Pivot Technology Solutions Reports Second Quarter 2016 Results

Pivot Technology Solutions Reports Second Quarter 2016 Results

Pivot Technology Solutions Reports Second Quarter 2016 Results

TORONTO, Aug. 26, 2016 /CNW/ – Pivot Technology Solutions, Inc. (“Pivot” or the “Company”) (TSX-V: PTG), today publishes its results for the second quarter ended June 30, 2016.

Financial Highlights Q2 2016

  • Revenues of $373.7 million, up 4.4% compared to Q2 2015, attributable primarily to strong product sales.
    • Product sales of $331.1 million, up 5.4% compared to Q2 2015.
    • Service revenues down 2.2% to $39.9 million compared to Q2 2015.
  • Gross profit up $1.3 million, or 2.9%, to $46.6 million from the same period in the prior year.
  • Gross margin for the quarter was 12.5%, down slightly from 12.7% in Q2 2015.
  • Adjusted EBITDA* came in at $9.1 million, down 8.0% from Q2 2015.
  • Excluding changes in non-cash working capital balances, the Company generated $5.6 million in cash from operating activities, as compared to $5.9 million for the same period last year.
  • As previously announced, the Company was informed by Austin Ribbon & Computer Supplies that it intended to terminate its distribution, licensing and administrative services agreements with Pivot, effective August 31, 2016.  In relation to the anticipated decrease in future revenue and gross profit related to this entity, the Company conducted an interim impairment test.  Accordingly, Pivot recorded a non-cash impairment charge of $3.8 million.

Q2 Operational Highlights & Events Subsequent to the Quarter

  • The Company announced Board and Management changes.  Kevin Shank has taken over as CEO from Warren Barnes, who remains affiliated with the Company as a Board member and consultant, effective May 1, 2016.  Mr. Shank was also elected to the Board of Directors.
  • Mr. Wade Dawe was elected as a new member to Pivot’s Board of Directors at the Company’s Annual and Special Meeting of Shareholders.
  • The Company appointed Brian Kyle, former CFO of Teranet and TSX listed DH Corporation as its new CFO.
  • The Company announced that its Board of Directors has approved, under its dividend policy, a quarterly cash dividend on the common shares of the Company in the amount of CAD $0.01 per common share (CAD $0.04 per share annualized), payable on September 15, 2016, to holders of record at the close of business on August 31, 2016.

Financial Highlights H1 2016

  • Revenues of $706.5 million, up 8.0% compared to H1 2015, attributable primarily to strong product sales.
    • Product sales of $622.9 million, up 9.3% compared to H1 2015.
    • Service revenues relatively stable, down 0.2%, or $0.2 million, to $79.2 million compared to H1 2015.
  • Gross profit up $7.1 million, or 9.2%, to $84.6 million from the same period in the prior year.
  • Gross margin for the six months ended June 30, 2016 was 12.0%, up slightly from 11.8% in H1 2015.
  • Adjusted EBITDA* came in at $10.6 million, down 5.8% from H1 2015.
  • Excluding changes in non-cash working capital balances, the Company generated $6.5 million in cash from operating activities, as compared to $7.1 million for the same period last year.
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Management Commentary

“Our earlier investments in our sales organization helped deliver positive growth for our core IT infrastructure products and solutions business during the quarter.” stated Kevin Shank, CEO of Pivot.  During this same timeframe, the investments made in driving professional and product related services didn’t yield that same growth, thus our services business was relatively flat for the quarter.   We will continue to invest in product and professional services as part of our core business, as these services are very important in securing new product sales and preserving gross margin. Volumes in this area are subject to some volatility, based on the infrastructure we’re selling to our customers in any given quarter.”

He continued, “With that said, we are now beginning to invest in leadership, capabilities, tools, and capacity to build and deliver an expanded suite of managed service offerings.  We believe this segment represents a very significant growth opportunity for the Company in the future, in particular among our strong and growing existing customer base.  While this transition will take time, we believe that the higher-margin, recurring-revenue nature of managed services should drive sustainable growth of profitability as this segment of our business grows.”

“We are more positive with how our expense base is trending in Q2 versus Q1.  Additionally, we are shifting our investment to more closely align with our strategy, investing in, and allocating resources to those areas where we anticipate being able to drive profitable, sustainable growth into the future.  Going into Q3, while too early to make projections on revenue and profitability, we are witnessing a business climate in line with historically typical market activity.”

Q2 2016 Financial Review   

Revenues came in at $373.7 million, up $15.8 million, or 4.4% from Q2 2015.  Revenue growth was attributable predominantly to increased product sales, which came in at $331.1 million, up $17.0 million, or 5.4% over Q2 of 2015.

The net increases in product sales over the prior year quarter was due primarily to major customers, with a growth of $22.0 million, which more than offset a $5.0 million fall in product sales to non-major customers. While the Company did sell less to non-major accounts overall during the quarter, this was predominantly due to the Texas market, where Pivot is experiencing a cautious investment climate related to depressed oil prices.  Outside of Texas, the business climate continued to be healthy, and the Company achieved growth in its non-major accounts also, as Pivot continues to deepen existing relationships and engage with new customers.

A modest fall was recorded for the Company’s services business, which saw revenues 2.2% behind last year’s comparable period at$39.9 million.  However, quarter over quarter First Call and maintenance contract revenue increased $0.2 million, offset by a decline in professional and project related services revenues of $1.1 million.

Gross profit of $46.6 million was up 2.9%, or $1.3 million, from Q2 2015.  Gross profit margin of 12.5% was down slightly from 12.7% in Q2 2015 due to a higher contribution from sales to major customers, which carry a lower margin.

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The Company recorded adjusted EBITDA* for Q2 2016 of $9.1 million, down 8.0%, or $0.8 million, from Q2 2015, as the increase in gross profit was offset by higher operating expenses, due primarily to investments in infrastructure to help drive and carry growth, as well as a non-cash charge related to the Company’s stock option plan.

Selling and administrative expenses for Q2 2016 increased by 6.0%, or $2.1 million, to $37.5 million, as compared to Q2 2015 due to the reasons referenced above.

On June 1, 2016, the Company was informed by Austin Ribbon & Computer Supplies that it intended to terminate its distribution, licensing and administrative services agreements with Pivot.  The termination of the agreements indicates the business unit will experience significant decreases in expected future revenues and gross profit.  As such, the Company reviewed its business forecast and performed an interim impairment test.  The Company concluded that the recoverable amount based on the value in use impairment test was less than the carrying amount, and accordingly recorded an impairment charge of $3.8 million, consisting of a write off of goodwill of $1.3 million and a reduction of other intangibles of $2.5 million during the three month period ended June 30, 2016.  Total gross sales reported by Pivot in respect of Austin Ribbon were approximately $23.1 million for the three month period ending June 30, 2016, and $47.2 million year to date.  Austin Ribbon’s sales efforts were concentrated in the state of Texas, serving both public and private organizations.

Excluding changes in non-cash working capital balances, the Company generated $5.6 million in cash from operating activities, as compared to $5.9 million for the same period last year.  As at June 30, 2016, total cash on hand was $18.9 million, up from $8.0 millionas at December 31, 2015.

Cash used in investing activities decreased by $0.2 million compared to the same period in the prior year.  The decrease is due primarily to a reduction in capital expenditures, as substantial investments were made in the comparable prior year period due to costs incurred for a new, state of the art warehouse and integration center.

H1 2016 Financial Overview

Revenues for the six months ended June 30, 2016 increased by $52.2 million, or 8.0%, to $706.5 million, as compared to the same period last year.

Compared to the same period in the prior year, product sales increased by 9.3%, or $53.1 million, to $622.9 million, driven both by non-major customer growth of $26.7 million and major customer growth of $26.4 million.

Service revenue remained relatively stable, decreasing marginally by 0.2%, or $0.2 million, on a year over year basis to $79.2 million, as compared to H1 2015.  For the period, a $1.4 million fall in professional services and staffing revenue was offset to a large extent by a$1.2 million increase in First Call and maintenance contract revenues.  Service revenues accounted for 11.2% of total revenue, down from 12.1% in 2015.

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Revenue growth and a slight increase in gross profit margin to 12.0% from 11.8% last year, resulted in gross profit of $84.6 million, up by 9.2%, or $7.1 million compared to the same period in the previous year.

Adjusted EBITDA* for H1 2016 fell by $0.7 million, or 5.8% to $10.6 million, attributable to investments made in the organization to drive and carry growth going forward.

Excluding changes in non-cash working capital balances, the Company generated $6.5 million in cash from operating activities, as compared to $7.1 million for the same period last year, attributable to higher operating expense related to investments in people to drive and carry growth going forward.

Normal fluctuations in revenue performance, which are commonplace in the industry, drive significant movements in working capital, in particular with regards to accounts receivable, inventory and accounts payable.  Consequently, movements in working capital balances are largely volume related, however, the Company focuses on driving improvement in its business processes to optimize the use of its secured borrowing facilities and effectively manage working capital.  As such, the Company uses the average undrawn availability on existing, secured credit facilities as a key measure of liquidity, which for the first six months of fiscal 2016 stood at $59.5 million, as compared to $25.4 million for the comparable period in 2015.

Conference Call

DATE:

Friday, August 26, 2016

TIME:

11:00 a.m. ET

DIAL IN NUMBER:

+1 647-427-7450

+1 888-231-8191

TAPED REPLAY:

416-849-0833 or 1-855-859-2056

Available from August 26, 2016 14:00 ET to September 9, 2016 23:59 ET

Reference number: 62629856

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.

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Jadtecnic

Richard Dambrosi (JADTECNIC) Has Been Sharing FOREX INVESTORS ANALYSIS FORECAST since 2011. Editors and Founder of InvestorsBuz.com, has a passion for Forex Social Sharing analysis and Market Trends Such as Self Driving Cars, Electric Cars, Medical Marijuana, 3d printing and Cloud computing, Refers to Readers as BUZ INVESTORS.

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