Pivot Technology Solutions Reports Third Quarter 2015 Results
SAN DIEGO, CA, Nov. 23, 2015 - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its results for the third quarter ended September 30, 2015.
Financial Highlights Q3 2015
Revenues of $414.5 million, up 15.2% compared to Q3 2014, attributable primarily to strong product sales.
Product sales of $373.0 million, up 16.9% compared to Q3 2014.
Service revenues down 1.7% to $37.1 million compared to Q3 2014.
Gross profit up $0.5 million, or 1.3%, to $40.7 million from the same period in the prior year.
Gross margin for the quarter was 9.8%, down from 11.2% in Q3 2014.
Adjusted EBITDA* came in at $6.3 million, down 25.6% from Q3 2014.
Adjusted for changes in non-cash working capital balances, the Company generated $4.8 million in cash from operating activities, as compared to $3.7 million for the same period last year.
On September 15, 2015, the Company paid its first ever dividend on common shares of CAD $0.0075 per common share.
On September 21, 2015, the Company closed a new, $200 million revolving credit facility through JPMorgan Chase Bank ("JPMC"), and terminated the previous facilities held with PNC Bank ("PNC").
On July 31, 2015, Pivot paid a $1.5 million installment related to the acquisition of Sigma Solutions, and subsequent to quarter end, on October 30, 2015, paid the final earn out installment related to that acquisition.
Quarterly Dividend
The Company also announced today that its board of directors approved, under its dividend policy, a cash dividend on the common shares of the Company (the "Shares") in the amount of CAD $0.0075 per Share for the quarter (an annualized amount of CAD $0.03 per Share), which will be payable on December 15, 2015, to holders of record at the close of business on December 2, 2015.
Financial Highlights 9M 2015
Revenues of $1,068.8 million, up 8.9% compared to the same period last year.
Gross profit up 3.8% to $118.1 million from the same period in the prior year, representing a gross margin of 11.1%, down from 11.6% for 9M 2014.
Adjusted EBITDA* down 21.6% to $17.6 million, as compared to 9M 2014.
Adjusted for changes in non-cash working capital balances, the Company generated $11.9 million in cash from operating activities, compared to $13.3 million for the same period last year.
Management Commentary
"While we experienced solid revenue growth from both major and non-major accounts, profitability suffered as a result of increased contribution from lower-margin product sales, lower service revenues, as well as competitive pressures in the storage segment compared to last year," stated Warren Barnes, CEO of Pivot. "In general, we experienced relatively healthy levels of business activity, with the exception of storage offerings which continue to see competitive pressure and commoditization influence, while we continued to grow our customer base. In that respect, we benefited from the delivery of a sizeable data centre project for one of our new customers."
Kerri Brass, CFO of Pivot, stated, "Although our ability to penetrate customer accounts with our service offerings continued to track favourably on a year-to-date basis, service revenues as a percentage of total revenues fell to 8.9% from 10.5% in Q3 2014, contributing to lower gross margin and adjusted EBITDA."
"The arrangement of a new $200 million revolving credit facility with JPMC resulted in the expensing of unamortized loan costs ($2.6 million) relating to the previous facilities with PNC. Although this non-cash expense affected our bottom line profitability for the quarter, going forward, the new facility will result in lower interest expense, greater flexibility in the use of funds, and improved liquidity to drive revenue growth."
Mr. Barnes concluded, "As a result of our competitive positioning, we have built a healthy new business pipeline, although it is too early to project how this will translate into revenues for Q4 or beyond. We will continue our focus on innovation, high quality delivery, growth of our services and international businesses, and further integration to help realize cross-selling synergies across the business."
Q3 2015 Financial Review
Revenues came in at $414.5 million, up 15.2% from Q3 2014, and up 15.8% from Q2 2015. Revenue growth was attributable to increased product sales, which came in at $373.0 million, up $53.8 million, or 16.9% over Q3 of 2014. The net increases in product sales over the prior year quarter was attributable predominantly to major customers, who accounted for $36.2 million, or 67.4% of this increase, while non-major customers accounted for $17.6 million, or 32.6%.
Service revenues for Q3 decreased slightly by 1.7%, or $0.6 million, to $37.1 million, as compared to Q3 2014. During the quarter, the Company realized a relatively larger contribution from product sales.
Overall, revenues from major customers increased by 31.0%, or $41.5 million, while revenues from non-major customers increased by $13.3 million, or 5.9%.
Gross profit of $40.7 million was up 1.3%, or $0.5 million, from Q3 2014, and down 10.3%, or $4.7 million, from Q2 2015. Gross profit margin of 9.8% was down from 11.2% in Q3 2014 and 12.7% in Q2 2015. The increase in gross profit quarter over quarter was attributable to higher product sales volumes. The sequential decrease was due to a change in product mix towards lower-margin product sales.
The Company recorded adjusted EBITDA* for Q3 2015 of $6.3 million, down 25.6%, or $2.2 million, from Q3 2014, and down 36.2%, or $3.6 million from Q2 2015. The decrease in adjusted EBITDA* compared to the same period last year and sequentially was attributable to a relatively large contribution to revenues from lower-margin product sales and a decrease in service revenues, which typically carry higher margins.
Selling and administrative expenses for Q3 2015 increased by 8.5%, or $2.7 million, to $34.3 million, as compared to Q3 2014. The bulk of this increase, or $2.1 million, was due to increases in salaries and employee benefits. Underlying this increase was an increase in headcount as investments were made to drive future growth, salary increases and increased benefit costs, as well as higher commissions as a result of the increased revenue and gross profit period over period.
Adjusted for changes in non-cash working capital balances, the Company generated $4.8 million in cash from operating activities, as compared to $3.7 million for the same period last year. As at September 30, 2015, total cash on hand was $12.5 million, up from $8.5 million as at December 31, 2014, and up from $9.7 million as at September 30, 2014. The changes in cash on hand were related to movements in working capital.
Cash used in investing activities increased by $0.5 million for the three months ended September 30, 2015 over the same period in the prior year. The increase year over year is primarily due to an increase in capital expenditures related to newly leased office space.
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 its key measure of liquidity, which for the quarter stood at $32.1 million.
On September 21, 2015, the Company terminated its credit and term loan facilities held with PNC, replacing it with a new, $200 million revolving credit facility administered by JPMC. The loans under the new credit facility bear interest at a rate based on LIBOR or Prime Rate plus the applicable margin, which shall vary between 150 bps and 175 bps, or 0 bps and 25bps, respectively, depending on excess availability from time to time. The new credit facility will mature on September 21, 2020. The Company recorded expenses relating to the termination of the PNC facilities of (1) $2.6 million for the write-off of deferred costs associated with the repayment of the credit facility and (2) a 1% fee of $58 thousand, which was required to prepay the term loan before November 13, 2016.
9M 2015 Financial Review
Revenues for the nine months ended September 30, 2015 increased by $87.0 million, or 8.9%, to $1,068.8 million, as compared to the same period last year, driven both by increased product sales and increased revenues from services.
Product sales increased by 8.8%, or $76.3 million, to $942.8 million, driven both by non-major customer growth of $50.1 million, and major customer growth of $26.2 million. Service revenues increased by 8.0%, or $8.6 million, on a year over year basis to $116.5 million. Service revenues accounted for 10.9% of total revenue, down marginally from 11.0% for the same period in the prior year. Overall, revenues from major accounts increased by 8.7%, or $31.3 million, while revenues from non-major accounts increased by 9.0%, or $55.7 million.
Revenue growth and a growing contribution from the Company's higher-margin services business resulted in gross profit for the period of $118.1 million, up by 3.8%, or $4.3 million, compared to the same period in the previous year. Gross margin of 11.1% was down from 11.6% due to a larger contribution from lower-margin product sales.
Adjusted EBITDA* for 9M 2015 fell by $4.8 million, or 21.6% to $17.6 million, as compared to 9M 2014, attributable mainly to lower business volume in Q1 2015 due to a general market softness in that quarter, and a higher contribution from lower-margin product sales.
Adjusted for changes in non-cash working capital balances, the Company generated $11.9 million in cash from operating activities, as compared to $13.3 million for the same period last year, attributable largely to the lower business activity experienced in the first quarter of 2015 and lower profit margins.
Conference Call
Management will host a conference call on November 23, 2015 at 11:00 am ET.
DATE: Monday, November 23, 2015
TIME: 11:00 a.m. ET
DIAL IN NUMBER: +1 647-427-7450, +1 888-231-8191
TAPED REPLAY: +1 416-849-0833, +1 855-859-2056
Available from November 23, 2015 14:00 ET to December 7, 2015 23:59 E
Reference number: 78504538
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.
