I wrote about Pivot Technology Solutions way back in 2014. It’s actually a good read as you get to experience some of my transformation as an investor. I couldn’t get over the customer concentration and low margin profile and ended up selling. I ended up selling my position in mid 2015 to early 2016 to buy some Sangoma Technologies ($STC.v), Command Centre ($CCNI – now part of HireQuest) and some O&G services companies in 2016. Turned out to have mixed results. I did well with the O&G services trade, did OK with Command Centre and pretty good with Sangoma.
Let’s take a look at Pivot with fresh eyes.
Background & 5yr chart
Pivot Technology Solutions, Inc. provides IT services and solutions in the United States and Canada. It provides IT solutions and system integration services that include IT solutions focused on enterprise infrastructures, such as systems, storage, security, networking, and compliance; and IT services that enable businesses to optimize their IT infrastructure and enhance mission-critical processes. The company also offers IT solutions to federal, state, county, and local municipalities with a focus on public safety; and IT hardware, software, and professional services to enterprise, public sector, and educational customers. In addition, it provides advisory, implementation, and maintenance services of enterprise data centers; centered on private cloud; and mobility and managed services. Further, the company provides technical solutions and various other related services, as well as staffing and cloud expertise services to governments, the public sector, and commercial enterprises. Pivot Technology Solutions, Inc. was founded in 2010 and is headquartered in Markham, Canada.
Pivot also pays a big dividend. It’s currently yielding 9.2%.
The company switched to reporting in $CAD from $USD in Q1 of 2020. Since all my previous data was in USD, I took the reported results in $CAD and converted them to $USD to make the comparison easier. The exchange rate was quite volatile for Q1 2020, so numbers may not be a great representative of reality. But hey, it’s a free site what else do you want?
As you can see this isn’t a high margin business and relies on high sales/volume to generate cash. The decrease in sales is mostly related to lower revenue from major customers, although non-major customers usually means higher gross margins. 2018 and 2019 has 70.1% and 80.9% of revenue from non-major customers.
Despite the challenges the company has consistently generated cash on an annual basis. I The current dividend seems well supported.
Here are some more operating ratios.
Given the nature of the business (primarily a reseller who is technology agnostic), managing working capital is crucial. The CCC is how I like to look at operational capital use.
The company is focused on supporting clients from start to finish with a full suite of products as well as consulting, integrating and supporting them. Their services side of the business is stickier. It’s the product sales that will move the needle significantly, unless they acquire a company in the services side of the business.
The company employs debt, mostly in the form of short term obligations. The company measures its debt obligations as stated below.
“Adjusted Debt” is defined as current liabilities, plus long‐term other financial liabilities, less lease obligations and current assets.
I have left my traditional measure of debt:ebtida for comparison purposes. The good news is that the current debt load seems manageable.
Ownership & Compensation
The CEO has a salary of 450k and had total compensation of almost 800k. Below is what compensation looks like over the last 3 years. He has been in place since 2016.
The CEO owns 0.5% of the company. Two directors collectively own 6.5% of the company.
Here is the valuation of the business today. Cheap on a market cap basis, but not nearly as cheap once debt is included.
Growth in the business will come from some organic growth, overall IT spend, and acquisitions. Previous acquisitions have been integrated well and haven’t blown up the balance sheet.
So far the business has been somewhat modestly by the lockdowns. Some businesses have pulled back spending and others needed to invest to support their staff working remotely.
If you are dividend focused investor, I think Pivot is worth a close look. They have been through some major customer spend reduction and have continued to pay a dividend and generate cash.
Anyone ever look at Pivot before?
*the author does not have a position in Pivot Technology Solutions