Pivot Technology Solutions Reports Third Quarter 2014 Results

Improved operating profitability on higher revenues

CARLSBAD, CA, Nov. 25, 2014 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its results for the third quarter ended September 30, 2014.  

Financial highlights Q3 2014

• Revenues of $359.7 million, up 10.3% compared to Q3 2013 attributable to both increased product sales and growth in services.
• Product sales of $319.1 million, up 9.6% compared to Q3 2013.
• Service revenues up 14.4% to $37.7 million compared to Q3 2013.
• Gross profit up $3.5 million, or 9.6%, to $40.1 million from the same period in the prior year. 
• Gross margin for the quarter of 11.2% remained unchanged from Q3 2013.
• Adjusted EBITDA* came in at $8.5 million, up 2.1% from Q3 2013 and up 10.8% from Q2 2014.
• Series A Preferred Share dividends of $0.7 million were declared during Q3 2014.
• Adjusted for changes in non-cash working capital balances, the Company generated $3.7 million in cash from operating activities.

Financial Highlights 9M 2014

• Revenues of $981.8 million, up 8.8% compared to 9M 2013.
• Gross profit up 9.9% to $113.8 million from the same period in the prior year, representing a gross margin of 11.6%, up marginally from 11.5% for 9M 2013.
• Adjusted EBITDA* up 14.5% to $22.4 million, as compared to 9M 2013.
• Adjusted for changes in non-cash working capital balances, the Company generated $13.3 million in cash from operating activities.

Management commentary

"I am pleased with our progress, both for the quarter and year to date," stated Warren Barnes, CEO of Pivot.  "We are executing well on our strategy, and we can see positive momentum throughout the business.  From an integration point of view, we have implemented organizational changes, formalizing critical functional areas under single, company-wide leadership.  This enhances alignment to our strategy, while providing an improved ability to deliver common tools and process, thereby enabling a platform for growth and excellence.  We have also created a new business unit, Pivot Technology Services, to be led by Scott Gruendler.  The creation of this new business unit is driven from our strategy and ongoing efforts to continue to grow our services business."

Kerri Brass, CFO of Pivot, stated, "This quarter we recorded our highest revenues since Q2 2012, and generated improved gross profit and adjusted EBITDA.  Looking at the performance of the business, we are encouraged by ongoing revenue growth outside of our major customers, where we realized 15.2% growth for the quarter and 23.9% growth year to date, compared to the same periods in the prior year.  On the financing front, to enhance our working capital flexibility, we executed a purchase finance agreement with Macquarie Equipment Finance that allows up to $10 million in unsecured advances on purchases from approved suppliers."

Mr. Barnes concluded, "The general business climate continues to be positive and we continue to find new ways to delight our customers while working with partners to develop innovative solutions to IT needs.  We are focused on our strategy, and will concentrate our efforts on expanding our services business, growing our international capabilities and aligning our support organizations to enable excellence in execution." 

Q3 2014 Financial Review   

Revenues came in at $359.7 million, up 10.3%, from Q3 2013 and up 18.8% from Q2 2014.  Revenue growth for the quarter was attributable both to an increase in product sales, up $27.8 million from Q3 2013, or  9.6%, to $319.1 million, and continued strength from the Company`s services business, up $4.7 million from Q3 2013, or 14.4%, to $37.7 million.  Growth in product related revenues was driven primarily by sales to non-major customers, which saw an increase of $24.2 million over the same quarter in the prior year.  Sequentially, product sales were up 21.0%.

Gross profit of $40.1 million was up $3.5 million, or 9.6%, from Q3 2013, and up $1.9 million, or 5.1%, from Q2 2014.  The increase was due to higher revenues, with the gross margin for Q3 2014 remaining unchanged from the same period in the prior year.  Compared to Q2, the gross margin was lower due to a higher product sales mix.

The Company recorded adjusted EBITDA* for Q3 2014 of $8.5 million, up $0.2 million, or 2.1% from Q3 2013, and up $0.8 million, or 10.8%, from Q2 2014.  The change in adjusted EBITDA* compared to the same period last year and the second quarter of 2014 was attributable to the higher business volume during the quarter. 

Selling and administrative expenses for Q3 2014 increased by $3.4 million, or 11.9%, to $31.6 million, as compared to Q3 2013, attributable mainly to increased commissions and bonus payments related to the higher business volume, as well as lower marketing development funds from vendor partners.

Adjusted for changes in non-cash working capital balances, the Company generated $3.7 million in cash from operating activities, as compared to $5.0 million for the same period last year.  The change versus the prior year period was attributable mainly to higher taxes payable for the quarter.  As at September 30, 2014, total cash on hand was $9.7 million, down from $22.0 million for December 31, 2013, and down from $16.2 million for June 30, 2014.  The changes in cash on hand were related to normal movements in working capital.

9M 2014 Financial Review

Revenues for the nine months ended September 30, 2014 increased by $79.5 million, or 8.8%, to $981.8 million, as compared to the same period last year, driven both by increased product sales and increased revenues from services. 

Service revenues for the first nine months of 2014 increased by $26.6 million, or 32.7%, to $107.8 million.  Relative to total revenues, the contribution from services increased from 9.0% to 11.0%.

Product sales increased by $52.9 million, or 6.5%, to $866.5 million, attributable mainly to non-major customer growth of $119.8 million, offset partially by a decrease in product sales to major customers of $40.3 million. 

Gross profit for the period increased by $10.3 million, or 9.9%, over the same period in the prior year.  Growth of revenues from the Company`s services business resulted in an increase in gross margin to 11.6% for the nine months ended September 30, 2014, compared with 11.5% for the same period in 2013. 

Adjusted EBITDA* for 9M 2014 was $22.4 million, up by $2.8 million, or 14.5%, from the same period last year.  Growth in adjusted EBITDA* was driven primarily by higher revenues and a leveraging of the Company's support organization. 

Adjusted for changes in non-cash working capital balances, the Company generated $13.3 million in cash from operating activities, as compared to $9.3 million for the same period last year.

Conference Call

Management will host a conference call on November 25, 2014 at 11:00 am ET.

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 the growth of Pivot's platform and international capabilities, expansion of its service business 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 growth of its platform and international capabilities and expansion of its service business, and that the general business climate will not deteriorate, 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; the possibility that Pivot will not be able to further align its support functions with the selling and delivery arms of the business; 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

*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
In the Company's financial reporting, adjusted EBITDA is a non-IFRS measure which is defined as gross profit less selling and administrative expenses, and corresponds to income before income taxes, depreciation and amortization, transaction costs, interest expense, change in fair value of liabilities and other income or expense.  Management believes this is an important indicator as adjusted EBITDA excludes items that are either 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 also used by 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.  Adjusted EBITDA is not a recognized measure under IFRS, has no standardized meaning and is therefore unlikely to be comparable to similar measures used by other companies.  Readers are cautioned that this term should not be construed as an alternative to net income determined in accordance with IFRS.

The following provides a reconciliation of adjusted EBITDA* to income before income taxes: 

SOURCE Pivot Technology Solutions, Inc.