Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) announces 2016 first quarter results

CALGARY, May 2, 2016 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter ended March 31, 2016.

SUMMARY OF THE QUARTER ENDED MARCH 31, 2016 

• Amalgamated our two Industrial facilities in Edmonton, Alberta and amalgamated our Bow Island, Alberta agriculture location with our Taber and Medicine Hat, Alberta locations.
• Completed the construction of our new state of the art facility in Yorkton, Saskatchewan.
• Used equipment inventory declined by $10.9 million or 3.8%.
• Total revenues declined by 14.0% to $189.5 million.
• Agriculture segment product support revenues reported a tenth consecutive quarter of growth versus the comparable period in the prior year, a trend beginning at the inception of the segment.
• Gross margin increased to 14.9%, up from 14.3% in the first quarter of 2015.
• Gross profit decreased by 10.1% to $28.3 million.
• Operating SG&A⁽¹⁾ was reduced by $2.9 million or 11.6% to $22.4 million.
• Adjusted Diluted Earnings per Share⁽¹⁾ of $0.02 as compared to $0.03 in the first quarter of 2015.
• Adjusted EBITDA⁽¹⁾ declined by $0.5 million to $2.7 million.

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

"In 2015, we successfully implemented a number of cost containment strategies, and, as demonstrated by our results this quarter, these strategies continue to provide meaningful reductions to our fixed cost structure," stated Garrett Ganden, President & Chief Executive Officer of Rocky.  "The seasonal nature of Rocky's core business means that our first quarter typically sees lower activity levels.  That said, we are pleased with the overall outcome for this quarter, and feel that we are on the right track for 2016. We continue our theme from 2015 of setting the groundwork for future growth.  To that end, we amalgamated stores in certain strategic locations, which will allow us to leverage our strength as a consolidator across the prairies to deliver the same level of service and territory management at a lower fixed cost.  This contributed in large measure to our ability to deliver consistent profitability, despite a reduction in top line revenues.

"Western Canadian agriculture is a strong market at present.  Farmer balance sheets are strong, commodity prices are healthy, and overall grower sentiment is positive.  In these favorable market conditions, it will be incumbent on Rocky to show our customers the kind of continuing value proposition we can provide, be it in new and used equipment, product support, or our ancillary services such as precision farming.  And in that regard, we feel confident that we have the right team in place to keep Rocky as the safe, dependable equipment partner of choice in Western Canada."

Rocky Announces Accretive Restructuring of its Industrial Equipment Distribution

Rocky announced today that it will be making fundamental changes to its industrial equipment distribution strategy.  As part of this restructuring, Rocky will be amalgamating its industrial distribution facilities located in Calgary and Red Deer, Alberta into existing agriculture facilities located in those areas.  Commenting on this restructuring, Mr. Ganden noted, "After careful consideration, and after consulting with our key stakeholders, we have made the decision to effect this accretive restructuring.  This change in our distribution model will enhance our current territory coverage, and will eliminate the costs associated with operating and maintaining multiple physical locations in the same trade area.  These locations, as well as our two former Edmonton facilities which were also recently amalgamated, have historically incurred annual facility and other administrative costs of approximately $3.0 million, which we expect to discontinue once the amalgamations have been completed during the third quarter of 2016.  We expect to incur one-time costs of $2.5 – $3.0 million in the second and third quarters of this year."

Quarterly Cash Dividend

On May 2, 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 June 30, 2016, to shareholders of record at the close of business on May 31, 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 Tuesday, May 3, 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 Tuesday, May 17, 2016, by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 87571589.  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 business and that activity is generally lower in the first quarter; statements discussing or implying any economic or financial results for 2016; including statements that Rocky is on the right track or that 2015 set the groundwork for future growth; statements implying future economic or financial benefits as a result of our cost-containment strategies; and statements relating to planned amalgamations of Rocky's industrial distribution facilities in Calgary and Red Deer, Alberta, the one-time costs associated with these amalgamations, and any accretion or financial benefits arising from these amalgamations, 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 March 31, 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 and industrial 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 industrial 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 FINANCIAL INFORMATION

For the three months ended March 31, unless otherwise stated

^{(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, no non-recurring charges (recoveries) have been identified.

• "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, no non-recurring charges (recoveries) have been identified.

• "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, no non-recurring charges (recoveries) 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 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

For the quarter ended March 31,

EBITDA and Adjusted EBITDA

For the quarter ended March 31,

Operating SG&A

For the quarter ended March 31,

Floor Plan Neutral Operating Cash Flow

For the quarter ended March 31,

SOURCE Rocky Mountain Dealerships Inc.