TERRAVEST ANNOUNCES FOURTH QUARTER AND YEAR END RESULTS FOR FISCAL 2022 AND A 25% DIVIDEND INCREASE

TORONTO, Dec. 14, 2022 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the fourth quarter and year ended September 30, 2022 and the declaration of its quarterly dividend.

FOURTH QUARTER AND YEAR END 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 fourth quarter and year ended September 30, 2022 and the comparative periods in fiscal 2021.

	Fourth quarters ended			Years ended
	Sept. 30, 2022	Sept. 30, 2021		Sept. 30, 2022	Sept. 30, 2021
	$	$		$	$
Sales	162,442	80,816		576,704	307,463
Net Income	16,953	9,388		46,770	36,410
Add (subtract):
Income tax expense	2,440	2,111		11,885	9,636
Financing costs	3,069	1,648		9,342	4,505
Depreciation and amortization	12,879	5,049		35,289	19,253
Change in fair value of derivative      financial instruments	2,014	606		1,173	(1,345)
Change in fair value of investment in      equity instruments	338	(1)		293	(3,992)
(Gain) loss on foreign exchange	(4,283)	(1,365)		(5,175)	2,119
(Gain) loss on disposal of other property, plant      and equipment	(76)	(64)		(1,110)	(475)
(Gain) loss on disposal of property, plant and      equipment for rental	(477)	(631)		(801)	(808)
(Gain) loss on disposal of intangible assets	-	-		7	-
(Gain) loss on remeasurement of an      equity interest	-	-		(1,956)	-
Gain on bargain purchase	(9,468)	-		(9,468)	-
Acquisition‑related cost	130	433		420	433
Adjusted EBITDA	23,519	17,174		86,669	65,736

Sales for the fourth quarter and year ended September 30, 2022 were $162,442 and $576,704 versus $80,816 and $307,463 for the prior comparable periods. This represents increases of 101% and 88% respectively. However, TerraVest acquired all of the issued and outstanding shares of ECR International, Inc. ("ECR") in August 2021, of Mississippi Tank and Manufacturing Company ("MTC") in March 2022 and of Platinum Energy Services LTD. ("PES") in July 2022 as well as a controlling interest of 66.8% in Green Energy Services Inc. ("GES") in November 2021, of which only ECR partially contributed to the prior comparable periods. Excluding ECR, GES, MTC and PES, sales for the fourth quarter and year ended September 30, 2022 were $100,180 and $373,230 versus $69,707 and $296,354 for the prior comparable periods. This represents increases of 44% and 26% respectively for TerraVest's base portfolio (excluding ECR, GES, MTC and PES).

These increases are a result of higher demand for LPG and NGL storage and distribution equipment as well as for oil and gas processing equipment and services in Western Canada, as commodity pricing has improved throughout the year. Inflationary pressure has also contributed to the increase in sales as many of TerraVest's businesses were structured to pass along raw material and labour cost increases. The increases in sales were partially offset by lower demand for some home heating product lines.

Net income for the fourth quarter and year ended September 30, 2022 were $16,953 and $46,770 versus $9,388 and $36,410 for the prior comparable periods. This represents increases of 81% and 28% respectively. These increases are a result of higher sales in TerraVest's base portfolio of businesses, as well as positive contributions from ECR, GES and MTC, and the recognition of a gain on bargain purchase and on foreign exchange, partially offset by the curtailment of pandemic subsidy programs during the year, cost inflation and supply chain disruptions. TerraVest's interest expense also increased as debt levels were higher as a result of business acquisitions and working capital expansion throughout the year. This was partially mitigated by the interest rate swap agreement. TerraVest also increased its depreciation and amortization expense mainly as a result of additional identifiable property, plant and equipment as well as intangible assets acquired in business acquisitions. Other variances are also highlighted in the table above.

Adjusted EBITDA for the fourth quarter and year ended September 30, 2022 were $23,519 and $86,669 versus $17,174 and $65,736 for the prior comparable periods. This represents increases of 37% and 32% respectively, which are a result of the reasons explained above.

During the year, TerraVest recognized $1,639 in net income ($12,988 for the year ended of fiscal 2021) in relation to wage subsidies as part of the Federal Government's response to the COVID-19 pandemic. TerraVest also recognized $813 in net income during the year ($5,107 for the year of fiscal 2021) in relation to other various government subsidies available in response to the COVID‑19 pandemic.

The table below reconciles cash flow from operating activities to cash available for distribution for the fourth quarter and year ended September 30, 2022 and the comparative periods in fiscal 2021.

	Fourth quarters ended			Years ended
	Sept. 30, 2022	Sept. 30, 2021		Sept. 30, 2022	Sept. 30, 2021
	$	$		$	$
Cash Flow from (used in) Operating Activities	8,342	(1,481)		29,948	23,064
Add (subtract):
Change in non‑cash operating working capital items	11,716	14,121		38,346	23,874
Maintenance capital expenditures	(2,742)	(1,353)		(7,967)	(5,829)
Repayment of lease liabilities	(1,468)	(1,123)		(5,753)	(4,381)
Cash Available for Distribution	15,848	10,164		54,574	36,728
Dividends Paid	1,789	1,757		7,132	7,317
Dividend Payout Ratio	11 %	17 %		13 %	20 %

Cash flow from (used in) operating activities for the fourth quarter and year ended September 30, 2022 were $8,342 and $29,948 versus ($1,481) and $23,064 for the prior comparable periods. This represents increases of 663% and 30% respectively. The increases in cash flow from operating activities is largely attributable to increased net income, partially offset by increased working capital as activity levels increased throughout the year. The significant increase in steel and other raw materials pricing has also had a noticeable effect on working capital levels as well as the increase in accounts receivable. TerraVest also incurred more interest and income taxes compared to the prior comparable periods.

Maintenance capital expenditures were $2,742 for the fourth quarter ended September 30, 2022 versus $1,353 for the prior comparable period representing an increase of 103%, which is mainly explained by the timing of such expenditures. During the fourth quarter, TerraVest's total purchase of property, plant and equipment was $8,888 of which $6,146 is considered growth capital. The growth capital incurred during the fourth quarter was used to add to the Company's rental fleet and automate certain manufacturing processes. These growth projects are expected to result in increased capacity and greater efficiencies in several of TerraVest's businesses.

Cash available for distribution for the fourth quarter and year ended September 30, 2022 increased by 56% and 49% respectively versus the prior comparable periods. These increases are a result of reasons explained above and previously in this press release.

The dividend payout ratio for the fourth quarter and year ended September 30, 2022 were 11% and 13% versus 17% and 20% respectively for the prior comparable periods.

Outlook

The business environment today remains difficult as many of the challenges created by the global pandemic continue to persist and have even been exacerbated by the geo-political tensions in Europe. Over the past year, the Company and its employees have done an excellent job navigating the current business environment, all while keeping tight control on operating costs and improving manufacturing efficiency. The majority of TerraVest's businesses are experiencing increased demand, particularly those with exposure to energy end-markets. However global supply chain disruptions, labour scarcity and rapid cost inflation have made it challenging to ramp up capacity to meet this increased demand. TerraVest will remain vigilant in supporting its operations, managing its cost structure and will make targeted investments in manufacturing efficiency improvements, as well as continue to pursue its acquisition strategy as opportunities arise.

Business Combinations

On July 4, 2022, TerraVest entered into a share purchase agreement to purchase all of the issued and outstanding shares of PES, a privately-owned manufacturing company of wellhead processing and production equipment for the Canadian oil & gas market.

On March 11, 2022, a subsidiary of TerraVest entered into a share purchase agreement to acquire all the issued and outstanding shares of MTC, a privately-owned manufacturing company that produces and distributes a broad range of storage and distribution equipment for the propane and compressed gas markets in North America, including transport trailers, bobtail delivery trucks, and various bulk storage tanks.

Effective on November 1, 2021, TerraVest entered into share purchase agreements to acquire an additional 41.4% of the issued and outstanding shares of GES, thereby bringing TerraVest's ownership interest in GES to 66.8%. GES is a privately‑owned Alberta based company operating under the name Fraction Energy Services and is an industry leader in water management and environmental solutions. GES offers a diverse range of fluid management solutions including water transfer, containment, heating, fluid trucking, and oilfield rentals. The non-controlling interest was measured at its proportionate share in GES' identifiable net assets at acquisition date.

All business combinations have 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 fourth quarter and year ended September 30, 2022 and the comparative periods in fiscal 2021.

	Fourth quarters ended			Years ended
	Sept. 30, 2022	Sept. 30, 2021		Sept. 30, 2022	Sept. 30, 2021
	$	$		$	$
Sales	162,442	80,816		576,704	307,463
Cost of sales	129,011	59,161		452,318	226,829
Gross profit	33,431	21,655		124,386	80,634
Administration expenses	17,678	7,435		54,900	26,816
Selling expenses	5,290	2,745		18,464	7,690
Financing costs	3,069	1,648		9,342	4,505
Share of associates and joint venture net      (income) loss	(47)	(217)		62	78
Other (gains) losses	(11,952)	(1,455)		(17,037)	(4,501)
	14,038	10,156		65,731	34,588
Earnings before income taxes	19,393	11,499		58,655	46,046
Income tax expense	2,440	2,111		11,885	9,636
Net Income	16,953	9,388		46,770	36,410
Allocated to non‐controlling interests	498	(7)		1,518	(208)
Net income attributable to common shareholders	16,455	9,395		45,252	36,618
Weighted average shares outstanding – Basic	17,886,320	17,567,469		17,877,941	18,099,965
Weighted average shares outstanding – Diluted	18,100,130	17,762,042		18,093,678	18,352,184
Net income per share – Basic	$0.92	$0.53		$2.53	$2.02
Net income per share – Diluted	$0.91	$0.53		$2.50	$2.00

Sales for the fourth quarter and year ended September 30, 2022 increased by 101% and 88% respectively versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the fourth quarter and year ended September 30, 2022 both increased by 54% versus the prior comparable periods. This is primarily explained by the contribution of ECR, GES and MTC and by increased sales volume for most of TerraVest's base portfolio businesses, partially offset by a less favorable product mix, reduced government wage subsidies and increased raw materials costs due to inflationary pressure.

Administration expenses for the fourth quarter and year ended September 30, 2022 increased by 138% and 105% respectively versus the prior comparable periods. The increases are the result of the addition of ECR, GES, MTC and PES as well as reduced government subsidies and additional wage expense to support the growth of its businesses and develop its market and product lines in renewable gases and fuels.

Selling expenses for the fourth quarter and year ended September 30, 2022 increased by 93% and 140% respectively versus the prior comparable periods. This is a result of the addition of ECR, GES and MTC, the hiring of additional sales personnel, increased travel and marketing expenses as well as reduced government wage subsidies.

Financing costs for the fourth quarter and year ended September 30, 2022 increased by 86% and 107% respectively versus the prior comparable periods. The increases are primarily explained by additional interest expense as a result of increased debt balances following the acquisitions of ECR, GES, MTC and PES and increases in interest rates since March 2022 on floating rate debt.

Other (gains) losses variance for the fourth quarter and year ended September 30, 2022 are a result of a gain on foreign exchange, on remeasurement of an equity interest and on disposal of property, plant and equipment, partially offset by unfavorable changes in fair value of derivative financial instruments and of investment in equity instruments. TerraVest also realized a gain on bargain purchase in the fourth quarter ended September 30, 2022.

Income tax expense increased for the fourth quarter and for the year ended September 30, 2022 versus the prior comparable periods. The increases are mainly explained by increased taxable earnings and the timing of income tax expense adjustments.

As a result of the above, net income attributable to common shareholders for the fourth quarter and year ended September 30, 2022 increased by 75% and 24% respectively versus the prior comparable periods.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared a quarterly dividend of $0.125 per common share payable on January 10, 2023 to shareholders of record as at the close of business on December 31, 2022. This represents a 25% increase over the prior quarterly dividend. 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.sedar.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, gains or losses on disposal of other property, plant and equipment, property, plant and equipment for rental and on disposal of assets held for sale, change in fair value of derivative financial instruments, change in fair value of investment in equity instruments, gains or losses on foreign exchange, non-recurring acquisition‑related costs, impairment charges, gains or losses on remeasurement of equity interest, gain on bargain purchase 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.

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, [phone], [email protected]