Cervus Announces Record Second Quarter 2021 Adjusted Income Before Tax
CALGARY, AB, Aug. 16, 2021 /CNW/ – Cervus Equipment Corporation (“Cervus” or the “Company”) (TSX: CERV) today announced its financial results for the three months ended June 30, 2021.
Cervus delivered $15 million in adjusted income before tax, a record for the second quarter and a significant increase of $7 million or 84%, compared to $8 million generated in the same period last year.1 This accelerated performance reflects the convergence of recovering activity levels in our end markets and enhanced sales practices, with Cervus’ strategic focus on growing product support revenues and gross margins.
“Our record second quarter results reflect increased demand across all segments, particularly in Transportation as economies reopened and activity rebounded from subdued pandemic levels,” said Angela Lekatsas, President and Chief Executive Officer of Cervus. “Cervus navigated the logistical challenges of extended manufacturer lead times and delayed deliveries resulting from increased demand and supply shortages exceptionally well, allowing us to establish a new high-water mark for second quarter profitability. I want to take this opportunity to thank and congratulate our 1,588 valuable employees for this remarkable achievement.
“We have also announced today that the Company has entered into an arrangement agreement providing for a plan of arrangement pursuant to which all the issued and outstanding shares of the Company would be acquired by Brandt Tractor Ltd. for cash consideration of $19.50 per share. The transaction is subject to various regulatory and other approvals including approval by the shareholders of the Company. Additional details with respect to the transaction are contained within the arrangement agreement and the Company’s press release with respect to the proposed transaction, both of which will be filed under the Company’s profile on SEDAR at www.sedar.com.”
Second Quarter 2021 Highlights
- The Company reported income of $13 million or $0.82 per basic share in the second quarter of 2021, compared to a $9 million or $0.59 per basic share in the second quarter of 2020.
- Adjusted income per basic share was $0.76 compared to $0.44 in the second quarter of 2020.1
- Total revenue increased 18% in the quarter, with growth in both equipment and product support sales reported by all segments. This revenue growth, in concert with a 0.8% expansion in overall gross profit margin, drove a 25% increase in gross profit.
- A reduction in interest-bearing debt resulted in a 29% decrease in net finance costs compared to the second quarter of 2020.
- Agriculture used equipment inventory turnover for the trailing twelve-month period ended June 30, 2021, accelerated to 3.44 times, compared to 2.31 times at June 30, 2020.1
- A quarterly dividend of $0.11 per share was declared to shareholders of record at June 30, 2021.
Second Quarter 2021 Results
- Total revenue increased 18% in the quarter, comprised of a 21% increase in equipment revenue and an 8% increase in product support revenue, driven by growth across all our segments.
- Agriculture equipment revenue increased 10% in the quarter and 4% year to date, primarily driven by increased customer demand for new equipment, supported by strong market fundamentals in all our geographies. Product support revenue increased 1% in the quarter and 6% year to date, as our execution on strategic parts initiatives, including online and on the road parts sales, and the addition of two new locations after the first quarter of 2020, was partly offset by the impact of parts supply shortages and a relatively easy seeding season in the second quarter of 2021.
- In our Transportation and Industrial segments, combined equipment revenue increased 54% in the quarter and 30% year to date, as our sales teams capitalized on an increase in economic activity and capital spending. Combined product support revenue for the segments increased 17% in the quarter and 9% year to date, reflecting the easing of pandemic related restrictions and continued initiatives to increase over the counter parts sales, including through our on the road sales team in the Transportation segment.
- Gross profit increased 25% in the quarter and 16% year to date, driven by increases in equipment and product support revenue across all our operating segments. Gross profit margin as a percent of revenue increased, reflecting the strong pricing and demand for equipment and product support offerings.
G&A Expenses and Net Finance Costs
- G&A expenses, which exclude equipment commissions, increased 15% in the quarter and 8% year to date, driven by the strategic initiatives and new locations in our Agriculture segment discussed above, and the easing of pandemic related cost reductions relative to the prior year, in alignment with the recovery in business activity. Overall, SG&A, as a percent of gross profit, decreased from 79.8% to 75.0% in the quarter, and similarly year to date, reflecting continued focus on expense management.
- Net finance costs decreased 29% in the quarter and 36% year to date, as we benefited from reductions in the average level of interest-bearing floor plan payable and long-term debt, as well as lower interest rates.
- Income before tax increased $4.8 million in the quarter and $13 million year to date on elevated gross profit and more efficient scaling of operating costs. Adjusted income before tax increased $7 million in the quarter and $9 million year to date.1
- Total inventory increased $8 million from June 30, 2020. The majority of this variance arose within our Agriculture segment which experienced a $38 million increase in new equipment and parts inventories, partly offset by a $32 million reduction in used equipment inventory. Agriculture used equipment turnover for the trailing twelve-month period ended June 30, 2021 accelerated to 3.44 times from 2.31 times at June 30, 2020, surpassing our long-term used equipment inventory turnover objective of 2.50 times.1
- Within the Transportation segment, new equipment inventory increased $2.4 million, quarter over quarter, to $72 million, with substantially all of these units committed to customers. By contrast, approximately half of the $69 million of new equipment inventory on hand at June 30, 2020 was committed to customers.
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Conference Call Information
Cervus will host its second quarter 2021 results conference call and webcast on August 16, 2021, at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time). President and Chief Executive Officer, Angela Lekatsas and Chief Financial Officer, Catie Busch will discuss Cervus’ financial and operating results for the quarter ended June 30, 2021.
Interested parties may access the conference call by dialing (416) 764-8650 or 1-888-664-6383. Please connect approximately 10 minutes prior to the beginning of the call. The conference call will be archived for replay until Monday, August 23, 2021 at midnight. To access the archived conference call, dial (416) 764-8677 or 1-888-390-0541 and enter the reservation number 423990 followed by the number sign.
The webcast of the conference call, which includes a slide presentation may be accessed at: https://produceredition.webcasts.com/starthere.jsp?ei=1463416&tp_key=734c1b0739.
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, 2021, 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 2020 Annual Report and 2020 Annual Information Form, also available on SEDAR and the Company’s website.
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 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’ MD&A for the quarter ended June 30, 2021, under the section “Non-GAAP Financial Measures”, which is available electronically at www.sedar.com under Cervus’ profile.
About Cervus Equipment
Cervus is a leading equipment solutions provider to customers in agriculture, transportation, and industrial markets across Canada, Australia and New Zealand. Throughout our territories and across our diverse markets, Cervus dealerships are united by the sales and support of the market-leading equipment our customers depend on to grow their business. The Company operates 64 Cervus dealerships and is the authorized representative of leading Original Equipment Manufacturers including: John Deere agricultural equipment; Peterbilt transportation equipment; and Clark, Sellick, Doosan, JLG and Baumann material handling equipment. Cervus common shares are listed on the Toronto Stock Exchange and trade under the symbol “CERV”.
SOURCE Cervus Equipment Corporation
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