TORONTO, Aug. 14, 2018 /CNW/ - Pivot Technology
Solutions, Inc. (TSX: PTG), ("Pivot"), a full-service information
technology provider, today reported its financial results for the
three and six months ended June 30,
2018 that demonstrate solid progress with its commercial
transformation. All figures are in US dollars unless otherwise
stated.
SECOND QUARTER OVERVIEW
- Revenue was $381.3 million, down
4.8% from $400.7 million in Q2
2017
-
- Product revenue lower by 6.2%
- Service revenue higher by 7.5% including 21.9% growth in Pivot
direct services
- Gross profit was $40.6 million
(10.6% margin), down 5.5% from $43.0
million (10.7% margin) in Q2 2017
- Adjusted EBITDA1 was $5.1
million, compared to $7.3
million in Q2 2017
- Net income attributable to shareholders was $0.2 million ($0.01
per share) compared to $2.0 million
($0.05 per share) in Q2 2017
FIRST HALF OVERVIEW
- Revenue was $750.6 million, up
3.8% from $723.2 million in the first
six months of 2017
-
- Product revenue higher by 4.1%
- Service revenue higher by 1.6% including 14.9% growth in Pivot
direct services
- Gross profit was $79.9 million,
up 3.7% from $77.1 million a year
ago
- Gross profit margin was 10.6% compared to 10.7% a year ago
- Adjusted EBITDA1 was $6.6
million, up 15.0% from $5.7
million a year ago
- Net loss attributable to shareholders was $2.3 million (loss of $0.06 per share) compared to a net loss of
$2.1 million (loss of $0.05 per share) a year ago
1 Non-IFRS Measure. See Non-IFRS Measures
section of this news release.
DIVIDENDS AND NORMAL COURSE ISSUER BID
At its meeting
today, the Company's Board of Directors declared a regular
quarterly dividend in the prescribed amount of C$0.04 per common share, payable September 14, 2018 to common shareholders of
record August 31, 2018. During the
second quarter, the Company paid $1.2
million in common share dividends or C$0.04 per share. Under its Normal Course Issuer
Bid (NCIB) program, the Company purchased and subsequently
cancelled 638,100 shares during the second quarter and another
150,300 shares subsequent to quarter end under its renewed
NCIB.
MANAGEMENT COMMENTARY
"We grew our Pivot provided
services and solutions revenue by 21.9% and the related gross
margin increased by $5.5 million in
the quarter compared to the prior year," said Kevin Shank, President and Chief Executive
Officer. "The services contribution offset most of the margin
pressure experienced in the product side of the business. Our
strategy to enhance and grow Pivot's service contribution is on
target and producing tangible value."
Pivot continues to invest in its business, including
successfully advancing Smart Edge™, an innovative developer
platform designed to support enterprise Multi-Access Edge Computing
(MEC) solutions. Through use cases to date, the Smart
EdgeTM solution has demonstrated its ability to improve
performance, enhance user experiences and reduce ongoing edge total
cost of ownership – all key factors in customer adoption of 5G
technologies. Revenue generation continues to be anticipated
by year end and is expected to grow with the adoption of 5G.
"Commercializing Smart Edge™ is on track and well-supported from a
dedicated leadership and investment perspective," said Mr.
Shank.
"During the second quarter, we invested in personnel to fuel our
services growth but still held the line on SG&A expenses
through active cost management, assisted by higher marketing
incentives from vendors and lower commissions," said David Toews, Interim Chief Financial Officer.
"We will continue controlling our operating expenses and driving
efficiencies where possible to offset market-wide product margin
pressures."
OPERATING HIGHLIGHTS
During the second quarter, the
Company continued to deliver on its key priorities. Among recent
strategic highlights, Pivot:
- Fulfilled its largest ever direct services contract of over
$3 million with a consumer packaging
customer
- Won a $5 million direct services
agreement with another customer, with work beginning in Q3
- Completed its first Proof of Concept ("POC") for Smart Edge™
and, based on successful customer testing for the past six months,
has expanded the initial deployment
- Initiated a POC evaluation with another large customer to
provide further validation of Smart Edge™
SECOND QUARTER RESULTS SUMMARY
Second quarter 2018
revenues were $381.3 million, 4.8% or
$19.4 million below the same period
in 2017 primarily due to lower product sales to major
customers. Product revenue was $338.8
million, 6.2% or $22.4 million
below Q2 2017. Second quarter service revenues were $42.6 million, 7.5% or $3.0 million higher than a year ago due to an
increase in Pivot direct services of 21.9%, partially offset by a
13.1% decline in sales of third-party maintenance and support
contracts. The Company continues to implement its services strategy
across its customer base with positive momentum.
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 and the mix in revenue between major and non-major
customers. In the second quarter, major customers accounted for
38.0% of revenue compared to 39.8% in Q2 a year ago.
Second quarter 2018 cost of sales was $340.7 million, 4.8% or $17.0 million lower than a year ago reflecting
lower revenues. Gross profit was $40.6
million (10.6% margin), down 5.5% or $2.3 million from $43.0
million (10.7% margin) in Q2 a year ago. Relatively stable
gross margin performance reflected the consolidation of a partially
owned business, acquired late last year, and significant
improvement in service margins, offset by lower margins on product
sales and a decrease in OEM maintenance revenue.
Second quarter selling, general and administrative ("SG&A")
expenses were $35.5 million, 0.4% or
$0.2 million lower than a year
ago. SG&A performance reflected increased spending on
Smart Edge™, increased headcount to enhance the Company's services
portfolio and capabilities and the assumption of the overhead of an
acquired business, offset by lower commission expenses, lower
marketing costs due to increased vendor incentives and ongoing cost
management.
Adjusted EBITDA1 (see non-IFRS measures) was
$5.1 million compared to $7.3 million in Q2 2017 due to lower revenue and
product margins, partially offset by improved service gross margins
and lower SG&A costs. Net income was $0.3 million or $0.01 per share compared to net income of
$2.0 million or $0.05 per share in Q2 2017.
LOOKING FORWARD
Pivot's strategy has several
dimensions: i) 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; vi) address legacy
issues; and vii) commercialize and monetize the Smart Edge™
technology.
"For the balance of 2018 our focus is to build on the positive
trend we're seeing in our services business and with our commercial
transformation. We continue to pursue new profitable revenue
streams to offset the downward margin pressure on our products
business," said Mr. Shank.
QUARTERLY RESULTS MATERIALS
The Company's outlook is
contained in its MD&A for the three and six months ended
June 30, 2018, which is available
along with the unaudited interim condensed consolidated financial
statements, at www.pivotts.com and at www.sedar.com.
SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS
|
Three months ended
June 30,
|
Six months ended
June 30,
|
|
(unaudited)
|
(unaudited)
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
Revenue
|
381,343
|
400,734
|
750,609
|
723,157
|
|
Cost of
sales
|
340,738
|
357,784
|
670,705
|
646,081
|
Gross
profit
|
40,605
|
42,950
|
79,904
|
77,076
|
|
Employee compensation
and benefits
|
28,422
|
28,954
|
58,017
|
57,158
|
|
Other selling,
general and administrative expenses
|
7,079
|
6,704
|
15,285
|
14,176
|
Income before the
following:
|
5,104
|
7,292
|
6,602
|
5,742
|
|
Depreciation and
amortization
|
2,861
|
2,766
|
5,710
|
5,577
|
|
Finance
expense
|
1,773
|
1,279
|
3,086
|
2,361
|
|
Change in fair value
of liabilities
|
157
|
33
|
197
|
(74)
|
|
Other (income)
expense
|
(408)
|
646
|
(507)
|
1,430
|
Income (loss)
before income taxes
|
721
|
2,568
|
(1,884)
|
(3,552)
|
|
Provision for
(recovery of) income taxes
|
456
|
610
|
115
|
(1,323)
|
Income (loss) for
the period
|
265
|
1,958
|
(1,999)
|
(2,229)
|
|
|
|
|
|
Income (loss) for the
period attributable to
|
|
|
|
|
non-controlling
interests
|
51
|
(72)
|
256
|
(123)
|
Income (loss) for the
period attributable to shareholders
|
214
|
2,030
|
(2,255)
|
(2,106)
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
Items that may be
reclassified subsequently to income
|
|
|
|
|
(loss) for
the period:
|
|
|
|
|
|
|
|
|
|
Exchange gain
(loss) on translation of foreign operations
|
(24)
|
1
|
(3)
|
4
|
|
(24)
|
1
|
(3)
|
4
|
Total
comprehensive income (loss)
|
241
|
1,959
|
(2,002)
|
(2,225)
|
Total
comprehensive income (loss) attributable to
shareholders
|
190
|
2,031
|
(2,258)
|
(2,102)
|
|
|
|
|
|
Income (loss) per
common share:
|
|
|
|
|
|
|
|
|
|
Income (loss)
available to common shareholders
|
214
|
2,030
|
(2,255)
|
(2,106)
|
|
|
|
|
|
Basic
|
$
0.01
|
$
0.05
|
$
(0.06)
|
$
(0.05)
|
Diluted
|
$
0.01
|
$
0.05
|
$
(0.06)
|
$
(0.05)
|
|
|
|
|
|
Total
assets
|
505,588
|
519,117
|
505,588
|
519,117
|
Total current
non-financial liabilities
|
31,717
|
35,084
|
31,717
|
35,084
|
Cash dividends
declared on common shares
|
1,231
|
1,194
|
2,490
|
2,439
|
Note: Amounts presented are in
thousands of U.S. dollars, except per share amounts
|
|
|
|
|
|
|
|
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").
SECOND QUARTER CONFERENCE CALL
At 8:30 a.m. eastern on Wednesday, August 15, 2018, 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 (416) 764 8688 five minutes
prior to the scheduled start time.
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 of
Smart Edge™ and related revenue generation and value creation,
long-term growth, the payment of quarterly dividends in 2018, 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 EdgeTM solution
and growth with the adoption of 5G technologies, Pivot's continued
financial liquidity to invest in its business and pay quarterly
dividends, 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, and the risk that testing and
operational results from the Smart-Edge platform will not meet
expectations and fail to generate revenue in 2018. 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