TRADING SYMBOL: Toronto Stock Exchange -
HDI
Record quarterly Adjusted EBITDA of $24.4 million, profit per share increases
26.3%
Cash flow from operating activities increases to $58.1 million
Dividend of $0.085 per share
declared
LANGLEY, BC, Aug. 10, 2020 /CNW/ - Hardwoods Distribution Inc.
("HDI" or the "Company") today announced financial results for the
three and six months ended June 30,
2020. HDI is North
America's largest wholesale distributor of architectural
grade building products to the residential, repair and remodel, and
commercial construction markets, with a comprehensive US and
Canadian distribution network.
Second Quarter Highlights
- Second quarter sales of $296.0
million decreased just 2.8% year-over-year, despite
significant COVID-19 related impacts on economic activity early in
the quarter. Sales included a 7.0% increase related to the
contribution of acquired businesses.
- Despite the decrease in sales, gross profit increased
$2.7 million as the execution of our
strategies yielded a record quarterly gross profit margin
percentage of 19.5%, as compared to 18.1% in Q2 2019.
- Grew Q2 2020 profit by 25.2% to $10.2
million, from $8.2 million in
Q2 2019. Profit per share climbed to $0.48 per share, from $0.38 in Q2 2019, an increase of $0.10 per share.
- Adjusted EBITDA increased 15.3% to a quarterly record of
$24.4 million, from $21.2 million in Q2 2019.
- Cash flow from operating activities, before changes in working
capital, increased 33.2% to $23.1
million. Decreases in working capital added an additional
$34.2 million of cash flow.
- Reduced debt by $40.7 million,
resulting in a net bank debt to Adjusted EBITDA after rents ratio
of 1.3 times at quarter-end, as compared to 2.1 times at the end of
Q1 2020. Liquidity at the end of the second quarter was
$111.5 million.
- Returned cash to shareholders by repurchasing $1.4 million of common shares and paying
dividends of $1.8 million. The Board
of Directors approved a quarterly dividend of $0.085 per share, the Company's 33rd consecutive
quarterly dividend.
"We achieved another record quarterly performance, generating
significant gains in profitability and setting new highs for gross
profit margin percentage and Adjusted EBITDA," said Rob Brown, President and CEO of HDI. "We
achieved these results despite the significant early impacts of the
COVID-19 pandemic. After an abrupt market slowdown in April, our
sales began to recover in May and June and together with
contribution from acquisitions and a positive foreign currency
impact, our second quarter sales pace was close to what we achieved
in Q2 2019."
"Our success in weathering the impacts of the pandemic reflects
our early actions to provide a safe environment for employees and
customers, to take significant costs out of the business without
impacting productive capacity, and to continue to execute on our
business strategies," said Mr. Brown. "Our 19.5% gross margin
percentage was the best in our history and reflects our success in
re-establishing our import supply lines, as well as the benefit of
our Pacific Mutual Door Company acquisition, which has bolstered
our product mix with higher-margin offerings. Together with a
reduced cost structure, our strategies helped drive a 26.3%
increase in profit per share and record quarterly Adjusted EBITDA
of $24.4 million.
"Our strong bottom-line performance, together with a significant
decrease in working capital as we managed the balance sheet to
reflect current sales pace, contributed to cash flow from
operations increasing to $58.1
million during the second quarter. This, in turn, enabled us
to continue executing on our capital allocation priorities," added
Mr. Brown. "During the quarter, we further strengthened our
financial position, reducing net bank debt by $40.7 million, while still maintaining
significant cash reserves to help us weather potential future
economic challenges. We also continued to return value to
shareholders in the form of our quarterly dividend and via share
repurchases during the quarter."
"We are very proud of what the HDI team has achieved amidst
difficult operating conditions. We are moving forward in strong
financial shape, with a proven and well-diversified business model
and a sharp focus on continuing to accelerate our business with
organic and acquisition-based growth strategies," said Mr.
Brown.
Outlook
The ultimate impact of the COVID-19 pandemic on HDI's second
quarter and full-year 2020 results is difficult to quantify as it
will depend on the duration of the contagion, the impact of
government policies, and the subsequent pace of economic
recovery.
On a positive note, demand levels began to recover in May and
June. In July organic sales were the same as in July 2019, and signals from the residential
construction and repair and renovation markets have also been
encouraging. Leading indicators, including housing permits and
starts, mortgage interest rates, and demographic trends are
favorable and HDI anticipates growth from these markets in the
mid-term. Commercial and other construction end-markets include
recreational vehicles, healthcare, education, furniture and
fixtures. HDI expects certain of these commercial end-markets will
perform better than others in the second half of 2020, with the
diverse nature of the Company's participation reducing the impact
of dynamics in any one geography or end-market.
Overall, management believes HDI is well positioned to weather
market uncertainty related to COVID-19 with a diversified business
with no significant geographic, supplier, or customer
concentration. As noted above, the Company is also diversified from
an end-market perspective, with more than half of the products it
sells used in residential and repair and remodel applications, and
the remainder in a wide array of commercial and other
applications.
Additionally, HDI is moving forward with a very strong financial
position, including significant cash-generating ability, no term
debt, and over $111 million of
liquidity. The Company remains well positioned to create value for
shareholders by pursuing its business strategies and capital
allocation priorities, which include:
- maintaining sufficient capital reserves to weather the impacts
of a potential economic slowdown;
- executing on the acquisitions pipeline;
- continuing to return value to shareholders in the form of
dividends and remaining opportunistic as it relates to share
repurchases; and
- ensuring continued strong management of the balance sheet.
Q2 2020 Investor Call
HDI will hold an investor call on Monday,
August 10, 2020 at 8:00 am
Pacific (11:00 am Eastern).
Participants should dial 1-888-664-6383 or (416) 764-8650 (GTA) at
least five minutes before the call begins. A replay will be
available through August 24, 2020 by
calling toll free 1-888-390-0541 or (416) 764-8677 (GTA), followed
by passcode 164430.
Summary of Results
|
Selected Unaudited
Consolidated Financial Information (in thousands of Canadian
dollars)
|
|
|
|
Three
months
ended June
30
2020
|
|
Three
months
ended June
30
2019
|
|
Six months
ended June 30
2020
|
|
Six
months
ended June
30
2019
|
Total
sales
|
$
|
296,005
|
$
|
304,544
|
$
|
621,105
|
$
|
591,632
|
Sales in the US
(US$)
|
|
190,819
|
|
200,748
|
|
405,239
|
|
391,111
|
Sales in
Canada
|
|
31,258
|
|
36,046
|
|
68,029
|
|
70,046
|
Gross
profit
|
|
57,802
|
|
55,018
|
|
120,414
|
|
106,051
|
Gross profit
%
|
|
19.5%
|
|
18.1%
|
|
19.4%
|
|
17.9%
|
Operating
expenses
|
|
(42,032)
|
|
(41,194)
|
|
(89,630)
|
|
(82,360)
|
Profit from operating
activities
|
$
|
15,770
|
$
|
13,824
|
|
30,784
|
|
23,691
|
Add: Depreciation and
amortization
|
|
7,926
|
|
6,801
|
|
15,681
|
|
13,631
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
|
|
|
amortization
("EBITDA")
|
$
|
23,696
|
$
|
20,626
|
$
|
46,465
|
$
|
37,322
|
EBITDA as a % of
revenue
|
|
8.0%
|
|
6.8%
|
|
7.5%
|
|
6.3%
|
Add
(deduct):
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
(7,926)
|
|
(6,801)
|
|
(15,681)
|
|
(13,631)
|
Net finance income
(expense)
|
|
(1,997)
|
|
(2,208)
|
|
(4,311)
|
|
(4,505)
|
Income tax
expense
|
|
(3,546)
|
|
(3,452)
|
|
(6,852)
|
|
(5,041)
|
Profit for the
period
|
$
|
10,227
|
$
|
8,165
|
$
|
19,621
|
$
|
14,145
|
Basic profit per
share
|
$
|
0.48
|
$
|
0.38
|
$
|
0.93
|
$
|
0.66
|
Diluted profit per
share
|
$
|
0.48
|
$
|
0.38
|
$
|
0.92
|
$
|
0.65
|
Average Canadian
dollar exchange rate for one US dollar
|
$
|
1.385
|
$
|
1.338
|
$
|
1.365
|
$
|
1.334
|
|
Analysis of
Specific Items Affecting Comparability (in thousands of Canadian
dollars)
|
|
|
|
Three
months
ended June
30
2020
|
|
Three
months
ended June
30
2019
|
|
Six
months
ended June
30
2020
|
|
Six
months
ended June
30
2019
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
|
|
|
|
amortization
("EBITDA"), per table above
|
$
|
23,696
|
$
|
20,626
|
$
|
46,465
|
$
|
37,322
|
Non-cash LTIP
expense
|
|
731
|
|
559
|
|
725
|
|
1,144
|
Adjusted
EBITDA
|
$
|
24,427
|
$
|
21,185
|
$
|
47,190
|
$
|
38,466
|
Adjusted EBITDA as
a % of revenue
|
|
8.3%
|
|
7.0%
|
|
7.6
%
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
Profit for the
period, as reported
|
$
|
10,227
|
$
|
8,165
|
$
|
19,621
|
$
|
14,145
|
Adjustments, net of
tax
|
|
653
|
|
496
|
|
702
|
|
1,011
|
Adjusted profit for
the period
|
$
|
10,880
|
$
|
8,661
|
$
|
20,322
|
$
|
15,156
|
|
|
|
|
|
|
|
|
|
Basic profit per
share, as reported
|
$
|
0.48
|
$
|
0.38
|
$
|
0.93
|
$
|
0.66
|
Net impact of above
items per share
|
|
0.03
|
|
0.02
|
|
0.03
|
|
0.05
|
Adjusted basic profit
per share
|
$
|
0.51
|
$
|
0.40
|
$
|
0.96
|
$
|
0.71
|
|
Diluted profit per
share, as reported
|
$
|
0.48
|
$
|
0.38
|
$
|
0.92
|
$
|
0.65
|
Net impact of above
items per share
|
|
0.03
|
|
0.02
|
|
0.03
|
|
0.05
|
Adjusted diluted
profit per share
|
$
|
0.51
|
$
|
0.40
|
$
|
0.95
|
$
|
0.70
|
Results from Operations - Three Months Ended June 30,
2020
For the three months ended June 30, 2020, HDI generated
consolidated sales of $296.0 million,
a decrease of $8.5 million, or 2.8%,
from $304.5 million in the same
period in 2019. Second quarter organic sales were negatively
impacted by the COVID-19 related reduction in economic activity and
decreased by $38.1 million, or 12.5%
year-over-year. This was partially offset by $21.3 million, or 7.0%, increase in sales related
to the contribution of acquired businesses, and an $8.4 million gain related to a favorable foreign
exchange impact from a stronger US dollar when translating US sales
to Canadian dollars for reporting purposes.
Sales from US operations decreased by US$9.9 million, or 4.9%, to US$190.8 million, from US$200.7 million in Q2 2019. Organic sales in the
US decreased US$25.3 million,
representing a 12.6% decrease in sales, partially offset by a
US$15.3 million contribution from
acquired businesses. Sales in Canada decreased $4.8
million, or 13.3%, year-over-year.
Gross profit for the second quarter increased 5.1% to
$57.8 million, from $55.0 million in the same quarter in 2019. This
$2.8 million improvement reflects a
higher gross profit margin of 19.5%, as compared to 18.1% in the
same period last year, partially offset by slightly lower sales.
The significant improvement in gross margin percentage reflects the
benefit of the Company's re-established import supply lines and the
inclusion of the Pacific Mutual Door operations, which carry a
higher gross profit margin percentage relative to the rest of the
business.
For the three months ended June 30, 2020, operating
expenses increased modestly to $42.0
million, from $41.2 million in
Q2 2019. The $0.8 million increase
reflects $4.0 million of added
operating expenses related to the acquired businesses and
$1.2 million of expenses related to
the impact of a stronger US dollar on translation of US operating
expenses. These increases were partially offset by a $4.4 million decrease in organic expenses,
primarily attributable to the cost management and cost reduction
measures taken in response to the COVID-19 related reduction in
economic activity. As a percentage of sales, operating expenses
were 14.2%, as compared to 13.5% in the same period last
year.
Second quarter Adjusted EBITDA climbed 15.3% to a record
$24.4 million, from $21.2 million during the same period in 2019. The
$3.2 million year-over-year
improvement reflects the $2.8 million
increase in gross profit, and a $0.5
million decrease in operating expenses (before changes in
depreciation and amortization, and non-cash LTIP expense).
Profit for second quarter grew 25.2% to $10.2 million, from $8.2
million in Q2 2019. The $2.0
million improvement primarily reflects the $3.1 million increase in EBITDA, partially offset
by the $1.1 million increase in
depreciation and amortization.
Results from Operations - Six Months Ended June 30,
2020
For the six months ended June 30, 2020, total sales
increased 5.0% to $621.1 million,
from $591.6 million in the same
period in 2019. Of the $29.5 million
year-over-year increase, $40.6
million, representing a 6.9% increase in sales, reflects the
addition of acquired businesses, and $11.8
million relates to a favorable foreign exchange impact from
a stronger US dollar when translating US sales to Canadian dollars
for reporting purposes. These gains were partially offset by a
decrease in organic sales of $23.0
million, representing a 3.9% decrease in sales.
Sales from HDI's US operations increased by US$14.1 million, or 3.6%, to US$405.2 million, from US$391.1 million in the first half of 2019.
Growth from acquired businesses contributed US$29.8 million to sales, representing a 7.6%
increase in total sales. This was partially offset by a decrease in
organic sales of $15.6 million,
representing a 4.0% decrease in sales. Sales in Canada decreased $2.0
million, or 2.9% year-over-year.
In the first quarter of 2020, organic sales increased primarily
on the strength of higher volumes. In the second quarter, organic
growth was negatively impacted by the COVID-19 related reduction in
economic activity and its impact on the pace of construction
activity in HDI's markets.
Gross profit for the first six months of 2020 increased 13.5% to
$120.4 million, from $106.1 million in the same period in 2019. This
$14.4 million improvement primarily
reflects the increased sales and a higher gross profit margin of
19.4%, as compared to 17.9% in the same period last year. The
improvement in gross margin percentage includes the benefit of the
Company's re-established import supply lines and the inclusion of
the Pacific Mutual Door operations, which carry a higher gross
profit margin percentage relative to the rest of the business.
For the six months ended June 30, 2020, operating expenses
were $89.6 million, as compared to
$82.4 million in the same period in
2019. The $7.3 million increase
includes $7.9 million of operating
expenses from the acquired businesses and $1.7 million of expenses related to the impact of
a stronger US dollar on translation of US operating expenses. These
increases were partially offset by a $2.3
million decrease primarily attributable to the cost
management and cost reduction measures taken in April in response
to the COVID-19 related reduction in economic activity. As a
percentage of sales, operating expenses were 14.4%, as compared to
13.9% in the same period last year.
Adjusted EBITDA for the first half of 2020 climbed 22.7% to
$47.2 million, from $38.5 million during the same period in 2019. The
$8.7 million year-over-year
improvement reflects the $14.4
million increase in gross profit, partially offset by the
$5.6 million increase in operating
expenses (before changes in depreciation and amortization, and
non-cash LTIP expense).
Income tax expense increased to $6.9
million for the six months ended June 30, 2020, from
$5.0 million during the same period
in 2019. This was primarily driven by a higher taxable income as
compared to the same period in 2019.
Profit for the six months ended June 30, 2020 grew 38.7% to
$19.6 million, from $14.1 million in the same period 2019. The
$5.5 million improvement primarily
reflects the $9.1 million increase in
EBITDA, partially offset by a $2.1
million year-over-year increase in depreciation and
amortization, and an increase in income tax expense of $1.8
million. Diluted profit per share climbed to $0.92, from $0.65 in the first half of 2019, an increase of
41.5%.
About HDI
HDI is North America's largest
wholesale distributor of architectural grade building products to
the residential and commercial construction sectors. The Company
operates a North American network of 66 distribution centres, as
well as one sawmill and kiln drying operation.
Non-GAAP Measures - EBITDA
References to "EBITDA" are to earnings before interest, income
taxes, depreciation and amortization, where interest is defined as
net finance costs as per the consolidated statement of
comprehensive income. Furthermore, this press release
references certain EBITDA Ratios, such as EBITDA margin (being
EBITDA as a percentage of revenues). In addition to profit,
HDI considers EBITDA and EBITDA Ratios to be useful supplemental
measures of the Company's ability to meet debt service and capital
expenditure requirements, and interprets trends in EBITDA and
EBITDA Ratios as an indicator of relative operating
performance.
References to "Adjusted EBITDA" are EBITDA as defined above,
before certain items related to business acquisition activities.
"Adjusted EBITDA margin" is as defined above, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. References to
"Adjusted profit", "Adjusted basic profit per share", and "Adjusted
diluted profit per share" are profit for the period, basic profit
per share, and diluted profit per share, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. The
aforementioned adjusted measures are collectively referenced as
"the Adjusted Measures". HDI considers the Adjusted Measures to be
useful supplemental measures of the Company's profitability, its
ability to meet debt service and capital expenditure requirements,
and as an indicator of relative operating performance, before
considering the impact of business acquisition activities.
EBITDA, EBITDA Ratios, and the Adjusted Measures (collectively
"the Non-GAAP Measures") are not measures recognized by
International Financial Reporting Standards ("IFRS") and do not
have a standardized meaning prescribed by IFRS. Investors are
cautioned that the Non-GAAP Measures should not replace profit,
earnings per share or cash flows (as determined in accordance with
IFRS) as an indicator of our performance. HDI's method of
calculating the Non-GAAP Measures may differ from the methods used
by other issuers. Therefore, Non-GAAP Measures may not be
comparable to similar measures presented by other issuers.
Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This news release includes forward-looking statements. These
involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements or
industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements are
identified by the use of terms and phrases such as "anticipate",
"believe", "estimate", "expect", "may", "plan", "will", and similar
terms and phrases, including references to assumptions. Such
statements may involve, but are not limited to: The ultimate impact
of the COVID-19 pandemic on HDI's second quarter and full-year 2020
results is difficult to quantify as it will depend on the duration
of the contagion, the impact of government policies, and the
subsequent pace of economic recovery; signals from the residential
construction and repair and renovation markets have also been
encouraging; leading indicators, including housing permits and
starts, mortgage interest rates, and demographic trends are
favorable and HDI anticipates growth from these markets in the
mid-term; HDI expects certain of these commercial end-markets will
perform better than others in the second half of 2020, with the
diverse nature of the Company's participation reducing the impact
of dynamics in any one geography or end-market; overall, management
believes HDI is well positioned to weather market uncertainty
related to COVID-19; HDI is moving forward with a very strong
financial position, including significant cash-generating ability;
and the Company remains well positioned to create value for
shareholders by pursuing its business strategies and capital
allocation priorities, which include maintaining sufficient capital
reserves to weather the impacts of a potential economic slowdown,
executing on the acquisitions pipeline, continuing to return value
to shareholders in the form of dividends and remaining
opportunistic as it relates to share repurchases, and ensuring
continued strong management of the balance sheet.
These forward-looking statements reflect current expectations of
management regarding future events and operating performance as of
the date of this news release. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not such results
will be achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward-looking
statements, including, but not limited to: national and local
business conditions; political or economic instability in local
markets; competition; consumer preferences; spending patterns and
demographic trends; legislation or governmental regulation;
acquisition and integration risks.
Although the forward-looking statements contained in this news
release are based upon what management believes to be reasonable
assumptions, management cannot assure investors that actual results
will be consistent with these forward-looking statements. The
forward-looking statements reflect management's current beliefs and
are based on information currently available.
All forward-looking information in this news release is
qualified in its entirety by this cautionary statement and, except
as may be required by law, HDI undertakes no obligation to revise
or update any forward-looking information as a result of new
information, future events or otherwise after the date
hereof.
SOURCE Hardwoods Distribution Inc.