Rocky Mountain Dealerships Inc. Revises Dividend Policy; Adds New and Amended Lending Facilities; Reports First Quarter 2020 Results

CALGARY, Alberta--()--Rocky Mountain Dealerships Inc. (TSX: RME, and hereinafter “RME”), Canada’s largest agriculture equipment dealer, today announced a reduction of its quarterly dividend to an anticipated $0.06 per common share from $0.1225 per share, an expected net $30.0 million of additional borrowing capacity, lowered debt repayments and reported its financial results for the three months ended March 31, 2020. Unless otherwise stated, all amounts are expressed in Canadian dollars.

The reduced dividend and debt restructuring generate almost $10.0 million in annualized cash flow to buttress the anticipated $30.0 million increase in liquidity from the net new lending facilities. “Today’s COVID-19, oil, and capital markets realities demand a response from all businesses” said Garrett Ganden, President and Chief Executive Officer. “The moves we announced today reinforce RME’s ability to serve its customers as the agriculture and agriculture support industries remain open and continue to operate through current market uncertainties.”

RME strengthened its liquidity position by temporarily rebasing certain Syndicate covenant calculations on a forward rather than trailing basis, thereby reflecting dividend and debt repayment reductions immediately. The Syndicate commitments were also reduced by $30.0 million, reducing standby fees on these committed facilities. RME has received approval for financing from Farm Credit Canada (FCC) to provide, subject to the execution of the definitive documents, $50.0 million in additional floor plan capacity. RME has also signed definitive loan documents for an additional $10.0 million parts financing facility with CNH Capital. Taken together these changes are anticipated to provide $30.0 million in net new borrowing capacity. Details can be found in RME’s MD&A.

Mr. Ganden went on to say “Operationally, the first quarter was Canada’s fourth under China’s canola embargo while rail protests also disrupted grain shipments and farmers’ cash-flows. Our equipment sales are down, as would be expected with those headwinds, but we are pleased to note our product support activities held steady and even increased a little despite a later start to seeding this year relative to 2019.

COVID-19 has also impacted first quarter operations. Externally, RME is designated an essential business and will remain open and operating; however, there will be capital market and supply-chain disruptions. RME did not recognize $11.2 million of revenue from first quarter sales because OEM work-force reductions trapped equipment in plants and ports. The equipment is expected to arrive in the second quarter. Parts inventories are stocked for the seeding season, with RME monitoring this supply chain closely. Internally, work processes have been redesigned to support social distancing with minimal on-site visits and increased cleaning protocol.

One of the key characteristics of the agriculture value chain is that you can be certain the fields will be planted and that the crop will be harvested next fall, with some help from Mother Nature. RME will do everything in its power to be there for our customers.”

SUMMARY OF THE QUARTER ENDED MARCH 31, 2020

  • Sales decreased $44.0 million to $133.7 million in the quarter compared with the first quarter of 2019, driven by the $11.2 million of undelivered equipment sales and continued negative farmer sentiment from ongoing macro factors.
  • Gross margin percentage was comparable at 14.4% to the same period in 2019 as negative pricing pressure and decreased OEM incentives on equipment sales were offset by stability in our Product Support offerings.
  • Operating SG&A decreased by $3.8 million (18.4%) to $16.9 million, offsetting more than half of the reduction in Gross Profit.
  • Year-over-year, equipment inventory levels decreased approximately $51.8 million as a result of a continued focus in this area.

SELECTED FINANCIAL INFORMATION

 

Three months ended March 31,

$ thousands, except per share and percentage amounts

2020

2019

Change

% Change

 

 

 

 

 

Sales

133,716

 

177,681

 

(43,965)

 

(24.7)

Cost of sales

114,423

 

152,124

 

(37,701)

 

(24.8)

Gross profit

19,293

 

25,557

 

(6,264)

 

(24.5)

Gross profit as a % of sales

14.4%

 

14.4%

 

-

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

20,395

 

24,522

 

(4,127)

 

(16.8)

Loss on derivative financial instruments

1,639

 

4

 

1,635

 

nm1

Loss on sale of disposal group

-

 

1,061

 

(1,061)

 

(100.0)

Loss before finance costs and income taxes

(2,741)

 

(30)

 

(2,711)

 

nm

Finance costs

4,842

 

4,213

 

629

 

14.9

Loss before income taxes

(7,583)

 

(4,243)

 

(3,340)

 

78.7

Income tax recovery

(1,952)

 

(1,199)

 

(753)

 

62.8

Net loss

(5,631)

 

(3,044)

 

(2,587)

 

85.0

 

 

 

 

 

 

 

 

Net loss as a % of sales

(4.2%)

 

(1.7%)

 

(2.5%)

 

 

 

 

 

 

 

 

 

 

Loss per share

 

 

 

 

 

 

 

Basic

(0.29)

 

(0.16)

 

(0.13)

 

81.3

Diluted

(0.29)

 

(0.16)

 

(0.13)

 

81.3

Dividends per share

0.1225

 

0.1225

 

-

 

-

Book value / share – March 31

9.21

 

10.05

 

(0.84)

 

(8.4)

 

 

 

 

 

 

 

 

Non-IFRS Measures2

 

 

 

 

 

 

 

Adjusted Diluted Loss per Share

(0.24)

 

(0.11)

 

(0.13)

 

118.2

Adjusted EBITDA

(1,828)

 

1,334

 

(3,162)

 

(237.0)

Operating SG&A

16,886

 

20,690

 

(3,804)

 

(18.4)

Operating SG&A as a % of sales

12.6%

 

11.6%

 

1.0%

 

 

COVID-19 UPDATE & ADDITIONAL MEASURES TO FORTIFY THE BUSINESS

Since reporting year-end results, RME has taken several additional steps to improve the company’s cash position and strengthen its balance sheet in the near-term and on an on-going basis. We expect these direct actions will result in an approximate $10.0 million improvement to cash flow on an annualized basis.

COVID-19 UPDATE

The health and safety of our employees, customers, stakeholders and communities in which we serve continues to be our top priority. On March 31, 2020 we announced our initial response to the pandemic and an operations update. As the virus outbreak intensified abroad, we acted quickly and implemented measures to ensure the health and safety of our employees and customers. Specifically, we have taken the necessary steps to slow the spread of the virus, following both federal and provincial health authorities’ guidelines on physical distancing and have implemented enhanced cleaning and sanitation measures at all our offices and branches.

DIVIDEND

RME has a long history of paying dividends to its shareholders and we continue to believe strongly in the principle of returning capital to shareholders as a matter of trust and capital discipline. However, in response to the rapidly changing and global economic downturn, a reduction is appropriate to conserve cash and strengthen the balance sheet in the current environment.

Therefore, the Board has decided to reduce RME’s anticipated future quarterly dividends on its outstanding common shares to $0.06 per share from $0.1225 per share. Investors are cautioned that the Board has not yet declared any future dividends at this time; future dividends remain subject to approval by the Board and may be increased, decreased or suspended by the Board at any time.

This reduction generates cash savings of approximately $4.8 million on an annualized basis.

NEW AND AMENDED CREDIT FACILITIES

Subsequent to March 31, 2020, RME:

  • amended the Syndicated Facility which, among other amendments, reduces aggregate facility commitments by $30.0 million as well as re-terms the Term Facility, reducing scheduled principal payments by $5.0 million on an annual basis;
  • received approval for financing from Farm Credit Canada (FCC) to provide, subject to the execution of definitive documents, $50.0 million in additional floor plan capacity; and
  • signed definitive loan documents for an additional $10.0 million parts financing with CNH Capital.

RESULTS FOR THE QUARTER ENDED MARCH 31, 2020

There are four key themes that define the first quarter of 2020 for RME and the Canadian Prairie agriculture industry:

  1. China’s canola trade embargo,
  2. The protester driven rail blockades,
  3. COVID-19, and
  4. A late start to seeding activity.

China announced the suspension of canola imports from one of Canada’s largest exporters on March 1, 2019 and followed it up by suspending imports from an additional large Canadian exporter later in March. These moves shocked the canola industry and led to dramatic reductions in farm equipment purchases, beginning in the second quarter of 2019. That trade embargo has continued through Q1 2020.

Beginning in early February and ending in mid-March, protester organized rail blockades interfered with our customers' ability to get their products to market. These blockades reduced our customers cash flows, in turn reducing their willingness to purchase equipment. Though the impacts during the rail blockades affected the quarter they are not expected to do so on an annualized basis.

The COVID-19 pandemic began to afflict Canada in March 2020. This pandemic has had severe consequence for the Canadian and global economies. However, agriculture, and its supply chains, have been deemed “essential” in all RME operating territories and all of RME's sales and service locations remain open. Despite being deemed essential, RME can be affected by the pandemic’s knock-on effect in the capital markets and broader economy, as demonstrated with the closing of CNH Industrial's ("CNH") factories at the end of March. Those closures, along with the slowed import process moved $11.2 million of potential Q1 sales into Q2. While we continue our operations during the COVID-19 pandemic, changes in the way we do business have been pervasive. Be it from staff rotating, minimal on-site visits and safety protocols which limit access for customers. RME continues to monitor its supply chain and has sufficient equipment and parts to support our customers through the critical seeding season.

The agriculture industry has an annual cycle dominated by two key events, seeding and harvest. These two events occur roughly at the same time every year but can drift back and forth over quarter ends. This is the case with the 2019 and 2020 seeding season, which started in Q1 2019 and has drifted into Q2 in 2020.

In summary, the cyclical nature of RME’s business makes current quarter to prior-year quarter the most informative analysis in many cases. For a Q1 2020 to Q1 2019 analysis it is important to remember this compares a canola embargoed quarter to a non-embargoed quarter, a grain export disrupted quarter to a non-disrupted quarter, a COVID-19 influenced quarter to a non-pandemic quarter and a later start to the seeding season to an early start. And while these headwinds to the start of 2020 can’t be ignored, we can’t stress enough that RME is open for business, has the equipment and parts our customers need and a dedicated staff standing ready to be the dependable partner we have always been.

SALES AND MARGINS

  • Sales decreased 24.7% or $44.0 million to $133.7 million compared with $177.7 million for the same period in 2019 due primarily to declines in new equipment sales of $36.7 million driven by our intentional limiting of these sales to reduce used equipment trade-ins, the $11.2 million of undelivered equipment sales from the OEM and the continued farmer hesitation caused by the macro factors discussed above.
  • Gross margin percentage of 14.4% was comparable to the same period in 2019 as negative pricing pressure and decreased OEM incentives on equipment sales were offset by the stability in our Product Support offerings.
  • Gross profit dollars mirrored the sales decline, coming in 24.5% lower at $19.3 million down from $25.6 million for the same period in 2019.

COST STRUCTURE

  • Operating SG&A decreased by $3.8 million or 18.4% to $16.9 million from $20.7 million in 2019 due to managements concerted continuing efforts to control expenses. As a percentage of sales, Operating SG&A increased by 1.0% to 12.6% from 11.6% for the same period in 2019, as the decline in sales outpaced the reduction in Operating SG&A.
  • Finance costs for the quarter ended March 31, 2020 increased 14.9% or $0.6 million to $4.8 million compared with $4.2 million during the same period in 2019 due to both an increase in the average level of interest-bearing floor plan payable and interest rates.

EARNINGS

  • Adjusted EBITDA for the quarter ended March 31, 2020 decreased $3.2 million to ($1.8) million compared with $1.3 million for the same period in 2019.
  • Adjusted Diluted Loss per Share increased by $0.13 to $0.24 for the first quarter of 2020, compared with $0.11 for the same period of 2019.

INVENTORY

  • On a current-to-prior quarter basis, equipment inventories are down $51.8 million which is encouraging to management as it is consistent with our inventory reduction efforts.
  • From December 31, 2019 to March 31, 2020, equipment inventories fell by $16.3 million, with parts inventory increasing $3.8 million as we prepare for seeding activity.

FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

The MD&A as well as the unaudited condensed consolidated interim financial statements and notes thereto for the quarter ended March 31, 2020 and 2019, are available online at www.rockymtn.com and www.sedar.com.

NON-IFRS MEASURES

This news release references Adjusted Diluted Loss per Share, Adjusted EBITDA, Operating SG&A and Operating SG&A as a % of sales, all of which are non-IFRS measures. 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. Readers should not consider these measures in isolation or as a substitute for analysis of RME’s results as reported under IFRS. The definition and calculation for each non-IFRS measure is contained within RME’s MD&A for the quarter ended March 31, 2020 under the headings “Non-IFRS Measures” and “Reconciliation of Non-IFRS Measures to IFRS”, respectively. RME’s MD&A for the quarter ended March 31, 2020 is available online at www.rockymtn.com and www.sedar.com

CONFERENCE CALL

RME will host a conference call and webcast to discuss the quarter at 9:00 a.m. MT (11:00 a.m. ET) today. Please note that the format of the webcast incorporates a visual presentation for investors and analysts. To listen to the live webcast and watch the presentation please use the following link:

https://event.on24.com/wcc/r/2160487/7D8D19D3FEDADAB200D20ACFF592D669

Within 24 hours of the event, the webcast will be available for replay at the link above until April 29, 2021.

Those interested in participating in the conference call may do so by calling 1-866-521-4909 (toll free) or (647) 427-2311.

An archived recording of the conference call will be available until May 20, 2020 by dialing 1-800-585-8367 (toll free) or 1-416-621-4642, Conference ID: 2180579. This archived recording will also be available at www.rockymtn.com.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This news release contains forward-looking information and statements (“FLS”) within the meaning of applicable securities legislation. FLS involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RME or industry results, to be materially different from any future results, events, expectations, performance or achievements expressed or implied by such FLS. All statements, other than statements of historical fact, included herein may be FLS. FLS typically contain words or phrases such as “may”, “outlook”, “objective”, “intend”, “estimate”, “anticipate”, “should”, “could”, “would”, “will”, “expect”, “believe”, “plan”, “predict” and other similar terminology suggesting future outcomes or events. FLS involve numerous assumptions and should not be read as guarantees of future performance or results. Such statements will not necessarily be accurate indications of whether or not such future performance or results will be achieved. Readers of this news release should not unduly rely on FLS as a number of factors, many of which are beyond the control of RME, could cause actual performance or results to differ materially from the performance or results discussed in the FLS.

In particular, FLS in this news release include but are not limited to, the following: (i) statements that we have taken steps to improve the company’s cash position and strengthen its balance sheet in the near-term and on an on-going basis and that we expect such steps will result in an approximate $10.0 million improvement to cash flow on an annualized basis; (ii) statements that the rail blockades that interfered with our customers’ ability to get their products to market, thereby reducing their cash flows and in turn reducing their willingness to purchase equipment, affected RME’s quarter but are not expected to persist on an annualized basis; (iii) statements regarding the impact of the COVID-19 pandemic on our business including the fact that all of our Canadian branch locations remain open for business, that we continue to monitor our inventory levels and our supply chain and we have sufficient equipment and parts to support our customers through the critical seeding season; (iv) statements regarding our anticipated $30.0 million increase in liquidity from the net new lending facilities; and (v) statements regarding RME’s anticipated reduction in its quarterly dividends.

With respect to the FLS listed above and contained in this news release RME has made assumptions regarding, among other things: (i) with respect to the improvement to the company’s cash flow, the anticipated reduction in the company’s regular quarterly dividend and the amendments to the company’s lending agreements and facilities will achieve the anticipated result, that the company will otherwise achieve its anticipated financial results and that the company will maintain compliance with its covenants under its lending agreements and facilities, (ii) with the rail blockades lifted, the cash flow of farmers will return to normal and farmers will invest in new equipment to increase their productivity; (iii) during the COVID-19 pandemic, our operations will continue to be considered “essential” and our Canadian branch locations will remain open for business, and our OEM’s will continue to be able to deliver us equipment and parts as required such that we will continue to be able to meet our customer demands; (iv) that definitive documentation for the $50.0 million in additional floor plan capacity with FCC will be agreed to and executed in due course; and (v) any future dividends remain subject to approval by the Board, and dividends may be increased, decreased or suspended by the Board at any time.

RME’s actual results could differ materially from those anticipated in the FLS in this news release as a result of the risk factors set forth herein under the heading “Risks and Uncertainties” and elsewhere in the company’s MD&A for the quarter ended March 31, 2020 as well as the risk factors set forth in RME’s annual information form (“AIF”) for the year ended December 31, 2020, both of which are available under the company’s profile at www.sedar.com. Although the FLS contained in this news release are based upon what management of RME believes are reasonable assumptions, RME cannot assure investors that actual performance or results will be consistent with these FLS. These statements reflect current expectations regarding future events and operating performance and are based on information currently available to RME’s management. There can be no assurance that the plans, intentions or expectations upon which these FLS are based will occur. All FLS in this news release are qualified in their entirety by the cautionary statements herein and those set forth in RME’s AIF available on SEDAR at www.sedar.com. These FLS and the outlook contained in this news release are made as of the date of this document and, except as required by applicable law, RME assumes no obligation to update or revise them to reflect new events or circumstances.

ABOUT ROCKY MOUNTAIN DEALERSHIPS INC. (TSX: RME)

RME is Canada’s largest agriculture equipment dealer with branches located throughout Alberta, Saskatchewan, and Manitoba. Through its dealer network, RME sells, rents, and leases new and used agriculture equipment and offers product support and financing to its customers.

Additional information on RME is available at www.rockymtn.com and on SEDAR at www.sedar.com.

1 “nm” means not meaningful.
2 See further discussion in “Non-IFRS Measures” section below.

Contacts

FOR INVESTOR AND MEDIA INQUIRIES:
Rocky Mountain Dealerships Inc.
Clayton Paradis, 403-999-7658
cparadis@rockymtn.com

Release Summary

Rocky Mountain Dealerships Inc. Revises Dividend Policy; Adds New and Amended Lending Facilities; Reports First Quarter 2020 Results

$Cashtags

Contacts

FOR INVESTOR AND MEDIA INQUIRIES:
Rocky Mountain Dealerships Inc.
Clayton Paradis, 403-999-7658
cparadis@rockymtn.com