Pivot Technology Solutions, Inc. Reports Third Quarter 2017 Results, Declares Quarterly Dividend

TORONTO, Nov. 13, 2017 /CNW/ - Pivot Technology Solutions, Inc. (TSX: PTG), ("Pivot" or the "Company") a full-service information technology provider, today reported financial results for the three and nine months ended September 30, 2017 and declared a quarterly dividend.  

Third Quarter Overview (in US dollars unless otherwise stated)

• Revenues were $389.1 million, up 6.5% from $365.5 million in Q3 2016
• Product revenue grew 4.5%
• Services revenue grew 25.1%
• Gross profit was $42.8 million, virtually unchanged from $42.9 million in Q3 2016
• Gross profit margin was 11.0%, compared to 11.7% in Q3 2016
• Adjusted EBITDA¹ was $7.3 million, up 14.8% from $6.3 million in Q3 2016
• Loss per share was $0.02 compared to loss per share of $0.08 in Q3 2016
• The Company paid $1.3 million in common share dividends

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

First Nine Months Overview (in US dollars unless otherwise stated)

• Revenues were $1.1 billion, up 8.5% from $1.0 billion in the same period of 2016 excluding GTS¹
• Product revenue grew 7.6%
• Services revenue grew 17.1%
• Gross profit was $119.9 million, down 2.2% from $122.6 million in the comparable period a year ago excluding GTS¹
• Gross profit margin was 10.8% compared to 12.0% in the comparable period a year ago excluding GTS¹
• Adjusted EBITDA² was $13.0 million, down 22.1% compared to $16.7 million in the comparable period a year ago excluding GTS¹
• Loss per share was $0.08 compared to a loss per share of $0.17 in the comparable period a year ago
• The Company paid $3.7 million in common share dividends

¹ Non-IFRS measure. see Non-IFRS measures section of this news release.

² The assets and liabilities of GTS Technology Solutions, Inc. ("GTS"), formerly known as Austin Ribbon & Computer Supplies, Inc. were derecognized on July 1, 2016 and accordingly, GTS is excluded from the results above for the nine months of 2017 and 2016. Results excluding GTS are a Non-IFRS measure. see the Non-IFRS measures sections of this news release for more information and for 2016 results.  

Dividend Declaration
At its meeting today, the Company's Board of Directors declared a quarterly dividend of C$0.04 per common share, payable December 15, 2017 to common shareholders of record November 30, 2017.

Management Commentary
"Pivot made solid steps toward its transformation this past quarter, led by 28.9% growth in direct services," said Kevin Shank, President and Chief Executive Officer. "I am happy to say our core business, led by Professional Services, executed well in the quarter and all other service channels including Fulfillment, Project, Workforce and Managed Services gained momentum.  In addition, TeraMach continued to achieve solid results across Canada. This translated into Adjusted EBITDA growth compared to last year. At the same time, we're making deliberate investments in our solutions and services business as well as other strategic initiatives such as the development of a proprietary software innovation that's aimed at supporting the growing requirements of edge computing. These continued investments will advance our ongoing commercial transformation, which is focused on growing enterprise value."

Earnings available to common shareholders were improved over last year when Pivot's results included impairment and loss of control charges related to GTS.

"From an operating perspective, Pivot's core business performance in the third quarter showed improvement, evidenced by higher sales, a 2.7% year-over-year decrease in SG&A expenses resulting from our cost management program and 14.8% growth in Adjusted EBITDA¹," said David Toews, Interim Chief Financial Officer. "These improvements were somewhat held back by less favourable sales mix and vendor rebates. While these impacts on gross margin are in part timing related, they illustrate that the ongoing actions we are taking to deliver better profitability across all areas of the business are appropriate and necessary."

New Investments
Pivot is focused on driving profitable growth organically and by acquisition. While its main organic growth strategy is embodied in the development of its solutions and services business, it has also leveraged its expertise to develop a patent-pending software designed to address the requirements of the multi-access edge computing market. Pivot has successfully completed a use case of this potentially disruptive technology with a Fortune 100 company.  We are reviewing alternatives to finance the growth of this new technology with an objective to maximize shareholder value.   To date in 2017, Pivot has invested an incremental $2.2 million in this proprietary solution (including $0.7 million in the third quarter). 

Third Quarter Results Overview (in thousands of US dollars except per share amounts) 
Third quarter 2017 revenues were $389.1 million, 6.5% or $23.6 million above the same period in 2016 primarily due to higher sales to major customers and TeraMach revenue of $10.1 million.

Product revenue in the third quarter of 2017 was $344.6 million, 4.5% or $14.7 million above the same period in 2016. Third quarter service revenues were $44.4 million, 25.1% or $8.9 million above the same period in 2016. Revenue from the Company's own service portfolio grew 28.9% year over year as the Company continued to implement its services strategy across its larger customer base including at TeraMach.

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, business seasonality and the mix in revenue between major and non-major customers. In the third quarter, major customers accounted for 42.3% of revenue compared to 34.8% in Q3 a year ago. 

Third quarter 2017 cost of sales was $346.3 million, 7.3% or $23.7 million higher than a year ago. Gross profit for the third quarter of 2017 was $42.8 million (11.0% gross margin) compared to $42.9 million (11.7% gross margin) a year ago. Gross profit and margin performance reflected lower margins on sales to major customers as well as lower vendor incentives recognized in the quarter.

Selling, general and administrative ("SG&A") expenses in the third quarter were $35.5 million, 2.7% or $1.0 million lower than a year ago as active cost management and increased vendor incentives more than offset the assumption of TeraMach's expense base, which added $1.9 million of costs this quarter versus nil a year ago. TeraMach was acquired October 1, 2016.

Adjusted EBITDA (see non-IFRS measures) in the third quarter of 2017 was $7.3 million, 14.8% or $0.9 million higher than a year ago as a result of higher revenues, relatively stable gross margins and lower SG&A.

Net loss for the third quarter was $0.8 million ($0.02 per diluted share) compared to net loss of $3.2 million (loss of $0.08 cents per share) in the third quarter of 2016.

Share Repurchases
During the third quarter, the Company repurchased and cancelled 123,900 shares pursuant to its Normal Course Issuer Bid ("NCIB") that began on June 22, 2017. Under the NCIB, Pivot may purchase for cancellation up to 3,820,852 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. The NCIB will continue until June 21, 2018, unless completed or terminated earlier. At September 30, 2017, the Company had 40,397,070 common shares issued and outstanding. In October 2017, the Company repurchased and cancelled another 30,800 shares under the NCIB. At November 10, 2017, the Company had 40,371,404 common shares issued and outstanding. 

Looking Forward
The Company's outlook is contained in its MD&A for the three and nine months ended September 30, 2017.

"We are very pleased with the year-over-year revenue growth achieved in our business in particular our services area," said Mr. Shank.  "As we look at the accelerating technological changes in our industry, we are bringing higher valued solutions and services to our customers.  As Pivot's commercial transformation continues to gain traction, we look forward to reporting on progress in the quarters ahead."

Third Quarter Conference Call
At 8:30 a.m. eastern Tuesday, November 14, 2017, 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 [phone] five minutes prior to the scheduled start time.  A telephone recording of the call will be available for one week (until midnight November 21, 2017) by dialing [phone] and entering passcode 2698029 followed by the number sign.

Quarterly Results Materials
The complete report for the third quarter and first nine months of 2017, including the MD&A and unaudited interim condensed consolidated financial statements, is available at www.pivotts.com.

SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS

		Three months ended September 30,				Nine months ended September 30,
		(unaudited)				(unaudited)
		2017		2016		2017		2016
Revenue		389,077		365,473		1,112,234		1,071,968
	Cost of sales	346,280		322,616		992,361		944,472
Gross profit		42,797		42,857		119,873		127,496
	Employee compensation and benefits	29,521		27,952		86,679		87,029
	Other selling, general and administrative expenses	6,025		8,588		20,201		23,576
Income before the following:		7,251		6,317		12,993		16,891
	Depreciation and amortization	2,837		2,345		8,414		8,203
	Finance expense	1,639		1,173		4,000		3,358
	Change in fair value of liabilities	80		(488)		6		217
	Other expense, net	2,452		8,634		3,882		13,840
Income (loss) before income taxes		243		(5,347)		(3,309)		(8,727)
	Provision for (recovery of) income taxes	1,056		(2,108)		(267)		(1,518)
Loss for the period		(813)		(3,239)		(3,042)		(7,209)
Income for the period attributable to non-controlling interests		154		4		31		111
Loss for the period attributable to shareholders		(967)		(3,243)		(3,073)		(7,320)
Other comprehensive income
Items that may be reclassified subsequently to income
for the period:
	Exchange gain on translation of foreign operations	55		-		57		-
		55		-		57		-
Total comprehensive loss attributable to shareholders		(912)		(3,243)		(3,016)		(7,320)
Loss per common share:
Loss available to common shareholders		(967)		(3,243)		(3,073)		(7,320)
Basic		$	(0.02)	$	(0.08)	$	(0.08)	$	(0.17)
Diluted		$	(0.02)	$	(0.08)	$	(0.08)	$	(0.17)
Total assets		478,347		447,121		478,347		447,121
Total current non-financial liabilities		33,374		37,310		33,374		37,310
Cash dividends declared on common shares		1,288		1,292		3,727		3,553
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 selling and administrative expenses, and corresponds to income before tax, depreciation and amortization, finance expense, change in fair value of liabilities, and other expense.  

Management believes that Pivot shareholders and potential investors use these additional non-IFRS financial measures in making investment decisions and measuring operational results as they demonstrate the Company's ability to generate liquidity through operating cash flow to fund working capital needs, service outstanding debt and fund future capital expenditures. 

A reconciliation of Adjusted EBITDA to net income is shown below. Commencing July 1, 2016, GTS' results of operations were no longer included in the Company's results. Where GTS' results of operations are excluded from measures in this news release for the first nine months of 2016, corresponding measures, including GTS' results of operations are also presented.

			Three months ended September 30,				Nine months ended September 30,
			(unaudited)				(unaudited)
			2017	2016	2017*	2016*	2017	2016	2017*	2016*
Income (loss) before income taxes			243	(5,347)	243	(4,076)	(3,309)	(8,727)	(3,309)	(7,636)
Depreciation and amortization			2,837	2,345	2,837	2,345	8,414	8,203	8,414	8,187
Finance costs			1,639	1,173	1,639	1,173	4,000	3,358	4,000	3,342
Change in fair value of liabilities			80	(488)	80	(488)	6	217	6	217
Other expenses			2,452	8,634	2,452	7,363	3,882	13,840	3,882	12,569
Adjusted EBITDA			7,251	6,317	7,251	6,317	12,993	16,891	12,993	16,679
Notes: Amounts presented are in thousands of U.S. dollars
	*Amounts exclude GTS results of operations

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 advancement of the Company's ongoing commercial transformation, growing enterprise value, alternatives to finance the growth of its new patent-pending software technology 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 assumption that as Pivot's commercial transformation continues to mature, additional growth in products and services will be achieved in the quarters ahead, financing will be available for the Company's new technology, a patent will be granted in respect of its patent application 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 succeed in sustaining growth or growing its profitability and enterprise value;  that cost containment measures may not be as effective as anticipated; the risk that the Company will be able to obtain financing on reasonable terms to finance the growth of its new technology; and, the risk that a patent will not be granted in respect of its new technology.  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.

About Pivot Technology Solutions, Inc.
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.

SOURCE Pivot Technology Solutions, Inc

David Toews, Interim CFO, Pivot Technology Solutions, Inc., [email protected]; Bill Mitoulas, Pivot Investor Relations, [email protected], Tel: [phone]