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Pivot Technology Solutions, Inc. Reports Fourth Quarter, Annual 2017 Results

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Pivot Technology Solutions, Inc. Reports Fourth Quarter, Annual 2017 Results

Canada NewsWire

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

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