TerraVest Announces Third Quarter Results for Fiscal 2021 and Dividend Declaration

TORONTO, Aug. 11, 2021 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the third quarter ended June 30, 2021 and the declaration of its quarterly dividend.

THIRD QUARTER AND NINE 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 third quarter and nine months ended June 30, 2021 and the comparative periods in fiscal 2020.

	Third quarters ended			Nine months ended
	June 30, 2021	June 30, 2020		June 30, 2021	June 30, 2020
	$	$		$	$
Sales	67,830	61,019		226,647	236,022
Net Income	4,347	3,854		27,022	15,546
Add (subtract):
Income tax expense	1,874	2,031		7,525	5,218
Financing costs	940	1,175		2,857	4,202
Depreciation and amortization	4,756	5,281		14,204	13,559
Change in fair value of derivative
financial instruments	(247)	(1,438)		(1,951)	927
Change in fair value of investment in
equity instruments	(18)	47		(3,991)	47
(Gain) loss on foreign exchange	671	929		3,484	(1,094)
Acquisition–related cost	-	-		-	171
(Gain) loss on disposal of property, plant
and equipment	(384)	(25)		(588)	(300)
(Gain) loss on disposal of assets held for sale	-	-		-	(931)
(Gain) loss on contingent considerations	-	-		-	(61)
Adjusted EBITDA	11,939	11,854		48,562	37,284

Sales for the third quarter and nine months ended June 30, 2021 were $67,830 and $226,647 versus $61,019 and $236,022 for the prior comparable periods. This represents an increase of 11% and a decrease of 4% respectively. However, TerraVest acquired all of the assets of Argo Sales Inc. ("Argo") in December 2019, which only partially contributed to the prior comparable period of nine months. Excluding Argo, sales for the nine months ended June 30, 2021 were $200,164 versus $209,685 for the prior comparable period. This represents a decrease of 5% for TerraVest's base portfolio (excluding Argo).

Sales for the third quarter ended June 30, 2021 have increased versus the prior comparable period as TerraVest's end-markets are starting to show signs of recovery from the COVID-19 pandemic. Demand for home heating and commercial fiberglass products as well as for oil and gas processing equipment and service in Western Canada have increased for the third quarter of fiscal 2021 compared to prior comparable period. These increases were partially offset by weaker demand for TerraVest's LPG and NGL storage and distribution equipment. The net decrease in sales for the nine–month period is a result of weaker demand for most of TerraVest's products lines except home heating products versus the prior comparable period.

Net income for the third quarter and nine months ended June 30, 2021 were $4,347 and $27,022 versus $3,854 and $15,546 for the prior comparable periods. This represents increases of 13% and 74% respectively. The increases are a result of a more favorable product mix, government wage subsidies to help maintain employment during the COVID–19 pandemic and other government subsidies available for entities experiencing significant revenue decreases as well as cost control measures put in place. Increased sales for the third quarter and a favorable change in the fair value of investment in equity instruments also contributed to the increases. The increases in net income were partially offset by decreased sales activities for the nine months as explained above and are also a result of the variations highlighted in the table above.

Adjusted EBITDA for the third quarter and nine months ended June 30, 2021 were $11,939 and $48,562 versus $11,854 and $37,284 for the prior comparable periods. This represents increases of 1% and 30% respectively, which are a result of the reasons explained above.

During the first nine months, TerraVest recognized $9,112 in net income in relation to the Canada Emergency Wage Subsidy ("CEWS") as part of the Federal Government's response to the COVID-19 pandemic. Had the CEWS program not been available, TerraVest would have made incremental significant personnel reductions to mitigate reduced business activity. TerraVest also recognized $3,065 in net income during the first nine months 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 third quarter and nine months ended June 30, 2021 and the comparative periods in fiscal 2020.

	Third quarters ended			Nine months ended
	June 30, 2021	June 30, 2020		June 30, 2021	June 30, 2020
	$	$		$	$
Cash Flow from Operating Activities	2,245	16,921		24,545	48,219
Add (subtract):
Change in non–cash operating working capital items	8,035	(4,281)		9,753	(17,961)
Maintenance capital expenditures	(2,342)	(495)		(4,476)	(2,640)
Repayment of lease liabilities	(1,109)	(940)		(3,258)	(2,571)
Cash Available for Distribution	6,829	11,205		26,564	25,047
Dividends Paid	1,844	1,874		5,560	5,469
Dividend Payout Ratio	27%	17%		21%	22%

Cash flow from operating activities for the third quarter and nine months ended June 30, 2021 were $2,245 and $24,545 versus $16,921 and $48,219 for the prior comparable periods. This represents decreases of 87% and 49% respectively. The decreases in cash flow are a result of working capital fluctuations and increased income taxes paid, partially offset by increased net income.

Maintenance capital expenditures were $2,342 for the third quarter ended June 30, 2021 versus $495 for the prior comparable period representing an increase of 373%. This variation is due to the timing of certain larger capital projects that fell within the period. During the third quarter, TerraVest's total purchase of property, plant and equipment paid was $6,436 of which $4,094 is considered growth capital. The growth capital incurred during the third quarter consisted of additions to the Company's rental fleet and deposits on new robotic equipment to automate certain production lines. 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 third quarter and nine months ended June 30, 2021 decreased by 39% and increased by 6% respectively versus the prior comparable periods. The decrease and increase are a result of reasons explained above and previously in this press release.

The dividend payout ratio for the third quarter and nine months ended June 30, 2021 were 27% and 21% versus 17% and 22% respectively for the prior comparable periods.

Outlook

The current global pandemic continues to create a challenging business environment for TerraVest on many fronts. 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, as a result of the COVID–19 pandemic, such as disrupted global supply chains resulting in rising raw material prices and, in many cases, supply shortages. In addition, many sectors are experiencing a much longer recovery profile which continues to weigh on energy activity level and ultimately certain of TerraVest's businesses. Navigating these challenges, while continuing to keep our employees, our customers and our vendors safe will be the primary focus for the Company for the remainder of the year. Additionally, TerraVest will remain vigilant in managing its cost structure and will make targeted investments in manufacturing efficiency improvements as well as continue to pursue its acquisition strategy.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest's operations for the third quarter and nine months ended June 30, 2021 and the comparative periods in fiscal 2020.

	Third quarters ended			Nine months ended
	June 30, 2021	June 30, 2020		June 30, 2021	June 30, 2020
	$	$		$	$
Sales	67,830	61,019		226,647	236,022
Cost of sales	51,776	45,915		167,668	183,136
Gross profit	16,054	15,104		58,979	52,886
Administration expenses	6,914	7,491		19,381	24,850
Selling expenses	1,662	1,040		4,945	4,482
Financing costs	940	1,175		2,857	4,202
Share of associates and joint venture net loss	295	-		295	-
Other (gains) losses	22	(487)		(3,046)	(1,412)
	9,833	9,219		24,432	32,122
Earnings before income taxes	6,221	5,885		34,547	20,764
Income tax expense	1,874	2,031		7,525	5,218
Net Income	4,347	3,854		27,022	15,546
Allocated to non–controlling interest	(73)	(28)		(201)	(120)
Net income attributable to common shareholders	4,420	3,882		27,223	15,666
Weighted average shares outstanding – Basic	17,870,820	18,685,491		18,279,415	18,420,527
Weighted average shares outstanding – Diluted	18,130,103	18,995,139		18,552,523	19,071,235
Net income per share – Basic	$0.25	$0.21		$1.49	$0.85
Net income per share – Diluted	$0.24	$0.20		$1.47	$0.83

Sales for the third quarter and nine months ended June 30, 2021 increased by 11% and decreased by 4% respectively versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the third quarter and nine months ended June 30, 2021 increased by 6% and 12% respectively versus the prior comparable periods. This is primarily explained by a more favorable product mix, partially offset by decreased sales volume for some of TerraVest's base portfolio businesses creating pressure on gross profit as there is less volume to absorb fixed operating costs. The amount of government subsidies recognized during the third quarter ended June 30, 2021 is also less than the prior comparable period.

Administration expenses for the third quarter and nine months ended June 30, 2021 decreased by 8% and 22% respectively versus the prior comparable periods. The variation is mainly the result of government wage subsidies, cost control measures and non-recurring acquisition–related expenses incurred in fiscal 2020, offset by the addition of Argo to TerraVest's results.

Selling expenses for the third quarter and nine months ended June 30, 2021 increased by 60% and 10% respectively versus the prior comparable periods. The increase over the prior comparable quarter is primarily a result of increased commissions due to increased sales.

Financing costs for the third quarter and nine months ended June 30, 2021 decreased by 20% and 32% respectively versus the prior comparable periods. The decreases are primarily explained by lower interest expense because of the prime rate reductions in March 2020 and April 2020 and by reduced debt balances.

Other (gains) losses variance for the third quarter and nine months ended June 30, 2021 is a result of favorable changes in the fair value of derivative financial instruments (unfavorable for the third quarter) and investment in equity instruments as well as a gain on disposal of property, plant and equipment which were partially offset by a loss on foreign exchange.

Income tax expense decreased for the third quarter and increased for the nine months ended June 30, 2021 versus the prior comparable periods. The marginal decrease for the third quarter ended June 30, 2021 is mainly explained by the timing of income tax expense adjustments and non-taxable items while the increase for the nine months ended June 30, 2021 is the result of increased taxable earnings, partially offset by a reduction of the tax rates for certain subsidiaries of TerraVest.

As a result of the above, net income attributable to common shareholders for the second quarter and six months ended March 31, 2021 increased by 103% and 94% respectively 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 October 12, 2021 to shareholders of record as at the close of business on September 30, 2021. 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 property, plant and equipment 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 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]

Related Links

https://www.terravestcapital.com/