MONTREAL, QUEBEC–(Marketwired – Aug. 7, 2014) – Hartco Inc. (TSX:HCI) today announced its financial results for the three and six months ended June 30, 2014.
Consolidated results for the three months ended June 30, 2014
Hartco Inc. (“Hartco”) posted consolidated revenues of $71.8 million and net earnings of $3.0 million or $0.22 per share on a diluted basis for the three months ended June 30, 2014, compared to consolidated revenues of $78.8 million and a net loss of $0.7 million or -$0.05 per share on a diluted basis, for the corresponding period in 2013. Included in operating results are net earnings from discontinued operations of $3.4 million for the second quarter of 2014 and $0.3 million for the corresponding period in 2013
Effective June 30, 2014, the Company sold assets related to its franchising business for proceeds of $3.1 million before closing adjustments and other closing costs, resulting in an after-tax gain of $2.9 million. As a result of the foregoing change, and the previously announced outsourcing of the Company’s distribution business, the results of the franchising and distribution activities have been reclassified as discontinued operations.
“Second quarter results reflect the contributions of the sale of Hartco’s franchising business as well as improvements in the Company’s operational activities.” said Pat Waid, Hartco’s President and Chief Operating Officer. “In spite of declining revenues, we managed to increase profitability through improved operating efficiencies.”
Consolidated results for the six months ended June 30, 2014
Hartco posted consolidated revenues of $134.3 million for the six months ended June 30, 2014, compared to $148.5 million for the same period last year, and net earnings of $2.0 million or $0.15 per share on a diluted basis compared to a net loss of $1.6 million or – $0.12 per share on a diluted basis, for the corresponding period in 2013. Included in operating results are net earnings from discontinued operations of $4.2 million for the six months ended June 30, 2014 and $1.4 million for the six months ended June 30, 2013.
Financial Position
Hartco ended the second quarter of 2014 with a cash position of $23.1 million and no debt.
Hartco Outlook
The sale of Hartco’s franchising segment increases our focus on successfully operating our commercial segment while continuing to explore strategic options.” said Pat Waid. “Throughout the second half of the year, we will continue to adapt the Company’s business model in response to emerging trends, opportunities and challenges.”
Detailed Financial Information
Detailed financial information pertaining to Hartco’s quarterly and annual results can be accessed at www.sedar.com or at www.hartco.com. The quarterly and annual financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”).
About Hartco Inc.
Hartco Inc. (TSX:HCI) has been a leader in the Canadian information technology business for more than thirty years and is the parent company of Metafore Technologies Inc. As one of Canada’s leading IT solution providers, Metafore designs, supplies, installs and supports information technology solutions to private and public sector organizations of every size across Canada. For more information, please visit www.hartco.com or www.metafore.ca.
Forward-Looking Statements
This news release contains forward-looking information. Except for historical information contained herein, the statements in this document are forward-looking. Forward-looking statements involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customer demand for information technology products or services, changes in supplier pricing actions or terms, customer orders, pricing actions by competitors, changes in laws and regulations and general changes in economic conditions. Risks that could cause our results to differ materially from our expectations are discussed in our Annual Management’s Discussion & Analysis (“MD&A”).
| Financial HIGHLIGHTS | ||||||||
| (In thousands of dollars, except per share amounts) | ||||||||
| Q2 2014 | Q4 2013 | YTD 2014 | YTD 2013 | |||||
| Revenues | 71,817 | 78,783 | 134,341 | 148,530 | ||||
| Adjusted EBITDA (loss) | (241 | ) | (1,144 | ) | (1,803 | ) | (3,519 | ) |
| Net loss from continuing operations | (373 | ) | (1,015 | ) | (2,224 | ) | (2,958 | ) |
| Net earnings from discontinued operations | 3,415 | 314 | 4,243 | 1,356 | ||||
| Net earnings (loss) | 3,042 | (701 | ) | 2,019 | (1,602 | ) | ||
| Diluted earnings (loss) per share | 0.22 | (0.05 | ) | 0.15 | (0.12 | ) | ||
| Free cash flow | (7,745 | ) | (7,434 | ) | (10,150 | ) | (10,031 | ) |
| Adjusted free cash flow | (7,825 | ) | (6,909 | ) | (9,390 | ) | (9,474 | ) |
| Cash | n/a | n/a | 23,144 | 29,434 | ||||
Non-IFRS Financial Measures
Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other entities. In the following paragraphs, we have provided a description of our non-IFRS and have reconciled these amounts to IFRS measures. How the non-IFRS measures are used by the Company are described in the captions below.
Adjusted EBITDA
Adjusted EBITDA is a non-IFRS financial measure. Adjusted EBITDA is used by management to evaluate the financial and operating performance of the business at a consolidated level and the contribution of the Company’s segments. Management believes that Adjusted EBITDA provides a better indication of the ongoing financial performance of the Company.
The Company defines Adjusted EBITDA as net (loss) earnings from continuing operations excluding financial costs, depreciation and amortization, income tax expense (recovery), non-recurring gains or losses, impairment charges and the share of results of equity investments.
The reconciliation of Adjusted EBITDA from net loss from continuing operations is as follows:
| Adjusted EBITDA reconciliation | |||||||||
| Q2 2014 | Q2 2013 | YTD 2014 | YTD 2013 | ||||||
| Net loss from continuing operations | (373 | ) | (1,015 | ) | (2,224 | ) | (2,958 | ) | |
| Adjusted for: | |||||||||
| Income tax recovery | – | (279 | ) | – | (631 | ) | |||
| Share of (earnings) of equity investments (net of income tax) | (220 | ) | (376 | ) | (454 | ) | (830 | ) | |
| Net financial costs | 11 | 75 | 123 | 83 | |||||
| Depreciation and amortization (1) | 341 | 451 | 752 | 817 | |||||
| Adjusted EBITDA (loss) | (241 | ) | (1,144 | ) | (1,803 | ) | (3,519 | ) | |
| (1) Depreciation and amortization is allocated to cost of goods sold, direct expenses, marketing and selling expenses, and general administrative expenses in in the interim condensed consolidated Statements of earnings (loss) and comprehensive income (loss). | |||||||||
Free Cash Flow and Adjusted Free Cash Flow
Free Cash Flow and Adjusted Free Cash flow are non-IFRS measures and are used as indicators of financial strength and performance. Because they exclude many items included in the financial statements, they should not be used as a measure of the Company’s liquidity. Accordingly, investors are encouraged to use IFRS measures when evaluating the Company’s financial performance or liquidity.
The Company uses Free Cash Flow to determine its continuing capacity to generate discretionary cash from operations after using cash to maintain or expand its asset base. It does not represent the cash flow in the period available for management to use at its discretion, which may be affected by other sources and non-discretionary use of cash.
Free Cash Flow is defined as cash flows from operating activities as reported in accordance with IFRS, less adjustments for:
- financial income; and
- total capital expenditures as reported in accordance with IFRS.
Capital expenditures are defined as cash outlays, capital in nature, required to maintain the business at its current operating capacity and efficiency level, including additions to intangible assets.
The Company believes the use of Adjusted Free Cash Flow is meaningful as the use of this financial measure provides the Company and the users of its financial statements with supplemental information about the impact on the Company’s cash flows from the items specified below. Adjusted Free Cash Flow is a measure of liquidity that management uses in its business as an alternative to net cash provided by (used in) operating activities.
Adjusted Free Cash Flow is defined as cash flows from operating activities as reported in accordance with IFRS, less adjustments for:
- financial income;
- total capital expenditures as reported in accordance with IFRS;
- dividends received from equity investments; and
- the net decrease (increase) in long-term receivables.
The reconciliation of cash flow from operations to Free Cash Flow and Adjusted Free Cash Flow is as follows:
| Free Cash Flow and Adjusted Free Cash Flow reconciliation | ||||||||
| Q2 2014 | Q2 2013 | YTD 2014 | YTD 2013 | |||||
| Cash flow used in operating activities | (7,766 | ) | (7,434 | ) | (10,196 | ) | (9,786 | ) |
| Financial income | 48 | 73 | 78 | 169 | ||||
| Additions to property and equipment and intangible assets | (27 | ) | (73 | ) | (32 | ) | (414 | ) |
| Free cash flow | (7,745 | ) | (7,434 | ) | (10,150 | ) | (10,031 | ) |
| Dividends received from equity investments | – | 600 | 750 | 600 | ||||
| Net (increase) decrease in long-term receivables | (80 | ) | (75 | ) | 10 | (43 | ) | |
| Adjusted free cash flow | (7,825 | ) | (6,909 | ) | (9,390 | ) | (9,474 | ) |
Michael Lemieux, Chief Financial Officer
Hartco Inc.
514-354-3810
514-354-8989 (FAX)
mlemieux@hartco.com
www.hartco.com
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