TORONTO, March 27, 2017 /CNW/ - Pivot Technology
Solutions, Inc. (TSX: PTG), a full-service information technology
provider, today reported its financial results for the three and
twelve months ended December 31, 2016
and updated shareholders on progress with its shareholder value
creation plan.
This plan, introduced in June 2016
and advanced through the year, has several initiatives:
- Continue to build on Pivot's core business of selling IT
solutions, both products and services
- Enhance Pivot's service portfolio and capabilities,
specifically related to services that Pivot delivers
- Drive a commercial transformation
- Support customers as they expand internationally
- Improve cost management
- Enhance the capital structure and financing capacity
- Strengthen leadership
- Address legacy issues
"Our objective is to drive profitable growth by providing an
expanded suite of value-added solutions to our customer base," said
Kevin Shank, President and Chief
Executive Officer. "Actions to improve effectiveness are gaining
traction, more are planned and while Pivot incurred some related
one-time costs in 2016 in advance of payback, we expect
cost-savings benefits to commence in the third quarter."
Major plan activities that have been completed to date
include:
- Recruiting experienced executives to serve as CFO, Chief
Strategy Officer, executive sales managers, technology and
innovation leaders
- Expanding services to include capabilities in end-user
computing, networking, data centre and collaboration
- Expanding Pivot Workforce Solutions, Pivot Managed Services and
Pivot Fulfillment Services to deliver better and more consistent
performance
- Acquiring TeraMach Technologies, Inc. a leading IT provider as
a platform for growth in Canada
- Reducing financing costs by $2.2
million
- Listing common shares on the TSX to increase access to the
capital markets
- Consolidating its common shares on a four-for-one basis
- Acquiring 1,088,674 shares under the Company's Normal Course
Issuer Bid
Financial Results (All figures are in US dollars unless
otherwise stated.)
Annual and fourth quarter 2016 results reflected a positive
contribution from TeraMach, acquired on October 1, 2016. Results presented below exclude
the revenues, costs and EBITDA of GTS. GTS accounted for 3.2% of
2016 revenues and 0.9% of EBITDA.
Annual Results (Excluding GTS) 1
- Revenue was $1.42 billion, up
4.0% from $1.37 billion in 2015 on
3.0% growth in services revenue and 4.1% growth in product
revenue
- Gross profit was $171.1 million,
up 8.2% from $158.1 million in
2015
- Gross profit margin was 12.0%, up from 11.6% in 2015
- Adjusted EBITDA1 was $25.1
million, 17.0% lower than $30.3
million in 2015
- The Company paid a total of $4.8
million in common share dividends
On an IFRS basis (which includes GTS), 2016 revenue was
$1.47 billion ($1.49 billion in 2015), gross profit was
$176.0 million ($170.4 million in 2015), gross profit margin was
12.0% (11.4% in 2015), and Adjusted EBITDA was $25.3 million ($31.4
million in in 2015). Net loss was $4.3 million or a loss of $0.12 per share (net income of $3.2 million or $0.06 per share in 2015) primarily due to
$12.0 million in charges related to
the previously reported termination of the GTS Agreements.
Fourth Quarter (Excluding GTS) 1
- Revenue was $398.9 million, up
2.4% from $389.4 million in Q4 2015
on 4.5% growth in services revenue and 2.2% growth in product
revenue
- Gross profit of $48.5 million was
largely unchanged from $48.9 million
in Q4 2015
- Gross profit margin was 12.1% compared to 12.5% in Q4 2015
- Adjusted EBITDA1 was $8.5
million, down 37.1% from $13.4
million in Q4 2015
GTS did not contribute to fourth quarter 2016 results. In 2015,
including GTS, fourth quarter revenue was $420.2 million, gross profit was $52.3 million, gross profit margin was 12.4%,
Adjusted EBITDA was $13.9 million and
net income was $6.2 million or
$0.15 per share. In 2016, fourth
quarter net income was $2.9 million
or $0.06 per share.
1 Non-IFRS Measure. See Non-IFRS Measures Section of this
news release
Management Commentary
"Revenue increased in line with
the growth of the IT market, 2016 gross profit margin and gross
profit dollars both grew year over year and we saw good early
results with our service strategy," said Mr. Shank. "Revenue for
Pivot's portfolio of services (excluding reselling OEM or
3rd party maintenance) grew 14.4% for the fourth quarter
and 8.6% for the year, far outpacing increases in our traditional
service business."
Pivot finished the year with the same general performance trends
in place and with the first-time contribution of TeraMach, the
Company exceeded the strong sales results achieved in the fourth
quarter of 2015. Management is encouraged by TeraMach's prospects
and Canadian market receptivity to the Company's offerings.
In commenting on fourth quarter performance, Brian Kyle, Chief Financial Officer said: "On a
normalized basis, excluding GTS, fourth quarter SG&A was higher
than last year by $4.6 million or
about 13%. About 40% of this increase was due to the assumption of
TeraMach's cost base but we also made investments and incurred
non-recurring costs. While these costs are necessary and will
result in a solid payback, a key management priority is to
constrain growth in SG&A by improving operational efficiencies,
achieving more integration and coordination among our operations,
and limiting discretionary expenditures. We expect to see more
progress on these items."
Included in fourth quarter 2016 results were $0.1 million of restructuring costs and
$0.3 million of transaction costs.
Included in 2016 annual results were restructuring costs of
$1.5 million and transaction costs of
$1.0 million. In both 2016 reporting
periods, these non-recurring costs were offset in part by
lower finance costs from improved lending terms associated with the
Company's new credit agreement and improved terms with its vendor
partners.
Fourth Quarter Results Overview
Total revenue
including GTS (which contributed to Q4 2015 revenue but not Q4 2016
revenue), decreased 5.1%, or $21,315
compared to Q4 2015. Excluding the quarter-over-quarter impact of
the loss of control over GTS, total revenue in the quarter of
$398,873 increased 2.4% or
$9,437 due to the inclusion of
TeraMach, acquired October 1,
2016.
Total product revenue in the fourth quarter of 2016 decreased
$18,651 or 4.9% compared to Q4 2015.
Excluding GTS, product revenue in the fourth quarter of 2016 of
$358,252 increased $7,686 or 2.2% due to the inclusion of
TeraMach.
Total fourth quarter service revenues declined by $2,664 or 6.2% compared to the same period of
2015. Excluding GTS, fourth quarter 2016 service revenues increased
$1,751 or 4.5% compared to the same
period in the prior year due to the inclusion of TeraMach.
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, timing of service
delivery, business seasonality (the first and third quarters are
typically weaker than the second and fourth quarters) and the mix
in revenue between large and smaller customers. In the fourth
quarter, major customers accounted for 36% of revenue compared to
28% in Q4 2015, excluding GTS.
Total fourth quarter 2016 cost of sales declined $17,515 year over year, while gross profit
declined $3,800 and gross profit
margin was 12.1% compared to 12.4% in 2015. Excluding GTS, fourth
quarter 2016 cost of sales of $350,415 increased $9,846 or 2.9% compared to Q4 2015, gross profit
of $48,458 was $409 lower and gross margin was 12.1% compared to
12.5% in Q4 2015. Gross profit reflected the contribution of
TeraMach offset by lower vendor incentives recognized in the
quarter.
Excluding GTS, fourth quarter 2016 Adjusted EBITDA (see non-IFRS
measures) was $8.5 million, down
37.1% from $13.4 million in Q4
reflecting a shift in revenue mix in favour of larger customers, an
increase in service delivery costs, investments in innovation
funding and higher variable compensation expense.
Net income for the fourth quarter was $2.9 million or $0.06 per share compared to net income of
$6.2 million or $0.15 per share in the fourth quarter of
2015.
Normal Course Issuer Bid
As at March 23, 2017, 1,088,674 shares have been
repurchased under the Normal Course Issuer Bid. As at
March 27, 2017, the Company had
41,342,333 common shares issued and outstanding.
Dividends
Cash dividends declared on common shares in
the fourth quarter amounted to $0.04
compared to $0.04 in the fourth
quarter of 2015. The Company paid its most recent quarterly
dividend in the prescribed amount of $0.04 per common share on March 15, 2017.
Looking Forward
"We expect the second half of 2017 to
be stronger than the first half due to seasonality and as our
shareholder value creation plan gains traction," said Mr. Shank.
"While there is work to be done to realize the benefits of our
strategies, we are encouraged by underlying progress to date
including growth in our pipeline of service opportunities. From an
external perspective, growth appears to be returning to the US
economy, which provides the needed backdrop for sales efforts in
our largest market, and in Canada,
our prospects for TeraMach are strong. All told, we are confident
that we can execute our plan in a way that is attractive to our
shareholders, customers and employees."
The Board of Directors reviews the Company's dividend policy
periodically, taking into account Pivot's outlook and performance.
At its meeting today, the Board reaffirmed its dividend policy of
paying $0.04 per share, per
quarter.
"Based on our cash flow projections and the modest capex needs
of our business model, which we estimate to be less than
$3 million in 2017, Pivot's dividend
is well covered," said Mr. Kyle. "By taking costs out of our
business, which is a key priority, improving our margins, working
capital levels and cash flows we intend to deliver on our
commitments."
Fourth Quarter Conference Call
At 8:30 a.m. eastern Tuesday,
March 28, 2017, 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 April 4, 2017) by
dialing (416) 849-0833 and entering passcode 91219834 followed by
the number sign.
Quarterly Results Materials
The complete report for 2016, including the MD&A and audited
consolidated financial statements, is available at
www.pivotts.com.
Financial Summary
(In thousands of $US except per
share amounts)
For the years
ended December 31,
|
2016
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Revenue
|
1,470,841
|
1,488,960
|
1,359,229
|
|
Cost of
sales
|
1,294,887
|
1,318,553
|
1,199,871
|
Gross
profit
|
175,954
|
170,407
|
159,358
|
|
|
|
|
|
Employee
compensation and benefits
|
117,347
|
112,727
|
107,662
|
|
Other selling,
general and administrative expenses, net
|
33,259
|
26,232
|
18,263
|
|
25,348
|
31,448
|
33,433
|
|
|
|
|
|
Depreciation and
amortization
|
10,965
|
13,141
|
12,067
|
|
Finance
expense
|
4,566
|
6,780
|
6,777
|
|
Change in fair
value of liabilities
|
(265)
|
1,479
|
5,965
|
|
Other
expense
|
14,253
|
3,593
|
(10)
|
Income (loss)
before income taxes
|
(4,171)
|
6,455
|
8,634
|
|
Provision for
income taxes
|
150
|
3,286
|
4,378
|
Income (loss)
for the period
|
(4,321)
|
3,169
|
4,256
|
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 500. With offices throughout North America, 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.
SOURCE Pivot Technology Solutions, Inc