TERRAVEST ANNOUNCES THIRD QUARTER RESULTS FOR FISCAL 2023 AND DIVIDEND DECLARATION

TORONTO, Aug. 11, 2023 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the third quarter ended June 30, 2023 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, 2023 and the comparative periods in fiscal 2022.

	Third quarters ended			Nine months ended
	June 30, 2023	June 30, 2022		June 30, 2023	June 30, 2022
	$	$		$	$
Sales	150,363	145,134		504,419	414,262
Net Income	9,576	10,105		34,106	29,817
Add (subtract):
Income tax expense	2,048	3,470		11,068	9,445
Financing costs	4,060	2,349		11,538	6,273
Depreciation and amortization	10,416	8,054		29,141	22,410
Change in fair value of derivative      financial instruments	(1,070)	452		(2,350)	(841)
Change in fair value of investment in      equity instruments	(236)	(14)		68	(45)
Change in fair value of investment in a limited      partnership	(1,352)	-		(962)	-
(Gain) loss on foreign exchange	2,305	(2,011)		3,266	(892)
(Gain) loss on disposal of other property, plant      and equipment	(2,559)	(505)		(2,879)	(1,034)
(Gain) loss on disposal of property, plant and      equipment for rental	-	(248)		(605)	(324)
(Gain) loss on disposal of intangible assets	-	-		-	7
(Gain) loss on lease modification	-	-		19	-
(Gain) loss on remeasurement of an      equity interest	-	-		-	(1,956)
Acquisition‑related cost	25	28		179	290
Other non-recurring expenses ^i)	-	-		3,084	-
Adjusted EBITDA	23,213	21,680		85,673	63,150

ⁱ⁾ Settlement of the working capital adjustment with the prior owner of ECR International Inc. ("ECR").

Sales for the third quarter and nine months ended June 30, 2023 were $150,363 and $504,419 versus $145,134 and $414,262 for the prior comparable periods. This represents increases of 4% and 22% respectively. However, TerraVest acquired all of the issued and outstanding shares of T.S.X. Transport Inc. ("TSX") in October 2022, 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, of which only GES and MTC partially contributed to the prior comparable periods. A subsidiary of TerraVest also acquired assets of Secure Energy (Drilling Services) Inc. ("SES") in March 2023, which are included in its results.

Excluding GES and MTC (only for the nine months period) as well as TSX, sales for the third quarter and nine months ended June 30, 2023 were $149,476 and $363,220 versus $145,134 and $347,871 for the prior comparable periods. This represents increases of 3% and 4% respectively for TerraVest's base portfolio (excluding TSX, MTC and GES). The increases in sales are the result of higher demand for oil and gas processing equipment and services in Western Canada, as well as for LPG storage and distribution equipment, partially offset by decreased sales for the HVAC segment versus the prior comparable periods.

Net income for the third quarter and nine months ended June 30, 2023 were $9,576 and $34,106 versus $10,105 and $29,817 for the prior comparable periods. This represents a decrease of 5% and an increase of 14% respectively. The variation in net income is a result of higher sales for TerraVest's base portfolio of businesses, the positive contribution of GES, MTC and TSX, a favorable change in fair value of derivative financial instruments and of an investment in a limited partnership as well as a gain on disposal of property, plant and equipment upon the disposal of a group of assets. The increases were partially offset by additional financing costs incurred as a result of higher interest rates versus the prior comparable periods and increased debt levels to support working capital needs and finance business acquisitions. Other variances are also highlighted in the table above.

Adjusted EBITDA for the third quarter and nine months ended June 30, 2023 were $23,213 and $85,673 versus $21,680 and $63,150 for the prior comparable periods. This represents increases of 7% and 36% respectively, which are primarily the result of the addition of GES, MTC and TSX and the reasons highlighted above.

The table below reconciles cash flow from operating activities to cash available for distribution for the third quarter and nine months ended June 30, 2023 and the comparative periods in fiscal 2022.

	Third quarters ended			Nine months ended
	June 30, 2023	June 30, 2022		June 30, 2023	June 30, 2022
	$	$		$	$
Cash Flow from Operating Activities	18,419	9,718		59,466	21,606
Add (subtract):
Change in non‑cash operating working capital items	345	6,192		5,306	26,630
Maintenance capital expenditures	(4,028)	(2,030)		(8,884)	(5,225)
Repayment of lease liabilities	(1,446)	(1,662)		(4,265)	(4,285)
Cash Available for Distribution	13,290	12,218		51,623	38,726
Dividends Paid	2,228	1,793		6,246	5,343
Dividend Payout Ratio	17 %	15 %		12 %	14 %

Cash flow from operating activities for the third quarter and nine months ended June 30, 2023 were $18,419 and $59,466 versus $9,718 and $21,606 for the prior comparable periods. This represents increases of 90% and 175% respectively. The increase in cash flow from operating activities is largely attributable to the increase in net income and the stabilization of working capital levels compared to the prior period where working capital levels were increasing, as a result of increased activity in certain of TerraVest's businesses combined with significant increases in steel and other raw materials pricing. The increase in cash flow from operating activities was partially offset by additional interest paid.

Maintenance capital expenditures were $4,028 for the third quarter ended June 30, 2023 versus $2,030 for the prior comparable period representing an increase of 98%, which is mainly explained by the timing of maintenance capital expenditures. During the third quarter, TerraVest's total purchase of property, plant and equipment paid was $8,166 of which $4,138 is considered growth capital. The growth capital incurred during the third quarter was mainly used to add to the Company's rental fleet and to expand certain manufacturing processes in one of TerraVest's subsidiaries. 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, 2023 increased by 9% 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 third quarter and nine months ended June 30, 2023 were 17% and 12% versus 15% and 14% for the prior comparable periods.

Outlook

The overall business environment continues to present challenges. Although many travel and workplace restrictions have been lifted in North America, cost inflation, supply chain disruption and labour shortages continue to persist for many of TerraVest's businesses. Rising interest rates and the threat that brings to the overall economy also pose potential challenges moving forward. However, TerraVest is well-positioned for continued growth with its diverse portfolio of cash generating businesses. The Company continues to make targeted investments to improve manufacturing efficiency, add complimentary product lines, and pursue its acquisition strategy.

Business Combinations

On March 1, 2023, a subsidiary of TerraVest entered into an acquisition agreement to acquire assets of Secure Energy (Drilling Services) Inc. ("SES"), a subsidiary of Secure Energy Inc. SES provides integrated fluids solutions such as on‑site water sourcing, filtration, pumping, storage and heating services. The business combination has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition.

On October 2, 2022, a subsidiary of TerraVest entered into a share purchase agreement to acquire all the issued and outstanding shares of JCAC Fortin Inc., the holding company of TSX. TSX is a privately-owned Quebec transport company that provides drop deck transportation services between Quebec and Eastern United States. The business combination has 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 third quarter and nine months ended June 30, 2023 and the comparative periods in fiscal 2022.

	Third quarters ended			Nine months ended
	June 30, 2023	June 30, 2022		June 30, 2023	June 30, 2022
	$	$		$	$
Sales	150,363	145,134		504,419	414,262
Cost of sales	116,923	112,836		384,625	323,307
Gross profit	33,440	32,298		119,794	90,955
Administration expenses	15,559	13,718		50,947	37,222
Selling expenses	5,107	5,030		15,574	13,174
Financing costs	4,060	2,349		11,538	6,273
Share of an associate and a joint venture net (income) loss	2	(48)		4	109
Other (gains) losses	(2,912)	(2,326)		(3,443)	(5,085)
	21,816	18,723		74,620	51,693
Earnings before income taxes	11,624	13,575		45,174	39,262
Income tax expense	2,048	3,470		11,068	9,445
Net Income	9,576	10,105		34,106	29,817
Allocated to non‐controlling interests	1,606	415		5,334	1,020
Net income attributable to common shareholders	7,970	9,690		28,772	28,797
Weighted average shares outstanding – Basic	17,907,146	17,922,113		17,865,779	17,875,117
Weighted average shares outstanding – Diluted	18,081,678	18,126,554		18,075,239	18,091,368
Net income per share – Basic	$0.45	$0.54		$1.61	$1.61
Net income per share – Diluted	$0.44	$0.53		$1.59	$1.59

Sales for the third quarter and nine months ended June 30, 2023 increased by 4% and 22% 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, 2023 increased by 4% and 32% respectively versus the prior comparable periods. This is primarily explained by the contribution of GES, MTC and TSX and by increased sales volumes for most of TerraVest's base portfolio businesses, partially offset by a less favorable product mix.

Administration expenses for the third quarter and nine months ended June 30, 2023 increased by 13% and 37% respectively compared to the prior comparable periods. The variation is mainly the result of the addition of GES, MTC and TSX. TerraVest also recognized an expense of $3,084 in the second quarter of fiscal 2023 following the settlement of the working capital adjustment with the prior owner of ECR. In addition, in the first quarter of fiscal 2023, one of TerraVest's subsidiaries incurred non-recurring relocation fees to finalize the retirement of one of its manufacturing plants and consolidate its activities to one of its existing facilities.

Selling expenses for the third quarter and nine months ended June 30, 2023 increased by 2% and 18% respectively versus the prior comparable periods. The increases are explained by the hiring of additional sales personnel and additional commission expense as a result of increased sales in certain product lines. The addition of GES and MTC also contributed to the increase in selling expenses for the nine months ended June 30, 2023 versus the prior comparable period.

Financing costs for the third quarter and nine months ended June 30, 2023 increased by 73% and 84% respectively versus the prior comparable periods. The increase is primarily explained by additional interest expenses as a result of increased debt balances following recent business acquisitions and increases in interest rates on floating rate debt versus the prior comparable periods.

Other (gains) losses variance for the third quarter and nine months ended June 30, 2023 is a result of a loss on foreign exchange, partially offset by a favorable change in fair value of derivative financial instruments and of an investment in a limited partnership. In addition, the Service segment sold a group of assets and realized a gain on disposal of property, plant and equipment.

Income tax expense variance for the third quarter and nine months ended June 30, 2023 is the result of the variation in 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 decreased by 18% and was similar for the nine months ended June 30, 2023 versus the prior comparable periods.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared its quarterly dividend of $0.125 per common share payable on October 10, 2023 to shareholders of record as at the close of business on September 30, 2023. 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 and investment in a limited partnership, 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.

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