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Rocky Mountain Dealerships Inc. Reports Strong 2017 Third Quarter Results

Reports Best Quarter Since 2012 With Adjusted Diluted Earnings Per Share(1) Increasing 19% Year-Over-Year to $0.44 Per Share for the Three Months Ended September 30, 2017

CALGARY, Alberta--(BUSINESS WIRE)-- 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 September 30, 2017. All financial figures are expressed in Canadian dollars.

“Our operations had a very strong quarter and delivered a 19% increase in Adjusted Diluted Earnings Per Share(1) through continued sales growth, operational efficiencies and lower finance costs. These results, the best that Rocky has posted since 2012, were achieved with all divisions contributing to a seven percent year-over-year increase in sales which, coupled with our streamlined cost structure, allowed us to deliver a great quarter,” said Garrett Ganden, President & Chief Executive Officer. “Our focus on sales and inventory management continues to allow us to reduce debt, contain costs, increase inventory turnover and, by extension, increase our return on assets.”

“At a high level, the forward economic indicators for our sector are strong. There is mounting evidence that the Western Canadian market for agricultural equipment has turned around and is returning to normal levels after being depressed for a number of years.”

“While one of our priorities is to return capital to our shareholders via dividends, we have decided to keep our annual dividend at its current level of $0.46 per share at this time. Our success is enabling us to consider a variety of strategic options such as dividend growth, accretive acquisitions or further debt reduction. To that end, we will continue to review our capital allocation strategies to strike the right balance between yield and growth.”

Selected Quarterly Financial Information

Three months ended September 30, Nine months ended September 30,
$ thousands 2017 2016 Change % Change 2017 2016 Change % Change
Sales 238,884 222,647 16,237 7.3 685,966 644,686 41,280 6.4
Cost of sales 200,052 185,786 14,266 7.7 584,750 545,395 39,355 7.2
Gross profit 38,832 36,861 1,971 5.3 101,216 99,291 1,925 1.9
Gross profit as a % of sales 16.3% 16.6% (0.3%) 14.8% 15.4% (0.6%)
Selling, general and administrative 24,560 23,855 705 3.0 72,497 72,765 (268) (0.4)

Gain on derivative financial
instruments

(1,308) (2,929) 1,621 (55.3) (1,447) (4,146) 2,699 (65.1)
Loss on sale of vacant land - 1,360 (1,360) (100.0) 641 1,360 (719) (52.9)
Restructuring charges - 1,333 (1,333) (100.0) - 3,564 (3,564) (100.0)

Earnings before finance costs and
income taxes

15,580 13,242 2,338 17.7 29,525 25,748 3,777 14.7
Finance costs 3,105 3,700 (595) (16.1) 9,122 10,997 (1,875) (17.1)
Earnings before income taxes 12,475 9,542 2,933 30.7 20,403 14,751 5,652 38.3
Income taxes 3,408 2,910 498 17.1 5,675 4,489 1,186 26.4
Net earnings 9,067 6,632 2,435 36.7 14,728 10,262 4,466 43.5
Net earnings as a % of sales 3.8% 3.0% 0.8% 2.1% 1.6% 0.5%
Earnings per share
Basic 0.47 0.34 0.13 38.2 0.76 0.53 0.23 43.4
Diluted 0.47 0.34 0.13 38.2 0.76 0.53 0.23 43.4
Dividends per share 0.115 0.115 - - 0.345 0.345 - -

Book value / diluted share –
September 30

9.68 8.92 0.76 8.5

Adjusted Diluted Earnings per
Share(1)

0.44 0.37 0.07 18.9 0.77 0.61 0.16 26.2
Adjusted EBITDA(1) 14,122 12,208 1,914 15.7 27,409 23,445 3,964 16.9
Operating SG&A(1) 22,026 21,391 635 3.0 66,049 66,194 (145) (0.2)
Operating SG&A(1) as a % of sales 9.2% 9.6% (0.4%) 9.6% 10.3% (0.7%)

Operating Cash Flow before
Changes in Floor Plan(1)

26,171 62,284 (36,113) (58.0) 35,647 73,084 (37,437) (51.2)

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

Summary of the Quarter Ended September 30, 2017

Sales and Margins

  • Total sales increased $16.2 million or 7.3% to $238.9 million compared with the same period in 2016 due to growth across all revenue streams.
  • Gross profit for the three months ended September 30, 2017 increased by $2.0 million or 5.3% to $38.8 million compared with the same period in 2016 due to increased sales.

Cost Structure and Earnings

Operating SG&A(1) as a % of sales declined to 9.2% from 9.6% a year ago due to continued cost containment while growing top-line sales.

In addition, a $0.6 million or 16.1% year-over-year decrease in finance costs this quarter (explained below) contributed to:

  • Adjusted EBITDA(1) that increased by $1.9 million or 15.7% to $14.1 million; and
  • Adjusted Diluted Earnings per Share(1) that increased by $0.07 to $0.44.

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

Balance Sheet and Inventory

Through targeted sales efforts and disciplined inventory practices, we have improved our inventory turnover, boosting the return on assets deployed.

Compared with the same period last year:

  • Inventory turnover increased 16% to 1.86 in the third quarter of 2017 compared with 1.60;
  • Total inventory decreased by $30.3 million or 6.8% to $415.4 million compared with $445.6 million; and
  • Floor plan payables decreased by $33.8 million or 11.3% to $265.6 or 72.4% of equipment inventory.

We continued to apply cash generated by our operations to reduce interest-bearing debt, resulting in a $0.6 million or 16.1% year-over-year decrease in finance costs this quarter.

As at September 30, 2017, our equipment inventory declined by $36.1 million or 9.0% and $34.0 million or 8.5% compared with December 31, 2016 and September 30, 2016, respectively.

Market Fundamentals and Outlook

Supply

In recent years, the number of new agriculture units delivered to Canadian farmers trailed historical levels as the market digested an elevated equipment population as well as price increases associated with new technology and a depreciating Canadian dollar.

In recent quarters, we have begun to see signs that Western Canada’s agriculture equipment profile is reverting to a more typical composition, with customer demand for equipment beginning to pick up.

Crop Outlook

As is typical, harvest activities in Saskatchewan and Manitoba were both substantially completed during the third quarter of 2017. Alberta’s progress is relatively comparable to last year but trails historical averages as a result of the 2017 spring harvest of over-wintered crops in Northern Alberta, which delayed seeding. Alberta Agriculture and Forestry estimate that Alberta ended the third quarter with approximately 28% of the crop still in the fields.

Agriculture and Agri-Food Canada estimates that the area seeded to field crops in Canada increased by 2.6% over last year. Reductions in yield estimates have, however, tempered their production expectations. Notwithstanding a 4.8% decline over last year, field crop production estimates from Agriculture and Agri-Food Canada and healthy commodity prices for key Western Canadian crops suggest another strong year for Canadian farmers.

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 and nine month periods ended September 30, 2017 and 2016, are available online at www.rockymtn.com and www.sedar.com.

Quarterly Cash Dividend

On November 8, 2017, Rocky’s Board of Directors declared a quarterly dividend of $0.115 per common share on Rocky's outstanding common shares. The common share dividend is payable on December 29, 2017, to shareholders of record at the close of business on November 30, 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."

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 third quarter 2017 results.

Those interested in participating in the conference call may do so by calling 1-866-521-4909 (toll free) or (647) 427-2311.

A live webcast of the conference call will also be accessible through the link below:

https://event.webcasts.com/starthere.jsp?ei=1164839&tp_key=481e4800d0

An archived recording of the conference call will be available until November 22, 2017 by dialing 1-800-585-8367 (toll free) or 1-416-621-4642, passcode: 96014346. This archived recording will also be available on 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 business; statements discussing or implying any economic or financial results for 2017; statements implying future economic or financial benefits as a result of recent trends in Western Canada's agriculture equipment profile; statements regarding the anticipated crop yield for 2017; statements discussing or implying any future dividend changes, acquisitions or debt reductions; 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, 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, restructuring costs associated with amalgamating the industrial operations and losses recognized on the impairment and subsequent disposition of vacant land have been classified as non-recurring charges. The losses on the sale of vacant land are not expected to give rise to a reduction in our tax provision.

  • “Adjusted EBITDA” is derived by eliminating the following items from net earnings: finance costs associated with long-term debt; income taxes; depreciation and amortization; the impact of the losses (gains) arising from derivative financial instruments and DSUs; and the expense (recovery) associated with SARs. Adjusting net earnings for these items allows management to consistently compare periods by removing the impact of fluctuations in tax rates, long-term assets, financing costs related to the Company’s capital structure and the Company’s share price.

The Company also adjusts for any non-recurring charges (recoveries) recognized in Adjusted 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, restructuring costs associated with amalgamating the industrial operations and losses recognized on the impairment and subsequent disposition of vacant land have been classified as non-recurring charges.

  • “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

Three months ended
September 30,

Nine months ended
September 30,

$ thousands 2017 2016 2017 2016
Earnings used in the calculation of diluted earnings per share 9,067 6,632 14,728 10,262
Gain on derivative financial instruments

(1,308)

(2,929)

(1,447)

(4,146)

Loss on DSUs 49 134 83 204
SAR expense 643 443 764 527
Industrial restructuring charges - 1,333 - 3,564
Non-deductible loss on sale of vacant land - 1,360 641 1,360
Tax effect of adjustments (27%) 166 275 162

(40)

Earnings used in the calculation of Adjusted Diluted Earnings per Share 8,617 7,248 14,931 11,731

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

19,384 19,384 19,384 19,384
Adjusted Diluted Earnings per Share 0.44 0.37 0.77 0.61
Adjusted EBITDA

Three months ended
September 30,

Nine months ended
September 30,

$ thousands 2017 2016 2017 2016
Net earnings 9,067 6,632 14,728 10,262
Finance costs associated with long-term debt 421 438 1,364 1,345
Depreciation and amortization expense 1,842 1,887 5,601 5,840
Income taxes 3,408 2,910 5,675 4,489
EBITDA 14,738 11,867 27,368 21,936
Gain on derivative financial instruments

(1,308)

(2,929)

(1,447)

(4,146)

Loss on DSUs 49 134 83 204
SAR expense 643 443 764 527
Industrial restructuring charges - 1,333 - 3,564
Loss on sale of vacant land - 1,360 641 1,360
Adjusted EBITDA 14,122 12,208 27,409 23,445
Operating SG&A

Three months ended
September 30,

Nine months ended
September 30,

$ thousands 2017 2016 2017 2016
SG&A 24,560 23,855 72,497 72,765
Depreciation and amortization expense

(1,842)

(1,887)

(5,601)

(5,840)

Loss on DSUs

(49)

(134)

(83)

(204)

SAR expense

(643)

(443)

(764)

(527)

Operating SG&A 22,026 21,391 66,049 66,194
Operating SG&A as a % of sales

9.2%

9.6%

9.6%

10.3%

Operating Cash Flow before Changes in Floor Plan

Three months ended
September 30,

Nine months ended
September 30,

$ thousands 2017 2016 2017 2016
Cash flow from operating activities 9,275 20,590 3,531 14,246
Net decrease in floor plan payable(1) 16,896 41,694 32,116 58,838
Floor plan assumed pursuant to business combinations - - - -
Operating Cash Flow before Changes in Floor Plan 26,171 62,284 35,647 73,084

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

View source version on businesswire.com: http://www.businesswire.com/news/home/20171108005327/en/

Rocky Mountain Dealerships Inc.
Garrett Ganden, (403) 265-7364
President and Chief Executive Officer
Fax: (403) 214-5644
or
David Ascott, (403) 265-7364
Chief Financial Officer
Fax: (403) 214-5644
or
Jim Wood, (403) 265-7364
Chief Sales and Operations Officer
Fax: (403) 214-5644

Source: Rocky Mountain Dealerships Inc.