Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) Announces 2015 Fourth Quarter and Year-End Results

CALGARY, March 15, 2016 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter and year ended December 31, 2015.

SUMMARY OF THE QUARTER ENDED DECEMBER 31, 2015

• Total revenues decreased by 2.9% to $285.6 million.
• Used equipment sales increased by 16.1% to $92.7 million.
• Gross profit decreased by 4.9% to $37.5 million (13.1% of sales).
• Adjusted Diluted Earnings per Share⁽¹⁾ declined by 21.9% to $0.25.
• Adjusted EBITDA⁽¹⁾ declined 16.6% to $9.0 million.
• Inventory increased by $10.1 million to $499.8 million.

SUMMARY OF THE YEAR ENDED DECEMBER 31, 2015

• Total revenues increased by 1.0% to $975.5 million.
• Same store agriculture sales held flat despite softer industry demand.
• Used equipment sales increased by 24.4% to $377.5 million.
• Gross profit decreased by 2.5% to $142.0 million (14.6% of sales).
• Adjusted Diluted Earnings per Share⁽¹⁾ declined by 26.8% to $0.71.
• Adjusted EBITDA⁽¹⁾ declined 18.9% to $28.6 million.
• Inventory decreased by $69.8 million to $499.8 million⁽²⁾.
• Expanded our sales territory through the acquisition of Chabot.
• Completed the construction of our new facility in Neepawa, Manitoba.

^{(1) – See further discussion in "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS" sections below.
(2) – Excluding $43.6 million of inventory acquired through the Chabot acquisition.}

During 2015, Rocky was able to deliver strong gains in several key areas in what was a challenging operating environment. Among other factors, the impact of the U.S. exchange rate on new equipment prices dictated a different approach to equipment purchasing in 2015, bolstering demand for used equipment and product support within our agriculture segment. Strategic initiatives undertaken by Rocky in response to these changes focused resources and efforts on these areas of demand, resulting in revenue growth and improved cash flow.

The continued demand for lightly-used equipment helped drive down inventory levels by $68.9 million during 2015, excluding inventory acquired through business combinations. On the Industrials front, the persistence of the depression in oil prices continued to negatively impact economic activity in Alberta. Cost containment initiatives undertaken by Rocky in 2014 and 2015 helped to curtail losses in that regard during the year.

"Rocky was able to leverage the market conditions that prevailed in 2015 to further our existing initiatives to reduce inventory and build our product support business," remarked Garrett Ganden, President & Chief Executive Officer of Rocky.  "As we continue to grow our installed-base of agriculture equipment and customers, we anticipate further demand for our product support business, which posted another strong year in 2015. We were also pleased to see the consistency in our same-store agriculture revenue year-over-year, despite softer overall equipment demand.

"In addition to these operational initiatives, Rocky was able to further grow its footprint in 2015 by acquiring Chabot Implements, a long-standing dealer of Case IH products in Manitoba. This strategic acquisition allowed us to further consolidate our position as a major equipment distributor in the Manitoba region. We were also able to enhance our product and service offering in the area of geomatics and precision farming through our acquisition of NGF Geomatics. As farms get larger and more technologically sophisticated, we feel that Rocky is well positioned to meet their equipment and technology demands.

"The cost containment strategies that we enacted during the year offset much of the incremental SG&A associated with our acquisitions. As part of this process, we undertook initiatives to reduce our fixed charges by amalgamating locations in certain regions. We believe that the steps taken in this regard will allow us to uphold the level of service and territory coverage that our customers expect, at a reduced cost. Due to investments we have made in process and efficiency, we were able to both grow our sales territory and shrink our "bricks and mortar" footprint, with little interruption to our core business.

"Our Industrial segment lost some of the traction that they had gained in 2014, due primarily to the precipitous drop in oil prices, and its effect on the Alberta economy. While Rocky's Industrials segment is not reliant on doing business directly with Alberta's oil industry, we still are prone to the indirect effects that this downturn has created. We continue to work on initiatives to further our brand and ultimately achieve profitability despite these challenges."

Mr. Ganden concluded his comments by saying, "Our focus continues to be the safe, dependable equipment partner of choice for our agriculture and industrial customers. We continue to lay the groundwork for maintaining and growing customer relationships across our network. To that end, in 2015 we were pleased to open a new, state-of-the-art store in Neepawa, Manitoba, and we are looking forward to the completion of our new, larger store in Yorkton, Saskatchewan, in the coming weeks. Through these investments in our facilities and in the communities we operate, we hope to maintain the continued annuity of business that these relationships can create."

Annual Meeting of Shareholders

Rocky also announced today that its Annual Meeting of Shareholders ("AGM") will take place at 2:00 pm on Tuesday, May 3, 2016, in the showroom of Rocky Mountain Equipment, 260180 Writing Creek Crescent, Rocky View County, Alberta. Materials related to the upcoming AGM will be sent in mid-April 2016 to shareholders of record at the close of business on March 29, 2016.

Quarterly Cash Dividend

On February 2, 2016, Rocky's 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 March 31, 2016, to shareholders of record at the close of business on February 29, 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."

Conference Call

On Wednesday, March 16, 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, March 30, 2016, by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 42558477. 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, statements associating any amendments to Rocky's credit facilities with potential growth, statements regarding the impact of the U.S. Exchange rate on equipment prices, and statements regarding the completion of Rocky's new, larger store in Yorkton, Saskatchewan, 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 year ended December 31, 2015, 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 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		December 31, 2015	December 31, 2014
Assets
	Inventory	499,760	526,003
	Other current assets	63,824	69,049
	Total current assets	563,584	595,052
	Property and equipment	39,888	32,886
	Deferred tax asset	2,367	1,186
	Intangible assets	671	-
	Goodwill	18,802	14,692
Total assets		625,312	643,816
Liabilities and equity
	Floor plan payable	356,568	382,081
	Other current liabilities	53,893	57,261
	Total current liabilities	410,461	439,342
	Long-term debt	40,080	32,776
	Obligations under finance leases	154	9
	Derivative financial liabilities	4,859	3,282
		455,554	475,409
	Shareholders' equity	169,758	168,407
Total liabilities and equity		625,312	643,816

SELECTED FINANCIAL INFORMATION

$ thousands, except per share amounts		For the quarter ended December 31,				For the year ended December 31,
		2015		2014		2015		2014
Sales
	New equipment	162,424	56.9%	182,555	62.1%	449,997	46.1%	521,747	54.0%
	Used equipment	92,676	32.5%	79,810	27.1%	377,482	38.7%	303,536	31.4%
	Parts	20,614	7.2%	21,320	7.2%	107,509	11.0%	101,622	10.5%
	Service	8,714	3.1%	9,569	3.3%	35,865	3.7%	35,064	3.6%
	Other	1,159	0.3%	838	0.3%	4,603	0.5%	3,438	0.5%
		285,587	100.0%	294,092	100.0%	975,456	100.0%	965,407	100.0%
Cost of sales		248,049	86.9%	254,623	86.6%	833,475	85.4%	819,785	84.9%
Gross profit		37,538	13.1%	39,469	13.4%	141,981	14.6%	145,622	15.1%
Selling, general and administrative		27,449	9.6%	27,548	9.4%	111,776	11.5%	105,756	11.0%
Interest on short-term debt		3,312	1.2%	2,956	1.0%	12,747	1.3%	11,483	1.2%
Interest on long-term debt		501	0.1%	524	0.1%	2,060	0.2%	2,182	0.2%
Earnings before income taxes		6,276	2.2%	8,441	2.9%	15,398	1.6%	26,201	2.7%
Provision for income taxes		1,696	0.6%	2,220	0.8%	4,105	0.4%	7,276	0.7%
Net earnings		4,580	1.6%	6,221	2.1%	11,293	1.2%	18,925	2.0%
Earnings per share
	Adjusted Diluted Earnings per Share^(1)	0.25		0.32		0.71		0.97
	Basic	0.24		0.32		0.58		0.98
	Diluted	0.24		0.32		0.58		0.98
Dividends per share		0.1150		0.1150		0.4600		0.4450
Adjusted EBITDA^(1)		8,966	3.1%	10,746	3.7%	28,622	2.9%	35,303	3.7%
Operating SG&A^(1)		25,260	8.8%	25,767	8.8%	100,612	10.3%	98,836	10.2%
Floor Plan Neutral Operating Cash Flow^(1)		6,844	2.4%	7,822	2.7%	92,193	9.5%	(22,993)	(2.4%)

^{(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 year, 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 quarter ended December 31,		For the year ended December 31,
		2015	2014	2015	2014
Earnings used in the calculation of diluted earnings per		4,580	6,221	11,293	18,925
	share
Loss on derivative financial instruments		274	77	3,548	68
Gain on DSUs		(53)	(127)	(211)	(223)
SAR expense		6	18	24	18
Tax effect of adjustments (2015 - 27%, 2014 – 25%)		(61)	8	(907)	34
Earnings used in the calculation of Adjusted Diluted		4,746	6,197	13,747	18,822
	Earnings per Share
Weighted average diluted shares used in the		19,272	19,272	19,327	19,309
	calculation of diluted earnings per share (in thousands)
Adjusted Diluted Earnings per Share		0.25	0.32	0.71	0.97

EBITDA and Adjusted EBITDA

$ thousands	For the quarter ended December 31,		For the year ended December 31,
	2015	2014	2015	2014
Net earnings	4,580	6,221	11,293	18,925
Interest on long-term debt	501	524	2,060	2,182
Depreciation expense	1,962	1,813	7,803	7,057
Income taxes	1,696	2,220	4,105	7,276
EBITDA	8,739	10,778	25,261	35,440
Loss on derivative financial instruments	274	77	3,548	68
Gain on DSUs	(53)	(127)	(211)	(223)
SAR expense	6	18	24	18
Adjusted EBITDA	8,966	10,746	28,622	35,303

Operating SG&A

$ thousands	For the quarter ended December 31,		For the year ended December 31,
	2015	2014	2015	2014
SG&A	27,449	27,548	111,776	105,756
Depreciation expense	(1,962)	(1,813)	(7,803)	(7,057)
Loss on derivative financial instruments	(274)	(77)	(3,548)	(68)
Gain on DSUs	53	127	211	223
SAR expense	(6)	(18)	(24)	(18)
Operating SG&A	25,260	25,767	100,612	98,836

Floor Plan Neutral Operating Cash Flow

$ thousands	For the quarter ended December 31,		For the year ended December 31,
	2015	2014	2015	2014
Cash flow from operating activities	12,839	12,898	35,460	16,724
Net decrease (increase) in floor plan payable^(1)	(5,995)	(5,076)	23,951	(39,717)
Floor plan assumed pursuant to business combinations	-	-	32,782	-
Floor Plan Neutral Operating Cash Flow	6,844	7,822	92,193	(22,993)

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

SOURCE Rocky Mountain Dealerships Inc.

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: [phone], Fax: [phone]