TERRAVEST ANNOUNCES FIRST QUARTER RESULTS FOR FISCAL 2023 AND DIVIDEND DECLARATION

TORONTO, Feb. 9, 2023 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the first quarter ended December 31, 2022 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, 2022 and the comparative period in fiscal 2022.

				First quarters ended
				Dec. 31, 2022	Dec. 31, 2021
				$	$
Sales				177,198	131,364
Net Income				13,086	10,578
Add (subtract):
Income tax expense				4,513	3,147
Financing costs				3,716	1,930
Depreciation and amortization				9,291	6,771
Change in fair value of derivative financial instruments				(1,312)	(266)
Change in fair value of investment in equity instruments				205	(17)
(Gain) loss on foreign exchange				753	240
(Gain) loss on disposal of other property, plant       and equipment				454	(90)
(Gain) loss on disposal of property, plant and equipment       for rental				(567)	(79)
(Gain) loss on lease modification				19	-
(Gain) loss on remeasurement of an equity interest				-	(1,956)
Acquisition–related cost				80	38
Adjusted EBITDA				30,238	20,296

Sales for the first quarter ended December 31, 2022 were $177,198 versus $131,364 for the prior comparable quarter. This represents an increase of 35%. However, TerraVest acquired all of the issued and outstanding shares of Mississippi Tank and Manufacturing Company ("MTC") in March 2022 and of T.S.X. Transport Inc. ("TSX") in October 2022 as well as a controlling interest of 66.8% in Green Energy Services Inc. ("GES") in November 2021, of which only GES partially contributed to the prior comparable period. Excluding GES, MTC and TSX, sales for the first quarter ended December 31, 2022 were $133,388 versus $121,559 for the prior comparable period. This represents an increase of 10% for TerraVest's base portfolio (excluding GES, MTC and TSX). Sales increased in all of TerraVest's segments as a result of higher demand for home heating equipment, LPG and NGL storage and distribution equipment as well as for oil and gas processing equipment and services in Western Canada.

Net income for the first quarter ended December 31, 2022 was $13,086 versus $10,578 for the prior comparable period. This represents an increase of 24%, which is a result of higher sales for TerraVest's base porfolio of businesses, the positive contribution of GES, MTC and TSX and the recognition of a favorable change in fair value of derivative financial instruments. The increase was partially offset by additional financing cost incurred as a result of higher interest rates versus the prior comparable period and increased debt levels to support working capital needs and finance business acquisitions.

Adjusted EBITDA for the first quarter ended December 31, 2022 was $30,238 versus $20,296 for the prior comparable period. This represents an increase of 49%, which is primarily the result of the addition of MTC and GES and the reasons highlighted above.

The table below reconciles cash flow from operating activities to cash available for distribution for the first quarter ended December 31, 2022 and the comparative period in fiscal 2022.

				First quarters ended
				Dec. 31, 2022	Dec. 31, 2021
				$	$
Cash Flow from (used in) Operating Activities				21,883	(337)
Add (subtract):
Change in non–cash operating working capital items				1,912	15,688
Maintenance capital expenditures				(1,539)	(1,269)
Repayment of lease liabilities				(1,516)	(1,275)
Cash Available for Distribution				20,740	12,807
Dividends Paid				1,789	1,757
Dividend Payout Ratio				9 %	14 %

Cash flow from (used in) operating activities for the first quarter ended December 31, 2022 was $21,883 versus ($337) for the prior comparable period. The significant 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 increase 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 $1,539 for the first quarter ended December 31, 2022 versus $1,269 for the prior comparable period representing an increase of 21%, 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, 2022 was $6,964 of which $5,425 is considered growth capital. The growth capital incurred during the first quarter was used to add to the Company's rental fleet and automate certain manufacturing process. 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, 2022 increased by 62% 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, 2022 was 9% versus 14% for the prior comparable period.

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 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 Combination

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 first quarter ended December 31, 2022 and the comparative period in fiscal 2022.

				First quarters ended
				Dec. 31, 2022	Dec. 31, 2021
				$	$
Sales				177,198	131,364
Cost of sales				135,186	102,843
Gross profit				42,012	28,521
Administration expenses				15,826	10,891
Selling expenses				5,291	4,015
Financing costs				3,716	1,930
Share of an associate and a joint venture net loss				28	128
Other (gains) losses				(448)	(2,168)
				24,413	14,796
Earnings before income taxes				17,599	13,725
Income tax expense				4,513	3,147
Net Income				13,086	10,578
Allocated to non–controlling interests				1,175	(96)
Net income attributable to common shareholders				11,911	10,674
Weighted average shares outstanding – Basic				17,858,572	17,775,804
Weighted average shares outstanding – Diluted				18,074,169	18,003,397
Net income per share – Basic				$0.67	$0.60
Net income per share – Diluted				$0.66	$0.59

Sales for the first quarter ended December 31, 2022 increased by 35% versus the prior comparable period. The reasons have been explained previously in this press release.

Gross profit for the first quarter ended December 31, 2022 increased by 47% versus the prior comparable period. 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 first quarter ended December 31, 2022 increased by 45% versus the prior comparable period. The variation is mainly the result of the addition of GES, MTC and TSX. In addition, 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 first quarter ended December 31, 2022 increased by 32% versus the prior comparable period. This is a result of the addition of GES, MTC and TSX and additional commission expense as a result of increased sales in certain products lines.

Financing costs for the first quarter ended December 31, 2022 increased by 93% versus the prior comparable period. 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 period.

Other (gains) losses variance for the first quarter ended December 31, 2022 is a result of a favorable change in fair value of derivative financial instruments, a loss on foreign exchange and a non-recurring gain on remeasurement of an equity interest that was realized in the prior comparable period.

Income tax expense increased for the first quarter ended December 31, 2022 versus the prior comparable period, 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 first quarter ended December 31, 2022 increased by 12% versus the prior comparable period.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared its quarterly dividend of $0.125 per common share payable on April 11, 2023 to shareholders of record as at the close of business on March 31, 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, 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.

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