Price ($) Volume (M) Equity Research June 1, 2016 Research Update PIVOT TECHNOLOGY SOLUTIONS, INC. Circular Filed; 1-for-4 Share Consolidation and Directors Proposed EVENT PTG filed its circular for the annual and special meeting of shareholders on June 21, 2016. BOTTOM LINE Positive Steps Forward. PTG filed its circular and proposed new directors and a 1-for-4 share consolidation. The Board believes the consolidation will heighten interest in the financial community and attract additional institutional investors. Approx. 43M shares would be outstanding should the consolidation be approved by shareholders. In addition, Wade Dawe of Halifax and a 5.2M share (3%) owner of PTG is up for election to the Board. Wade is the largest shareholder running for a Board seat. We maintain a BUY rating, and our TP of C$1.50. FOCUS POINTS Q2/16 Preview. PTG expects a typical Q2 in-line with historical market activity. We believe Q1 should mark the bottom in quarterly revenues for the year. Gross Margins. Gross margin saw an uptick in Q1/16 given PTG sold less to its two major customers. We see upside in the margin story as emphasis is placed on services sales and new product sales to non-major customers. Customer Concentration. PTGs top ten customers accounted for 52% of total revenues in Q1/16, vs. 47% in Q1/15 and 52% in Q4/15. We expect Q2/16 to be in the 48-53% range which should help margins. NCIB. PTG is able to repurchase a maximum of 8,389,331 common shares under its NCIB. No purchases have been made as of Friday May 27, 2016. Recommendation: BUY Symbol/Exchange: PTG/TSX-V Sector: Technology IT Services All dollar values in US$ unless otherwise noted. Current price: C$0.47 One-year target: C$1.50 Dividend / Yield $0.04/8.8% Target return 223% Financial summary Shares O/S (M) 171.4 52-Week Range C$0.36 - C$0.62 Market Cap (C$M) 79.7 Avg. Weekly Volume (M) 2.44 Net Cash ($M) (146.5) Fiscal Year End 31-Dec US$M 2015 2016E 2017E 2018E Revenue 1,489.0 1,579.9 1,685.5 1,798.4 Revenue (YoY % ) 9.5% 6.1% 6.7% 6.7% Adj. EBITDA 31.4 45.0 50.6 59.3 Adj. EBITDA margin 2.1% 2.8% 3.0% 3.3% IFRS EPS (Basic) 0.02 0.10 0.13 0.17 IFRS EPS (Diluted) 0.02 0.10 0.12 0.17 Shares O/S (Diluted) 156.6 175.5 175.5 175.5 EV / Revenue 0.14x 0.13x 0.12x 0.12x EV / EBITDA 6.6x 4.6x 4.1x 3.5x P/E (adj. EPS) 26.9x 4.8x 3.8x 2.8x Source: Cantor Fitzgerald Canada $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 May/15 Jul/15 Sep/15 Nov/15 Jan/16 Mar/16 Company profile: Pivot designs, sells, integrates and supports IT solutions - including hardware, maintenance and support - engaging clients in all aspects of their IT Lifecycle Management, including infrastructure investments. 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Ralph Garcea, MBA, P.Eng. Gianluca Tucci rgarcea@cantor.com gtucci@cantor.com (416) 849-5004 (416) 350-2177 Sales/Trading Toronto: (416) 363-5757, (866) 442-4485 See disclosure and a description of our recommendation structure at the end of this report. 1 of 6
Pivot Technology Solutions, Inc. June 1, 2016 CIRCULAR FILED; POSITIVE STEPS FORWARD PTG yesterday filed its circular and proposed new directors and a 1-for-4 share consolidation. The Board believes the consolidation will heighten interest in the financial community and attract additional institutional investors. Approx. 43M shares would be outstanding should the consolidation be approved by shareholders. In addition, Wade Dawe of Halifax and a 5.2M share (3%) owner of PTG is up for election on the Board. Wade is the largest shareholder running for a Board seat. PTG is holding its AGM on Tuesday, June 21, 2016 at 10:00 AM ET at the Offices of Borden Ladner Gervais, Elliot Room; 40 King Street West, 44 th Floor. DIRECTOR SLATE The directors up for election are as follows: John Anderson (50K shares controlled) Warren Barnes (681K shares controlled) David Beck (1M shares controlled) Wade Dawe (5.2M shares controlled) Stephen Moore (100K shares controlled) Kevin Shank (0 shares controlled) Douglas Stuve (69K shares controlled) A taped replay of the Q1/16 conference call can be accessed at http://www.pivotts.com/investors/events-presentations/. PTG announced Q1/16 earnings last Friday - please see our earnings note here. Exhibit 1. Summary of Estimates Forecasts Q315 Q415 Q116 Q116E % Diff. Q216E Revenue ($M) $414.5 $420.2 $332.8 $307.9 8% $375.4 Adj. EBITDA ($M) $6.33 $13.89 $1.45 $1.54-6% $10.51 Basic EPS ($0.02) $0.04 ($0.02) ($0.02) $0.02 F/D EPS ($0.01) $0.04 ($0.02) ($0.02) $0.02 Source: Cantor Fitzgerald Canada, Company Documents Ralph Garcea, MBA, P. Eng. 416-849-5004 2 of 6
US$000 EBITDA Margin Pivot Technology Solutions, Inc. June 1, 2016 Longer term we continue to look for organic rev growth of ~4-7% and EBITDA margins to trend towards the 4% level. Exhibit 2. Revenue by Segment and EBITDA margins 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Product sales Service revenues Other revenues EBITDA Margin 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Source: Cantor Fitzgerald Canada, Company Documents RECOMMENDATION AND VALUATION We are maintaining a BUY recommendation and our C$1.50 TP. On our estimates, PTG currently trades at a C2016 EV/Sales of 0.14x and EV/EBITDA of 4.8x vs its VAR comparables at an average of 0.28x and 7.0x, respectively. Exhibit 3. Global Value Added Resellers (VARs) Comparables Price Mkt Cap LTM Rev EV/Sales EV/EBITDA P/E Ticker (Local) (Local) (US$) GM 2015 2016 2017 2015 2016 2017 2015 2016 2017 Pivot Technology Solutions, IncPTG-CA 0.47 80 1,525 10.7 0.14 0.14 0.13 6.5 4.8 4.3 12.8 2.7 2.3 Ingram Micro Inc. Class A IM 34.53 5,128 41,718 6.4 0.12 0.13 0.13 6.8 6.7 6.2 13.1 13.5 12.3 Tech Data Corporation TECD 75.18 2,640 26,456 4.9 0.08 0.08 0.08 6.0 5.7 5.5 13.0 12.2 11.7 Avnet, Inc. AVT 40.72 5,233 26,789 11.5 0.24 0.25 0.26 6.0 6.4 6.4 9.1 9.3 9.2 SYNNEX Corporation SNX 90.89 3,609 13,262 8.7 0.29 0.28 0.27 8.0 8.1 7.2 14.5 15.0 13.3 Insight Enterprises, Inc. NSIT 27.00 991 5,322 13.4 0.20 0.20 0.15 6.2 5.8 4.6 12.8 11.9 9.2 ScanSource, Inc. SCSC 38.33 984 3,519 10.3 0.32 0.29 0.28 8.9 8.4 7.7 14.7 13.2 12.2 CDW Corp. CDW 42.08 6,968 13,350 16.4 0.78 0.71 0.67 9.8 9.3 8.8 14.4 12.8 11.7 PCM, Inc. PCMI 10.66 124 1,864 13.7 0.18 0.13 0.13 15.6 7.1 4.2 56.1 8.0 6.7 PC Connection, Inc. PCCC 23.05 611 2,565 13.0 0.20 0.20 0.18 6.0 5.7 5.2 13.1 12.3 11.1 eplus inc. PLUS 87.00 624 1,197 20.8 0.49 0.50 0.50 7.2 6.9 6.9 13.7 14.0 12.8 AVERAGES: 11.9 0.29 0.28 0.26 8.1 7.0 6.3 17.4 12.2 11.0 Source: Cantor Fitzgerald Canada, FactSet Ralph Garcea, MBA, P. Eng. 416-849-5004 3 of 6
EV/EBITDA (2016E) Pivot Technology Solutions, Inc. June 1, 2016 Exhibit 4. Global VARs EBITDA Margins Drive Valuation 10.0 9.0 R² = 0.5527 SCSC CDW 8.0 SNX 7.0 6.0 5.0 4.0 IM AVT TECD PCCC NSIT PTG - 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 EBITDA % (LTM) Source: Cantor Fitzgerald Canada, FactSet Exhibit 5. Canadian Technology Dividend Stocks Source: Cantor Fitzgerald Canada, FactSet Canadian Technology Dividend Stocks At current share price levels, the dividend results in a yield of ~8.9%. If the yield were to move to the average yield shown below (~2.9%), the shares would be trading at ~$1.38 level. Ticker Price Mkt Cap LTM Rev EV/Sales EV/EBITDA P/E Div (Local) (US$) (US$) 2015 2016 2017 2015 2016 2017 2015 2016 2017 Yield Constellation Software Inc. CSU-CA 531.91 8,623 1,902 4.5 4.2 3.6 17.8 16.7 14.7 21.9 22.3 18.6 0.9% Open Text Corporation OTC-CA 77.00 7,144 1,823 4.3 4.4 4.1 12.8 12.1 11.2 17.1 16.7 15.2 1.5% MacDonald, Dettwiler and Associates Ltd. MDA-CA 85.81 2,380 1,634 1.9 1.8 1.7 11.0 10.5 9.8 14.1 13.6 12.6 1.7% Enghouse Systems Limited ESL-CA 60.02 1,231 224 5.6 4.8 4.3 21.8 19.1 16.6 51.3 39.9 32.2 0.9% Evertz Technologies Limited ET-CA 17.96 1,019 292 3.2 2.9 2.6 11.3 9.8 7.9 18.2 16.2 12.6 4.1% Computer Modelling Group Ltd. CMG-CA 10.35 624 62 9.3 9.5 8.7 19.7 20.3 17.4 32.3 31.8 27.1 4.0% Wi-LAN Inc. WIN-CA 3.72 340 113 2.5 2.7 2.8 4.4 4.6 5.1 5.5 5.7 6.3 1.3% Vecima Networks Inc. VCM-CA 11.12 190 84 1.9 1.7 1.8 6.3 5.0 5.5 15.2 11.4 13.2 2.0% Absolute Software Corporation ABT-CA 6.78 201 90 1.7 1.9 1.9 9.6 15.0 15.3 48.8 19.0 61.2 4.8% Mediagrif Interactive Technologies Inc. MDF-CA 16.00 184 56 3.6 3.5 3.3 8.7 8.4 7.7 13.5 13.3 11.8 2.5% Sylogist Ltd. SYZ-CA 9.45 168 25 NM NM NM NM NM NM NM NM NM 2.7% Pollard Banknote Limited PBL-CA 8.00 144 176 1.2 1.1 1.0 9.8 9.3 8.7 25.0 17.0 14.3 1.5% Calian Group Ltd. CTY-CA 19.95 113 197 0.6 0.5 0.5 8.0 6.9 7.0 13.5 11.5 11.3 5.6% TECSYS Inc. TCS-CA 9.60 90 49 1.7 1.6 1.4 19.9 13.6 10.3 46.6 23.3 14.8 1.0% RDM Corporation RC-CA 4.19 72 22 1.7 2.0 1.7 6.8 6.6 5.5 12.6 21.4 16.9 1.9% Pivot Technology Solutions, Inc. PTG-CA 0.47 61 1,525 0.1 0.1 0.1 6.5 4.8 4.3 16.7 3.6 3.0 8.9% C-COM Satellite Systems, Inc. CMI-CA 1.19 33 8 NM NM NM NM NM NM NM NM NM 4.2% Averages: 2.9 2.9 2.6 11.6 10.9 9.8 23.5 17.8 18.1 2.9% Ralph Garcea, MBA, P. Eng. 416-849-5004 4 of 6
Pivot Technology Solutions, Inc. June 1, 2016 TECHNICALLY SPEAKING. PTG is trading in an up-channel and between its 50- and 200-day moving averages. Resistance lies at $0.50 and support at $0.44 and $0.43. Exhibit 6. PTG Technical Chart Source: Cantor Fitzgerald Canada, StockCharts.com Ralph Garcea, MBA, P. Eng. 416-849-5004 5 of 6
Pivot Technology Solutions, Inc. June 1, 2016 DISCLAIMERS AND DISCLOSURE Disclaimers The opinions, estimates and projections contained in this report are those of Cantor Fitzgerald Canada Corporation ( CFCC ) as of the date hereof and are subject to change without notice. CFCC makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and that contain information and opinions that are accurate and complete; however, CFCC makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to CFCC that is not herein. This report is provided, for informational purposes only, to institutional investor clients of CFCC, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. This report is issued and approved for distribution in Canada, CFCC, a member of the Investment Industry Regulatory Organization of Canada ("IIROC"), the Toronto Stock Exchange and the CIPF. This report has not been reviewed or approved by Cantor Fitzgerald & Co. (CF & Co.), a member of FINRA. This report is intended for distribution in the United States only to Major Institutional Investors (as such term is defined in SEC 15a-6 and Section 15 of the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major institutional investor. Major Institutional Investors receiving this report should effect transactions in securities discussed in the report through CF & Co. Non US Broker Dealer 15a-6 disclosure: This report is being distributed by (CF Canada/CFEurope/CF Hong Kong) in the United States and is intended for distribution in the United States solely to major U.S. institutional investors (as such term is defined in Rule15a-6 of the U.S. Securities Exchange Act of 1934 and applicable interpretations relating thereto) and is not intended for the use of any person or entity that is not a major institutional investor. This material is intended solely for institutional investors and investors who Cantor reasonably believes are institutional investors. It is prohibited for distribution to non-institutional clients including retail clients, private clients and individual investors. Major Institutional Investors receiving this report should effect transactions in securities discussed in this report through Cantor Fitzgerald & Co. This report has been prepared in whole or in part by research analysts employed by non-us affiliates of Cantor Fitzgerald & Co that are not registered as broker-dealers in the United States. These non-us research analysts are not registered as associated persons of Cantor Fitzgerald & Co. and are not licensed or qualified as research analysts with FINRA or any other US regulatory authority and, accordingly, may not be subject (among other things) to FINRA s restrictions regarding communications by a research analyst with a subject company, public appearances by research analysts, and trading securities held by a research analyst account. Potential conflicts of interest The author of this report is compensated based in part on the overall revenues of CFCC, a portion of which are generated by investment banking activities. CFCC may have had, or seek to have, an investment banking relationship with companies mentioned in this report. CFCC and/or its officers, directors and employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. Although CFCC makes every effort possible to avoid conflicts of interest, readers should assume that a conflict might exist, and therefore not rely solely on this report when evaluating whether or not to buy or sell the securities of subject companies. Disclosures as of June 1, 2016 CFCC has not provided investment banking services or received investment banking related compensation from Pivot Technology Solutions, Inc. within the past 12 months. The analyst responsible for this research report does not have, either directly or indirectly, a long or short position in the shares or options of Pivot Technology Solutions, Inc. The analyst responsible for this report has visited the material operations of Pivot Technology Solutions, Inc. No payment or reimbursement was received for the related travel costs. Analyst certification The research analyst whose name appears on this report hereby certifies that the opinions and recommendations expressed herein accurately reflect his personal views about the securities, issuers or industries discussed herein. Definitions of recommendations BUY: The stock is attractively priced relative to the company s fundamentals and we expect it to appreciate significantly from the current price over the next 6 to 12 months. BUY (Speculative): The stock is attractively priced relative to the company s fundamentals, however investment in the security carries a higher degree of risk. HOLD: The stock is fairly valued, lacks a near term catalyst, or its execution risk is such that we expect it to trade within a narrow range of the current price in the next 6 to 12 months. The longer term fundamental value of the company may be materially higher, but certain milestones/catalysts have yet to be fully realized. SELL: The stock is overpriced relative to the company s fundamentals, and we expect it to decline from the current price over the next 6 to 12 months. TENDER: We believe the offer price by the acquirer is fair and thus recommend investors tender their shares to the offer. UNDER REVIEW: We are temporarily placing our recommendation under review until further information is disclosed. Member-Canadian Investor Protection Fund. Customers' accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request Ralph Garcea, MBA, P.Eng. (416) 849-5004 6 of 6