Rocky Mountain Dealerships Inc. Reports 2017 First Quarter Results

Sales Growth and Cost Reductions Drive 207% Increase in Net Earnings

CALGARY, May 9, 2017 /CNW/ - Rocky Mountain Dealerships Inc. ("Rocky" or the "Corporation") (TSX:RME), Canada's largest agriculture equipment dealer, today reported its financial results for the quarter ended March 31, 2017. All financial figures are expressed in Canadian dollars.

"While we remain satisfied with our inventory initiative coming out of 2016, our sales activity and process has yet to fully reflect our change in focus towards margin protection following several years of marked inventory reduction," said Garrett Ganden, President & Chief Executive Officer. "This decrease in gross profit was compounded by a $1.1 million decrease in incentives recognized from our manufacturers, half of which is expected to be recovered over the duration of the year, as well as a shift in our sales mix to lower margin products. However, a more nimble cost structure and a delevered balance sheet continued to reinforce our bottom-line, supporting growth in both net earnings and Adjusted EBITDA quarter-over-quarter."

SELECTED QUARTERLY FINANCIAL INFORMATION





For the three months ended March 31,

$ thousands

2017

2016

Change

% Change






Sales

209,926

189,464

20,462

10.8

Cost of sales

183,153

161,181

21,972

13.6

Gross profit

26,773

28,283

(1,510)

(5.3)

Gross profit as a % of sales

12.8%

14.9%

(2.1%)







Selling, general and administrative

23,194

24,217

(1,023)

(4.2)

(Gain) loss on derivative financial instruments

(421)

252

(673)

(267.1)

Earnings before finance costs and income taxes

4,000

3,814

186

4.9

Finance costs

2,991

3,546

(555)

(15.7)

Earnings before income taxes

1,009

268

741

276.5

Income taxes

198

4

194

4,850.0

Net earnings

811

264

547

207.2

Net earnings as a % of sales

0.4%

0.1%

0.3%







Earnings per share






Basic                                                          

0.04

0.01

0.03

300.0


Diluted

0.04

0.01

0.03

300.0

Dividends per share

0.115

0.115

-

-

Book value per share – diluted (as at March 31)

9.07

8.62

0.45

5.2






Adjusted Diluted Earnings per Share(1)

0.04

0.02

0.02

100.0

Adjusted EBITDA(1)

3,253

2,743

510

18.6

Operating SG&A(1)

21,024

22,447

(1,423)

(6.3)

Operating SG&A(1) as a % of sales

10.0%

11.8%

(1.8%)


Operating Cash Flow before Changes in Floor Plan(1)

(24,324)

(5,115)

(19,209)

375.5


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

 

SUMMARY OF THE QUARTER ENDED MARCH 31, 2017 

Sales and Margins

  • Sales increased $20.5 million or 10.8% to $209.9 million.
  • Gross profit declined by 5.3% to $26.8 million (12.8% of sales, down from 14.9% in Q1 2016) as the impact on margins of trailing inventory initiatives continued to linger within equipment sales activity. This effect was compounded by a change in sales mix, lower margins on bulk new equipment sales carried forward from the fourth quarter of 2016, and a $1.1 million reduction in manufacturer incentives recognized in the quarter.

Cost Structure and Earnings

Operating SG&A(1) declined by $1.4 million to $21.0 million (10.0% of sales, down from 11.8% in Q1 2016) due to long-term cost containment initiatives and the efficiencies we realized within our fixed cost structure. This resulted in:

  • Adjusted EBITDA(1) that increased by $0.5 million or 18.6% to $3.3 million.
  • Adjusted Diluted Earnings per Share(1) that increased by $0.02 to $0.04.

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

Balance Sheet and Inventory

We continue to focus on strengthening our balance sheet. Our work to-date resulted in a $0.6 million or 15.7% year-over-year decline in finance costs this quarter. The decrease is due to a reduction in the average balance of interest-bearing debt outstanding, a direct result of paying down debt with operational cash flow and the proceeds from inventory reductions.

That said, our inventory went through its seasonal expansion during the first quarter, increasing by $22.5 million or 5.1% to $465.3 million as we prepare for second quarter sales.

MARKET FUNDAMENTALS AND OUTLOOK

Western Canadian farmers entered 2017 on the heels of a yet another robust level of crop production, with 90 – 95% of that production in the bins before winter set in.  Elevated levels of precipitation late in the harvest season resulted in the remainder of the crop remaining in swath or simply left standing to be picked-up or harvested this spring.  While the grade of the affected crop is expected to deteriorate to some extent, the combination of solid production and healthy commodity prices for key Western Canadian crops serves to reinforce the already strong balance sheets of our customer base.

Statistics Canada has reported increased seeded acreage intentions for principal field crops in 2017 as compared to a year ago, driven by a potential record level of canola seeded.

FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

The MD&A as well as the unaudited financial statements and notes to the financial statements for the three months ended March 31, 2017, are available online at www.rockymtn.com and www.sedar.com.

QUARTERLY CASH DIVIDEND

On May 8, 2017, Rocky's Board of Directors (the "Board") approved a quarterly dividend of $0.115 per common share on its outstanding common shares.  The common share dividend is payable on June 30, 2017, to shareholders of record at the close of business on May 31, 2017.

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."  Investors are cautioned that quarterly dividends remain subject to approval by Rocky's Board, and that the Board may, at any time, increase, decrease or suspend payment of the dividend.

CONFERENCE CALL

Rocky will host a conference call and webcast today at 9:00 a.m. MT (11:00 a.m. ET) to discuss its first quarter 2017 results. Those interested in participating in the conference call may do so by calling 1-888-231-8191 (toll free) or 1-647-427-7450. A live webcast of the conference call will also be accessible through the link below:

http://event.on24.com/r.htm?e=1396553&s=1&k=82AEABA24367FEBEF31FC18F7F7EA8F0

An archived recording of the conference call will be available until May 23, 2017 by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 95688817. This archived recording will also be available via Rocky's website.

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 regarding the seasonal nature of Rocky's core; statements discussing or implying any economic or financial results for 2017, including statements that Rocky expects to recover a portion of the decrease in incentives recognized from manufacturers in 2017; statements implying future economic or financial benefits as a result of our cost-containment strategies and statements regarding the sustainability and scalability of Rocky's cost model; statements regarding the anticipated crop yield for 2017; and statements regarding our scheduled quarterly conference call, 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 quarter ended March 31, 2017, and as discussed in Rocky's Annual Information Form dated March 14, 2017 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 Canada's largest agriculture equipment dealer 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 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.

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:

  • "Adjusted Diluted Earnings per Share" is calculated by eliminating from net earnings, the after-tax impact of the losses (gains) arising from the Company's derivative financial instruments and DSUs, as well as the expense (recovery) associated with its SARs.  These items arise primarily from changes in the Company's share price as well as fluctuations in interest rates and are not reflective of the Company's core operations. 


    The Company also adjusts for any non-recurring charges (recoveries) recognized in net earnings.  Management deems non-recurring charges (recoveries) to be unusual or infrequent items that the Company incurs outside of its common day-to-day operations.  Adjusting for these items allows management to isolate and analyze diluted earnings per share from core business operations.  For the periods presented, no non-recurring charges (recoveries) have been identified.

  • "EBITDA" is a commonly used metric in the dealership industry.  EBITDA is calculated by adding finance costs associated with long-term debt, income taxes and depreciation and amortization 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. 

  • "Adjusted EBITDA" is calculated by eliminating from EBITDA, the impact of the losses (gains) arising from the Company's derivative financial instruments and DSUs, as well as the expense (recovery) associated with its SARs.  These items arise primarily from changes in the Company's share price as well as fluctuations in interest rates and are not reflective of the Company's core operations. 

  • The Company also adjusts for any non-recurring charges (recoveries) recognized in EBITDA.  Management deems non-recurring charges (recoveries) to be unusual or infrequent items that the Company incurs outside of its common day-to-day operations.  Adjusting for these items allows management to isolate and analyze EBITDA from core business operations.  For the periods presented, no non-recurring charges (recoveries) have been identified.

  • "Operating SG&A" is calculated by eliminating from SG&A, depreciation and amortization expense as well as the impact of the losses (gains) arising from the Company's DSUs and the expense (recovery) associated with its SARs.  These items arise primarily from changes in the Company's share price and are not reflective of the Company's core operations. 

  • The Company also adjusts for any non-recurring charges (recoveries) recognized in SG&A.  Management deems non-recurring charges (recoveries) to be unusual or infrequent items that the Company incurs outside of its common day-to-day operations.  For the periods presented, no non-recurring charges (recoveries) have been identified.  The assessment of Operating SG&A facilitates the evaluation of discretionary expenses from ongoing operations.  We target a sub-10% Operating SG&A as a percentage of total sales on an annual basis.  

  • "Operating Cash Flow before Changes in Floor Plan" 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 flows during a period, prior to any sources or uses of cash associated with equipment financing decisions. 

RECONCILIATION OF NON-IFRS MEASURES TO IFRS

Adjusted Diluted Earnings per Share



For the three months ended
March 31,

$ thousands

2017

2016




Earnings used in the calculation of diluted earnings per share

811

264

(Gain) loss on derivative financial instruments

(421)

252

Loss (gain) on DSUs

26

(9)

SAR expense (recovery)

277

(6)

Tax effect of adjustments (27%)

32

(64)

Earnings used in the calculation of Adjusted Diluted Earnings per Share

725

437

Weighted average diluted shares used in the calculation of diluted earnings per share (in thousands)

19,384

19,384

Adjusted Diluted Earnings per Share

0.04

0.02



EBITDA and Adjusted EBITDA



For the three months ended
March 31,

$ thousands

2017

2016




Net earnings

811

264

Finance costs associated with long-term debt

495

453

Depreciation and amortization expense

1,867

1,785

Income taxes

198

4

EBITDA

3,371

2,506

(Gain) loss on derivative financial instruments

(421)

252

Loss (gain) on DSUs

26

(9)

SAR expense (recovery)

277

(6)

Adjusted EBITDA

3,253

2,743


Operating SG&A



For the three months ended
March 31,

$ thousands

2017

2016




SG&A

23,194

24,217

Depreciation and amortization expense

(1,867)

(1,785)

(Loss) gain on DSUs

(26)

9

SAR (expense) recovery

(277)

6

Operating SG&A

21,024

22,447

Operating SG&A as a % of sales

10.0%

11.8%



Operating Cash Flow before Changes in Floor Plan



For the three months ended
March 31,

$ thousands

2017

2016




Cash flow from operating activities

(5,709)

(3,543)

Net increase in floor plan payable(1)

(18,615)

(1,572)

Floor plan assumed pursuant to business combinations

-

-

Operating Cash Flow before Changes in Floor Plan

(24,324)

(5,115)


(1) – Includes change in floor plan payable classified as liabilities associated with assets held for sale.

 

SOURCE Rocky Mountain Dealerships Inc.

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

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http://www.rockymtn.com/

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