TORONTO, Aug. 14, 2019 /CNW/ - Pivot Technology Solutions,
Inc. (TSX: PTG), ("Pivot", "Company"), a full-service information
technology provider, today reported its financial results for the
three and six months ended June 30,
2019. All figures are in US dollars unless otherwise
stated.
SECOND QUARTER OVERVIEW
- Revenue was $345.7 million,
compared to $381.3 million in Q2
2018
- Gross profit was $45.0 million,
compared to $40.6 million in Q2
2018
- Gross profit margin increased to 13.0% from 10.6% in Q2
2018
- Adjusted EBITDA1 increased 89.9% to $9.7 million2 compared to $5.1 million in Q2 2018
- Net income attributable to shareholders was $1.6 million ($0.04
per share) compared to $0.2 million
($0.01 per share) in Q2 2018
1 Non-IFRS Measure. See Non-IFRS
Measures section of this news release.
|
2 including the year over year
favourable impact of the implementation of IFRS 16 of approximately
$1.4 million
|
MANAGEMENT COMMENTARY
"We are pleased with the
earnings performance in Q2 2019. Both gross profit and
gross profit margins increased and are two indications the business
is becoming more efficient. Our team continues to execute our
strategy to build on our core products and services portfolio while
enhancing our services and solutions capabilities. By
leveraging our scale, strong customer and vendor relationships and
continued investment in edge and service technologies we will
continue to drive the company forward," said Mr. Shank.
"Since Q3 2018 we have reduced our cost structure by over
$8 million dollars annually, and we
have plans to further integrate our operations throughout 2019,"
said David Toews, Chief Financial
Officer. "We are pleased to see our EBITDA margins have improved
significantly compared to Q2 2018."
BUSINESS AND OPERATING HIGHLIGHTS
- The Company announced Christopher
Formant and Vic Bhagat were
appointed to serve as members of the Board of Directors.
- Pivot extended and amended its credit agreement for five years
with a lending group represented by JPMorgan Chase Bank. The
amended agreement expires on May 14,
2024.
- The Board of Directors declared a common share dividend of
C$0.04 per common share, paid on
May 29, 2019.
- The Company received regulatory approval for a normal course
issuer bid ("NCIB") that will run from June
24, 2019 to June 23,
2020.
- The Company announced the United States Patent and Trademark
Office ("USPTO") approved its patent application for its
breakthrough Smart EdgeTM platform for multi-access
edge computing. The patent was issued on July 2, 2019.
- Subsequent to the end of the quarter the Company announced it
had retained LodeRock Advisors Inc. for strategic investor
relations and capital markets communications services.
DIVIDEND AND NORMAL COURSE ISSUER BID
The Company's
Board of Directors has declared a regular quarterly dividend in the
amount of C$0.04 per common share,
payable September 16, 2019 to common
shareholders of record August 31,
2019. During the second quarter, the Company paid
$1.2 million in common share
dividends or C$0.04 per share. This
dividend has been designated as an "eligible dividend" for Canadian
tax purposes.
On June 19, 2019, the Company
received regulatory approval for an NCIB to purchase up to
3,791,395 common shares of the Company, or approximately 10% of the
Company's total public float at prevailing market prices, in
accordance with the rules of the Toronto Stock Exchange. As
of August 13, 2019, there were
39,473,032 common shares outstanding. This represents the
fourth NCIB the company has undertaken and will run from
June 24, 2019 to June 23, 2020.
SECOND QUARTER RESULTS SUMMARY
Second quarter 2019
revenues were $345.7 million, 9.3% or
$35.7 million below the same period
in 2018. This decline was primarily attributable to a $65.2 million decrease in sales to major
customers, partially offset by a non-recurring project with a
non-major customer of over $30
million. Product revenue was $305.6
million, 9.8% or $33.2 million
below Q2 2018. The decline was primarily driven by a decrease
in product sales to major customers. Service revenues were
$40.1 million, $2.5 million or 5.9% below the same period in the
prior year. Pivot Provided Services declined by $6.1 million or 21.7%, while third party
maintenance and support contracts increased by $3.6 million or 25.1%. The decrease in
Pivot Provided services is primarily the result of certain
workforce services contracts winding down in 2019 as well as the
prior period including $3.3 million
of revenue from a large non-recurring direct services contract.
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 within our professional services category.
Gross profit was $45.0 million, up
$4.4 million or 10.7% from Q2 2018.
Gross profit margin increased to 13.0% from 10.6% in Q2 2018
due to lower service-related cost of sales as a result of cost
reduction activities and a reduction in sales to major customer
accounts which generally have lower gross margin profiles.
Second quarter Selling, General and Administrative ("SG&A")
expenses were $35.3 million, a
$0.2 million decline from Q2
2018. The reduction was due to lower net spending on Smart
Edge as the company has begun capitalizing certain qualified
development costs, as well as the implementation of IFRS 16 which
resulted in a reduction in rent expense. SG&A reductions
from the Company's cost reduction efforts were largely offset by
increased variable compensation due to the growth in gross
profit.
Adjusted EBITDA1 was $9.7
million, an increase $4.6
million or 89.9% over the prior period. The increase was due
in part to the adoption IFRS 16, coupled with higher gross profit
margins and lower SG&A. These factors more than offset the
impact of lower revenues. Income attributable to common
shareholders was $1.6 million
($0.04 per share) compared to
$0.2 million ($0.01 per share) in Q2 2018.
2019 OUTLOOK
Management believes Pivot's opportunities
to create shareholder value through its product and advanced
services strategy are robust. The secular trends driving IT
spending on solutions and services are positive and are expected to
grow in line with the overall market's expected growth rate 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.
"While remaining conscious of our cost structure, we continue to
make strategic hires to address areas where there are opportunities
for growth, such as services and edge technologies," said Mr.
Shank. "The Company recently achieved two milestones for our
Smart EdgeTM platform for multi-access edge computing.
First, the granting of the patent by the USPTO, and second, over
the past few weeks we have received two small initial purchase
orders to deploy Smart Edge. These developments are evidence
of our thought leadership in the space and puts us in an excellent
position to provide the services required to deploy, support and
install edge technologies."
QUARTERLY RESULTS MATERIALS
The Company's outlook is
contained in its MD&A for the three and six months ended
June 30, 2019, which is available
along with the complete second 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
June
30,
(unaudited)
|
For the
six months ended June
30,
(unaudited)
|
|
2019
|
2018
|
2019
|
2018
|
Revenue
|
345,688
|
381,343
|
641,286
|
750,609
|
Cost of
sales
|
300,731
|
340,738
|
559,705
|
670,705
|
Gross
profit
|
44,957
|
40,605
|
81,581
|
79,904
|
Employee compensation
and benefits
|
29,648
|
28,422
|
57,093
|
58,017
|
Other selling, general
and administrative expenses
|
5,617
|
7,079
|
11,456
|
15,285
|
Income before the
following:
|
9,692
|
5,104
|
13,032
|
6,602
|
Depreciation and
amortization
|
3,721
|
2,861
|
7,478
|
5,710
|
Finance
expense
|
1,508
|
1,773
|
3,175
|
3,086
|
Change in fair value
of liabilities
|
208
|
157
|
440
|
197
|
Other expense
(income)
|
833
|
(408)
|
3,951
|
(507)
|
Income (loss)
before income taxes
|
3,422
|
721
|
(2,012)
|
(1,884)
|
Provision for income
taxes
|
2,403
|
456
|
969
|
115
|
Income (loss) for
the period
|
1,019
|
265
|
(2,981)
|
(1,999)
|
Income (loss) for the
period attributable to
|
|
|
|
|
non-controlling
interests
|
(592)
|
51
|
(1,009)
|
256
|
Income (loss) for the
period attributable to shareholders
|
1,611
|
214
|
(1,972)
|
(2,255)
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
Items that may be
reclassified subsequently to income
|
|
|
|
|
(loss) for the
period:
|
|
|
|
|
Exchange gain (loss) on
translation of foreign operations
|
10
|
(24)
|
(35)
|
(3)
|
Total
comprehensive income (loss)
|
1,029
|
241
|
(3,016)
|
(2,002)
|
|
|
|
|
|
Total
comprehensive income (loss) attributable to
|
|
|
|
|
shareholders
|
1,621
|
190
|
(2,007)
|
(2,258)
|
|
|
|
|
|
Income (loss) per
common share:
|
|
|
|
|
Income (loss)
attributable to common shareholders
|
1,611
|
214
|
(1,972)
|
(2,255)
|
|
|
|
|
|
Basic
|
$
|
0.04
|
$
|
0.01
|
$
|
(0.05)
|
$
|
(0.06)
|
Diluted
|
$
|
0.04
|
$
|
0.01
|
$
|
(0.05)
|
$
|
(0.06)
|
|
|
|
|
|
|
|
|
|
Total
assets
|
472,194
|
505,588
|
472,194
|
505,588
|
Total current
non-financial liabilities
|
29,537
|
31,717
|
29,537
|
31,717
|
Cash dividends
declared on common shares
|
1,176
|
1,231
|
2,375
|
2,490
|
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 (loss) before
income taxes, depreciation and amortization, finance expense,
change in fair value of liabilities, and other expense
(income).
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 under
Non-IFRS Measures.
SECOND QUARTER CONFERENCE CALL
At 8:30 a.m. eastern Thursday, August 15, 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 August 22, 2019) by
dialing (416) 849-0833 and entering passcode 4337276 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 trends in IT spending in
2019; the following components of the Company's strategy: the
commercialization and monetization of Smart Edge, cost structure
reduction, enhancement of Pivot's service portfolio, the
Company's commercial transformation, the support of customers as
they expand internationally; 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 continued growth in IT
spending, 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 sustain cost reductions, 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 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