Mr. Warren Barnes reports

PIVOT TECHNOLOGY SOLUTIONS REPORTS FIRST QUARTER 2015 RESULTS

Pivot Technology Solutions Inc. has released its results for the first quarter ended March 31, 2015.

First-quarter 2015 highlights:

• Revenues were $296.4-million, down 7.2 per cent compared with first-quarter 2014, attributable primarily to lower product sales related to softer market conditions and an atypically strong comparable in first-quarter 2014.
• Product sales were $255.6-million, down 9.9 per cent compared with first-quarter 2014.
• Service revenues were $38.6-million, up 15.2 per cent compared with first-quarter 2014.
• Gross profit was $32.2-million, down $3.3-million, or 9.2 per cent, from the same period in the prior year.
• Gross margin for the quarter was 10.9 per cent, down marginally from 11.1 per cent for first-quarter 2014.
• Adjusted earnings before interest, taxes, depreciation and amortization* were $1.3-million, down 78.9 per cent from first-quarter 2014.
• Adjusted for changes in non-cash working capital balances, the company generated $1.2-million in cash from operating activities, compared with $4.2-million for first-quarter 2014.
• Cash used in investing activities increased by $2.2-million, compared with the same period in the prior year, related mainly to the build-out of a new, state-of-the-art warehouse and integration centre, which is expected to be fully operational during second-quarter 2015.
• The company's board of directors approved the initiation of a three-cent-per-share annual dividend and the adoption of a normal course issuer bid (NCIB), subject to regulatory approval, and the conversion of all Series A preferred shares into common shares. Pivot anticipates declaring the initial quarterly dividend of 0.075 cent per share at the time of the publication of the financial results for the second quarter of 2015, with payment in September, 2015.
• Conversion of the Series A preferred shares into common shares was completed on March 16. Subsequent to the conversion, the company has 167,719,126 common shares issued and outstanding.

Management commentary

"As discussed at the time of our Q4 2014 earnings announcement, general market softness, particularly in the storage segment, resulted in operating results that fell short of the first quarter of last year," stated Warren Barnes, chief executive officer of Pivot. "Additionally, in first-quarter 2014 we benefited from the delivery of projects to a major customer that had not been completed in the prior year, making first-quarter 2014 a strong comparable. While product sales were down, we were pleased with continued growth in our services business."

Kerri Brass, chief financial officer of Pivot, stated: "As we maintain levels of support resources appropriate for more normal levels of business activity, the fall in revenues and related decrease in gross profit experienced this quarter, resulted in adjusted EBITDA* falling to $1.3-million from $6.2-million in the same period last year. While product sales declined largely due to lower revenues from major customers, service revenues as a percentage of total revenues grew to 13.0 per cent for the quarter from 10.5 per cent in first-quarter 2014."

Mr. Barnes concluded: "We continue to see typical seasonal fluctuations in our quarterly performance, but it is too early to predict how this will translate into revenues for Q2 2015 and beyond. We remain confident that the lower activity experienced in Q1 was related to general economic environment and market segment factors, and not our competitive positioning, which remains strong. We remain focused on our primary strategic initiatives of expanding our services and international businesses, delivering continued innovation, and capitalizing on opportunities to realize cross-selling synergies across our strategic business units."

First-quarter 2015 financial review

Revenues came in at $296.4-million, down $23.0-million, or 7.2 per cent, from first-quarter 2014. The fall in revenues was attributable mainly to lower product revenues, related to general softness in the information-technology market, particularly in the storage segment and the energy market vertical. Additionally, last year's first quarter was atypically strong, in part benefiting from the delivery of projects that had not been completed in the prior year's fourth quarter.

Product sales to major customers accounted for $21.2-million of the $28.1-million, or 9.9-per-cent overall decrease, in product revenues, as compared with the same period last year. This was offset partially by a $5.1-million, or 15.2-per-cent, increase in services revenues, which came in at $38.6-million, compared with $33.5-million for first-quarter 2014.

Gross profit of $32.2-million was achieved, down $3.3-million, or 9.2 per cent, from first-quarter 2014. The decrease was attributable mainly to lower revenues, offset partially by an increase in revenues from the company's higher-margin services business. Gross margin for the quarter came in at 10.9 per cent, down marginally from 11.1 per cent for first-quarter 2014.

The company recorded adjusted EBITDA* for first-quarter 2015 of $1.3-million, down $4.9-million, or 78.9 per cent, compared with the same period in the prior year. The decrease was attributable to lower business volume during the quarter, combined with higher selling and administrative expenses.

Selling and administrative expenses for first-quarter 2015 increased by $1.6-million, or 5.6 per cent, to $30.9-million, as compared with first-quarter 2014. While head count remained relatively stable, the company recorded a $1.1-million increase in salaries and employee benefits, attributable to higher base salaries and benefit costs over the prior period. Additionally, lower marketing development funds provided by vendors, as well as increases in facility costs, offset partially by lower professional fees, resulted in a $500,000 increase in other selling and administrative expense.

Adjusted for changes in non-cash working capital balances, the company generated $1.2-million in cash from operating activities, down 70.7 per cent from $4.2-million for the same period last year, attributable largely to the lower business volume.

As at March 31, 2015, total cash on hand was $8.8-million, up slightly from $8.5-million for Dec. 31, 2014. The changes in cash on hand were related to normal movements in working capital.

Conference call

Management will host a conference call on May 29, 2015, at 11 a.m. ET.

Date:  Friday, May 29, 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; reference No. 51917224; available from May 29, 2015, at 2 p.m. ET to June 5, 2015, at 11:59 p.m. ET

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

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

                  SELECTED FINANCIAL INFORMATION
          (all figures are in thousands of U.S. dollars)

                                    Three months ended March  31,                 
                                             2015            2014

Revenues                                 $296,373        $319,327
Cost of sales                             264,177         283,864
Gross profit                               32,196          35,463
Selling and administrative expenses        30,887          29,257
Adjusted EBITDA*                            1,309           6,206
Depreciation and amortization               3,085           2,865
Transaction costs                              17               -
Interest expense                            1,837           1,327
Change in fair value of liabilities           725           3,759
Other expense (income)                          1            (156)
(Loss) before income taxes                 (4,356)         (1,589)
Recovery of income taxes                   (1,249)           (620)
Net and comprehensive income (loss)        (3,107)           (969)
                                                               

* Non-IFRS (international financial reporting standards) financial measure.

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