Cervus Announces Third Quarter 2020 Results, $15 Million Increase in Adjusted Income Before Income Tax(1)

CALGARY, AB, Nov. 4, 2020 /CNW/ - Cervus Equipment Corporation ("Cervus" or the "Company") (TSX: CERV) today announced its financial results and operational highlights for the three months ended September 30, 2020.

Cervus generated $13 million in adjusted income before income tax, an increase of $15 million from the third quarter of 2019¹, driven by improved performance and profitability across all segments. In the midst of significant industry challenges, Cervus delivered 12% growth in revenue from both equipment sales and product support.

Cervus Q3 2020 Quarterly Report (CNW Group/Cervus Equipment Corporation)

"Cervus has progressed towards our strategic performance objectives, achieving a 9% increase in overall product support revenue, a 33% increase in gross profit and continued G&A expense efficiencies. We also surpassed our used inventory turn¹ objective in Agriculture and reduced inventory levels across all segments, bolstering our already healthy balance sheet," said Angela Lekatsas, President and CEO of Cervus.

"I am pleased to share, that in recognition of the unprecedented nature of the pandemic and our role as an essential service, we are providing a pandemic bonus to our Canadian front-line employees. Our employees have demonstrated exceptional commitment to safely supporting our customers, while also implementing innovative initiatives in support of our long-term objectives. These actions have Cervus well positioned to perform in current market conditions and to take advantage of an eventual economic recovery."

Third Quarter 2020 Highlights

• The Company reported income of $13 million or $0.84 per basic share in the third quarter of 2020, compared to loss of $1.7 million or ($0.11) per basic share in the third quarter of 2019.
  
  
• Income for the quarter includes $5 million of Canada Emergency Wage Subsidy, related to the results of the second quarter.
  
  
• Adjusted income per basic share was $0.57, and excludes the impact of the wage subsidy, compared to adjusted loss per basic share of ($0.10) in the third quarter of 2019.¹
  
  
• Total revenue increased 12% in the quarter, comprised of a 17% increase in Agriculture revenue, a 6% increase in Transportation revenue, partly offset by a 21% decrease in Industrial revenue.
  
  
• Our Agriculture used equipment inventory turnover for the trailing twelve-month period ended September 30, 2020, surpassed our long-term objective, improving to 2.78 times compared to 1.65 times at September 30, 2019.¹
  
  
• Adjusted free cash flow from operations was $49 million for the nine months ended September 30, 2020, compared to $14 million for the nine months ended September 30, 2019.¹
  
  
• During the quarter, Cervus repaid all amounts owing under its syndicated operating facility and capital facilities, and as at September 30, 2020, had a $27 million cash balance and well positioned financial covenants.
  
  
• The Company repurchased 290 thousand shares under its Normal Course Issuer Bid at a cost of $2.1 million in the quarter and declared a dividend of $0.015 per share to shareholders as at September 30, 2020.
  
  
• The Company completed the acquisition of a John Deere dealership located in North Geelong, Victoria, Australia on September 30, 2020. Cervus plans to relocate the John Deere dealership to Colac, Victoria, with an opening planned for November 2020.

Third Quarter 2020 Results

Increased performance and profitability were delivered across all segments, accomplishing $13 million in adjusted income before income tax in the quarter, a $15 million increase compared to the prior period. 

The results of the quarter demonstrate progress towards our strategic performance objectives, despite the impact of COVID-19. We achieved a 9% increase in overall product support revenue, a 33% increase in gross profit, and G&A expense reductions, culminating in the $15 million improvement in adjusted income before income tax. During the year we surpassed our used equipment inventory turn objective in Agriculture and reduced inventory levels across all segments, bolstering our already healthy balance sheet and generating $49 million in adjusted free cash flow for the year to date period.

In our Agriculture segment, total revenue increased 17% with significant contributions from both equipment and product support sales. This revenue growth translated to a 56% increase in gross profit through improved margins and focused delivery of sales strategies, and an $8 million reduction in inventory impairments. Increased product support gross profit, along with sustainable cost reductions, resulted in Agriculture absorption¹ improving to 94% for September 30, 2020 year to date, compared to 87% in the prior period. These results were enabled by strategic product support sales and growth initiatives, enhanced by an earlier harvest and favourable growing conditions.

Our Transportation and Industrial segments contributed a nearly threefold increase in adjusted income before income tax in the quarter, despite being most heavily impacted by the adverse economic conditions presented by the pandemic. Transportation new equipment revenue rebounded relative to a slow second quarter, as we were successful in completing truck orders previously deferred due to COVID-19. This resulted in a $55 million reduction in new truck inventory compared to the end of the first quarter. Both segments continue to manage costs in alignment with customer activity levels, while seeking areas of growth within the existing market.

During the third quarter, the Government of Canada enacted changes to the existing Canada Emergency Wage Subsidy legislation. As a result, Cervus' Transportation and Industrial segments qualified for $5 million of wage subsidy for the months of April, May and June 2020. This has been reported in other income in the current quarter and is excluded in the calculation of adjusted income.

Revenue

• Total revenue increased 12% in the quarter, comprised of a 17% increase in Agriculture revenue, a 6% increase in Transportation revenue, partly offset by 21% decrease in Industrial revenue.
  
  
• In our Agriculture segment, our sales team aligned re-conditioned and attractively priced used equipment with the needs of customers through the Western Canada harvest window, resulting in used equipment revenue increasing 22% in the quarter. Product support revenue increased 19% in the quarter, as we continue to execute on strategic parts initiatives driving towards our 50/50 balanced sales and product support goal, including the opening of our new dealership in Nipawin, Saskatchewan during the second quarter, driving increases in over the counter, on-site, and online parts revenue.
  
  
• Transportation new equipment revenue increased 12% in the quarter, as the easing of COVID-19 restrictions on the Ontario construction industry supported our focused efforts to deliver vocational truck orders in season. While showing some signs of recovery, product support revenue declined 2% in the quarter, resulting from the broader economic impacts of COVID-19.

Gross Profit

• The 12% increase in equipment and product support revenues in the quarter, combined with the significant reduction in inventory impairments of $8 million, resulted in gross profit increasing 33%. Actions to improve our Agriculture equipment sales and trade-in practices, resulted in enhanced marketability and accelerated turnover of used equipment inventory, substantially reducing inventory impairments compared to the prior year.

G&A Expenses and Net Finance Costs

• G&A expenses, which exclude equipment commissions, decreased 1% or $0.5 million in the quarter. These costs reductions were achieved despite recognizing performance incentives and a pandemic bonus to front-line workers in 2020, compared to 2019 when no performance incentives were earned. Excluding the current period increase in performance incentives, G&A decreased 13% or $5 million in the quarter.
  
  
• Net finance costs decreased 33% in the quarter, resulting from reductions in inventory levels and interest rates.

Income

• Income before income tax increased $21 million in the quarter, including the wage subsidy reported in other income of $5 million.
  
  
• The increase in equipment and product support revenues, reduced inventory impairments and a decrease in G&A expenses, as discussed above, resulted in adjusted income before income tax increasing $15 million for the quarter.

Inventory

• Total inventory decreased $115 million from September 30, 2019, including a $95 million decrease in the Agriculture segment and a $20 million decrease in the Transportation segment. This decrease in inventory, combined with strong used sales in the quarter, resulted in Agriculture used equipment turnover for the trailing twelve-month period ended September 30, 2020 improving to 2.78 times from 1.65 times at September 30, 2019.

Select Financial Information

($ thousands, except per share amounts)		Three month periods ended September 30			Nine month periods ended September 30
		2020	% Change Compared to 2019	2019	2020		% Change Compared to 2019		2019
Equipment revenue		259,871	14%	228,637	702,254		11%		634,342
Product support revenue		96,292	9%	88,445	251,755		3%		245,143
Total revenue		356,163	12%	317,082	954,009		8%		879,485
Cost of sales before inventory impairment		(297,845)	12%	(264,906)	(799,327)		9%		(733,525)
Inventory impairment		(1,329)	(86%)	(9,329)	(3,032)		(78%)		(13,510)
Gross profit		56,989	33%	42,847	151,650		14%		132,450
Total other income		6,496		766	6,920				3,261
Equipment commissions		(4,219)	25%	(3,366)	(10,896)		21%		(9,012)
G&A expenses		(38,669)	(1%)	(39,133)	(113,308)		(5%)		(119,005)
Income from operating activities		20,597		1,114	34,366				7,694
Net finance costs		(2,293)	(33%)	(3,422)	(8,350)		(11%)		(9,333)
Income (loss) before income tax expense		18,304		(2,308)	26,016				(1,639)
Income tax (expense) recovery		(5,281)		633	(6,420)				69
Income (loss) for the period		13,023		(1,675)	19,596				(1,570)
EBITDA^(1)		26,410	221%	8,230	51,580		90%		27,104
Ratios
Gross profit margin as a % of revenue		16.0%		13.5%	15.9%				15.1%
Total SG&A as a % of gross profit		75.3%		99.2%	81.9%				96.7%
Income (loss) per share
Basic		0.84		(0.11)	1.26				(0.10)
Diluted		0.81		(0.11)	1.21				(0.10)
Basic - Adjusted^(1)		0.57		(0.10)	1.03				(0.15)
Reconciliation of adjusted income (loss) before income tax expense:
Income (loss) before income tax expense		18,304		(2,308)	26,016				(1,639)
Adjustments:
Unrealized foreign exchange (gain)		(667)		207	1,045				(1,016)
loss included in other income
Government wage subsidies		(5,050)		-	(5,868)				-
Adjusted income (loss) before income tax expense^(1)		12,587		(2,101)	21,193				(2,655)

Conference Call Information

Cervus will host its third quarter 2020 earnings results conference call and webcast on November 5, 2020, at 10:00 a.m. Eastern Time. President and CEO Angela Lekatsas and CFO Adam Lowther will discuss Cervus' financial and operating results for the quarter ended September 30, 2020, followed by questions from securities analysts and institutional shareholders.

Interested parties may access the conference call by dialing [phone] or 1-888-231-8191. Please connect approximately 10 minutes prior to the beginning of the call. The conference call will be archived for replay until Friday, November 13, 2020, at midnight. To access the archived conference call, dial [phone] or 1-855-859-2056 and enter the reservation number 2266512 followed by the number sign.

The webcast of the conference call, which includes a slide presentation may be accessed at:
https://produceredition.webcasts.com/starthere.jsp?ei=1364807&tp_key=58b2350939. 

Please connect approximately 10 minutes prior to the beginning of the call to ensure adequate time for any software download that may be required to join the webcast and view the slides being presented. The webcast will be archived at the above website for 90 days.

Financial Results

All financial information presented in this press release has been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. This press release contains only selected financial and operational highlights and should be read in conjunction with Cervus' unaudited condensed interim consolidated financial statements and related notes and Management's Discussion and Analysis ("MD&A"), as at and for the three and nine month periods ended September 30, 2020, which are available on SEDAR at www.sedar.com and on the Company's website at www.cervusequipment.com. Additional information is contained in the Company's filings with Canadian securities regulators, including the 2019 Annual Report and 2019 Annual Information Form, also available on SEDAR and the Company's website.

Forward Looking Information

Information in this press release and in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws ("forward-looking statements"). These statements include, but are not limited to, statements about the Company's objectives, strategies and initiatives, financial performance expectations and other statements made herein, whether with respect to the Company's businesses or the economies of the countries where the Company operates. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may", "could", "would", "should", "might" or "will be taken", "occur", "be achieved", or other similar expressions of future or conditional verbs.

Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to general economic conditions, the industries and customers served by the Company, its principal equipment partners, currency exchange rates, funding requirements, fluctuating interest rates, legislative and regulatory developments, changes in accounting standards, and competition as well as those factors discussed under the heading "Business Risks and Uncertainties" in Cervus' most recent annual and quarterly Management Discussion and Analysis ("MD&A"), available electronically at www.sedar.com under Cervus' profile.

All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business, economic and market conditions and trends. Although the Company believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Certain material assumptions are applied by the Company in making forward-looking statements. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.

Footnotes

(1)

These non-GAAP financial measures do not have any standardized meaning under IFRS, may not be comparable to similar  measures presented by other issuers and are defined and reconciled to their most directly comparable GAAP measure within Cervus' Management's Discussion and Analysis for the period from January 1, 2020 to September 30, 2020, under the section "Non-GAAP Financial Measures", which is available electronically at www.sedar.com under Cervus' profile.

About Cervus Equipment
Cervus provides equipment solutions to customers in agriculture, transportation, and industrial markets across Canada, Australia, and New Zealand. Throughout its territories and across its diverse markets, Cervus dealerships are united in delivering sales and support of the market-leading equipment our customers depend on to earn a living. The Company operates 64 Cervus dealerships and is the authorized representative of leading equipment brands including: John Deere agricultural equipment; Peterbilt transportation equipment; and Clark, Sellick, Doosan, JLG and Baumann material handling equipment. Its common shares are listed on the Toronto Stock Exchange and trade under the symbol "CERV".

SOURCE Cervus Equipment Corporation

Angela Lekatsas, President and CEO, [email protected]; Adam Lowther, Chief Financial Officer, [email protected]

Related Links

CervusEquipment.com