TERRAVEST ANNOUNCES THIRD QUARTER RESULTS FOR FISCAL 2022 AND DIVIDEND DECLARATION

TORONTO, Aug. 10, 2022  /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the third quarter ended June 30, 2022 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, 2022 and the comparative periods in fiscal 2021.

	Third quarters ended			Nine months ended
	June 30, 2022	June 30, 2021		June 30, 2022	June 30, 2021
	$	$		$	$
Sales	145,134	67,830		414,262	226,647
Net Income	10,105	4,347		29,817	27,022
Add (subtract):
Income tax expense	3,470	1,874		9,445	7,525
Financing costs	2,349	940		6,273	2,857
Depreciation and amortization	8,054	4,756		22,410	14,204
Change in fair value of derivative financial instruments	452	(247)		(841)	(1,951)
Change in fair value of investment in equity instruments	(14)	(18)		(45)	(3,991)
(Gain) loss on foreign exchange	(2,011)	671		(892)	3,484
(Gain) loss on disposal of other property, plant and equipment	(505)	(384)		(1,034)	(411)
(Gain) loss on disposal of property, plant and equipment for rental	(248)	-		(324)	(177)
(Gain) loss on disposal of intangible assets	-	-		7	-
(Gain) loss on remeasurement of an equity interest	-	-		(1,956)	-
Acquisition‑related cost	28	-		290	-
Adjusted EBITDA	21,680	11,939		63,150	48,562

Sales for the third quarter and nine months ended June 30, 2022 were $145,134 and $414,262 versus $67,830 and $226,647 for the prior comparable periods. This represents increases of 114% and 83% 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 third quarter and nine months ended June 30, 2022 were $89,351 and $273,050 versus $67,830 and $226,647 for the prior comparable periods. This represents increases of 32% and 20% 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 third quarter and nine months ended June 30, 2022 were $10,105 and $29,817 versus $4,347 and $27,022 for the prior comparable periods. This represents increases of 132% and of 10% 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, partially offset by the curtailment of pandemic subsidy programs during the year, cost inflation and supply chain disruptions. TerraVest's interest expense 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. Other variances are also highlighted in the table above.

Adjusted EBITDA for the third quarter and nine months ended June 30, 2022 were $21,680 and $63,150 versus $11,939 and $48,562 for the prior comparable periods. This represents increases of 82% and 30% respectively, which are a result of the reasons explained above.

During the first nine months of fiscal 2022, TerraVest recognized $1,639 in net income ($9,112 for the first nine 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 $744 in net income during the first nine months ($3,065 for the first nine 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 third quarter and nine months ended June 30, 2022 and the comparative periods in fiscal 2021.

	Third quarters ended			Nine months ended
	June 30, 2022	June 30, 2021		June 30, 2022	June 30, 2021
	$	$		$	$
Cash Flow from Operating Activities	9,718	2,245		21,606	24,545
Add (subtract):
Change in non‑cash operating working capital items	6,192	8,035		26,630	9,753
Maintenance capital expenditures	(2,030)	(2,342)		(5,225)	(4,476)
Repayment of lease liabilities	(1,662)	(1,109)		(4,285)	(3,258)
Cash Available for Distribution	12,218	6,829		38,726	26,564
Dividends Paid	1,793	1,844		5,343	5,560
Dividend Payout Ratio	15 %	27 %		14 %	21 %

Cash flow from operating activities for the third quarter and nine months ended June 30, 2022 were $9,718 and $21,606 versus $2,245 and $24,545 for the prior comparable periods. This represents an increase of 333% and a decrease of 12% respectively. The decrease in cash flow from operating activities year-to-date is largely attributable to increased working capital as activity levels are increasing in most of TerraVest's businesses. 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. The decrease was partially offset by increased net income. For the third quarter ended June 30, 2022, the increased cash flow was a result of the investment in working capital being less than the prior comparable period combined with increased net income.

Maintenance capital expenditures were $2,030 for the third quarter ended June 30, 2022 versus $2,342 for the prior comparable period representing a decrease of 13%, which is mainly explained by the timing of maintenance capital expenditures. During the third quarter, TerraVest's total purchase of property, plant and equipment was $11,845 of which $9,815 is considered growth capital. The growth capital incurred during the third quarter was used to add to the Company's rental fleet, automate certain manufacturing processes and lastly, 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 third quarter and nine months ended June 30, 2022 increased by 79% and 46% 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 third quarter and nine months ended June 30, 2022 were 15% and 14% versus 27% and 21% 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 managing through COVID‑19 pandemic related restrictions, 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 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 third quarter and nine months ended June 30, 2022 and the comparative periods in fiscal 2021.

	Third quarters ended			Nine months ended
	June 30, 2022	June 30, 2021		June 30, 2022	June 30, 2021
	$	$		$	$
Sales	145,134	67,830		414,262	226,647
Cost of sales	112,836	51,776		323,307	167,668
Gross profit	32,298	16,054		90,955	58,979
Administration expenses	13,718	6,914		37,222	19,381
Selling expenses	5,030	1,662		13,174	4,945
Financing costs	2,349	940		6,273	2,857
Share of associates and joint venture net (income) loss	(48)	295		109	295
Other (gains) losses	(2,326)	22		(5,085)	(3,046)
	18,723	9,833		51,693	24,432
Earnings before income taxes	13,575	6,221		39,262	34,547
Income tax expense	3,470	1,874		9,445	7,525
Net Income	10,105	4,347		29,817	27,022
Allocated to non‐controlling interests	415	(73)		1,020	(201)
Net income attributable to common shareholders	9,690	4,420		28,797	27,223
Weighted average shares outstanding – Basic	17,922,113	17,870,820		17,875,117	18,279,415
Weighted average shares outstanding – Diluted	18,126,554	18,130,103		18,091,368	18,552,523
Net income per share – Basic	$0.54	$0.25		$1.61	$1.49
Net income per share – Diluted	$0.53	$0.24		$1.59	$1.47

Sales for the third quarter and nine months ended June 30, 2022 increased by 114% and 83% 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, 2022 increased by 101% and 54% 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 costs due to inflationary pressure.

Administration expenses for the third quarter and nine months ended June 30, 2022 increased by 98% and 92% 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 third quarter and nine months ended June 30, 2022 increased by 203% and 166% 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 third quarter and nine months ended June 30, 2022 increased by 150% and 120% 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 and MTC and increases in interest rates since March 2022 on floating rate debt.

Other (gains) losses variance for the third quarter and nine months ended June 30, 2022 are a result of a gain on foreign exchange and on remeasurement of an equity interest, partially offset by unfavorable changes in fair value of derivative financial instruments and investment in equity instruments. TerraVest also realized a higher gain on disposal of other property, plant and equipment and property, plant and equipment for rental than prior comparable periods.

Income tax expense for the third quarter and nine months ended June 30, 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 third quarter and nine months ended June 30, 2022 increased by 119% and 6% 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 11, 2022 to shareholders of record as at the close of business on September 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]