TRADING SYMBOL: Toronto Stock Exchange -
HDI
Achieves record sales, gross margin percentage,
profits, and adjusted EBITDA
Dividend of $0.10 per share
declared
LANGLEY, BC, March 11, 2021 /CNW/ - Hardwoods
Distribution Inc. ("HDI" or the "Company") today announced
financial results for the three and twelve months ended
December 31, 2020. HDI is
North America's largest wholesale
distributor of architectural grade building products to the
residential and commercial construction markets, with a
comprehensive US and Canadian distribution network.
Highlights (for the year ended December 31, 2020)
- Sales grew 6.3% to an all-time high of $1,245.3 million
- Gross profit margin percentage increased to a record 19.2%,
from 18.1% in 2019
- Profit per share was up significantly to $1.78, from $1.38
in 2019, an increase of 29.0%. Adjusted profit per share was
$2.09 as compared to $1.49 in 2019, an increase of 40.3%
- Adjusted EBITDA grew to $97.5
million, an increase of $18.6
million or 23.5%
- Cash flow provided by operating activities before changes in
non-cash working capital was $83.5
million, or $3.91 per share,
as compared to $3.11 per share in
2019
- Completed three acquisitions in 2020, adding over $90 million in annualized revenue. These
transactions were financed from cash flows and are expected to be
immediately accretive to shareholders
- Returned $10.0 million of cash to
shareholders in the form of dividends and share re-purchases, while
increasing dividend rate for the eighth consecutive year
- Lowered net bank debt-to-Adjusted EBITDA after rent ratio to
1.3x and achieved net bank debt-to-capital ratio of just 24%;
$92.4 million of unused borrowing
capacity as at December 31, 2020
- The Board of Directors approved a quarterly dividend of
$0.10 per share, payable on
April 30, 2021 to shareholders of
record as at April 19, 2021
"I believe HDI is as well positioned right now as we have been
at any point in my 16 years with the company," said Rob Brown, HDI's President and CEO. "We have
just turned in record annual sales, gross profit percentage,
adjusted EBITDA and profit results in a year heavily influenced by
the global pandemic, and we did it on the strength of our
operational and strategic execution."
"We moved quickly in 2020 to adapt to rapidly changing
conditions, keeping our people safe and our operations open for
business; we reduced expenses and working capital; and we turned
our sales focus to capturing market share. At the same time, we
continued to execute on our proprietary global sourcing capability.
By the second half of the year, our import program was operating at
peak performance and contributing to our record gross margin
results. We also grew our high-margin door segment, and we
completed three acquisitions during the year, adding $90 million of annualized sales to our
business."
"I want to emphasize that our 2020 results were achieved without
the benefit of significant increases in product prices," added Mr.
Brown. "Because our products are used in the finishing stages of
construction projects, we did not see the benefits of strengthening
markets until after the year-end. This bodes well for HDI going
forward. As discussed in our outlook, market conditions have
strengthened significantly and we are entering the best
macro-demand environment the industry has seen in years.
Importantly, we are approaching this multi-year growth runway from
a position of operational, financial and competitive strength.
Together with a business model that enables us to capture and
capitalize on organic demand, a robust acquisition program that
accelerates our growth trajectory, and our long track record of
translating topline growth into strong EBITDA and cash flow
performance. We are very enthusiastic about what we can achieve in
2021 and beyond."
Outlook
Customers today are the busiest they have been since the onset
of the COVID-19 pandemic in early 2020, and leading indicators for
the US residential construction market are very positive. Housing
starts have meaningfully lagged population growth this past decade,
leading to pent-up demand for single family housing. Millennials
represent the largest segment of the population and will further
drive demand for homes. Furthermore record low mortgage rates and a
trend, resulting from the pandemic, towards population shift from
urban to suburban markets are contributing to a sharp increase in
housing permits and starts. As HDI's products relate to the
interior finishing of a building, there can be a six-to-nine-month
lag between positive construction data and demand for the Company's
products. Accordingly, the positive data in the latter half of 2020
should benefit HDI in 2021.
Demand in the repair and remodel market is also increasing as a
result of rising home equity and availability of low-cost consumer
capital, the age of the current U.S. housing stock, and social
trends such as individuals spending more of their time and
disposable income on their home. These factors are expected to
drive multi-year demand for HDI's products.
The outlook for US commercial markets remains mixed. This is a
diverse market for HDI, including manufacturers of recreational
vehicles and furniture, as well as builders of healthcare,
education, hospitality, and retail facilities, interiors and
fixtures. The expectation is that certain of these commercial
end-markets will perform better than others, with the diverse
nature of HDI's participation reducing the impact of dynamics in
any one geography or end-market.
With an overall strong growth environment forecasted for 2021,
there is a potential for demand to outpace supply, which in turn
could create supply constraints and result in rising product
prices. Management generally expects to have consistent and
predictable access to supply given HDI is often the largest
customer for its suppliers. Additionally, the Company's price
pass-through model and ability to adjust pricing in a relatively
short period of time typically enable it to translate higher
product costs into increased sales and gross margin
dollars.
Moving into 2021, HDI is very well positioned with a
diversified business with no significant geographic, supplier, or
customer concentration. This also includes end-market
diversification, with more than half of HDI's products used in
residential and repair and remodel applications, and the remainder
in a wide array of commercial and other applications.
The Company's financial position is also strong, supported by
significant cash-generating capability, no term debt, and good
liquidity. HDI remains well positioned to pursue its business
strategies and to continue creating value for shareholders. Capital
allocation priorities will continue to include growth through
acquisitions as there are numerous accretive acquisition
opportunities available. The Company also intends to allocate cash
to support organic growth and return value to shareholders in the
form of dividends, while remaining opportunistic in its approach to
share repurchases.
Please note that effective January 1,
2021, HDI will begin reporting results in U.S. dollars.
Given that 90% of the Company's revenues come from the U.S., this
is considered an appropriate currency for reporting purposes.
Annual and Q4 2020 Investor Call
HDI will hold an investor call on Friday
March 12, 2021 at 8:00 am
Pacific (11:00 am Eastern).
Participants should dial 1-888-664-6383 or (416) 764-8650 (GTA) at
least five minutes before the call begins. A replay will be
available through March 26, 2021 by
calling toll free 1-888-390-0541 or (416) 764-8677 (GTA), followed
by passcode 835456.
Summary of Results
|
Selected Unaudited
Consolidated Financial Information (in thousands of Canadian
dollars)
|
|
|
|
|
|
|
Three
months
|
Three
months
|
Twelve
months
|
Twelve
months
|
|
ended Dec
30
|
ended Dec
30
|
ended Dec
30
|
ended Dec
30
|
|
2020
|
2019
|
2020
|
2019
|
Total
sales
|
$
|
308,394
|
287,830
|
$
|
1,245,312
|
$
|
1,171,921
|
Sales in the US
(US$)
|
206,295
|
193,260
|
821,034
|
779,203
|
Sales in
Canada
|
39,439
|
32,845
|
144,077
|
138,100
|
Gross
profit
|
59,052
|
52,647
|
239,482
|
211,979
|
Gross profit
%
|
19.1%
|
18.3%
|
19.2%
|
18.1%
|
Operating
expenses
|
(46,467)
|
(42,167)
|
(180,934)
|
(163,721)
|
Profit from operating
activities
|
$
|
12,585
|
$
|
10,480
|
$
|
58,548
|
$
|
48,258
|
Add: Depreciation and
amortization
|
7,772
|
7,686
|
31,229
|
27,953
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
amortization
("EBITDA")
|
$
|
20,357
|
18,166
|
$
|
89,777
|
$
|
76,211
|
EBITDA as a % of
revenue
|
6.6%
|
6.3%
|
7.2%
|
6.5%
|
Add
(deduct):
|
|
|
|
|
Depreciation and
amortization
|
(7,772)
|
(7,686)
|
(31,229)
|
(27,953)
|
Net finance income
(expense)
|
(1,797)
|
(2,756)
|
(7,593)
|
(9,158)
|
Income tax
expense
|
(3,260)
|
(1,142)
|
(13,354)
|
(9,520)
|
Profit for the
period
|
$
|
7,527
|
$
|
6,582
|
$
|
37,602
|
$
|
29,581
|
Basic profit per
share
|
$
|
0.36
|
$
|
0.31
|
$
|
1.78
|
$
|
1.38
|
Diluted profit per
share
|
$
|
0.35
|
$
|
0.31
|
$
|
1.76
|
$
|
1.38
|
Average Canadian
dollar exchange rate for one US dollar
|
$
|
1.303
|
$
|
1.320
|
$
|
1.342
|
$
|
1.327
|
|
|
|
Analysis of
Specific Items Affecting Comparability (in thousands of Canadian
dollars)
|
|
|
|
|
|
|
Three
months
|
Three
months
|
Twelve
months
|
Twelve
months
|
|
ended Dec
30
|
ended Dec
30
|
ended Dec
30
|
ended Dec
30
|
|
2020
|
2019
|
2020
|
2019
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
amortization
("EBITDA"), per table above
|
$
|
20,357
|
$
|
18,166
|
$
|
89,777
|
$
|
76,211
|
Non-cash LTIP
expense
|
605
|
529
|
3,551
|
2,249
|
Impairment loss
related to HMI
|
3,085
|
—
|
3,085
|
—
|
Duties
payable
|
—
|
—
|
912
|
—
|
Transaction
expenses
|
218
|
433
|
218
|
509
|
Adjusted
EBITDA
|
$
|
24,265
|
$
|
19,128
|
$
|
97,543
|
$
|
78,969
|
Adjusted EBITDA as
a % of revenue
|
7.9%
|
6.6%
|
7.8%
|
6.7%
|
|
|
|
|
|
Profit for the
period, as reported
|
$
|
7,527
|
$
|
6,582
|
$
|
37,602
|
$
|
29,581
|
Adjustments, net of
tax
|
3,017
|
780
|
6,465
|
2,360
|
Adjusted profit for
the period
|
$
|
10,544
|
$
|
7,362
|
$
|
44,067
|
$
|
31,941
|
|
|
|
|
|
Basic profit per
share, as reported
|
$
|
0.36
|
$
|
0.31
|
$
|
1.78
|
$
|
1.38
|
Net impact of above
items per share
|
0.14
|
0.04
|
0.31
|
0.11
|
Adjusted basic profit
per share
|
$
|
0.50
|
$
|
0.35
|
$
|
2.09
|
$
|
1.49
|
|
|
|
|
|
Diluted profit per
share, as reported
|
$
|
0.35
|
$
|
0.31
|
$
|
1.76
|
$
|
1.38
|
Net impact of above
items per share
|
0.14
|
0.04
|
0.30
|
0.11
|
Adjusted diluted
profit per share
|
$
|
0.49
|
$
|
0.35
|
$
|
2.06
|
$
|
1.49
|
|
|
|
|
|
Results from Operations - Twelve Months Ended
December 31, 2020
For the year ended December 31, 2020, total sales increased
6.3% to $1,245.3 million, from
$1,171.9 million in 2019, a
year-over-year improvement of $73.4
million. The addition of Acquired Businesses contributed
$75.0 million of this growth,
representing a 6.4% increase in total sales, and $11.1 million of the increase related to the
favorable foreign exchange impact of a stronger US dollar when
translating US sales to Canadian dollars for reporting purposes.
These gains were partially offset by a year-over-year organic sales
decrease of $12.7 million, which
represents a 1.1% decrease in total sales. Organic sales were
negatively impacted by the second quarter decline in economic
activity that followed the emergence of the COVID-19
pandemic. Organic sales returned to more typical levels in the
third quarter, and by the fourth quarter, outpaced what HDI had
achieved in the fourth quarter of 2019.
Sales from the US operations increased by US$41.8 million, or 5.4%, to US$821.0 million, from US$779.2 million in 2019. The Acquired Businesses
contributed sales growth of US$55.9
million or 7.2%, which was partially offset by a
US$14.0 million reduction in US
organic sales attributable to second quarter COVID-19 related
economic impacts. Sales in Canada
increased by $6.0 million, or 4.3%,
year-over-year.
Gross profit for the year ended December 31, 2020 increased
13.0% to $239.5 million, from
$212.0 million in 2019. This
$27.5 million improvement primarily
reflects the increased sales and a higher gross profit margin,
which improved year-over-year to 19.2%, from 18.1%. The increase in
gross margin percentage was supported by strong performance of
HDI's import supply lines, the inclusion of sales from the acquired
Pacific Mutual Door operations which carry a higher gross profit
margin percentage relative to the rest of the business, and higher
gross margins in the door product category as a result of market
demand outpacing supply.
For the year ended December 31, 2020, operating expenses
were $180.9 million, as compared to
$163.7 in 2019. The $17.2 million increase includes $14.2 million of operating expenses from the
Acquired Businesses, an impairment loss related to HMI of
$3.1 million, and $1.6 million of expenses related to the impact of
a stronger US dollar on translation of US operating expenses. These
increases were partially offset by a $1.7
million expense savings primarily attributable to the cost
management and cost reduction measures taken in April in response
to the COVID-19 related reduction in economic activity. As a
percentage of sales, operating expenses were 14.5%, compared to
14.0% in the same period last year.
For the year ended December 31, 2020, Adjusted EBITDA
increased by $18.6 million or 23.5%
to $97.5 million, from $79.0 million in 2019. The record Adjusted EBITDA
result reflects the $27.5 million
increase in gross profit, partially offset by a $8.9 million increase in operating expenses
(before changes in depreciation and amortization, non-cash LTIP
expense, the impairment loss related to HMI, duties payable, and
transaction expenses).
For the year ended December 31, 2020, net finance expense
decreased $1.6 million to
$7.6 million, from $9.2 million in 2019. The year-over-year decrease
primarily relates to lower interest expense as a result of reduced
bank indebtedness.
Income tax expense increased to $13.4
million for the year ended December 31, 2020, from
$9.5 million in 2019. This increase
was primarily driven by higher taxable income as compared to
2019.
Profit for the year ended December 31, 2020 grew 27.1% to
$37.6 million, from $29.6 million in 2019. The $8.0 million profit improvement primarily
reflects the $27.5 million increase
in gross profit and the $1.6 million
decrease in finance expense, partially offset by the $17.2 million increase in operating expenses and
income tax expense that was $3.8 million higher.
Adjusted profit for the year ended December 31, 2020 grew
to $44.1 million, from
$31.9 million in 2019, an increase of
$12.1 million or 38.0%. Adjusted
diluted profit per share also climbed to $2.06, from $1.49
in 2019.
Results from Operations - Three Months Ended
December 31, 2020
For the three months ended December 31, 2020, total sales
increased 7.1% to $308.4 million,
from $287.8 million during the same
period in 2019, a year-over-year increase of $20.6 million. The addition of Acquired
Businesses contributed $13.6 million
of this increase, representing a 4.7% increase in total sales.
Organic sales growth accounted for an additional $10.4 million, representing a 3.6% increase in
total sales. These gains were partially offset by a
$3.4 million negative foreign
exchange impact related to a stronger Canadian dollar when
translating our US sales to Canadian dollars for reporting
purposes.
Fourth quarter sales from HDI's US operations increased to
US$206.3 million, from US$193.3 million in the same period in 2019, an
increase of US$13.0 million, or 6.7%.
The Acquired Businesses contributed sales growth of US$10.4 million, or 5.4%, and organic sales
growth accounted for an additional $2.6
million, or 1.4%.
Fourth quarter sales in Canada
grew to $39.4 million, from
$32.8 million in Q4 2019, an increase
of $6.6 million or 20.1%. The
year-over-year improvement in Canadian sales reflects strong
performance across all locations and was generally volume
driven.
Gross profit for the three months ended December 31, 2020
increased 12.2% to $59.1 million,
from $52.6 million during the same
period in 2019. This $6.4 million
improvement primarily reflects increased sales and a higher gross
profit margin. As a percentage of sales, fourth quarter gross
profit margin increased to 19.1%, from 18.3% year-over-year,
reflecting a combination of the strong performance of HDI's import
supply lines and higher gross margins in the door product category.
For the three months ended December 31, 2020, operating
expenses were $46.5 million, as
compared to $42.2 million during the
same period in 2019. The $4.3 million
increase includes $2.4 million of
added operating expenses from the Acquired Business and an
impairment loss of $3.1 million
related to the HMI business. This was partially offset by
$0.7 million of expense savings
resulting primarily from the cost management and cost reduction
measures taken earlier in the year, and a $0.5 million expense reduction related to the
impact of a stronger Canadian dollar on translation of US operating
expenses. As a percentage of sales, fourth quarter operating
expenses were 15.1%, as compared to 14.6% in Q4 2019.
For the three months ended December 31, 2020, Adjusted
EBITDA increased by 26.9% to $24.3
million, from $19.1 million
during the same period in 2019. The $5.1
million improvement primarily reflects the $6.4 million increase in gross profit partially
offset by a $1.3 million increase in
operating expenses (before changes in depreciation and
amortization, non-cash LTIP expense, the impairment loss related to
HMI, and transaction expenses).
For the three months ended December 31, 2020, net finance
expense decreased to $1.8 million,
from $2.8 million in Q4 2019. The
$1.0 million decrease primarily
relates to lower interest expense as a result of reduced bank
indebtedness.
Fourth quarter income tax expense increased to $3.3 million, from $1.1
million during the same period in 2019. This increase was
primarily driven by a higher taxable income as compared to
2019.
Profit for the three months ended December 31, 2020 grew
14.4% to $7.5 million, from
$6.6 million in the same period in
2019. The $0.9 million improvement
primarily reflects the $6.4 million
increase in gross profit and $1.0
million reduction in finance expense, partially offset by
the $4.3 million increase in
operating expenses and $2.1 million
increase in tax expense. Fourth quarter diluted profit per share
increased to $0.35, from $0.31 in Q4 2019, a gain of $0.04 per share.
Adjusted profit for the three months ended December 31,
2020 grew 43.2% to $10.5 million,
from $7.4 million in the same period
in 2019. Fourth quarter Adjusted diluted profit per share increased
to $0.49, from $0.35 in Q4 2019.
About HDI
HDI is North America's largest
wholesale distributor of architectural grade building products to
the residential and commercial construction sectors. The Company
operates a North American network of 70 distribution centres, as
well as one sawmill and kiln drying operation.
Non-GAAP Measures - EBITDA
References to "EBITDA" are to earnings before interest, income
taxes, depreciation and amortization, where interest is defined as
net finance costs as per the consolidated statement of
comprehensive income. Furthermore, this press release
references certain EBITDA Ratios, such as EBITDA margin (being
EBITDA as a percentage of revenues). In addition to profit,
HDI considers EBITDA and EBITDA Ratios to be useful supplemental
measures of the Company's ability to meet debt service and capital
expenditure requirements, and interprets trends in EBITDA and
EBITDA Ratios as an indicator of relative operating
performance.
References to "Adjusted EBITDA" are EBITDA as defined above,
before non-cash Long Term Incentive Plan (LTIP) expense, impairment
loss related to Hardwoods of Michigan ("HMI"), transaction expenses, and
duties payable. "Adjusted EBITDA margin" is as defined above,
before non-cash Long Term Incentive Plan (LTIP) expense, impairment
loss related to Hardwoods of Michigan ("HMI"), transaction expenses, and
duties payable. References to "Adjusted profit", "Adjusted basic
profit per share", and "Adjusted diluted profit per share" are
profit for the period, basic profit per share, and diluted profit
per share, before non-cash Long Term Incentive Plan (LTIP) expense,
impairment loss related to Hardwoods of Michigan ("HMI"), transaction expenses, and
duties payable. The aforementioned adjusted measures are
collectively referenced as "the Adjusted Measures". HDI considers
the Adjusted Measures to be useful supplemental measures of the
Company's profitability, its ability to meet debt service and
capital expenditure requirements, and as an indicator of relative
operating performance, before considering the impact of business
acquisition activities.
EBITDA, EBITDA Ratios, and the Adjusted Measures (collectively
"the Non-GAAP Measures") are not measures recognized by
International Financial Reporting Standards ("IFRS") and do not
have a standardized meaning prescribed by IFRS. Investors are
cautioned that the Non-GAAP Measures should not replace profit,
earnings per share or cash flows (as determined in accordance with
IFRS) as an indicator of our performance. HDI's method of
calculating the Non-GAAP Measures may differ from the methods used
by other issuers. Therefore, Non-GAAP Measures may not be
comparable to similar measures presented by other issuers.
Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This news release includes forward-looking statements. HDI is as
well positioned right now as we have been at any point in my 16
years with the company; because our products are used in the
finishing stages of construction projects, we did not see the
benefits of strengthening markets until after the year-end, this
bodes well for HDI going forward; we are entering the best
macro-demand environment the industry has seen in years;
importantly, we are approaching this multi-year growth runway from
a position of operational, financial and competitive strength;
HDI's prospects have never been better; we are very enthusiastic
about what we can achieve in 2021 and beyond; customers today are
the busiest they have been since the onset of the COVID-19 pandemic
in early 2020, and leading indicators for the US residential
construction market are very positive; housing starts have
meaningfully lagged population growth this past decade, leading to
pent-up demand for single family housing; millennials represent the
largest segment of the population and will further drive demand for
homes; furthermore record low mortgage rates and a trend, resulting
from the pandemic, towards population shift from urban to suburban
markets are contributing to a sharp increase in housing permits and
starts; as HDI's products relate to the interior finishing of a
building, there can be a six-to-nine-month lag between positive
construction data and demand for the Company's products and
accordingly, the positive data in the latter half of 2020 should
benefit HDI in 2021; demand in the repair and remodel market is
also increasing as a result of rising home equity and availability
of low-cost consumer capital, the age of the current U.S. housing
stock, and social trends such as individuals spending more of their
time and disposable income on their home; these factors are
expected to drive multi-year demand for HDI's products; the outlook
for US commercial markets remains mixed; with an overall strong
growth environment forecasted for 2021, there is a potential for
demand to outpace supply, which in turn could create supply
constraints and result in rising product prices; management
generally expects to have consistent and predictable access to
supply given HDI is often the largest customer for its suppliers;
additionally, the Company's price pass-through model and ability to
adjust pricing in a relatively short period of time typically
enable it to translate higher product costs into increased
sales and gross margin dollars; moving into 2021, HDI is very well
positioned with a diversified business with no significant
geographic, supplier, or customer concentration; HDI remains well
positioned to pursue its business strategies and to continue
creating value for shareholders; capital allocation priorities will
continue to include growth through acquisitions as there are
numerous accretive acquisition opportunities available. The Company
also intends to allocate cash to support organic growth and return
value to shareholders in the form of dividends, while remaining
opportunistic in its approach to share repurchases.
SOURCE Hardwoods Distribution Inc.