Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) Announces 2016 Third Quarter Results

CALGARY, Nov. 8, 2016 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter ended September 30, 2016.

SUMMARY OF THE QUARTER ENDED SEPTEMBER 30, 2016 

  • Total revenues contracted by $33.3 million or 13.0% to $222.6 million
  • Gross profit decreased by $3.2 million or 7.9% to $36.9 million (16.6% of sales, up from 15.6%)
  • Inventory decreased by $49.2 million or 9.9% to $445.6 million, the lowest reported level since 2012
  • Operating SG&A(1) declined by $3.7 million or 14.6% to $21.4 million (9.6% of sales, down from 9.8%)
  • Adjusted Diluted Earnings per Share(1) increased by $0.2 or 5.7% to $0.37
  • Adjusted EBITDA(1) increased by $0.5 million or 4.3% to $12.2 million

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

"Favorable crop conditions and positive grower sentiment, combined with our lower fixed-cost model, again allowed us to deliver improved year-over-year earnings, despite reduced equipment demand this quarter," remarked Garrett Ganden, President and Chief Executive Officer of Rocky.  "While it is not uncommon for a portion of harvest to take place in the fourth quarter, late-season rains and some early snowfalls have resulted in a higher-than-average amount of harvesting activity to carry over into the fourth quarter this year.  Despite these harvesting delays, early indications are that 2016 should produce a bumper crop, second only to the record-setting crops of 2013. 

"We continue to reap the benefits of the decisions made and strategies implemented over the past two years.  Our ongoing focus on responsible inventory reduction has produced our lowest inventory levels since 2012.  The resulting cash generation enabled us to continue to deleverage our balance sheet during the quarter, including a reduction of $41.7 million on our floor plan payables.  In response to economic conditions, we reduced the fixed cost structure throughout our business, including the previously-announced changes to our industrial equipment distribution model.  We believe our current cost model is both sustainable long-term, as well as scalable to meet future demand.  Combined with improvements made to our balance sheet, we feel well positioned to continue providing value to shareholders.

"The Western Canadian agriculture market continues its track record of strength and stability.  While commodity prices have fluctuated of late, crop receipts continue to be healthy and farmer balance sheets remain strong.  We continue our efforts to position ourselves as a unique and compelling value proposition to customers and shareholders in our industry.  We continue to make progress in this regard, as we seek to make Rocky the equipment dealer of choice throughout Western Canada."

Quarterly Cash Dividend

On November 7, 2016, 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 December 30, 2016, to shareholders of record at the close of business on November 30, 2016.

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

On Wednesday, November 9, 2016, Rocky will discuss its results via live conference call and audio webcast, beginning at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time).  Senior management of Rocky will provide remarks on the period, followed by a question and answer session with analysts and institutional investors.

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 Rocky's website at www.rockymtn.com.

An archived recording of the conference call will be available until Wednesday, November 23, 2016, by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 93591284.  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 2016, including statements that Rocky is on the right track; 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 2016; 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 September 30, 2016, and as discussed in Rocky's Annual Information Form dated March 15, 2016 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 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 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.

BALANCE SHEET SUMMARY





$ thousands

 

September 30,
2016

December 31,
2015

September 30,
2015





Assets





Inventory

445,613

499,760

489,690


Other current assets

45,897

63,824

83,380


Total current assets

491,510

563,584

573,070






Property and equipment

49,157

39,888

36,295


Deferred tax asset

1,827

2,367

1,685


Derivative financial assets

48

-

-


Intangible assets

548

671

712


Goodwill

18,776

18,802

18,910

Total assets

561,866

625,312

630,672





Liabilities and equity





Floor plan payable

299,292

356,568

352,135


Other current liabilities

49,729

53,893

65,859


Total current liabilities

349,021

410,461

417,994






Long-term debt

35,159

40,080

40,050


Obligations under finance leases

632

154

-


Derivative financial liabilities

4,146

4,859

4,765


388,958

455,554

462,809


Shareholders' equity

172,908

169,758

167,863

Total liabilities and equity

561,866

625,312

630,672

 

SELECTED FINANCIAL INFORMATION




$ thousands, except per share amounts

For the three months ended
September 30,

For the nine months ended
September 30,


2016

2015

2016

2015










Sales










New equipment

69,173

31.1%

80,432

31.4%

260,946

40.5%

287,573

41.7%


Used equipment

105,815

47.5%

125,534

49.0%

267,949

41.6%

284,806

41.3%


Parts

37,737

16.9%

37,918

14.8%

88,393

13.7%

86,895

12.6%


Service

8,707

3.9%

10,711

4.2%

24,005

3.7%

27,151

3.9%


Other

1,215

0.6%

1,391

0.6%

3,393

0.5%

3,444

0.5%


222,647

100.0%

255,986

100.0%

644,686

100.0%

689,869

100.0%

Cost of sales

185,786

83.4%

215,944

84.4%

545,395

84.6%

585,426

84.9%

Gross profit

36,861

16.6%

40,042

15.6%

99,291

15.4%

104,443

15.1%










Selling, general and administrative

23,619

10.6%

30,334

11.8%

73,543

11.4%

84,327

12.2%

Interest on short-term debt

3,262

1.5%

3,276

1.3%

9,652

1.5%

9,435

1.4%

Interest on long-term debt

438

0.2%

519

0.2%

1,345

0.2%

1,559

0.2%

Earnings before income taxes

9,542

4.3%

5,913

2.3%

14,751

2.3%

9,122

1.3%

Provision for income taxes

2,910

1.3%

1,561

0.6%

4,489

0.7%

2,409

0.3%

Net earnings

6,632

3.0%

4,352

1.7%

10,262

1.6%

6,713

1.0%

Earnings per share










Adjusted Diluted Earnings per Share(1)

0.37


0.35


0.61


0.47



Basic

0.34


0.23


0.53


0.35



Diluted

0.34


0.23


0.53


0.35


Dividends per share

0.115


0.115


0.345


0.345


Book value per share – diluted (as at September 30)





8.92


8.68











Adjusted EBITDA(1)

12,208

5.5%

11,707

4.6%

23,445

3.6%

19,656

2.8%

Operating SG&A(1)

21,391

9.6%

25,059

9.8%

66,194

10.3%

75,352

10.9%

Floor Plan Neutral Operating Cash Flow(1)

62,284

28.0%

48,534

19.0%

71,522

11.1%

85,349

12.4%

(1) – See further discussion of these non-IFRS measures in the "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:

  • "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 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, costs associated with amalgamating the industrial operations and impairment losses recognized on redundant land classified held for sale have been classified as non-recurring charges.  The impairment losses are not expected to give rise to a reduction in our tax provision.

  • "EBITDA" is a commonly used metric in the dealership industry.  EBITDA is calculated by adding interest on 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 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, costs associated with amalgamating the industrial operations and impairment losses recognized on redundant land classified held for sale have been classified as non-recurring charges.

  • "Operating SG&A" is calculated by eliminating from SG&A, 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 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 depreciation and amortization as well as 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.  Adjusting for these items allows management to assess discretionary expenses from ongoing operations.  For the periods presented, costs associated with amalgamating the industrial operations and impairment losses recognized on redundant land classified held for sale have been classified as non-recurring charges.  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 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






$ thousands

For the three months ended
September 30,

For the nine months ended
September 30,


2016

2015

2016

2015






Earnings used in the calculation of diluted earnings per share

6,632

4,352

10,262

6,713

(Gain) loss on derivative financial instruments

(2,929)

3,438

(4,146)

3,274

Loss (gain) on DSUs

134

(155)

204

(158)

SAR expense (recovery)

443

(92)

527

18

Non-recurring industrial amalgamation charges

1,333

-

3,564

-

Impairment loss on redundant land – not tax deductible

1,360

-

1,360

-

Tax effect of adjustments (27%)

275

(862)

(40)

(846)

Earnings used in the calculation of Adjusted Diluted
Earnings per Share

7,248

6,681

11,731

9,001

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

19,384

19,299

19,384

19,334

Adjusted Diluted Earnings per Share

0.37

0.35

0.61

0.47











EBITDA and Adjusted EBITDA






$ thousands

For the three months ended

September 30,

For the nine months ended

September 30,


2016

2015

2016

2015






Net earnings

6,632

4,352

10,262

6,713

Interest on long-term debt

438

519

1,345

1,559

Depreciation and amortization expense

1,887

2,084

5,840

5,841

Income taxes

2,910

1,561

4,489

2,409

EBITDA

11,867

8,516

21,936

16,522

(Gain) loss on derivative financial instruments

(2,929)

3,438

(4,146)

3,274

Loss (gain) on DSUs

134

(155)

204

(158)

SAR expense (recovery)

443

(92)

527

18

Non-recurring industrial amalgamation charges

1,333

-

3,564

-

Impairment loss on redundant land

1,360

-

1,360

-

Adjusted EBITDA

12,208

11,707

23,445

19,656











Operating SG&A






$ thousands

For the three months ended

September 30,

For the nine months ended

September 30,


2016

2015

2016

2015






SG&A

23,619

30,334

73,543

84,327

Depreciation and amortization expense

(1,887)

(2,084)

(5,840)

(5,841)

Gain (loss) on derivative financial instruments

2,929

(3,438)

4,146

(3,274)

(Loss) gain on DSUs

(134)

155

(204)

158

SAR (expense) recovery

(443)

92

(527)

(18)

Non-recurring industrial amalgamation charges

(1,333)

-

(3,564)

-

Impairment loss on redundant land

(1,360)

-

(1,360)

-

Operating SG&A

21,391

25,059

66,194

75,352

Operating SG&A as a % of revenue

9.6%

9.8%

10.3%

10.9%











Floor Plan Neutral Operating Cash Flow






$ thousands

For the three months ended

September 30,

For the nine months ended

September 30,


2016

2015

2016

2015






Cash flow from operating activities

20,590

21,367

14,246

22,621

Net decrease in floor plan payable

41,694

27,167

57,276

29,946

Floor plan assumed pursuant to business combinations

-

-

-

32,782

Floor Plan Neutral Operating Cash Flow

62,284

48,534

71,522

85,349

 

SOURCE Rocky Mountain Dealerships Inc.

For further information: Rocky Mountain Dealerships Inc., Garrett Ganden, President and Chief Executive 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

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