TORONTO, March 27, 2017 /CNW/ - Pivot Technology
Solutions, Inc. (TSX: PTG), a full-service information technology provider, today reported its financial results for the three
and twelve months ended December 31, 2016 and updated shareholders on progress with its shareholder
value creation plan.
This plan, introduced in June 2016 and advanced through the year, has several initiatives:
- Continue to build on Pivot's core business of selling IT solutions, both products and services
- Enhance Pivot's service portfolio and capabilities, specifically related to services that Pivot delivers
- Drive a commercial transformation
- Support customers as they expand internationally
- Improve cost management
- Enhance the capital structure and financing capacity
- Strengthen leadership
- Address legacy issues
"Our objective is to drive profitable growth by providing an expanded suite of value-added solutions to our customer base,"
said Kevin Shank, President and Chief Executive Officer. "Actions to improve effectiveness are
gaining traction, more are planned and while Pivot incurred some related one-time costs in 2016 in advance of payback, we expect
cost-savings benefits to commence in the third quarter."
Major plan activities that have been completed to date include:
- Recruiting experienced executives to serve as CFO, Chief Strategy Officer, executive sales managers, technology and
innovation leaders
- Expanding services to include capabilities in end-user computing, networking, data centre and collaboration
- Expanding Pivot Workforce Solutions, Pivot Managed Services and Pivot Fulfillment Services to deliver better and more
consistent performance
- Acquiring TeraMach Technologies, Inc. a leading IT provider as a platform for growth in Canada
- Reducing financing costs by $2.2 million
- Listing common shares on the TSX to increase access to the capital markets
- Consolidating its common shares on a four-for-one basis
- Acquiring 1,088,674 shares under the Company's Normal Course Issuer Bid
Financial Results (All figures are in US dollars unless otherwise stated.)
Annual and fourth quarter 2016 results reflected a positive contribution from TeraMach, acquired on October 1, 2016. Results presented below exclude the revenues, costs and EBITDA of GTS. GTS accounted for 3.2%
of 2016 revenues and 0.9% of EBITDA.
Annual Results (Excluding GTS) 1
- Revenue was $1.42 billion, up 4.0% from $1.37 billion in 2015
on 3.0% growth in services revenue and 4.1% growth in product revenue
- Gross profit was $171.1 million, up 8.2% from $158.1 million in
2015
- Gross profit margin was 12.0%, up from 11.6% in 2015
- Adjusted EBITDA1 was $25.1 million, 17.0% lower than $30.3
million in 2015
- The Company paid a total of $4.8 million in common share dividends
On an IFRS basis (which includes GTS), 2016 revenue was $1.47 billion ($1.49 billion in 2015), gross profit was $176.0 million ($170.4 million in 2015), gross profit margin was 12.0% (11.4% in 2015), and Adjusted EBITDA was $25.3 million ($31.4 million in in 2015). Net loss was $4.3 million or a loss of $0.12 per share (net income of $3.2 million or $0.06 per share in 2015) primarily due to $12.0 million in charges related to the previously reported termination of the GTS Agreements.
Fourth Quarter (Excluding GTS) 1
- Revenue was $398.9 million, up 2.4% from $389.4 million in Q4
2015 on 4.5% growth in services revenue and 2.2% growth in product revenue
- Gross profit of $48.5 million was largely unchanged from $48.9
million in Q4 2015
- Gross profit margin was 12.1% compared to 12.5% in Q4 2015
- Adjusted EBITDA1 was $8.5 million, down 37.1% from $13.4
million in Q4 2015
GTS did not contribute to fourth quarter 2016 results. In 2015, including GTS, fourth quarter revenue was $420.2 million, gross profit was $52.3 million, gross profit margin was 12.4%,
Adjusted EBITDA was $13.9 million and net income was $6.2 million or
$0.15 per share. In 2016, fourth quarter net income was $2.9 million
or $0.06 per share.
1 Non-IFRS Measure. See Non-IFRS Measures Section of this news release
Management Commentary
"Revenue increased in line with the growth of the IT market, 2016 gross profit margin and gross profit dollars both
grew year over year and we saw good early results with our service strategy," said Mr. Shank. "Revenue for Pivot's portfolio of
services (excluding reselling OEM or 3rd party maintenance) grew 14.4% for the fourth quarter and 8.6% for the year,
far outpacing increases in our traditional service business."
Pivot finished the year with the same general performance trends in place and with the first-time contribution of TeraMach,
the Company exceeded the strong sales results achieved in the fourth quarter of 2015. Management is encouraged by TeraMach's
prospects and Canadian market receptivity to the Company's offerings.
In commenting on fourth quarter performance, Brian Kyle, Chief Financial Officer said: "On a
normalized basis, excluding GTS, fourth quarter SG&A was higher than last year by $4.6 million
or about 13%. About 40% of this increase was due to the assumption of TeraMach's cost base but we also made investments and
incurred non-recurring costs. While these costs are necessary and will result in a solid payback, a key management priority is to
constrain growth in SG&A by improving operational efficiencies, achieving more integration and coordination among our
operations, and limiting discretionary expenditures. We expect to see more progress on these items."
Included in fourth quarter 2016 results were $0.1 million of restructuring costs and
$0.3 million of transaction costs. Included in 2016 annual results were restructuring costs of
$1.5 million and transaction costs of $1.0 million. In both 2016
reporting periods, these non-recurring costs were offset in part by lower finance costs from improved lending terms
associated with the Company's new credit agreement and improved terms with its vendor partners.
Fourth Quarter Results Overview
Total revenue including GTS (which contributed to Q4 2015 revenue but not Q4 2016 revenue), decreased 5.1%, or
$21,315 compared to Q4 2015. Excluding the quarter-over-quarter impact of the loss of control over
GTS, total revenue in the quarter of $398,873 increased 2.4% or $9,437 due to the inclusion of TeraMach, acquired October 1, 2016.
Total product revenue in the fourth quarter of 2016 decreased $18,651 or 4.9% compared to Q4
2015. Excluding GTS, product revenue in the fourth quarter of 2016 of $358,252 increased
$7,686 or 2.2% due to the inclusion of TeraMach.
Total fourth quarter service revenues declined by $2,664 or 6.2% compared to the same period of
2015. Excluding GTS, fourth quarter 2016 service revenues increased $1,751 or 4.5% compared to the
same period in the prior year due to the inclusion of TeraMach.
In general, changes in revenue quarter over quarter are attributable to a number of factors, including, but not limited to,
timing of major projects and replenishments, vendor incentive programs, competitive pressures in the market, timing of service
delivery, business seasonality (the first and third quarters are typically weaker than the second and fourth quarters) and the
mix in revenue between large and smaller customers. In the fourth quarter, major customers accounted for 36% of revenue compared
to 28% in Q4 2015, excluding GTS.
Total fourth quarter 2016 cost of sales declined $17,515 year over year, while gross profit
declined $3,800 and gross profit margin was 12.1% compared to 12.4% in 2015. Excluding GTS, fourth
quarter 2016 cost of sales of $350,415 increased $9,846 or 2.9%
compared to Q4 2015, gross profit of $48,458 was $409 lower and gross
margin was 12.1% compared to 12.5% in Q4 2015. Gross profit reflected the contribution of TeraMach offset by lower vendor
incentives recognized in the quarter.
Excluding GTS, fourth quarter 2016 Adjusted EBITDA (see non-IFRS measures) was $8.5 million,
down 37.1% from $13.4 million in Q4 reflecting a shift in revenue mix in favour of larger
customers, an increase in service delivery costs, investments in innovation funding and higher variable compensation expense.
Net income for the fourth quarter was $2.9 million or $0.06 per
share compared to net income of $6.2 million or $0.15 per share in
the fourth quarter of 2015.
Normal Course Issuer Bid
As at March 23, 2017, 1,088,674 shares have been repurchased under the Normal Course
Issuer Bid. As at March 27, 2017, the Company had 41,342,333 common shares issued and
outstanding.
Dividends
Cash dividends declared on common shares in the fourth quarter amounted to $0.04
compared to $0.04 in the fourth quarter of 2015. The Company paid its most recent quarterly
dividend in the prescribed amount of $0.04 per common share on March 15,
2017.
Looking Forward
"We expect the second half of 2017 to be stronger than the first half due to seasonality and as our shareholder value
creation plan gains traction," said Mr. Shank. "While there is work to be done to realize the benefits of our strategies, we are
encouraged by underlying progress to date including growth in our pipeline of service opportunities. From an external
perspective, growth appears to be returning to the US economy, which provides the needed backdrop for sales efforts in our
largest market, and in Canada, our prospects for TeraMach are strong. All told, we are confident
that we can execute our plan in a way that is attractive to our shareholders, customers and employees."
The Board of Directors reviews the Company's dividend policy periodically, taking into account Pivot's outlook and
performance. At its meeting today, the Board reaffirmed its dividend policy of paying $0.04 per
share, per quarter.
"Based on our cash flow projections and the modest capex needs of our business model, which we estimate to be less than
$3 million in 2017, Pivot's dividend is well covered," said Mr. Kyle. "By taking costs out of our
business, which is a key priority, improving our margins, working capital levels and cash flows we intend to deliver on our
commitments."
Fourth Quarter Conference Call
At 8:30 a.m. eastern Tuesday, March 28, 2017, the Company
will host a conference call featuring management's quarterly remarks and follow up question and answer period with analysts. The
conference call can be accessed live by dialing (647) 427-7450 five minutes prior.
A telephone recording of the call will be available for one week (until midnight April 4, 2017)
by dialing (416) 849-0833 and entering passcode 91219834 followed by the number sign.
Quarterly Results Materials
The complete report for 2016, including the MD&A and audited consolidated financial statements, is available at www.pivotts.com.
Financial Summary
(In thousands of $US except per share amounts)
For the years ended December 31,
|
2016
|
2015
|
2014
|
|
|
|
|
|
|
|
|
Revenue
|
1,470,841
|
1,488,960
|
1,359,229
|
|
Cost of sales
|
1,294,887
|
1,318,553
|
1,199,871
|
Gross profit
|
175,954
|
170,407
|
159,358
|
|
|
|
|
|
Employee compensation and benefits
|
117,347
|
112,727
|
107,662
|
|
Other selling, general and administrative expenses, net
|
33,259
|
26,232
|
18,263
|
|
25,348
|
31,448
|
33,433
|
|
|
|
|
|
Depreciation and amortization
|
10,965
|
13,141
|
12,067
|
|
Finance expense
|
4,566
|
6,780
|
6,777
|
|
Change in fair value of liabilities
|
(265)
|
1,479
|
5,965
|
|
Other expense
|
14,253
|
3,593
|
(10)
|
Income (loss) before income taxes
|
(4,171)
|
6,455
|
8,634
|
|
Provision for income taxes
|
150
|
3,286
|
4,378
|
Income (loss) for the period
|
(4,321)
|
3,169
|
4,256
|
Non-IFRS Measures
In this news release, management uses certain non-IFRS measures to evaluate the performance of the Company. The terms
"EBITDA", and "Adjusted EBITDA" do not have any standardized meaning prescribed within IFRS and therefore may not be comparable
to similar measures presented by other companies. Such measures should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS such as net income. EBITDA is defined as earnings from operations
excluding depreciation and amortization. Adjusted EBITDA is defined as earnings from operations before items excluded from
management's internal analysis of operating results, including non-cash expenses, items that cannot be influenced by management
in the short term and items that do not impact core operating performance.
Management believes that Pivot shareholders and potential investors use these additional non-IFRS financial measures in making
investment decisions and measuring operational results as they demonstrate the Company's ability to generate liquidity through
operating cash flow to fund working capital needs, service outstanding debt and fund future capital expenditures.
A reconciliation of EBITDA and Adjusted EBITDA to net income is contained in the MD&A (see "Reconciliation of Non-IFRS
Measures to IFRS Measures").
About Pivot Technology Solutions
Pivot is a leading information technology infrastructure and services provider to approximately 2,000 customers,
including many members of the Fortune 500. With offices throughout North America, Pivot uses its
knowledge and local presence to help corporations, governments and educational institutions design, build, implement and maintain
advanced computing and communication infrastructure. For more information, visit 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
include statements regarding growth and value creation opportunities, and the assumptions underlying any of the foregoing. Pivot
uses words such as "may", "would", "could", "will", "likely", "expect", "believe", "intend", "anticipate" 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, , 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; the possibility that Pivot will be unable to capitalize on opportunities it has identified in the manner
and timeframe anticipated, and the possibility that Pivot will not be able to successful in sustaining growth or growing its
profitability. The "forward-looking statements" contained herein speak only as of the date of this news 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.
SOURCE Pivot Technology Solutions, Inc
To view the original version on PR Newswire, visit: http://www.newswire.ca/en/releases/archive/March2017/27/c3942.html