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Edited Transcript of RME.TO earnings conference call or presentation 31-Jul-19 3:00pm GMT

Q2 2019 Rocky Mountain Dealerships Inc Earnings Call

Calgary Aug 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Rocky Mountain Dealerships Inc earnings conference call or presentation Wednesday, July 31, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Garrett Andrew Wyatt Ganden

Rocky Mountain Dealerships Inc. - CEO, President & Director

* James Randall Wood

Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer

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Conference Call Participants

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* Ben Cherniavsky

Raymond James Ltd., Research Division - MD of Industrial Research

* Cherilyn Radbourne

TD Securities Equity Research - Analyst

* Derek Spronck

RBC Capital Markets, LLC, Research Division - Analyst

* Greg R. Colman

National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst

* Jacob Jonathan Bout

CIBC Capital Markets, Research Division - MD of Institutional Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to Rocky Mountain Dealership 2019 Second Quarter Financial Results Conference Call. (Operator Instructions) Please note that this call is being recorded today, July 31, 2019, at 9:00 a.m. Mountain Time.

I would now like to turn the meeting over to your host for today's call, Garrett Ganden, President and Chief Executive Officer of Rocky Mountain Dealerships. Please go ahead, Mr. Ganden.

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [2]

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Thank you, Crista, and thank you to everyone for participating in our call today. Sitting with me today is our Chief Sales and Operations Officer, Jim Wood.

Please note that while talking about our results and answering questions, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. We will also be discussing non-IFRS financial measures in today's call, including adjusted diluted earnings per share, adjusted EBITDA and operating SG&A.

For more information about these topics, please review the sections of RME's management discussion and analysis for this quarter entitled caution regarding forward-looking information and statements, risk and uncertainties and non-IFRS measures. Listeners should also review the Risk Factors section of our most recent Annual Information Form. These documents can be found on our website as well as the SEDAR website. The dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded.

For the second quarter of 2019, gross profit margin was 15.3% versus 12.6% in the second quarter of 2018. Adjusted EBITDA was $6 million compared with $13 million for the same period in 2018.

Walking through the waterfall chart on your screen, the adjusted EBITDA change was due to a $13.5 million decrease in gross profit on lower sales volumes; a $2.1 million increase in gross profit on sales price variance; a $4.7 million increase in gross profit on sales mix; a $1.5 million decrease in OEM incentives on lower sales volumes; a $2.6 million decrease in operating SG&A; operating costs associated with locations acquired during 2018 as well as our Kansas location were more than offset by reduced sales commissions, incentive compensation as well as other operating cost reductions; and finally, a $1.3 million increase in short-term finance costs due to increased average borrowings.

Momentum in our parts and service business in the first quarter of 2019 continue to positively contribute to revenues early in the second quarter. However, once seeding was completed in late April, early May, the market sentiment turned sharply negative, a result of broad macroeconomic and political uncertainty, which significantly reduced sales across all departments. The arrival of spring rains in late June improved sentiment significantly, but these macro uncertainties persisted and continued to weigh on farmer sentiment.

Trade barriers between Canada and several of its agriculture commodity trading partners continue to impede farmers' ability to deliver their crops to key end markets. China, with its recent ban on Canadian canola, joined India, Saudi Arabia and others in implementing trade barriers affecting Canadian agriculture products, including canola, wheat, lentils and, most recently, pork and beef.

In a June 17, 2019, letter to the Canada's Minister of Agriculture and Agri-Food Canada, the Western Canadian Wheat Growers estimated market losses since inception of these trade barriers to exceed $3.7 billion. The severity of these disputes continue to weigh on agriculture commodity prices and overall farmer sentiment which, in turn, tempers demand for RME's products and service offerings. In response to current market conditions, we've taken steps to rationalize our cost structure, including a reduction in complex-wide headcount and other cost containment measures focused on realigning resources to reflect current market conditions.

On May 30, 2018, RME established certain aspirational targets within its growth plan to increase revenues to at least $1.5 billion in 2023 as well as grow adjusted earnings and adjusted EBITDA to $33.8 million and $69 million, respectively, over that same time frame. Current circumstances beyond our direct control have contributed to the decision to withdraw this plan. Achieving the plan targets were predicated on several assumptions, including the availability of accretive acquisition targets and our ability to unlock synergistic value therefrom and a favorable North American agriculture business climate.

Accretive acquisition targets have not yet been identified and escalating trade disputes between North America and many of its key agriculture commodity trading partners are weighing on the commodity prices. The resulting current uncertainty has significantly tempered farmer sentiment and demand for RME's products and services, creating an unfavorable agricultural business climate. Notwithstanding all these current macroeconomic headwinds, we believe the long-term fundamentals underlying the Western Canadian agriculture market remains strong, and we remain committed to achieving multifaceted revenue growth and improved earnings.

Agriculture equipment deliveries reported by the Association of Equipment Manufacturers for all of Canada continued its downward trend in the second quarter 2019. Specifically, the June 2019 report indicated year-to-date equipment sales declines in major product categories, including 4 wheel-drive tractors down 34.8% and self-propelled combines down 18.7% for year-to-date 2019 compared to 2018.

Looking to the positive, precipitation throughout late June and early July in many of our core operational regions has helped to ease concerns over a lack of spring moisture. While some areas would benefit from additional rainfall, Western Canadian crops are generally maturing well, and overall production is expected to surpass last year's levels. With a diverse and current profile of used equipment inventory, we're well positioned to serve our customers' needs.

New and used equipment inventories were essentially flat quarter-over-quarter at approximately $560 million, which is illustrated on the graph on the right-hand side of the slide. New equipment inventory was $165 million representing an increase of $35 million or 26.7% compared with December 2018. Approximately 1 quarter of this increase was in construction equipment procured on favorable terms with the balance in agriculture equipment restocking, both of which occurred during Q1 of 2019.

Used equipment inventory was $395 million, representing an increase of $6.5 million or 1.7% compared with December 31, 2018. Overall, our total inventory turns moderated during the trailing 12 months ending June 30 as compared to the same period a year ago, reflecting a decline in sales activity in combination with an increase on the average level of inventory on hand.

There was no change in our balance sheet from the first quarter, and we continue to be well positioned. We continue to have liquidity available to us under our various credit facilities with over $277 million in credit as summarized in the table. Our net debt to adjusted EBITDA ratio of 1.84x moved up from Q1 levels, primarily as a result of lower EBITDA, and we expect this to improve in the second half of the year where sales generally improve. Since initiating the NCIB in late 2018, we have repurchased and canceled approximately 631,000 shares, representing approximately 40% of the total shares authorized for repurchase under the NCIB.

Before we go to the Q&A, I'd like to provide a quick update on our ongoing search for a CFO. The process is ongoing and is progressing as we anticipated. We will announce when we've hired a successor via press release. In the meantime, we have a strong and experienced finance team in place, and we're taking the necessary time to ensure we find the right candidate for this role.

We'll now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Jacob Bout from CIBC.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [2]

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So you commented on farmer sentiment improving in June. Has that trend continued into July?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [3]

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Yes. With the moisture levels, the macro conditions are continuing to weigh. But when you look at the crop across the Canadian Prairie, Jacob, the crops looks really quite good. Of course, you can always use a little bit more moisture and all that sort of stuff. But generally, people are excited to actually get in the field and get the crop off.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [4]

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So for looking at the back half of the year and we're thinking about new unit year-on-year growth, is it going to be down 30% to 40% or -- I mean because you had a pretty good first and second quarter in 2018?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [5]

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Yes. I don't think the overall market is going to end up that far down over the rest -- over the entire year, Jacob. I think it'll actually moderate out. I think the most recent discussions that have come out from some of the manufacturers is they're expecting across North America to be down around 20%, I think it was, consolidated. I think that's probably realistic.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [6]

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Okay. And then what we saw in the quarter with the decline in new equipment sales, it seems like your -- the decline is a little bit more than what the overall market is indicating in Canada. Are you losing market share or is this a case thing versus other OEMs? Or how should we think about that?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [7]

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This was honestly -- at least partially, we had planned on reducing our new equipment sales to work our way through some of the used equipment that we have, Jacob. So I think that's part of it. The other piece is, I would say it's more of the industry overall. It doesn't seem like we're actually losing market shares. I'm going to let Jim give you a bit of an answer here, Jacob.

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [8]

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Yes. Jacob, the whole industry is down, and a lot of our product categories aren't reported by the AEM such as seeding and crop application, things like that. So we've seen a decline in pretty much all the product categories. The ones that harvest equipment, it's all depending on the manufacturers, when they deliver. We typically deliver in April and then quite heavily in Q4. Other manufacturers deliver heavy in January, February, which props up those numbers, and then July. So we're -- we've got a lot of used equipment we want to focus on. And the manufacturers are partner of ours, and they're definitely helping us. They're in on the deals with us, but our focus is used equipment.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [9]

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Okay. So what's driving then the -- if I look at used sales, it looks like the used sales were quite high in second quarter 2018. You're basically tracking what you did last quarter. And then I think there was a slight rise in used inventories.

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [10]

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A little bit, yes, about $6 million.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [11]

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Okay. What's driving that?

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [12]

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Well, it's simple when you have -- every new piece of equipment we sell has a trade. And so we did have presales land in Q1 and Q2, which drove somewhat new sales. But when new sales drop off like that, you're just not able to sell the used at the same ratio as the new. So that's why there was a slight pickup. But if you think about it, if we had sold more new with the declining used, we would have seen a significant increase, which we didn't want, so.

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Jacob Jonathan Bout, CIBC Capital Markets, Research Division - MD of Institutional Equity Research [13]

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Okay. So if we're looking at the back half of the year, then used equipment sales should be kind of in line with what we saw in the first half?

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [14]

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Yes. As long as -- like I say, there is a lot of macro conditions out there, and I wouldn't say the farmer sentiment is anywhere near what it was last year with the canola looming and things like that. Like, as Garrett mentioned, the crops look fantastic in southern and central and most of Alberta. In the north, it's wet. Saskatchewan's kind of rebound and same with Manitoba. So it's -- we still have a long ways to go till the crop's in the bin, but there are -- the customers do make decisions based on the state of the crop, especially moving into season. So this is our best quarter to sell used equipment.

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Operator [15]

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Your next question comes from the line of Derek Spronck from RBC.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [16]

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Any indication of the Canadian government perhaps providing some sort of support given the kind of geopolitical tensions that arguably were created -- potentially created by them?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [17]

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At this point, I haven't heard or seen anything. The most recent discussion they had was helping out some of the supply management again, but really not -- not really there for the average Western Canadian farmer.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [18]

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Okay. And in terms of the U.S. opportunity, I understand you pulled your longer-term forecast. Do you plan on maintaining the Kansas facility that you opened up recently? And has there been any change in terms of that focus on that one facility down in Kansas?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [19]

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No. Our intent is to keep Kansas. That, quite honestly, is -- turned out a little bit better than what we had actually thought to have. It's a great opportunity for us to keep a hand on the pulse of what's going on in the U.S. agriculture as well. So no, our intent absolutely is to keep that moving and moving forward.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [20]

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And presumably, U.S. expansion, at some point, still could be a possibility. Is that correct, Garrett?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [21]

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Yes, at some point. Basically, what we're looking at is understanding what's -- more and more details of what's going on in the U.S. marketplace, and it's been a great opportunity for us so far.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [22]

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Okay. And then one last one for myself, and I'll turn it over. How are you thinking about the dividend and where you sit on your bank covenants and perhaps your discussions with the bankers? Is there any risk there? And how are you thinking about it, Garrett?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [23]

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So basically, I'll answer this a multitude of different ways. But, first and foremost, this is pretty much a normal cycle that exists within the agricultural time frame over the years, and our bankers fully understand that. They've been great partners with us, and we're continuing to work with them and talk with them. So I don't see this as, really, a whole lot different than we've seen in some of the previous years. We continue to have conversations about dividend and covenants and cash and all of those different scenarios every quarter at the Board meetings and post that. But I think if you look back and look at our history over the last 10 years, we've continued to maintain our dividend. In the right time frames, we've grown that dividend, and that's where we're going to continue to be.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [24]

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Does it put a pause perhaps on the share buybacks or do you still feel comfortable being opportunistic there?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [25]

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I think the opportunity -- it's opportunistic, right? I wouldn't say the answer is that we're not going to buy any back. I wouldn't say we're going to go out and buy a bunch of shares back. I think it's opportunistic, and it depends on basically the sentiment of what's going on into the marketplace. We continue to have our NCIB. We continue to have an opportunity to buy back shares within that. Our intent, when it comes due in November, will be to renew it, so.

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Operator [26]

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Your next question comes from the line of Greg Colman from National Bank Financial.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [27]

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Just keeping on the subject of share cycles here, where we are on the cycle. Just on the back of those last comments you made there, Garrett, about this being sort of a normal agriculture cycle, it's a little different than what we were thinking just given the announcements happening on the trade side and the diplomacy side. If we do consider this to be a normal agriculture cycle, though, at what point do you start to see those year-over-year sales, I guess, normalize? Your structure turned back in the upper direction. What would be the standard period of time that you've seen in the past for this to be a troughy, choppy-type sales period?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [28]

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Yes. I think, Greg, you hit the nail on the head in regards to the macro conditions. We need to get some clarity around those macro conditions to really have that. The farmers want to have an understanding of where their end markets are going to be, and it matters for the grain traders to get that, right? So for us, the way that we're kind of looking through it is we're looking for some leadership, to be honest, from the government and working through some of those trade deals. I think that's what is going to be a bit of a catalyst. The commodity prices themselves have held up pretty good. It could be better, of course, but they have held up pretty good. The crops look like they're going to be really good. So therefore, the Canadian agricultural landscape is in a good shape. So really what we're needing is to get some of this macro items resolved to be able to see it, I think.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [29]

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Okay. Fair enough. And I mean on that side, absent if something happened on the macro side that we can't predict the timing of, should we look at your relief period under the covenants? I think you had them amended in the second quarter through to the end of Q3 to be a little bit of a higher covenant level. Should we look at that relief period as being something where you internally believe things are going to be challenging, but essentially after that, after Q3, the environment starts to normalize a little bit as the balance sheet starts to normalize a little bit?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [30]

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Yes. So basically, the answer to that is, Greg, we're continuing to work with the banks. And as we're looking out a couple of quarters, we'll continue to have conversations with them. At this point, yes, when we did that discussion, which was in kind of May time frame, that's exactly what the thought pattern was, is we're going to -- remember, last year in Q3, it was fairly tough. We got all that snow in September, which really had an impact on the farmer sentiment, again. And so we're working -- we'll get a more normal second half of this year is kind of our expectation where more of it is parts and service, more of it is used sales. And we think that, that becomes more of consistent, I guess, is maybe the answer.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [31]

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Okay. And would your optimism, pessimism attitude towards the back part of the year -- has that improved when we look at what you were thinking in May when you were in those discussions versus where you are today or has it deteriorated?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [32]

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I would say it's marginally improved because we got some really great moisture across the Canadian Prairies.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [33]

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Got it. Okay. That's great to see. Okay. Just on that covenant quickly. Were there any one-time fees recognized in the quarter from a charging perspective when you [papered] through those covenant changes?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [34]

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Very modest, very modest.

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Greg R. Colman, National Bank Financial, Inc., Research Division - MD and Energy Services & Special Situations Analyst [35]

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And then just lastly, this question's already sort of been answered in this discussion, but when we think about inventory, you did hit another record high in the quarter and turnover is below the historical and seasonal average. Can you just walk us through the strategy for what internally you're looking at to get those -- that inventory level down to a more acceptable level and what you would consider to be a more acceptable level if today is not?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [36]

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Yes. I think it's a combination of a number of different initiatives, to be honest, Greg. It's a few things. Earlier on in the year and even when we're talking about Q4 results, we had talked about the fact that we were going to temper some of that new equipment sales because, obviously, as Jim was talking about, we take a trade on every unit that we sell as a new unit. So we've been tempering that piece. The other thing, quite honestly, we've been very aggressive on our used programs that we have, whether or not that's incentivizing salesmen to be able to move that product or be able to incentivize the customers themselves to be able to move those units. And I do have to -- I'd be amiss if I didn't mention the fact that our manufacturing partners have been with us every -- on lockstep throughout this entire piece, and they're continuing to support us through this. And really, at the end of the day, we've got to sell our way out of it. When you look at it from a longer-term goal, realistically, we're probably $50 million to $60 million higher than where we'd want to be. But it's going to take us some time to get there, Greg.

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Operator [37]

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Your next question comes from the line of Cherilyn Radbourne from TD Securities.

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Cherilyn Radbourne, TD Securities Equity Research - Analyst [38]

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So wanted to start on product supports. The MD&A notes that post seeding that activity on a same-store basis was below normal. So I was just curious if you could comment on what you're seeing to date in the third quarter?

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [39]

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Cherilyn, it's Jim. Yes, the kind of the pause from the farmers after seeding was they had gone through seeding, they had fixed what was broken. And then just like in whole goods, a lot of them hit pause because they -- a lot of the product support is discretionary spending as well. So Q3 is always strong for product support just because it's in-season, it's the biggest season we have, and we're starting to see some good flow on that, so.

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Cherilyn Radbourne, TD Securities Equity Research - Analyst [40]

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Okay. And then just in terms of the mix and aging of equipment that you've gone in inventory, can you sort of elaborate there?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [41]

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Well, I guess, from a mix perspective, we have a broad mix. I guess, is probably the way that -- there isn't a big concentration on any 1 product, any 1 type or anything like this. It is -- what do you want to call it? Diverse, I guess we'll say, at that stage.

From an aging perspective, well, obviously, a little bit of it has aged more with the reduced used sales compared to last year in the second half. We're expecting to work through a good chunk of that in the latter half of this year, especially as we get into in-season. Overall, aging, really, we're not real upset about what we've got. Vintage is good.

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [42]

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And we spend a lot of time on our inventory. It's our biggest assets. And I would say the aging profile's pretty consistent over the last couple years. Like we stated, we do have a larger amount of TE equipment that we ordered that was favorable from the manufacturer. As far as new ag goes, we just try and move. A lot of our new ag sales are pre-sales, so we're able to order those ahead of time. And as far as used goes, a lot of our equipment is late model, current inventories.

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Cherilyn Radbourne, TD Securities Equity Research - Analyst [43]

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Okay. And then what is this all doing to the age and profile of the installed base? And I guess what I'm driving at there is, it feels like it's been a while since we've had a replacement cycle. It felt like we were starting to get one during the first half of last year, and then that was sort of short circuited by some of the snow that we got in September and October. What does that look like?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [44]

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It's definitely been aging across the Canadian Prairies. It's still pretty good though from an aging perspective.

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [45]

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Yes. Comparable to the U.S., it's night and day. The U.S., really -- they sold, what, 10,000 new [columbines] a year in 2013, and they sell above 3,900 a year now. So we're consistently above 2,800 columbines a year in Canada, so.

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [46]

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I think the answer to that it is if you look at it from a North American perspective, Cherilyn, there continues to -- there's pent-up demand for that replacement cycle.

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Cherilyn Radbourne, TD Securities Equity Research - Analyst [47]

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More so in the U.S. than on the Canadian side of the border?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [48]

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More so in the U.S.

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [49]

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Yes.

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Cherilyn Radbourne, TD Securities Equity Research - Analyst [50]

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And then last one from me. The CapEx looked a little elevated in the quarter. Just wondering what that was and what you're expecting for the year?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [51]

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That's just the completion of the building that we're putting up in Kindersley. So that's going to be done the latter part of Q3. And so that'll all be put through. The normal maintenance CapEx is still pretty much -- mimics what the depreciation levels are. So let's call it $7 million to $8 million. That's a little bit less than $6.5 million to $7.5 million maintenance CapEx, and that's what we would expect to see the run rate as we move into 2020 as well.

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Operator [52]

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And your next question comes from the line of Ben Cherniavsky from Raymond James.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [53]

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How are you guys feeling about this quarter in general?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [54]

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Honest answer to that question is we've had better quarters. It was...

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [55]

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Well, that's the obvious answer, but how -- but look, how do you feel about the prospects? And I mean, I guess, what I'm getting at here, Garrett, is you started the year with earnings, I think for the first time, in negative territory. You got all-time high inventory. Even your aftermarket was down. I mean a lot of this is out of your control, but you pulled your long-term targets. And I'm not sure about M&A. Even if there are opportunities, it doesn't look like you've got the balance sheet or share price to finance them. So what's your message to shareholders for why they should be sticking around here?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [56]

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The answer to that question is, Ben, we are in an area of some of the best agricultural land in the world. We have a consistent planting season -- harvest season, all those different dynamics. Right now there are a number of macro conditions that are obviously weighing on that. But the underlying customer base that we have, the farmers that exist within Western Canada are in a good position and are strong.

In regards to our inventory levels, yes, this is something that comes up over a multitude of years. And every 4 or 5 years, this seems to come up from more so on the inventory levels. We are going to work our way down from that. We are going to deal with that.

Fundamentally -- and this is -- it's a discussion that you hear lots of different times is, you know what, people got to eat, the land isn't moving to China or isn't moving anywhere else, it's going to be here. We've got that growing installed base.

The M&A piece and talking about the growth strategy, you know what, I don't feel comfortable to put money into something that's not going to be able to give us an accretive return. And what we've seen within the target opportunities and with the trade wars that aren't just affecting Canada, that are affecting the U.S. as well, you know what, we're better off to continue to work on the core portion of the business. And when the right acquisition does come up, then act. And that's really one of the big things around that growth piece, right? Most of the acquisitions end up as a J, right. In the shorter period -- in the earlier period, you don't necessarily make a whole lot of money. And over time, as you get those integrated, you get there. And the timing is pushed out from where we had thought of originally.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [57]

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So if you are waiting to find a really well run dealer where the valuation makes sense for you to acquire and then act on it, why wouldn't you be buying your own stock trading at a fraction of book value, which you yourself is in, say, one of the best regions in the world? Like there is an opportunity right now for you to do -- to allocate some capital to buying your own business.

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [58]

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Yes. And we had done that in Q4 and we had done that in Q1. To be honest, I didn't do any in Q2. Looking at the sentiment, looking at what was going on in the industry, I wanted to be able to keep my cash -- my powder dry, right? I don't disagree with you as to the best opportunity for the acquisitions right now is within Rocky shares. I don't disagree.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [59]

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But It would mean that if nothing changed in your share price, it's unlikely you would or could go out and buy a new franchise even if it became available?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [60]

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Well, you're talking about...

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [61]

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(inaudible) stock for the same price.

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [62]

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Yes. Right now the right option and the best option is to buy shares of Rocky, right? Because at the end of the day, book value -- tangible book value is around $9. We're trading -- I don't know where exactly where we're at today, but $7.50, let's call it, over the last little while. It's, what, 15% below book value. That is the best option.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [63]

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So will you be doing that in the second half of this year or do you want to sit on the cash and see what happens?

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [64]

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I think I would do it on a -- realistically, I would do it, but probably won't do that for a little while until we get a better view of what's going on overall market conditions as we get into Q3, as we get into the actual in-season.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [65]

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Okay. Well, I don't mean to beat you up, but those are the questions clients are asking me. So I'm going to ask you, and you gave me some answers.

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [66]

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Yes. Thanks, Ben.

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James Randall Wood, Rocky Mountain Dealerships Inc. - Chief Sales & Operations Officer [67]

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Thanks, Ben.

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Operator [68]

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We have no further questions in the queue at this time. I will turn the call back over to the presenters for closing remarks.

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Garrett Andrew Wyatt Ganden, Rocky Mountain Dealerships Inc. - CEO, President & Director [69]

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Thank you very much for joining us today, and have a good day.

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Operator [70]

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And this does conclude today's conference call. Thank you for your participation, and you may now disconnect. Have a great day.