Mr. Warren Barnes reports

PIVOT TECHNOLOGY SOLUTIONS REPORTS SECOND QUARTER 2015 RESULTS

Pivot Technology Solutions Inc. today released its results for the second quarter ended June 30, 2015.

Financial highlights for second-quarter 2015:

• Revenues were $357.9-million, up 18.2 per cent compared with second-quarter 2014, attributable both to strong product sales and continued growth of the company's services business:
  • Product sales were $314.2-million, up 19.2 per cent compared with second-quarter 2014.
  • Service revenues were up 11.4 per cent to $40.8-million compared with second-quarter 2014.
• Gross profit was up $7.1-million, or 18.6 per cent, to $45.3-million from the same period in the prior year.
• Gross margin for the quarter was 12.7 per cent, up slightly from 12.6 per cent in second-quarter 2014.
• Adjusted earnings before interest, taxes, depreciation and amortization* came in at $9.9-million, up 29.1 per cent from second-quarter 2014.
• Adjusted for changes in non-cash working capital balances, the company generated $5.9-million in cash from operating activities, as compared with $5.4-million for the same period last year.

Quarterly dividend

The company also announced today that its board of directors declared, under its approved dividend policy, a cash dividend on the common shares of the company in the amount of 0.075 cent per share for the quarter (an annualized amount of three cents per share), which will be payable on Sept. 15, 2015, to holders of record at the close of business on Aug. 31, 2015.

Financial highlights for first-half 2015:

• Revenues were $654.3-million, up 5.2 per cent compared with first-half 2014.
• Gross profit was up 5.2 per cent to $77.5-million from the same period in the prior year, representing a gross margin of 11.8 per cent, equal to first-half 2014.
• Adjusted EBITDA* was down 19.2 per cent to $11.2-million, as compared with first-half 2014.
• Adjusted for changes in non-cash working capital balances, the company generated $7.1-million in cash from operating activities, compared with $9.6-million for the same period last year.

Management commentary

Warren Barnes, chief executive officer of Pivot, commented: "We are pleased with our results, which reflect a strong recovery from Q1 of this year. Our competitive positioning remains strong, which allowed us to benefit from the upswing in general economic activity we witnessed towards the end of the quarter. This resulted in an encouraging improvement in all our key financial metrics compared to Q2 of 2014. Growth was driven primarily by a number of larger deals at existing customers, in part a reflection of catch-up on previously delayed investment. We also experienced positive momentum in on-boarding new accounts and continued strength in our services business. As a consequence of our continued solid progress, we are pleased to declare our first-ever quarterly common dividend."

Kerri Brass, chief financial officer of Pivot, stated: "Our overall revenue growth of 18.2 per cent for the quarter, as compared with the same quarter last year, was primarily driven by strong growth from our non-major customers. This growth, complemented by gross margins that were marginally improved over second-quarter 2014, drove a 29.1-per-cent increase in adjusted EBITDA* as activity returned to levels more aligned to our existing support infrastructure. Service revenues as a percentage of total revenues were 12.1 per cent for the half-year compared to 11.3 per cent at this point in 2014, as service revenues grew 13.2 per cent year over year."

Mr. Barnes concluded: "Although we are still behind on year-to-date adjusted EBITDA* compared to 2014 due to a softer-than-usual Q1 of this year, we made good progress during the second quarter, and general business activity into Q3 appears to have returned to more normal levels. We are seeing positive momentum in our sales funnel, although at this point it is too early to project how this will translate into revenues for Q3 and beyond. We remain focused on maintaining and developing our strong competitive positioning through innovation and the strength of our customer and vendor relationships and will continue to pursue cross-selling opportunities for both products and services across the business."

Second-quarter 2015 financial review

Revenues came in at $357.9-million, up 18.2 per cent from second-quarter 2014 and up 20.8 per cent from first-quarter 2015. Revenue growth was attributable both to increased product sales and to continued growth of the company's services business.

Product sales for the quarter increased by 19.2 per cent, or $50.5-million, to $314.2-million, as compared with second-quarter 2014. Sequentially, product sales increased by 22.9 per cent compared with first-quarter 2015. Product sales to major customers increased by $11.1-million for the quarter, while product sales to non-major customers increased by $39.4-million, as compared with the same period in the prior year.

Service revenues for the second quarter increased by 11.4 per cent, or $4.2-million, to $40.8-million, as compared with second-quarter 2014. The company's high-value-add service offerings are consolidated under single leadership, reflecting its ability to now provide this offering in all geographies it operates in, increasing its market reach and adding momentum to growth.

Over all, revenues from non-major customers increased by 23.9 per cent, or $46.4-million, while revenues from major customers increased by $8.8-million, or 8.1 per cent.

Gross profit of $45.3-million was up 18.6 per cent, or $7.1-million, from second-quarter 2014, and up 40.7 per cent, or $13.1-million, from first-quarter 2015. Gross profit margin of 12.7 per cent was up marginally from 12.6 per cent in second-quarter 2014 and up from 10.9 per cent in first-quarter 2015. The increase in gross profit was attributable to higher revenues and continued growth of the company's higher-margin service offerings, as well as a selective focus on higher-margin product sales.

The company recorded adjusted EBITDA* for second-quarter 2015 of $9.9-million, up 29.1 per cent from second-quarter 2014, and up 657.8 per cent from first-quarter 2015. The growth in adjusted EBITDA* compared with the same period last year was attributable to higher revenues and margins, partially offset by higher sales and administrative expenses. Compared with first-quarter 2015, the strong increase in adjusted EBITDA* was attributable predominantly to higher revenues and margins, as well as leverage of the company's support infrastructure.

Selling and administrative expenses for second-quarter 2015 increased by 15.9 per cent, or $4.9-million, to $35.4-million, as compared with second-quarter 2014. The bulk of this increase, or $4.0-million, was due to increases in salaries and employee benefits. Underlying this increase was an increase in head count 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.

All outstanding Series A preferred shares (58,094,630) were converted into common shares of the company, effective March 16, 2015. Consequently, no preferred share dividends were declared during the quarter, as compared with $700,000 for the same quarter in the prior year.

Adjusted for changes in non-cash working capital balances, the company generated $5.9-million in cash from operating activities, as compared with $5.4-million for the same period last year, and $1.2-million for first-quarter 2015. As at June 30, 2015, total cash on hand was $11.6-million, up from $8.5-million for Dec. 31, 2014, and up from $8.8-million for March 31, 2015. The changes in cash on hand were related to movements in working capital.

Normal fluctuations in revenue performance, which are commonplace in the industry, drive significant movements in working capital, in particular with regard to accounts receivable, inventory and accounts payable. As such, 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.

First-half 2015 financial review

Revenues for the six months ended June 30, 2015, increased by $32.2-million, or 5.2 per cent, to $654.3-million, as compared with the same period last year, driven both by increased product sales and increased revenues from services.

Product sales increased by 4.1 per cent, or $22.5-million, to $596.8-million, driven by non-major customer growth of $32.5-million, offset by a decrease in revenues from major customers of $10.1-million.

Service revenue increased by 13.2 per cent, or $9.3-million, on a year-over-year basis to $79.4-million, as compared with first-half 2014. Service revenues accounted for 12.1 per cent of total revenue, up from 11.3 per cent in 2014.

Revenue growth and a growing contribution from the company's higher-margin services business resulted in gross profit for the period of $77.5-million, up by 5.2 per cent compared with the same period in the previous year. Gross margin remained constant at 11.8 per cent.

Adjusted EBITDA* for first-half 2015 fell by $2.7-million, or 19.1 per cent, to $11.2-million, as compared with first-half 2014, attributable to lower business volume in first-quarter 2015 due to a general market softness in that quarter.

Adjusted for changes in non-cash working capital balances, the company generated $7.1-million in cash from operating activities, as compared with $9.6-million for the same period last year, attributable largely to the lower business activity experienced in the first quarter of 2015.

Conference call

Management will host a conference call on Aug. 21, 2015, at 11 a.m. ET.

Date:  Friday, Aug. 21, 2015

Time:  11 a.m. ET

Dial-in numbers:  1-647-427-7450; 1-888-231-8191

Taped replay:  1-416-849-0833; 1-855-859-2056; available from Aug. 21, 2015, at 2 p.m. ET, to Sept. 4, 2015, at 11:59 p.m. ET; reference No. 9973579

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

Selected financial information

Full financial statements and related management discussion and analysis can be found on SEDAR and the company's website.

                           HIGHLIGHTS                                                                          
                 (in thousands of U.S. dollars)                                  

                                    Three months ended June 30,
                                              2015         2014

Revenues                                  $357,882     $302,708
Cost of sales                              312,580      264,508
Gross profit                                45,302       38,200
Selling and administrative expenses         35,382       30,518
Adjusted EBITDA*                             9,920        7,682
Depreciation and amortization                3,200        2,882
Transaction costs                              125          192
Interest expense                             1,831        1,760
Change in fair value of liabilities            113        1,274
Other expense (income)                         112           40
Income (loss) before income taxes            4,539        1,534
Provision for (recovery of)
income taxes                                 1,876          583
Net and comprehensive income (loss)          2,663          951

*Non-IFRS (international financial reporting standards) financial measures

The company internally measures its performance and results of initiatives through a number of measures that are not recognized under IFRS and may not be comparable with similar measures used by other companies.

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