Pivotal Systems Full Year 2019 Results

Fremont, California and Sydney, Australia; 28 February 2020 — Pivotal Systems Corporation (“Pivotal” or the “Company”) (ASX: PVS), a leading provider of innovative gas flow control (“GFC”) solutions to the semiconductor industry, is pleased to announce its financial results for the full year ended 31 December 2019.

Key operating highlights during the full year

  • Pivotal named a Preferred Supplier for a leading US-based Original Equipment Manufacturer (“OEM”)
  • Pivotal is now qualified at all three of the major OEMs for either etch or deposition
  • Qualified the standard low flow and the remote GFC with a leading Japan based OEM
  • Pivotal was able to maintain or improve its significant market share with its existing accounts,
    despite semiconductor capital spending decline of approximately 10% in 2019
  • Using Smartstik architecture, Pivotal was able to penetrate, qualify and receive multiple repeat
    orders from a Korean Etch OEM for the standard GFC
  • Expanded presence in Japan, Europe, Taiwan, China, North America and Korea
  • In 2H2019, received purchased orders from all the major Deposition and Etch OEMs
  • In Q42019, for the first time ever, the company received purchase orders for Integrated Device
    Manufacturers (“IDM’s”) end-users from all regional markets described above
  • Pivotal named one of the TOP 10 Workplaces by CEO View Magazine and one of the 12 Most
    Disruptive Innovation Companies in USA
  • New orders received in 2019 was US$6.9 million (FY18:US$31.1 million)
  • Backlog (confirmed orders not yet shipped) at 31 December 2019 was US$3.1 million (FY18:
    US$14.3 million)

Pivotal recorded revenue for the period of US$15.3 million which was in line with our trading update provided to the market on 20 January and reflects a decrease on the prior corresponding period (pcp) of 25% (2018: $20.2 million). The revenue decline was the result of reduced shipments to customers in the period due to the slowdown in market conditions across the semiconductor industry for the majority of 2019. However, in the fourth quarter, Pivotal revenues of US$6.4 million were up significantly on the third quarter, driven by an overall increase in demand for Pivotal’s proprietary range of gas flow controllers (GFCs) as OEMs increased inventory levels as the semiconductor capital equipment sector cycle started to rebound.

Gross Profit decreased 75% to US$1.7 million in 2019, with gross margin percentage declining to 11.3%. The reduction was the result of lower revenue, a lower mix of higher gross margin IDM business, one- time charges incurred in 1H2019, and increased Q4 2019 manufacturing costs as Pivotal temporarily transitioned certain manufacturing activities back to Fremont.

Total operating expenses for the half year were US$11.6 million, a 14% increase from the pcp (2018 US$10.2 million), primarily the result of higher general and administrative expenses which included a non-cash US$0.6 million accounting adjustment for expected credit loss.

The Company recorded a net operating loss for the period of US$9.9 million.

Cash was US$5.4 million as at 31 December 2019 with bank debt of US$2.8 million. Cash outflow from operations was US$11.5 million for the year, which was significantly higher than the prior period, due to lower receipts from customers from lower shipments. Financing cash flows of $3.0 million primarily reflected a drawdown from a US$3.0 million term loan line of credit from Bridge Bank, as part of a US$10 million debt facility announced in late August 2019.

The Company continues to invest in new product innovation with R&D expenses for the 2019 financial year at US$3.5 million, up 12% on the pcp.
Full time head count ended the year at 45 persons.

Commenting on the Company’s full year results, John Hoffman, Chairman and CEO, said: “2019 for the most part was a challenging year for the semiconductor capital equipment industry generally, with Pivotal recording a decline in revenues and a higher net loss for the period. However, during this downturn, we proactively engaged with our customers, accelerated our product innovation pathways and delivered a number of high-quality projects in a timely and cost-effective manner for the Company. Importantly, the sector has shown early signs of a strong recovery in 2020, with a number of OEMs providing a solid outlook for growth in 2020, driven by increased IDM capex in memory and advanced logic/foundry .”

Significant Events after the Balance Date

On 30 January (PST), Pivotal announced the signing of a definitive Preferred Stock Investment Agreement between Pivotal and Anzu Industrial RBI USA LLC, a fund organized by Anzu Partners LLC (Anzu), which provides the Company up to US$13 million in additional funding required to grow and expand the business. Anzu was an investor into Pivotal in 2016 and remains the Company’s second largest shareholder with 12.1% of the issued capital. The funding of US$13 million is available to be drawn down by the Company in two tranches: an initial funding of US$10 million and a subsequent optional tranche of US$3 million.

On 12 February (PST), Pivotal announced that shareholders had approved the Amended and Restated Certificate of Incorporation of the Company and the issue of up to 13,000 RBI Preferred Stock to Anzu RBI USA LLC.
On 24 February, the Company announced the receipt of US$10 million in funding from the issue of 10,000 RBI Preferred Stock by Anzu.

Outlook

The market dynamics which prevailed in late 2019 have continued into the 1H2020, with forecast 2020 global semiconductor equipment sales of US$60.8Bn (up 3.4% on 2019), expected to increase in 2021 by another 9.8% according to SEMI. In memory, NAND and DRAM pricing continues to improve with spot pricing up 11% and 23%, respectively since December.

The main tenets to our Company strategy at the IDM customer level are to successfully leverage established customers’ acceptance of Pivotal GFC technology into new semiconductor processes. For OEM customers, Pivotal intends to drive the increased acceptance by the Top 3 OEMs into new applications or tool sets.

There is a lot of concern about the impact of the coronavirus epidemic on our business. Our primary Contract Manufacturer is in China and had a precautionary shut down for 10 days in February. Fortunately, they have resumed production and were at full capacity 3 days after returning to work. We will continue to monitor the situation and drive contingency efforts.

Pivotal expects a significantly improved financial performance in FY2020.

Investor Conference Call

The Company will host an investor conference call today at 9.00am AEDT on Friday, 28 February (2.00pm PST on Thursday, 27 February) with Mr. John Hoffman, Chairman and CEO and Mr. Timothy Welch, CFO.
Details of the call are set out below.

In order to pre-register for the conference call and avoid a queue when calling, please follow the link below. You will be given a unique pin number to enter when you call which will bypass the operator and give you immediate access to the event.

https://s1.c-conf.com/DiamondPass/10004303-invite.html

Alternatively, you may dial in with the following details, shortly before the scheduled start time and provide the Conference ID to an operator.

Conference ID: 10004303
Participant Dial-in Numbers:
Australia Toll Free: 1800 908299
Australia Local: +61 2 9007 8048
New Zealand: 0800 452 795
Canada/USA: 1855 624 0077
Hong Kong: 800 968 273
Japan: 006 633 868 000
China: 108 001 401 776
Singapore: 800 101 2702
United Kingdom: 0800 0511 453

Webcast Link

The slide presentation and audio can also be viewed live at the following link:

https://services.choruscall.com.au/webcast/pivotal-systems-200228.html

A recording of the call and slide presentation will be made available within the Investors section of the Company website.

THIS RELEASE DATED 28 FEBRUARY 2020 (PST) HAS BEEN AUTHORISED FOR LODGEMENT TO ASX BY THE BOARD OF DIRECTORS OF PIVOTAL SYSTEMS.

– ENDS –

For further information, interview and photos:

Investor Relations & Media (Australia):
Dr Thomas Duthy Nemean Group
tduthy@pivotalsys.com
+61 402 493 727

ASX Representative:
Naomi Dolmatoff
Company Matters Pty Ltd
Naomi.Dolmatoff@companymatters.com.au

Media Contact (US):
Rob Haralson
Anzu Partners
rhh@anzupartners.com

US$10 million Tranche 1 Funds Received from Anzu

Fremont, California and Sydney, Australia; 24 February 2020 — Pivotal Systems Corporation (“Pivotal” or the “Company”) (ASX: PVS), today announces the receipt of US$10 million in funding from the issue of 10,000 Revenue Based Redeemable Preferred Stock (RBI Preferred Stock) to Anzu Industrial RBI USA LLC, a fund organized by Anzu Partners LLC (Anzu), following shareholder approval granted on 12 February (PST) as announced to ASX.

Each RBI Preferred Stock will have an issue price of US $1,000 per share, with details of the terms of the RBI Preferred Stock previously provided in the Appendix 3B lodged with ASX on 31 January 2020.

THIS RELEASE DATED 24 FEBRUARY 2020 HAS BEEN AUTHORISED FOR LODGEMENT TO ASX BY THE BOARD OF DIRECTORS OF PIVOTAL SYSTEMS.

– ENDS –

Release of Securities from Escrow

Fremont, California and Sydney, Australia; 20 February 2020 — Pivotal Systems Corporation (“Pivotal” or the “Company”) (ASX: PVS) today advises that in accordance with ASX Listing Rule 3.10A, 18,119,972 Shares representing 18,119,972 Chess Depository Interests (CDIs) and additionally 3,492,125 Unquoted Options will be released from escrow on the day following the release of the Company’s Appendix 4E Full Year report for the 12 month period ended 31 December 2019 in a manner consistent with the ASX Listing Rules.

Pivotal expects to lodge the Company’s 31 December 2019 full year results with ASX on 28 February 2020.

THIS RELEASE DATED 20 FEBRUARY 2020 HAS BEEN AUTHORISED FOR LODGEMENT TO ASX BY THE BOARD OF DIRECTORS OF PIVOTAL SYSTEMS.

– ENDS –

2019 Full Year Results and Investor Conference Call Notification

Fremont, California; 18 February 2020 — Pivotal Systems Corporation (“Pivotal” or the “Company”) (ASX: PVS), today advises that its Appendix 4E Full Year Financial Results to 31 December 2019, including management commentary and an Investor Presentation will be released on Friday, 28 February 2020.

Immediately following the release, the Company will host an investor conference call at 9.00am AEDT on Friday, 28 February (2.00pm PST on Thursday, 27 February) with Mr. John Hoffman, Chairman and CEO and Mr. Timothy Welch, CFO.

Details of the call are set out below.

In order to pre-register for the conference call and avoid a queue when calling, please follow the link below. You will be given a unique pin number to enter when you call which will bypass the operator and give you immediate access to the event.

https://s1.c-conf.com/DiamondPass/10004303-invite.html

Alternatively, you may dial in with the following details, shortly before the scheduled start time and provide the Conference ID to an operator.

Conference ID: 10004303

Participant Dial-in Numbers:
Australia Toll Free: 1800 908299
Australia Local: +61 2 9007 8048
New Zealand: 0800 452 795
Canada/USA: 1855 624 0077
Hong Kong: 800 968 273
Japan: 006 633 868 000
China: 108 001 401 776
Singapore: 800 101 2702
United Kingdom: 0800 0511 453

Webcast Link

The slide presentation and audio can also be viewed live at the following link:

https://services.choruscall.com.au/webcast/pivotal-systems-200228.html

A recording of the call and slide presentation will be made available within the Investors section of the Company website at:

https://www.pivotalsys.com/investors#presentations

Chairman’s Address to Special Meeting of Shareholders

Download .mp3 audio.

Fremont, California; 12 February 2020 (PST)

Good morning ladies and gentlemen,

I would like to provide investors with a brief overview of the financing transaction and business update. As announced to the ASX on 30 January 2020 (PST) the Preferred Stock Investment Agreement between Pivotal and Anzu Industrial RBI USA LLC, a fund organized by Anzu Partners LLC (Anzu), provides the Company up to US$13 million in additional funding required to grow and expand the business, subject to shareholder approval being obtained at today’s Special Meeting.

Anzu is a venture capital and private equity firm that invests in breakthrough industrial technologies and currently manages approximately US$350 million in capital commitments. Anzu was an investor into Pivotal in 2016 and remains the Company’s second largest shareholder with 12.1% of the issued capital.

The funding of up to US$13 million is available to be drawn down by the Company in two tranches: an initial funding of US$10 million for the issue of 10,000 RBI Preferred Stock within ten business days of closing and a subsequent optional tranche of US$3 million for the issue of 3,000 RBI Preferred Stock which is available in conjunction with the replacement of the Company’s Bridge Bank senior term loan line of credit (as announced to ASX on 28 August 2019). Each RBI Preferred Stock will have an issue price of US $1,000 per share. Further details of the terms of the RBI Preferred Shares were provided in the Notice of Special Meeting lodged with the ASX and dispatched to our shareholders and Chess Depositary Interest (CDI) holders.

Pivotal has carefully considered a range of additional financing alternatives for the Company and believes the proposed transaction with Anzu is in the best interests of Pivotal shareholders, with unanimous Board support (with David Michael abstaining given he is also a Managing Director of Anzu). Beyond typical contractual covenants relating to liquidation of the Company, there are no other financial covenants, no personal guarantees from founders or investors, no warrant or option coverage and the issue of RBI Preferred Stock is non-dilutive to current common stock / CDI holders.

As Pivotal announced to the ASX on 30 January 2020 (PST), the RBI Preferred Stock issue provides the Company with the financial flexibility it requires to meet the goals and objectives of our expanding customer base as the momentum within our business experienced in the latter part of the fourth quarter extends into 2020, commensurate with a sustained recovery in the semiconductor sector, globally.

Under the terms of the investment, Pivotal may elect to redeem all of the RBI Preferred Stock whenever the company chooses on an escalating, but capped, redemption price. Pivotal plans to redeem these RBI Preferred Stock back from the investor based on our revenue in the coming quarters and years at 4% of net revenue paid in arrears. We believe that this financing has the flexibility to enable our company to grow quickly as well as manage the cyclical nature of our industry. Redemptions are anticipated to be paced to company revenue, at 4% of gross revenue for the first $10M invested and 6% if the further optional US$3million is also drawn down. So, when the revenue rises rapidly, we plan to redeem and retire RBI Preferred Stock more quickly at a lower redemption price – making it less costly than dilutive equity. If revenue does not accelerate, we plan to redeem more slowly – putting less cash pressure on the company than a fixed-rate debt alternative, cushioning the effect of extended challenges in the semiconductor industry.

Briefly, I would like to re-iterate several important components of the Company commentary provided in the quarterly management update and cash flow report to the ASX on 30 January 2020 (PST). According to the global industry organization SEMI, global semiconductor manufacturing equipment sales, are expected to increase 5.5% to US$60.8 billion in 2020, which is a core market for Pivotal’s innovative product portfolio. Additionally, SEMI expects the 2020 equipment market recovery to be fuelled by advanced logic and foundry, new projects in China, and, to a lesser extent, memory. SEMI expects further expansion into 2021 with revenues climbing to US$66.8 billion as leading device manufacturers invest in sub-10nm process equipment.

In terms of outlook, Pivotal’s growth strategy continues to focus on successfully leveraging established Integrated Device Manufacturers (IDMs) customers’ acceptance of its Gas Flow Controller (GFC) technology into new semiconductor processes while gaining increased acceptance by the major Original Equipment Manufacturers (OEMs) into new applications or tool sets.

Pivotal continues to move positively towards our market penetration and fan out objectives for FY2020 based on the rapid acceptance of the High Flow GFC, the High Temperature GFC and the Flow Ratio Controller (FRC).

Thank you.
John Hoffman Chairman & CEO

THIS RELEASE DATED 12 FEBRUARY 2020 (PST) HAS BEEN AUTHORISED FOR LODGEMENT TO ASX BY THE BOARD OF DIRECTORS OF PIVOTAL SYSTEMS.

– ENDS –

For further information, interview and photos:
Investor Relations & Media (Australia):
Dr Thomas Duthy Nemean Group tduthy@pivotalsys.com +61 402 493 727

ASX Representative:
Naomi Dolmatoff
Company Matters Pty Ltd Naomi.Dolmatoff@companymatters.com.au

Media Contact (US):
Rob Haralson
Anzu Partners rhh@anzupartners.com