TORONTO, Nov. 13, 2018 /CNW/ - Pivot Technology Solutions,
Inc. (TSX: PTG), ("Pivot", "Company"), a full-service information
technology provider, today reported financial results for the three
and nine months ended September 30,
2018 that were in line with the guidance provided in the
Company's recent update and included positive Adjusted
EBITDA1 and strong cash generation despite lower
revenues. All figures are in US dollars unless otherwise
stated.
THIRD QUARTER OVERVIEW
- Revenue was $321.4 million, down
17.4% from $389.1 million in Q3
2017
-
- Product revenue lower by 17.2%
- Service revenue lower by 18.9%
- Gross profit was $40.7 million,
down 4.8% from $42.8 million in Q3
2017
- Gross profit margin increased to 12.7% from 11.0% in Q3
2017
- Adjusted EBITDA1 was $4.2
million compared to $7.3
million in Q3 2017
- Net loss attributable to shareholders was $2.8 million (loss of $0.07 per share) compared to $1.0 million (loss of $0.02 per share) in Q3 2017
NINE MONTH OVERVIEW
- Revenue was $1.07 billion, down
3.6% from $1.11 billion in the first
nine months of 2017
-
- Product revenue lower by 3.3%
- Service revenue lower by 5.8%
- Gross profit was $120.6 million,
up 0.6% from $119.9 million a year
ago
- Gross profit margin increased to 11.3% from 10.8% a year
ago
- Adjusted EBITDA1 was $10.8
million compared to $13.0
million a year ago
- Net loss attributable to shareholders was $5.1 million (loss of $0.13 per share) compared to a net loss of
$3.1 million (loss of $0.08 per share) a year ago
1 Non-IFRS
Measure. See Non-IFRS Measures section of this news
release
|
MANAGEMENT COMMENTARY
"Product and services revenue
declined for the quarter, however this was partially offset by
improved gross profit margins, which were up 1.7 percentage
points," said Kevin Shank, President
and Chief Executive Officer. "Cash generation was strong and
Adjusted EBITDA1 was positive as we generated solid
rebate performance and took additional measures to lower costs. We
are accelerating our commercial transformation to grow solutions,
services, and recurring revenue, which we believe will improve
financial results in 2019. In addition, we are focused on cost
drivers and taking action to reduce SG&A expenses through
2019."
"During the quarter, there was a decline in service revenue tied
to our product business, and there was a delay in a large project
to the fourth quarter," said Mr. Shank. "Other service channels,
including workforce and project-related areas, remained strong.
With service work on hand and the expected fourth quarter seasonal
uplift in product volumes, we anticipate a strong finish to the
year in both our product and services business."
As indicated in its update issued October
19, 2018, the Company is further integrating its
subsidiaries to achieve tighter operational integration and
efficiencies. "During the quarter, we incurred $1.1 million of restructuring charges as part of
a broader plan to reduce costs while improving our business
execution," said David Toews, Chief
Financial Officer. "We expect a payback from these expenses of less
than two quarters."
Pivot continues to invest in its business and has made
additional progress in advancing Smart Edge™, an innovative
developer platform designed to support enterprise Multi-Access Edge
Computing (MEC) solutions and customer adoption of 5G technologies.
After a series of successful use cases, a major customer has agreed
to re-sell the Smart Edge™ solution across its network. "This is a
very positive development that creates the potential for both
product sales and ongoing services for Pivot," said Mr. Shank. "We
expect to receive orders for funded proof of concept projects in
the fourth quarter and our pipeline of opportunities continues to
build."
Intel has named Smart Edge™ a Solution Plus Partner in Intel's
Network Builders Winners' Circle ("INBWC"). INBWC is a program
dedicated to accelerating network transformation by delivering
technical innovation and is an important endorsement of Smart
Edge™.
DIVIDENDS AND NORMAL COURSE ISSUER BID
As previously
announced, Pivot declared its quarterly dividend of C$0.04 per common share on October 31, 2018, payable November 27, 2018 to common shareholders of
record November 12, 2018. During the
third quarter, the Company paid C$1.6
million in common share dividends or C$0.04 per share. Under its Normal Course Issuer
Bid (NCIB) program, the Company purchased and cancelled 322,500
shares during the third quarter.
THIRD QUARTER RESULTS SUMMARY
Third quarter 2018
revenues were $321.4 million, 17.4%
or $67.7 million below the same
period in 2017 primarily due to lower product sales to major
customers. Product revenue was $285.3
million, 17.2% or $59.3
million below Q3 2017. Third quarter service revenue was
$36.0 million, 18.9% or $8.4 million lower than a year ago. This
reflected a 13.6% reduction in third-party maintenance and support
and a 21.8% reduction in Pivot direct services. The Company
continues to implement its services strategy across its customer
base and plans to accelerate these activities through its
integration activities.
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 third quarter, major customers accounted for
27.6% of revenue compared to 42.3% in Q3 a year ago.
Third quarter 2018 cost of sales was $280.7 million, 19.0% or $65.6 million lower than a year ago reflecting
lower revenues to major customers. Gross profit was $40.7 million, down 4.8% or $2.1 million from $42.8
million in Q3 a year ago. Third quarter 2018 gross profit
margin increased to 12.7% from 11.0% in Q3 2017 due to improved
rebate performance, and the reduction in sales to major customer
accounts which generally have lower margin profiles.
Third quarter selling, general and administrative ("SG&A")
expenses increased $1.0 million or
2.9% over the same period in the prior year to $36.6 million. The increase is due to a
number of factors, including decreased vendor incentives compared
to the prior year, increased spending on Smart Edge™ and increases
to headcount focused on sales and services, partially offset by
decreased commissions due to the decline in gross profit period
over period.
Adjusted EBITDA1 (see non-IFRS measures) was
$4.2 million compared to $7.3 million in Q3 2017 due to lower revenue,
partially offset by improved gross margins. Loss attributable to
common shareholders was $2.8 million
(loss of $0.07 per share) compared to
loss of $1.0 million (loss of
$0.02 per share) in Q3 2017.
LOOKING FORWARD
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)
improve cost management; and (v) commercialize and monetize the
Smart Edge™ technology.
"We have initiated a series of activities to accelerate our
commercial transformation, improve our competitiveness and create
the flexibility we need in our cost base to address variability in
volumes and ongoing product margin pressure," said Mr. Shank.
"While still investing in areas that offer the best growth
prospects, we expect to reduce annual SG&A costs by more than
$5 million through tighter
operational integration. These efforts will prepare Pivot to more
effectively and efficiently address our 2019 business
opportunities."
For the fourth quarter, management believes that traditional
seasonal customer buying patterns will result in improved sales
volumes. "The fourth quarter is historically Pivot's strongest
period of performance and customers have been signaling positive
buying intentions."
QUARTERLY RESULTS MATERIALS
The Company's outlook is
contained in its MD&A for the three and nine months ended
September 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
September 30,
|
Nine months ended
September 30,
|
|
(unaudited)
|
(unaudited)
|
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
Revenue
|
321,389
|
389,077
|
1,071,998
|
1,112,234
|
|
Cost of
sales
|
280,654
|
346,280
|
951,359
|
992,361
|
Gross
profit
|
40,735
|
42,797
|
120,639
|
119,873
|
|
Employee compensation
and benefits
|
28,527
|
29,521
|
86,544
|
86,679
|
|
Other selling,
general and administrative expenses
|
8,043
|
6,025
|
23,328
|
20,201
|
Income before the
following:
|
4,165
|
7,251
|
10,767
|
12,993
|
|
Depreciation and
amortization
|
2,863
|
2,837
|
8,573
|
8,414
|
|
Finance
expense
|
1,528
|
1,639
|
4,614
|
4,000
|
|
Change in fair value
of liabilities
|
226
|
80
|
423
|
6
|
|
Other
expense
|
1,801
|
2,452
|
1,294
|
3,882
|
Income (loss)
before income taxes
|
(2,253)
|
243
|
(4,137)
|
(3,309)
|
|
Provision for
(recovery of) income taxes
|
220
|
1,056
|
335
|
(267)
|
Loss for the
period
|
(2,473)
|
(813)
|
(4,472)
|
(3,042)
|
|
|
|
|
|
Income for the period
attributable to
|
|
|
|
|
|
non-controlling
interests
|
335
|
154
|
591
|
31
|
Loss for the period
attributable to shareholders
|
(2,808)
|
(967)
|
(5,063)
|
(3,073)
|
|
|
|
|
|
Loss per common
share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.07)
|
$
|
(0.02)
|
$
|
(0.13)
|
$
|
(0.08)
|
Diluted
|
$
|
(0.07)
|
$
|
(0.02)
|
$
|
(0.13)
|
$
|
(0.08)
|
|
|
|
|
|
Total
assets
|
416,307
|
478,347
|
416,307
|
478,347
|
Total current
non-financial liabilities
|
43,771
|
33,374
|
43,771
|
33,374
|
Cash dividends
declared on common shares
|
1,207
|
1,288
|
3,697
|
3,727
|
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").
THIRD QUARTER CONFERENCE CALL
At 8:30 a.m. eastern on Wednesday, November 14, 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.
A telephone recording of the call will be available until
midnight November 21, 2018 by dialing
(416) 764 8677 and entering passcode 486110 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 of
Smart Edge™ and related revenue generation and value creation, that
product sales and service revenue will return to historical levels
in Q4 2018, SG&A cost reduction, long-term growth, the payment
of quarterly dividends in 2018, payback from restructuring charges
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, Pivot's ability to reduce SG&A costs by more than
$5 million 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 exceed $5 million
annually starting in 2019 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, Inc