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Pivot Technology Solutions, Inc. Reports Third Quarter 2018 Results in Line With Previous Guidance
[November 13, 2018]

Pivot Technology Solutions, Inc. Reports Third Quarter 2018 Results in Line With Previous Guidance


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


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