TERRAVEST ANNOUNCES FIRST QUARTER RESULTS FOR FISCAL 2024 AND DIVIDEND DECLARATION

TORONTO, Feb. 8, 2024 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the first quarter ended December 31, 2023 and the declaration of its quarterly dividend.

FIRST QUARTER REVIEW AND OUTLOOK

Business Performance

Management believes that there are certain non‐IFRS financial measures that can be used to assist shareholders in analyzing the performance of TerraVest. The table below highlights certain financial results and reconciles net income to adjusted earnings before interests, income taxes, depreciation and amortization ("EBITDA") for the first quarter ended December 31, 2023 and the comparative period in fiscal 2023.

		First quarters ended
		Dec. 31, 2023	Dec. 31, 2022
		$	$
	Sales	228,090	177,198
	Net Income	19,303	13,086
	Add (subtract):
	Income tax expense	8,142	4,513
	Financing costs	6,417	3,716
	Depreciation and amortization	11,125	9,291
	Change in fair value of derivative financial instruments	(280)	(1,312)
	Change in fair value of investment in equity instruments	573	205
	Change in fair value of investment in a limited partnership	403	-
	(Gain) loss on foreign exchange	3,014	753
	(Gain) loss on disposal of other property, plant and equipment	332	454
	(Gain) loss on disposal of property, plant and equipment for rental	(375)	(567)
	(Gain) loss on lease modification	-	19
	Acquisition‑related cost	402	80
	Adjusted EBITDA	49,056	30,238

Sales for the first quarter ended December 31, 2023 were $228,090 versus $177,198 for the prior comparable quarter. This represents an increase of 29%. However, TerraVest acquired all the operating assets of the subsidiaries of Highland Tank Holdings, LLC ("HT") in November 2023 and all of the issued and outstanding shares of LV Energy Services Ltd. and its sister company (together referred as "LV") effective October 1, 2023, all of which did not contribute to the prior comparable period. Excluding HT and LV, sales for the first quarter ended December 31, 2023 were $189,543 versus $177,198 for the prior comparable quarter representing an increase of 7% for TerraVest's base portfolio (excluding HT and LV). The increases in sales for the first quarter ended December 31, 2023 are the result of higher demand for oil and gas processing equipment and services in Western Canada, as well as for LPG storage and distribution equipment.

Net income for the first quarter ended December 31, 2023 was $19,303 versus $13,086 for the prior comparable quarter. This represents an increase of 48% which is a result of the positive contributions from HT, LV and from increased sales in TerraVest's base portfolio of businesses. The increase in net income was partially offset by acquisition-related costs, increased financing costs due to higher debt level to finance business acquisitions and increased interest rates versus the prior period as well as higher income tax expense. Other variances are also highlighted in the table above.

Adjusted EBITDA for the first quarter ended December 31, 2023 was $49,056 versus $30,238 for the prior comparable quarter. This represents an increase of 62%, which is the result of the reasons explained above.

The table below reconciles cash flow from operating activities to Cash Available for Distribution for the first quarter ended December 31, 2023 and the comparative period in fiscal 2023.

		First quarters ended
		Dec. 31, 2023	Dec. 31, 2022
		$	$
	Cash Flow from Operating Activities	38,553	21,883
	Add (subtract):
	Change in non‑cash operating working capital items	(6,534)	1,912
	Maintenance capital expenditures	(6,909)	(1,539)
	Repayment of lease liabilities	(1,630)	(1,516)
	Cash Available for Distribution	23,480	20,740
	Dividends Paid	2,239	1,789
	Dividend Payout Ratio	10 %	9 %

Cash flow from operating activities for the first quarter ended December 31, 2023 was $38,553 versus $21,883 for the prior comparable period. This represents an increase of 76%. The increase in cash flow from operating activities is largely attributable to the increase in net income and the reduction of inventory levels for TerraVest's base portfolio businesses compared to the prior period as the supply chain has greatly improved and is more stable. The increase in cash flow from operating activities was partially offset by additional interest and income taxes paid.

Maintenance Capital Expenditures were $6,909 for the first quarter ended December 31, 2023 versus $1,539 for the prior comparable period representing an increase of 349%, which is primarily explained by the timing of such capital expenditures, the growth of TerraVest's portfolio of businesses, as well as the Company's decision to consolidate two manufacturing plants into a single facility during the period. During the first quarter ended December 31, 2023, TerraVest's total purchase of PP&E paid was $13,463 of which $6,554 is considered growth capital. The growth capital incurred during the first quarter was mainly used to add to the Company's rental fleet and invest in a new manufacturing product line.

Cash Available for Distribution for the first quarter ended December 31, 2023 increased by 13% versus the prior comparable quarter. This increase is a result of reasons explained above and previously in this press release.

The Dividend Payout Ratio for the first quarter ended December 31, 2023 was 10% versus 9% for the prior comparable period.

Outlook

The overall business environment continues to present challenges via persistent labour shortages and rising interest rates. However, TerraVest's businesses continue to perform well. Management expects continued growth for the current fiscal year across its base portfolio of businesses, as well as a meaningful contribution from its recent acquisitions.

The Company continues to make targeted investments to improve its manufacturing efficiency and expand its product lines, and with the recently obtained credit facility, TerraVest is well-positioned to pursue its acquisition strategy. 

Business Combinations

On November 1, 2023, a subsidiary of TerraVest entered into an acquisition agreement to acquire all the operating assets of the subsidiaries of HT. HT is a leading manufacturer of fuel and chemical storage tanks, wastewater storage and treatment tanks, LPG vessels and other custom built steel storage products in North America. The acquisition was a business combination and has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition.

Effective on October 1, 2023, a partially owned subsidiary of TerraVest entered into a share purchase agreement to acquire all of the issued and outstanding shares of LV. LV provides water management and other related services in the Western Canadian energy industry. The acquisition was a business combination and has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest's operations for the first quarter ended December 31, 2023 and the comparative period in fiscal 2023.

		First quarters ended
		Dec. 31, 2023	Dec. 31, 2022
		$	$
	Sales	228,090	177,198
	Cost of sales	162,657	135,186
	Gross profit	65,433	42,012
	Administration expenses	20,872	15,826
	Selling expenses	7,028	5,291
	Financing costs	6,417	3,716
	Share of an associate and a joint venture net (income) loss	4	28
	Other (gains) losses	3,667	(448)
		37,988	24,413
	Earnings before income taxes	27,445	17,599
	Income tax expense	8,142	4,513
	Net Income	19,303	13,086
	Allocated to non‐controlling interests	1,926	1,175
	Net income attributable to common shareholders	17,377	11,911
	Weighted average shares outstanding – Basic	18,043,849	17,858,572
	Weighted average shares outstanding – Diluted	18,423,527	18,074,169
	Net income per share – Basic	$0.96	$0.67
	Net income per share – Diluted	$0.94	$0.66

Sales for the first quarter ended December 31, 2023  increased by 29% versus the prior comparable period. The reasons have been explained previously in this press release.

Gross profit for the first quarter ended December 31, 2023 increased by 56% versus the prior comparable period. This is primarily explained by the contribution of HT and LV and by increased sales volumes for most of TerraVest's base portfolio businesses, partially offset by a less favorable product mix.

Administration expenses for the first quarter ended December 31, 2023 increased by 32% compared to the prior comparable period. The increase in administration expenses is mainly due to the addition of HT and the increase in activity level in certain of TerraVest' subsidiaries which resulted in additional administrative expenses.

Selling expenses for the first quarter ended December 31, 2023 increased by 33% versus the prior comparable period. The increase in selling expenses for the first quarter is explained by the addition of HT and increased salary and commission expenses to support sales growth in certain product lines.

Financing costs for the first quarter ended December 31, 2023 increased by 73% versus the prior comparable period. The increase is primarily explained by additional interest expenses as a result of increased debt balances following recent business acquisitions and increases in interest rates on floating rate debt versus the prior comparable period. In addition, TerraVest incurred more interest on lease liabilities as a result of additional lease liabilities compared to the prior period.

Other (gains) losses variance for the first quarter ended December 31, 2023 is a result of a loss on foreign exchange on amount receivable from TerraVest' subsidiaries denominated in US dollars, partially offset by a gain on foreign exchange on debt balance in US dollars. In addition, TerraVest realized a less favorable change in fair value of derivative financial instruments and an unfavorable change in fair value of investment in equity instruments and of an investment in a limited partnership compared to the prior period.

Income tax expense variance for the first quarter ended December 31, 2023 is the result of the variation in taxable earnings and the timing of income tax expense adjustments.

As a result of the above, net income attributable to common shareholders for the first quarter ended December 31, 2023 increased by 46% versus the prior comparable period.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared a quarterly dividend of $0.15 per common share payable on April 10, 2024 to shareholders of record as at the close of business on March 31, 2024. The dividend is designated an "eligible dividend" for Canadian income tax purposes.

Additional information can be found in TerraVest's annual consolidated financial statements and MD&A which are available on SEDAR+ at www.sedarplus.com.

Non‑IFRS Financial Measures

This news release makes reference to certain non‑IFRS financial measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS. TerraVest's definitions may differ from those of other issuers and therefore may not be comparable to similarly titled measures used by other issuers. The Company uses non‑IFRS financial measures including adjusted EBITDA, cash available for distribution, dividend payout ratio and maintenance capital expenditures.

Adjusted EBITDA: is defined as net income adjusted for income tax expense, financing costs, depreciation, amortization, change in fair value of derivative financial instruments, change in fair value of investment in equity instruments and investment in a limited partnership, gains or losses on foreign exchange, gains or losses on disposal of other property, plant and equipment and property, plant and equipment for rental, gains or losses on disposal of intangible assets, gains or losses on lease modification, gains or losses on remeasurement of equity interest, gain on bargain purchase, non-recurring acquisition related costs, impairment charges and other non-recurring and/or non‑operations related items that do not reflect the current ongoing operations of TerraVest. Management believes this is a useful metric in evaluating the ongoing operating performance of TerraVest. Readers are cautioned that Adjusted EBITDA should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of TerraVest's performance.

Cash Available for Distribution: is defined as cash flow from operating activities adjusted for changes in non-cash operating working capital, maintenance capital expenditures and repayment of lease liabilities. Management believes that Cash Available for Distribution, as a liquidity measure, is a useful metric that provides an indication of the cash available from ongoing operations that can be distributed to shareholders as a dividend. Readers are cautioned that Cash Available for Distribution should not be construed as an alternative to cash flow from operating activities determined in accordance with IFRS as an indicator of TerraVest's liquidity and cash flows.

Dividend Payout Ratio: is defined as dividends paid in cash during the period divided by Cash Available for Distribution for the period. Management believes that Dividend Payout Ratio is a useful metric as it provides an indication of TerraVest's ability to sustain its current dividend policy. There is no directly comparable IFRS measure for Dividend Payout Ratio.

Maintenance Capital Expenditures: is defined as Capital Expenditures made to sustain the operations of TerraVest's operating businesses and to maintain the productive capacity of the businesses over an economic cycle, whether or not they yield significant cost or production efficiencies. Management believes that Maintenance Capital Expenditures should be funded by cash flow from existing operating activities and, therefore, deducted in determining Cash Available for Distribution. There is no directly comparable IFRS measure for Maintenance Capital Expenditures.

Working Capital: is calculated by subtracting current liabilities from current assets. Management uses Working Capital as a measure for assessing overall liquidity. There is no directly comparable IFRS measure for Working Capital.

Caution Regarding Forward-Looking Statements

This news release contains forward-looking statements.  All statements other than statements of historical fact contained in this news release are forward-looking statements, including, without limitation, statements regarding our strategic direction and evaluation of the business segments and TerraVest as a whole, and other plans and objectives of or involving TerraVest. Readers can identify many of these statements by looking for words such as "expects" and "will" or similar terms or variations of these words. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements require us to make assumptions and, accordingly, forward looking statements are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. We caution readers of this news release not to place undue reliance on our forward-looking statements because a number of factors may cause actual future circumstances, results, conditions, actions or events to differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements and the assumptions underlying the forward-looking statements. 

Assumptions and analysis about the performance of TerraVest as a whole and its business segments, the markets in which the business segments compete and the prospects and values of the business segments are considered in setting the business plan for TerraVest, plans and/or ability to pay dividends, outlook for operations, financial position, results and cash flows, other plans and objectives and in making related forward-looking statements. Such assumptions include, without limitation, demand for products and services of the business segments in respect of the Canadian and other markets in which the businesses are active will be stable, and that input costs to business segments do not vary significantly from levels experienced historically. Should any of these factors or assumptions vary, actual results may differ materially from the forward-looking statements.

SOURCE TerraVest Industries Inc.

Dustin Haw, TerraVest Industries Inc., Chief Executive Officer, [email protected]