AND DECLARES QUARTERLY DIVIDEND TORONTO, Aug. 13, 2020 /CNW/ - Pivot Technology Solutions, Inc. (TSX: PTG), ("
Pivot", "
Company"), a full-service information technology provider, today announced financial results for the three and six months ended June 30, 2020. All figures are in Canadian dollars unless otherwise stated.
Prior to January 1, 2020, the Company reported its results in U.S. dollars. Effective January 1, 2020, Pivot's Board of Directors elected to change the Company's presentation currency from U.S. dollars to Canadian dollars. The change in presentation currency is to improve investors' ability to compare the Company's financial results with other Canadian publicly traded businesses.
SECOND QUARTER OVERVIEW - Revenue was $332.1 million, compared to $459.9 million in Q2 2019.
- Pivot Provided Services revenue grew 12.1%.
- Gross profit margin improved to 15.1%, compared to 13.1% in Q2 2019.
- Gross profit was $50.2 million, compared to $60.1 million in Q2 2019.
- Selling, general and administrative expenses ("SG&A") declined 9.3% to $42.8 million, compared to $47.2 million in Q2 2019.
- Adjusted EBITDA(1) was $7.4 million, compared to $12.9 million in Q2 2019.
- Diluted earnings per share ("EPS") was ($0.01) in Q2 2020, compared to $0.05 in Q2 2019.
- The Company repurchased 497,260 shares during the quarter at a cost of $0.7 million.
- The Company paid dividends of $1.5 million during Q2.
| 1 Non-GAAP Measure. See the Non-GAAP Measures section of this news release. |
"The second quarter of 2020 was highlighted by economic uncertainty as the world adapted to the challenges presented by COVID-19. Pivot entered this environment from a position of strength, with an efficient cost structure, a strengthened balance sheet, and a strategy to grow its service and higher margin product solutions," said Kevin Shank, CEO.
"During the second quarter, we continued to execute against our strategic plan. We are pleased that our results demonstrated the expected benefits from the transformation plan that was initiated in 2018. Pivot Provided Services continued on its growth path and grew 12.1% in the second quarter compared to the prior year and increased sequentially. These results would have been even better were it not for COVID-19, as we had several projects delay where we were unable to access customer locations due to the pandemic. Gross profit margin increased to 15.1% from 13.1% and our SG&A decreased by 9.3% compared to last year. The improved efficiency of our business and growth in Pivot Provided Services enabled us to generate $7.4 million dollars in Adjusted EBITDA in the second quarter."
"Revenue declined compared to last years Q2, which was the strongest quarter for the Company in fiscal 2019, due to three factors: Revenue from major customers declined approximately $71.5 million; the prior year included a non-recurring project with a non-major customer of over $41.0 million; and over $30.0 million of revenue slipped from Q2 2020 into Q3 2020 as a result of customer delays and product shipment delays due to supply chain issues, both caused by COVID-19."
"We continue to focus on building our core products and services portfolio while enhancing our services and solutions capabilities from the edge to the cloud. Intel continues to be a key partner on our overall edge strategy to drive the sale, deployment, and management of edge solutions. During the second quarter, we were chosen as the Intel 2020 National Go-to-Market Partner of the Year for our work with Intel's Smart Edge solution. This award validates our expertise in delivering transformative services that are moving us closer to our goal of becoming the number one edge services provider in North America."
Q2 2020 BUSINESS AND OPERATING HIGHLIGHTS - In June 2020, the Company entered into an interest rate swap contract, with a notional amount of US$50.0 million, to lock in the LIBOR rate between 0.34% and 0.7%, covering the full term of the Company's credit facility, scheduled to expire May 14, 2024.
- The Normal Course Issuer Bid ("NCIB") was utilized to repurchase 497,260 shares during the second quarter at a cost of $0.7 million.
- Awarded Intel's 2020 National Go-to-Market Partner of the Year award.
- The Company paid dividends of $1.5 million during Q2 2020.
DIVIDEND On August 11, 2020, the board of directors declared a dividend of C$0.04 per share payable on September 15, 2020 to common shareholders of record on August 31, 2020. This dividend has been designated as an "eligible dividend" for Canadian tax purposes.
SECOND QUARTER RESULTS SUMMARY Second quarter 2020 revenue was $332.1 million, a 27.8% decrease from the comparative period. This decrease was primarily attributable to lower product sales to major customers, the prior year included a non-recurring project with a non-major customer of over $41.0 million, partially offset by an increase in Pivot Provided Services. Over $30.0 million of revenue slipped from Q2 2020 into Q3 2020 as a result of customer delays and product shipment delays due to supply chain issues, both caused by COVID-19.
Gross profit of $50.2 million for Q2 2020 decreased by $9.9 million or 16.5% as compared to the same period in the prior year. The gross profit margin was 15.1% in Q2 2020 as compared to 13.1% in Q2 2019. The decrease in gross profit for Q2 2020 is mainly driven by the decline in sales described above, partially offset by improved gross profit margin. During the first half of 2020, the continued favourable shift in the customer mix resulted in a lower percentage of revenue being generated from major customers, which improved overall gross profit margins. Since the gross profit margin from non-major customers is generally more favourable, Q2 2020 and the first half 2020 gross profit margins continued to benefit from this shift. In addition, the growth in Pivot Provided Services revenue, which generally has higher gross profit margins than product sales, combined with continued cost management, contributed to the improvement in gross profit margin in Q2 2020.
SG&A of $42.8 million for Q2 2020 decreased $4.4 million or 9.3% as compared to the same period in the prior year. Excluding the unfavourable foreign exchange effect of $1.5 million, the decrease was $5.9 million or 12.5%. There were a number of factors that impacted SG&A including: lower commissions and variable compensation; cost reductions due to the sale of the Smart Edge business in late 2019; increased costs due to investment in growth areas which have been mostly offset by cost reductions from integration activities and furlough actions; and decreased costs associated with timing of events, travel and marketing spend primarily as a result of COVID-19, partially offset by increased bad debt expense.
Adjusted EBITDA
(1) was $7.4 million in the 2020 second quarter. Net loss attributable to shareholders was $0.5 million, or $0.01 per share. Net loss includes $2.8 million of amortization of intangibles from acquisitions.
OUTLOOK FOR 2020 While the global economy continues to be impacted by the COVID-19 pandemic, it has affected industries in different ways. While some customers have been negatively impacted, others have seen an increase in demand. Independent of how a company is performing, governments around the world have required that nonessential offices be closed. Management has been able to identify certain operations and resources that will be idle or less utilized as a result of the COVID-19 pandemic. As a result, the Company furloughed certain employees in April 2020, some of which have been brought back as at June 30, 2020.
The Company's outlook is contained in its Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2020, which is available at
www.pivotts.com and at
www.sedar.com.
SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS | (unaudited) | Three months ended June 30, | Six months ended June 30, |
| (in thousands of Canadian dollars, except per share amounts) | 2020 | 2019 | 2020 | 2019 |
| | | (re-presented,in
Canadian dollars) | | (re-presented,in
Canadian dollars) |
| Revenue | 332,136 | 459,902 | 708,943 | 849,763 |
| Cost of sales | 281,947 | 399,797 | 606,664 | 740,967 |
| Gross profit | 50,189 | 60,105 | 102,279 | 108,796 |
| Selling, general and administrative expenses | 42,787 | 47,166 | 89,486 | 91,417 |
Income before depreciation and amortization,
finance expense, change in fair value of
liabilities and other expenses | 7,402 | 12,939 | 12,793 | 17,379 |
| Depreciation | 1,679 | 2,042 | 3,690 | 4,115 |
| Amortization | 2,839 | 2,935 | 5,519 | 5,857 |
| Finance expense | 1,497 | 2,018 | 3,241 | 4,234 |
| Change in fair value of liabilities | 671 | 279 | 680 | 587 |
| Other expenses | 1,747 | 1,124 | 2,194 | 5,269 |
| Earnings (loss) before income taxes | (1,031) | 4,541 | (2,531) | (2,683) |
| Income tax expense (recovery) | (476) | 3,199 | (2,960) | 1,292 |
| Net income (loss) for the period | (555) | 1,342 | 429 | (3,975) |
| Other comprehensive income (loss) | | | | |
| Items that may be reclassified subsequently to income (loss): | |
| Exchange gain (loss) on translation of foreign operations | (299) | (11) | 868 | (324) |
| Total comprehensive income (loss) | (854) | 1,331 | 1,297 | (4,299) |
| Attributable to: | | | | |
| Shareholders | (753) | 2,123 | 1,211 | (2,953) |
| Non-controlling interest | (101) | (792) | 86 | (1,346) |
| Total comprehensive income (loss) | (854) | 1,331 | 1,297 | (4,299) |
| Attributable to shareholders: | | | | |
| Earnings (loss) attributable to shareholders | (454) | 2,134 | 343 | (2,629) |
| Earnings (loss) per common share | | | | |
| Basic | ($0.01) | $0.05 | $0.01 | ($0.07) |
| Diluted | ($0.01) | $0.05 | $0.01 | ($0.07) |
| Certain comparative information has been reclassified to conform to current year presentation. |
The following is a summary of selected consolidated financial information for the past eight quarters.
| | | | | | | | | | | |
| (in thousands of Canadian dollars | 2020 | | 2019 | | 2018 |
| except otherwise noted) | Q2 | Q1 | | Q4 | Q3 | Q2 | Q1 | | Q4 | Q3 |
| | | | | (re-presented in Canadian dollars) |
| Revenue | 332,136 | 376,807 | | 402,477 | 352,404 | 459,902 | 389,861 | | 395,872 | 417,094 |
| Gross profit | 50,189 | 52,090 | | 56,646 | 52,209 | 60,105 | 48,691 | | 56,063 | 53,208 |
| Gross profit margin | 15.1% | 13.8% | | 14.1% | 14.8% | 13.1% | 12.5% | | 14.2% | 12.8% |
| Adjusted EBITDA(1) | 7,402 | 5,391 | | 9,868 | 8,319 | 12,939 | 4,440 | | 6,271 | 5,424 |
| Adjusted EBITDA(1) margin | 2.2% | 1.4% | | 2.5% | 2.4% | 2.8% | 1.1% | | 1.6% | 1.3% |
| Net income (loss) | (555) | 984 | | 21,676 | 501 | 1,342 | (5,317) | | (34) | (3,204) |
Net income (loss) attributable
to shareholders | (454) | 797 | | 21,574 | (413) | 2,134 | (4,763) | | 570 | (3,638) |
Earnings (loss) per share
attributable to shareholders: | | | | | | | | | | |
| Basic | ($0.01) | $0.02 | | $0.55 | ($0.01) | $0.05 | ($0.12) | | $0.01 | ($0.09) |
| Diluted | ($0.01) | $0.02 | | $0.54 | ($0.01) | $0.05 | ($0.12) | | $0.01 | ($0.09) |
Cash dividends declared on
common shares | 1,529 | 1,556 | | 1,585 | 1,586 | 1,579 | 1,579 | | 1,579 | 1,579 |
| Certain comparative information has been reclassified to conform to current year presentation. |
The following is a reconciliation of "income (loss) before income taxes" to "Adjusted EBITDA".
| | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| (in thousands of Canadian dollars) | Q2 | Q1 | | Q4 | Q3 | Q2 | Q1 | | Q4 | Q3 |
| | | | | (re-presented in Canadian dollars) |
| Income (loss) before income taxes | (1,031) | (1,500) | | 29,622 | 506 | 4,541 | (7,224) | | 840 | (2,920) |
| Depreciation | 1,679 | 2,011 | | 1,805 | 1,970 | 2,042 | 2,073 | | 757 | 825 |
| Amortization | 2,839 | 2,680 | | 2,771 | 2,893 | 2,935 | 2,922 | | 2,914 | 2,915 |
| Finance expense | 1,497 | 1,744 | | 1,841 | 1,922 | 2,018 | 2,216 | | 1,989 | 1,997 |
| Change in fair value of liabilities | 671 | 9 | | 725 | 294 | 279 | 308 | | 301 | 293 |
| Other expenses (income) | 1,747 | 447 | | (26,896) | 734 | 1,124 | 4,145 | | (530) | 2,314 |
| Adjusted EBITDA(1) | 7,402 | 5,391 | | 9,868 | 8,319 | 12,939 | 4,440 | | 6,271 | 5,424 |
| Certain comparative information has been reclassified to conform to current year presentation. |
Key metrics on consolidated debt Adjusted Debt | | | |
| | June 30, | December 31, |
| (in thousands of Canadian dollars) | 2020 | 2019 |
| Current liabilities | 494,060 | 492,330 |
| Other financial liabilities – long-term | 14,207 | 14,999 |
| Less: Lease obligations – total | (18,330) | (18,769) |
| Less: Current assets | (415,641) | (415,626) |
| Adjusted Debt(1) | 74,296 | 72,934 |
Adjusted Debt
(1) normalizes the impact of the changes in working capital. Management believes it is a more relevant indicator of the Company's debt position and is a more comparable metric with industry peers. The increase of Adjusted Debt
(1) in 2020 was mainly due to foreign exchange; excluding the foreign exchange effect, Adjusted Debt was $71.1 million as of June 30, 2020.
The Company has financed its operations through an asset-based revolving credit facility as opposed to term debt or equity in order to take advantage of lower borrowing costs and flexibility that the facility allows to match the cash flow requirements of the Company. While the facility matures in May 2024, the borrowings under the facility are presented as current liabilities.
Below are the key metrics of our consolidated debt as of June 30, 2020, and December 31, 2019.
| | | |
| | June 30, | December 31, |
| | 2020 | 2019 |
| Adjusted Debt(1) to Adjusted EBITDA(1) | 2.40 | 2.05 |
| Net interest coverage(1) | 4.42 | 4.45 |
| Net interest coverage is defined as Adjusted EBITDA divided by finance expense on a trailing twelve-month basis. |
The change in Adjusted Debt to Adjusted EBITDA at June 30, 2020 was due to the decline in Adjusted EBITDA in Q2 2020 compared to Q2 2019, and also due to foreign exchange; excluding the foreign exchange effect, Adjusted Debt to Adjusted EBITDA was 2.32 as at June 30, 2020. The decline in net interest coverage reflects the lower Adjusted EBITDA, partially offset by lower net finance expense as at June 30, 2020 on a trailing 12-month basis as compared to the same trailing 12-month period at December 30, 2019.
NON-GAAP MEASURES The Company evaluates and measures its performance based on measures referred to as "Adjusted EBITDA", "Adjusted Debt", "Adjusted Debt to Adjusted EBITDA", and "Net Interest Coverage". These measures do not have any standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other issuers. Such non-GAAP measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP such as net income (loss), cash flow, or other measures of financial performance and liquidity reported in accordance with GAAP. Detailed descriptions of these terms can be found in Pivot's disclosure documents, including its Management's Discussion and Analysis, filed with the securities regulatory authorities; these documents are available at
www.sedar.com or on Pivot's website
www.pivotts.com.
SECOND QUARTER CONFERENCE CALL At 8:30 a.m. Eastern Time, August 14, 2020, the Company will host a conference call featuring management's quarterly remarks and a follow-up question and answer period with analysts. The conference call can be accessed live by dialing (416) 764-8659 five minutes prior to the scheduled start time.
A telephone recording of the call will be available for one week (until midnight August 21, 2020) by dialing (416) 764-8677 and entering passcode 555002 followed by the number sign.