Pivot Technology Solutions, Inc. Reports Second Quarter 2017 Results, Declares Quarterly Dividend
TORONTO, Aug. 8, 2017 /CNW/ - Pivot Technology Solutions, Inc. (TSX: PTG), ("Pivot" or the "Company") a full-service information technology provider, today reported financial results for the three and six months ended June 30, 2017 and declared a quarterly dividend.
Second Quarter Overview (in US dollars unless otherwise stated)
~ Revenue was $402.4 million, up 14.8% from $350.6 million in Q2 2016 excluding GTS1 on growth in product and services revenue of 15.1% and 12.2%, respectively
~ Gross profit was $43.0 million, down 3.2% from $44.4 million in Q2 2016 excluding GTS1
~ Gross profit margin was 10.7%, compared to 12.7% in Q2 2016 excluding GTS1
~ Adjusted EBITDA2 was $7.3 million down from $9.2 million in Q2 excluding GTS1
~ Diluted earnings per share were $0.05 compared to net loss per share of $0.01 in Q2 2016
~ The Company paid $1.2 million in common share dividends
First Half Overview (in US dollars unless otherwise stated)
~ Revenue was $732.2 million, up 11.1% from $659.3 million in the first six months of 2016 excluding GTS1
~ Gross profit was $77.1 million, down 3.3% from $79.7 million a year ago excluding GTS1
~ Gross profit margin was 10.5% compared to 12.1% a year ago excluding GTS1
~ Adjusted EBITDA2 was $5.7 million compared to $10.4 million a year ago excluding GTS1
~ Loss per share was $0.05 compared to a loss per share of $0.10 a year ago
~ The Company paid $2.4 million in common share dividends
1 2016 figures in these highlights exclude the results of GTS Technology Solutions, Inc. ("GTS"), formerly known as Austin Ribbon & Computer Supplies, Inc. The assets and liabilities of GTS were derecognized on July 1, 2016. Results excluding GTS are a non-IFRS measure. See the Second Quarter Results Overview and the Non-IFRS Measures sections of this news release for more information and for 2016 results including GTS.
2 Non-IFRS Measure. See Non-IFRS Measures section of this news release.
Management Commentary
"Revenue increased nicely in the second quarter as Pivot used its product and services strategies to capitalize on stronger customer buying activity and benefitted from TeraMach's contribution," said Kevin Shank, President and Chief Executive Officer. "We also achieved solid profitability despite less favourable sales mix and rebates as we held the line on our SG&A costs. From a strategic perspective, we continue to invest in growing our services capabilities and driving our commercial transformation even though this investment does dampen short-term earnings. We launched our commercial transformation in Q1, and continued to build our pipeline of opportunities during Q2. The types of opportunities we are now pursuing are more significant than those Pivot was pursuing prior to the launch of this transformation. We are well positioned to capture profitable new business in a growing market for our IT products and services."
In commenting on performance, David Toews, Interim Chief Financial Officer said, "Last fall and again to date this year, we've constrained spending so that even with the addition of TeraMach's cost base, SG&A increased just 1.2% over last year's second quarter compared to almost 15% revenue growth. While we were satisfied with this performance, we must continue to focus on cost effectiveness so that more revenue dollars can fall to our bottom line while we continue to invest selectively in our stated strategies."
Dividend Declaration
At its meeting today, the Company's Board of Directors declared a quarterly dividend of C$0.04 per common share, payable September 15, 2017 to common shareholders of record August 31, 2017.
Second Quarter Results Overview (in thousands of US dollars except per share amounts)
Second quarter 2017 revenue was $402.4 million, 7.7% or $28.7 million above the same period in 2016. Excluding GTS (which contributed to Q2 2016 revenue but not Q2 2017 revenue), revenue increased 14.8% or $51.8 million due primarily to higher sales to major customers of $15.3 million and TeraMach's contribution of $12.8 million. Results excluding GTS are a non-IFRS measure. See non-IFRS measures section of this news release.
Total product revenue in the second quarter of 2017 was $363.0 million, up 8.7% from $333.8 million. Excluding GTS from the comparative period of 2016, product revenue increased $47.5 million or 15.1% compared to last year. Approximately 23.5% of this increase was due to the inclusion of TeraMach.
Total second quarter service revenues were $39.4 million, down 1.2% from $39.9 million in the same period of 2016. Excluding GTS from the comparative period of 2016, service revenues increased $4.3 million or 12.2% compared to last year. 38.5% of this increase was due to the inclusion of TeraMach. Revenue from the Company's own service portfolio achieved year-over-year growth of 10.4% as the Company continued to implement its services strategy across its larger customer base including at 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 and the mix in revenue between large and smaller customers. In the second quarter, major customers accounted for 38.4% of revenue compared to 39.7% in Q2 2016, excluding GTS.
Second quarter 2017 cost of sales was $359.5 million compared to $327.1 million a year ago, a 9.9% increase. Excluding GTS from the comparative period of 2016, cost of sales increased $53.2 million or 17.4% compared to last year. Gross profit for the second quarter of 2017 was $42.9 million (10.7% gross margin) compared to $46.6 million (12.5% gross margin) a year ago. Excluding GTS from the comparative period in 2016, gross profit decreased $1.4 million or 3.2% while gross margin decreased from 12.7% to 10.7%. Gross profit and margin performance reflected lower margins on sales to major customers due to product mix, as well as lower vendor incentives recognized in the quarter.
Selling, general and administrative ("SG&A") expenses in the second quarter were $35.7 million, $1.9 million or 4.9% lower than a year ago. Excluding GTS from the comparative period of 2016, SG&A expenses were $0.4 million, or 1.2% higher, reflecting the inclusion of the TeraMach expense base, which was almost fully offset by cost reduction efforts.
Adjusted EBITDA (see non-IFRS measures) in the second quarter of 2017 was $7.3 million compared to $9.1 million a year ago, a 20.1% decrease. Excluding GTS from the comparative period of 2016, Adjusted EBITDA was $1.9 million or 20.3% lower as a result of lower gross margins and despite constraining growth in SG&A.
Net income for the second quarter was $2.0 million ($0.05 cents per diluted share) compared to net loss of $0.2 million or a loss of $0.01 cents per share in the second quarter of 2016.
Share Repurchases
During the second quarter, the Company repurchased and cancelled 920,313 shares from its former directors at a discount to market trading prices. Subsequent to the end of the second quarter, the Company also repurchased and cancelled 36,500 shares pursuant to its Normal Course Issuer Bid ("NCIB") that began on June 22, 2017. Under the NCIB, Pivot may purchase for cancellation up to 3,820,852 common shares of the Company or approximately 10% of the Company's total public float at prevailing market prices, in accordance with the rules of the Toronto Stock Exchange. The NCIB will continue until June 21, 2018, unless completed or terminated earlier. At June 30, 2017, the Company had 40,392,770 common shares issued and outstanding. At August 7, 2017, the Company had 40,356,270 common shares issued and outstanding.
Looking Forward
The Company's outlook is contained in its MD&A for the three and six months ended June 30, 2017.
"Pivot has an excellent foundation and a comprehensive approach designed to build on that foundation to deliver customer and shareholder value," said Mr. Shank. "Although we are still early in our commercial transformation, we are gaining experience with our strategies and our confidence level is increasing as we begin to validate our approach in the marketplace. We expect to see further evidence of progress in the second half of 2017 and while some customers remain cautious in their spending, we have taken note of improving economic conditions in the Canadian marketplace, which is positive for TeraMach. While growing revenues and investing in our strategies, we will also continue to apply our cost containment measures to drive higher margins and free cash flow."
Second Quarter Conference Call
At 8:30 a.m. eastern Wednesday, August 9, 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 to the scheduled start time.
A telephone recording of the call will be available for one week (until midnight August 16, 2017) by dialing (416) 849-0833 and entering passcode 62774665 followed by the number sign.
Quarterly Results Materials
The complete report for the second quarter and first six months of 2017, including the MD&A and unaudited interim condensed consolidated financial statements, is available at www.pivotts.com.
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 measures 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 gross profit less selling and administrative expenses, and corresponds to income before tax, depreciation and amortization, finance expense, change in fair value of liabilities, and other expense.
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 Adjusted EBITDA to net income is shown below. Commencing July 1, 2016, GTS' results of operations were no longer included in the Company's results. Where GTS' results of operations are excluded from Q2 2016 measures in this news release, corresponding measures, including GTS' results of operations are also presented.
