Pivot Technology Solutions Reports First Quarter 2015 Results

CARLSBAD, CA, May 29, 2015 /CNW/ - Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG), today publishes its results for the first quarter ended March 31, 2015.  

Q1 2015 Highlights

• Revenues of $296.4 million, down 7.2% compared to Q1 2014, attributable primarily to lower product sales related to softer market conditions and an atypically strong comparable in Q1 2014.
• Product sales of $255.6 million, down 9.9% compared to Q1 2014.
• Service revenues of $38.6 million, up 15.2% compared to Q1 2014.
• Gross profit of $32.2 million, down $3.3 million, or 9.2%, from the same period in the prior year.
• Gross margin for the quarter of 10.9%, down marginally from 11.1% for Q1 2014.
• Adjusted EBITDA* of $1.3 million, down 78.9% from Q1 2014.
• Adjusted for changes in non-cash working capital balances, the Company generated $1.2 million in cash from operating activities, compared to $4.2 million for Q1 2014.
• Cash used in investing activities increased by $2.2 million, compared to the same period in the prior year, related mainly to the build out of a new, state of the art warehouse and integration center, which is expected to be fully operational during Q2 2015.
• The Company's Board of Directors approved the initiation of a CAD$0.03 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 CAD$0.0075 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, CEO of Pivot. "Additionally, in Q1 2014 we benefited from the delivery of projects to a major customer that had not been completed in the prior year, making Q1 2014 a strong comparable.  While product sales were down, we were pleased with continued growth in our services business."

Kerri Brass, CFO 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% for the quarter from 10.5% in Q1 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."

Q1 2015 Financial Review   

Revenues came in at $296.4 million, down $23.0 million, or 7.2%, from Q1 2014.  The fall in revenues was attributable mainly to lower product revenues, related to general softness in the IT 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% overall decrease in product revenues, as compared to the same period last year.  This was offset partially by a $5.1 million, or 15.2% increase in services revenues, which came in at $38.6 million, compared to $33.5 million for Q1 2014. 

Gross profit of $32.2 million was achieved, down $3.3 million, or 9.2%, from Q1 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%, down marginally from 11.1% for Q1 2014.

The Company recorded adjusted EBITDA* for Q1 2015 of $1.3 million, down $4.9 million, or 78.9%, compared to 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 Q1 2015 increased by $1.6 million, or 5.6%, to $30.9 million, as compared to Q1 2014.  While headcount remained relatively stable, the Company recorded a $1.1 million increase in salaries and employee benefits, attributable to higher base salaries and benefits 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 $0.5 million 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% 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 December 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 11:00 am ET.

Subsequently, a recording of the call will be posted on the Company's website: www.pivotts.com.

About Pivot Technology Solutions, Inc.
Together with its portfolio companies and partners, Pivot delivers solutions that enable organizations to design, build, implement and maintain computing and communication infrastructure that addresses their unique business needs. Pivot's approach supports improvement of business performance, helps organizations reduce capital and operating expenses, and accelerates the delivery of new products and services to end-customers. With over 2,000 customers, many of whom are Fortune 1000 companies, Pivot extends its value added solutions to help organizations of all sizes improve operating efficiency, reduce complexity and enhance service delivery through virtualization and cloud computing. Pivot enables businesses to extend their enterprise through mobility solutions to better connect business partners and customers. Pivot has offices throughout North America and can be found online at www.pivotts.com.

Forward Looking Statement
This news release contains statements that, to the extent they are not recitations of historical fact, may constitute "forward-looking statements" within the meaning of applicable Canadian securities laws. Forward-looking statements include statements regarding the expansion of Pivot's services and international businesses, continued innovation, capitalizing on opportunities to realize cross-selling synergies, and payment of a dividend commencing in Q3 2015 and proposed NCIB, and the assumptions underlying any of the foregoing. Pivot uses words such as "may", "would", "could", "will", "likely", "expect", "believe", "intend" and similar expressions to identify forward-looking statements. Any such forward-looking statements are based on assumptions and analyses made by Pivot in light of its experience and its perception of historical trends, current conditions and expected future developments, including the assumption that opportunities identified by Pivot may lead to expansion of its services and international  businesses, continued innovation by Pivot and achievement of cross-selling synergies, that the general business climate will not deteriorate, that the Company will be in a financial position to declare and pay a dividend in Q3 2015 and subsequent periods, and all approvals will be obtained for an NCIB, as well as other factors Pivot believes are appropriate under the relevant circumstances. However, whether actual results and developments will conform to Pivot's expectations and predictions is subject to any number of risks, assumptions and uncertainties. Many factors could cause Pivot's actual results, to differ materially from those expressed or implied by the forward-looking statements contained in this news release. These factors include, without limitation: uncertainty in the global economic environment; delays in the purchasing decisions of Pivot's customers; the competition Pivot faces in its industry and/or marketplace; the possibility of technical, logistical or planning issues in connection with the deployment of Pivot's products or services; the possibility that Pivot will not be able to further align its support functions with the selling and delivery arms of the business; uncertainty with respect to the ability of the Company to pay a quarterly dividend commencing in Q3 2015 and to obtain approval for an NCIB; and the possibility that Pivot will be unable to capitalize on opportunities it has identified in the manner and timeframe anticipated.  The "forward-looking statements" contained herein speak only as of the date of this press release and, unless required by applicable law, the Company undertakes no obligation to publicly update or revise such information, whether as a result of new information, future events or otherwise.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.  

Pivot Technology Solutions

SELECTED FINANCIAL INFORMATION

Full financial statements and related Management Discussion and Analysis can be found on SEDAR and the Company's website www.pivotts.com

All figures are in US $ '000s

*Non-IFRS 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 to similar measures used by other companies.  

*Adjusted EBITDA
In the Company's financial reporting, adjusted EBITDA is a non-IFRS measure which is defined as gross profit less selling and administrative expenses, and corresponds to income before income tax, depreciation and amortization, transaction costs, interest expense, change in fair value of liabilities, goodwill impairment and other income or expense.  Management believes this is an important indicator as adjusted EBITDA excludes items that are either 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 also used by 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.  Adjusted EBITDA is not a recognized measure under IFRS, has no standardized meaning and is therefore unlikely to be comparable to similar measures used by other companies.  Readers are cautioned that this term should not be construed as an alternative to net income determined in accordance with IFRS.

The following provides a reconciliation of adjusted EBITDA* to income before income taxes: 

SOURCE Pivot Technology Solutions, Inc.