Strongco Announces First Quarter Results

Solid Revenue Growth and Market Share Gains Continue

TSX Symbol:  SQP

MISSISSAUGA, ON, April 30, 2014 /CNW/ - Strongco Corporation (TSX: SQP) today reported financial results for the three months ended March 31, 2014.

Summary*

• Revenue increased by 7% to $104.4 million
• Product support revenue was up 8% to $32.7 million
• Gross margin increased by 1% to $18.9 million
• Operating loss was $1.1 million compared to a loss of $0.1 million
• EBITDA was $5.7 million compared to $6.5 million
• Equipment Inventory was $245.5 million, and Equipment Notes Payable were $212.0 million, reductions of 7% and 4% respectively

* Comparisons are between first quarter 2014 and first quarter 2013.

"Despite the worst winter in decades - which persisted across all of the regions in which we operate - we were pleased to achieve an overall improvement in sales across all areas of the business, extending our record of solid revenue growth through market share gains," said Bob Dryburgh, President & CEO of Strongco. "As anticipated and in line with expectations, costs related to our branch investments and the upgraded sales organization contributed to higher expense levels. We are confident that the new branches and enhanced organization will contribute to improved earnings as the year progresses."

Financial Highlights

Three-Month Periods Ended March 31 (Unless Otherwise Noted)

$ millions except per share amounts	2014	2013
Revenues	104.4	97.5
Operating Loss	(1.1)	(0.1)
EBITDA^†	5.7	6.5
Loss Before Income Taxes	(4.0)	(3.0)
Net Loss	(3.0)	(2.2)
Basic and Diluted Net Loss Per Share	(0.23)	(0.16)
Equipment Inventory	245.5	264.7
Equipment Notes Payable	212.0	221.8

^† EBITDA refers to earnings before interest, income taxes, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards ("IFRS") and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The Company's management believes that EBITDA is an important supplemental measure in evaluating the Company's performance and in determining whether to invest in Shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of the Company's performance or to cash flows from operating, investing and financing activities as measures of the Company's liquidity and cash flows.

First Quarter 2014 Review

Total revenues in the three months ended March 31, 2014 were $104.4 million, up 7% from the first quarter of 2013. Equipment sales increased by 7% from last year to $64.9 million; rental revenues were $6.8 million, up slightly from 2013; and product support revenues totalled $32.7 million compared to $30.2 million from the same period in the prior year.

Gross margin increased by $0.2 million to $18.9 million during the first quarter of 2014. As a percentage of revenue, the overall gross margin was 18.1%, down from 19.2% last year. The increased revenues in the quarter contributed to higher gross margins but additional reserves for inventory anticipated to be sold at auction in the second quarter, reduced the gross margin percentage.

Administrative, distribution and selling expenses during the first quarter totalled $19.8 million compared to $18.9 million in 2013. Expenses were higher in the first quarter of 2014 due in large part to the investments made in 2013 in new branches in Fort McMurray, Alberta and Saint-Augustin-de-Desmaures, Quebec, along with additional people to support growth and better service our customers.

EBITDA for the first quarter decreased to $5.7 million, from $6.5 million in the first quarter of 2013.

Strongco's net loss in the first quarter of 2014 was $3.0 million ($0.23 per share), compared to a loss of $2.2 million ($0.16 per share) in the first quarter of 2013.

Outlook

"Despite the prolonged winter, our branches are reporting a much improved level of sales enquiries, consistent with the feedback we received from customers during the construction equipment show held in Las Vegas in early March," Dryburgh added.  "Although the new facilities and additional people have added to our cost structure, we expect these investments to result in continued revenue growth and improved market share performance in 2014, which in turn should lead to - despite the expected flat overall market - growth in bottom-line profitability."

Most economists are continuing to forecast modest growth for Canada overall in 2014, with construction markets, by and large, expected to remain active. Growth is anticipated to be strongest in Alberta, led by ongoing activity in the oil sector, and weakest in Quebec where activity continues to be stifled by the ongoing investigation of corruption in the construction industry by the Charbonneau Commission, as well as the suspension of infrastructure spending and increased mining royalties imposed by the previous provincial government. While varying from region to region, management anticipates that overall heavy equipment markets across Canada will remain flat year over year in 2014.

Difficult winter weather conditions also plagued the northeastern United States.  Despite a slow start to the year, heavy equipment markets in New England are expected to show a modest improvement in the latter part of the year as a result of a gradual recovery in the housing market.

While construction activity and demand for heavy equipment was curtailed by the challenging winter weather, the recent onset of warmer weather has created a more optimistic outlook for the upcoming construction season. Quoting activity for heavy equipment, other than cranes, has improved and order backlogs remain at robust levels.

Over the past two years, Strongco has made significant investments in new branches to expand and improve the Company's presence in key markets. In 2012, new branches were opened in Acheson, Alberta, on the outskirts of Edmonton, in Baie Comeau, Quebec to replace the old branch and in Orillia, Ontario to further penetrate the aggregates market in the area. In 2013, new branches were built in Saint-Augustin-de-Desmaures, Quebec, to replace the old branch just outside Quebec City, and in Fort McMurray, Alberta to better service customers in this key northern Alberta market.  The new branch in St-Augustin opened in December 2013 and construction of the new Fort McMurray branch was completed in March 2014. At the same time investments were being made in new branches, the Company was also building and improving its sales organization with additional territory managers, customer sales representatives, product support specialists and an enhanced sales management structure, and has increased the number of skilled service technicians across all business units and regions to better service and meet customer demand. The benefits of these investments were just beginning to be realized in 2013, as evidenced by the market share gains achieved during the year as well as the increased level of product support revenues.

Early indications show that, despite the long and difficult winter, sales growth and market share improvement are continuing in 2014 and management remains optimistic regarding the outlook for the year.

Improved inventory management and debt reduction will continue to be the Company's focus in 2014, with the goal to reduce balance sheet leverage and lower interest costs, and with the recent infrastructure improvements now in place, emphasis is being placed on further improving operating efficiencies.

Conference Call Details

Strongco will hold a conference call on Thursday, May 1, 2014 at 10:00am ET to discuss first quarter results. Analysts and investors can participate by dialing 1-877-881-1303 or [phone] outside of Canada and the USA. Following management's introductory remarks, a question and answer session will take place for analysts and institutional investors.

An archived recording will be available to listeners following the call until midnight on May 22, 2014. To access it, dial 1-800-319-6413 or [phone] outside of Canada and USA and enter passcode 4689#.

About Strongco Corporation

Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada and in the United States, operating through Chadwick-BaRoss, Inc. Strongco sells, rents and services equipment used in diverse sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste management and forestry. The Company has approximately 750 employees serving customers from 27 branches in Canada and five in the United States. Strongco represents leading equipment manufacturers with globally recognized brands, including Volvo Construction Equipment, Case Construction, Manitowoc Crane, including National and Grove, Terex Cedarapids, Terex Finlay, Terex Equipment, Ponsse, Fassi, Allied Construction, Taylor, ESCO, Dressta, Sennebogen, Jekko, Takeuchi, Link-Belt and Kawasaki. Strongco is listed on the Toronto Stock Exchange under the symbol SQP.

Forward-Looking Statements

This news release contains forward-looking statements that involve assumptions and estimates that may not be realized and other risks and uncertainties. These statements relate to future events or future performance and reflect management's current expectations and assumptions which are based on information currently available to the Company's management. The forward-looking statements include but are not limited to: (i) the ability of the Company to meet contractual obligations through cash flow generated from operations, (ii) the expectation that customer support revenues will grow following the warranty period on new machine sales and (iii) the outlook for 2014. There is significant risk that forward-looking statements will not prove to be accurate. These statements are based on a number of assumptions, including, but not limited to, continued demand for Strongco's products and services. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward looking statements. The inclusion of this information should not be regarded as a representation of the Company or any other person that the anticipated results will be achieved and investors are cautioned not to place undue reliance on such information. These forward-looking statements are made as of the date of this MD&A, or as otherwise stated and the Company does not assume any obligation to update or revise them to reflect new events or circumstances.

Additional information, including the Company's Annual Information Form, may be found on SEDAR at sedar.com.

 

SOURCE: Strongco Corporation

J. David Wood
Vice-President and Chief Financial Officer
905.565.3808
[email protected]
strongco.com