TORONTO, May 15, 2019 /CNW/ - Pivot Technology Solutions, Inc. (TSX: PTG), ("Pivot", "Company"), a full-service information technology provider, today reported its financial results for the three months ended March 31, 2019 and updated shareholders on actions to advance its commercial transformation and lower its cost base. All figures are in US dollars unless otherwise stated.
FIRST QUARTER OVERVIEW
- Revenue was $295.6 million, compared to $369.3 million in Q1 2018
- Gross profit was $36.6 million, compared to $39.3 million in Q1 2018
- Gross profit margin increased to 12.4% from 10.6% in Q1 2018
- Adjusted EBITDA1 increased 123% to $ 3.3 million2 compared to $1.5 million in Q1 2018
- Net loss attributable to shareholders was $3.6 million (loss of $0.09 per share) compared to net loss of $2.5 million (loss of $0.06 per share) in Q1 2018
- Declared and paid a C$0.04 per share dividend
1 Non-IFRS Measure. See Non-IFRS Measures section of this news release.
2 Includes the year over year favourable impact of the implementation of IFRS 16 of approximately $1.2 million
"The shift between major and non-major customers combined with higher service margins resulted in a year-over-year gross profit margin increase from 10.6% to 12.4%, a 16.4% improvement. As we continued to see lower revenue from our major customer, the more efficient cost structure generated better results in Adjusted EBITDA as well. As expected, we are benefitting from the cost reductions we initiated in the second half of last year and into this year" said Kevin Shank, President and Chief Executive Officer. "We continue to invest in Smart Edge™ and saw notable progress. Smart Edge received two important endorsements during the quarter. Intel named Smart Edge its Network Communications Innovation Partner of the Year and Frost and Sullivan awarded Smart Edge its Technology Innovation award. This recognition supports the investment we're making in Smart Edge and adds credibility to this edge native technology."
Said David Toews, Chief Financial Officer: "We reduced our SG&A costs in the quarter compared to the prior year. Since Q3 2018, we have reduced headcount by 7%, lowered facility costs, terminated underperforming relationships and managed discretionary spending. We continue to manage costs while investing strategically in areas where we see opportunities to grow such as software defined and Smart Edge technologies."
RECENT BUSINESS AND OPERATING HIGHLIGHTS
- Pivot renewed its credit agreement with a lending group represented by JPMorgan Chase Bank for a five-year period ending May 2024. The new agreement includes a springing dominion amendment that provides for increased flexibility over cash management, a 0.25% reduction in interest rates and improved flexibility for making restricted payments.
- The Board of Directors appointed Christopher Formant to its Board of Directors. Most recently, Mr. Formant was President of Verizon Enterprise Solutions, where he was responsible for Verizon's $20 billion advanced technology and business solutions business for global enterprise and government customers.
- TeraMach achieved Cisco Gold Partner certification for Canada by demonstrating a measurably high level of customer satisfaction as well as broad expertise across enterprise networks, collaboration, data center, and IP next-generation networks.
- Pivot's international operations achieved Gold Status with Dell EMC, thereby extending the value of this important and multi-dimensional business partnership beyond North America.
- Smart Edge was named an Intel's Partner of the Year for Network Communications Innovation and also won the prestigious Frost & Sullivan Technology Innovation Award for its advanced development platform for multi-access edge computing.
- During the first quarter, the Company realized $0.2 million from a collaboration agreement with a Smart Edge technology partner signed in December 2018.
- Pivot appointed Bob Pike as Interim Chief Executive Officer of smart-edge.com, Inc., to drive continued commercialization of the Smart Edge technology. Mr. Pike is one of the original developers of the Smart Edge platform and previously served as Chief Technology Officer of smart-edge.com, Inc.
DIVIDENDS AND NORMAL COURSE ISSUER BID
The Company's Board of Directors has declared a regular quarterly dividend in the prescribed amount of C$0.04 per common share, payable May 29, 2019 to common shareholders of record May 24, 2019. During the first quarter, the Company paid $1.2 million in common share dividends or C$0.04 per share. In 2018, the Company repurchased and cancelled 960,600 common shares under its Normal Course Issuer Bid. No repurchases were made during the first quarter of 2019.
FIRST QUARTER RESULTS SUMMARY
First quarter 2019 revenues were $295.6 million, 19.9% or $73.7 million below the same period in 2018 primarily due to lower product sales to its major customer. Product revenue was $261.4 million, 21.2% or $70.2 million below Q1 2018. Service revenue was $34.2 million, $3.5 million or 9.3% below the same period in the prior year. This reflected a 16.0% or $3.9 million decrease in Pivot Provided Services due to the completion of certain workforce services contracts in 2018, partially offset by a 3.3% or $0.4 million increase in third-party maintenance and support services driven by the timing of certain contracts and renewals. The Company continues to implement its services strategy across its customer base and has seen its services pipeline grow over the past several quarters.
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.
First quarter 2019 cost of sales was $259.0 million, 21.5% or $71.0 million lower than a year ago, reflecting lower revenues. Gross profit was $36.6 million, down $2.7 million or 6.8% from Q1 2018. Gross profit margin increased to 12.4% from 10.6% in Q1 2018 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.
First quarter Selling, General and Administrative ("SG&A") expenses were $33.3 million, an 11.9% or $4.5 million decline from Q1 2018 due to: lower employee compensation and benefit costs resulting from recent cost reduction activities and lower discretionary expenses; the implementation of IFRS 16 resulting in a reduction in rent expense (and an increase in depreciation and interest charges as certain facility leases were capitalized); and, lower net spending on Smart Edge as the product has met the requirements for capitalized internal development (gross spending on Smart Edge before capitalization increased by $0.7 million).
In the first quarter of 2019, the Company incurred $2.3 million of restructuring charges ($0.5 million in the same period of 2018) related to cost reduction actions intended to position the business for current marketplace realities and support its ongoing commercial transformation.
Adjusted EBITDA1 (see non-IFRS measures) was $3.3 million compared to $1.5 million in Q1 2018 as the Company adopted IFRS 16, higher gross profit margin and lower SG&A more than offset the impact of lower revenues. Loss attributable to common shareholders was $3.6 million (income of $0.09 per share) compared to loss of $2.5 million (loss of $0.06 per share) in Q1 2018.
As reported in October 2018, the Company initiated actions to lower costs and accelerate its commercial transformation. In the first quarter of 2019, these measures removed approximately $3 million of annualized costs to bring total cost reduction to $8 million (annualized) since the effort began. Further actions will be taken in 2019. The impact of these actions will be reflected as a reduction in cost of goods sold and SG&A expenses. In the first quarter, restructuring charges related to these actions amounted to $2.3 million. Additional restructuring charges will be incurred in 2019.
The Company's strategy 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.
"We enter Q2 as a leaner and more agile organization focused on executing our strategy," said Mr. Shank. "Our cost structure is more efficient and we will continue to invest in areas that are expected to add strategic value to the Company."
QUARTERLY RESULTS MATERIALS
The Company's outlook is contained in its MD&A for the three months ended March 31, 2019, which is available along with the complete first quarter 2019 interim consolidated financial statements at www.pivotts.com and at www.sedar.com.
SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS
For the three months ended March 31, (unaudited)
Cost of sales
Employee compensation and benefits
Other selling, general and administrative expenses
Income before the following:
Depreciation and amortization
Change in fair value of liabilities
Other expense, net
Loss before income taxes
Recovery of income taxes
Loss for the period
Income (loss) for the period attributable to
Loss for the period attributable to shareholders
Other comprehensive loss
Items that may be reclassified subsequently to loss
for the period:
Exchange gain (loss) on translation of foreign operations
Total comprehensive loss
Total comprehensive loss attributable to shareholders
Loss per common share:
Loss attributable to common shareholders
Total current non-financial liabilities
Cash dividends declared on common shares
Note: Amounts presented are in thousands of U.S. dollars, except per share amounts
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").
FIRST QUARTER CONFERENCE CALL
At 8:30 a.m. eastern Thursday, May 16, 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 May 23, 2019) by dialing (416) 849-0833 and entering passcode 8138618 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, improved cost management and associated benefits, enhancing Pivot's service portfolio, 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 enhance its service portfolio and 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 and growth of the Company's service portfolio 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