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
MANAGEMENT COMMENTARY
"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.
LOOKING FORWARD
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)
|
|
2019
|
|
2018
|
Revenue
|
|
295,598
|
|
369,266
|
Cost of
sales
|
|
258,974
|
|
329,967
|
Gross
profit
|
|
36,624
|
|
39,299
|
Employee compensation
and benefits
|
|
27,445
|
|
29,595
|
Other selling, general
and administrative expenses
|
|
5,839
|
|
8,206
|
Income before the
following:
|
|
3,340
|
|
1,498
|
Depreciation and
amortization
|
|
3,757
|
|
2,849
|
Finance
expense
|
|
1,667
|
|
1,313
|
Change in fair value of
liabilities
|
|
232
|
|
40
|
Other expense,
net
|
|
3,118
|
|
(99)
|
Loss before income
taxes
|
|
(5,434)
|
|
(2,605)
|
Recovery of income
taxes
|
|
(1,434)
|
|
(341)
|
Loss for the
period
|
|
(4,000)
|
|
(2,264)
|
|
|
|
|
|
Income (loss) for the
period attributable to
|
|
|
|
|
non-controlling
interests
|
|
(417)
|
|
205
|
Loss for the period
attributable to shareholders
|
|
(3,583)
|
|
(2,469)
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
Items that may be
reclassified subsequently to loss
|
|
|
|
|
for the
period:
|
|
|
|
|
|
|
|
|
|
Exchange gain
(loss) on translation of foreign operations
|
|
(45)
|
|
21
|
|
|
|
|
|
Total
comprehensive loss
|
|
(4,045)
|
|
(2,243)
|
Total
comprehensive loss attributable to shareholders
|
|
(3,628)
|
|
(2,448)
|
|
|
|
|
|
Loss per common
share:
|
|
|
|
|
|
|
|
|
|
Loss attributable to
common shareholders
|
|
(3,583)
|
|
(2,469)
|
|
|
|
|
|
Basic
|
$
|
(0.09)
|
$
|
(0.06)
|
Diluted
|
$
|
(0.09)
|
$
|
(0.06)
|
|
|
|
|
|
Total
assets
|
|
452,709
|
|
469,176
|
Total current
non-financial liabilities
|
|
29,922
|
|
33,145
|
Cash dividends
declared on common shares
|
|
1,199
|
|
1,259
|
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").
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