CALGARY, Alberta--(BUSINESS WIRE)--Rocky Mountain Dealerships Inc. (TSX: RME, and hereinafter “RME”), Canada’s largest agriculture equipment dealer, today reported its financial results for the three months ended June 30, 2020. Unless otherwise stated, all amounts are expressed in Canadian dollars.

Commenting on RME’s second quarter performance, Mr. Garrett Ganden, President and Chief Executive Officer stated “RME performed well in the second quarter, especially in light of the many global issues adversely affecting our sector. Results were better than the same quarter last year and we have started to reclaim the lost ground from our first quarter. Adjusted diluted earnings per share and Adjusted EBITDA are ahead of the prior year, and operating SG&A decreased $2.5 million for the three months and $6.3 million for the first half. Our cost reductions efforts are clearly producing results as is our inventory reduction focus. Equipment inventories are down $114.8 million from Q2 2019 and $78.5 million from the beginning of the year.

Throughout 2019 and early 2020 we have taken steps to improve the strength and sustainability of the business. Specifically, we’ve improved the cost structure in every aspect of our operations, renegotiated our borrowing facilities and reduced the quarterly dividend, all of which has generated significant cash savings and allowed us to reduce indebtedness on the balance sheet, providing RME greater financial flexibility moving forward.”

Mr. Ganden added “The strength of the RME team is evident in our ability to produce a solid quarter in these challenging times. Crops are in the ground and forecasts1 are calling for improved yields and an overall 2% increase in production in 2020 over last year. We continue to adapt and keep our branches safe and open to serve our customers. Our commitment to focusing on controllable elements of the business have positioned RME to deliver long-term value for our shareholders.”

SUMMARY OF THE QUARTER ENDED JUNE 30, 2020

  • $114.8 million decrease in equipment inventory year-over-year as a result of continued focus in this area.
  • $19.3 million (9.9%) increase in sales in the quarter to $213.8 million compared with the second quarter of 2019, largely due to higher sales of used equipment, combined with greater parts and service sales.
  • Gross profit as a percent of sales decreased to 13.5% from 15.1% in the same period in 2019 as the increase in used equipment sales volume was outweighed by the typical thinner margins of this category.
  • $2.5 million (12.3%) decrease in Operating SG&A in the quarter to $17.9 million reflecting the benefit of cost reduction efforts implemented during the second half of 2019.
  • $0.3 million (9.3%) decrease in borrowing costs for the quarter due to lower average levels of interest-bearing floor plan payable.

SELECTED FINANCIAL INFORMATION

 

Three months ended June 30,

$ thousands, except per share and percentage amounts

2020

2019

Change

% Change

 

 

 

 

 

Sales

213,844

194,574

19,270

9.9

Cost of sales

185,059

165,251

19,808

12.0

Gross profit

28,785

29,323

(538)

(1.8)

Gross profit as a % of sales

13.5%

15.1%

(1.6)

 

 

 

 

 

 

Selling, general and administrative

21,560

24,127

(2,567)

(10.6)

Loss on derivative financial instruments

33

808

(775)

(95.9)

Recovery on sale of disposal group

-

(272)

272

100.0

Earnings from operating activities

7,192

4,660

2,532

54.3

Canadian emergency wage subsidy income

4,597

-

4,597

100.0

Earnings before borrowing costs and income taxes

11,789

4,660

7,129

153.0

Borrowing costs

3,224

3,554

(330)

(9.3)

Earnings before income taxes

8,565

1,106

7,459

674.4

Income tax expense

2,197

356

1,841

517.1

Net earnings

6,368

750

5,618

749.1

 

 

 

 

 

Net earnings as a % of sales

3.0%

0.4%

2.6%

 

 

 

 

 

 

Earnings per share

 

 

 

 

Basic

0.33

0.04

0.29

725.0

Diluted

0.33

0.04

0.29

725.0

Dividends per share

0.0150

0.1225

(0.1075)

(87.8)

Book value / share – June 30

9.50

9.92

(0.42)

(4.2)

 

 

 

 

 

Non-IFRS Measures2

 

 

 

 

Adjusted Diluted Earnings per Share

0.15

0.06

0.09

150.0

Adjusted EBITDA

8,240

5,994

2,246

37.5

Operating SG&A

17,937

20,444

(2,507)

(12.3)

Operating SG&A as a % of sales

8.4%

10.5%

(2.1%)

 

RESULTS FOR THE QUARTER ENDED JUNE 30, 2020

During the quarter, we continued working to reposition RME within our current operating environment. Through a concerted effort to focus on used equipment sales we have achieved a methodical and orderly reduction of equipment inventory. This is highlighted in the year-over-year equipment inventory reduction of $114,842.

We also implemented several changes to RME's capital structure during the quarter. We secured $60,000 in new financing, restructured existing credit facilities and decreased the quarterly dividend, all in an effort to preserve capital and maintain a strong balance sheet amid ongoing market uncertainty.

INVENTORY

  • On a year-over-year basis, our equipment inventory reduction efforts have resulted in a $114,842 decline in total equipment inventories, with new and used equipment inventories decreasing by $77,107 and $37,735, respectively.
  • From December 31, 2019 to June 30, 2020, equipment inventory levels declined by $78,540.

SALES AND MARGINS

  • Sales increased 9.9% or $19,270 to $213,844 compared with $194,574 for the same period in 2019 largely due to higher sales of used equipment, combined with greater parts and service sales.
  • Gross profit decreased slightly, from $29,323 to $28,785. Gross profit as a % of sales decreased to 13.5% from 15.1% in the same period in 2019. These slimmer margins are the result of RME's focus on used equipment sales.

COST STRUCTURE

  • Operating SG&A decreased by $2,507, or 12.3%, to $17,937 from $20,444 in 2019 reflecting the benefit of cost reduction efforts implemented during the second half of last year. As a percentage of sales, Operating SG&A decreased to 8.4% from 10.5% for the same period in 2019, as the decline in Operating SG&A was combined with an increase in sales.
  • Borrowing costs for the quarter ended June 30, 2020 decreased 9.3% or $330 to $3,224 compared with $3,554 during the same period in 2019 due to lower average levels of interest-bearing floor plan payable.

CANADIAN EMERGENCY WAGE SUBSIDY (“CEWS”) INCOME

  • The CEWS was brought into law on April 11, 2020 and introduced a wage subsidy of up to 75% for qualifying businesses, retroactive to March 15, 2020. The subsidy covers employers of all sizes and across all sectors who had suffered a drop in revenue of at least 15% in March and 30% the preceding months. RME qualified for CEWS in March and April 2020 and received $4,597.

EARNINGS

  • Adjusted EBITDA for the quarter ended June 30, 2020 increased $2,246 to $8,240 compared with $5,994 for the same period in 2019, excluding the CEWS noted above.
  • Diluted Earnings per Share increased by $0.29 to $0.33 for the second quarter of 2020, compared with $0.04 for the same period of 2019.
  • Adjusted Diluted Earnings per Share increased by $0.09 to $0.15 for the second quarter of 2020, compared with $0.06 for the same period of 2019.

TRADE DISPUTES, COVID-19 AND CONTINUED MARKET UNCERTAINTY

Unresolved trade disputes between Canada and several of its agriculture commodity trading partners continues to add uncertainty to farmer sentiment and consequently, demand for agriculture equipment. As a result, while Q2 2020 equipment sales have increased year-over-year, they remain depressed relative to historical norms.

The COVID-19 pandemic has been pervasive in its global impacts. While our business has been impacted, agriculture equipment distribution has been classified as an essential service by provincial governments where we operate. As a result, all of our Canadian branch locations remained open for business during the quarter. RME continues to implement provincially and federally recommended safety precautions to continue supporting and protecting our customers, various stakeholders and communities. The volatility and unknown duration of this pandemic has created a great deal of uncertainty and the future is very difficult to predict but RME will continue to work safely and diligently to be the dependable partner our customers and shareholders deserve.

The cumulative impact of these headwinds is reflected in the June 2020 Ag Tractor and Combine Report for Canada, from the Association of Equipment Manufacturers, which reported year-to-date sales declines in major product categories including 4WD tractors (down 17%) and self-propelled combines (down 31%). These 2020 declines are a continuation of market trends which commenced subsequent to 2018.

FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

The MD&A as well as the unaudited condensed consolidated interim financial statements and notes thereto for the quarter ended June 30, 2020 and 2019, are available online at www.rockymtn.com and www.sedar.com.

NON-IFRS MEASURES

This news release references Adjusted Diluted Earnings per Share, Adjusted EBITDA, Operating SG&A and Operating SG&A as a percent of sales, all of which are non-IFRS measures. 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. Readers should not consider these measures in isolation or as a substitute for analysis of RME’s results as reported under IFRS. The definition and calculation for each non-IFRS measure is contained within RME’s MD&A for the quarter ended June 30, 2020 under the headings “Non-IFRS Measures” and “Reconciliation of Non-IFRS Measures to IFRS”, respectively. RME’s MD&A for the quarter ended June 30, 2020 is available online at www.rockymtn.com and www.sedar.com

CONFERENCE CALL

RME will host a conference call and webcast to discuss the quarter at 9:00 a.m. MT (11:00 a.m. ET) today. Please note that the format of the webcast incorporates a visual presentation for investors and analysts. To listen to the live webcast and watch the presentation please use the following link:

https://event.on24.com/wcc/r/2402840/A6D25D195778A02C345078AE0529DCA2

Within 24 hours of the event, the webcast will be available for replay at the link above until July 29, 2021.

Those interested in participating in the conference call may do so by calling 1-888-869-1189 and provide the Conference ID which is 2341859 to the live agent.

An archived recording of the conference call will be available until August 19, 2020 by dialing 1-800-585-8367 (toll free) or 1-416-621-4642, Conference ID: 2341859. This archived recording will also be available at www.rockymtn.com.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This news release contains FLS within the meaning of applicable securities legislation. All statements, other than statements of historical fact, included herein may be FLS. FLS typically contain words or phrases such as “may”, “outlook”, “objective”, “intend”, “estimate”, “anticipate”, “should”, “could”, “would”, “will”, “expect”, “believe”, “plan”, “predict” and other similar terminology suggesting future outcomes or events. FLS involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RME or industry results, to be materially different from any future results, events, expectations, performance or achievements expressed or implied by such FLS. FLS also involves numerous assumptions and should not be read as guarantees of future performance or results. Such statements will not necessarily be accurate indications of whether or not such future performance or results will be achieved. Readers of this news release should not unduly rely on FLS as a number of factors, many of which are beyond the control of RME, could cause actual performance or results to differ materially from the performance or results discussed in the FLS. RME’s actual results could differ materially from those anticipated in the FLS in this news release as a result of the risk factors set forth herein under the heading “Risks and Uncertainties” and elsewhere as well as the risk factors set forth in RME’s AIF. Although the FLS contained in this news release are based upon what management of RME believes are reasonable assumptions, RME cannot assure investors that actual performance or results will be consistent with these FLS. These statements reflect current expectations regarding future events and operating performance and are based on information currently available to RME’s management. There can be no assurance that the plans, intentions or expectations upon which these FLS are based will occur. All FLS in this news release are qualified in their entirety by the cautionary statements herein and those set forth in RME’s AIF available on SEDAR at www.sedar.com. These FLS and the outlook contained in this news release are made as of the date of this document and, except as required by applicable law, RME assumes no obligation to update or revise them to reflect new events or circumstances.

ABOUT ROCKY MOUNTAIN DEALERSHIPS INC. (TSX: RME)

RME is Canada’s largest agriculture equipment dealer with branches located throughout Alberta, Saskatchewan, and Manitoba. Through its dealer network, RME sells, rents, and leases new and used agriculture equipment and offers product support and financing to its customers.

Additional information on RME is available at www.rockymtn.com and on SEDAR at www.sedar.com.


1 Agriculture and Agir-Foods Canada Outlook for Principal Field Crops, July 17, 2020.
2 See further discussion in “Non-IFRS Measures” section below.

Contacts

FOR INVESTOR AND MEDIA INQUIRIES, PLEASE CONTACT:
Rocky Mountain Dealerships Inc.
Clayton Paradis, 403-999-7658
cparadis@rockymtn.com