Pivot Technology Solutions Reports Third Quarter 2013 Results

Company delivers continued sequential growth and improving profitability

CARLSBAD, CA, Nov. 26, 2013 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG) today publishes its results for the third quarter ended September 30, 2013.

Financial highlights Q3 2013

  • Sequential revenue growth of 1.4% compared to Q2 2013.
  • Year-over-year, revenues fell by 7.6% to $326.3 million, related mainly to a large one-off data center build out, completed in Q3 of last year.
  • Gross margin improved to 11.2% from 10.4% for the same period last year and down slightly from 11.5% for Q2 2013.
  • Adjusted EBITDA* was $8.3 million, down 11.5% from the same quarter last year and up 6.6% from Q2 2013.
  • Consolidated net income for the period of $1.6 million, as compared to an $8.0 million net loss for the same period in 2012, and net income of $0.7 million for Q2 2013.
  • Interest expense was reduced by $2.0 million from Q3 2012 resulting from the conversion of debentures into Series A preferred shares, and lower average secured borrowings.
  • Series A preferred share dividends of $1.0 million were declared during Q3 2013.

Subsequent events

  • On November 14, the Company announced the refinancing through PNC Bank of the existing credit facilities with its operating companies ACS, ProSys and Sigma held with PNC Bank and Wells Fargo.  The new, consolidated facility consists of a term loan and a secured asset based credit facility that allows the company to draw up to $185 million, with the option to increase the facility by up to $50 million at the Company's discretion.
  • On November 21, the Company announced it is moving forward with an exchange offer to the holders of its Series A preferred shares. The offer for exchange of the preferred shares for redeemable and partially exchangeable notes will be made by formal bid in accordance with applicable securities laws. Management anticipates completion by January 31, 2014, and refers to the November 21 press release for further details.

Management commentary

Warren Barnes, CEO of Pivot, commented, "We had a solid quarter, delivering sequential growth, even though Q3 traditionally has been softer than Q2.  This improvement was attributable mainly to continued growth of our services business as well as penetration of new accounts in the storage and network segments. Services accounted for 10.1% of revenues, as compared to 6.3% for the same period last year, and we continue to focus on expanding our offerings.  Business expansion combined with stable margins and prudent expense management allowed us to deliver 6.6% sequential Adjusted EBITDA growth in Q3."

Kerri Brass, CFO of Pivot, commented, "Although quarterly revenues were down compared to last year, the gap has narrowed significantly, as the large one-off project for one of ACS's key customers was completed in Q3 of last year.  Adjusted for this exceptional project, the Company posted solid organic growth.  The greater mix of services in our revenues contributed to a year-over-year increase in gross margin and Adjusted EBITDA margin."

Mr Barnes continued, "We're encouraged by our consistent performance this quarter, showing strengthening revenues and an improved financial performance.  We expect that our solid base of strong customer and vendor relationships will continue to provide opportunities that we are well positioned to capitalize on to generate further growth. Additionally, we look to realize synergies through the implementation of our integration strategy, which we expect to gather momentum as we start implementing certain initiatives focused on sales, technology and costs.  The recently announced refinancing of our credit facilities is an important component and a good example of this strategy, and we look forward to reporting on our progress in the coming quarters."

Mr. Barnes concluded, "We believe that the exchange offer represents a balanced solution to satisfy all stakeholder needs."

Q3 2013 Financial Review

Revenues came in at $326.3 million, up 1.4%, or $4.6 million, from Q2 2013.  Revenues were down 7.6%, or $26.8 million, from Q3 2012, which included revenues at the Company's ACS business attributable to large-scale data center builds by a significant customer. Service revenues for the third quarter increased by $10.9 million, or 49.2%, over the same period in the prior year, driven by growth in recurring revenue from our first call service offering, as well as growth of service-enhanced integrated projects.

Gross profit was $36.6 million, down 1.1%, or $0.4 million, from Q2 2013.  Compared to Q3 2012, gross profit was materially unchanged, despite lower revenues. Gross profit margins increased to 11.2% in Q3 2013 from 10.4% in Q3 2012 and relatively stable compared to Q2 2013 (11.5%).  The margin improvement year-over-year was driven primarily by the growth of service revenues, as well as a change in mix due to lower customer concentration in large but lower margin accounts.

Adjusted EBITDA of $8.3 million was up 6.6%, or $0.5 million, from Q2 2013. Operating leverage through prudent expense management drove this increase as business activity increased. Adjusted EBITDA was down 11.5%, or $1.1 million, from Q3 2012, mainly due to the effects of the significant 2012 ACS projects, which were completed in Q3 2012.

Selling and administrative expenses for Q3 2013 increased by $1.1 million, or 4.0%, compared to the same period last year, attributable mainly to increased commission costs related to our higher margin service offerings.

Interest expense was down $2.0 million from Q3 2012 as a result of the conversion of the debentures into Series A Preferred Shares at the end of Q1 2013, and lower average secured borrowings.  During the quarter, Series A Preferred Share dividends of $1.0 million were declared.

Adjusted for changes in non-cash working capital balances, the Company generated $5.1 million in cash from operating activities, as compared to $5.0 million for the same period last year and $4.3 million for Q2 2013.

Inherent to the Company's MVSP business model, normal changes in revenue performance 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 strictly volume related, and not a performance indicator of working capital management.

Conference Call

Management will host a conference call on November 26, 2013 at 11:00 am EDT.

DATE:   Tuesday, November 26, 2013
TIME:   11:00 a.m. EDT
DIAL IN NUMBER:   647-427-7450
(888) 231-8191
TAPED REPLAY:   416-849-0833 or 1- 855-859-2056
Available until 12:00 midnight (EDT) Tuesday, December 3, 2013
Reference number: 13326408
LIVE WEBCAST:   http://bit.ly/1f7WKMi
Webcast will be archived for one year
WEBSITE:   A recording of the call will be available on the Company's website afterwards: www.pivotts.com

 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 clients, 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 Statement
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 Pivot's future growth, synergies, initiatives, the exchange offer or 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 revenue and income growth, that Pivot will be able to realize synergies through the implementation of its integration strategy, that all required regulatory approvals will be obtained for the exchange offer and that the exchange offer will be completed by January 31, 2014, 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; fluctuations in currency exchange rates; 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; and the risk that TSX Venture Exchange approval may not be obtained within the timeframe expected or that the number of Series A preferred shares not tendered to the exchange offer will exceed the number anticipated, resulting in the issuance of a greater number of common shares on conversion of Series A preferred shares than expected.  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


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, except Gross margin (in % of total revenue).

  Three months ended   Nine months ended
  September 30
  September 30
  September 30
  September 30
Revenue 326,257   353,089   902,218   1,100,903
Gross profit 36,613   36,617   103,520   102,046
Gross margin 11.2%   10.4%   11.5%   9.3%
  Selling and administrative 28,274   27,198   83,951   73,112
  Depreciation and amortization 2,769   2,496   8,425   7,338
  Interest expense 1,570   3,573   5,610   13,721
  Change in fair value of liabilities 404   19,105   (9,408)   28,773
  Goodwill impairment -   -   11,000   -
  Transaction costs 335   617   2,089   783
  Other expense 21   103   32   100
Total operating expenses 33,373   53,092   101,699   123,827
Income (loss) before income taxes 3,240   (16,475)   1,821   (21,781)
Adjusted EBITDA* 8,339   9,419   19,569   28,934
Net comprehensive income (loss) for the period 1,621   (7,964)   (2,505)   (17,116)

*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

Adjusted EBITDA is a non-IFRS measure that management believes is a useful measurement to evaluate the performance of the Company. Investors should be cautioned, however, that Adjusted EBITDA should not be construed as an alternative to net earnings as determined in accordance with IFRS. The Company's method of calculating Adjusted EBITDA may differ from the methods used by other companies and, accordingly, it may not be comparable to similarly titled measures used by other companies.

Adjusted EBITDA is defined as income (loss) before income taxes, depreciation, amortization, transaction costs, interest expense, change in fair value of liabilities, goodwill impairment and other (income)/expense. Management believes it is useful to exclude these items as they are either non-cash expenses, items that cannot be influenced by Management in the short term, or items that do not impact core operating performance, and Management uses this information internally for forecasting and budgeting purposes.

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

  Three months
  Nine months
  Sep 30
  Sep 30
  Sep 30
  Sep 30
Income (loss) before income taxes 3,240   (16,475)   1,821   (21,781)
  Depreciation and amortization 2,769   2,496   8,425   7,338
  Interest expense 1,570   3,573   5,610   13,721
  Change in fair value of liabilities 404   19,105   (9,408)   28,773
  Goodwill impairment -   -   11,000   -
  Transaction costs 335   617   2,089   783
  Other expense 21   103   32   100
Adjusted EBITDA 8,339   9,419   19,569   28,934


SOURCE: Pivot Technology Solutions, Inc.

For further information:

Warren Barnes
CEO, Pivot Technology Solutions, Inc.

Marc Lakmaaker
TMX Equicom
Tel: 416 815 0700

Profil de l'entreprise

Pivot Technology Solutions, Inc.

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