Decisive Dividend Corporation Reports Financial Results for the Three and Six Months Ended June 30, 2020
Kelowna, British Columbia - TheNewswire - August 13, 2020 - Decisive Dividend Corporation (TSXV:DE) (the "Company" or "Decisive") reported its financial results for the three and six months ended June 30, 2020. All amounts are expressed in Canadian dollars. The Company's Q2 unaudited interim condensed consolidated financial statements as well as its management's discussion and analysis ("MD&A") are posted on SEDAR and on Decisive's website.
James Paterson, Chief Executive Officer of Decisive, noted:
"I am very proud of the work that has been done and is continuing throughout our organization as we manage through the pandemic. Our leadership teams have shown compassion and commitment to their businesses, their customers, and their employees, all while vigilantly following the recommendations of the applicable health authorities to prevent the spread of COVID-19.
In light of the pandemic's effect on the worldwide economy, our philosophy coming out of the first quarter was to operate with an abundance of caution. To date this has served Decisive well, as all of our subsidiaries have remained operational and the Company has been able to reduce debt levels with the cash generated by those businesses. Operating results overall were better than expected in the second quarter and we remain very confident in the long-term prospects of each of our businesses.
Although the Company was onside its debt covenants in the second quarter, our senior lenders also demonstrated their support of Decisive by providing covenant relief for the next two quarters, giving us greater financial flexibility through to the end of the year. We do remain committed to paying a dividend over the long term and will resume payments when appropriate and prudent to do so. However, given the prevailing economic uncertainty regarding a potential second wave of COVID-19 we will continue to focus our efforts on preserving liquidity and financial strength to manage through this unpredictable global downturn, which will leave us well positioned once the effects of this challenging business environment subside."
Q2 2020 Financial Highlights:
- Sales decreased by 20% relative to Q2 2019 to $8.9 million.
- Gross profit increased by 3% relative to Q2 2019 to $4.3 million.
- Adjusted EBITDA* increased by 27% relative to Q2 2019 to $2.0 million.
- Profit decreased by $0.3 million, or $0.03 per share relative to Q2 2019 to break-even.
- Total debt reduced by $2.8 million during the quarter.
2020 Year-to-Date Financial Highlights:
- Sales increased by 4% relative to the first six months of 2019 to $21.8 million.
- Gross profit increased by 13% relative to the first six months of 2019 to $9.0 million.
- Adjusted EBITDA* increased by 55% relative to the first six months of 2019 to $3.6 million.
- The overall loss increased by $1.1 million, or $0.09 per share, relative to the first six months of 2019 to a loss of $1.1 million. This 2020 loss included a $1.4 million non-cash impairment loss recorded against Hawk's goodwill.
- Dividends of $1.0 million declared in the first six months of 2020.
- Total debt reduced by $3.5 million during the first six months of 2020.
* Adjusted EBITDA is defined as earnings before finance costs, income taxes, depreciation, amortization, foreign exchange gains or losses, other non-cash items such as gains or losses recognized on the fair value of contingent consideration items, asset impairment and restructuring costs, and any unusual non-operating one-time items such as acquisition costs. Adjusted EBITDA is not a defined performance measure under International Financial Reporting Standards (IFRS) and therefore may not be comparable to similar measures presented by other issuers, but it is used by Management to assess the performance of the Company and its segments. See the MD&A for a reconciliation of applicable IFRS measures to non-IFRS measures.
Discussion of Overall Performance
Q2 Consolidated Financial Highlights
Sales for the second quarter decreased to $8.9 million from $11.1 million in Q2 2019. The onset of the COVID-19 pandemic as well as the significant decline in oil prices in the same time frame, led to decreases in sales levels at Blaze King, Unicast and Hawk which drove overall sales levels down relative to Q2 2019.
Due to the decrease in sales, the Group was eligible to receive amounts under the Canada Emergency Wage Subsidy ("CEWS") program. In Q2 2020, the Group received $1.3 million from the CEWS program, which partially offset the decrease in sales. Of the CEWS amounts received, approximately 50% was included as a reduction in manufacturing wages and 50% was included as a reduction in administrative wages.
Overall gross profit increased by $0.1 million, or 3%, in Q2 2020 relative to Q2 2019 despite the decrease in sales over the same periods. The increase was primarily a result of pricing increases and a stronger sales mix in the finished product segment, the impact of CEWS, cost containment initiatives, and the gross profit generated by Northside, which was acquired in Q3 2019.
In each subsidiary, there are substantial fixed costs that do not meaningfully fluctuate with product demand in the short-term. Such costs are included in both manufacturing costs and operating expenses. Overall operating expenses increased from $3.5 million in Q2 2019 to $3.9 million in Q2 2020. Of the year-over-year quarterly increase, $0.3 million was a result of an increase in financing costs driven by the long-term debt incurred in connection with the acquisition of Northside. The remainder of the increase was primarily a result of operating expenses associated with the operation of Northside, including a $0.3 million increase in amortization and depreciation expense. Partially offsetting these increases were the amounts received from the CEWS program.
Adjusted EBITDA for the second quarter was $2.0 million, a $0.4 million increase compared to Q2 2019. The overall increase in Adjusted EBITDA was primarily driven by the impact of the CEWS.
Foreign exchange losses also impacted overall profit differences between Q2 2020 and Q2 2019. In Q2 2020, the Group recorded $0.3 million in foreign exchange losses for the quarter based on a $0.06 decrease in the value of the United States dollar, relative to the Canadian dollar in the quarter. The Q2 2019 foreign exchange losses of $0.1 million were a result of the $0.03 decrease in the value of the United States dollar, relative to the Canadian dollar through Q2 of last year.
The increases in financing costs, amortization and depreciation expense, and foreign exchange losses more than offset the increase in gross profit in the quarter and led to a $0.3 million, or $0.03 per share, decrease in profit in Q2 2020, compared to Q2 2019.
Year-to-Date Consolidated Financial Highlights
Sales for the first half of 2020 increased to $21.8 million from $21.0 million in the first half of 2019. The sales generated by Northside in the first six months of 2020 more than offset COVID-19 related decreases in Unicast and Blaze King in the period which drove the overall increase relative to the first six months of 2019.
Overall gross profit increased by $1.0 million, or 13%, in the first six months of 2020 relative to the first six months of 2019. The increase was primarily a primarily result of pricing increases and a stronger sales mix in the finished product segment, the impact of CEWS, cost containment initiatives, and the gross profit generated by Northside.
Overall operating expenses increased from $7.4 million in the first half of 2019 to $8.6 million in the first half of 2020. Over half of the year-over-year increase was a result of a $0.7 million increase in financing costs as a result of the additional debt issued in Q3 2019 concurrent with the acquisition of Northside. The remainder of the increase was primarily a result of operating expenses associated with the operation of Northside, including a $0.4 million increase in amortization and depreciation expense. Partially offsetting these increases were the amounts received from the CEWS program in Q2 2020.
Adjusted EBITDA for the first half of 2020 was $3.6 million, a $1.3 million increase compared to the first half of 2019. The overall increase in Adjusted EBITDA was primarily driven by the increase in gross profit and the impact of the CEWS.
Other items affecting profit (loss) between the first six months of 2019 and 2020 included a $1.4 million non-cash impairment loss being recorded against Hawk's goodwill in Q1 2020, as well as foreign exchange gains and losses in the periods. The Q1 2020 goodwill impairment loss was triggered by the onset of the worldwide COVID-19 pandemic and significant decline in global oil prices, and the effect of these events on expected oil and gas activity in Western Canada. There were no impairment losses in Q2 2020 or in the first half of 2019. Foreign exchange gains and losses also impacted overall profit differences between the first half of 2020 and the first half of 2019. In the first half of 2020, the Group recorded $0.2 million in foreign exchange gains based on a $0.06 increase in the value of the United States dollar, relative to the Canadian dollar in the period. The foreign exchange losses of $0.3 million in the first half of 2019 were a result of the $0.06 decrease in the value of the United States dollar, relative to the Canadian dollar, in the same period of 2019.
The non-cash impairment loss together with the increases in financing costs and amortization and depreciation expense more than offset the foreign exchange gains and increase in gross profit and led to a $1.1 million loss, or $0.09 per share, in the first six months of 2020, compared to break-even earnings in the first six months of 2019.
A key aspect of Decisive's business model is diversification. The operations of the Company's operating subsidiaries are diversified in terms of the industries, customers, and geographies they serve. Management believes that this diversification is valuable especially amidst the continuing economic uncertainty stemming from the effects of the worldwide COVID-19 pandemic and persisting low oil prices. This was demonstrated in Q2 2020, with Decisive generating higher Adjusted EBITDA relative to both Q2 2019 and Q1 2020, as well as break-even earnings despite the numerous challenges facing the Group. Decisive also reduced its overall debt by $2.8 million during Q2 2020, bringing the total reduction in debt to $3.5 million in the first half of the year.
Decisive has been and continues to consult with the senior executives of its operating subsidiaries on a regular basis with a view to safeguarding its business, its workforce, and its customers. Decisive expects that each of its subsidiaries will continue to experience some level of negative effect on their supply chains, customer demand, or both, in the near-term. In addition, given the uncertainty surrounding the economic impact of a potential second wave of COVID-19, Decisive intends to continue to manage itself with an abundance of caution in this challenging business environment. Decisive has negotiated covenant relief with its senior lenders for the remainder of 2020 and, as of the reporting date, there is ample availability on its operating line. The Group continues to actively manage liquidity and has implemented measures to reduce costs wherever possible, suspended all non-essential capital expenditures, suspended dividend payments, and pursued all available government subsidy programs. Management believes that these measures will provide greater financial strength through this period of uncertainty. In addition, Decisive's interest only financing is proving beneficial in times like these as it preserves cash flow that can instead be used to pay employees, suppliers and service providers and allow the Company's businesses to continue to serve their customers.
Despite the current economic backdrop, management remains confident in its long-term strategic and operational plans. The Company's senior leadership is encouraged about the long-term business prospects of each of its subsidiaries and believes that Group is well positioned for future growth. Further commentary surrounding the outlook for each of the businesses in the Group is provided in the MD&A under the headings "Finished Product Segment Industry Trends and Outlook" and "Component Manufacturing Segment Industry Trends and Outlook".
As one of Decisive's objectives is to pay a regular dividend to its shareholders over the long term, Decisive plans to re-commence the declaration and payment of dividends when appropriate and prudent to do so.
Management is also confident that its disciplined acquisition approach is the best path to generating shareholder value in the long term. Decisive continues to identify and evaluate potential acquisitions which, if completed, will bolster its diversity and add strength and resilience to operations. However, there can be no assurance that target companies identified from time to time will meet Decisive's acquisition criteria or that Decisive will successfully acquire identified target companies that meet such criteria. In addition, given the significant impact that COVID-19 has had on financial markets and the global economy, capital availability may be constrained in the near-term. Management believes that preserving financial strength and flexibility during this time of economic uncertainty will better position the Company to take advantage of potential opportunities once the effects of COVID-19 and low oil prices subside.
About Decisive Dividend Corporation
Decisive Dividend Corporation is an acquisition-oriented company, focusing on the manufacturing sector. The Company uses a disciplined acquisition strategy to identify already profitable, established companies that have strong management teams, generate steady cash flow, operate in non-cyclical markets, and have opportunity for future growth.
For more information on Decisive, or to sign up for email notifications of Corporation press releases, please visit www.decisivedividend.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
Rick Torriero, Chief Financial Officer
#201, 1674 Bertram Street
Kelowna, BC V1Y 9G4
Telephone: (250) 870-9146
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Certain statements contained in this press release constitute forward-looking information. These statements relate to future events or future performance. The use of any of the words "could", "intend", "expect", "believe", "will", "projected", "estimated" and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on management's current beliefs, assumptions and expectations as to the outcome and timing of such future events. Actual future results may differ materially. In particular, this press release contains forward-looking information relating to the future prospects of the Company and its operating subsidiaries, potential future acquisitions, the possible reinstatement of the Company's monthly dividend in the long term, as well as forward-looking information relating to the impact of the ongoing COVID-19 pandemic and the price of oil on the operations and financial results of the Company and its subsidiaries. Risk factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking information include, among other things: general economic conditions; pandemic; competition; government regulation; environmental regulation; access to capital; market trends and innovation; climate risk; general uninsured losses; risk related to acquisitions; dependence on customers, distributors and strategic relationships; supply and cost of raw materials and purchased parts; operational performance and growth; implementation of the growth strategy; product liability and warrant claims; litigation; reliance on technology and intellectual property risks; availability of future financing; interest rates and debt financing; income tax matters; foreign exchange; dividends; trading volatility of common shares; dilution risk; reliance on management and key personnel; employee and labour relations; and conflicts of interest, all as more particularly described in the most recent annual MD&A of the Company available on the Company's profile at www.sedar.com. The Company cautions the reader that the risk factors referenced above are not exhaustive. The forward-looking information contained in this release is made as of the date hereof and the Company is not obligated to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward-looking information. The foregoing statements expressly qualify any forward-looking information contained herein.
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