Pivot Technology Solutions, Inc. Reports First Quarter 2018 Results, Declares Dividend
Adjusted EBITDA1 up $3 million on Higher Revenue and Gross Profit
TORONTO, May 14, 2018 /CNW/ - Pivot Technology Solutions, Inc. (TSX: PTG), ("Pivot"), a full-service information technology provider, today reported its financial results for the three months ended March 31, 2018, a period of strong revenue growth and improved operating performance. All figures are in US dollars unless otherwise stated.
First Quarter Summary
~ Revenue was $369.3 million, up 14.5% from $322.4 million in Q1 2017
~ Product revenue higher by 17.2%
~ Service revenue lower by 4.3% despite 1.8% growth in Pivot direct services
~ Gross profit was $39.3 million (10.6% margin), up 15.2% from $34.1 million (10.6% margin) in Q1 2017
~ Adjusted EBITDA1 was $1.5 million, up $3.1 million from a loss of $1.6 million in Q1 2017 reflecting revenue growth and effective cost management
~ Loss was $2.3 million ($0.06 per share) compared to loss of $4.2 million ($0.10 per share) in Q1 2017
Dividends and Normal Course Issuer Bid
At its meeting today, the Company's Board of Directors declared a regular quarterly dividend in the prescribed amount of C$0.04 per common share, payable June 15, 2018 to common shareholders of record May 31, 2018. During the first quarter, the Company paid $1.3 million in common share dividends or C$0.04 per share. Subsequent to March 31, 2018, Pivot repurchased 231,000 shares under its Normal Course Issuer Bid at an average acquisition price of C$1.97 per share.
"Adjusted EBITDA1 increased over $3 million over last year, led by growth in our traditional core product business," said Kevin Shank, President and Chief Executive Officer. "We also generated higher rebates and contained SG&A growth while continuing to invest in Smart Edge™ and expanding our service capabilities.
"Revenue from Pivot's direct services increased by 1.8%, led by growth in the Workforce channel. This partially offset the lower sales of OEM maintenance agreements, which tend to fluctuate from quarter to quarter. While there is variability based on the timing of customer orders for services, the trend continues to be positive."
During the quarter, Pivot continued to advance Smart Edge™, its potentially disruptive developer platform designed to support enterprise Multi-Access Edge Computing (MEC) solutions. The Smart EdgeTM solution has demonstrated its ability to improve user experience and is expected to enable new revenue streams for our customers. Along with improving performance, Smart Edge™, reduces ongoing edge total cost of ownership. All the aforementioned factors are important in the adoption of 5G technologies. While the solution still must pass additional testing hurdles, the initial results are encouraging. Management expects to commercialize the technology this year through Smart-Edge.com, Inc., a subsidiary established for this purpose during the quarter.
"We continue to invest in Smart Edge™ and anticipate generating revenue towards the end of 2018," said David Toews, Interim Chief Financial Officer. "SG&A also reflects the cost base added from consolidating a partially owned business, acquired late last year, along with an increase in headcount to support growth and expansion of the services portfolio. While these factors increased SG&A by $2.1 million, they are targeted to provide long-term growth."
First Quarter Results Summary
First quarter 2018 revenues were $369.3 million, 14.5% or $46.8 million above the same period in 2017 primarily due to higher sales to non-major customers. Product revenue was $331.5 million, 17.2% or $48.5 million above Q1 2017. First quarter service revenues were $37.7 million, 4.3% or $1.7 million lower than a year ago due to a decrease in OEM maintenance revenue. Revenue from the Company's own service portfolio ("Pivot direct services") grew 1.8% year over year as the Company continued to implement its services strategy across its 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 first quarter, major customers accounted for 31.7% of revenue compared to 38.4% in Q1 a year ago.
First quarter 2018 cost of sales was $330.0 million, 14.5% or $41.7 million higher than a year ago. Gross profit was $39.3 million (10.6% margin), up 15.2% or $5.2 million from $34.1 million (10.6% margin) in Q1 a year ago. Gross margin performance reflected the consolidation of a partially owned business, acquired late last year and lower service delivery costs, partially offset by decreases in OEM maintenance revenue.
Selling, general and administrative ("SG&A") expenses were $37.8 million, 6.0% ($2.1 million) higher than a year ago as a result of the consolidation of a partially owned entity, increased headcount primarily in services to support the Company's strategy to enhance Pivot's services portfolio and capabilities, and higher commissions related to the increase in gross profit.
Adjusted EBITDA1 (see non-IFRS measures) was $1.5 million, a 196.6% increase from a loss of $1.6 million in Q1 2017 as a result of higher revenue and gross profit and stable gross margins. Net loss was $2.3 million with loss per share of $0.06 compared to net loss of $4.2 million or loss per share of $0.10 in Q1 2017.
Pivot's 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 to improve sales processes and innovation selling; iv) support customers as they expand internationally; v) improve cost management; vi) address legacy issues; and vii) commercialize and monetize the Smart Edge™ technology.
Among the recent advancements made, Pivot formed a strategy and business platform to commercialize Smart Edge™ under the leadership of Kurt Steinhauer, President of ACS; implemented Smart Edge™ use cases at over 15 additional sites (where preliminary results included a 40% reduction in WAN utilization and download speed improvement of 400%), which will support marketing and sales efforts for this potentially disruptive technology; expanded inside and outside sales resources; and added new customers.
"Industry trends continue to support Pivot's comprehensive strategy to build on its products and expanded services business," said Mr. Shank. "Despite normal seasonality, we began 2018 with strong growth and look forward to capitalizing on our opportunities this year."
Quarterly Results Materials
The Company's outlook is contained in its MD&A for the three months ended March 31, 2018, which is available along with the unaudited interim condensed consolidated financial statements, at www.pivotts.com and at www.sedar.com.
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 gross profit less selling and administrative expenses, and corresponds to income before income tax, depreciation and amortization, finance expense, change in fair value of liabilities, and other expense.
Management believes Adjusted EBITDA is an important indicator as it excludes certain items that are non-cash expenses, items that cannot be influenced by management in the short term, and items that do not impact core operating performance, demonstrating the Company's ability to generate liquidity through operating cash flow to fund working capital needs, service outstanding debt and fund future capital expenditures. Adjusted EBITDA is used by some investors and analysts for the purposes of valuing an issuer. The intent of Adjusted EBITDA is to provide additional useful information to investors and analysts and is also used by management as an internal performance measurement. A reconciliation of Adjusted EBITDA to net income is contained in the MD&A (see "Non-IFRS Measures").
First Quarter Conference Call
At 8:30 a.m. eastern on Tuesday, May 15, 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.