Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) Announces 2016 Third Quarter Results

CALGARY, Nov. 8, 2016 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter ended September 30, 2016.

SUMMARY OF THE QUARTER ENDED SEPTEMBER 30, 2016 

• Total revenues contracted by $33.3 million or 13.0% to $222.6 million
• Gross profit decreased by $3.2 million or 7.9% to $36.9 million (16.6% of sales, up from 15.6%)
• Inventory decreased by $49.2 million or 9.9% to $445.6 million, the lowest reported level since 2012
• Operating SG&A⁽¹⁾ declined by $3.7 million or 14.6% to $21.4 million (9.6% of sales, down from 9.8%)
• Adjusted Diluted Earnings per Share⁽¹⁾ increased by $0.2 or 5.7% to $0.37
• Adjusted EBITDA⁽¹⁾ increased by $0.5 million or 4.3% to $12.2 million

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

"Favorable crop conditions and positive grower sentiment, combined with our lower fixed-cost model, again allowed us to deliver improved year-over-year earnings, despite reduced equipment demand this quarter," remarked Garrett Ganden, President and Chief Executive Officer of Rocky.  "While it is not uncommon for a portion of harvest to take place in the fourth quarter, late-season rains and some early snowfalls have resulted in a higher-than-average amount of harvesting activity to carry over into the fourth quarter this year.  Despite these harvesting delays, early indications are that 2016 should produce a bumper crop, second only to the record-setting crops of 2013. 

"We continue to reap the benefits of the decisions made and strategies implemented over the past two years.  Our ongoing focus on responsible inventory reduction has produced our lowest inventory levels since 2012.  The resulting cash generation enabled us to continue to deleverage our balance sheet during the quarter, including a reduction of $41.7 million on our floor plan payables.  In response to economic conditions, we reduced the fixed cost structure throughout our business, including the previously-announced changes to our industrial equipment distribution model.  We believe our current cost model is both sustainable long-term, as well as scalable to meet future demand.  Combined with improvements made to our balance sheet, we feel well positioned to continue providing value to shareholders.

"The Western Canadian agriculture market continues its track record of strength and stability.  While commodity prices have fluctuated of late, crop receipts continue to be healthy and farmer balance sheets remain strong.  We continue our efforts to position ourselves as a unique and compelling value proposition to customers and shareholders in our industry.  We continue to make progress in this regard, as we seek to make Rocky the equipment dealer of choice throughout Western Canada."

Quarterly Cash Dividend

On November 7, 2016, Rocky's Board of Directors (the "Board") approved a quarterly dividend of $0.115 per common share on its outstanding common shares.  The common share dividend is payable on December 30, 2016, to shareholders of record at the close of business on November 30, 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."  Investors are cautioned that quarterly dividends remain subject to approval by Rocky's Board, and that the Board may, at any time, increase, decrease or suspend payment of the dividend.

Conference Call

On Wednesday, November 9, 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, November 23, 2016, by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 93591284.  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 regarding the seasonal nature of Rocky's core; statements discussing or implying any economic or financial results for 2016, including statements that Rocky is on the right track; statements implying future economic or financial benefits as a result of our cost-containment strategies and statements regarding the sustainability and scalability of Rocky's cost model; statements regarding the anticipated crop yield for 2016; 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, 2016, 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 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.

BALANCE SHEET SUMMARY

$ thousands		September 30, 2016	December 31, 2015	September 30, 2015
Assets
	Inventory	445,613	499,760	489,690
	Other current assets	45,897	63,824	83,380
	Total current assets	491,510	563,584	573,070
	Property and equipment	49,157	39,888	36,295
	Deferred tax asset	1,827	2,367	1,685
	Derivative financial assets	48	-	-
	Intangible assets	548	671	712
	Goodwill	18,776	18,802	18,910
Total assets		561,866	625,312	630,672
Liabilities and equity
	Floor plan payable	299,292	356,568	352,135
	Other current liabilities	49,729	53,893	65,859
	Total current liabilities	349,021	410,461	417,994
	Long-term debt	35,159	40,080	40,050
	Obligations under finance leases	632	154	-
	Derivative financial liabilities	4,146	4,859	4,765
		388,958	455,554	462,809
	Shareholders' equity	172,908	169,758	167,863
Total liabilities and equity		561,866	625,312	630,672

SELECTED FINANCIAL INFORMATION

$ thousands, except per share amounts			For the three months ended September 30,				For the nine months ended September 30,
			2016		2015		2016		2015
Sales
		New equipment	69,173	31.1%	80,432	31.4%	260,946	40.5%	287,573	41.7%
		Used equipment	105,815	47.5%	125,534	49.0%	267,949	41.6%	284,806	41.3%
		Parts	37,737	16.9%	37,918	14.8%	88,393	13.7%	86,895	12.6%
		Service	8,707	3.9%	10,711	4.2%	24,005	3.7%	27,151	3.9%
		Other	1,215	0.6%	1,391	0.6%	3,393	0.5%	3,444	0.5%
			222,647	100.0%	255,986	100.0%	644,686	100.0%	689,869	100.0%
Cost of sales			185,786	83.4%	215,944	84.4%	545,395	84.6%	585,426	84.9%
Gross profit			36,861	16.6%	40,042	15.6%	99,291	15.4%	104,443	15.1%
Selling, general and administrative			23,619	10.6%	30,334	11.8%	73,543	11.4%	84,327	12.2%
Interest on short-term debt			3,262	1.5%	3,276	1.3%	9,652	1.5%	9,435	1.4%
Interest on long-term debt			438	0.2%	519	0.2%	1,345	0.2%	1,559	0.2%
Earnings before income taxes			9,542	4.3%	5,913	2.3%	14,751	2.3%	9,122	1.3%
Provision for income taxes			2,910	1.3%	1,561	0.6%	4,489	0.7%	2,409	0.3%
Net earnings			6,632	3.0%	4,352	1.7%	10,262	1.6%	6,713	1.0%
Earnings per share
		Adjusted Diluted Earnings per Share^(1)	0.37		0.35		0.61		0.47
		Basic	0.34		0.23		0.53		0.35
		Diluted	0.34		0.23		0.53		0.35
Dividends per share			0.115		0.115		0.345		0.345
Book value per share – diluted (as at September 30)							8.92		8.68
Adjusted EBITDA^(1)			12,208	5.5%	11,707	4.6%	23,445	3.6%	19,656	2.8%
Operating SG&A^(1)			21,391	9.6%	25,059	9.8%	66,194	10.3%	75,352	10.9%
Floor Plan Neutral Operating Cash Flow^(1)			62,284	28.0%	48,534	19.0%	71,522	11.1%	85,349	12.4%

(1) – See further discussion of these non-IFRS measures in the "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 redundant land classified held for sale 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 interest on 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.
  
  
• "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 redundant land classified held for sale have been classified as non-recurring charges.
  
  
• "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 and amortization as well as 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, costs associated with amalgamating the industrial operations and impairment losses recognized on redundant land classified held for sale have been classified as non-recurring charges.  We target a sub-10% Operating SG&A as a percentage of total sales on an annual basis.  
  
  
• "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	For the three months ended September 30,		For the nine months ended September 30,
	2016	2015	2016	2015
Earnings used in the calculation of diluted earnings per share	6,632	4,352	10,262	6,713
(Gain) loss on derivative financial instruments	(2,929)	3,438	(4,146)	3,274
Loss (gain) on DSUs	134	(155)	204	(158)
SAR expense (recovery)	443	(92)	527	18
Non-recurring industrial amalgamation charges	1,333	-	3,564	-
Impairment loss on redundant land – not tax deductible	1,360	-	1,360	-
Tax effect of adjustments (27%)	275	(862)	(40)	(846)
Earnings used in the calculation of Adjusted Diluted Earnings per Share	7,248	6,681	11,731	9,001
Weighted average diluted shares used in the calculation of diluted earnings per share (in thousands)	19,384	19,299	19,384	19,334
Adjusted Diluted Earnings per Share	0.37	0.35	0.61	0.47
EBITDA and Adjusted EBITDA
$ thousands	For the three months ended September 30,		For the nine months ended September 30,
	2016	2015	2016	2015
Net earnings	6,632	4,352	10,262	6,713
Interest on long-term debt	438	519	1,345	1,559
Depreciation and amortization expense	1,887	2,084	5,840	5,841
Income taxes	2,910	1,561	4,489	2,409
EBITDA	11,867	8,516	21,936	16,522
(Gain) loss on derivative financial instruments	(2,929)	3,438	(4,146)	3,274
Loss (gain) on DSUs	134	(155)	204	(158)
SAR expense (recovery)	443	(92)	527	18
Non-recurring industrial amalgamation charges	1,333	-	3,564	-
Impairment loss on redundant land	1,360	-	1,360	-
Adjusted EBITDA	12,208	11,707	23,445	19,656
Operating SG&A
$ thousands	For the three months ended September 30,		For the nine months ended September 30,
	2016	2015	2016	2015
SG&A	23,619	30,334	73,543	84,327
Depreciation and amortization expense	(1,887)	(2,084)	(5,840)	(5,841)
Gain (loss) on derivative financial instruments	2,929	(3,438)	4,146	(3,274)
(Loss) gain on DSUs	(134)	155	(204)	158
SAR (expense) recovery	(443)	92	(527)	(18)
Non-recurring industrial amalgamation charges	(1,333)	-	(3,564)	-
Impairment loss on redundant land	(1,360)	-	(1,360)	-
Operating SG&A	21,391	25,059	66,194	75,352
Operating SG&A as a % of revenue	9.6%	9.8%	10.3%	10.9%
Floor Plan Neutral Operating Cash Flow
$ thousands	For the three months ended September 30,		For the nine months ended September 30,
	2016	2015	2016	2015
Cash flow from operating activities	20,590	21,367	14,246	22,621
Net decrease in floor plan payable	41,694	27,167	57,276	29,946
Floor plan assumed pursuant to business combinations	-	-	-	32,782
Floor Plan Neutral Operating Cash Flow	62,284	48,534	71,522	85,349

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]