Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) announces third quarter 2014 results and director appointment

CALGARY, Nov. 12, 2014 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter ended September 30, 2014.

SUMMARY OF FINANCIAL RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2014

• Product support revenues increased by 6.0% to $45.6 million.  
• Total revenues decreased by 15.3% to $230.8 million.
• Gross profit increased by 1.0% to $39.1 million (16.9% of sales).
• Diluted earnings per share increased by 3.2% to $0.32.
• EBITDA⁽¹⁾ increased by 5.2% to $10.8 million.
• Inventory increased by $13.3 million to $535.6 million.

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

During the third quarter, Rocky experienced improvement in both gross profit and net earnings over the prior year.  While softening market demand for agriculture whole goods led to a decrease in equipment sales, product support sales increased as farmers invested in the maintenance of their existing fleets. 

Commenting on the quarter, Rocky's CEO Matt Campbell stated, "As expected, agriculture equipment demand continued to cycle to lower levels.  However, as farm equipment is put to use every year, the softening of equipment purchases were offset by farmers making necessary product support investments in their existing fleets.  Rocky has always placed great emphasis on improving and promoting its product support business, and we believe we are beginning to see the results of those efforts.  We improved net income results on a relatively stable base of total service work.  This was achieved through the combination of improved operational process, a shift to a higher proportion of customer work, and more focused marketing efforts.  While improvements in our product support activities do not fully offset declines in equipment revenues, their increased profitability will act as a stabilizing influence on our gross margins, as evidenced by the increase in gross profit and net income for the quarter.

"We have always focused on operating our business in a conservative and prudent manner.  That focus has enabled us to maintain our cost structure and generate improved earnings and EBITDA despite the decline in top-line revenue.

"We continue to closely monitor our equipment inventory profile and levels and remain committed to maintaining adequate inventories to service our customers while mitigating our business risk.  During the quarter, we were able to reduce our used equipment inventory by $37.2 million, however this reduction was offset by the early arrival of pre-sell and other units, as well as our strategic investment in certain product lines and equipment categories."

Director Appointment

Rocky is also pleased to announce that Tracey Zehl has been appointed to its Board of Directors. 

Commenting on the appointment, Matt Campbell, CEO of Rocky, stated, "Tracey has a wealth of related industry experience and financial expertise.  Having been a key advisor to Rocky throughout our history and a prominent business leader here in Calgary, I am confident that Tracey's experience and leadership will be a strong asset to our Board and our shareholders.

Ms. Zehl is a CA and CPA (IL, USA). She is an independent consultant having previously served as a partner at Deloitte & Touche LLP from 2007 until 2014.  Ms. Zehl is also the President of the Board of Ronald McDonald House Southern Alberta where she served previously as the Audit Committee Chair.

With this appointment, Rocky's Board of Directors now consists of eight directors, including six independent directors.  In addition to her appointment as a Director of Rocky, Ms. Zehl was also appointed a member of Rocky's Audit Committee, as well as its Compensation, Governance and Nominating Committee.

Quarterly Cash Dividend

On November 11, 2014, the Board of Directors of Rocky approved a quarterly dividend of $0.115 per common share on its outstanding common shares.  The common share dividend is payable on December 31, 2014, to shareholders of record at the close of business on November 28, 2014.

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

Rocky will host a conference call to discuss its results on Wednesday, November 12, 2014, at 9:00 a.m. Mountain Time.  Investors interested in participating in the live call can dial 1-888-231-8191 (toll free) or 1-647-427-7450.  An archived recording of the call will be available approximately two hours after its completion on Rocky's website at www.rockymtn.com, or by calling 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 16048898.  The archive will remain available until Wednesday, November 26, 2014.

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 discussing agriculture industry demand cycles, statements about Rocky's emphasis on improving and promoting its product support business and statement about any future benefits to be gained from said emphasis, statements about Rocky's inventory levels and future inventory levels, and statements of any future shareholder benefit from the appointment of Tracey Zehl to Rocky's Board of Directors, 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, 2013, and as discussed in Rocky's Annual Information Form dated March 11, 2014 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 and construction 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 agriculture and construction 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.

CONSOLIDATED BALANCE SHEET SUMMARY 

SELECTED QUARTERLY FINANCIAL INFORMATION

^{(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:

• "EBITDA" is a commonly used metric in the dealership industry.  EBITDA is calculated by adding interest on long-term debt, income taxes and depreciation 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.
  
  
• "Operating SG&A" is calculated by adding back depreciation of property and equipment and any non-recurring charges recognized in SG&A during the period to SG&A.  Management deems non-recurring charges to be unusual and/or infrequent charges that the Company incurs outside of its common day-to-day operations.  Adding back these items allows management to assess discretionary expenses from ongoing operations.  Management has changed the calculation of Operating SG&A from previous disclosures by no longer considering the ineffective portion of derivative financial instruments or acquisition transaction costs to be non-recurring charges.  For the periods presented, these costs are insignificant in amount and recurring in nature.  For the periods presented, no non-recurring charges have been identified.  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 generated during a period, prior to any sources or uses of cash associated with equipment financing decisions.

RECONCILIATION OF NON-IFRS MEASURES TO IFRS

EBITDA

Operating SG&A

Floor Plan Neutral Operating Cash Flow

SOURCE Rocky Mountain Dealerships Inc.