TERRAVEST ANNOUNCES SECOND QUARTER RESULTS FOR FISCAL 2022 AND DIVIDEND DECLARATION

TORONTO, May 12, 2022 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the second quarter ended March 31, 2022 and the declaration of its quarterly dividend.

SECOND QUARTER AND SIX MONTHS 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 second quarter and six months ended March 31, 2022 and the comparative periods in fiscal 2021.

	Second quarters ended			Six months ended
	March 31, 2022	March 31, 2021		March 31, 2022	March 31, 2021
	$	$		$	$
Sales	137,764	76,477		269,128	158,817
Net Income	9,134	10,723		19,712	22,675
Add (subtract):
Income tax expense	2,828	2,301		5,975	5,651
Financing costs	1,994	941		3,924	1,917
Depreciation and amortization	7,585	4,731		14,356	9,448
Change in fair value of derivative     financial instruments	(1,027)	(624)		(1,293)	(1,704)
Change in fair value of investment in     equity instruments	(14)	(1,116)		(31)	(3,973)
(Gain) loss on foreign exchange	879	681		1,119	2,813
(Gain) loss on disposal of other property, plant     and equipment	(439)	33		(529)	(27)
(Gain) loss on disposal of property, plant and     equipment for rental	3	(135)		(76)	(177)
(Gain) loss on disposal of intangible assets	7	-		7	-
(Gain) loss on remeasurement of an     equity interest	-	-		(1,956)	-
Acquisition‑related cost	224	-		262	-
Adjusted EBITDA	21,174	17,535		41,470	36,623

Sales for the second quarter and six months ended March 31, 2022 were $137,764 and $269,128 versus $76,477 and $158,817 for the prior comparable periods. This represents increases of 80% and 69% respectively. However, TerraVest acquired all of the issued and outstanding shares of ECR International, Inc. ("ECR") in August 2021 and of Mississippi Tank and Manufacturing Company ("MTC") in March 2022 as well as a controlling interest of 66.8% in Green Energy Services Inc. ("GES") in November 2021, none of which contributed to the prior comparable periods. Excluding ECR, GES and MTC, sales for the second quarter and six months ended March 31, 2022 were $87,222 and $183,699 versus $76,477 and $158,817 for the prior comparable periods. This represents increases of 14% and 16% respectively for TerraVest's base portfolio (excluding ECR, GES and MTC). 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 required to pass along raw material and labour cost increases.

Net income for the second quarter and six months ended March 31, 2022 were $9,134 and $19,712 versus $10,723 and $22,675 for the prior comparable periods. This represents decreases of 15% and of 13% respectively. During the quarter and first six months of fiscal 2022, TerraVest received less government subsidies than the prior comparable period and incurred additional selling and administrative expenses to support its growth and new market development. TerraVest also paid more interest as debt levels were higher as a result of recent business acquisition along with working capital expansion in certain of TerraVest's businesses to support increased activity and more costly inventory. Additionally, raw material pricing and supply chain issues had an impact on output and profitability in certain of the Company's businesses. Partially offsetting these factors was the addition of ECR and GES, which contributed positively to TerraVest's net income. Other variances are also highlighted in the table above.

Adjusted EBITDA for the second quarter and six months ended March 31, 2022 were $21,174 and $41,470 versus $17,535 and $36,623 for the prior comparable periods. This represents increases of 21% and 13% respectively, which are a result of the reasons explained above.

During the first six months of fiscal 2022, TerraVest recognized $780 in net income ($5,544 for the first six months of fiscal 2021) in relation to the Canada Emergency Wage Subsidy ("CEWS") as part of the Federal Government's response to the COVID-19 pandemic. TerraVest also recognized $1,532 in net income during the first six months ($2,448 for the first six months 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 second quarter and six months ended March 31, 2022 and the comparative periods in fiscal 2021.

	Second quarters ended			Six months ended
	March 31, 2022	March 31, 2021		March 31, 2022	March 31, 2021
	$	$		$	$
Cash Flow from Operating Activities	12,225	3,263		11,888	22,300
Add (subtract):
Change in non‑cash operating working capital items	4,749	9,129		20,438	1,718
Maintenance capital expenditures	(1,926)	(1,022)		(3,195)	(2,134)
Repayment of lease liabilities	(1,348)	(1,081)		(2,623)	(2,149)
Cash Available for Distribution	13,700	10,289		26,508	19,735
Dividends Paid	1,793	1,848		3,550	3,716
Dividend Payout Ratio	13%	18%		13%	19%

Cash flow from operating activities for the second quarter and six months ended March 31, 2022 were $12,225 and $11,888 versus $3,263 and $22,300 for the prior comparable periods. This represents an increase of 275% and a decrease of 47% respectively. The decrease in cash flow from operating activities is largely attributable to increased working capital as activity levels are increasing in certain of TerraVest's businesses. The significant increase in steel and other raw materials pricing has also had a noticeable effect on working capital levels. TerraVest also paid more interest compared to the prior comparable periods. The decrease was partially offset by increased net income affecting cash and a reduction in income taxes paid. For the second quarter ended March 31, 2022, the investment in working capital was less than the prior comparable period which contributed to the increase in cash flow along with the increased net income affecting cash.

Maintenance capital expenditures were $1,926 for the second quarter ended March 31, 2022 versus $1,022 for the prior comparable period representing an increase of 88%, which is mainly explained by the timing of maintenance capital expenditures. During the second quarter, TerraVest's total purchase of property, plant and equipment paid was $7,893 of which $5,967 is considered growth capital. The growth capital incurred during the second quarter was used to add to the Company's rental fleet, finalize the automation and improvement of a manufacturing line and to increase its asset base in one of its service businesses. 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 second quarter and six months ended March 31, 2022 increased by 30% and 33% 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 second quarter and six months ended March 31, 2022 were 13% versus 18% and 19% 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 war in Ukraine. Over the past year, the Company and its employees have done an excellent job managing through COVID‑19 pandemic related restrictions, all while keeping tight control on operating costs and improving manufacturing efficiency. However, new challenges continue to present themselves, and the focus has shifted from managing COVID-19 pandemic related restrictions to managing inflation and disruption across the Company's supply chains. 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 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. The business combination has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition.

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 business combination has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition. The non-controlling interest was measured at its proportionate share in GES' identifiable net assets at acquisition date.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest's operations for the second quarter and six months ended March 31, 2022 and the comparative periods in fiscal 2021.

	Second quarters ended			Six months ended
	March 31, 2022	March 31, 2021		March 31, 2022	March 31, 2021
	$	$		$	$
Sales	137,764	76,477		269,128	158,817
Cost of sales	107,628	55,644		210,471	115,892
Gross profit	30,136	20,833		58,657	42,925
Administration expenses	12,613	6,354		23,504	12,467
Selling expenses	4,129	1,675		8,144	3,283
Financing costs	1,994	941		3,924	1,917
Share of associate and joint venture net loss	29	-		157	-
Other (gains) losses	(591)	(1,161)		(2,759)	(3,068)
	18,174	7,809		32,970	14,599
Earnings before income taxes	11,962	13,024		25,687	28,326
Income tax expense	2,828	2,301		5,975	5,651
Net Income	9,134	10,723		19,712	22,675
Allocated to non‐controlling interests	701	(63)		605	(128)
Net income attributable to common shareholders	8,433	10,786		19,107	22,803
Weighted average shares outstanding – Basic	17,929,118	18,473,942		17,851,619	18,483,713
Weighted average shares outstanding – Diluted	18,141,795	18,766,033		18,073,583	18,763,319
Net income per share – Basic	$0.47	$0.58		$1.07	$1.23
Net income per share – Diluted	$0.46	$0.57		$1.06	$1.22

Sales for the second quarter and six months ended March 31, 2022 increased by 80% and 69% respectively versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the second quarter and six months ended March 31, 2022 increased by 45% and 37% respectively 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 and supply costs due to inflationary pressure.

Administration expenses for the second quarter and six months ended March 31, 2022 increased by 99% and 89% respectively versus the prior comparable periods. The increases are the result of the addition of ECR, GES and MTC as well as reduced government subsidies, increased travelling costs 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 second quarter and six months ended March 31, 2022 increased by 147% and 148% respectively versus the prior comparable periods. This is a result of the addition of ECR and GES, the hiring of additional sales personnel, increased marketing expenses as well as reduced government wage subsidies.

Financing costs for the second quarter and six months ended March 31, 2022 increased by 112% and 105% respectively versus the prior comparable periods. The increase is primarily explained by additional interest expenses as a result of increased debt balance following the acquisition of ECR, GES and MTC.

Other (gains) losses variance for the second quarter and six months ended March 31, 2022 is a result of a lower loss on foreign exchange (increased loss for the second quarter) and a gain on remeasurement of an equity interest, partially offset by unfavorable changes in fair value of derivative financial instruments (favorable for the second quarter) and investment in equity instruments. TerraVest also realized a gain on disposal of other property, plant and equipment in the second quarter ended March 31, 2022.

Income tax expense for the second quarter and six months ended March 31, 2022 increased versus the prior comparable periods, which is the result of 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 second quarter and six months ended March 31, 2022 decreased by 22% and 16% versus the prior comparable periods.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared its quarterly dividend of 10 cents per common share payable on July 11, 2022 to shareholders of record as at the close of business on June 30, 2022. 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 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]