TORONTO, Nov. 13, 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 nine months ended September 30, 2019. All figures are in US dollars
unless otherwise stated.
THIRD QUARTER OVERVIEW
- Revenue was $269.6 million,
compared to $321.4 million in Q3
2018
- Gross profit was $39.5 million,
compared to $40.7 million in Q3
2018
- Gross profit margin increased to 14.7% from 12.7% in Q3
2018
- Adjusted EBITDA1 increased 51.3% to $6.3 million2 compared to $4.2 million in Q3 2018
- Net loss attributable to shareholders was $0.3 million ($0.01
per share) compared to a net loss of $2.8
million ($0.07 per share) in
Q3 2018
1
Non-IFRS Measure. See Non-IFRS Measures
section of this news release.
|
2
including the quarter over quarter
favourable impact of the implementation of IFRS 16 of approximately
$1.3 million
|
MANAGEMENT COMMENTARY
"Gross profit margins and
Adjusted EBITDA margins both showed significant improvements in the
quarter and highlights the improved efficiency of our business,"
said Mr. Kevin Shank, CEO. "We
are pleased to report solid growth in our Pivot Provided services
revenue this quarter and see new opportunities for positive results
in all five service channels as we move forward. In addition,
our recently announced preferred channel partnership agreement with
Intel positions us to capitalize on the growing enterprise demand
for communication and compute solutions at the edge," Mr. Shank
added.
"During the third quarter, the Company continued its integration
work and is planning to combine certain US wholly owned
subsidiaries into a single Pivot brand. This will allow the Company
to centralize several functional areas and is expected to generate
additional cost reductions, while improving controls and allowing
the Company to be more efficient," said Mr. David Toews, CFO.
BUSINESS AND OPERATING HIGHLIGHTS
- In October, 2019, Pivot announced and closed the sale of the
Smart EdgeTM technology assets to Intel. The gross
purchase price was $27 million, with
$25 million paid on closing and
$2 million to be paid 18 months after
closing, subject to standard adjustments for representations and
warranties. The Company expects to record a pre-tax gain on
the sale of approximately $21 to
$23 million dollars after finalizing
closing costs. The net assets held for sale for Smart Edge
was $3.2 million as at September 30, 2019.
- In conjunction with the Smart Edge sale, Pivot and Intel
entered into a three-year preferred channel partner agreement which
designates Pivot as a non-exclusive preferred system integrator and
channel partner for Smart Edge based solutions. Under this
agreement, Pivot will market Smart Edge solutions and provide edge
services including: deployment, system integration, monitoring, and
ongoing support.
- On August 13, 2019 the Board of
Directors (the "Board") declared a common share dividend of
C$0.04 per common share, paid on
September 16, 2019 to common
shareholders of record on August 31,
2019.
- In October 2019 the Company
promoted Scott Ward to the newly
created position of Chief Revenue Officer. In this new role,
Mr. Ward will drive the continued integration and transformation of
the Pivot sales team to a consultative sales approach. Scott
previously held the position of Executive Vice president with Pivot
since October 2017.
DIVIDEND
On November 12,
2019, the Board declared a common share dividend of
C$0.04 per common share payable on
December 16, 2019 to common
shareholders of record on November 29,
2019. This dividend has been designated as an "eligible
dividend" for Canadian tax purposes.
During the third quarter, the Company paid C$1.6 million in common share dividends or
C$0.04 per share.
THIRD QUARTER RESULTS SUMMARY
Third quarter 2019
revenue was $269.6 million, 16.1% or
$51.8 million below the same period
in 2018. The decline was primarily attributable to a $46 million decrease in sales to major
customers. Product sales declined $53.6 million or 18.8% while service revenues
increased $1.9 million or 5.2% in Q3
2019 compared to Q3 2018. Pivot Provided Services increased
$1.5 million or 6.8% in Q3 2019,
while third party maintenance and support contracts increased 2.4%
or $0.3 million compared to the same
period in the prior year. The increase in Pivot Provided services
was due to a new deployment project partially offset by a workforce
services contract which was winding down in the prior year
quarter. The increase in third party maintenance and support
contracts is primarily driven by the timing of certain contracts
and renewals. 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 $39.5 million,
down $1.2 million or 2.9% from Q3
2018. Gross profit margin increased to 14.7% from 12.7% in Q3
2018. Despite decreased revenue quarter over quarter and year
over year, gross profit and gross profit margins were positively
impacted by cost reductions in service related cost of sales as
well as the reduction of sales to major customers, who generally
have lower gross profit margins. The Company continues its strategy
to increase service revenues which generally have better gross
profit margins than product sales to improve overall gross profit
margins. In addition, the Company works with its suppliers
continuously to mitigate the impact of pricing pressure.
Third quarter selling, general and administrative ("SG&A")
expenses were $33.2 million, a 9.1%
or $3.3 million decline from Q3
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. Excluding the impact
of Smart Edge, employee compensation and benefits also decreased
primarily due to cost reduction efforts, as well as lower
commissions on decreased gross profits.
Adjusted EBITDA1 was $6.3
million, an increase of $2.1
million or 51.3% over the prior period. Loss
attributable to common shareholders was $0.3
million ($0.01 per share)
compared to a loss of $2.8 million
($0.07 per share) in Q3 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
and 2020. The company's sales organization continues to
evolve. As part of the integration activities, the separate
business unit sales organizations will be combined into one
organization while continuing to engage customers in a more
strategic fashion to develop comprehensive relationships built on
the value of selling Pivot's expanded portfolio. The execution of
this strategy is intended to create higher value recurring revenue
streams over time that offer greater predictability of performance
by reducing the Company's exposure to the capital expenditure
cycles of its customers.
In connection with the sale of Smart Edge, Pivot and Intel have
entered into a three-year preferred channel partner agreement which
designates Pivot as a non-exclusive preferred system integrator and
channel partner for Smart Edge based solutions. Under this
agreement, Pivot will market Smart Edge solutions and provide
customers edge services including: deployment, system integration,
monitoring and support services.
Pivot was recently selected for the Intel Network Builder's
Winners' Circle program as a Leaders Board Partner for its Pivot
Edge services. Intel Network Builders is an ecosystem of
partners coming together to accelerate the adoption of network
functions virtualization ("NFV") – and software-defined networking
("SDN") based solutions in telecommunications networks and public,
private enterprise and hybrid clouds. Intel recognized the
outstanding achievements of these partners at the Winners Circle
Awards which were announced during the Intel Network Builders
Summit, in conjunction with the SDN NFV World Congress in
The Hague (Netherlands).
"The sale of Smart Edge will create value for Pivot shareholders
by increasing our financial flexibility while simultaneously
reducing our operating expenses. With the proceeds from the
transaction, we will reduce our debt and improve financial leverage
metrics while providing the Company with options to look at
strategic investments," said Mr. Shank.
QUARTERLY RESULTS MATERIALS
The Company's outlook is
contained in its MD&A for the three and nine months ended
September 30, 2019, which is
available along with the complete third quarter 2019 interim
condensed consolidated financial statements at www.pivotts.com and
at www.sedar.com.
SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS
|
For the three
months ended
September 30,
|
For the nine
months ended
September 30,
|
|
(unaudited)
|
(unaudited)
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
Revenue
|
269,623
|
321,389
|
910,909
|
1,071,998
|
Cost of
sales
|
230,075
|
280,654
|
789,780
|
951,359
|
Gross
profit
|
39,548
|
40,735
|
121,129
|
120,639
|
Employee
compensation and benefits
|
27,218
|
28,527
|
84,311
|
86,544
|
Other selling,
general and administrative expenses
|
6,029
|
8,043
|
17,485
|
23,328
|
Income before the
following:
|
6,301
|
4,165
|
19,333
|
10,767
|
Depreciation
and amortization
|
3,683
|
2,863
|
11,161
|
8,573
|
Finance
expense
|
1,456
|
1,528
|
4,631
|
4,614
|
Change in fair
value of liabilities
|
223
|
226
|
663
|
423
|
Other
expense
|
565
|
1,801
|
4,516
|
1,294
|
Income (loss)
before income taxes
|
374
|
(2,253)
|
(1,638)
|
(4,137)
|
Provision for
income taxes
|
7
|
220
|
976
|
335
|
Income (loss) for
the period
|
367
|
(2,473)
|
(2,614)
|
(4,472)
|
|
|
|
|
|
Income (loss) for the
period attributable to
|
|
|
|
|
non-controlling interests
|
684
|
335
|
(325)
|
591
|
Loss for the period
attributable to shareholders
|
(317)
|
(2,808)
|
(2,289)
|
(5,063)
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
Items that may be
reclassified subsequently to income
|
|
|
|
|
(loss) for
the period:
|
|
|
|
|
Exchange gain
(loss) on translation of foreign operations
|
13
|
23
|
(22)
|
20
|
Total
comprehensive income (loss)
|
380
|
(2,450)
|
(2,636)
|
(4,452)
|
Total
comprehensive loss attributable to
|
|
|
|
|
Shareholders
|
(304)
|
(2,785)
|
(2,311)
|
(5,043)
|
Loss per common
share:
|
|
|
|
|
Loss attributable to
common shareholders
|
(317)
|
(2,808)
|
(2,289)
|
(5,063)
|
Basic
|
$
|
(0.01)
|
$
|
(0.07)
|
$
|
(0.06)
|
$
|
(0.13)
|
Diluted
|
$
|
(0.01)
|
$
|
(0.07)
|
$
|
(0.06)
|
$
|
(0.13)
|
Total
assets
|
433,782
|
416,307
|
433,782
|
416,307
|
Total current
non-financial liabilities
|
29,632
|
43,771
|
29,632
|
43,771
|
Cash dividends
declared on common shares
|
1,207
|
1,207
|
3,582
|
3,697
|
Note: Amounts presented are in
thousands of U.S. dollars, except per share amounts
|
SELECTED FINANCIAL INFORMATION AND OPERATING
RESULTS
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.
THIRD QUARTER CONFERENCE CALL
At 8:30 a.m. eastern Thursday, November 14, 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 November 21, 2019) by
dialing (416) 849-0833 and entering passcode 8838489 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 and 2020; improvement to financial leverage metrics; the
following components of the Company's strategy: the combination of
separate business unit sales organizations, the creation of higher
value recurring revenue streams; 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 based solution and growth with
the adoption of 5G technologies, the ability of the Company to
enhance its service portfolio and accelerate commercial
deployments, Pivot's continued financial liquidity to invest in its
business and pay quarterly dividends, Pivot's ability to create
higher value recurring revenue streams as a result of the
combination of business units, 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 risk that the growth of
the Company's service portfolio will not meet expectations
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.
Smart Edge and Intel and the Intel logo are trademarks of
Intel Corporation in the United
States and other countries.
SOURCE Pivot Technology Solutions, Inc