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.
"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.
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.
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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