Decisive Dividend Corporation Reports Financial Results for the Three and Nine Months Ended September 30, 2019

Tickers: XTSX:DE, XTSX:DE.P
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November 19, 2019 - TheNewswire - Kelowna, British Columbia - Decisive Dividend Corporation (TSXV:DE) (the "Company" or "Decisive") reported its financial results for the three and nine months ended September 30, 2019. All amounts are expressed in Canadian dollars. The Company's 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:

"The year-to-date increases in sales, gross profit and adjusted EBITDA, relative to last year, demonstrates the increased scale and diversity of the Group after the additions of Slimline, Hawk and Northside in a span of fifteen months. Third quarter results continued trending in the right direction and Q3 was Decisive's strongest quarter of 2019 in terms of revenue and adjusted EBITDA. Headwinds in the form of steel tariffs, muted oil and gas activity levels, and decreasing forestry activity continue to impact the Group. However, management is confident in the long-term prospects for each of its businesses and our new financing package will significantly increase Decisive's financial flexibility as we continue with our long-term strategy of acquiring successful manufacturing companies that provide steady and growing dividend payments to our shareholders."

Q3 2019 Financial and Operating highlights:

  • - Sales for the quarter ended September 30, 2019 were $12.1 million, a decline of $1.5 million, or 11%, over the quarter ended September 30, 2018. Sequentially, compared to Q2 2019, sales increased by $1.0 million.

    - Gross profit for the quarter ended September 30, 2019 was $4.8 million, a decline of $0.1 million, or 2%, over the quarter ended September 30, 2018. Gross profit percent increased to 39% for the quarter ended September 30, 2019, compared to 36% for the quarter ended September 30, 2018. Sequentially, compared to Q2 2019, gross profit increased by $0.6 million and gross profit percent increased by 2%.

    - Adjusted EBITDA* for the quarter ended September 30, 2019, as defined in the Company's MD&A, was $1.9 million, a $0.7 million, or 26%, decrease over the quarter ended September 30, 2018. Sequentially, compared to Q2 2019, Adjusted EBITDA* increased by $0.4 million.

    - Profit for the quarter ended September 30, 2019 was $0.3 million, or $0.02 per share, compared to profit of $0.7 million, or $0.06 per share for quarter ended September 30, 2018. Sequentially, compared to Q2 2019, profit was consistent with Q3 2019.

    - During the quarter, Decisive declared $1.0 million in dividends, which is comparable to the $1.0 million in dividends for the quarter ended September 30, 2018, and the $1.0 million in dividends in Q2 2019.

Year-to-Date 2019 Financial and Operating highlights:

  • - Sales for the nine months ended September 30, 2019 were $33.1 million, up $8.7 million, or 36%, over the nine months ended September 30, 2018.

    - Gross profit for the nine months ended September 30, 2019 was $12.7 million, up $3.3 million, or 35%, over the nine months ended September 30, 2018. Gross profit percent declined to 38% for the nine months ended September 30, 2019, compared to 39% for the nine months ended September 30, 2018.

    - Adjusted EBITDA* for the nine months ended September 30, 2019, as defined in the Company's MD&A, was $4.2 million, a $0.9 million, or 26%, increase over the nine months ended September 30, 2018.

    - Profit for the nine months ended September 30, 2019 was $0.3 million, a decrease of $0.4 million, or $0.04 per share, compared to the nine months ended September 30, 2018.

    - During the nine months ended September 30, 2019, Decisive declared $3.0 million in dividends, compared to $2.2 million for the nine months ended September 30, 2018.

* 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

Q3 Consolidated Financial Highlights

Sales for the three months ended September 30, 2019 for the Group decreased to $12.1 million, from $13.6 million in Q3 2018. The primary drivers of the decrease were lower unit sales for Blaze King and a decrease in Hawk sales relative to its record third quarter in 2018. These decreases were partially offset by the contribution of Northside for half of Q3 2019, after being acquired on August 16, 2019. The lower Blaze King sales were attributed to dealer concerns that Blaze King competitors would saturate the market by discounting their stoves that are not compliant under new EPA regulations that come into force in May 2020. Blaze King management believes it is well positioned to realize higher future sales since its entire product line is compliant under these EPA 2020 regulations. In fact, Blaze King had a record month in terms of sales in October 2019.

Overall gross profit for the Group decreased by $0.1 million, or 2%, in Q3 2019 relative to Q3 2018. However, gross profit percentage for the Group over the same period increased to 39% from 36%, driven by pricing increases and/or cost containment initiatives within the Group. The $0.3 million of non-cash costs related to expensing the fair value increment of acquired inventory in Q3 2018 also impacted gross profit and gross profit percentages in that quarter.

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 $3.6 million in Q3 2018 to $4.4 million in Q3 2019. The primary drivers of the year-over-year quarterly increase were: amortization and depreciation which increased by $0.2 million; financing costs which increased by $0.3 million; and professional fees which increased by $0.3 million. The increase in financing costs was driven by the long-term debt incurred in connection with the acquisition of Northside, the higher interest rate on the new credit facility, and an increase in non-cash charges to amortize deferred financing costs. The increase in professional fees primarily related to higher acquisition costs in Q3 2019 relative to Q3 2018, due to timing of acquisitions in 2019 versus 2018.

Adjusted EBITDA for the three months ended September 30, 2019 was $1.9 million, a $0.7 million decrease compared to Q3 2018. The $0.1 million decrease in the Finished Product segment was primarily a result of lower Blaze King sales, as well as higher salaries, wages and benefits and selling, general and administrative costs. The decrease in the Component Manufacturing segment was driven by lower sales for Hawk in the quarter, down from its record quarter in Q3 2018. Although adjusted EBITDA for Hawk in Q3 2019 was below Q3 2018, it was significantly higher relative to the first two quarters of 2019. The decrease in the Head Office segment was due primarily to the expansion of the Decisive management team in late 2018.

Year-to-Date Consolidated Financial Highlights

Sales for the nine months ended September 30, 2019 for the Group increased to $33.1 million, 36% over the same period in 2018. The primary drivers of the increase were the contributions of Slimline, Hawk and Northside, which were acquired on May 30, 2018, June 28, 2018, and August 16, 2019 respectively.

Overall gross profit for the Group increased by $3.3 million, or 35%, in the first nine months of 2019 relative to the same period in 2018. Gross profit percentage for the Group over the same period declined slightly to 38% from 39%, driven by the change in overall product mix in the period related to the acquisitions described above, the negative impact of tariffs on Chinese steel products on Unicast's gross profit, and the negative effect of the slowdown in oil and gas activity in Western Canada on Hawk's results, particularly in the first half of 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 $8.9 million in the first nine months of 2018 to $11.8 million in the first nine months of 2019. The primary drivers of the year-over-year increase were: amortization and depreciation which increased by $0.6 million; financing costs which increased by $0.4 million; salaries, wages and benefits which increased by $1.3 million; and selling, general and administration costs which increased by $0.7 million. The increase in financing costs was driven primarily by the increase in long-term debt issued to acquire Northside and the higher interest rate on the new credit facility. The increases in salaries, wages and benefits, and selling, general and administration costs were based primarily on increased scale with the acquisitions of Slimline, Hawk and Northside, and some increases were also experienced in Blaze King and Head Office. These increases were partially offset by a $0.1 million decrease in professional fees related to lower acquisition costs in the respective periods.

Adjusted EBITDA for the nine months ended September 30, 2019 was $4.2 million, a $0.9 million increase compared to the first nine months of 2018. Adjusted EBITDA increased due primarily to the acquisitions of Slimline, Hawk and Northside but was negatively affected by the tariffs and slowdown in oil and gas activity noted above.

Foreign exchange gains and losses also impacted overall profit differences negatively by $0.8 million between the first nine months of 2019 and the first nine months of 2018. Fluctuations in the value of the United States dollar, relative to the Canadian dollar, result in foreign exchange gains or losses on the translation of monetary assets and liabilities within the Group. The year-to-date 2019 foreign exchange losses of $0.3 million were a result of the $0.04 decrease in the value of the United States dollar, relative to the Canadian dollar, through the first nine months of the year. Conversely, in the same period in 2018 the foreign exchange gains of $0.5 million were a result of the $0.04 increase in the value of the United States dollar through the first nine months of last year.

Outlook

The Company completed its third acquisition in fifteen months, after acquiring Northside in August 2019. This acquisition further diversifies the Group and its customer base, and strategically strengthens its mix of product offerings and industry exposure. Moreover, the expanded scale of the Group will better position Decisive to withstand near-term fluctuations in demand driven by weather, seasonality or other macro-economic factors and therefore sustain a base level of cash flow for servicing the Company's debt obligations and its monthly dividend.

In conjunction with the acquisition of Northside, the Company also entered into a credit agreement to refinance its pre-existing debt structure. The new debt arrangement doubled the size of the Company's available operating line to $10 million and replaced the current amortizing term loan with an interest only term loan. Moving to interest only financing better aligns with Decisive's objectives as it provides flexibility to manage through short-term fluctuations in demand driven by weather, seasonality or other macro-economic factors.

Management remains confident in its long-term strategic and operational plans. The Company's seasoned leadership is encouraged about the long-term business prospects of each of its subsidiaries and believes that Group is well positioned for future growth.

Finished Product Segment

  • - Blaze King is well positioned to take advantage of new EPA 2020 regulations coming into force in May of next year. Unlike many of its current competitors, all of Blaze King's products are certified under the new EPA 2020 regulations, so its market share is expected to increase as these new regulations come into force.

    - Management believes that Slimline produces best in class agricultural sprayers that can compete with any sprayers currently on the market, and there are several untapped markets they could be sold into. With respect to its evaporators, the marketing efforts over the last year are expected to yield meaningful returns in coming years.

Component Manufacturing Segment

  • - Unicast has improved product quality and this is driving sales into new markets. Any relief on current U.S. tariffs on Chinese steel products will improve operating results.

    - Hawk has sized its business for the current market. It is working with its main customer to stabilize sales in 2020 and is taking steps toward customer and industry diversification.

    - Northside has a reputation for quality and customer service. It is actively pursuing more business with its current customer base, as well as working to further diversify its business in terms of both the customers it serves and the products it manufactures.

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. Decisive's acquisition pipeline includes target companies identified through an expanded network of referral sources that regularly present it with potential acquisitions and by Company management who independently assesses certain markets and regions to identify potential targets. While deal flow is considered strong, 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.

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 FURTHER INFORMATION PLEASE CONTACT:

David Redekop, Director and Chief Corporate Development Officer

or

Rick Torriero, Chief Financial Officer

#201, 1674 Bertram Street

Kelowna, BC V1Y 9G4

Telephone: (250) 870-9146

Sign up for email notifications of all Company press releases at www.decisivedividend.com.

Cautionary Statements

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.

Forward-Looking Statements

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 objectives of the Company with respect to its operating subsidiaries, future prospects of its operating subsidiaries and potential future acquisitions, as well as forward-looking information relating to the flexibility to manage through short-term fluctuations in demand afforded by moving to interest only financing. 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: economic, industry, market and operational risks associated with the businesses carried on by operating subsidiaries of the Company, the failure to successfully identify and acquire target companies meeting the Company's standards and other risks, all as more particularly described in the management discussion and analysis 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.

Not for distribution in the United States

This press release is not for distribution to U.S. Newswire Services or for dissemination in the United States

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