Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) announces second quarter 2014 results and future management succession

CALGARY, Aug. 5, 2014 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter ended June 30, 2014.

SUMMARY OF FINANCIAL RESULTS FOR THE QUARTER ENDED JUNE 30, 2014

  • Total revenues increased by 1.8% to $242.4 million.
  • Product support revenues increased by 10.9% to $37.7 million.  
  • Gross profit increased by 5.2% to $37.8 million (15.6% of sales).
  • Inventory decreased by $13.3 million to $522.2 million compared to Q2 2013.
  • Diluted earnings per share increased by 34.8% to $0.31.
  • EBITDA(1) increased by 23.8% to $10.6 million.
  • Increased dividend by 15% to $0.115 for the quarter ($0.46 on an annual basis).

(1) See further discussion in "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS" sections below.


In the second quarter of 2014, sales of whole goods were relatively flat, but product support growth enabled the business to realize a modest overall revenue increase.  Gross margin and net profitability were also positively influenced by a variety of management actions.

Commenting on the quarter, Rocky's CEO Matt Campbell stated, "As agriculture industry demand cycles to lower levels of whole good unit sales, a strong product support business helps to maintain stable cash flows.  Sales in these departments increased for the second consecutive quarter compared to the same period last year.  This drove an improvement in both our gross profit and EBITDA.  Inventory also decreased slightly over the same period in 2013, as we work to ensure our customers have an appropriate range of products available at competitive prices."

Rocky's construction segment continued to make progress in the second quarter, as sales of new whole goods improved by 38.9% to $12.8 million.  Gross margin and gross profit were up for the entire segment, which continued to improve over 2013.

Mr. Campbell further noted, "Management has undertaken significant efforts to restore our construction business.  We are beginning to see the fruits of those labours, as are our customers.  The initiatives we began earlier in the year have resulted in improvements in sales and net profitability.  Although the construction segment still has significant work to do, we are encouraged by the results to date and the dedication of our people to the task.

Our overall business results rebounded from the first quarter of the year and improved over the same period last year.  Crop forecasts for most regions are generally positive, with the noted exception of the areas in Saskatchewan and Manitoba hit by flooding in July.  The agriculture industry remains a market that provides stability over the long-term.  Similarly, the construction market in Alberta continues to lead the nation in growth.  Overall, we are pleased in the progress of our operational efforts and their positive reflection in our financial results."

CEO and President to Retire December 31, 2014

Rocky also announced today that Mr. Matt Campbell has declared his intention to retire as CEO of Rocky effective December 31, 2014.  Mr. Derek Stimson also announced his intention to retire as President of Rocky as at that date.  Both individuals will remain as directors of Rocky, with Mr. Campbell remaining as Rocky's Chairman of the Board of Directors. 

Commenting on these announcements, Paul Walters, Rocky's Lead Independent Director, stated, "Rocky's founders, Matt Campbell and Derek Stimson, have enjoyed long and distinguished careers in business.  In 2007, they joined forces to create one of the largest equipment distribution networks in North America.  Their tireless efforts and contributions have helped create Rocky into what it is today.  Combined, they share nearly 80 years of business experience.  As such, we are grateful that they will continue to serve Rocky's management, its Board and shareholders, with their considerable knowledge and expertise.  On behalf of the Board of Directors, we would like to thank both Mr. Campbell and Mr. Stimson for their continuing dedication to Rocky, and for their assistance with this important management transition."

Commenting on his announcement, Mr. Campbell noted, "It has been a privilege to help create and lead Rocky.  I feel confident that we have been able to create a strong, vibrant organization through prudent, conservative business management.  I believe that Rocky's strong business fundamentals will enable the new leader to create value for shareholders."  Mr. Stimson, commenting on his announcement, stated, "For several years we have worked to ensure we have a strong management team in place to enable this transition to take place.  As challenging as it is for me to step down after nearly 45 years in business, I have full confidence in Rocky's future and its management."

Rocky's Compensation, Governance and Nominating Committee (the "Committee") will be, in conjunction with an international executive search firm, conducting a search to find and assess prospective CEO candidates.  The Committee and the executive search firm will be considering both internal and external candidates.

Quarterly Cash Dividend

On August 5, 2014, the Board of Directors of Rocky approved a quarterly dividend of $0.115 per common share on its outstanding common shares.  The common share dividend is payable on September 30, 2014, to shareholders of record at the close of business on August 29, 2014.

This dividend is designated by Rocky to be an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any similar provincial or territorial legislation.  An enhanced dividend tax credit applies to "eligible dividends" paid to Canadian residents.  Please consult with your own tax advisor for advice with respect to the income tax consequences to you from Rocky designating its dividends as "eligible dividends."

Conference Call

Rocky will host a conference call to discuss its results on Wednesday, August 6, 2014, at 9:00 a.m. Mountain Time.  Investors interested in participating in the live call can dial 1-888-231-8191 (toll free) or 1-647-427-7450.  An archived recording of the call will be available approximately two hours after its completion on Rocky's website at www.rockymtn.com, or by calling 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 71117384.  The archive will remain available until Wednesday, August 20, 2014.

Caution regarding forward-looking statements

Certain information set forth in this news release, including, without limitation, statements that imply any future earnings, profitability, economic benefit or other financial results, statements discussing agriculture industry demand cycles, crop forecasts for 2014, the continued stability of the agriculture market and statements regarding the growth of Alberta's construction market, statements that state or imply that growth will continue in our construction and agriculture segments, statements about new or existing management and Rocky's business fundamentals creating future value for shareholders, and Mr. Stimson's statement about the future of Rocky and its management, are forward-looking information within the meaning of applicable Canadian securities laws.  By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond Rocky's control.  While this forward-looking information is based on information and assumptions that Rocky's management believes to be reasonable, there is significant risk that the forward-looking statements will prove not to be accurate.  Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward-looking statements.  Accordingly, this news release is subject to the disclaimer and qualified by risks and other factors discussed by Rocky in its management's discussion and analysis ("MD&A") for the year ended December 31, 2013, and as discussed in Rocky's Annual Information Form dated March 11, 2014 under the heading "Risk Factors."  Except as required by law, Rocky disclaims any intention or obligation to update or revise forward-looking statements, and further reserves the right to change, at any time, at its sole discretion, its current practice of updating its guidance and outlooks.

About Rocky

Rocky is one of Canada's largest agriculture and construction equipment dealership networks with branches located throughout Alberta, Saskatchewan, and Manitoba.  Through its network of Rocky Mountain Equipment locations, Rocky sells, rents, and leases new and used agriculture and construction equipment and offers product support and finance to its customers.

Additional information on Rocky is available at www.rockymtn.com and on SEDAR at www.sedar.com.

CONSOLIDATED BALANCE SHEET SUMMARY 


$ thousands

 

June 30,

2014

December 31,

2013




Assets



Inventory      

522,243

482,824

Other current assets      

49,157

74,520

Property and equipment

31,381

30,860

Deferred tax asset

1,108

-

Goodwill

14,692

14,692

Total assets

618,581

602,896




Liabilities and equity



Floor plan payable

374,264

342,364

Other current liabilities

44,354

56,607

Long-term debt

37,317

41,681

Obligations under finance leases

218

541

Deferred tax liability

-

2,576

Derivative financial instruments

2,838

1,706


458,991

445,475

Shareholders' equity

159,590

157,421

Total liabilities and equity

618,581

602,896

 

SELECTED QUARTERLY FINANCIAL INFORMATION





$ thousands, except per share amounts

For the three months ended

June 30,

For the six months ended

June 30,


2014

2013

2014

2013










Sales









New equipment

133,086

54.9%

131,534

55.2%

257,355

58.4%

246,609

55.5%

Used equipment

70,621

29.1%

71,805

30.2%

121,372

27.6%

143,110

32.2%

Parts

29,216

12.1%

26,667

11.2%

44,734

10.2%

39,966

9.0%

Service

8,478

3.5%

7,310

3.1%

15,454

3.5%

13,521

3.0%

Other

953

0.4%

790

0.3%

1,605

0.3%

1,406

0.3%


242,354

100.0%

238,106

100.0%

440,520

100.0%

444,612

100.0%

Cost of sales

204,548

84.4%

202,166

84.9%

373,482

84.8%

376,181

84.6%

Gross profit

37,806

15.6%

35,940

15.1%

67,038

15.2%

68,431

15.4%










Selling, general and

administrative

25,985

10.7%

25,873

10.9%

51,043

11.6%

51,374

11.6%

Interest on short-term debt

2,947

1.2%

3,037

1.3%

5,624

1.3%

5,643

1.3%

Interest on long-term debt

568

0.3%

597

0.2%

1,100

0.2%

1,211

0.2%

Earnings before income taxes

8,306

3.4%

6,433

2.7%

9,271

2.1%

10,203

2.3%

Provision for income taxes

2,410

1.0%

1,939

0.8%

2,771

0.6%

2,871

0.7%

Net earnings

5,896

2.4%

4,494

1.9%

6,500

1.5%

7,332

1.6%

Earnings per share









     Basic

0.31


0.23


0.34


0.38


     Diluted

0.31


0.23


0.34


0.38


Dividends per share

0.1150


0.1000


0.2150


0.1675











Non-IFRS Measures(1)









EBITDA

10,615

4.4%

8,572

3.6%

13,836

3.1%

14,573

3.3%

Operating SG&A

24,244

10.0%

24,331

10.2%

47,578

10.8%

48,215

10.8%

Floor Plan Neutral Operating Cash Flow

207

0.1%

27,343

11.5%

(41,460)

(9.4%)

(21,714)

(4.9%)











(1) See further discussion in "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS" sections below


NON-IFRS MEASURES

We use terms which do not have standardized meanings under IFRS.  As these non-IFRS financial measures do not have standardized meanings prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers.  Our definition for each term is as follows:

  • "EBITDA" is a commonly used metric in the dealership industry.  EBITDA is calculated by adding interest on long-term debt, income taxes and depreciation to net earnings.  Adding back non-operating expenses allows management to consistently compare periods by removing changes in tax rates, long-term assets and financing costs related to the Company's capital structure.
  • "Operating SG&A" is calculated by adding back depreciation of property and equipment and any non-recurring charges recognized in SG&A during the period to SG&A.  Management deems non-recurring charges to be unusual and/or infrequent charges that the Company incurs outside of its common day-to-day operations.  Adding back these items allows management to assess discretionary expenses from ongoing operations.  Management has changed the calculation of Operating SG&A from previous disclosures by no longer considering the ineffective portion of derivative financial instruments or acquisition transaction costs to be non-recurring charges.  For the periods presented, these costs are insignificant in amount and recurring in nature.  For the periods presented, no non-recurring charges have been identified.  We target a sub-10% Operating SG&A as a percentage of total sales on an annual basis. 
  • "Floor Plan Neutral Operating Cash Flow" is calculated by eliminating the impact of the change in floor plan payable (excluding floor plan assumed pursuant to business combinations) from cash flows from operating activities.  Adjusting cash flows from operating activities for changes in the balance of floor plan payable allows management to isolate and analyze operating cash generated during a period, prior to any sources or uses of cash associated with equipment financing decisions. 

RECONCILIATION OF NON-IFRS MEASURES TO IFRS

EBITDA




$ thousands

For the three months ended

June 30,

For the six months ended

June 30,


2014

2013

2014

2013






Net earnings

5,896

4,494

6,500

7,332

Interest on long-term debt

568

597

1,100

1,211

Depreciation expense

1,741

1,542

3,465

3,159

Income taxes

2,410

1,939

2,771

2,871

EBITDA

10,615

8,572

13,836

14,573

Operating SG&A




$ thousands

For the three months ended

June 30,

For the six months ended

June 30,


2014

2013

2014

2013






SG&A

25,985

25,873

51,043

51,374

Depreciation expense

(1,741)

(1,542)

(3,465)

(3,159)

Operating SG&A

24,244

24,331

47,578

48,215

Floor Plan Neutral Operating Cash Flow




$ thousands

For the three months ended

June 30,

For the six months ended

June 30,


2014

2013

2014

2013






Cash flows from operating activities

9,145

7,691

(9,560)

2,674

Net (increase) decrease in floor plan payable

(8,938)

19,652

(31,900)

(27,177)

Floor plan assumed pursuant to business

combinations

-

-

-

2,789

Floor Plan Neutral Operating Cash Flow

207

27,343

(41,460)

(21,714)






SOURCE Rocky Mountain Dealerships Inc.

For further information: Rocky Mountain Dealerships Inc., Matt Campbell, Chief Executive Officer; Garrett Ganden, Chief Operating Officer; or, David Ascott, Chief Financial Officer, #301, 3345 - 8th Street S.E. , Calgary, Alberta T2G 3A4, Telephone: (403) 265-7364, Fax: (403) 214-5644