Pivot Technology Solutions Reports Second Quarter 2015 Results

CARLSBAD, CA, Aug. 21, 2015 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its results for the second quarter ended June 30, 2015.  

Financial Highlights Q2 2015

  • Revenues of $357.9 million, up 18.2% compared to Q2 2014, attributable both to strong product sales and continued growth of the Company`s services business.
    • Product sales of $314.2 million, up 19.2% compared to Q2 2014.
    • Service revenues up 11.4% to $40.8 million compared to Q2 2014.
  • Gross profit up $7.1 million, or 18.6%, to $45.3 million from the same period in the prior year. 
  • Gross margin for the quarter was 12.7%, up slightly from 12.6% in Q2 2014. 
  • Adjusted EBITDA* came in at $9.9 million, up 29.1% from Q2 2014.
  • Adjusted for changes in non-cash working capital balances, the Company generated $5.9 million in cash from operating activities, as compared to $5.4 million for the same period last year.

Quarterly Dividend

The Company also announced today that its board of directors declared, under its approved 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 September 15, 2015, to holders of record at the close of business on August 31, 2015.

Financial Highlights H1 2015

  • Revenues of $654.3 million, up 5.2% compared to H1 2014.
  • Gross profit up 5.2% to $77.5 million from the same period in the prior year, representing a gross margin of 11.8%, equal to H1 2014.
  • Adjusted EBITDA* down 19.2% to $11.2 million, as compared to H1 2014.
  • Adjusted for changes in non-cash working capital balances, the Company generated $7.1 million in cash from operating activities, compared to $9.6 million for the same period last year.

Management Commentary

Warren Barnes, CEO of Pivot, commented, "We are pleased with our results, which reflect a strong recovery from Q1 of this year.   Our competitive positioning remains strong, which allowed us to benefit from the upswing in general economic activity we witnessed towards the end of the quarter.  This resulted in an encouraging improvement in all our key financial metrics compared to Q2 of 2014.  Growth was driven primarily by a number of larger deals at existing customers, in part a reflection of catch up on previously delayed investment.  We also experienced positive momentum in onboarding new accounts, and continued strength in our services business.  As a consequence of our continued solid progress, we are pleased to declare our first ever quarterly common dividend." 

Kerri Brass, CFO of Pivot, stated, "Our overall revenue growth of 18.2% for the quarter, as compared to the same quarter last year, was primarily driven by strong growth from our non-major customers.  This growth, complemented by gross margins that were marginally improved over Q2 2014, drove a 29.1% increase in adjusted EBITDA* as activity returned to levels more aligned to our existing support infrastructure.  Service revenues as a percentage of total revenues were 12.1% for the half year compared to 11.3% at this point in 2014, as service revenues grew 13.2% year over year." 

Mr. Barnes concluded, "Although we are still behind on year-to-date adjusted EBITDA* compared to 2014 due to a softer than usual Q1 of this year, we made good progress during the second quarter, and general business activity into Q3 appears to have returned to more normal levels.  We are seeing positive momentum in our sales funnel, although at this point it is too early to project how this will translate into revenues for Q3 and beyond.  We remain focused on maintaining and developing our strong competitive positioning through innovation and the strength of our customer and vendor relationships, and will continue to pursue cross-selling opportunities for both products and services across the business."

Q2 2015 Financial Review   

Revenues came in at $357.9 million, up 18.2% from Q2 2014 and up 20.8% from Q1 2015.  Revenue growth was attributable both to increased product sales and to continued growth of the Company`s services business. 

Product sales for the quarter increased by 19.2%, or $50.5 million, to $314.2 million, as compared to Q2 2014.  Sequentially, product sales increased by 22.9%, compared to Q1 2015.  Product sales to major customers increased by $11.1 million for the quarter, while product sales to non-major customers increased by $39.4 million, as compared to the same period in the prior year.

Service revenues for Q2 increased by 11.4%, or $4.2 million, to $40.8 million, as compared to Q2 2014.  The Company's high value add service offerings are consolidated under single leadership, reflecting our ability to now provide this offering in all geographies we operate in, increasing our market reach and adding momentum to growth.

Overall, revenues from non-major customers increased by 23.9%, or $46.4 million, while revenues from major customers increased by $8.8 million, or 8.1%.

Gross profit of $45.3 million was up 18.6%, or $7.1 million, from Q2 2014, and up 40.7%, or $13.1 million, from Q1 2015.  Gross profit margin of 12.7% was up marginally from 12.6% in Q2 2014, and up from 10.9% in Q1 2015.  The increase in gross profit was attributable to higher revenues and continued growth of the Company's higher margin service offerings, as well as a selective focus on higher margin product sales.

The Company recorded adjusted EBITDA* for Q2 2015 of $9.9 million, up 29.1% from Q2 2014, and up 657.8% from Q1 2015. The growth in adjusted EBITDA* compared to the same period last year was attributable to higher revenues and margins, partially offset by higher sales and administrative expenses.  Compared to Q1 2015, the strong increase in adjusted EBITDA* was attributable predominantly to higher revenues and margins, as well as leverage of the Company's support infrastructure.

Selling and administrative expenses for Q2 2015 increased by 15.9%, or $4.9 million, to $35.4 million, as compared to Q2 2014.  The bulk of this increase, or $4.0 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. 

All outstanding Series A Preferred Shares (58,094,630) were converted into common shares of the Company, effective March 16, 2015.  Consequently, no preferred share dividends were declared during the quarter, as compared to $0.7 million for the same quarter in the prior year.

Adjusted for changes in non-cash working capital balances, the Company generated $5.9 million in cash from operating activities, as compared to $5.4 million for the same period last year, and $1.2 million for Q1 2015.  As at June 30, 2015, total cash on hand was $11.6 million, up from $8.5 million for December 31, 2014, and up from $8.8 million for March 31, 2015.  The changes in cash on hand were related to movements in working capital.

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.  As such, 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.

H1 2015 Financial Review

Revenues for the six months ended June 30, 2015 increased by $32.2 million, or 5.2%, to $654.3 million, as compared to the same period last year, driven both by increased product sales and increased revenues from services. 

Product sales increased by 4.1%, or $22.5 million, to $596.8 million, driven by non-major customer growth of $32.5 million, offset by a decrease in revenues from major customers of $10.1 million.

Service revenue increased by 13.2%, or $9.3 million, on a year over year basis to $79.4 million, as compared to H1 2014.  Service revenues accounted for 12.1% of total revenue, up from 11.3% in 2014.

Revenue growth and a growing contribution from the Company's higher-margin services business resulted in gross profit for the period of $77.5 million, up by 5.2% compared to the same period in the previous year.  Gross margin remained constant at 11.8%.

Adjusted EBITDA* for H1 2015 fell by $2.7 million, or 19.1% to $11.2 million, as compared to H1 2014, attributable to lower business volume in Q1 2015 due to a general market softness in that quarter.

Adjusted for changes in non-cash working capital balances, the Company generated $7.1 million in cash from operating activities, as compared to $9.6 million for the same period last year, attributable largely to the lower business activity experienced in the first quarter of 2015.

Conference Call
Management will host a conference call on August 21, 2015 at 11:00 am ET.

DATE:


Friday, August 21, 2015




TIME:


11:00 a.m. ET




DIAL IN NUMBER:


+1 647-427-7450
+1 888-231-8191




TAPED REPLAY:


+1 416-849-0833






+1 855-859-2056






Available from August 21, 2015 14:00 ET to September 4, 2015 23:59 ET






Reference number: 9973579

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, and payment of a dividend in Q3 2015, 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, and that such payment 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; 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; 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 June 30,


    Six months ended June 30,


(unaudited)


(unaudited)


2015

2014


2015

2014







 Revenues

357,882

302,708


654,255

622,035

 Cost of sales

312,580

264,508


576,757

548,372

 Gross profit

45,302

38,200


77,498

73,663


Selling and administrative expenses

35,382

30,518


66,269

59,775

 Adjusted EBITDA*

9,920

7,682


11,229

13,888


Depreciation and amortization

3,200

2,882


6,285

5,747


Transaction costs

125

192


142

192


Interest expense

1,831

1,760


3,668

3,087


Change in fair value of liabilities

113

1,274


838

5,033


Other expense (income)

112

40


113

(116)

 Income (loss) before income taxes

4,539

1,534


183

(55)

 Provision for (recovery of) income taxes

1,876

583


627

(37)

 Net and comprehensive income (loss)

2,663

951


(444)

(18)







*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 June 30,


Six months ended June 30,


(unaudited)


(unaudited)


2015

2014


2015

2014







 Income (loss) before income taxes

4,539

1,534


183

(55)


Depreciation and amortization

3,200

2,882


6,285

5,747


Transaction costs

125

192


142

192


Interest expense

1,831

1,760


3,668

3,087


Change in fair value of liabilities

113

1,274


838

5,033


Other expense (income)

112

40


113

(116)

 Adjusted EBITDA*

9,920

7,682


11,229

13,888







 

SOURCE Pivot Technology Solutions, Inc.

For further information: Andrew Bentley, Pivot Technology Solutions, Inc., andrew.bentley@pivotts.com, Tel: 647 788 2034; Marc Lakmaaker, TMX Equicom, investors@pivotts.com, Tel: 416 815 0700 ext. 248


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