TORONTO, March 30, 2020 /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, 2019. All figures are in
US dollars unless otherwise stated.
FOURTH QUARTER OVERVIEW
- Revenue was $307.2 million,
compared to $301.6 million in Q4
2018
- Gross profit was $42.9 million,
compared to $42.5 million in Q4
2018
- Gross profit margin was 14.0%, compared to 14.1% in Q4
2018
- Adjusted EBITDA1 increased 56.2% to $7.5 million2, compared to
$4.8 million in Q4 2018
- The Company recognized a pre-tax gain of $22.3 million on the Smart Edge sale
- Net income attributable to shareholders was $16.3 million, compared to $0.5 million in Q4 2018
- Diluted earnings per share ("EPS") was $0.41 in Q4 2019, compared to $0.01 in Q4 2018
For comparability, fourth quarter results expressed in Canadian
dollars ("C$"), translated at 1.3201
- Revenue was C$405.5 million in Q4
2019, compared to C$399.5 million in
Q4 2018
- Gross profit was C$56.6 million,
compared to C$56.0 million in Q4
2018
- Adjusted EBITDA1 was C$9.8
million in Q4 2019, compared to C$6.2
million in Q4 2018
- The Company recognized a pre-tax gain of C$29.6 million on the Smart Edge sale
- Net income available to shareholders was C$21.6 million, compared to C$0.6 million in Q4 2018
- Diluted earnings per share was C$0.54, compared to C$0.01 in Q4 2018
1 Non-GAAP Measure. See Non-GAAP Measures
section of this news release.
2 including
the year over year favourable impact of the implementation of IFRS
16 of approximately $1.2
million
2019 OVERVIEW
- Revenue was $1.22 billion in
2019, compared to $1.37 billion in
2018
- Gross profit was $164.0 million
in 2019, compared to $163.2 million
in 2018
- Gross profit margin was 13.5% in 2019, compared to 11.9% in
2018
- Adjusted EBITDA1,3 was $26.8
million in 2019, an increase of 72.4% compared to
$15.5 million in 2018
- Net income available to shareholders was $14.0 million in 2019, compared to a loss of
$4.6 million in 2018; excluding the
gain on sale of Smart Edge and the impact from IFRS 16, net income
available to shareholders increased $1.5
million
- Diluted earnings per share was $0.35 in 2019, compared to a loss of $0.12 in 2018
- Adjusted Debt4 as at December
31, 2019 decreased by $21.6
million compared to the prior year, primarily as a result of
the Smart Edge sale; as a result, the Adjusted debt to Adjusted
EBITDA1 ratio improved year over year from 5.00 to
2.10
- The Company repurchased 237,310 shares at a cost of
$0.3 million through its NCIB
For comparability, fiscal 2019 results expressed in Canadian
dollars ("C$"), translated at 1.3269
- Revenue was C$1.62 billion in
2019, compared to C$1.78 billion in
2018
- Gross profit was C$217.7 million
in 2019, compared to C$211.4 million
in 2018
- Adjusted EBITDA1,3 was C$35.5
million in 2019, compared to C$20.1
million in 2018
- Net income available to shareholders was C$18.5 million in 2019, compared to a loss of
C$5.9 million in 2018
- Diluted earnings per share was C$0.46 in 2019, compared to a loss of
C$0.15 in 2018
3including the year over year favourable impact
of the implementation of IFRS 16 of approximately $5.2 million
4 Non-GAAP
Measure. See Non-GAAP Measures section of this news
release.
MANAGEMENT COMMENTARY
"2019 was a transformational year for Pivot. We
successfully managed through volume changes with our two major
customers, returning to overall revenue growth in Q4,
2019. The increase in revenue was achieved by driving
sizeable revenue growth of 6% from non-major customers. In
addition, during the quarter, we successfully sold our Smart Edge
assets to Intel for $27 million,
generating significant cash for the business and strengthening our
balance sheet," said Kevin Shank,
CEO. "Further, we entered into an agreement with Intel
designating Pivot as a non-exclusive preferred system integrator
and channel partner for Smart Edge based solutions. As a
result, Pivot retains the ability to sell, deploy, and manage Smart
Edge solutions going forward. Looking at the entire
year, Pivot continued to grow stronger as gross profit dollars
grew, gross margin percentage increased, expenses declined, and
overall adjusted earnings were significantly higher," added Mr.
Shank.
"Adjusted EBITDA was up 56.2% to $7.5
million in the fourth quarter, while diluted EPS came in at
$0.41, which includes the gain on
sale of the Smart Edge assets," said David
Toews, Chief Financial Officer. "The sale of Smart
Edge generated a cash infusion which strengthened the Company's
balance sheet, allowing Pivot to continue focusing on our capital
allocation priorities. As part of the Company's integration
initiative, we combined certain U.S. wholly owned subsidiaries and
related business units through a merger. This allows us to
centralize several functional areas, which we expect will generate
cost reductions, while improving controls and creating
efficiencies."
The Company introduced a new non-GAAP measure called Adjusted
Debt. Adjusted Debt is defined as current liabilities, plus
long-term other financial liabilities, less lease obligations and
current assets. The Company believes Adjusted Debt normalizes
the impact of changes in working capital and therefore it is a more
relevant indicator of the Company's net debt position.
"Our Adjusted Debt was $56.1
million at December 31, 2019
compared to $77.7 million for 2018.
This represents a 28% improvement in this important metric year
over year. The combination of this reduced Adjusted Debt with our
improved Adjusted EBITDA improved, Pivot's Adjusted Debt to
Adjusted EBITDA ratio to 2.1x in 2019 from 5.0x in 2018," added Mr.
Toews.
2019 BUSINESS AND OPERATING HIGHLIGHTS
- On October 25, 2019 the Company
completed the sale of its Smart Edge technology to Intel
Corporation ("Intel") for gross consideration of $27.0 million – $25.0
million cash on closing, and $2.0
million to be paid 18 months after closing, subject to
customary holdback terms and conditions.
- In connection with the sale of Smart Edge, Pivot and Intel have
entered into a three-year preferred channel partner agreement,
which designates Pivot as a non-exclusive preferred system
integrator and channel partner for Smart Edge based solutions.
- The Company completed the integration of certain U.S. wholly
owned subsidiaries and related business units through a
merger.
- The Company announced the promotion of Scott Ward to the newly created position of
Chief Revenue Officer to lead the sales team, and to work closely
with strategic partners to expand Pivot's addressable market.
- The Normal Course Issuer Bid ("NCIB") was utilized to
repurchase 237,310 shares during the fourth quarter.
- The Company announced Christopher
Formant and Vic Bhagat were
appointed to serve as members of the Board of Directors.
- Pivot renewed its credit agreement for five years on more
favourable terms with a lending group represented by JPMorgan Chase
Bank. The amended agreement expires on May
14, 2024.
DIVIDEND AND NORMAL COURSE ISSUER BID
As previously announced, the Company paid its regular quarterly
dividend in the amount of C$0.04 per
common share on March 16, 2020 to
common shareholders of record on February
28, 2020. During the fourth quarter, the Company paid
$1.2 million in common share
dividends or C$0.04 per share. This
dividend has been designated as an "eligible dividend" for Canadian
tax purposes.
On June 19, 2019, the Company
received regulatory approval for an NCIB to purchase up to
3,791,395 common shares of the Company, or approximately 10% of the
Company's total public float at prevailing market prices, in
accordance with the rules of the Toronto Stock Exchange. This
represents the fourth NCIB the Company has undertaken and will run
from June 24, 2019 to June 23, 2020. In December
2019, the Company entered into an Automatic Share Purchase
Plan with Echelon Wealth Partners, Inc. ("Echelon") for the
purposes of permitting the purchase of common shares under the NCIB
at times when the Company would not be permitted to purchase due to
regulatory restrictions or blackout periods. During the
fourth quarter, the Company acquired 237,310 shares through the
NCIB. From January 1, 2020 to
March 27, 2020, the Company has
acquired 824,115 shares through the NCIB bringing the total shares
acquired under this NCIB to 1,061,425 shares.
FOURTH QUARTER AND 2019 RESULTS SUMMARY
Fourth quarter 2019 revenues were $307.2
million, a 1.9% increase from the comparative period.
This increase was primarily attributable to an increase in
product sales, and growth from the Company's non-major customers
which increased from $241.0 million
in Q4 2018 to $254.8 million in Q4
2019, an increase of 5.8%.
Total revenue of $1.22 billion for
2019 decreased $155.5 million
compared to 2018. The decline was mainly attributable to a
decrease in product sales due to reduced volumes from major
customers which decreased from $411.0
million in 2018 to $232.5
million in 2019. Partially offsetting this decline was
an increase in non-major customers from $962.7 million in 2018 to $985.6 million in 2019, an increase of
2.4%.
Pivot provided services were $20.1
million in Q4 2019 and $79.8
million for the full year, down from $25.1 million in Q4 2018 and $89.2 in 2018. The decline in Pivot
Provided services is primarily due to certain workforce services
contracts winding down in 2018, combined with two large
non-recurring deployment services projects being completed in 2018,
partially offset by a new deployment project which began in
2019.
Third-party services of $19.0
million and $71.5 million for
Q4 2019 and the full year, respectively, increased by $2.4 million or 14.5% for Q4 2019, and increased
$2.7 million or 4.0% compared to
2018. The increase in third party services is primarily
driven by the timing of certain contracts and renewals.
Gross profit was $42.9 million in
Q4 2019, representing an increase of 0.9% compared to Q4 2018, with
a gross profit margin of 14.0% in Q4 2019 compared to 14.1% in Q4
2018. Gross profit increased 0.5% in 2019 compared to
2018, with gross profit margin increasing to 13.5% in 2019 from
11.9% in 2018. The improvement in gross profit for Q4 2019
and for the year is mainly driven by the change in the customer mix
and cost reduction efforts.
Selling general and administrative expenses ("SG&A") of
$35.4 million for Q4 2019 decreased
6.1% versus the comparative period. SG&A of $137.2 million for 2019 decreased 7.0% compared
to 2018. The decrease in SG&A was driven by changes in
accounting for leases (IFRS 16), the capitalization of certain
Smart Edge costs and cost reduction activities.
The Company's sale of Smart Edge resulted in a pre-tax gain of
$22.3 million before transaction
costs of $0.9 million during Q4 2019.
Adjusted EBITDA1 was $7.5
million in the fourth quarter, an increase of 56.2% over the
prior period. Adjusted EBITDA1 was
$26.8 million in 2019, an increase of
72.4% compared to 2018.
2020 OUTLOOK
Management believes Pivot's opportunities to create shareholder
value through its product and advanced services strategy are robust
and the secular trends driving IT spending, particularly spending
on solutions and services, are positive and expected to grow in
line with the overall market's expected growth rate in 2020.
While the impact of COVID-19 has been minimal to date, there
is uncertainty around its duration and the potential impact on
future business conditions. Management is closely monitoring
how COVID-19 is affecting Pivot's operations and is taking measures
and precautions to protect and inform its employees.
The Company is monitoring trade discussions between the U.S. and
China and the potential impact of
tariffs; however, the long-term impact of these discussions has not
yet been determined.
The Company continually seeks to expand its position in the
global IT market organically and through selective
acquisitions.
QUARTERLY AND ANNUAL RESULTS MATERIALS
The Company's outlook is contained in its Management's
Discussion and Analysis ("MD&A") for the three and twelve
months ended December 31, 2019, which
is available at www.pivotts.com and at www.sedar.com.
SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS
(in thousands of
U.S. dollars except per share amounts)
|
2019
|
2018
|
2017
|
Financial
Results
|
|
|
|
Revenue
|
1,218,124
|
1,373,630
|
1,511,641
|
Gross
profit
|
164,030
|
163,153
|
168,751
|
Income before
depreciation and amortization, finance expense, change in
fair value of liabilities and other expense (income) (Adjusted
EBITDA1)
|
26,788
|
15,539
|
24,118
|
Net income
(loss)
|
13,718
|
(4,470)
|
(5,628)
|
Net income (loss)
attributable to shareholders
|
13,967
|
(4,591)
|
(6,057)
|
Earnings (loss) per
share attributable to shareholders:
|
|
|
|
Basic
($)
|
$
0.35
|
$ (0.12)
|
$ (0.15)
|
Diluted
($)
|
$
0.35
|
$ (0.12)
|
$ (0.15)
|
Cash dividends
declared
|
4,776
|
4,900
|
4,973
|
Financial
Position (at year end)
|
|
|
|
Total
assets
|
421,398
|
421,319
|
527,883
|
Other financial
liabilities – current
|
111,247
|
100,184
|
136,897
|
Other financial
liabilities – non-current portion
|
11,547
|
1,178
|
2,443
|
|
|
|
|
|
|
|
|
(in thousands of
U.S. dollars)
|
2019
|
2018
|
2017
|
Income (loss)
before income taxes
|
20,684
|
(3,463)
|
2,800
|
Depreciation and
amortization
|
14,615
|
11,352
|
11,257
|
Finance
expense
|
6,027
|
6,120
|
5,450
|
Change in fair value
of liabilities
|
1,208
|
653
|
209
|
Other expense
(income)
|
(15,746)
|
877
|
4,402
|
Adjusted
EBITDA1
|
26,788
|
15,539
|
24,118
|
Key metrics on consolidated debt
Adjusted debt
(in thousands of
U.S. dollars)
|
2019
|
2018
|
Current
liabilities
|
379,007
|
401,240
|
Other financial
liabilities – non-current portion
|
11,547
|
1,178
|
Less: Lease
obligations – total
|
(14,449)
|
-
|
Less: Current
assets
|
(319,958)
|
(324,685)
|
Adjusted
debt1
|
56,147
|
77,733
|
Adjusted Debt1 normalizes the impact of the changes
in working capital as well as the impact of IFRS 16 in 2019,
and therefore, management believes that it is a more relevant
indicator of the Company's debt position and is a more comparable
metric with industry peers. The decrease of Adjusted
Debt1 in 2019 was mainly due to the proceeds of
$25.0 million from the sale of
Smart Edge assets.
Below are the key metrics of our consolidated debt as at
December 31, 2019 and 2018.
|
2019
|
2018
|
Adjusted
Debt1 to Adjusted EBITDA1
|
2.10
|
5.00
|
Net interest
coverage1
|
4.44
|
2.54
|
The improvement in both of these key metrics in 2019 was due to
the higher Adjusted EBITDA and margin generated from operations, as
well as the proceeds from the sale of Smart Edge.
NON-GAAP MEASURES
The Company uses certain non-GAAP measures to evaluate its
performance, defined below. These terms do not have any
standardized meaning prescribed within IFRS and therefore may not
be comparable to similar measures presented by other issuers. 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 (loss).
Adjusted EBITDA
"Adjusted EBITDA" is defined as gross profit less selling,
general and administrative expenses, and corresponds to income
(loss) before income taxes, depreciation and amortization, finance
expense, change in fair value of liabilities, and other expense
(income).
Management believes Adjusted EBITDA is an important indicator of
the Company's operating performance as it excludes certain 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 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.
Reconciliations of "income (loss) before income taxes" to
"Adjusted EBITDA" are provided under the headings "SELECTED
FINANCIAL INFORMATION AND OPERATING RESULTS".
Adjusted Debt
"Adjusted Debt" is defined as current liabilities, plus
long-term other financial liabilities, less lease obligations and
current assets.
The Company's working capital is financed by an asset-based
lending facility. The amount drawn on the facility generally
fluctuates inversely with changes in other working capital. The
Adjusted Debt normalizes the impact of the changes in working
capital and therefore, management believes that it is a more
relevant indicator of the Company's net debt position.
Adjusted Debt to Adjusted EBITDA
"Adjusted Debt to Adjusted EBITDA" is defined as Adjusted Debt
divided by the trailing twelve-month Adjusted EBITDA. The Company
uses this measure as an indication of its liquidity position and
its ability to generate income to service the debt excluding the
impacts of working capital fluctuations.
Net Interest Coverage
"Net Interest Coverage" is defined as Adjusted EBITDA divided by
finance expense on a trailing twelve-month basis.
FOURTH QUARTER CONFERENCE CALL
At 8:30 a.m. eastern Tuesday, March 31, 2020, 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 7, 2020) by
dialing (416) 849-0833 and entering passcode 2018367 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 original equipment manufacturer (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
Information in this press release contain forward-looking
statements, including statements relating to the growth of the
Company and the IT market in 2020. Forward-looking statements
are based on assumptions of future events that the Company believes
are reasonable based upon information currently available. Actual
results could vary significantly from these estimates.
Readers are cautioned that assumptions used in the preparation of
such information may prove to be incorrect. These assumptions
include estimates of the profitability of its operations; growth in
IT spending, particularly solutions and services, being in line
with the overall market's expected growth rate in future periods;
the IT market's growth in 2020 notwithstanding the COVID-19
pandemic and possible supply chain disruption; availability of
borrowings under the Company's credit facilities and access to
other sources of capital; the improved operational results
generated from operational efficiency initiatives; the successful
implementation of the initiatives identified in the MD&A as
part of the advancement of its strategy; that the Company will be
in a financial position to declare and pay a dividend in subsequent
periods; or that the Company will be in a financial position to or
that it will repurchase any additional shares for cancellation
under the NCIB.
Events or circumstances may cause actual results to differ
materially from those predicted as a result of numerous known and
unknown risks, uncertainties, and other factors, many of which are
beyond the control of the Company. Some of those important
factors, but certainly not all, that could cause actual results to
differ materially from those indicated by such forward-looking
statements are: (i) that the information is based on estimated
results; (ii) the possible unavailability of financing; (iii) lack
of resources to fund growth; (iv) cost reductions in future periods
being less significant than the annualized amount calculated based
on prior periods; (v) start-up risks associated with new lines of
business and product lines; (vi) general operating risks; (vii)
dependence on third parties; (viii) changes in government
regulation; (ix) the effects of competition; * dependence on senior
management, (xi) the impact of Canadian and/or U.S. economic
conditions, including the impact of international trade disputes;
(xii) disruptions to the business resulting from pandemics or
epidemics (such as the COVID-19 outbreak); (xiii) fluctuations in
currency exchange rates and interest rates; (xiv) uncertainty with
respect to the ability of the Company to pay a quarterly dividend
in subsequent periods; (xv) uncertainty with respect to the number
of shares to be repurchased for cancellation by the Company under
the NCIB; and (xvi) the other risks described in the Company's AIF
for the year ended December 31, 2019
under the heading "Risk Factors", available at sedar.com and
pivotts.com. Readers are cautioned not to place undue
reliance on any forward-looking statements. The Company
expressly disclaims any intention or obligation to update or revise
any forward-looking information, whether as a result of new
information, future events or otherwise, except as required in
accordance with applicable securities laws.
SOURCE Pivot Technology Solutions, Inc