Pivot Technology Solutions Reports Third Quarter 2015 Results

SAN DIEGO, CA, Nov. 23, 2015 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its results for the third quarter ended September 30, 2015.  

Financial Highlights Q3 2015

• Revenues of $414.5 million, up 15.2% compared to Q3 2014, attributable primarily to strong product sales.
  • Product sales of $373.0 million, up 16.9% compared to Q3 2014.
  • Service revenues down 1.7% to $37.1 million compared to Q3 2014.
• Gross profit up $0.5 million, or 1.3%, to $40.7 million from the same period in the prior year. 
• Gross margin for the quarter was 9.8%, down from 11.2% in Q3 2014. 
• Adjusted EBITDA* came in at $6.3 million, down 25.6% from Q3 2014.
• Adjusted for changes in non-cash working capital balances, the Company generated $4.8 million in cash from operating activities, as compared to $3.7 million for the same period last year.
• On September 15, 2015, the Company paid its first ever dividend on common shares of CAD $0.0075 per common share.
• On September 21, 2015, the Company closed a new, $200 million revolving credit facility through JPMorgan Chase Bank ("JPMC"), and terminated the previous facilities held with PNC Bank ("PNC").
• On July 31, 2015, Pivot paid a $1.5 million installment related to the acquisition of Sigma Solutions, and subsequent to quarter end, on October 30, 2015, paid the final earn out installment related to that acquisition.

Quarterly Dividend

The Company also announced today that its board of directors approved, under its dividend policy, a cash dividend on the common shares of the Company (the "Shares") in the amount of CAD $0.0075 per Share for the quarter (an annualized amount of CAD $0.03 per Share), which will be payable on December 15, 2015, to holders of record at the close of business on December 2, 2015.

Financial Highlights 9M 2015

• Revenues of $1,068.8 million, up 8.9% compared to the same period last year.
• Gross profit up 3.8% to $118.1 million from the same period in the prior year, representing a gross margin of 11.1%, down from 11.6% for 9M 2014.
• Adjusted EBITDA* down 21.6% to $17.6 million, as compared to 9M 2014.
• Adjusted for changes in non-cash working capital balances, the Company generated $11.9 million in cash from operating activities, compared to $13.3 million for the same period last year.

Management Commentary

"While we experienced solid revenue growth from both major and non-major accounts, profitability suffered as a result of increased contribution from lower-margin product sales, lower service revenues, as well as competitive pressures in the storage segment compared to last year," stated Warren Barnes, CEO of Pivot. "In general, we experienced relatively healthy levels of business activity, with the exception of storage offerings which continue to see competitive pressure and commoditization influence, while we continued to grow our customer base. In that respect, we benefited from the delivery of a sizeable data centre project for one of our new customers."

Kerri Brass, CFO of Pivot, stated, "Although our ability to penetrate customer accounts with our service offerings continued to track favourably on a year-to-date basis, service revenues as a percentage of total revenues fell to 8.9% from 10.5% in Q3 2014, contributing to lower gross margin and adjusted EBITDA." 

"The arrangement of a new $200 million revolving credit facility with JPMC resulted in the expensing of unamortized loan costs ($2.6 million) relating to the previous facilities with PNC.  Although this non-cash expense affected our bottom line profitability for the quarter, going forward, the new facility will result in lower interest expense, greater flexibility in the use of funds, and improved liquidity to drive revenue growth." 

Mr. Barnes concluded, "As a result of our competitive positioning, we have built a healthy new business pipeline, although it is too early to project how this will translate into revenues for Q4 or beyond.  We will continue our focus on innovation, high quality delivery, growth of our services and international businesses, and further integration to help realize cross-selling synergies across the business."

Q3 2015 Financial Review   

Revenues came in at $414.5 million, up 15.2% from Q3 2014, and up 15.8% from Q2 2015.  Revenue growth was attributable to increased product sales, which came in at $373.0 million, up $53.8 million, or 16.9% over Q3 of 2014.  The net increases in product sales over the prior year quarter was attributable predominantly to major customers, who accounted for $36.2 million, or 67.4% of this increase, while non-major customers accounted for $17.6 million, or 32.6%.

Service revenues for Q3 decreased slightly by 1.7%, or $0.6 million, to $37.1 million, as compared to Q3 2014.  During the quarter, the Company realized a relatively larger contribution from product sales.

Overall, revenues from major customers increased by 31.0%, or $41.5 million, while revenues from non-major customers increased by $13.3 million, or 5.9%.

Gross profit of $40.7 million was up 1.3%, or $0.5 million, from Q3 2014, and down 10.3%, or $4.7 million, from Q2 2015.  Gross profit margin of 9.8% was down from 11.2% in Q3 2014 and 12.7% in Q2 2015.  The increase in gross profit quarter over quarter was attributable to higher product sales volumes.  The sequential decrease was due to a change in product mix towards lower-margin product sales.

The Company recorded adjusted EBITDA* for Q3 2015 of $6.3 million, down 25.6%, or $2.2 million, from Q3 2014, and down 36.2%, or $3.6 million from Q2 2015. The decrease in adjusted EBITDA* compared to the same period last year and sequentially was attributable to a relatively large contribution to revenues from lower-margin product sales and a decrease in service revenues, which typically carry higher margins.

Selling and administrative expenses for Q3 2015 increased by 8.5%, or $2.7 million, to $34.3 million, as compared to Q3 2014.  The bulk of this increase, or $2.1 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, salary increases and increased benefit costs, 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 $4.8 million in cash from operating activities, as compared to $3.7 million for the same period last year.  As at September 30, 2015, total cash on hand was $12.5 million, up from $8.5 million as at December 31, 2014, and up from $9.7 million as at September 30, 2014.  The changes in cash on hand were related to movements in working capital.

Cash used in investing activities increased by $0.5 million for the three months ended September 30, 2015 over the same period in the prior year.  The increase year over year is primarily due to an increase in capital expenditures related to newly leased office space.

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 $32.1 million.

On September 21, 2015, the Company terminated its credit and term loan facilities held with PNC, replacing it with a new, $200 million revolving credit facility administered by JPMC.  The loans under the new credit facility bear interest at a rate based on LIBOR or Prime Rate plus the applicable margin, which shall vary between 150 bps and 175 bps, or 0 bps and 25bps, respectively, depending on excess availability from time to time.  The new credit facility will mature on September 21, 2020.  The Company recorded expenses relating to the termination of the PNC facilities of (1) $2.6 million for the write-off of deferred costs associated with the repayment of the credit facility and (2) a 1% fee of $58 thousand, which was required to prepay the term loan before November 13, 2016.

9M 2015 Financial Review

Revenues for the nine months ended September 30, 2015 increased by $87.0 million, or 8.9%, to $1,068.8 million, as compared to the same period last year, driven both by increased product sales and increased revenues from services. 

Product sales increased by 8.8%, or $76.3 million, to $942.8 million, driven both by non-major customer growth of $50.1 million, and major customer growth of $26.2 million.  Service revenues increased by 8.0%, or $8.6 million, on a year over year basis to $116.5 million.  Service revenues accounted for 10.9% of total revenue, down marginally from 11.0% for the same period in the prior year.  Overall, revenues from major accounts increased by 8.7%, or $31.3 million, while revenues from non-major accounts increased by 9.0%, or $55.7 million.

Revenue growth and a growing contribution from the Company's higher-margin services business resulted in gross profit for the period of $118.1 million, up by 3.8%, or $4.3 million, compared to the same period in the previous year.  Gross margin of 11.1% was down from 11.6% due to a larger contribution from lower-margin product sales.

Adjusted EBITDA* for 9M 2015 fell by $4.8 million, or 21.6% to $17.6 million, as compared to 9M 2014, attributable mainly to lower business volume in Q1 2015 due to a general market softness in that quarter, and a higher contribution from lower-margin product sales.

Adjusted for changes in non-cash working capital balances, the Company generated $11.9 million in cash from operating activities, as compared to $13.3 million for the same period last year, attributable largely to the lower business activity experienced in the first quarter of 2015 and lower profit margins.

Conference Call

Management will host a conference call on November 23, 2015 at 11:00 am ET.

DATE:		Monday, November 23, 2015
TIME:		11:00 a.m. ET
DIAL IN NUMBER:		[phone] [phone]
TAPED REPLAY:		[phone]   [phone]   Available from November 23, 2015 14:00 ET to December 7, 2015 23:59 ET   Reference number: 78504538

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

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 the expansion of Pivot's services and international businesses, continued innovation, capitalizing on opportunities to realize cross-selling synergies, payment of a dividend in Q4 2015, lower interest expense and improved liquidity under the JPMC credit facility 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 opportunities identified by Pivot may lead to expansion of its services and cross-selling opportunities across the business, continued innovation by Pivot and achievement of cross-selling synergies, that the general business climate will not deteriorate, that the Company will be in a financial position to pay a dividend in subsequent periods, that such payment will be permitted under the Company's credit facilities, and that interest payments and availability under the JMPC credit facility will be more favourable than under the prior facility, 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; the possibility that Pivot will not be able to further align its support functions with the selling and delivery arms of the business; uncertainty with respect to the ability of the Company to pay a quarterly dividend under its credit facilities; the risk that the interest payments and liquidity under the JMPC credit facility will not be as favourable as expected; and the possibility that Pivot will be unable to capitalize on opportunities it has identified in the manner and timeframe anticipated.  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 September 30,				Nine months ended September 30,
			(unaudited)				(unaudited)
			2015		2014		2015		2014
Revenues			414,517		359,716		1,068,772		981,751
Cost of sales			373,866		319,574		950,623		867,946
Gross profit			40,651		40,142		118,149		113,805
	Selling and administrative expenses		34,320		31,629		100,589		91,404
Adjusted EBITDA*			6,331		8,513		17,560		22,401
	Depreciation and amortization		3,409		3,081		9,694		8,828
	Transaction costs		289		17		431		209
	Interest expense		1,789		1,703		5,457		4,790
	Change in fair value of liabilities		930		203		1,768		5,236
	Other expense (income)		2,624		(96)		2,737		(212)
Income (loss) before income taxes			(2,710)		3,605		(2,527)		3,550
Provision for (recovery of) income taxes			(104)		2,300		523		2,263
Net and comprehensive income (loss)			(2,606)		1,305		(3,050)		1,287

*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 (loss) before income taxes: 

			Three months ended September 30,				Nine months ended September 30,
			(unaudited)				(unaudited)
			2015		2014		2015		2014
Income (loss) before income taxes			(2,710)		3,605		(2,527)		3,550
	Depreciation and amortization		3,409		3,081		9,694		8,828
	Transaction costs		289		17		431		209
	Interest expense		1,789		1,703		5,457		4,790
	Change in fair value of liabilities		930		203		1,768		5,236
	Other expense (income)		2,624		(96)		2,737		(212)
Adjusted EBITDA*			6,331		8,513		17,560		22,401

SOURCE Pivot Technology Solutions, Inc.

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