TERRAVEST ANNOUNCES FIRST QUARTER RESULTS FOR FISCAL 2022 AND DIVIDEND DECLARATION

TORONTO, Feb. 10, 2022 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the first quarter ended December 31, 2021 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, 2021 and the comparative period in fiscal 2021.

				First quarters ended
				Dec. 31, 2021	Dec. 31, 2020
				$	$
Sales				131,364	82,340
Net Income				10,578	11,952
Add (subtract):
Income tax expense				3,147	3,350
Financing costs				1,930	976
Depreciation and amortization				6,771	4,717
Change in fair value of derivative financial instruments				(266)	(1,080)
Change in fair value of investment in equity instruments				(17)	(2,857)
(Gain) loss on foreign exchange				240	2,132
(Gain) loss on remeasurement of an equity interest				(1,956)	-
Acquisition–related cost				38	-
(Gain) loss on disposal of property, plant and equipment				(169)	(102)
Adjusted EBITDA				20,296	19,088

Sales for the first quarter ended December 31, 2021 were $131,364 versus $82,340 for the prior comparable quarter. This represents an increase of 60%. However, TerraVest acquired all of the issued and outstanding shares of ECR International, Inc. ("ECR") in August 2021 and a controlling interest of 66.8% in Green Energy Services Inc. ("GES") in November 2021, neither of which contributed to the prior comparable quarter. Excluding ECR and GES, sales for the first quarter ended December 31, 2021 were $96,477 versus $82,340 for the prior comparable period. This represents an increase of 17% for TerraVest's base portfolio (excluding ECR and GES) which is 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. Even though the COVID-19 pandemic continues to put pressure on operations, the increase in commodity pricing is starting to have a favorable impact on demand and sales for TerraVest's businesses operating in Western Canada.

Net income for the first quarter ended December 31, 2021 was $10,578 versus $11,952 for the prior comparable period. This represents a decrease of 11%, which is a result of a combination of factors. During the quarter, TerraVest received less government subsidies than the prior comparable period, while activity levels in certain businesses had yet to recover to pre–pandemic level. Additionally, raw material pricing and supply chain issues had an impact on output and profitability in certain of the Company's businesses. Lastly, labour shortages, and COVID-related measures had an impact on production in certain operations during the period. Partially offsetting the factors mentioned was the addition of ECR, as well as other variances highlighted in the table above.

Adjusted EBITDA for the first quarter ended December 31, 2021 was $20,296 versus $19,088 for the prior comparable period. This represents an increase of 6%, which is primarily the result of the additions of ECR and GES and the reasons highlighted above.

During the first quarter, TerraVest recognized $780 in net income ($2,855 for the first quarter ended December 31, 2020) 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 $18 in net income ($nil for the first quarter ended December 31, 2020) during the first quarter 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 first quarter ended December 31, 2021 and the comparative period in fiscal 2021.

				First quarters ended
				Dec. 31, 2021	Dec. 31, 2020
				$	$
Cash Flow from (used in) Operating Activities				(337)	19,037
Add (subtract):
Change in non–cash operating working capital items				15,689	(7,411)
Maintenance capital expenditures				(1,269)	(1,112)
Repayment of lease liabilities				(1,275)	(1,068)
Cash Available for Distribution				12,808	9,446
Dividends Paid				1,757	1,868
Dividend Payout Ratio				14%	20%

Cash flow from (used in) operating activities for the first quarter ended December 31, 2021 was ($337) versus $19,037 for the prior comparable period. This represents a decrease of 102% compared to the prior comparable period. 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. The decrease was partially offset by increased net income affecting cash and a reduction in income taxes paid.

Maintenance capital expenditures were $1,269 for the first quarter ended December 31, 2021 versus $1,112 for the prior comparable period representing an increase of 14%, which is mainly explained by the timing of maintenance capital expenditures. TerraVest's total purchase of property, plant and equipment paid during the first quarter ended December 31, 2021 was $6,936 of which $5,667 is considered growth capital. The growth capital incurred during the first quarter was used to add to the Company's rental fleet, finalize the automation and improvement of a manufacturing line and to purchase additional land adjacent to one of its operations. 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 first quarter ended December 31, 2021 increased by 36% versus the prior comparable period. The 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, 2021 was 14% versus 20% for the prior comparable period.

Outlook

The current global pandemic continues to create a challenging business environment for TerraVest on many fronts. Global supply chains remain disrupted and continue to result in rising raw material costs and shortages. Fluctuating COVID case numbers and the resulting workplace restrictions, as well as a general shortage of labour continue to impact operations in certain of TerraVest's businesses. Another significant challenge for the current year will be managing the lag between ending government subsidy programs and increasing activity, primarily in the Processing Equipment segment. Navigating these challenges, while continuing to keep our employees, our customers and our vendors safe will be the primary focus for TerraVest for the remainder of the year. The Company continues to make targeted investments to improve manufacturing efficiency, add complimentary product lines, and pursue its acquisition strategy.

Business Combination

Effective on November 1, 2021, TerraVest entered into share purchase agreements to acquire an additional 41.4% of the issued and outstanding shares of Green Energy Services Inc. ("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 first quarter ended December 31, 2021 and the comparative period in fiscal 2021.

				First quarters ended
				Dec. 31, 2021	Dec. 31, 2020
				$	$
Sales				131,364	82,340
Cost of sales				102,843	60,248
Gross profit				28,521	22,092
Administration expenses				10,891	6,113
Selling expenses				4,015	1,608
Financing costs				1,930	976
Share of an associate's net loss				128	-
Other (gains) losses				(2,168)	(1,907)
				14,796	6,790
Earnings before income taxes				13,725	15,302
Income tax expense				3,147	3,350
Net Income				10,578	11,952
Allocated to non–controlling interests				(96)	(65)
Net income attributable to common shareholders				10,674	12,017
Weighted average shares outstanding – Basic				17,775,804	18,493,271
Weighted average shares outstanding – Diluted				18,003,397	18,746,722
Net income per share – Basic				$0.60	$0.65
Net income per share – Diluted				$0.59	$0.64

Sales for the first quarter ended December 31, 2021 increased by 60% versus the prior comparable period. The reasons have been explained previously in this press release.

Gross profit for the first quarter ended December 31, 2021 increased by 29% versus the prior comparable period. This is primarily explained by the contribution of ECR and GES and by increased sales volume for most of TerraVest's base portfolio businesses, partially offset by a less favorable product mix and reduced government wage subsidies.

Administration expenses for the first quarter ended December 31, 2021 increased by 78% versus the prior comparable period. The variation is mainly the result of the addition of ECR and GES as well as reduced government wage subsidies.

Selling expenses for the first quarter ended December 31, 2021 increased by 150% versus the prior comparable period. This is a result of the addition of ECR and GES, the hiring of additional sales personnel as well as reduced government wage subsidies.

Financing costs for the first quarter ended December 31, 2021 increased by 98% versus the prior comparable period. The increase is primarily explained by additional interest expenses as a result of increased debt balances following the acquisition of ECR and GES.

Other (gains) losses variance for the first quarter ended December 31, 2021 is a result of a lower loss on foreign exchange and a gain on remeasurement of an equity interest, partially offset by unfavorable changes in fair value of derivative financial instruments and investment in equity instruments.

Income tax expense decreased for the first quarter ended December 31, 2021 versus the prior comparable period, which is the result of decreased 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, 2021 decreased by 11% versus the prior comparable period.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared its quarterly dividend of 10 cents per common share payable on April 11, 2022 to shareholders of record as at the close of business on March 31, 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 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, 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.

PLEASE CONTACT: Dustin Haw, TerraVest Industries Inc.,Chief Executive Officer, [phone], [email protected]