Rocky Mountain Dealerships Inc. (TSX:RME) Announces 2016 Fourth Quarter and Year-End Results

CALGARY, March 14, 2017 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter and year ended December 31, 2016.

SUMMARY OF THE YEAR ENDED DECEMBER 31, 2016 

• Adjusted Diluted Earnings per Share⁽¹⁾ increased by $0.12 or 16.9% to $0.83.
• Adjusted EBITDA⁽¹⁾ increased by $3.0 million or 10.5% to $31.6 million.
• Operating SG&A⁽¹⁾ declined by $11.4 million to $89.2 million (9.6% of sales, down from 10.3% in 2015)
• Equipment inventory declined by $57.1 million to $403.0 million, surpassing our targeted reduction for the year.
• Sales declined by 4.6% to $930.4 million.
• Gross profit declined by 6.0% to $133.4 million (14.3% of sales, down from 14.6% in 2015).
• Generated Operating Cash Flow before Changes in Floor Plan⁽¹⁾ of $87.6 million, down from $92.2 million in 2015.
• Amalgamated industrial distribution facilities in Calgary and Red Deer, Alberta into existing agriculture facilities, incurring one-time charges of $3.6 million.
• Completed the construction of our new, $10.3 million state-of-the-art facility in Yorkton, Saskatchewan.

SUMMARY OF THE QUARTER ENDED DECEMBER 31, 2016

• Adjusted Diluted Earnings per Share⁽¹⁾ declined by $0.02 or 8.0% to $0.23.
• Adjusted EBITDA⁽¹⁾ declined by $0.8 million or 8.8% to $8.2 million.
• Operating SG&A⁽¹⁾ declined by $2.2 million to $23.0 million (8.1% of sales, down from 8.8% in 2015)
• Inventory declined by $2.9 million to $442.7 million.
• Generated Operating Cash Flow before Changes in Floor Plan⁽¹⁾ of $14.5 million, up from $6.8 million in 2015.
• Sales of $285.7 million were in line with the fourth quarter of 2015.
• Gross profit declined by 9.1% to $34.1 million (11.9% of sales, down from 13.1% in 2015).

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

The consolidation of our industrial distribution network and realignment of our cost structure to current market demand allowed Rocky to reduce Operating SG&A by 11.3% in 2016. This ongoing effort helped lead to improved net earnings for the year.  

Our sales efforts throughout 2016 included targeting used equipment inventory as well as reducing new equipment procured for, and sold out of stock. These efforts contributed positively to our used equipment sales during 2016, neutralizing the impact of reduced overall market demand. The successful execution of these strategies allowed Rocky to surpass its reduction target, drawing equipment inventory down by $57.1 million or 12.4% during 2016. While Rocky's focus on reducing used inventory impacted margins during the year, unlocking this capital and cleaning up our inventory positions us well for the future.

Rocky also continued to delever its balance sheet throughout the year through positive operational cashflow. In addition to consolidating its Calgary and Red Deer industrial stores into existing agriculture facilities, Rocky also completed the construction of a new facility in Yorkton, Saskatchewan, to meet the future needs of that active and important agriculture market.

"We have achieved our 2016 objective of rebalancing our business to align it with prevailing market conditions," said Garrett Ganden, President & Chief Executive Officer.  "We have successfully reduced our overall inventory levels, associated debt and enhanced the efficiency of our operating cost structure through a combination of facility consolidation and other cost containment measures.

"Our team delivered a second consecutive year of inventory reduction in excess of $50 million, all while reducing our Operating SG&A by 11.3% without affecting branch-level customer support, and also delivering strong cash generation and improved net profitability.  While we continue to work through the low end of the equipment demand cycle, we are beginning to see some positive signs that market demand may have stabilized.  Having accomplished these objectives in 2016, our business is well-positioned to compete in the current economic environment and prepared to leverage our improved cost efficiencies when the market turns. 

"Farmers generally enjoyed excellent growing conditions in 2016, resulting in the Canadian Prairies being seeded corner-to-corner.  Production of principal field crops remain high, despite some harvesting difficulties created by rain and early snowfall in certain regions.  These harvest challenges created some downward pressure on demand for our products and services during the fourth quarter.  Our results for the fourth quarter were also impacted by longer-than-expected lead times for pre-sold equipment units, resulting in some customer units not being delivered until 2017.

"The consolidation of our industrial stores into existing agriculture stores was also a major undertaking that we believe will benefit Rocky in the long-term.  We continue to experience demand for our suite of first-class industrial equipment products, but we need to ensure that our cost structure is in line with that demand.  Not only do we believe we have achieved that with the consolidation undertaken this year, but we also believe we will be able to reach out to new potential customers by selling this equipment through our agriculture distribution channels. 

"We are also cognizant of the need to invest in facilities going forward, and did just that with the opening of our new, state-of-the art store in Yorkton, Saskatchewan during 2016.  We view Yorkton as a major agriculture hub, and see this new facility as meeting not only current customer needs, but the needs of our growing installed base in the region, for many years to come.

"At its core, Rocky is a sales and marketing organization.  Despite changes to our business structure to respond to demand, this fact has remained first and foremost in our decisions.  We operate in an excellent industry with very strong underlying fundamentals, as evidenced by the strong balance sheets enjoyed by Canadian farmers.  It is therefore incumbent upon us at Rocky to ensure that we continue to provide the compelling value proposition to our customers, to create, and maintain, the annuity of business that is paramount to this industry."

Annual Meeting of Shareholders

Rocky also announced today that its Annual General Meeting of Shareholders ("AGM") will take place at 11:00 a.m. on Tuesday, May 9, 2017, 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 2017 to shareholders of record at the close of business on April 4, 2017.

Quarterly Cash Dividend

On January 25, 2017, Rocky's Board of Directors approved a quarterly dividend of $0.115 per common share on Rocky's outstanding common shares.  The common share dividend is payable on March 31, 2017, to shareholders of record at the close of business on February 28, 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

On Wednesday, March 15, 2017, Rocky will discuss its year-end 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 29, 2017 by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 57709994.  This archived recording will also be available via Rocky's website.

Caution regarding forward-looking statements

Certain information and statements set forth in this news release, including, without limitation, statements about future demand for Rocky's products or services; statements that we are beginning to see some positive signs that market demand may have stabilized; statements that we are prepared to leverage our improved cost efficiencies when the market turns; statements implying any future economic or demand improvements in the markets in which we operate; statements about the levels of principal field crops; statements about some customer units not being delivered until 2017 and any implied statements about the future economic or business impact therefrom; statements that the amalgamation of our industrial stores into existing agriculture stores will benefit Rocky in the long-term; statements that we will be able to reach out to new customers by selling industrial equipment through existing agriculture channels; statements discussing or implying growth in business, installed base, or future demand for Rocky's products and services as a result of Rocky's new facility in Yorkton, Saskatchewan; and, statements discussing the annuity of business Rocky may achieve, 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, 2016, 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 one of Canada's largest agriculture 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 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.

STATEMENT OF FINANCIAL POSITION – SUMMARY

$ thousands			December 31, 2016	December 31, 2015
Assets
	Inventory		442,742	499,760
	Other current assets		65,532	63,824
		Total current assets	508,274	563,584
	Property and equipment		48,586	39,888
	Deferred tax asset		1,210	2,367
	Derivative financial assets		578	-
	Intangible assets		507	671
	Goodwill		18,776	18,802
Total assets			577,931	625,312
Liabilities and equity
	Floor plan payable		296,061	356,568
	Other current liabilities		61,519	53,893
		Total current liabilities	357,580	410,461
	Long-term debt		40,778	40,080
	Obligations under finance leases		521	154
	Derivative financial liabilities		1,871	4,859
		Total liabilities	400,750	455,554
	Shareholders' equity		177,181	169,758
Total liabilities and equity			577,931	625,312

SELECTED FINANCIAL INFORMATION

		For the quarter ended December 31,				For the year ended December 31,
$ thousands, except per share amounts		2016		2015		2016		2015
Sales		285,749	100.0%	285,587	100.0%	930,435	100.0%	975,456	100.0%
Cost of sales		251,633	88.1%	248,049	86.9%	797,028	85.7%	833,475	85.4%
Gross profit		34,116	11.9%	37,538	13.1%	133,407	14.3%	141,981	14.6%
Selling, general and administrative		25,205	8.8%	27,175	9.5%	97,970	10.5%	108,228	11.1%
(Gain) loss on derivative financial instruments		(605)	(0.2%)	274	0.1%	(4,751)	(0.5%)	3,548	0.4%
Restructuring charges		-	0.0%	-	0.0%	3,564	0.4%	-	0.0%
Impairment loss on vacant land		-	0.0%	-	0.0%	1,360	0.1%	-	0.0%
Earnings before finance costs and income taxes		9,516	3.3%	10,089	3.5%	35,264	3.8%	30,205	3.1%
Finance costs		3,346	1.1%	3,813	1.3%	14,343	1.6%	14,807	1.5%
Earnings before income taxes		6,170	2.2%	6,276	2.2%	20,921	2.2%	15,398	1.6%
Income taxes		1,466	0.6%	1,696	0.6%	5,955	0.6%	4,105	0.4%
Net earnings		4,704	1.6%	4,580	1.6%	14,966	1.6%	11,293	1.2%
Earnings per share
	Adjusted Diluted Earnings per Share^(1)	0.23		0.25		0.83		0.71
	Basic	0.24		0.24		0.77		0.58
	Diluted	0.24		0.24		0.77		0.58
Dividends per share		0.115		0.115		0.46		0.46
Book value per share – diluted (as at December 31)						9.14		8.78
Adjusted EBITDA^(1)		8,176	2.9%	8,966	3.1%	31,621	3.4%	28,622	2.9%
Operating SG&A^(1)		23,044	8.1%	25,260	8.8%	89,238	9.6%	100,612	10.3%
Operating Cash Flow before Changes in Floor Plan^(1)		14,542	5.1%	6,844	2.4%	87,626	9.4%	92,193	9.5%

(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, costs associated with amalgamating the industrial operations and impairment losses recognized on vacant land have been classified as non-recurring charges.  The impairment losses are not expected to give rise to a reduction in our tax provision.
  
  
• "EBITDA" is a commonly used metric in the dealership industry.  EBITDA is calculated by adding finance costs associated with long-term debt, income taxes and depreciation and amortization 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.  During 2016, the Company has revised the description of what has historically been presented as interest on long-term debt.  These costs are now described as finance costs associated with long-term debt and are included within finance costs on the statement of net earnings.  This change in description did not impact the composition of the underlying metric. 
  
  
• "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, costs associated with amalgamating the industrial operations and impairment losses recognized on 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 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 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.
  
  Historically, the Company eliminated the impact of unrealized losses (gains) arising from the revaluation of derivative financial instruments as well as non-recurring charges (recoveries) recognized within SG&A when calculating Operating SG&A.  During 2016, the Company revised the presentation of certain items within its statement of net earnings.  Among these revisions is the separate presentation of unrealized losses (gains) arising from the revaluation of derivative financial instruments as well as costs associated with amalgamating the industrial operations and impairment losses recognized on vacant land, all of which had been previously classified as non-recurring charges and eliminated from SG&A.  As these items are no longer included within SG&A, they no longer require elimination in the calculation of Operating SG&A.
  
  
• "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.  This measure was previously defined as Floor Plan Neutral Operating Cash Flow.  Management believes that the new nomenclature is a more intuitive description of the metric.

RECONCILIATION OF NON-IFRS MEASURES TO IFRS

Adjusted Diluted Earnings per Share
	For the quarter ended December 31,		For the year ended December 31,
$ thousands	2016	2015	2016	2015
Earnings used in the calculation of diluted earnings per share	4,704	4,580	14,966	11,293
(Gain) loss on derivative financial instruments	(605)	274	(4,751)	3,548
Loss (gain) on DSUs	16	(53)	220	(211)
SAR expense	230	6	757	24
Industrial restructuring charges	-	-	3,564	-
Impairment loss on vacant land – not tax deductible	-	-	1,360	-
Tax effect of adjustments (27%)	97	(61)	57	(907)
Earnings used in the calculation of Adjusted Diluted Earnings per Share	4,442	4,746	16,173	13,747
Weighted average diluted shares used in the calculation of diluted earnings per share (in thousands)	19,384	19,272	19,384	19,327
Adjusted Diluted Earnings per Share	0.23	0.25	0.83	0.71
EBITDA and Adjusted EBITDA
	For the quarter ended December 31,		For the year ended December 31,
$ thousands	2016	2015	2016	2015
Net earnings	4,704	4,580	14,966	11,293
Finance costs associated with long-term debt	450	501	1,795	2,060
Depreciation expense	1,915	1,962	7,755	7,803
Income taxes	1,466	1,696	5,955	4,105
EBITDA	8,535	8,739	30,471	25,261
(Gain) loss on derivative financial instruments	(605)	274	(4,751)	3,548
Loss (gain) on DSUs	16	(53)	220	(211)
SAR expense	230	6	757	24
Non-recurring industrial amalgamation charges	-	-	3,564	-
Impairment loss on vacant land	-	-	1,360	-
Adjusted EBITDA	8,176	8,966	31,621	28,622
Operating SG&A
	For the quarter ended December 31,		For the year ended December 31,
$ thousands	2016	2015	2016	2015
SG&A	25,205	27,175	97,970	108,228
Depreciation expense	(1,915)	(1,962)	(7,755)	(7,803)
(Loss) gain on DSUs	(16)	53	(220)	211
SAR expense	(230)	(6)	(757)	(24)
Operating SG&A	23,044	25,260	89,238	100,612
Operating SG&A as a % of revenue	8.1%	8.8%	9.6%	10.3%
Operating Cash Flow before Changes in Floor Plan
	For the quarter ended December 31,		For the year ended December 31,
$ thousands	2016	2015	2016	2015
Cash flow from operating activities	12,917	12,839	27,163	35,460
Net decrease (increase) in floor plan payable(2)	1,625	(5,995)	60,463	23,951
Floor plan assumed pursuant to business combinations	-	-	-	32,782
Operating Cash Flow before Changes in Floor Plan	14,542	6,844	87,626	92,193

(2) – 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; David Ascott, Chief Financial Officer; or, Jim Wood, Chief Sales and Operations Officer; #301, 3345 - 8th Street S.E., Calgary, Alberta T2G 3A4, Telephone: [phone], Fax: [phone]

Related Links

http://www.rockymtn.com/