Pivot Technology Solutions, Inc. Announces Second Quarter 2020 Results

AND DECLARES QUARTERLY DIVIDEND

TORONTO, Aug. 13, 2020 /CNW/ - Pivot Technology Solutions, Inc. (TSX: PTG), ("Pivot", "Company"), a full-service information technology provider, today announced financial results for the three and six months ended June 30, 2020. All figures are in Canadian dollars unless otherwise stated.

Prior to January 1, 2020, the Company reported its results in U.S. dollars. Effective January 1, 2020, Pivot's Board of Directors elected to change the Company's presentation currency from U.S. dollars to Canadian dollars. The change in presentation currency is to improve investors' ability to compare the Company's financial results with other Canadian publicly traded businesses.

SECOND QUARTER OVERVIEW

• Revenue was $332.1 million, compared to $459.9 million in Q2 2019.
• Pivot Provided Services revenue grew 12.1%.
• Gross profit margin improved to 15.1%, compared to 13.1% in Q2 2019.
• Gross profit was $50.2 million, compared to $60.1 million in Q2 2019.
• Selling, general and administrative expenses ("SG&A") declined 9.3% to $42.8 million, compared to $47.2 million in Q2 2019.
• Adjusted EBITDA⁽¹⁾ was $7.4 million, compared to $12.9 million in Q2 2019.
• Diluted earnings per share ("EPS") was ($0.01) in Q2 2020, compared to $0.05 in Q2 2019.
• The Company repurchased 497,260 shares during the quarter at a cost of $0.7 million.
• The Company paid dividends of $1.5 million during Q2.

¹ Non-GAAP Measure. See the Non-GAAP Measures section of this news release.

"The second quarter of 2020 was highlighted by economic uncertainty as the world adapted to the challenges presented by COVID-19.  Pivot entered this environment from a position of strength, with an efficient cost structure, a strengthened balance sheet, and a strategy to grow its service and higher margin product solutions," said Kevin Shank, CEO.

"During the second quarter, we continued to execute against our strategic plan. We are pleased that our results demonstrated the expected benefits from the transformation plan that was initiated in 2018.  Pivot Provided Services continued on its growth path and grew 12.1% in the second quarter compared to the prior year and increased sequentially.  These results would have been even better were it not for COVID-19, as we had several projects delay where we were unable to access customer locations due to the pandemic. Gross profit margin increased to 15.1% from 13.1% and our SG&A decreased by 9.3% compared to last year. The improved efficiency of our business and growth in Pivot Provided Services enabled us to generate $7.4 million dollars in Adjusted EBITDA in the second quarter."

"Revenue declined compared to last years Q2, which was the strongest quarter for the Company in fiscal 2019, due to three factors:  Revenue from major customers declined approximately $71.5 million; the prior year included a non-recurring project with a non-major customer of over $41.0 million; and over $30.0 million of revenue slipped from Q2 2020 into Q3 2020 as a result of customer delays and product shipment delays due to supply chain issues, both caused by COVID-19."

"We continue to focus on building our core products and services portfolio while enhancing our services and solutions capabilities from the edge to the cloud.  Intel continues to be a key partner on our overall edge strategy to drive the sale, deployment, and management of edge solutions.  During the second quarter, we were chosen as the Intel 2020 National Go-to-Market Partner of the Year for our work with Intel's Smart Edge solution.  This award validates our expertise in delivering transformative services that are moving us closer to our goal of becoming the number one edge services provider in North America."

Q2 2020 BUSINESS AND OPERATING HIGHLIGHTS

• In June 2020, the Company entered into an interest rate swap contract, with a notional amount of US$50.0 million, to lock in the LIBOR rate between 0.34% and 0.7%, covering the full term of the Company's credit facility, scheduled to expire May 14, 2024.
• The Normal Course Issuer Bid ("NCIB") was utilized to repurchase 497,260 shares during the second quarter at a cost of $0.7 million.
• Awarded Intel's 2020 National Go-to-Market Partner of the Year award.
• The Company paid dividends of $1.5 million during Q2 2020.

DIVIDEND

On August 11, 2020, the board of directors declared a dividend of C$0.04 per share payable on September 15, 2020 to common shareholders of record on August 31, 2020. This dividend has been designated as an "eligible dividend" for Canadian tax purposes.

SECOND QUARTER RESULTS SUMMARY

Second quarter 2020 revenue was $332.1 million, a 27.8% decrease from the comparative period. This decrease was primarily attributable to lower product sales to major customers, the prior year included a non-recurring project with a non-major customer of over $41.0 million, partially offset by an increase in Pivot Provided Services.   Over $30.0 million of revenue slipped from Q2 2020 into Q3 2020 as a result of customer delays and product shipment delays due to supply chain issues, both caused by COVID-19.

Gross profit of $50.2 million for Q2 2020 decreased by $9.9 million or 16.5% as compared to the same period in the prior year. The gross profit margin was 15.1% in Q2 2020 as compared to 13.1% in Q2 2019. The decrease in gross profit for Q2 2020 is mainly driven by the decline in sales described above, partially offset by improved gross profit margin.  During the first half of 2020, the continued favourable shift in the customer mix resulted in a lower percentage of revenue being generated from major customers, which improved overall gross profit margins. Since the gross profit margin from non-major customers is generally more favourable, Q2 2020 and the first half 2020 gross profit margins continued to benefit from this shift.  In addition, the growth in Pivot Provided Services revenue, which generally has higher gross profit margins than product sales, combined with continued cost management, contributed to the improvement in gross profit margin in Q2 2020.   

SG&A of $42.8 million for Q2 2020 decreased $4.4 million or 9.3% as compared to the same period in the prior year. Excluding the unfavourable foreign exchange effect of $1.5 million, the decrease was $5.9 million or 12.5%.  There were a number of factors that impacted SG&A including: lower commissions and variable compensation; cost reductions due to the sale of the Smart Edge business in late 2019; increased costs due to investment in growth areas which have been mostly offset by cost reductions from integration activities and furlough actions; and decreased costs associated with timing of events, travel and marketing spend primarily as a result of COVID-19, partially offset by increased bad debt expense.

Adjusted EBITDA⁽¹⁾ was $7.4 million in the 2020 second quarter.  Net loss attributable to shareholders was $0.5 million, or $0.01 per share.  Net loss includes $2.8 million of amortization of intangibles from acquisitions.

OUTLOOK FOR 2020

While the global economy continues to be impacted by the COVID-19 pandemic, it has affected industries in different ways. While some customers have been negatively impacted, others have seen an increase in demand. Independent of how a company is performing, governments around the world have required that non–essential offices be closed. Management has been able to identify certain operations and resources that will be idle or less utilized as a result of the COVID-19 pandemic. As a result, the Company furloughed certain employees in April 2020, some of which have been brought back as at June 30, 2020.

The Company's outlook is contained in its Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2020, which is available at www.pivotts.com and at www.sedar.com.

SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS

(unaudited)	Three months ended June 30,		Six months ended June 30,
(in thousands of Canadian dollars, except per share amounts)	2020	2019	2020	2019
		(re-presented,in Canadian dollars)		(re-presented,in Canadian dollars)
Revenue	332,136	459,902	708,943	849,763
Cost of sales	281,947	399,797	606,664	740,967
Gross profit	50,189	60,105	102,279	108,796
Selling, general and administrative expenses	42,787	47,166	89,486	91,417
Income before depreciation and amortization, finance expense, change in fair value of liabilities and other expenses	7,402	12,939	12,793	17,379
Depreciation	1,679	2,042	3,690	4,115
Amortization	2,839	2,935	5,519	5,857
Finance expense	1,497	2,018	3,241	4,234
Change in fair value of liabilities	671	279	680	587
Other expenses	1,747	1,124	2,194	5,269
Earnings (loss) before income taxes	(1,031)	4,541	(2,531)	(2,683)
Income tax expense (recovery)	(476)	3,199	(2,960)	1,292
Net income (loss) for the period	(555)	1,342	429	(3,975)
Other comprehensive income (loss)
Items that may be reclassified subsequently to income (loss):
Exchange gain (loss) on translation of foreign operations	(299)	(11)	868	(324)
Total comprehensive income (loss)	(854)	1,331	1,297	(4,299)
Attributable to:
Shareholders	(753)	2,123	1,211	(2,953)
Non-controlling interest	(101)	(792)	86	(1,346)
Total comprehensive income (loss)	(854)	1,331	1,297	(4,299)
Attributable to shareholders:
Earnings (loss) attributable to shareholders	(454)	2,134	343	(2,629)
Earnings (loss) per common share
Basic	($0.01)	$0.05	$0.01	($0.07)
Diluted	($0.01)	$0.05	$0.01	($0.07)
Certain comparative information has been reclassified to conform to current year presentation.

The following is a summary of selected consolidated financial information for the past eight quarters.

(in thousands of Canadian dollars	2020			2019					2018
except otherwise noted)	Q2	Q1		Q4	Q3	Q2	Q1		Q4	Q3
				(re-presented in Canadian dollars)
Revenue	332,136	376,807		402,477	352,404	459,902	389,861		395,872	417,094
Gross profit	50,189	52,090		56,646	52,209	60,105	48,691		56,063	53,208
Gross profit margin	15.1%	13.8%		14.1%	14.8%	13.1%	12.5%		14.2%	12.8%
Adjusted EBITDA^(1)	7,402	5,391		9,868	8,319	12,939	4,440		6,271	5,424
Adjusted EBITDA^(1) margin	2.2%	1.4%		2.5%	2.4%	2.8%	1.1%		1.6%	1.3%
Net income (loss)	(555)	984		21,676	501	1,342	(5,317)		(34)	(3,204)
Net income (loss) attributable to shareholders	(454)	797		21,574	(413)	2,134	(4,763)		570	(3,638)
Earnings (loss) per share attributable to shareholders:
Basic	($0.01)	$0.02		$0.55	($0.01)	$0.05	($0.12)		$0.01	($0.09)
Diluted	($0.01)	$0.02		$0.54	($0.01)	$0.05	($0.12)		$0.01	($0.09)
Cash dividends declared on   common shares	1,529	1,556		1,585	1,586	1,579	1,579		1,579	1,579
Certain comparative information has been reclassified to conform to current year presentation.

The following is a reconciliation of "income (loss) before income taxes" to "Adjusted EBITDA".

	2020			2019					2018
(in thousands of Canadian dollars)	Q2	Q1		Q4	Q3	Q2	Q1		Q4	Q3
				(re-presented in Canadian dollars)
Income (loss) before income taxes	(1,031)	(1,500)		29,622	506	4,541	(7,224)		840	(2,920)
Depreciation	1,679	2,011		1,805	1,970	2,042	2,073		757	825
Amortization	2,839	2,680		2,771	2,893	2,935	2,922		2,914	2,915
Finance expense	1,497	1,744		1,841	1,922	2,018	2,216		1,989	1,997
Change in fair value of liabilities	671	9		725	294	279	308		301	293
Other expenses (income)	1,747	447		(26,896)	734	1,124	4,145		(530)	2,314
Adjusted EBITDA^(1)	7,402	5,391		9,868	8,319	12,939	4,440		6,271	5,424
Certain comparative information has been reclassified to conform to current year presentation.

Key metrics on consolidated debt

Adjusted Debt

	June 30,	December 31,
(in thousands of Canadian dollars)	2020	2019
Current liabilities	494,060	492,330
Other financial liabilities – long-term	14,207	14,999
Less: Lease obligations – total	(18,330)	(18,769)
Less: Current assets	(415,641)	(415,626)
Adjusted Debt^(1)	74,296	72,934

Adjusted Debt⁽¹⁾ normalizes the impact of the changes in working capital. Management believes it is a more relevant indicator of the Company's debt position and is a more comparable metric with industry peers. The increase of Adjusted Debt⁽¹⁾ in 2020 was mainly due to foreign exchange; excluding the foreign exchange effect, Adjusted Debt was $71.1 million as of June 30, 2020.

The Company has financed its operations through an asset-based revolving credit facility as opposed to term debt or equity in order to take advantage of lower borrowing costs and flexibility that the facility allows to match the cash flow requirements of the Company.  While the facility matures in May 2024, the borrowings under the facility are presented as current liabilities.

Below are the key metrics of our consolidated debt as of June 30, 2020, and December 31, 2019.

	June 30,	December 31,
	2020	2019
Adjusted Debt^(1) to Adjusted EBITDA^(1)	2.40	2.05
Net interest coverage^(1)	4.42	4.45

Net interest coverage is defined as Adjusted EBITDA divided by finance expense on a trailing twelve-month basis.

The change in Adjusted Debt to Adjusted EBITDA at June 30, 2020 was due to the decline in Adjusted EBITDA in Q2 2020 compared to Q2 2019, and also due to foreign exchange; excluding the foreign exchange effect, Adjusted Debt to Adjusted EBITDA was 2.32 as at June 30, 2020. The decline in net interest coverage reflects the lower Adjusted EBITDA, partially offset by lower net finance expense as at June 30, 2020 on a trailing 12-month basis as compared to the same trailing 12-month period at December 30, 2019.

NON-GAAP MEASURES

The Company evaluates and measures its performance based on measures referred to as "Adjusted EBITDA", "Adjusted Debt", "Adjusted Debt to Adjusted EBITDA", and "Net Interest Coverage". These measures do not have any standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other issuers. Such non-GAAP measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP such as net income (loss), cash flow, or other measures of financial performance and liquidity reported in accordance with GAAP. Detailed descriptions of these terms can be found in Pivot's disclosure documents, including its Management's Discussion and Analysis, filed with the securities regulatory authorities; these documents are available at www.sedar.com or on Pivot's website www.pivotts.com.

SECOND QUARTER CONFERENCE CALL

At 8:30 a.m. Eastern Time, August 14, 2020, the Company will host a conference call featuring management's quarterly remarks and a follow-up question and answer period with analysts. The conference call can be accessed live by dialing [phone] five minutes prior to the scheduled start time. 

A telephone recording of the call will be available for one week (until midnight August 21, 2020) by dialing [phone] and entering passcode 555002 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 original equipment manufacturer 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  

Information in this release contain forward-looking statements, including statements concerning anticipated financial events, results, performance or expectations relating to the Company operations, financial condition, business strategy and the Company's outlook for the IT market and its business in 2020, and the impact of the COVID-19 pandemic on the Company's results of operations.  Forward-looking statements are based on assumptions of future events that the Company believes are reasonable based upon information currently available, including the impact that COVID-19 pandemic may have on the Company and the IT market in the near future; the Company's ability to mitigate possible supply chain disruption and delays or interruptions in services provided to customers. Pivot assumes no obligation to update or revise any forward-looking statement, except as required by applicable securities law. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, including that the COVID-19 pandemic will result in a more significant deferral or cancellation of new orders for goods and services than anticipate.  Actual results could vary significantly from those expressed or implied in these statements.  Readers are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Further information with respects to the risks and uncertainties can be found in the MD&A for the three and six months ended June 30, 2020 and the Annual Information Form for the year ended December 31, 2019, available at www.sedar.com and on Pivot's website at www.pivotts.com.

SOURCE Pivot Technology Solutions, Inc

James Bowen, CFA, Pivot Technology Solutions, [email protected], 416-519-9442

Related Links

http://www.pivotts.com