Pivot Technology Solutions Reports Fourth Quarter 2015 Results

TORONTO, April 25, 2016 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its results for the fourth quarter ended December 31, 2015.  

Financial Highlights Q4 2015

• Revenues of $420.2 million, up 11.3% compared to Q4 2014, attributable primarily to strong product sales.
  • Product sales of $372.7 million, up 12.3% compared to Q4 2014.
  • Service revenues up 1.8% to $43.3 million compared to Q4 2014.
• Gross profit up $6.7 million, or 14.7%, to $52.3 million from the same period in the prior year. 
• Gross margin for the quarter was 12.4%, up from 12.1% in Q4 2014. 
• Adjusted EBITDA* came in at $13.9 million, up 25.9% from Q4 2014.
• Adjusted for changes in non-cash working capital balances, the Company generated $9.5 million in cash from operating activities, as compared to $6.9 million for the same period last year.

Financial Highlights Fiscal Year 2015

• Revenues of $1,489.0 million, up 9.5% compared to fiscal 2014.
  • Product sales of $1,315.5 million, up 9.8%, or $117.1 million from fiscal 2014.
  • Services revenue of $159.8 million, up 6.2%, or $9.4 million, from fiscal 2014.
• Gross profit up 6.9% to $170.4 million from the prior year, representing a gross margin of 11.4%, down from 11.7% for fiscal 2014.
• Adjusted EBITDA* down 5.9% to $31.4 million, as compared to fiscal 2014.
• Adjusted for changes in non-cash working capital balances, the Company generated $21.4 million in cash from operating activities, compared to $20.2 million in fiscal 2014.

Events Subsequent to the Quarter

• On January 14, 2016, the senior secured asset based revolving credit facility with JPMorgan Chase Bank, N.A. was amended, to increase the facility to $225 million
• On February 24, 2016, Pivot announced that, subject to compliance with regulatory and legal requirements, it intends to increase its dividend from the second quarter going forward to C$0.01 per share on a quarterly basis (C$0.04 per share annualized).
• On March 30, 2016, the Company obtained approval from the TSX Venture Exchange to implement a Normal Course Issuer Bid ("NCIB").  The NCIB permits the Company to purchase for cancellation up to 5% of the Company's issued and outstanding common shares.  The maximum number of common shares allowed for repurchase is 8,389,331.  Purchases under the NCIB will take place during the 12 month period commencing April 1, 2016 and ending March 31, 2017.  Purchases pursuant to the NCIB will be made by Cantor Fitzgerald Canada Corporation on behalf of the Company.
• On April 11, 2016, Pivot announced changes to its management and Board of Directors.  Kevin Shank previously appointed President as announced on January 12, 2016, will take over the CEO responsibilities from Warren Barnes effective May 1, 2016.  Mr. Barnes will remain affiliated with the Company as a Board member and consultant.  Additionally, Kerri Brass, CFO, has decided to leave the Company for another opportunity, also effective May 1, 2016.  The Company has initiated a process with respect to Mr. Brass's replacement.  Finally, John Sculley, current Chairman of the Board, has decided he will not stand for re-election to the Board. 
• On April 14, 2016, 2.931 million unexercised broker compensation warrants, issued in connection with the Company's debenture issue, expired.
• On April 22, 2016, Mr. Michael Flinn resigned as Company Secretary, and Mr. Matthew Girardot was appointed Company Secretary in his place. 

Q1 2016 Update ⁽¹⁾

• Revenues and gross profit are expected to exceed Q1 2015 comparable, however adjusted EBITDA* to be in line with Q1 2015 comparable.
• First quarter Revenues and adjusted EBITDA* are historically the weakest of the year for Pivot.

^(1)	See "Forward Looking Statements

Management Commentary

"Solid growth, particularly for product sales to non-major customers, resulted in our highest quarterly revenues as a public company," stated Warren Barnes, CEO of Pivot.  "This performance, we believe, reflects the strength of our multi-vendor solutions provider model, the depth of our customer relationships and the quality of our offerings and delivery.  That said, growth of our services business was modest and behind plan, attributable in part to lower activity in the legacy storage segment, where we have witnessed challenges all year.  Over the last few years we have laid a strong foundation for the Company to grow on, and we continue to benefit from growing brand recognition." 

Kerri Brass, CFO of Pivot, stated, "In Q4 we completed all acquisitions-related earn-out payments, in addition to refinancing our credit facility at advantageous terms in late Q3.  As a result of this and our solid performance, Pivot's financial position is strong.  Reflecting this strength, we decided to increase our common share dividend by one third commencing in the second quarter of 2016, as well as implement an NCIB, which will leverage our ability to drive earnings per share going forward."

Kevin Shank, President and CEO designate, stated, "In the second half of 2015, we made additional investments in our sales, integration, and core professional services offerings and capabilities, which contributed to the growth in operational expense for the quarter.  This demonstrates Pivot's commitment to drive innovation and bring new solutions to the market for its customers.  It also shows our manufacturing partners that we are committed to the relationship with them, and that we are willing to invest in driving additional earning opportunities for both parties."

"While we will continue to leverage and build upon these core strengths, in 2016 we intend to invest in new service offerings in the managed, or recurring, services area.  We will be listening closely to our customers to hear what products and services they need from their trusted partner to be successful, and deliver accordingly.  As always, our objective is to earn the position as our customers' preferred partner in IT."

Mr. Shank concluded, "The investments made in our organization in the second half of 2015 to drive growth of revenue and gross profit, will contribute to a higher expense base going forward.  As Q1 is seasonally our lightest revenue and gross profit quarter of the year, this will have an impact on earnings.  Consequently, we anticipate adjusted EBITDA to come in at levels similar to last year's Q1, even while we expect revenue and gross profit to show comparative growth.   

Q4 2015 Financial Review   

Revenues came in at $420.2 million, up $42.7 million, or 11.3% from Q4 2014, and up 1.4%, or $5.7 million, from Q3 2015.  Revenue growth was attributable predominantly to increased product sales, which came in at $372.7 million, up $40.8 million, or 12.3%, over Q4 of 2014.  A modest contribution to growth was recorded from the Company's services business, which saw revenues increase by 1.8%, or $0.8 million, to $43.3 million.  Revenue growth over Q3 2015 was due to a 16.8%, or $6.2 million, increase in service revenue.

The net increases in product sales over the prior year quarter was attributable predominantly to non-major customers, with growth of $60.7 million, offset partially by a $19.9 million decline in product sales to major customers.  Revenue growth from non-major customers was driven both by existing and new customers, with a significant contribution from one new account. 

Gross profit of $52.3 million was up 14.7%, or $6.7 million, from Q4 2014, and up 28.6%, or $11.6 million, from Q3 2015.  Gross profit margin of 12.4% was up from 12.1% in Q4 2014 and 9.8% in Q3 2015.  The increase in gross profit and gross profit margin quarter over quarter was attributable to higher revenues from non-major customers, which carry a higher overall profit margin.  The sequential increases were due to higher business volume and increased higher margin product and service revenues.

The Company recorded adjusted EBITDA* for Q4 2015 of $13.9 million, up 25.9%, or $2.9 million, from Q4 2014, and up 119.4%, or $7.6 million from Q3 2015. The increase in adjusted EBITDA* compared to the same period last year and sequentially was attributable to higher business volume and higher gross profit margins.

Selling and administrative expenses for Q4 2015 increased by 11.1%, or $3.8 million, to $38.4 million, as compared to Q4 2014.  The bulk of this increase, or $3.4 million, was due to increases in salaries and employee benefits.  Underlying this increase was an increase in headcount as investments were made to drive future growth, in both the sales and professional services areas, as well as higher commissions as a result of the increased revenue and gross profit period over period. 

Adjusted for changes in non-cash working capital balances, the Company generated $9.5 million in cash from operating activities, as compared to $6.9 million for the same period last year.  As at December 31, 2015, total cash on hand was $8.0 million, down from $8.5 million as at December 31, 2014.  The changes in cash on hand were related to movements in working capital.

The final fixed consideration installment of $4.0 million relating to the Sigma acquisition was paid in the quarter.  As a result, all contingent and fixed consideration payments with respect to the Company's prior acquisitions have been paid in full.

Normal fluctuations in revenue performance, which are commonplace in the industry, drive significant movements in working capital, in particular with regards to accounts receivable, inventory and accounts payable.  Consequently, movements in working capital balances are largely volume related, however, the Company focuses on driving improvement in its business processes to optimize the use of its secured borrowing facilities and effectively manage working capital.  As such, the Company uses the average undrawn availability on existing, secured credit facilities as its key measure of liquidity, which for the quarter stood at $65.0 million.

Fiscal 2015 Financial Review

Revenues for the year ended December 31, 2015 increased by $129.7 million, or 9.5%, to $1,489.0 million, as compared to the same period last year, driven both by increased product sales and increased revenues from services. 

Product sales increased by 9.8%, or $117.1 million, to $1,315.5 million, driven in particular by non-major customer growth of $110.8 million, supported by major customer growth of $6.2 million.  Service revenues increased by 6.2%, or $9.4 million, on a year over year basis to $159.8 million.  Service revenues accounted for 10.7% of total revenue, down marginally from 11.1% in the prior year.  Overall, revenues from major accounts increased by 2.0%, or $10.0 million, while revenues from non-major accounts increased by 13.9%, or $119.7 million.

Revenue growth, as well as growth of Pivot's higher-margin services business resulted in gross profit for the year of $170.4 million, up by 6.9%, or $11.0 million, compared to the prior year.  Gross margin of 11.4% was down from 11.7% due primarily to a decrease in professional services revenues, which generally carry a higher profit margin.

Adjusted EBITDA* for fiscal 2015 fell 5.9%, or $2.0 million, to $31.4 million, as compared to fiscal 2014, attributable to lower business volume in Q1 2015 due to a general market softness in that quarter, as well as investments in headcount in the second half of fiscal 2015 to drive future growth, which resulted in increased run-rate selling, general and administrative expenses compared to the prior year.

Adjusted for changes in non-cash working capital balances, the Company generated $21.4 million in cash from operating activities, as compared to $20.2 million in fiscal 2014.

Conference Call

DATE:		Monday, April 25, 2016
TIME:		11:00 a.m. ET
DIAL IN NUMBER:		[phone] [phone]
TAPED REPLAY:		416-849-0833 or 1-855-859-2056 Available from April 25, 2016 14:00 ET to May 6, 2016 23:59 ET Reference number: 86984086

Subsequently, a recording of the call will be posted on the Company's website: www.pivotts.com.

Notice of Annual General Meeting of Shareholders

Pivot has called its annual general meeting of shareholders (the "Meeting") to be held on Tuesday, June 21, 2016. The record date for determining shareholders entitled to receive notice of and vote at the Meeting has been set as Friday, May 20, 2016. The Company's related meeting materials will be mailed to shareholders of record and filed with SEDAR on or about May 26, 2016. Details for the meeting are as follows:

Date:		Tuesday, June 21, 2016
Time:		10:00 am ET
Address:		Offices of Borden Ladner Gervais, Elliot - Room,
		Scotia Plaza
		40 King Street West, 44th Floor
		Toronto, Ontario M5H 3Y4

About Pivot Technology Solutions, Inc.
Together with its portfolio companies and partners, Pivot delivers solutions that enable organizations to design, build, implement and maintain computing and communication infrastructure that addresses their unique business needs. Pivot's approach supports improvement of business performance, helps organizations reduce capital and operating expenses, and accelerates the delivery of new products and services to end-customers.  With over 2,000 customers, many of whom are Fortune 1000 companies, Pivot extends its value added solutions to help organizations of all sizes improve operating efficiency, reduce complexity and enhance service delivery through virtualization and cloud computing.  Pivot enables businesses to extend their enterprise through mobility solutions to better connect business partners and customers.  Pivot has offices throughout North America and can be found online at 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 Q1 2016 revenue, gross profit and adjusted EBITDA*, investment in new service offerings in the managed, or recurring, services area, payment of a dividend in Q2 2016, purchases of shares  under the NCIB and the assumptions underlying any of the foregoing.  Pivot uses words such as "may", "would", "could", "will", "likely", "expect", "believe", "intend" 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 the general business climate will not deteriorate, Q1 2016 revenues and gross profit exceeding the Q1 2015 comparable, while adjusted EBITDA* will be in line with the Q1 2015 comparable, that the Company's financial position will allow for the declaration of a dividend in Q2 2016 and for share purchases under the NCIB and for investments in new service offerings, that the payment of a dividend and share repurchases will be permitted under the Company's credit facilities, 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; delays in the purchasing decisions of Pivot's customers; the competition Pivot faces in its industry and/or marketplace; the possibility of technical, logistical or planning issues in connection with the deployment of Pivot's products or services; uncertainty with respect to the ability of the Company to pay a quarterly dividend and purchase shares pursuant to its NCIB under its credit facilities; and the risk that final Q1 2016 results will significantly vary from expectations.  The "forward-looking statements" contained herein speak only as of the date of this press 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.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.  

Pivot Technology Solutions, Inc.

SELECTED FINANCIAL INFORMATION

Full financial statements and related Management Discussion and Analysis can be found on SEDAR and the Company's website www.pivotts.com 

All figures are in US $ '000s

			Three months ended   December 31,			Twelve months ended December 31,
			(unaudited)
			2015	2014		2015	2014
Revenues			420,188	377,478		1,488,960	1,359,229
Cost of sales			367,930	331,925		1,318,553	1,199,871
Gross profit			52,258	45,553		170,407	159,358
	Selling and administrative expenses		38,370	34,521		138,959	125,925
Adjusted EBITDA*			13,888	11,032		31,448	33,433
	Depreciation and amortization		3,447	3,239		13,141	12,067
	Transaction costs		229	37		660	246
	Interest expense		1,323	1,987		6,780	6,777
	Change in fair value of liabilities		(289)	729		1,479	5,965
	Other expense (income)		196	(44)		2,933	(256)
Income before income taxes			8,982	5,084		6,455	8,634
Provision for income taxes			2,763	2,115		3,286	4,378
Net and comprehensive income			6,219	2,969		3,169	4,256

*Non-IFRS Financial Measures
The Company internally measures its performance and results of initiatives through a number of measures that are not recognized under IFRS and may not be comparable to similar measures used by other companies.  

*Adjusted EBITDA
In the Company's financial reporting, adjusted EBITDA is a non-IFRS measure which is defined as gross profit less selling and administrative expenses, and corresponds to income before income taxes, depreciation and amortization, transaction costs, interest expense, change in fair value of liabilities and other income or expense.  Management believes this is an important indicator as adjusted EBITDA excludes items that are either 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 also used by 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.  Adjusted EBITDA is not a recognized measure under IFRS, has no standardized meaning and is therefore unlikely to be comparable to similar measures used by other companies.  Readers are cautioned that this term should not be construed as an alternative to net income determined in accordance with IFRS.

The following provides a reconciliation of adjusted EBITDA* to income before income taxes: 

			Three months ended December 31,			Twelve months ended December 31,
			(unaudited)
			2015	2014		2015	2014
Income before income taxes			8,982	5,084		6,455	8,634
	Depreciation and amortization		3,447	3,329		13,141	12,067
	Transaction costs		229	37		660	246
	Interest expense		1,323	1,987		6,780	6,777
	Change in fair value of liabilities		(289)	729		1,479	5,965
	Other expense (income)		196	(44)		2,933	(256)
Adjusted EBITDA*			13,888	11,032		31,488	33,433

SOURCE Pivot Technology Solutions, Inc.

Marc Lakmaaker, National Equicom, [email protected], Tel: [phone]; Kevin Shank, President, Pivot Technology Solutions, Inc., [email protected]; Andrew Bentley, Pivot Technology Solutions, Inc., [email protected], Tel: [phone]