Fourth Quarter Adjusted EBITDA1
up 31.5% on Revenue Growth and Cost Management
TORONTO, March 27, 2018 /CNW/ - Pivot Technology
Solutions, Inc. (TSX: PTG), ("Pivot"), a full-service information
technology provider, today reported its financial results for the
three and twelve months ended December 31,
2017. All figures are in US dollars unless otherwise
stated.
Fourth Quarter Summary
- Revenue was $399.4 million, up
1.4% from $394.0 million in Q4
2016
-
- Service revenue grew 1.2%
- Product revenue grew 1.4%
- Gross profit was $48.9 million
(12.2% margin), up from $48.5 million
(12.3% margin) in Q4 2016
- Adjusted EBITDA1 was $11.1
million, up 31.5% from $8.5
million in Q4 2016 reflecting revenue growth and effective
cost management
- Income before income taxes was $6.1
million up 34.1% from $4.6
million in Q4 2016
- Tax expense was $8.7 million,
including a one-time $5.8 million
non-cash charge related to the impact of US Tax Reform, compared to
$1.7 million in Q4 2016
- Loss for the period was $2.6
million due to the one-time, non-cash tax charge, compared
to Income of $2.9 million in Q4
2016
- Reflecting the one-time, non-cash income tax charge, loss per
share was $0.07 compared to diluted
income per share of $0.05 in Q4
2016
Annual Results Summary
- Revenue was $1.5 billion, up 6.5%
from $1.4 billion in 2016 excluding
GTS2
-
- Service revenue grew 12.6% excluding GTS2
- Product revenue grew 5.8% excluding GTS2
- Gross profit was $168.8 million
(11.2% margin), down 1.3% from $171.1
million (12.1% margin) in 2016 excluding
GTS2
- Adjusted EBITDA1 was $24.1
million, down 4.0% from $25.1
million in 2016 excluding GTS2
- Income before income taxes was $2.8
million up from a loss in the prior year of $3.1 million excluding GTS2
- Tax expense was $8.4 million,
including a one-time $5.8 million
non-cash charge related to the impact of US Tax Reform, compared to
$0.1 million in 2016 excluding
GTS2
- Loss was $5.6 million compared to
a loss of $4.3 million in Q4
2016
- Loss per share was $0.15 compared
to a loss per share of $0.12 in
2016
1 Non-IFRS
Measure. See Non-IFRS Measures section of this news release.
2 The assets and liabilities of GTS Technology
Solutions, Inc. ("GTS"), formerly known as Austin Ribbon &
Computer Supplies, Inc. were derecognized on July 1, 2016 and
accordingly, GTS is excluded from 2016 results after July 1, 2016.
Results excluding GTS are a non-IFRS measure. See the Non-IFRS
Measures sections of this news release for more information and for
2016 results.
|
Dividends and Normal Course Issuer Bid
The Company
paid a total of $5.0 million in
common share dividends in 2017 including $1.2 million in the fourth quarter compared to
$4.8 million in 2016 including
$1.2 million in the fourth quarter of
2016. As previously announced, the Company paid its most recent
quarterly dividend in the amount of C$0.04 per share on March
15, 2018.
Pivot repurchased 1,551,113 shares under its Normal Course
Issuer Bid and from former directors at a total cost of
$2.1 million during 2017, reflecting
an average acquisition price of C$1.73 per share.
Management Commentary
"Adjusted EBITDA1
increased 31.5% and income before taxes increased 34.1% compared to
Q4 2016," said Kevin Shank,
President and Chief Executive Officer. " The Company increased Q4
earnings performance while at the same time making investments in
the services area and developing our Smart Edge™ solution. During
the quarter, we focused on SG&A cost management, improving
rebate metrics and increasing services margins."
"For the full year, Pivot's services business led the way with
annual growth of 13.5% in our own direct services and 8.5% growth
in OEM maintenance services," said Mr. Shank. "Across the board,
all channels including Professional Services, Fulfillment, Project,
Workforce and Managed Services executed well and produced upward
movement in services margins."
During 2017, Pivot expensed $3.3
million in developing Smart Edge™, an innovative, advanced
developer platform designed to support enterprise Multi-Access Edge
Computing (MEC) solutions. Smart Edge is in the early stages of
being commercialized through Smart-Edge.com, Inc., a new wholly
owned subsidiary.
"During the year, we improved cost effectiveness and business
execution while enhancing our internal control environment," said
David Toews, Interim Chief Financial
Officer. "Managing our costs will continue to be a priority as we
move forward."
Fourth Quarter Results Summary
Fourth quarter 2017
revenues were $399.4 million, 1.4% or
$5.4 million above the same period in
2016 primarily due to higher sales to non-major customers.
Product revenue in the fourth quarter of 2017 was $357.7 million, 1.4% or $4.9 million above the same period in 2016.
Fourth quarter service revenues were $41.7
million, 1.2% or $0.5 million
above the same period in 2016. Revenue from the Company's own
service portfolio grew 1.0% year over year as the Company continued
to implement its services strategy across its larger customer
base.
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 and the mix in revenue between major
and non-major customers. In the fourth quarter, major customers
accounted for 35.0% of revenue compared to 38.2% in Q4 a year
ago.
Fourth quarter 2017 cost of sales was $350.5 million, 1.4% or $5.0 million higher than a year ago. Gross profit
was $48.9 million (12.2% margin), up
0.9% from $48.5 million (12.3%
margin) in Q4 a year ago. Gross margin performance reflected lower
product margins due primarily to pricing pressures and mix. This
decrease was partially offset by increased rebates compared to the
prior-year period and improved services margins as the Company
realized the benefits of improved utilization of its service
delivery capabilities.
Selling, general and administrative ("SG&A") expenses in the
fourth quarter were $37.8 million,
5.6% ($2.2 million) lower than a year
ago as a result of headcount reductions, lower consulting fees,
tight controls over discretionary expenditures and lower bad debt
expense. Adjusted EBITDA1 (see non-IFRS measures) was
$11.1 million, up 31.5% from
$8.5 million in Q4 2016 as a result
of higher revenues, relatively stable gross margins and lower
SG&A. Net loss for the fourth quarter was $2.6 million with loss per share of $0.07 compared to net income of $2.9 million and diluted earnings per share of
$0.05 in the fourth quarter of 2016.
The Company recorded a one-time $5.8
million non-cash tax expense in the fourth quarter of 2017
to reflect the impact of US Tax Reform on its deferred tax
assets.
Looking Forward
Pivot introduced a new strategy in
June 2016 that management
significantly advanced in 2017 and will continue to deploy to
deliver growth and improvement in 2018. The strategy has
several dimensions: i) build on Pivot's core business of selling IT
solutions, both products and services; ii) enhance Pivot's service
portfolio and capabilities, specifically related to services that
Pivot delivers; iii) drive a commercial transformation iv) support
customers as they expand internationally v) improve cost management
vi) enhance the capital structure and financing capacity; vii)
strengthen leadership; and, viii) address legacy issues.
Among the recent advancements made, Pivot: won key service
assignments with two U.S. financial services customers to provide
Managed Services and Workforce Services that will generate
incremental revenues over the next three years; realigned sales
leadership at its Prosys business unit to improve productivity and
vendor/partner alignment; integrated TeraMach, which was acquired
on October 1, 2016; successfully
completed a use case of Smart Edge™ with a Fortune 100 company and
established a business platform to commercialize this potentially
disruptive technology; introduced salesforce.com Customer
Relationship Management software at the majority of its businesses;
achieved Master Security Specialization from Cisco,
entitling it to sell, deploy and support sophisticated Cisco
network security solutions; formed a strategic partnership with VIQ
Solutions Inc., a global leader in cybersecurity-protected
technology and services; and, introduced TeraMach Cloudx™ which
enables clients to consume cloud services through multiple cloud
providers with transparency, agility and reliable private network
connectivity.
In 2018, Pivot will invest in the commercialization of Smart
Edge™ to drive future revenue in the rapidly-growing MEC market and
add key resources and tools to enhance its offerings to
customers.
Quarterly Results Materials
The Company's outlook is
contained in its MD&A for the three and twelve months ended
December 31, 2017. The complete
report for 2017, including the MD&A and audited consolidated
financial statements, is available at www.pivotts.com and at
www.sedar.com
SELECTED FINANCIAL INFORMATION AND OPERATING RESULTS
For the years
ended December 31,
|
2017
|
2016
|
2015
|
|
|
|
|
Revenue
|
1,511,641
|
1,465,974
|
1,488,960
|
|
Cost of
sales
|
1,342,890
|
1,290,020
|
1,318,553
|
Gross
profit
|
168,751
|
175,954
|
170,407
|
|
Employee compensation
and benefits
|
116,249
|
117,347
|
112,727
|
|
Other selling,
general and administrative expenses
|
28,384
|
33,259
|
26,232
|
Income before the
following:
|
24,118
|
25,348
|
31,448
|
|
Depreciation and
amortization
|
11,257
|
10,965
|
13,141
|
|
Finance
expense
|
5,450
|
4,566
|
6,780
|
|
Change in fair value
of liabilities
|
209
|
(265)
|
1,479
|
|
Other expense,
net
|
4,402
|
14,253
|
3,593
|
Income (loss)
before income taxes
|
2,800
|
(4,171)
|
6,455
|
|
Provision for income
taxes
|
8,428
|
150
|
3,286
|
Income (loss) for
the period
|
(5,628)
|
(4,321)
|
3,169
|
|
|
|
|
Income for the period
attributable to non-controlling interests
|
429
|
616
|
173
|
Income (loss) for the
period attributable to shareholders
|
(6,057)
|
(4,937)
|
2,996
|
|
|
|
|
|
|
|
|
Income (loss) per
common share:
|
(6,057)
|
(4,937)
|
2,535
|
|
|
|
|
Basic
|
(0.15)
|
$
(0.12)
|
$
0.06
|
Diluted
|
(0.15)
|
$
(0.12)
|
$
0.06
|
|
|
|
|
Note: Amounts presented are in
thousands of U.S. dollars, except per share amounts
|
Non-IFRS Measures
In this news release, management
uses certain non-IFRS measures to evaluate the performance of the
Company. The term "Adjusted EBITDA" does not have any standardized
meaning prescribed within IFRS and therefore may not be comparable
to similar measures presented by other companies. Such measure
should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS such as
net income. Adjusted EBITDA is defined as earnings from operations
excluding income taxes, depreciation and amortization and 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.
Results excluding GTS is a non-IFRS measure. The Company
derecognized the assets and liabilities of GTS effective with the
period ended June 30, 2016.
Accordingly, management presents the Company's consolidated
financial results from operations excluding the results of GTS for
the three and twelve months ended December
31, 2016. Management believes that this adjustment to
the Company's financial results is important for management,
investors and analysts to understand the Company's financial
performance by excluding those results from agreements with GTS
that are not expected to be earned in the future.
A reconciliation of Adjusted EBITDA to net income and of the
exclusion of GTS's results of operations to the Company's results
of operations are contained in the MD&A (see "Reconciliation of
Non-IFRS Measures to IFRS Measures").
Fourth Quarter Conference Call
At 8:30 a.m. eastern Wednesday, March 28, 2018, 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 to the scheduled start time.
About Pivot Technology Solutions
Pivot is an industry
leading information technology services and solutions provider to
many of the world's most successful companies, including members of
the Fortune 1000, as well as governments and educational
institutions. By leveraging its extensive OEM partnerships and its
own fulfillment, professional, deployment, workforce and managed
services, Pivot supports the IT infrastructure needs of its
clients. 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 the continued investment in
the commercialization of Smart Edge, the addition of key resources
and tools, the payment of quarterly dividends in 2018, 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, including Pivot's
continued financial liquidity to invest in its business and pay
quarterly dividends, 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 maintaining its liquidity. 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