Decisive Dividend Corporation Reports Financial Results for the Fourth Quarter and Year Ended December 31, 2019

Tickers: XTSX:DE, XTSX:DE.P
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April 16, 2019 - TheNewswire - Kelowna, British Columbia - Decisive Dividend Corporation (TSXV:DE) (the "Company" or "Decisive") reported its financial results for the fourth quarter and year ended December 31, 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-over-year progress made in 2019 over 2018 has been muted by the post year-end impact of COVID-19 and the global oil price rout. Due to the challenge in predicting the duration and depth that these recent events will have on the overall economy, we have refocused our efforts on preserving liquidity and financial strength to manage through this unpredictable global downturn. We remain very confident in the long-term prospects of each of our businesses and are fortunate that their operations are diversified in terms of the industries, customers, and geographies they serve. However, out of an abundance of caution, we made the decision to suspend our monthly dividend and all non-essential capital expenditures. These measures, together with cost reduction measures implemented throughout the group, will preserve financial strength and flexibility to deal with unforeseen issues that may arise and will leave us well positioned once the effects of these recent developments subside. We remain committed to paying a dividend over the long term and will resume payments when appropriate and prudent to do so. Our businesses continue to follow the recommendations of the applicable health authorities to prevent the spread of COVID-19 and we are fortunate that, at this time, our operating subsidiaries remain in low risk areas."

Q4 2019 Financial Highlights:

  • - Sales increased by 5% relative to Q4 2018 to $14.3 million.

    - Gross profit increased by 29% relative to Q4 2018 to $4.9 million.

    - Gross profit percent increased from 28% in Q4 2018 to 34% in Q4 2019.

    - Adjusted EBITDA* increased by 83% relative to Q4 2018 to $2.2 million.

    - Profit increased to $0.5 million, or $0.04 per share, compared to a loss of $0.1 million, or $0.01 loss per share, in Q4 2018.

    - Decisive declared $1.0 million in dividends.

2019 Annual Financial Highlights:

  • - Sales increased by 25% relative to 2018 to $47.4 million.

    - Gross profit increased by 33% relative to 2018 to $17.6 million.

    - Gross profit percent increased from 35% in 2018 to 37% in 2019.

    - Adjusted EBITDA* increased by 39% relative to 2018 to $6.4 million.

    - Profit increased by 60% relative to 2018 to $0.8 million. Profit per share was consistent in each year at $0.07 per share.

    - Decisive declared $4.0 million in dividends.

* 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

Q4 2019 Consolidated Financial Highlights

Sales for the fourth quarter increased to $14.3 million from $13.6 million in Q4 2018. Sales generated by Northside for the quarter, after its acquisition on August 16, 2019, was the primary driver of the increase partially offset by a decrease in Hawk sales relative to Q4 2018. Sales for the other subsidiaries in the quarter were consistent with Q4 2018.

Overall gross profit increased by $1.1 million, or 29%, in Q4 2019 relative to Q4 2018. The increase was a result of higher gross profit percentages which increased to 34% from 28% over the same period, driven by pricing increases and/or cost containment initiatives, as well as the gross profit generated by Northside. The $0.3 million of non-cash costs related to expensing the fair value increment of acquired inventory in 2018 in Q4 of last year also impacted gross profit and gross profit percentages in that quarter relative to Q4 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 $4.0 million in Q4 2018 to $4.4 million in Q4 2019. The year-over-year quarterly increase was primarily a result of an increase in financing costs 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.

Adjusted EBITDA for the fourth quarter was $2.2 million, a $1.0 million increase compared to Q4 2018. The overall increase in Adjusted EBITDA was primarily driven by the increase in gross profit.

The increase in gross profit also led to a $0.6 million increase in overall profit from a $0.1 million loss, or $0.01 per share, in Q4 2018 to a profit of $0.5 million, or $0.04 per share, in Q4 2019.

Other items affecting profit between the fourth quarters of 2018 and 2019 included a $0.7 million non-cash impairment loss being recorded against Unicast's goodwill in Q4 2018, as well as foreign exchange gains and losses in the periods. The Q4 2018 goodwill impairment loss was primarily triggered by the imposition of tariffs on Chinese steel products sold into the United States. There were no impairment losses in Q4 2019. Foreign exchange gains and losses also impacted overall profit differences between Q4 2019 and Q4 2018. In Q4 2019, the Group recorded $0.1 million in foreign exchange losses for the quarter based on a $0.02 decrease in the value of the United States dollar, relative to the Canadian dollar in the quarter. The Q4 2018 foreign exchange gains of $0.5 million were a result of the $0.07 increase in the value of the United States dollar, relative to the Canadian dollar, in the last three months of 2018.

2019 Annual Consolidated Financial Highlights

Sales for the year increased by $9.4 million to $47.4 million, or 25% over 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 increased by $4.4 million, or 33%, in 2019 relative to 2018 as a result of contributions from the businesses acquired in the last two years. Gross profit percentage over the same period improved to 37% from 35%, primarily as a result of the year-over-year decrease in non-cash inventory adjustments. Absent these non-cash inventory adjustments, gross profit percentages would be fairly consistent in 2019 versus 2018 which is notable given the negative impact tariffs on Chinese steel products have had on Unicast's gross profit in 2019, 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.

Overall operating expenses increased from $12.8 million in 2018 to $16.2 million in 2019. The primary drivers of the year-over-year increase were: amortization and depreciation which increased by $1.0 million, excluding portion related to manufacturing costs; financing costs which increased by $0.8 million; and salaries, wages and benefits which increased by $1.8 million. The increase in financing costs was driven primarily by the additional debt issued in Q2 2018 in connection with the acquisitions completed last year as well as the 2019 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 were based primarily on increased scale with the acquisitions of Slimline, Hawk and Northside, and some increases in Blaze King and Head Office. These increases were partially offset by a $0.2 million decrease in professional fees related to lower acquisition costs in the respective periods.

Adjusted EBITDA for the year was $6.4 million, a $1.9 million increase compared to 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.

Overall profit for 2019 was $0.8 million, or $0.07 per share, compared to $0.6 million, or $0.07 per share in 2018.

Other items affecting overall profit between 2018 and 2019 included a $0.7 million non-cash impairment loss being recorded against Unicast's goodwill in Q4 2018, as well as foreign exchange gains and losses in the periods. The 2018 goodwill impairment loss was primarily triggered by the imposition of tariffs on Chinese steel products sold into the United States. There were no impairment losses in 2019. Foreign exchange gains and losses impacted overall profit differences negatively by $1.4 million between 2019 and 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 2019 foreign exchange losses of $0.4 million were a result of the $0.06 decrease in the value of the United States dollar, relative to the Canadian dollar, through the year. Conversely, in 2018 the foreign exchange gains of $1.0 million were a result of the $0.11 increase in the value of the United States dollar through last year.

Outlook

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 current economic uncertainty stemming from the effects of the worldwide COVID-19 pandemic and the significant decline in global oil prices.

This diversification was bolstered in August 2019 when the Company acquired Northside. This acquisition further diversified the Group and its customer base, and strategically strengthened its mix of product offerings and industry exposure.

In conjunction with the acquisition of Northside, the Company 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 pre-existing amortizing term loan with an interest only term loan. 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. Interest only financing is also 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 completing these two important strategic undertakings, COVID-19 and the significant decline in global oil prices have had an unprecedented effect on financial markets and the global economy to date in 2020. Decisive expects that each of its subsidiaries will experience some level of negative effect on their supply chains, customer demand, or both, in the near-term. 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. The extent and duration of the effects that COVID-19 and declining oil prices will have on the overall economy remains unknown and as such Decisive intends to manage itself with an abundance of caution in this challenging business environment. The Group has implemented measures to reduce costs wherever possible and has suspended all non-essential capital expenditures for the remainder of 2020.

In addition, on March 31, 2020, the Board of Directors made the difficult but prudent business decision to suspend monthly dividend payments. The directors and management of the Corporation believe that the temporary dividend suspension, along with the other capital preservation measures put in place, will provide greater financial strength through this period of uncertainty. 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.

Despite these recent developments, 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.

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 several target companies, 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.

Decisive is continually assessing the actual and potential impact of these recent developments on the Group. The impact on the Group will depend on a number of factors, including the extent and duration of the impact of these recent developments on the overall economy, as well as their impact on the Group's customers and the industries in which they operate.

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:

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 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 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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