Pivot Technology Solutions Reports Second Quarter 2013 Results

CARLSBAD, CA, Aug. 29, 2013 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG) today publishes its results for the second quarter ended June 30, 2013.

Financial highlights Q2 2013

• Sequential revenue growth of 26.5% compared to Q1 2013.
• Year-over-year, revenue fell by 31.4% to $321.7 million.
• Gross margin improved to 11.5% from 8.0% for the same period last year and down slightly from 11.8% from Q1 2013.
• Adjusted EBITDA* was $7.8 million, down 37.0% from the same quarter last year and up 129.4% from Q1 2013.
• Consolidated net income for the period of $0.7 million, as compared to a $4.3 million net loss for the same period in 2012 and a net loss of $4.8 million for Q1 2013.
• A non-cash goodwill impairment charge of $11.0 million was recorded related to the ACS acquisition.

Management commentary

Warren Barnes, CEO of Pivot, commented, "Our results improved compared to the first quarter of this year. Our sequential growth was driven by demand for storage and network related initiatives, improved performance at Sigma, and continued penetration of existing customer accounts.  Compared to Q1, revenues from one of the Company's largest customers have increased, although are not yet at levels prior to a new platform technology product re-mapping that occurred in Q1 2013."

"Despite the year-over-year drop in revenues, improved customer mix and an improved contribution from our services business, both at Sigma and at ProSys, resulted in an improved gross margin, from 8.0% to 11.5%.  Sequentially, prudent expense management and increased revenue resulted in our adjusted EBITDA more than doubling compared to Q1."

Kerri Brass, Pivot CFO, commented, "Year-over-year, the revenue comparison continues to be affected by a large one time project for one of ACS's largest customers, which was ongoing during the second quarter of 2012.  This volatility in revenue has impacted results at ACS these past two quarters, and we recorded a non-cash goodwill impairment charge in order to better reflect ACS's carrying value on our balance sheet."

Mr. Barnes concluded, "A key element of my mandate since taking over as CEO just under two months ago has been to accelerate the integration of the acquired operating companies.  We see opportunities to deliver top and bottom line growth based on internal measures, and have therefore launched a number of initiatives focused on sales, technology and costs.  We believe these areas will provide the greatest leverage."

Q2 2013 Financial Review

Revenues came in at $321.7 million, up 26.5%, or $67.4 million, from Q1 2013.  Revenues were down 31.4%, or $14.4 million, from Q2 2012, which included revenues at the Company's ACS business attributable to large-scale data center builds by a significant customer. The Sigma business, which was acquired in July of 2012, contributed $54.3 million to revenues in Q2 2013, up 58.0% from Q1 2013.

Service revenues for the second quarter increased by $11.9 million, or 77.3%, over the same period in the prior year. These increases were driven by the addition of Sigma, as well as by ProSys, who continued to penetrate new accounts and provide additional higher margin service offerings.

Gross profit was $37.0 million, up 23.9%, or $7.1 million, from Q1 2013, and down marginally by 1.6%, or $0.6 million, from Q2 2012 due to the effects of the significant Q2 2012 ACS projects, offset by the acquisition of Sigma and continued penetration of existing customer accounts. Gross profit margins increased to 11.5% in Q2 2013 from 8.0% in Q2 2012, despite reductions in revenues and rebate programs from some of the Company's major vendors. To counteract these reductions, the Company continues to leverage the purchasing scale of the combined operating businesses to maximize available rebates.

Adjusted EBITDA of $7.8 million was up 129.4%, or $4.4 million, from Q1 2013. Operating leverage through prudent expense management drove this increase as business activity increased. Adjusted EBITDA was down 37.0%, or $4.6 million, from Q2 2012, mainly due to the effects of the significant Q2 2012 ACS projects.

Selling and administrative expenses for Q2 2013 increased by $4.0 million, or 15.8%, compared to the same period last year.  This was the result of increased headcount through the addition of Sigma in July 2012, offset partially by lower variable commissions, and bonuses.

Interest expense was down $6.2 million from Q2 2012 as a result of the conversion of debentures into Series A Preferred Shares at the end of Q1. Series A preferred share dividends of $1.1 million were declared during Q1 2013 and subsequently paid. 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.  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.

The Company recorded an $11.0 million non-cash goodwill impairment charge in relation to the ACS acquisition due to continued volatility of the operating company's results. The impairment charge was offset partially by a recovery of $10.0 million recorded in Q2 2013 in relation to the change in fair value of contingent consideration liabilities with respect to the acquisition of ACS. On a consolidated basis, the Company recorded net income of $0.7 million.

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 August 29, 2013 at 11:00 am EDT.

Participant Dial-In Number(s):			[phone] or [phone]
Access code:			35988948
A replay will be available for one week following the call via
http://bit.ly/150tDXN
Conference ID:			35988948
Alternatively, the call can be accessed through:
Encore Toll Free Dial-in Number:			[phone]
Encore Password:			35988948

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 1,000 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, initiatives or capitalization 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, 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; shareholder support for changes to Pivot's 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.

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		Six months ended
		June 30 2013	June 30 2012	June 30 2013	June 30 2012
Revenue		321,677	469,081	575,961	747,814
Gross profit		37,026	37,619	66,907	65,429
Gross margin		11.5%	8.0%	11.6%	8.7%
	Selling and administrative	29,205	25,212	55,677	45,914
	Depreciation and amortization	2,840	2,423	5,656	4,842
	Interest expense	1,479	7,726	4,040	10,148
	Change in fair value of liabilities	(9,428)	4,470	(9,812)	9,668
	Goodwill impairment	11,000	-	11,000	-
	Transaction costs	-	-	1,754	166
	Other (income)/expense	298	(180)	11	(3)
Total operating expenses		35,394	39,651	68,326	70,735
Income (loss) before income taxes		1,632	(2,032)	(1,419)	(5,306)
Adjusted EBITDA*		7,821	12,407	11,230	19,515
Net comprehensive income (loss) for the period		689	(4,322)	(4,126)	(9,152)

*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		Six months ended
		June 30 2013	June 30 2012	June 30 2013	June 30 2012
Income (loss) before income taxes		1,632	(2,032)	(1,419)	(5,306)
Adjustments
	Depreciation and amortization	2,840	2,423	5,656	4,842
	Interest expense	1,479	7,726	4,040	10,148
	Change in fair value of liabilities	(9,428)	4,470	(9,812)	9,668
	Goodwill impairment	11,000	-	11,000	-
	Transaction costs	-	-	1,754	166
	Other (income)/expense	298	(180)	11	(3)
Adjusted EBITDA		7,821	12,407	11,230	19,515

      

SOURCE: Pivot Technology Solutions, Inc.

Warren Barnes
CEO, Pivot Technology Solutions, Inc.
[email protected]

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