CALGARY, Alberta (August 12, 2020)
-- Cervus Equipment Corporation (“Cervus” or the “Company”) (TSX: CERV) today announced its financial results and operational highlights for the three months ended June 30, 2020.
Cervus generated $8 million in adjusted income before income tax, a nearly fourfold improvement compared to second quarter of 2019(1)
. This was driven by the strong performance of our Agriculture segment, supported by the profitability of our Transportation and Industrial segments despite the formidable challenges presented by the COVID-19 pandemic.
“Achieving the current results in the face of COVID-19 is a testament to the dedication of the Cervus team, the resilience of our customers across all sectors, and our ability to deliver customer value in partnership with our Original Equipment Manufacturers across all market cycles,” said Angela Lekatsas, President and CEO of Cervus. “While the results of the second quarter of 2020 have been particularly hard won, we continue to see the potential of our business as we focus on the attributes and capabilities that embody Cervus.”
Second Quarter 2020 Highlights
Second Quarter 2020 Results
- The Company reported income of $9.3 million or $0.59 per basic share in the second quarter of 2020, an improvement compared to income of $2.8 million or $0.18 per basic share in the second quarter of 2019.
- Adjusted income per basic share was $0.44, compared to $0.15 in the second quarter of 2019.(1)
- Total revenue increased 4% in the quarter, due to a 16% increase in Agriculture revenue, partly offset by a 15% decrease in Transportation revenue, and a 29% decrease in Industrial revenue.
- General and administrative (“G&A”) expenses, excluding equipment commissions, decreased by 6% or $2.2 million compared to the second quarter of 2019, reflecting the ongoing efficiencies of the 2019 restructuring in Agriculture, along with COVID-19 specific cost discipline.
- At June 30, 2020, Cervus had $102 million available under its syndicated operating facility, along with a $31 million cash balance and well positioned financial covenants.
- Our Agriculture used equipment inventory turnover for the trailing twelve-month period ended June 30, 2020, improved to 2.31 times, compared to 1.62 times at June 30, 2019.(1)
- Adjusted cash flow from operations(1) increased $21 million, to $26 million for the six months ended June 30, 2020.
- A quarterly dividend of $0.015 per share was declared to shareholders as at June 30, 2020. Subsequent to June 30, 2020, and as of August 11, 2020, the Company repurchased 255 thousand common shares under the Normal Course Issuer Bid at a cost of $1.8 million.
Increased profitability was driven by the performance of our Agriculture segment which serves producers in some of the most fertile land across Western Canada, New Zealand and Australia. This performance was enabled by the focus of our restructured team, enhanced by the right equipment models and level of inventory for our market, implementation of new product support initiatives, and sustainable cost reductions across the segment.
This improvement was partly offset by the significant impact of COVID-19 on our Transportation and Industrial segments, which remained profitable in the quarter due to disciplined expense management, despite a decrease in demand.
In response to the impact of COVID-19, we took proactive measures such as senior leadership and Corporate wage reductions, temporarily adjusting staffing levels and utilizing government work-share programs. In the implementation of these measures, our focus has been on supporting the people and families who comprise the decades of experience reflected in our customer service teams and ensuring we are ready to quickly respond to accelerating market demand when conditions ease.
Due to the strong performance of our Agriculture segment, the Company did not qualify for payments under the Canadian Emergency Wage Subsidy (“CEWS”) during the quarter, and the results of the quarter do not include any Canadian government assistance. However, subsequent to the quarter legislation was passed on July 27, 2020, which we anticipate will provide some limited eligibility for our Transportation and Industrial segments, retroactive to the second quarter of 2020.
- Total revenue increased 4% in the quarter, comprised of a 16% increase in Agriculture revenue from the combined performance of our Canadian, Australian and New Zealand (ANZ) dealerships, partly offset by a 15% decrease in Transportation revenue, and a 29% decrease in Industrial revenue.
- Our Agriculture equipment revenue increased 17% in the quarter, primarily driven by increased demand for used equipment in Canada as producers were cautious in committing capital following continued headwinds. Lower new equipment demand in Canada was offset by strong demand in ANZ tied to favorable short-term accelerated depreciation rules.
- In our Transportation and Industrial segments, the impact of COVID-19 was significant and compounded by a weakened energy sector. While the transportation of consumer and industrial products remains essential, many subsets of the supply chain have experienced significant curtailment in transportation and logistics demand. These customers have in turn slowed or deferred acceptance of trucks previously ordered under more favorable short-term industry expectations. As a result, our combined Transportation and Industrial revenue declined by 17% in the quarter.
- Product support revenue in our Agriculture segment increased 14% in the quarter, achieving strong performance despite the headwinds created by COVID-19. This was offset by a decrease in our Transportation and Industrial segments due to the impact of COVID-19 on economic activity in the quarter.
G&A Expenses and Net Finance Costs
- The increase in equipment revenue, combined with overall stable product support revenue and a significant reduction in inventory impairments resulted in gross profit increasing 9% or $4.2 million in the quarter.
- Gross profit margin as a percent of revenue improved in the quarter, primarily due to the reduction in inventory impairments.
- G&A expenses, which exclude sales commissions, decreased 6% or $2.2 million in the quarter, reflecting the ongoing efficiencies of the 2019 restructuring in Agriculture, along with COVID-19 specific cost discipline, including aligning our staffing levels with customer activity across the business. This quarter over quarter cost reduction was achieved despite the accrual of performance incentives in 2020, whereas 2019 results were inadequate to accrue performance incentives at June 30, 2019.
- Net finance costs decreased 10% in the quarter, resulting from a reduction in inventory and interest rates.
- Income before income tax increased $8 million in the quarter, primarily due to the increase in gross profit and decrease in G&A expenses, as discussed above. Adjusted income before income tax increased $6 million for the quarter.
Select Financial Information
Conference Call Information
- Total inventory decreased $96 million from June 30, 2019, including a $119 million decrease in Agriculture equipment inventory. This decrease in inventory, combined with strong used sales in the quarter, resulted in Agriculture used equipment turnover for the trailing twelve-month period ended June 30, 2020 improving to 2.31 times from 1.62 times at June 30, 2019. This was partly offset by a $21 million increase in Transportation new equipment inventory, as the impact of COVID-19 has softened demand for trucks and caused customers to defer taking delivery of their orders compared to 2019.
Cervus will host its second quarter 2020 earnings results conference call and webcast on August 13, 2020, at 10:00 a.m. Eastern Time. President and CEO Angela Lekatsas and CFO Adam Lowther will discuss Cervus’ financial and operating results for the quarter ended June 30, 2020, followed by questions from securities analysts and institutional shareholders.
Interested parties may access the conference call by dialling (647) 427-7450 or 1-888-231-8191. Please connect approximately 10 minutes prior to the beginning of the call. The conference call will be archived for replay until Thursday, August 20, 2020, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 7271827 followed by the number sign.
The webcast of the conference call, which includes a slide presentation may be accessed at:
Please connect approximately 10 minutes prior to the beginning of the call to ensure adequate time for any software download that may be required to join the webcast and view the slides being presented. The webcast will be archived at the above website for 90 days.
All financial information presented in this press release has been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. This press release contains only selected financial and operational highlights and should be read in conjunction with Cervus’ unaudited condensed interim consolidated financial statements and related notes and Management's Discussion and Analysis ("MD&A"), as at and for the three and six month periods ended June 30, 2020, which are available on SEDAR at www.sedar.com
and on the Company's website at www.cervusequipment.com
. Additional information is contained in the Company’s filings with Canadian securities regulators, including the 2019 Annual Report and 2019 Annual Information Form, also available on SEDAR and the Company’s website.
About Cervus Equipment
Cervus provides equipment solutions to customers in agriculture, transportation, and industrial markets across Canada, Australia, and New Zealand. Throughout its territories and across its diverse markets, Cervus dealerships are united in delivering sales and support of the market-leading equipment our customers depend on to earn a living. The Company operates 63 Cervus dealerships and is the authorized representative of leading equipment brands including: John Deere agricultural equipment; Peterbilt transportation equipment; and Clark, Sellick, Doosan, JLG and Baumann material handling equipment. Its common shares are listed on the Toronto Stock Exchange and trade under the symbol "CERV".
For more information please contact:
Angela Lekatsas, President and CEO
Adam Lowther, Chief Financial Officer
Forward Looking Information
Information in this press release and in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws (“forward-looking statements”). These statements include, but are not limited to, statements about the Company’s objectives, strategies and initiatives, financial performance expectations and other statements made herein, whether with respect to the Company's businesses or the economies of the countries where the Company operates. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “planned”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases which state that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will be taken”, “occur”, “be achieved”, or other similar expressions of future or conditional verbs.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to general economic conditions, the industries and customers served by the Company, its principal equipment partners, currency exchange rates, funding requirements, fluctuating interest rates, legislative and regulatory developments, changes in accounting standards, and competition as well as those factors discussed under the heading “Business Risks and Uncertainties” in Cervus’ most recent annual and quarterly Management Discussion and Analysis (“MD&A”), available electronically at www.sedar.com under Cervus’ profile.
All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business, economic and market conditions and trends. Although the Company believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Certain material assumptions are applied by the Company in making forward-looking statements. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.
(1) These non-GAAP financial measures do not have any standardized meaning under IFRS, may not be comparable to similar measures presented by other issuers and are defined and reconciled to their most directly comparable GAAP measure within Cervus’ Management’s Discussion and Analysis for the period from January 1, 2020 to June 30, 2020, under the section “Non-GAAP Financial Measures”, which is available electronically at www.sedar.com under Cervus’ profile.
The Toronto Stock Exchange does not accept responsibility for the adequacy or accuracy of this release.