quarter while gross profit increased $6,508 or 17.9% primarily due to changes in
product mix, margin expansion, customer concentration changes and
timing of recognition of manufacturers' rebates. Quarter over
quarter, gross profit margins increased to 11.7% from
9.8%. Excluding GTS, gross profit margin in the third quarter
of 2016 increased to 11.7% from 9.5% in the same period in the
prior year.
Adjusted EBITDA (see non-IFRS measures) for the third quarter of
2016 of $6,317 decreased by 0.2%.
Excluding the quarter-over-quarter impact of the loss of control
over GTS, adjusted EBITDA increased by 11.0% primarily due to an
increase in gross profit from margin expansion activities.
Net loss for the third quarter was $3,239 (loss of $0.02 per share) compared to a net loss of
$2,606 (loss of $0.02 per share) in the same period of 2015.
Cash dividends declared on common shares in the third quarter
amounted to $1,292 ($0.01 per share) compared to $957 ($0.01 per
share) in the third quarter of 2015.
As at November 25, 2016, 2,784,500
shares have been repurchased under the Normal Course Issuer Bid. As
at November 25, 2016, the Company had
167,976,626 common shares issued and outstanding.
Looking Forward
"The global economic environment is uncertain and some customers
remain cautious in their approach to IT investments at this stage
of the business cycle," said Mr. Shank. "Even so, we believe there
are significant opportunities to create shareholder value through
our product and services strategy and through the recent
acquisition of TeraMach. As well, the secular trends driving IT
spending and particularly spending on service are broadly positive
in segments that we target. Our job is to execute our stated
strategy and in this regard, we are making early progress. We have
recruited a number of talented leaders who have proven managed
services experience and we're preparing to engage customers on a
more strategic basis."
Fourth quarter and 2017 results will be impacted by the
previously announced acquisition of TeraMach Technologies Inc. (now
operating as TeraMach, A Pivot Company) in early October, 2016.
Founded in Canada 20 years ago,
TeraMach's dedicated workforce generates annual revenues of
approximately C$100 million (with
gross margins that are similar to Pivot's) from a diverse customer
base that includes various levels of government in Canada and leading corporations. Integration
and best practice sharing efforts are now underway. Fourth quarter
revenue, on a comparative basis to 2015, will also be affected by
the termination of GTS; however, the Company does not anticipate
any further charges related to this termination.
"In addition to our capital market strategies, we are committed
to strengthening our balance sheet to achieve our ambitions," said
Mr. Kyle. "Improving our margins, managing working capital and
growing free cash flows are key priorities for our management team
as they will enhance our financial capacity and flexibility,
support the quarterly dividend and lower our cost of capital."
Third Quarter Conference Call
At 8:00 a.m. eastern Tuesday, November 29, 2016, the Company will host
a conference call featuring management's quarterly remarks and
follow up question and answer period with analysts. The conference
call can be accessed live by dialing 647-427-7450 five minutes
prior.
A telephone recording of the call will be available for one week
(until midnight December 6, 2016) by
dialing 416-849-0833 and entering passcode 24366288 followed by the
number sign.
Quarterly Results Materials
The complete third quarter report for 2016, including MD&A
and interim unaudited financial statements, is available at
www.pivotts.com.
Non-IFRS Measures
In this news release, management
uses certain non-IFRS measures to evaluate the performance of the
Company. The terms "EBITDA", and "Adjusted EBITDA" do not have any
standardized meaning prescribed within IFRS and therefore may not
be comparable to similar measures presented by other companies.
Such measures should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
IFRS such as net income. EBITDA is defined as earnings from
operations excluding depreciation and amortization. Adjusted EBITDA
is defined as earnings from operations before items excluded from
management's internal analysis of operating results, including
non-cash expenses, items that cannot be influenced by management in
the short term and items that do not impact core operating
performance.
Management believes that Pivot shareholders and potential
investors use these additional non-IFRS financial measures in
making investment decisions and measuring operational results as
they demonstrate the Company's ability to generate liquidity
through operating cash flow to fund working capital needs, service
outstanding debt and fund future capital expenditures.
A reconciliation of EBITDA and Adjusted EBITDA to net income is
contained in the MD&A (see "Reconciliation of Non-IFRS Measures
to IFRS Measures").
About Pivot Technology Solutions
Pivot is a leading
information technology infrastructure and services provider to
approximately 2,000 customers, including many members of the
Fortune 1000. Founded in 2010, Pivot enjoys relationships with the
world's leading IT vendors and generates annual revenues of
approximately US$1.5 billion. With
approximately 800 employees and offices throughout North America and in Europe, Pivot uses its knowledge and local
presence to help corporations, governments and educational
institutions design, build, implement and maintain advanced
computing and communication infrastructure. For more information,
visit 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 growth and value creation
opportunities, 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, 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; 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 news 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.
SOURCE Pivot Technology Solutions, Inc