Pivot Technology Solutions Reports First Quarter 2013 Results


CARLSBAD, CA, May 30, 2013 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG) today publishes its results for the first quarter of 2013.

Financial highlights Q1 2013

  • Gross margin improved to 11.8% from 10.0% for the same period last year.
  • Adjusted EBITDA was $3.4 million, as compared to $7.1 million for Q1 2012.
  • Net loss for the period was $4.8 million, equal to last year's same quarter.

Corporate highlights

  • On March 11, 2013, the Company completed a brokered private placement, raising gross proceeds of C$3.5 million, priced at C$0.80 per share.
  • On March 25, 2013, Pivot completed the reverse take-over ("RTO") of Acme.  Common shares of Pivot commenced trading on the TSX-V effective April 1, 2013.
  • Concurrent with the RTO, the Company's outstanding 12% debentures, with a total value of C$42.6 million, were converted into 102.5 million Class A Preferred Shares and 4.0 million common shares at a conversion price of C$0.40 per share.

The 8.8% decline in revenues to $254 million as compared to Q1 of 2012 was attributable in part to a strong Q1 of 2012, when ACS, one of the Company's operating companies, benefited from a large, one-off data-center project with one of its key customers. Additionally, this same customer built up significant inventory in Q4 of 2012, leading to reduced sales in Q1 2013.  A second large ACS customer transitioned sooner than expected to a new platform technology, products for which are not provided by Pivot, leading to a further decline in revenues. The Company is in discussions with this customer to map alternative product ranges, which Management anticipates will start making a contribution to revenues in the second half of the current financial year.

The decline in revenues from these two customers was offset partially by the contribution from Sigma, which was acquired in July 2012, as well as new customer successes at each of the Company's operating companies, but in particular for ProSys.

Gross margin improved due to a favorable shift in product mix and the contribution from Sigma, which is a higher margin business with a strong strategic focus on service offerings.  The improvement was partially offset by a reduction in rebate programs from one of the Company's key suppliers.

Selling and administrative expenses increased by $5.8 million compared to last year's first quarter due to the acquisition of Sigma and an increase in corporate staff as the Company transitioned to become a public company, offsetting the improvement in gross margin and resulting in a lower Adjusted EBITDA.

The conversion of Pivot's outstanding convertible debentures into preferred and common shares has had a significant and positive impact on the Company's balance sheet.  As at March 31, 2013, the Company had positive shareholders' equity of $35.7 million as compared to a shareholders' deficit of $45.6 million as at December 31, 2012.

Inherent to the Company's multi-vendor solutions provider ("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, the large decrease in Q1 2013 working capital balances is strictly volume related, and not a performance indicator of working capital management.

Management Commentary

Greg Gallagher, CEO of Pivot, stated, "Last year's Q1 was very strong, making it a tough comparable.  However, adjusted for the exceptional circumstances described above, including the contribution from Sigma, we achieved near double-digit organic growth.  This growth was attributable to ongoing strength in the storage segment of our business, as well as our continued success in new customer acquisition and existing customer penetration, particularly at ProSys and Sigma."

He continued, "It takes time for new accounts fully to develop, and we expect that their contribution to top-line growth will become more significant in the coming quarters.  We believe this will have a positive effect on the revenue volatility we are witnessing at present."

Warren Barnes, CFO of Pivot, added, "We achieved a considerable improvement in our gross margin, a key performance indicator, despite the fall in revenues.  Presently, we are seeing a return of rebate programs from one of our key vendors, as well as enhanced rebate programs from other suppliers.  These rebates are accretive to gross margin and hence our bottom line."

He concluded, "Going forward, we will continue building our national platform, realize operational and cost synergies, and focus on higher-margin growth initiatives in storage and services. In addition to the continued execution of our MVSP strategy, we also intend to address our capitalization, creating further stakeholder value in the process."

Update on Series A Preferred Shares

On March 25, 2013, the Company issued an aggregate of 102,452,501 Series A Preferred Shares in connection with the RTO of the Company resulting from the amalgamation of Pivot Acquisition Corp. and a wholly-owned subsidiary of the Company.  The Series A Preferred Shares carry a 6% cumulative dividend payable monthly.  The Series A Preferred Shares are convertible into common shares on a one for one basis at any time at the option of the holder and at any time after June 30, 2013 at the option of the Company.  As at May 29, 2013, 89,192,501 Series A Preferred Shares are outstanding as a result of conversion of 13,260,000 Series A Preferred Shares into common shares since March 25, 2013.

The Company is considering various alternatives with respect to the Series A Preferred Shares in an effort to provide a measure of liquidity to its holders other than conversion into common shares, including giving Series A Preferred shareholders the opportunity to convert or exchange their Series A Preferred Shares into newly created preferred securities that would, among other features, be retractable by the holder and callable by the Company at specific dates in the future.  No specific alternative has been developed, but the expectation is that one will be in the near future.  Until the completion of its review of alternatives, the Company does not intend to exercise its right to convert Series A Preferred Shares into common shares, but may do so if it concludes there is no reasonable alternative to conversion.

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 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 may include financial and other projections, as well as statements regarding Pivot's future plans, objectives or economic performance, capitalization or the assumptions underlying any of the foregoing. Pivot uses words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" 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 Pivot will achieve sustainable profitable growth, 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, historical financial statements, or future events 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; shareholder support for changes to Pivot; capitalization; and the possibility of technical, logistical or planning issues in connection with the deployment of Pivot's products or services.

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.

Interim financial statements can be found on SEDAR and the Company's website www.pivotts.com

all numbers in $ thousands,
except per share data
Three months ended March 31
  2013 2012
Revenues 254,284 278,733
Cost of sales 224,403 250,923
Gross profit 29,881 27,810
    Selling and administrative expenses 26,472 20,702
Adjusted EBITDA 3,409 7,108
    Depreciation and amortization 2,816 2,419
    Transaction costs 1,754 166
    Interest expense 2,561 2,422
    Change in fair value of liabilities (384) 5,198
    Other (income)/expense (287) 177
Loss before income taxes (3,051) (3,274)
Provision for income taxes 1,764 1,556
Net loss (4,815) (4,830)
Loss per share:    
    Basic $(0.08) $(0.09)
    Diluted $(0.08) $(0.09)
Cash and cash equivalents 10,489 42,442
Total assets 338,092 376,362
Total long-term financial liabilities 18,702 91,523
Cash dividends declared nil nil

*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 earnings (loss) before income taxes, depreciation, amortization, transaction costs, interest expense, change in fair value of liabilities 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.


SOURCE: Pivot Technology Solutions, Inc.

For further information:

Marc Lakmaaker  
TMX Equicom
Tel: 416 815 0700


Warren Barnes
CFO, Pivot Technology Solutions, Inc.

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Pivot Technology Solutions, Inc.

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