Pivot Technology Solutions, Inc. Reports Third Quarter 2019 Results and Declares Quarterly Dividend

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 Edge^TM 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 [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, 2019) by dialing [phone] 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

James Bowen, CFA, Investor Relations, [email protected], Tel: [phone]

Related Links

http://www.pivotac.com/