Hardwoods Announces Strong Second Quarter 2017 Results and Increases Quarterly Dividend by 16% to $0.0725 per Share

Acquisition and Organic Growth Strategies Drive Record Sales, EBITDA and Profit

TRADING SYMBOL: Toronto Stock Exchange - HWD

LANGLEY, BC, Aug. 10, 2017 /CNW/ - Hardwoods Distribution Inc. ("Hardwoods" or the "Company") today announced financial results for the three and six months ended June 30, 2017.  Hardwoods is North America's largest wholesale distributor of architectural grade building products to the residential and industrial construction markets, with a strong US and Canadian distribution network.

Highlights (for the three months ended June 30, 2017)

  • Second quarter revenue, including contribution from the Rugby Architectural Products operations acquired July 15, 2016, increased 75.3% year-over-year to $275.3 million
  • Organic second quarter revenue increased $8.6 million, or 5.5%, year-over-year
  • Gross profit grew by 81.7% to $51.5 million and gross profit margin increased to 18.7% from 18.1%
  • Second quarter Adjusted EBITDA climbed 49.4% to a record $17.2 million
  • Hardwoods generated record second quarter profit of $9.8 million, an 81.9% increase compared to Q2 2016
  • Adjusted Diluted Profit per Share increased 21.6% to $0.45 per share
  • Subsequent to the quarter end, on July 17, 2017, Hardwoods acquired Downes & Reader Hardwood Company Inc., a US distributor of hardwood lumber with four locations in the US Northeast, for a total value of US $6.0 million.
  • The Board of Directors increased the dividend by 16%, declaring a quarterly dividend of $0.0725 per share, payable October 27, 2017 to shareholders of record as at October 16, 2017.

"We achieved the best quarterly top and bottom line results in Hardwoods' history as we continued to benefit from accretive acquisitions and achieved solid organic growth," said Rob Brown, President and Chief Executive Officer of Hardwoods.

"Our strong financial position and record results have given us an opportunity to provide shareholders with a 16% increase in our quarterly dividend, while continuing to have the financial ability to invest in growing the business and pursuing acquisitions that create long term value for shareholders," added Mr. Brown.  "We acted on one such acquisition opportunity subsequent to the quarter end with our purchase of Downes and Reader Hardwood Company ("D&R") on July 17, 2017. This transaction brings us an additional four distribution facilities in the US Northeast, 2400 new customers, and is expected to generate annual revenue of US $25 million going forward."

Results for the second quarter include the positive impact of Hardwoods' previous acquisition of Rugby Architectural Products ("Rugby").  Acquired in July 2016, Rugby brought Hardwoods 28 US distribution facilities across 40 states and contributed US$77.3 million of revenue to second quarter 2017 results, compared to no contribution during the same period in 2017.

Results for the period were also supported by $8.6 million of organic sales growth as Hardwoods responded to market demand and executed its business strategies. These gains were bolstered by the positive foreign exchange impact of a year-over-year increase in the value of the US dollar relative to the Canadian dollar. A stronger US dollar benefits the Company by: i) increasing the value of sales and profits earned in the US operations when translated into Canadian dollars for financial reporting purposes; and ii) increasing the selling price of US dollar-denominated products sold to Hardwoods' Canadian customers.

Hardwoods ended the second quarter with a strong balance sheet, including a net debt-to-EBITDA ratio of a conservative 1.9 times, a debt-to-capital ratio of just 30.6% and $70.6 million of unused borrowing availability.

Outlook

Consistent with the first half of the year, we anticipate mid-single digit organic growth in the remainder of 2017. At 1.2 million, US housing starts remain well below the 1.5-to-1.6 million level considered to be normal and sustainable for the industry. Accordingly most forecasters predict a continued gradual strengthening trend for the US residential construction market. In addition, the non-residential construction market is enjoying solid growth as the US economy strengthens and key segments like retail, office and hospitality-related construction create demand.

The highly fragmented US architectural buildings product distribution industry also provides numerous opportunities for further acquisition-based growth. Hardwoods' large size and scale, together with its strong balance sheet, position the Company to pursue smaller single or multi-site distributors that take it into new markets, expand its presence in current markets in which it operates, and provide accretive growth for shareholders.  So far in 2017, Hardwoods has completed two acquisitions that meet these criteria.  In addition to the recent D&R transaction noted above, the Company acquired Eagle Lumber and Plywood in March 2017,  increasing its presence in the important Dallas, Texas market.  Both transactions aligned closely with Hardwoods' growth objectives and were immediately accretive to shareholders.

"Having now completed six successful acquisitions in the past six years, we are confident in our ability to identify and act on opportunities and to effectively integrate these new businesses into our operations. We will continue to pursue our acquisition strategy going forward," said Mr. Brown.

Q2 2017 Investor Call

The Company will hold an investor call on Friday, August 11 at 8:00 am Pacific (11 am Eastern) time. Participants should dial 1-888-231-8191 (toll-free) or 1-647-427-7450 (Toronto area and International) five minutes before the call to register. A replay will be available until August 25, 2017 by dialing 1-855-859-2056 (toll-free) or 1-416-849-0833 (Toronto area and International), passcode: 62606736#.

Summary of Results


Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars)









Three months

Three months

Six months

Six months



ended June 30

ended June 30

ended June 30

ended June 30



2017

2016

2017

2016

Total sales


$

275,260

157,031

$

532,358

$

314,444


Sales in the US (US$)


178,560

95,470

346,700

187,331


Sales in Canada


35,243

34,007

69,757

65,350

Gross profit


51,544

28,372

99,820

56,410


Gross profit %


18.7%

18.1%

18.8%

17.9%

Operating expenses


(36,037)

(18,887)

(71,978)

(38,242)

Profit from operating activities


15,507

9,485

27,842

18,168

Add: Depreciation and amortization


1,709

746

3,392

1,496

Earnings before interest, taxes, depreciation and







amortization ("EBITDA")


$

17,216

10,231

$

31,234

$

19,664

EBITDA as a % of revenue


6.3%

6.5%

5.9%

6.3%

Add (deduct):







Depreciation and amortization


(1,709)

(746)

(3,392)

(1,496)


Net finance income (expense)


(641)

(263)

(1,195)

(831)


Income tax expense


(5,104)

(3,855)

(8,949)

(7,348)

Profit for the period


$

9,762

$

5,367

$

17,698

$

9,989

Basic profit per share


$

0.46

$

0.32

$

0.83

$

0.60

Diluted profit per share


$

0.45

$

0.32

$

0.82

$

0.59

Average Canadian dollar exchange rate for one US dollar


$

1.35

$

1.29

$

1.33

$

1.33





















Analysis of Specific Items Affecting Comparability (in thousands of Canadian dollars)









Three months

Three months

Six months

Six months



ended June 30

ended June 30

ended June 30

ended June 30



2017

2016

2017

2016

Earnings before interest, taxes, depreciation and







amortization ("EBITDA"), per table above


$

17,216

$

10,231

$

31,234

$

19,664

Transaction expenses


1,292

1,292

Adjusted EBITDA


$

17,216

$

11,523

$

31,234

$

20,956

Adjusted EBITDA as a % of revenue


6.3%

7.3%

5.9%

6.7%







Profit for the period, as reported


$

9,762

$

5,367

$

17,698

$

9,989

Transaction expenses, net of tax


833

833

Adjusted profit for the period


$

9,762

$

6,200

$

17,698

$

10,822







Basic profit per share, as reported


$

0.46

$

0.32

$

0.83

$

0.60

Net impact of above items per share


0.05

0.05

Adjusted basic profit per share


$

0.46

$

0.37

$

0.83

$

0.65







Diluted profit per share, as reported


$

0.45

$

0.32

$

0.82

$

0.59

Net impact of above items per share


0.05

0.05

Adjusted diluted profit per share


$

0.45

$

0.37

$

0.82

$

0.64

 

Results from Operations - Three Months Ended June 30, 2017

For the three months ended June 30, 2017, total sales increased by 75.3% to $275.3 million, from $157.0 million in Q2 2016. Of the $118.2 million year-over-year increase, $104.0 million, representing a 66.2% increase in sales, was due to the addition of Rugby's operations and $8.6 million, representing a 5.5% increase in sales, was due to organic growth.  Sales results also reflect a $5.6 million positive foreign exchange impact resulting from a stronger US dollar when translating US sales to Canadian dollars for reporting purposes.

Hardwoods' US operations, which account for approximately 87% of second quarter revenues, increased sales by US$83.1 million, or 87.0%, to US$178.6 million. The Rugby operations contributed US$77.3 million of this increase. Organic growth accounted for US$5.8 million, representing a 6.0% increase in sales, as the Company increased volumes in response to higher demand.

Sales in Canada, which comprise approximately 13% of second quarter revenues, grew by $1.2 million, or 3.6% to $35.2 million.  The improvement in Canadian sales reflects organic growth.

Second quarter gross profit increased to $51.5 million, an increase of 81.7% from $28.4 million in Q2 2016.  The year-over-year improvement reflects higher sales revenue, combined with a higher gross profit margin.  As a percentage of sales, second quarter gross profit margin increased to 18.7% from 18.1% in Q2 2016, reflecting Rugby's higher margin business model.

Operating expenses for the three months ended June 30, 2017 were $36.0 million, compared to $18.9 million in Q1 2016.  The $17.2 million increase primarily reflects Rugby operating expenses of $16.4 million, amortization of $0.5 million related to customer relationships acquired in connection with the Rugby acquisition, $0.2 million of added costs to support organic growth, and a $1.3 million increase in expenses due to the impact of a stronger  US dollar on translation of US operating expenses.  These increases were offset by a reduction in transaction-related expenses to nil from $1.3 million in the same period in 2016. As a percentage of sales, operating expenses increased to 13.1% from 12.0% year-over-year, primarily reflecting Rugby's higher ratio of operating expenses as a percentage of sales.

Second quarter Adjusted EBITDA grew 49.4% to $17.2 million, from $11.5 million in Q2 2016.  The $5.7 million increase primarily reflects the $23.2 million increase in gross profit, partially offset by the $17.5 million increase in operating expenses before a decrease in transaction expenses and before an increase in depreciation and amortization.

Profit for the second quarter increased 81.9% to $9.8 million, from $5.4 million during the same period in 2016.  The year-over-year increase reflects the higher EBITDA, partially offset by a $1.2 million increase in income tax expense, a $0.4 million increase in net finance expense, and a $1.0 million increase in depreciation and amortization.

Results from Operations - Six Months Ended June 30, 2017

For the six months ended June 30, 2017, total sales increased by 69.3% to $532.4 million, from $314.4 million in Q2 2016. Of the $217.9 million year-over-year increase, $197.7 million, representing a 62.9% increase in sales, was due to the addition of Rugby's operations and $18.8 million, representing a 6.0% increase in sales, was due to organic growth. Additionally, first half sales results benefited from a $1.4 million positive foreign exchange impact, resulting from a stronger US dollar when translating US sales to Canadian dollars for reporting purposes.

Hardwoods' US operations increased sales by US$159.4 million, or 85.1%, to US$346.7 million.  The Rugby operations contributed US$148.2 million of this increase. Organic growth accounted for US$11.2 million, representing a 6.0% increase in sales, as the Company increased volumes in response to higher demand.

Sales in Canada increased by $4.4 million, or 6.7%, to $69.8 million.  The increase in Canadian sales was entirely organic and reflects Hardwoods' success in winning new business.

Six-month gross profit increased 77.0% to $99.8 million, from $56.4 million in Q2 2016.  This improvement reflects the combination of increased sales and a higher gross profit margin.  As a percentage of sales, first half gross profit margin increased to 18.8% from 17.9% year-over-year, reflecting Rugby's higher margin business model, together with increased margins from Hardwoods' operations.  

Operating expenses for the six months ended June 30, 2017, were $72.0 million, compared to $38.2 million in Q2 2016.  The $33.7 million increase primarily reflects Rugby operating expense of $32.2 million, amortization of $1.1 million related to customer relationships acquired in connection with the Rugby acquisition, $1.6 million of added costs to support organic growth, and a $0.2 million increase in expenses due to the impact of a stronger US dollar on translation of US operating expenses. These increases were offset by a reduction in transaction-related expenses to nil from $1.3 million in the first half of 2016.  As a percentage of sales, operating expenses increased slightly to 13.5% from 12.2% year-over-year, primarily reflecting Rugby's higher ratio of operating expenses as a percentage of sales.

First-half Adjusted EBITDA increased 49.0% to $31.2 million, from $21.0 million in Q2 2016.  The $10.3 million increase primarily reflects the $43.4 million increase in gross profit, partially offset by a $33.1 million increase in operating expenses before a decrease in transaction expenses and before an increase in depreciation and amortization.

Profit for the six months increased 77.2% to $17.7 million, from $10.0 million during the same period in 2016.  The year-over-year increase reflects the $11.6 million increase in EBITDA, partially offset by a $1.6 million increase in income tax expense, a $0.4 million increase in net finance cost, and a $1.9 million increase in depreciation and amortization.

A more detailed discussion of the Company's financial performance can be found in Hardwoods' Q2 2017 Management's Discussion and Analysis (MD&A). The MD&A will be posted, along with the Company's audited financial statements, on SEDAR (www.sedar.com) and on the Company's website (www.hardwoods-inc.com) on or before August 10, 2017.

About Hardwoods Distribution Inc.

Hardwoods is North America's largest distributor of architectural grade building products to the residential and industrial construction markets. The Company operates a North American network of 62 distribution centres, as well as one sawmill and kiln drying operation.

Non-GAAP Measures - EBITDA

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization, where interest is defined as net finance costs as per the consolidated statement of comprehensive income.  Furthermore, we discuss certain EBITDA Ratios, such as EBITDA margin (being EBITDA as a percentage of revenues).  In addition to profit, we consider EBITDA and EBITDA Ratios to be useful supplemental measures of the Company's ability to meet debt service and capital expenditure requirements, and we interpret trends in EBITDA and EBITDA Ratios as an indicator of relative operating performance.

References to "Adjusted EBITDA" are EBITDA as defined above, before certain items related to business acquisition activities. "Adjusted EBITDA margin" is as defined above, before certain items related to business acquisition activities. References to "Adjusted profit", "Adjusted basic profit per share", and "Adjusted diluted profit per share" are profit for the period, basic profit per share, and diluted profit per share, before certain items related to business acquisition activities. The aforementioned adjusted measures are collectively referenced as "the Adjusted Measures". Hardwoods' considers the Adjusted Measures to be useful supplemental measures of the Company's profitability, its ability to meet debt service and capital expenditure requirements, and as an indicator of relative operating performance, before considering the impact of business acquisition activities.

EBITDA, EBITDA Ratios, and the Adjusted Measures (collectively "the Non-GAAP Measures") are not measures recognized by International Financial Reporting Standards ("IFRS") and do not have a standardized meaning prescribed by IFRS.  Investors are cautioned that the Non-GAAP Measures should not replace profit, earnings per share or cash flows (as determined in accordance with IFRS) as an indicator of performance.  Hardwoods' method of calculating the Non-GAAP Measures may differ from the methods used by other issuers. Therefore, the Company's Non-GAAP Measures may not be comparable to similar measures presented by other issuers.

Forward-Looking Statements

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

This news release includes forward-looking statements. These involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "estimate", "expect", "may", "plan", "will", and similar terms and phrases, including references to assumptions. Such statements may involve, but are not limited to: Forecasters predict a continued gradual strengthening trend for the US residential construction market; the non-residential construction market is enjoying solid growth as the US economy strengthens and key segments like retail, office and hospitality-related construction create demand.

These forward-looking statements reflect current expectations of management regarding future events and operating performance as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to: national and local business conditions; political or economic instability in local markets; competition; consumer preferences; spending patterns and demographic trends; legislation or governmental regulation; acquisition and integration risks.

Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, management cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available.

All forward-looking information in this news release is qualified in its entirety by this cautionary statement and, except as may be required by law, Hardwoods undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof.

SOURCE Hardwoods Distribution Inc.

For further information: Faiz Karmally, Chief Financial Officer, Phone: (604) 881-1982, Email: fkarmally@hardwoods-inc.com, Website: http://www.hardwoods-inc.com

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