TERRAVEST ANNOUNCES SECOND QUARTER RESULTS FOR FISCAL 2023 AND DIVIDEND DECLARATION

TORONTO, May 10, 2023 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the second quarter ended March 31, 2023 and the declaration of its quarterly dividend.

SECOND QUARTER AND SIX 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 second quarter and six months ended March 31, 2023 and the comparative periods in fiscal 2022.

	Second quarters ended			Six months ended
	March 31, 2023	March 31, 2022		March 31, 2023	March 31, 2022
	$	$		$	$
Sales	176,858	137,764		354,056	269,128
Net Income	11,444	9,134		24,530	19,712
Add (subtract):
Income tax expense	4,507	2,828		9,020	5,975
Financing costs	3,762	1,994		7,478	3,924
Depreciation and amortization	9,434	7,585		18,725	14,356
Change in fair value of derivative      financial instruments	32	(1,027)		(1,280)	(1,293)
Change in fair value of investment in      equity instruments	99	(14)		304	(31)
Change in fair value of investment in a limited      partnership	390	-		390	-
(Gain) loss on foreign exchange	208	879		961	1,119
(Gain) loss on disposal of other property, plant      and equipment	(774)	(439)		(320)	(529)
(Gain) loss on disposal of property, plant and      equipment for rental	(38)	3		(605)	(76)
(Gain) loss on disposal of intangible assets	-	7		-	7
(Gain) loss on lease modification	-	-		19	-
(Gain) loss on remeasurement of an      equity interest	-	-		-	(1,956)
Acquisition-related cost	74	224		154	262
Other non-recurring expenses i)	3,084	-		3,084	-
Adjusted EBITDA	32,222	21,174		62,460	41,470

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

Sales for the second quarter and six months ended March 31, 2023 were $176,858 and $354,056 versus $137,764 and $269,128 for the prior comparable periods. This represents increases of 28% and 32% 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 (only for the six months period), TSX and MTC, sales for the second quarter and six months ended March 31, 2023 were $161,811 and $254,194 versus $135,227 and $234,830 for the prior comparable periods. This represents increases of 20% and 8% respectively for TerraVest's base portfolio (excluding TSX, MTC and GES), which are the result of higher demand for oil and gas processing equipment and services in Western Canada, as well as LPG storage and distribution equipment. Sales for the HVAC segment remained relatively flat versus the prior comparable periods.

Net income for the second quarter and six months ended March 31, 2023 were $11,444 and $24,530 versus $9,134 and $19,712 for the prior comparable periods. This represents increases of 25% and of 24% respectively, which is a result of higher sales for TerraVest's base porfolio of businesses and the positive contribution of GES, MTC and TSX. The increases were partially offset by additional financing cost 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 second quarter and six months ended March 31, 2023 were $32,222 and $62,460 versus $21,174 and $41,470 for the prior comparable periods. This represents increases of 52% and 51% 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 second quarter and six months ended March 31, 2023 and the comparative periods in fiscal 2022.

	Second quarters ended			Six months ended
	March 31, 2023	March 31, 2022		March 31, 2023	March 31, 2022
	$	$		$	$
Cash Flow from Operating Activities	19,164	12,225		41,047	11,888
Add (subtract):
Change in non-cash operating working capital items	3,049	4,749		4,961	20,438
Maintenance capital expenditures	(3,317)	(1,926)		(4,856)	(3,195)
Repayment of lease liabilities	(1,303)	(1,348)		(2,819)	(2,623)
Cash Available for Distribution	17,593	13,700		38,333	26,508
Dividends Paid	2,229	1,793		4,018	3,550
Dividend Payout Ratio	13 %	13 %		10 %	13 %

Cash flow from operating activities for the second quarter and six months ended March 31, 2023 were $19,164 and $41,047 versus $12,225 and $11,888 for the prior comparable periods. This represents increases of 57% and 245% 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 $3,317 for the second quarter ended March 31, 2023 versus $1,926 for the prior comparable period representing an increase of 72%, which is mainly explained by the timing of maintenance capital expenditures. During the second quarter, TerraVest's total purchase of property, plant and equipment paid was $7,222 of which $3,905 is considered growth capital. The growth capital incurred during the second quarter was used to add to the Company's rental fleet, to automate and expand certain manufacturing processes in a few of TerraVest's subsidiaries, and to 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 second quarter and six months ended March 31, 2023 increased by 28% and 45% 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 second quarter and six months ended March 31, 2023 were 13% and 10% versus 13% 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 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 second quarter and six months ended March 31, 2023 and the comparative periods in fiscal 2022.

	Second quarters ended			Six months ended
	March 31, 2023	March 31, 2022		March 31, 2023	March 31, 2022
	$	$		$	$
Sales	176,858	137,764		354,056	269,128
Cost of sales	132,516	107,628		267,702	210,471
Gross profit	44,342	30,136		86,354	58,657
Administration expenses	19,562	12,613		35,388	23,504
Selling expenses	5,176	4,129		10,467	8,144
Financing costs	3,762	1,994		7,478	3,924
Share of an associate and a joint venture net (income)      loss	(26)	29		2	157
Other (gains) losses	(83)	(591)		(531)	(2,759)
	28,391	18,174		52,804	32,970
Earnings before income taxes	15,951	11,962		33,550	25,687
Income tax expense	4,507	2,828		9,020	5,975
Net Income	11,444	9,134		24,530	19,712
Allocated to non-controlling interests	2,553	701		3,728	605
Net income attributable to common shareholders	8,891	8,433		20,802	19,107
Weighted average shares outstanding – Basic	17,831,318	17,929,118		17,845,095	17,851,619
Weighted average shares outstanding – Diluted	18,088,215	18,141,795		18,077,862	18,073,583
Net income per share – Basic	$0.50	$0.47		$1.17	$1.07
Net income per share – Diluted	$0.49	$0.46		$1.15	$1.06

Sales for the second quarter and six months ended March 31, 2023 increased by 28% and 32% respectively versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the second quarter and six months ended March 31, 2023 increased by 47% 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 second quarter and six months ended March 31, 2023 increased by 55% and 51% respectively versus 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 ended March 31, 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 second quarter and six months ended March 31, 2023 increased by 25% and 29% 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 six months ended March 31, 2023 versus the prior comparable period.

Financing costs for the second quarter and six months ended March 31, 2023 increased by 89% and 91% 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 second quarter and six months ended March 31, 2023 is a result of an unfavorable change in fair value of investments in equity instruments and in a limited partnership, an increased gain on disposal or property, plant and equipment for rental and a non-recurring gain on remeasurement of an equity interest that was realized in the prior comparable period. The variance for the second quarter ended March 31, 2023 is also explained by a gain on foreign exchange and an unfavorable change in fair value of derivative financial instruments.

Income tax expense for the second quarter and six months ended March 31, 2023 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 second quarter and six months ended March 31, 2023 increased by 5% and 9% 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 July 10, 2023 to shareholders of record as at the close of business on June 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.

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