TORONTO, March 27, 2019 /CNW/ - Pivot Technology
Solutions, Inc. (TSX: PTG), ("Pivot", "Company"), a full-service
information technology provider, today reported its financial
results for the three and twelve months ended December 31, 2018 and updated shareholders on
actions to advance its commercial transformation and lower its cost
base. All figures are in US dollars unless otherwise stated.
FOURTH QUARTER OVERVIEW
- Revenue was $301.6 million,
compared to $399.4 million in Q4
2017
-
- Product revenue lower by 27.3%
- Service revenue higher by 0.1% as Pivot-Provided
Services1 revenue grew 5.4%
- Gross profit was $42.5 million,
compared to $48.9 million in Q4
2017
- Gross profit margin increased to 14.1% from 12.2% in Q4
2017
- Net income to shareholders was $0.5
million (income of $0.01 per
share) compared to net loss of $3.0
million (loss of $0.07 per
share) in Q4 2017
- Adjusted EBITDA2 was $4.8
million compared to $11.1
million in Q4 2017
12 MONTH OVERVIEW
- Revenue was $1.4 billion,
compared to $1.5 billion in 2017
-
- Product revenue lower by 9.7%
- Service revenue lower by 4.3%, however Pivot-Provided Services
revenue grew 2.0%
- Gross profit was $163.2 million,
compared to $168.8 million in
2017
- Gross profit margin increased to 11.9% from 11.2% in 2017
- Net loss attributable to shareholders was $4.6 million (loss of $0.12 per share) compared to a net loss of
$6.1 million (loss of $0.15 per share) a year ago
- Adjusted EBITDA2 was $15.5
million compared to $24.1
million in 2017
1 Excludes
third-party services.
|
2 Non-IFRS Measure. See Non-IFRS
Measures section of this news release.
|
MANAGEMENT COMMENTARY
"Fourth quarter revenues were
down primarily due to lower volumes with major customers," said
Kevin Shank, President and Chief
Executive Officer. "However, the 1.9% increase in gross margins
resulting from a shift in mix to non-major customers combined with
improved margins from our Pivot-Provided Services produced positive
Adjusted EBITDA2. Momentum with our services strategy
was reflected in Pivot-Provided Services revenues and we achieved
planned cost reductions to partially offset ongoing product margin
pressures going forward."
On January 10, 2019, the Company
provided a preliminary estimate of its Q4 results. While
actual revenue for Q4 2018 was $301.6
million, compared to the preliminary revenue estimate of
$310 million, actual gross profit
margin was higher at 14.1% compared to the preliminary estimate of
over 13%. The reason for the revenue variance pertained to
timing differences on delivery of products from preliminary
estimates to final documentation.
As reported in October 2018, the
Company initiated certain activities in recognition of pricing and
margin pressures in its product business and to accelerate its
commercial transformation. In the fourth quarter, these measures
removed over $5 million (annualized)
of costs. Another $2 million
(annualized) of costs has been eliminated so far in 2019. When the
impact is fully realized, these actions will be reflected as a
reduction in cost of goods sold and Selling, General and
Administrative ("SG&A") expenses.
"Over the past few months, we have exited two facilities,
lowered headcount and terminated unprofitable relationships," said
David Toews, Chief Financial
Officer. "We continue to focus on cost reduction initiatives across
the Company and expect to realize additional cost savings as the
year progresses."
In the final two quarters of 2018, restructuring charges
amounted to $2.0 million
($0.9 million in Q4). Additional
restructuring charges will be incurred in 2019 related to more
recent cost reductions.
Pivot also continued to invest in growth areas of the business
including Smart Edge™ which was recently named the winner of the
prestigious Frost & Sullivan Technology Innovation
Award. This proprietary Pivot technology is designed to support
enterprise Multi-Access Edge Computing (MEC) solutions and customer
adoption of 5G technologies. In December 2018, the Company executed a
collaboration agreement with a technology partner to share Smart
Edge innovation. More recently, Smart Edge was named Intel's
Partner of the Year for Network Communications Innovation,
recognizing the innovative development, building and integration of
network communications solutions.
DIVIDENDS AND NORMAL COURSE ISSUER BID
As previously
announced, Pivot paid its quarterly dividend of C$0.04 per common share on March 1, 2019 to common shareholders of record
February 22, 2019. For all of 2018,
the Company paid C$6.4 million in
common share dividends or C$0.04 per
share per quarter. Under its Normal Course Issuer Bid (NCIB)
program, the Company purchased and cancelled 960,600 shares in
2018.
FOURTH QUARTER RESULTS SUMMARY
Fourth quarter 2018
revenues were $301.6 million, 24.5%
or $97.8 million below the same
period in 2017 primarily due to lower product sales to major
customers. In the fourth quarter, major customers accounted for
20.1% of revenue compared to 35.0% in Q4 2017. Product revenue was
$259.9 million, 27.3% or $97.8 million below Q4 2017. Service revenue was
$41.7 million, 0.1% higher than a
year ago. This reflected a 5.4% or $1.4
million increase in Pivot-Provided Services, partially
offset by a 9.3% or $1.4 million
decrease in third-party maintenance and support services. The
Company continues to implement its services strategy across its
customer base and plans to accelerate these activities through its
commercial transformation.
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.
Fourth quarter 2018 cost of sales was $259.1 million, 26.1% or $91.4 million lower than a year ago, reflecting
lower revenues. Gross profit was $42.5
million, down 13.0% or $6.4
million from Q4 2017. Gross profit margin increased to
14.1% from 12.2% in Q4 2017 due to a reduction in service-related
cost of sales and a reduction in sales to major customer accounts
which generally have lower gross margin profiles.
Fourth quarter SG&A expenses were flat compared to the same
period in the prior year at $37.8
million. SG&A in the most recent period included a net
increase in spending on Smart Edge of $1.4
million.
In the fourth quarter of 2018, the Company incurred $0.9 million of restructuring charges
($0.3 million in the same period of
2017) related to the cost reduction actions intended to support its
ongoing commercial transformation.
Adjusted EBITDA2 (see non-IFRS measures) was
$4.8 million compared to $11.1 million in Q4 2017 due to lower revenue,
partially offset by improved gross margins. Income attributable to
common shareholders was $0.5 million
(income of $0.01 per share) compared
to loss of $3.0 million (loss of
$0.07 per share) in Q4 2017. The
prior-year figure included a $5.8
million tax charge to reflect the impact of U.S. tax reform
changes.
LOOKING FORWARD
The Company remains focused on its
strategy, which includes the following components: (i) continue to
build on Pivot's core business of selling IT solutions, both
products and services; (ii) enhance Pivot's service portfolio and
capabilities, specifically related to services that Pivot delivers;
(iii) continue the Company's commercial transformation to expand
Pivot's addressable opportunities with existing customers; (iv)
support customers as they expand internationally; (v) improve cost
management; and (vi) commercialize and monetize Smart Edge
technology.
"Pivot is pursuing a number of important business opportunities
in 2019 that are linked to our commercial transformation and the
broader trends in the IT marketplace," said Mr. Shank. "We are
doing so with a more flexible, lower-cost structure, and we are
well on our way to realizing the benefits from our ongoing cost
reduction activities."
Pivot's sales organization is engaging customers in a strategic
fashion in order to advance relationships that utilize the
Company's expanded product and services portfolio. The Company's
service portfolio was designed to create higher value, recurring
revenue streams that provide greater predictability of performance
and reduce exposure to capital expenditure cycles. As a recent
example, Pivot closed agreements with two new customers that are
expected to generate over $10 million
of service revenues in 2019.
In 2019, the Company expects to leverage its investments in
Smart Edge. "The pipeline of opportunities for Smart Edge continues
to grow," said Mr. Shank. "In addition, we recently signed a
collaboration agreement with a major technology partner for the
purpose of integrating each company's respective edge technologies
to accelerate commercial deployments and use of the Smart Edge
solution in multiple industries."
QUARTERLY AND ANNUAL RESULTS MATERIALS
The Company's outlook is contained in its MD&A for the three
and twelve months ended December 31,
2018, which is available along with the complete 2018
audited consolidated financial statements, and the 2018 Annual
Information Form at www.pivotts.com and at www.sedar.com.
|
Three months
ended
December 31,
|
Twelve months
ended
December 31,
|
|
(unaudited)
|
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
Revenue
|
301,632
|
399,407
|
1,373,630
|
1,511,641
|
Cost of
sales
|
259,118
|
350,529
|
1,210,477
|
1,342,890
|
Gross
profit
|
42,514
|
48,878
|
163,153
|
168,751
|
Employee compensation
and benefits
|
29,898
|
29,570
|
116,442
|
116,249
|
Other selling, general
and administrative expenses
|
7,844
|
8,183
|
31,172
|
28,384
|
Income before the
following:
|
4,772
|
11,125
|
15,539
|
24,118
|
Depreciation and
amortization
|
2,779
|
2,843
|
11,352
|
11,257
|
Finance
expense
|
1,506
|
1,450
|
6,120
|
5,450
|
Change in fair value
of liabilities
|
230
|
203
|
653
|
209
|
Other
expense
|
(417)
|
520
|
877
|
4,402
|
Income (loss)
before income taxes
|
674
|
6,109
|
(3,463)
|
2,800
|
Provision for income
taxes
|
672
|
8,695
|
1,007
|
8,428
|
Income (loss) for
the period
|
2
|
(2,586)
|
(4,470)
|
(5,628)
|
|
|
|
|
|
Income (loss) for the
period attributable to
|
|
|
|
|
non-controlling
interests
|
(470)
|
398
|
121
|
429
|
Income (loss) for the
period attributable to shareholders
|
472
|
(2,984)
|
(4,591)
|
(6,057)
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
Items that may be
reclassified subsequently to
|
|
|
|
|
income
(loss) for the period:
|
|
|
|
|
|
|
|
|
|
Exchange gain
(loss) on translation of foreign operations
|
(4)
|
(24)
|
16
|
35
|
|
(26)
|
16
|
(26)
|
16
|
Total
comprehensive loss
|
(2)
|
(2,610)
|
(4,454)
|
(5,593)
|
Total
comprehensive income (loss) attributable to
|
|
|
|
|
Shareholders
|
468
|
(3,008)
|
(4,575)
|
(6,022)
|
|
|
|
|
|
Income (loss) per
common share:
|
|
|
|
|
|
|
|
|
|
Income (loss)
available to common shareholders
|
472
|
(2,984)
|
(4,591)
|
(6,057)
|
|
|
|
|
|
Basic
|
$0.01
|
($0.07)
|
($0.12)
|
($0.15)
|
Diluted
|
$0.01
|
($0.07)
|
($0.12)
|
($0.15)
|
|
|
|
|
|
Total
assets
|
421,319
|
527,883
|
421,319
|
527,883
|
Total current
non-financial liabilities
|
28,455
|
33,947
|
28,455
|
33,947
|
Cash dividends
declared on common shares
|
1,203
|
1,246
|
4,900
|
4,973
|
NON-IFRS MEASURES
In this news release, management
uses certain non-IFRS measures to evaluate the performance of the
Company. The term "Adjusted EBITDA" does 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. Adjusted EBITDA is defined as gross profit less
employee compensation and benefits, other selling, general and
administrative expenses, and corresponds to income before income
tax, depreciation and amortization, finance expense, change in fair
value of liabilities, and other (income) expense.
Management believes Adjusted EBITDA is an important indicator as
it excludes certain items that are 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 used by some
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. A reconciliation
of Adjusted EBITDA to net income is contained in the MD&A (see
"Non-IFRS Measures").
FOURTH QUARTER CONFERENCE CALL
At 8:30 a.m. eastern Thursday, March 28, 2019, 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 to the scheduled start time.
A telephone recording of the call will be available for one week
(until midnight April 4, 2019) by
dialing (416) 849-0833 and entering passcode 8656986 followed by
the number sign.
ABOUT PIVOT TECHNOLOGY SOLUTIONS
Pivot is an
industry-leading information technology services and solutions
provider to many of the world's most successful companies,
including members of the Fortune 1000, as well as governments and
educational institutions. By leveraging its extensive OEM
partnerships and its own fulfillment, professional, deployment,
workforce and managed services, Pivot supports the IT
infrastructure needs of its clients. 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 the commercialization and
monetization of Smart Edge and related revenue generation and
opportunities, SG&A cost reduction, cost management and
associated benefits, long-term growth, the Company's commercial
transformation, the payment of quarterly dividends, 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 market
acceptance of the Smart Edge solution and growth with the adoption
of 5G technologies, the ability of the Company to accelerate
commercial deployments and use of the Smart Edge solution, Pivot's
continued financial liquidity to invest in its business and pay
quarterly dividends, Pivot's ability to reduce SG&A costs in
2019, 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, the possibility that Pivot will not be able
to maintain its liquidity, the possibility that SG&A cost
reductions will not be achieved in 2019, the risk that the
commercialization of the Smart Edge platform will not meet
expectations and fail to generate revenue and the risks described
in the Company's Annual Information Form for the year ended
December 31, 2018 under the heading
"Risk Factors" available at sedar.com. 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.
SOURCE Pivot Technology Solutions, Inc