Strongco Announces Second Quarter 2018 Results

—Meaningful year-over-year improvement in sales, market share and profitability—

TSX Symbol: SQP

MISSISSAUGA, ON, Aug. 1, 2018 /CNW/ - Strongco Corporation (TSX: SQP) today reported financial results for the second quarter ended June 30, 2018.

Financial Summary
($ thousands except per share amounts)

Period Ended June 30	Three Months		Six Months
	2018	2017	2018	2017
Revenues	121,984	100,677	211,009	190,644
Gross Profit	19,673	16,125	37,134	33,487
Operating Income Before Restructuring Costs	3,569	892	5,713	2,059
EBITDA*	7,342	3,679	14,083	8,312
Interest Expense	1,906	1,366	3,901	2,956
Pretax Income (Loss)	1,663	(474)	1,812	(1,575)
Net Income (Loss)	1,663	(474)	1,812	(1,575)
Basic and Diluted Income (Loss) Per Share	0.13	(0.04)	0.14	(0.12)
Equipment Inventory			151,461	134,210
Equipment Notes Payable			137,604	119,841

"We are pleased to report significant year-over-year growth for the quarter, the result of ongoing market recovery in Alberta and Quebec, combined with sales improvements in equipment, rentals and product support, and overall market share increases for GPE across the country," said Robert Beutel, Executive Chairman of Strongco."While Management is encouraged by the positive performance to-date, some uncertainties remain with respect to the extent of the rebound in Alberta, the specific impact of U.S.-Canada trade tariffs, and the resulting demand for heavy construction equipment. Nevertheless, we are confident that the streamlining initiatives over the past two years have positioned the business for greater financial stability and enhanced stakeholder value over the long term."

Highlights (Second Quarter 2018 and Second Quarter 2017)

Income Statement

• Revenues of $122.0 million, compared to $100.7 million in 2017, the result of:
• Construction equipment sales up 25% year-over-year in the quarter, with increases in all regions of the country, led by strong sales and RPO conversions in Western Canada. Year-to-date construction equipment sales up 28%.
• Crane sales up 13% in the quarter, due to stronger sales in Alberta and Quebec but down 39% year-to-date.
• Rental revenues up 68% in the quarter, with increases across all regions and up 31% year-to-date.
• Product support up 15% in the quarter, with increases in every region and up 5% year- to-date.
• Gross profit of $19.7 million (16.1% of revenues), up from $16.1 million (16.0% of revenues).
• Operating income, before FX gains and losses, of $3.6 million, compared to $0.4 million, from higher revenues and margins.
• EBITDA of $7.3 million, up from $3.7 million.
• Interest expense of $1.9 million, up from $1.4 million.
• Pre-tax earnings of $1.7 million, up from a pre-tax loss of $0.5 million.
• Net income of $1.7 million ($0.13 per share), compared to net loss of $0.5 million (loss of $0.04 per share).

Balance Sheet

• Equipment inventory of $151.5 million, down from $153.3 million at December 31, 2017 and up from $134.2 million at June 30, 2017. The increase is to support revenue growth and increased rental activity.
• Equipment notes payable of $137.6 million, compared to $131.0 million at December 31, 2017 and $119.8 million at June 30, 2017.

Lease Termination Subsequent to Quarter End

As part of the Company's continuing efforts to streamline the business and reduce costs, the Company terminated the lease of its branch at 205 McAlpine Crescent in Fort McMurray, Alberta on July 1, 2018 and entered into a new lease agreement to sublet a smaller building at 310 MacKenzie Boulevard as its new branch in Fort McMurray. The total cost for termination of the existing lease and relocation to the new facility will amount to approximately $3.4 million and will be a charge against earnings in the third quarter. These costs include a termination fee of approximately $2.7 million plus real estate fees, legal fees, relocation costs and impairment of property and equipment. The termination fee of $2.7 million was satisfied by the issue of 150,000 common shares (with an approximate value of $0.3 million) and cash payment of $0.2 million on closing, followed by 22 equal monthly payments of $0.1 million plus interest at 6%. Management estimates the net savings from exiting the current leased facility in favour of the smaller sublet facility will exceed $9 million over the remaining 11 years of the terminated lease. From a cash flow perspective, after the initial cash payments on closing, management anticipates the impact on the Company's cash flow from this transaction to be relatively neutral for the next 22 months after which the cash flow impact will be positive.

Second Quarter Results Materials
The complete second quarter 2018 MD&A and Unaudited Interim Condensed Consolidated Financial Statements are available on our website at www.strongco.com/en/investor-relations/financial-reports/.

Conference Call Details
Strongco will hold a conference call on Thursday, August 2 at 10:00am ET to discuss second quarter results. Analysts and investors can participate by dialing 1-800-319-4610 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 September 2, 2018. To access it, dial 1-855-669-9658 or [phone] outside of Canada and the U.S., and enter passcode 2408#.

About Strongco Corporation
Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada. 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 500 employees serving customers from 26 branches in Canada. Strongco represents leading equipment manufacturers with globally recognized brands, including Volvo Construction Equipment, Case Construction, Manitowoc Crane, including National and Grove, Terex Cedarapids, Terex Trucks, Fassi, Sennebogen, Konecranes and SDLG. 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 2018. 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 press release, 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 www.sedar.com.

Footnotes
* "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 an indicator of the Company's performance or to cash flows from operating, investing and financing activities as a measure of the Company's liquidity and cash flows.

SOURCE Strongco Corporation

J. David Wood, Vice President, Chief Financial Officer and Corporate Secretary, 905.670.5100, [email protected], strongco.com

Related Links

http://www.strongco.com