Pivot Technology Solutions Reports Fourth Quarter 2013 Results

Company reports both sequential and year-over-year quarterly revenue growth

CARLSBAD, CA, April 28, 2014 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its results for the fourth quarter and Full year ended December 31, 2013.

Financial highlights Q4 2013

• Revenues of $338.0 million, up 2.8% and 3.6% compared to Q4 2012 and Q3 2013, respectively.
• Service revenues up 23.3% to $35.6 million, compared to Q4 2012.
• Gross margin of 10.8%, down from 11.7% and 11.2% for the same period last year and Q3 2013 respectively, due to lower gross margin on product sales.
• Adjusted EBITDA* came in at $7.7 million, down 13.2% from the same quarter last year and down 7.4% from Q3 2013 due to the fall in gross margin.
• Consolidated net income for the period of $0.7 million, as compared to a $5.0 million net loss for the same period in 2012 and net income of $1.6 million for Q3 2013.
• Interest expense was reduced by $3.7 million from Q4 2012, resulting from the conversion of debentures into Series A Preferred Shares, and lower average secured borrowings.
• Series A Preferred Share dividends of $0.9 million were declared during Q4 2013.
• The Company refinanced its existing credit facilities through PNC Bank.  The new, consolidated facility consists of a $10 million term loan and a secured asset based credit facility that allows the company to draw up to $175 million, with the option to increase the facility by up to $50 million at the Company's discretion.

Full year 2013 highlights

• Revenues were $1.24 billion, down 13.2% as compared to $1.43 billion for FY 2012, as a result of a decline in product sales predominantly in the first three quarters of 2013.
• Service revenues increased by 49.5% to $117 million.
• Gross margin improved to 11.3% from 9.8% for FY 2012 due to a growing contribution of the Company's higher-margin service business, the full-year impact of the overall higher-margin Sigma business, which was acquired early in Q3 2012, and the impact of a significant data center infrastructure project with a major customer which carried a lower margin in 2012.
• Adjusted EBITDA* fell by 27.9% to $27.3 million, as compared to $37.8 million for FY 2012, predominantly due to lower sales to two major customers as compared to the prior year.
• Net loss for the period was $1.8 million, as compared to a loss of $22.1 million for FY 2012. As a percentage of revenues, net loss was reduced from 1.5% to 0.1%.

Management commentary

Warren Barnes, CEO of Pivot, commented, "Despite the challenges in early 2013 related to the decrease in business from two significant customers, we are pleased with our performance, which has shown consistent progression throughout the year.  Our strategic focus throughout 2013 has been on continuing to grow our customer list and share of customer IT spending, as well as growing revenues from our higher-margin service offerings across all our business units.  We believe this strategy is validated by our success in growing organically beyond our two largest customers.  Excluding these two customers, we achieved 29% revenue growth in Q4 of 2013, as compared to the same quarter last year, in part due to a very encouraging uptake of our service offerings across both new and existing customers.  Overall, the effort of our team has produced consistent revenue growth for each quarter since the first quarter of this year."

Kerri Brass, CFO of Pivot, commented, "This was the first quarter in 2013 where we posted both sequential and year over year revenue growth.  Earlier in the year we reported that a major customer had transitioned to a technology platform for which Pivot is not the designated supplier.  During the year, we worked hard on mapping new products to this customer, and we are pleased to report that in Q4, revenues from this customer were $1.5 million ahead of the same quarter last year. Timing of deals and a shift in the mix of business, with a number of high-volume lower-margin transactions, resulted in a Q4 gross margin behind the annual average, despite considerable growth of our higher margin service business."

Mr. Barnes concluded, "We're encouraged by our consistent performance throughout the year.  Furthermore, we are starting to witness the early results from our integration strategy, while we still see considerable upside potential as the program will start to gather momentum.  We are now in a position where we can develop innovative solutions for the market, as well as engage in activities that differentiate ourselves further from the competition, such as our ability to deliver on international projects.  We believe that the market trends we have reported on throughout the year will continue into 2014, and that we are well positioned to capitalize on the opportunities we have identified in areas such as storage, virtualization and networking, and to deliver continued growth and improving results in the coming quarters."

Q4 2013 Financial Review

Revenues came in at $338.0 million, up 2.8%, or $9.3 million, from Q4 2013.  Revenues were up 3.6%, or $11.7 million, from Q3 2013. Revenue growth was driven mainly by a strong performance of the Company's service offerings, which, at $35.6 million, recorded a 23.2% and an 8.1% increase compared to Q4 2012 and Q3 2013, respectively.

Gross profit of $36.3 million was down marginally (0.7%, or $0.3 million) from Q3 2013, and down 5.2%, or $2.0 million from Q4 2012.  The gross profit margin of 10.8% was down from 11.2% in Q3 2013, and down from 11.7% in Q4 2012 as a result of lower gross margins on product revenues.

The Company recorded an adjusted EBITDA for Q4 2013 of $7.7 million, down 13.2% from the same quarter last year and down 7.4% from Q3 2013, due to the lower gross profit.

Selling and administrative expenses for Q4 2013 fell by $0.8 million or 2.8% to $28.6 million, as compared to Q4 2012, attributable mainly to decreases in bonuses and commissions. Compared to Q3 2013, selling and administrative expenses were up 1.3%, due mainly to the higher business volume.

Interest expense of $3.6 million was down $3.7 million from Q4 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. Series A Preferred Share dividends of $0.9 million were declared during Q4 2013, reflecting a fixed cumulative preferential dividend at the rate of 6% per annum.  Interest expense was up from Q3 2013, in part due to $1.9 million in charges related to the termination of the Wells Fargo secured borrowing agreement.

Adjusted for changes in non-cash working capital balances, the Company generated $4.5 million in cash from operating activities, as compared to $1.8 million for the same period last year and $5.1 million for Q3 2013.

Full Year 2013 Financial Review

Revenues came in at $1.24 billion, 13.2% down from 2012.  The revenue decline was driven primarily by a 16.6% decrease in product sales, predominantly through the first three quarters of the year.  As published previously, the comparable periods in 2012 benefited from an exceptionally large data center project.  Additionally, one of the Company's largest customers had transitioned to the x86 technology platform, for which Pivot is not the designated supplier.  As of Q4, the Company had made significant progress in re-mapping products to this customer, reflected in a $1.5 million increase in Q4 revenue over Q4 2012.  The decline in product revenues from these two major customers was partially offset by overall organic growth in all of the Company's divisions, as well as through the contribution from Sigma, which was acquired in July 2012.  For 2013, Sigma contributed $183.3 million to overall revenues, up $108.4 million, or 144.8%, from 2012.  Excluding Sigma and the Company's two major customers, year-over-year revenue growth amounted to 12.4%.

On a consolidated basis, the decline in product revenues was offset partially by a strong performance of the Company's service offering.  This growth was in part due to the addition of Sigma during 2012, which has a strong service focused strategy, though all operating companies contributed to this growth.  Service revenue benefited from increased sales related to "First Call", a service offering consisting of support contracts and the addition of a first line live call center. For the year, service revenues increased by 49.5% to $116.9 million.

Despite 13.2% lower revenues, as compared to full year 2012, gross profit of $139.9 million was down only marginally (0.4%, or $0.5 million) from 2012 as the gross profit margin improved to 11.3%, from 9.8% in 2012.  This improvement was driven primarily by an increase in service revenues across the business units, and augmented by the addition of the higher-margin Sigma business in July 2012.  A further contribution came from the change in business mix as customer concentration decreased.

Selling and administrative expenses increased by $10.0 million, primarily through salaries and employee benefits related increases due to the acquisition of Sigma.  This increase was partially offset by increases in marketing development funds received from certain vendors, and decreases in bonuses and commissions.

As at December 31, 2013, total cash on hand was $22.0 million, up from $16.6 for December 31, 2012.  Adjusted for changes in non-cash working capital balances, the Company generated $13.9 million in cash from operating activities in 2013, as compared to $10.3 million in 2012.  Series A Preferred Share dividends of $3.1 million were declared during 2013.

As at December 31, 2013, shareholders' equity had improved by $81.3 million to $35.7 million, as compared to a deficiency of $45.6 million for December 31, 2012. This improvement was due to the conversions of the convertible debentures to Series A Preferred Shares and common equity in Q1 2013, and subsequently for conversions of Series A Preferred Shares to common equity.

Normal changes in revenue performance, which are common place 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.

Conference Call

Management will host a conference call on April 28, 2014 at 11:00 am EDT.

DATE:				Monday, April 28, 2014
TIME:				11:00 a.m. EDT
DIAL IN NUMBER:				647-427-7450 [phone]
TAPED REPLAY:				416-849-0833 or 1- 855-859-2056 Available until 12:00 midnight (EDT) Monday, May 5, 2014 Reference number: 28693432

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 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, new opportunities, improving results 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 revenue and income growth, that Pivot will be able to realize synergies through the implementation of its integration strategy,  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; 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

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

				Three months ended (unaudited)						Full year ended
				December 31 2013			December 31 2012			December 31 2013			December 31 2012
Revenue				338,004			328,676			1,240,222			1,429,579
Gross profit				36,348			38,354			139,868			140,400
Gross margin				10.8%			11.7%			11.3%			9.8%
	Selling and administrative			28,629			29,465			112,580			102,577
	Depreciation and amortization			2,950			3,212			11,375			10,550
	Interest expense			3,580			7,290			9,190			21,011
	Change in fair value of liabilities			14			3,610			(9,394)			32,383
	Goodwill impairment			-			-			11,000			-
	Transaction costs			140			1			2,229			784
	Other expense			(26)			(334)			6			(234)
Total operating expenses				35,287			43,244			136,986			167,071
Income (loss) before income taxes				1,061			(4,890)			2,882			(26,671)
Adjusted EBITDA*				7,719			8,889			27,288			37,823
Net income (loss) for the period				748			(4,986)			(1,757)			(22,102)

*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 ended (unaudited)								Full year ended
				December 31 2013				December 31 2012				December 31 2013				December 31 2012
Income (loss) before income taxes				1,061				(4,890)				2,882				(26,671)
Adjustments
	Depreciation and amortization			2,950				3,212				11,375				10,550
	Interest expense			3,580				7,290				9,190				21,011
	Change in fair value of liabilities			14				3,610				(9,394)				32,383
	Goodwill impairment			-				-				11,000				-
	Transaction costs			140				1				2,229				784
	Other expense			(26)				(334)				6				(234)
Adjusted EBITDA				7,719				8,889				27,288				37,823

SOURCE: Pivot Technology Solutions, Inc.

Andrew Bentley
Pivot Technology Solutions, Inc.
[email protected]
Tel: [phone]

Marc Lakmaaker
TMX Equicom
[email protected]
Tel: [phone]