Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) announces third quarter 2015 results

CALGARY, Nov. 12, 2015 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter ended September 30, 2015.

SUMMARY OF FINANCIAL RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2015

  • Total revenues increased by 10.9% to $256.0 million from $230.8 million.
  • Same store revenues increased by 6.5% to $245.7 million.
  • Operating SG&A(1) declined by $2.2 million or 8.8%, excluding $1.9M of acquired expenses.
  • Inventory decreased by $51.3 million or 9.5% to $489.7 million during the quarter.
  • Product support revenues increased by 6.6% to $48.6 million from $45.6 million.
  • Adjusted Diluted Earnings per Share(1) increased by $0.03 to $0.35
  • Adjusted EBITDA(1) increased by 8.7% to $11.7 million from $10.8 million.
  • Floor Plan Neutral Operating Cash Flow increased to $48.5 million from $10.6 million in Q3 2014.
  • Amended the Syndicated Facility, positioning the Company for growth and providing additional headroom on the fixed charge coverage covenant.

(1)

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

 

Notwithstanding a decline in the overall market, Rocky's year-over-year market share gains delivered strong same-store revenue growth.  The successful implementation of cost containment measures realigned our resources deployed with industry demand, and facilitated the conversion of our revenue growth into improved profitability.

Across the Canadian Prairies, and particularly in Alberta and Saskatchewan, farmers contended with a warm and exceptionally dry growing season.  Late summer rainfalls provided a measure of relief to farmers as crop yields and overall production levels exceeded earlier expectations.  The precipitation also helped to restore groundwater levels, a welcome development for the 2016 agricultural outlook.

"The rainfall improved the outlook for agriculture production, increasing equipment demand during the third quarter", remarked Garrett Ganden, President and CEO of Rocky.  "Many customers continued the year-to-date trend of purchasing lightly-used equipment, helping Rocky to realize yet another quarter of meaningful inventory reduction, while generating both profit and free cash flow.

"Our product support momentum also carried through the third quarter, and I'm pleased to report that we have posted our tenth consecutive quarterly increase over the same period from the previous year.  If sustained, the shift in sales mix towards used equipment will continue to support strong demand in our parts and service departments, as our installed base ages. 

"In response to market conditions on both the agriculture and industrial fronts, we implemented several cost containment measures to better align our resource deployment.  It was these initiatives that allowed us to hold our Operating SG&A relatively flat, despite the addition of four new facilities, and translated into a $0.03 increase in Adjusted Diluted Earnings per Share over Q3 last year.

"Our focus for the balance of the year will be to continue to capitalize on the inventory reduction and product support opportunities presented in the agriculture segment as well as right-size our foot-print, cost structure and assets deployed across the business as a whole.  These areas of focus will be key drivers in both our cash generation and net earnings for the remainder of the year."

Quarterly Cash Dividend

Rocky also announced today that on November 10, 2015, its Board of Directors approved a quarterly dividend of $0.115 per common share on its outstanding common shares.  The common share dividend is payable on December 31, 2015, to shareholders of record at the close of business on November 30, 2015.

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

On Thursday, November 12, 2015, 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 quarter, 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 Thursday, November 26, 2015 by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 53043761.  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 about the shift in demand from new to used equipment having a positive effect on overall inventory levels, statements that this shift in demand from new to used equipment will result in a reduction in procurement, statements implying any continued or sustained demand for used equipment going forward both in Canada and the United States, statements that the reduction in new equipment sales is expected to translate into an aging installed base and increased product support opportunities, any implied economic or financial benefit arising from Rocky's headcount rationalization and other cost containment measures, and statements dealing with future headcount or cost rationalizations and the benefit of the same, statements discussing ongoing inventory reductions, product support improvements and cost rationalization creating or leading to cash generation and net earnings, and statements associating any amendments to Rocky's credit facilities with potential growth, 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, 2015, and as discussed in Rocky's Annual Information Form dated March 10, 2015 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 industrial 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 industrial 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


September 30,

2015


December 31,
2014


September 30,

2014








Assets








Inventory


489,690


526,003


535,584


Other current assets


83,380


69,049


55,837


Total current assets


573,070


595,052


591,421









Property and equipment


36,295


32,886


32,196


Deferred tax asset


1,685


1,186


1,141


Derivative financial assets


-


-


7


Intangible assets


712


-


-


Goodwill


18,910


14,692


14,692

Total assets


630,672


643,816


639,457








Liabilities and equity








Floor plan payable


352,135


382,081


377,005


Other current liabilities


65,859


57,261


60,872


Total current liabilities


417,994


439,342


437,877









Long-term debt


40,050


32,776


34,718


Obligations under finance leases


-


9


97


Derivative financial liabilities


4,765


3,282


2,695



462,809


475,409


475,387


Shareholders' equity


167,863


168,407


164,070

Total liabilities and equity


630,672


643,816


639,457

 

SELECTED FINANCIAL INFORMATION





$ thousands, except per share amounts


For the three months ended

September 30,

For the nine months ended

September 30,



2015

2014

2015

2014











Sales











New equipment


80,432

31.4%

81,837

35.5%

287,573

41.7%

339,192

50.5%


Used equipment


125,534

49.0%

102,354

44.3%

284,806

41.3%

223,726

33.3%


Parts


37,918

14.8%

35,568

15.4%

86,895

12.6%

80,302

12.0%


Service


10,711

4.2%

10,041

4.4%

27,151

3.9%

25,495

3.8%


Other


1,391

0.6%

995

0.4%

3,444

0.5%

2,600

0.4%



255,986

100.0%

230,795

100.0%

689,869

100.0%

671,315

100.0%

Cost of sales


215,944

84.4%

191,680

83.1%

585,426

84.9%

565,162

84.2%

Gross profit


40,042

15.6%

39,115

16.9%

104,443

15.1%

106,153

15.8%











Selling, general and administrative


30,334

11.8%

27,165

11.8%

84,327

12.2%

78,208

11.6%

Interest on short-term debt


3,276

1.3%

2,903

1.3%

9,435

1.4%

8,527

1.3%

Interest on long-term debt


519

0.2%

558

0.1%

1,559

0.2%

1,658

0.3%

Earnings before income taxes


5,913

2.3%

8,489

3.7%

9,122

1.3%

17,760

2.6%

Provision for income taxes


1,561

0.6%

2,285

1.0%

2,409

0.3%

5,056

0.7%

Net earnings


4,352

1.7%

6,204

2.7%

6,713

1.0%

12,704

1.9%

Earnings per share











Adjusted Diluted Earnings per Share(1)


0.35


0.32


0.47


0.65



Basic


0.23


0.32


0.35


0.66



Diluted


0.23


0.32


0.35


0.66


Dividends per share


0.115


0.115


0.345


0.330












Adjusted EBITDA(1)


11,707

4.6%

10,772

4.7%

19,656

2.8%

24,557

3.7%

Operating SG&A(1)


25,059

9.8%

25,440

11.0%

75,352

10.9%

73,069

10.9%

Floor Plan Neutral Operating Cash Flow(1)


48,534

19.0%

10,645

4.6%

85,349

12.4%

(30,815)

(4.6%)



(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:

  • "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, no non-recurring charges (recoveries) have been identified.

  • "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.

  • "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, no non-recurring charges (recoveries) have been identified.

  • "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 of property and equipment and 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, no non-recurring charges (recoveries) have been identified.  We target a sub-10% Operating SG&A as a percentage of total sales on an annual basis.  

During the quarter, the Company changed this metric such that the aforementioned charges (recoveries) on its derivative financial instruments, DSUs and SARs are also eliminated from SG&A in calculating Operating SG&A. 

  • "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, except share and per share amounts


For the three months ended

September 30,


For the nine months ended

September 30,



2015

2014


2015

2014








Earnings used in the calculation of diluted earnings per share


4,352

6,204


6,713

12,704

Loss (gain) on derivative financial instruments


3,438

(40)


3,274

(9)

Loss (gain) on DSUs


(155)

(14)


(158)

(96)

SAR expense (recovery)


(92)

-


18

-

Tax effect of adjustments (2015 - 27%, 2014 – 25%)


(862)

14


(846)

26

Earnings used in the calculation of Adjusted Diluted
  Earnings per Share


6,681

6,164


9,001

12,625

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


19,299

19,273


19,334

19,332

Adjusted Diluted Earnings per Share


0.35

0.32


0.47

0.65

 

EBITDA and Adjusted EBITDA






$ thousands


For the three months ended

September 30,


For the nine months ended

September 30,



2015

2014


2015

2014








Net earnings


4,352

6,204


6,713

12,704

Interest on long-term debt


519

558


1,559

1,658

Depreciation expense


2,084

1,779


5,841

5,244

Income taxes


1,561

2,285


2,409

5,056

EBITDA


8,516

10,826


16,522

24,662

Loss (gain) on derivative financial instruments


3,438

(40)


3,274

(9)

Loss (gain) on DSUs


(155)

(14)


(158)

(96)

SAR expense (recovery)


(92)

-


18

-

Adjusted EBITDA


11,707

10,772


19,656

24,557

 

Operating SG&A








$ thousands


For the three months ended

September 30,


For the nine months ended

September 30,



2015

2014


2015

2014








SG&A


30,334

27,165


84,327

78,208

Depreciation expense


(2,084)

(1,779)


(5,841)

(5,244)

Gain (loss) on derivative financial instruments


(3,438)

40


(3,274)

9

Gain (loss) on DSUs


155

14


158

96

SAR (expense) recovery


92

-


(18)

-

Operating SG&A


25,059

25,440


75,352

73,069

 

Floor Plan Neutral Operating Cash Flow






$ thousands


For the three months ended

September 30,


For the nine months ended

September 30,



2015

2014


2015

2014








Cash flows from operating activities


21,367

13,386


22,621

3,826

Net (increase) decrease in floor plan payable


27,167

(2,741)


29,946

(34,641)

Floor plan assumed pursuant to business combinations


-

-


32,782

-

Floor Plan Neutral Operating Cash Flow


48,534

10,645


85,349

(30,815)

 

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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