Mr. Warren Barnes reports

PIVOT TECHNOLOGY SOLUTIONS REPORTS THIRD QUARTER 2013 RESULTS; COMPANY DELIVERS CONTINUED SEQUENTIAL GROWTH AND IMPROVING PROFITABILITY

Pivot Technology Solutions Inc. has released its results for the third quarter ended Sept. 30, 2013. All currency amounts in U.S. dollars, unless otherwise indicated.

Financial highlights, third quarter 2013:

• Sequential revenue growth of 1.4 per cent compared with the second quarter of 2013. Year-over-year, revenues fell by 7.6 per cent to $326.3-million, related mainly to a large one-off data centre buildout, completed in the third quarter of last year.
• Gross margin improved to 11.2 per cent from 10.4 per cent for the same period last year and down slightly from 11.5 per cent for the second quarter of 2013.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $8.3-million, down 11.5 per cent from the same quarter last year and up 6.6 per cent from the second quarter 2013.
• Consolidated net income for the period of $1.6-million, as compared with an $8.0-million net loss for the same period in 2012, and net income of $700,000 for the second quarter 2013.
• Interest expense was reduced by $2.0-million from the third quarter 2012 resulting from the conversion of debentures into Series A preferred shares, and lower average secured borrowings. Series A preferred share dividends of $1.0-million were declared during the third quarter 2013.

Subsequent events

On Nov. 14, the company announced the refinancing through PNC Bank of the existing credit facilities with its operating companies ACS, ProSys and Sigma held with PNC Bank and Wells Fargo. The new, consolidated facility consists of a term loan and a secured asset based credit facility that allows the company to draw up to $185-million, with the option to increase the facility by up to $50-million at the company's discretion.

On Nov. 21, the company announced it is moving forward with an exchange offer to the holders of its Series A preferred shares. The offer for exchange of the preferred shares for redeemable and partially exchangeable notes will be made by formal bid in accordance with applicable securities laws. Management anticipates completion by Jan. 31, 2014, and refers to the Nov. 21 press release for further details.

Management commentary

Warren Barnes, chief executive officer of Pivot, commented: "We had a solid quarter, delivering sequential growth, even though Q3 traditionally has been softer than Q2. This improvement was attributable mainly to continued growth of our services business as well as penetration of new accounts in the storage and network segments. Services accounted for 10.1 per cent of revenues, as compared to 6.3 per cent for the same period last year, and we continue to focus on expanding our offerings. Business expansion combined with stable margins and prudent expense management allowed us to deliver 6.6-per-cent sequential adjusted EBITDA growth in Q3."

Kerri Brass, chief financial officer of Pivot, commented: "Although quarterly revenues were down compared to last year, the gap has narrowed significantly, as the large one-off project for one of ACS's key customers was completed in Q3 of last year. Adjusted for this exceptional project, the company posted solid organic growth. The greater mix of services in our revenues contributed to a year-over-year increase in gross margin and adjusted EBITDA margin."

Mr. Barnes continued: "We're encouraged by our consistent performance this quarter, showing strengthening revenues and an improved financial performance. We expect that our solid base of strong customer and vendor relationships will continue to provide opportunities that we are well positioned to capitalize on to generate further growth. Additionally, we look to realize synergies through the implementation of our integration strategy, which we expect to gather momentum as we start implementing certain initiatives focused on sales, technology and costs. The recently announced refinancing of our credit facilities is an important component and a good example of this strategy, and we look forward to reporting on our progress in the coming quarters."

Mr. Barnes concluded, "We believe that the exchange offer represents a balanced solution to satisfy all stakeholder needs."

Third-quarter 2013 financial review

Revenues came in at $326.3-million, up 1.4 per cent, or $4.6-million, from the second quarter of 2013. Revenues were down 7.6 per cent, or $26.8-million, from the third quarter of 2012, which included revenues at the company's ACS business attributable to large-scale data centre builds by a significant customer. Service revenues for the third quarter increased by $10.9-million, or 49.2 per cent, over the same period in the prior year, driven by growth in recurring revenue from our first call service offering, as well as growth of service-enhanced integrated projects.

Gross profit was $36.6-million, down 1.1 per cent, or $400,000, from the second quarter of 2013. compared with the third quarter of 2012, gross profit was materially unchanged, despite lower revenues. Gross profit margins increased to 11.2 per cent in the third quarter of 2013 from 10.4 per cent in the third quarter of 2012 and relatively stable compared with the second quarter of 2013 (11.5 per cent). The margin improvement year-over-year was driven primarily by the growth of service revenues, as well as a change in mix due to lower customer concentration in large but lower-margin accounts.

Adjusted EBITDA of $8.3-million was up 6.6 per cent, or $500,000, from the second quarter of 2013. Operating leverage through prudent expense management drove this increase as business activity increased. Adjusted EBITDA was down 11.5 per cent, or $1.1-million, from the third quarter of 2012, mainly due to the effects of the significant 2012 ACS projects, which were completed in the third quarter of 2012.

Selling and administrative expenses for the third quarter of 2013 increased by $1.1-million, or 4.0 per cent, compared with the same period last year, attributable mainly to increased commission costs related to the company's higher margin service offerings.

Interest expense was down $2.0-million from the third quarter of 2012 as a result of the conversion of the debentures into Series A preferred shares at the end of the first quarter of 2013, and lower average secured borrowings. During the quarter, Series A preferred share dividends of $1.0-million were declared.

Adjusted for changes in non-cash working capital balances, the company generated $5.1-million in cash from operating activities, as compared with $5.0-million for the same period last year and $4.3-million for the second quarter of 2013.

Inherent to the company's MVSP business model, normal changes in revenue performance drive significant movements in working capital, in particular with regards to accounts receivable, inventory and accounts payable. As such, movements in working capital balances are strictly volume related, and not a performance indicator of working capital management.

Conference call

Management will host a conference call on Nov. 26, 2013, at 11 a.m. ET.

Dial-in number:  647-427-7450/888-231-8191

Taped replay:  416-849-0833 or 1-855-859-2056; available until midnight ET, Tuesday, Dec. 3, 2013, reference No. 13326408

Subsequently, a recording of the call will be posted on the company's website.

                                                    STATEMENT OF EARNINGS
                                               (in thousands of U.S. dollars)
                                                                                                                     
                                                         Three months ended                   Nine months ended         
                                                 Sept. 30, 2013    Sept. 30, 2012    Sept. 30, 2013    Sept. 30, 2012

Revenue                                               $ 326,257         $ 353,089         $ 902,218       $ 1,100,903
Gross profit                                             36,613            36,617           103,520           102,046
Selling and administrative                               28,274            27,198            83,951            73,112
Depreciation and amortization                             2,769             2,496             8,425             7,338
Interest expense                                          1,570             3,573             5,610            13,721
Change in fair value of liabilities                         404            19,105           (9,408)            28,773
Goodwill impairment                                           -                 -            11,000                 -
Transaction costs                                           335               617             2,089               783
Other expense                                                21               103                32               100
                                                      ----------        ----------        ----------      ------------
Total operating expenses                                 33,373            53,092           101,699           123,827
                                                      ----------        ----------        ----------      ------------
Income (loss) before income taxes                         3,240           (16,475)            1,821           (21,781)
Adjusted EBITDA*                                          8,339             9,419            19,569            28,934
                                                      ----------        ----------        ----------      ------------
Net comprehensive income (loss) for the period        $   1,621         $  (7,964)        $  (2,505)      $   (17,116)
                                                      ==========        ==========        ==========      ============

We seek Safe Harbor.