CALGARY, AB, May 6, 2021 /CNW/ - Cervus Equipment Corporation ("Cervus" or the "Company") (TSX: CERV) today announced its financial results for the three months ended March 31, 2021.
Cervus generated $3.2 million in adjusted income before tax, a significant increase of $2.7 million compared to the $0.5 million generated in the first quarter of 2020.1 This improved performance reflects the Company's strategic focus on growing product support revenue, as well as lower finance costs associated with decreased inventory levels.
"In what is typically our slowest quarter, I am proud of our team's successful execution on initiatives to grow parts sales, which increased 11% in the quarter, driving a 7% increase in overall product support revenue," said Angela Lekatsas, President and Chief Executive Officer of Cervus. "Despite a decrease in equipment and service revenues from continued impacts of the global pandemic, we achieved a 5% increase in gross profit quarter over quarter, from this change in the proportion of revenue from product support.
"Strong industry demand, compounded by supply chain constraints related to the pandemic and severe weather events, impacted the availability and timing of equipment from our manufacturers in the quarter. We expect manufacturer supply chain issues, including semiconductor shortages, may continue into the second and third quarters of the year, and are working in partnership with our manufacturers to minimize the impact to our customers and our business."
First Quarter 2021 Highlights
The Company reported income of $3.0 million or $0.19 per basic share in the first quarter of 2021, compared to a loss of $2.7 million or ($0.17) per basic share in the first quarter of 2020.
Adjusted income per basic share was $0.15, compared to $0.02 in the first quarter of 2020, which excludes the impact of government subsidies and unrealized foreign exchange losses.1
Total revenue decreased 1% in the quarter, comprised of a 4% decrease in equipment revenue, partly offset by a 7% increase in product support revenue. This change in sales mix resulted in a 5% increase in gross profit.
A $70 million reduction in total inventory, combined with the repayment of amounts owing under our syndicate and capital facilities in the third quarter of 2020, resulted in a 41% decrease in net finance costs compared to the first quarter of 2020.
Agriculture used equipment inventory turnover for the trailing twelve-month period ended March 31, 2021, improved to 3.28 times, compared to 1.89 times at March 31, 2020.1
Adjusted free cash flow from operations was $7 million for the three month period ended March 31, 2021 compared to $4.1 million in 2020, an increase of $3.2 million.1
A quarterly dividend of $0.11 per share was declared to shareholders of record at March 31, 2021.
First Quarter 2021 Results
Total revenue decreased 1% in the quarter, comprised of a 4% decrease in equipment revenue, partially offset by a 7% increase in product support revenue. The majority of this change was driven by our Agriculture segment.
Agriculture revenue decreased 1% in the quarter, driven by a 5% decrease in equipment revenue as deliveries were delayed by the manufacturer, compared to the first quarter of 2020, when sales were accelerated by customers in anticipation of currency-driven price increases. The decrease in equipment revenue was partly offset by a 13% increase in product support revenue in the quarter, as we executed 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.
Transportation revenue decreased 1% in the quarter, driven by a 2% decrease in equipment revenue, resulting from manufacturer production delays due to component part shortages and delays in deliveries from logistics challenges related to COVID-19. The decrease in equipment revenue was partly offset by a 6% increase in parts revenue in the quarter, a result of continued initiatives to market over the counter parts to our customers, including through our on the road sales team.
Gross profit increased 5% in the quarter, driven by a 7% improvement in product support revenue, which contributed an additional $1.8 million to gross profit in the quarter compared to 2020. The growth in product support gross profit was largely attributable to increased parts revenue of 11%, partly offset by a decline in service and other revenues of 3%. Gross profit margin as a percent of revenue increased, reflecting the shift in sales mix towards higher margin product support revenue.
G&A Expenses and Net Finance Costs
G&A expenses, which exclude equipment commissions, increased 1% or $0.2 million in the quarter, driven by the strategic initiatives and new locations in our Agriculture segment discussed above, partly offset by expense reductions in our Transportation and Industrial segments.
Net finance costs decreased 41% or $1.4 million for the quarter, as we benefited from reduced inventory levels, a reduction in long-term debt, as well as lower interest rates.
Income before tax increased $8 million, quarter over quarter. In addition to the improvements in gross profit and net finance costs, this variance reflects the inclusion of $1.1 million in government subsidies related to the pandemic in the first quarter of 2021, as well as a $4.0 million decrease in unrealized foreign exchange losses. Adjusted income before tax, which excludes the impact of the subsidies and unrealized foreign exchange, increased $2.7 million for the quarter.1
Total inventory decreased $70 million from March 31, 2020, reflecting a $49 million decrease in the Agriculture segment and a $19 million decrease in the Transportation segment. This significant decrease in inventory resulted in Agriculture used equipment turnover for the trailing twelve-month period ended March 31, 2021, improving to 3.28 times from 1.89 times at March 31, 2020, surpassing our long-term used equipment inventory turnover objective of 2.50 times.1
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($ thousands, except per share amounts)
Product support revenue
Cost of sales before inventory impairment
Other income (loss)
Income (loss) from operating activities
Net finance costs
Income (loss) before income tax
Income tax (expense) recovery
Income (loss) for the period
Gross profit margin as a % of revenue
Total SG&A as a % of gross profit
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Basic - Adjusted(1)
Reconciliation of adjusted income before income tax:
Income (loss) before income tax
Unrealized foreign exchange loss included in other income
Adjusted income before income tax(1)
Conference Call Information
Cervus will host its first quarter 2021 results conference call and webcast on May 7, 2021, at 10:00 a.m. Eastern 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 March 31, 2021, followed by questions from securities analysts and institutional shareholders.
Interested parties may access the conference call by dialing (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 Friday, May 14, 2021, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 3984387 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 month periods ended March 31, 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 March 31, 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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