TORONTO, Aug. 14, 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 six months ended June 30, 2019. All figures are in US dollars unless otherwise stated.
SECOND QUARTER OVERVIEW
Revenue was $345.7 million, compared to $381.3 million in Q2 2018
Gross profit was $45.0 million, compared to $40.6 million in Q2 2018
Gross profit margin increased to 13.0% from 10.6% in Q2 2018
Adjusted EBITDA1 increased 89.9% to $9.7 million2 compared to $5.1 million in Q2 2018
Net income attributable to shareholders was $1.6 million ($0.04 per share) compared to $0.2 million ($0.01 per share) in Q2 2018
1 Non-IFRS Measure. See Non-IFRS Measures section of this news release.
2 including the year over year favourable impact of the implementation of IFRS 16 of approximately $1.4 million
MANAGEMENT COMMENTARY "We are pleased with the earnings performance in Q2 2019. Both gross profit and gross profit margins increased and are two indications the business is becoming more efficient. Our team continues to execute our strategy to build on our core products and services portfolio while enhancing our services and solutions capabilities. By leveraging our scale, strong customer and vendor relationships and continued investment in edge and service technologies we will continue to drive the company forward," said Mr. Shank.
"Since Q3 2018 we have reduced our cost structure by over $8 million dollars annually, and we have plans to further integrate our operations throughout 2019," said David Toews, Chief Financial Officer. "We are pleased to see our EBITDA margins have improved significantly compared to Q2 2018."
BUSINESS AND OPERATING HIGHLIGHTS
The Company announced Christopher Formant and Vic Bhagat were appointed to serve as members of the Board of Directors.
Pivot extended and amended its credit agreement for five years with a lending group represented by JPMorgan Chase Bank. The amended agreement expires on May 14, 2024.
The Board of Directors declared a common share dividend of C$0.04 per common share, paid on May 29, 2019.
The Company received regulatory approval for a normal course issuer bid ("NCIB") that will run from June 24, 2019 to June 23, 2020.
The Company announced the United States Patent and Trademark Office ("USPTO") approved its patent application for its breakthrough Smart EdgeTM platform for multi-access edge computing. The patent was issued on July 2, 2019.
Subsequent to the end of the quarter the Company announced it had retained LodeRock Advisors Inc. for strategic investor relations and capital markets communications services.
DIVIDEND AND NORMAL COURSE ISSUER BID The Company's Board of Directors has declared a regular quarterly dividend in the amount of C$0.04 per common share, payable September 16, 2019 to common shareholders of record August 31, 2019. During the second quarter, the Company paid $1.2 million in common share dividends or C$0.04 per share. This dividend has been designated as an "eligible dividend" for Canadian tax purposes.
On June 19, 2019, the Company received regulatory approval for an NCIB to purchase up to 3,791,395 common shares of the Company, or approximately 10% of the Company's total public float at prevailing market prices, in accordance with the rules of the Toronto Stock Exchange. As of August 13, 2019, there were 39,473,032 common shares outstanding. This represents the fourth NCIB the company has undertaken and will run from June 24, 2019 to June 23, 2020.
SECOND QUARTER RESULTS SUMMARY Second quarter 2019 revenues were $345.7 million, 9.3% or $35.7 million below the same period in 2018. This decline was primarily attributable to a $65.2 million decrease in sales to major customers, partially offset by a non-recurring project with a non-major customer of over $30 million. Product revenue was $305.6 million, 9.8% or $33.2 million below Q2 2018. The decline was primarily driven by a decrease in product sales to major customers. Service revenues were $40.1 million, $2.5 million or 5.9% below the same period in the prior year. Pivot Provided Services declined by $6.1 million or 21.7%, while third party maintenance and support contracts increased by $3.6 million or 25.1%. The decrease in Pivot Provided services is primarily the result of certain workforce services contracts winding down in 2019 as well as the prior period including $3.3 million of revenue from a large non-recurring direct services contract.
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 $45.0 million, up $4.4 million or 10.7% from Q2 2018. Gross profit margin increased to 13.0% from 10.6% in Q2 2018 due to lower service-related cost of sales as a result of cost reduction activities and a reduction in sales to major customer accounts which generally have lower gross margin profiles.
Second quarter Selling, General and Administrative ("SG&A") expenses were $35.3 million, a $0.2 million decline from Q2 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. SG&A reductions from the Company's cost reduction efforts were largely offset by increased variable compensation due to the growth in gross profit.
Adjusted EBITDA1 was $9.7 million, an increase $4.6 million or 89.9% over the prior period. The increase was due in part to the adoption IFRS 16, coupled with higher gross profit margins and lower SG&A. These factors more than offset the impact of lower revenues. Income attributable to common shareholders was $1.6 million ($0.04 per share) compared to $0.2 million ($0.01 per share) in Q2 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. The Company's strategy includes the following components: (i) continue to build on Pivot's core business of selling IT solutions, both products and services; (ii) enhance Pivot's service portfolio and capabilities, specifically related to services that Pivot delivers; (iii) continue the Company's commercial transformation to expand Pivot's addressable opportunities with existing customers; (iv) support customers as they expand internationally; (v) improve cost management; and (vi) commercialize and monetize Smart Edge technology.
"While remaining conscious of our cost structure, we continue to make strategic hires to address areas where there are opportunities for growth, such as services and edge technologies," said Mr. Shank. "The Company recently achieved two milestones for our Smart EdgeTM platform for multi-access edge computing. First, the granting of the patent by the USPTO, and second, over the past few weeks we have received two small initial purchase orders to deploy Smart Edge. These developments are evidence of our thought leadership in the space and puts us in an excellent position to provide the services required to deploy, support and install edge technologies."
QUARTERLY RESULTS MATERIALS The Company's outlook is contained in its MD&A for the three and six months ended June 30, 2019, which is available along with the complete second quarter 2019 interim consolidated financial statements at www.pivotts.com and at www.sedar.com.
SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS
For the three months ended
For the six months ended June
Cost of sales
Employee compensation and benefits
Other selling, general and administrative expenses
Income before the following:
Depreciation and amortization
Change in fair value of liabilities
Other expense (income)
Income (loss) before income taxes
Provision for income taxes
Income (loss) for the period
Income (loss) for the period attributable to
Income (loss) for the period attributable to shareholders
Other comprehensive income (loss)
Items that may be reclassified subsequently to income
(loss) for the period:
Exchange gain (loss) on translation of foreign operations
Total comprehensive income (loss)
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Income (loss) per common share:
Income (loss) attributable to common shareholders
Total current non-financial liabilities
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Note: Amounts presented are in thousands of U.S. dollars, except per share amounts
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.
SECOND QUARTER CONFERENCE CALL At 8:30 a.m. eastern Thursday, August 15, 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 (647) 427-7450 five minutes prior to the scheduled start time.
A telephone recording of the call will be available for one week (until midnight August 22, 2019) by dialing (416) 849-0833 and entering passcode 4337276 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; the following components of the Company's strategy: the commercialization and monetization of Smart Edge, cost structure reduction, enhancement of Pivot's service portfolio, the Company's commercial transformation, the support of customers as they expand internationally; 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 solution and growth with the adoption of 5G technologies, the ability of the Company to enhance its service portfolio and accelerate commercial deployments and use of the Smart Edge solution, Pivot's continued financial liquidity to invest in its business and pay quarterly dividends, Pivot's ability to sustain cost reductions, 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 possibility that cost reductions will not be achieved in 2019, the risk that the commercialization of the Smart Edge platform and growth of the Company's service portfolio will not meet expectations and fail to generate revenue 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.
SOURCE Pivot Technology Solutions, Inc
For further information: David Toews, Chief Financial Officer, Pivot Technology Solutions, [email protected]; James Bowen, CFA, Investor Relations, [email protected], Tel: 416-519-9442