TVK TerraVest Industries Inc

TORONTO, Dec. 8, 2021 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the fourth quarter and year ended September 30, 2021 and the declaration of its quarterly dividend.

FOURTH QUARTER AND YEAR END 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 fourth quarter and year ended September 30, 2021 and the comparative periods in fiscal 2020.

Sales for the fourth quarter and year ended September 30, 2021 were $80,816 and $307,463 versus $68,231 and $304,253 for the prior comparable periods. This represents increases of 18% and 1% respectively. However, TerraVest acquired all of the issued and outstanding shares of ECR International Inc. ("ECR") in August 2021 and all of the assets of Argo Sales Inc. ("Argo") in December 2019 of which only Argo partially contributed to the prior comparable periods. Excluding ECR, sales for the fourth quarter were $69,707 versus $68,231 for the prior comparable period and excluding ECR and Argo, sales for the year ended September 30, 2021 were $263,462 versus $268,293 for the prior comparable period. This represents an increase of 2% and a decrease of 2% respectively for TerraVest's base portfolio (excluding ECR and Argo).

Sales for the fourth quarter ended September 30, 2021 slightly increased versus the prior comparable period which is explained by increased demand for oil and gas processing equipment and service in Western Canada. The sales increase was partially offset by lower demand for LPG products. The sales for TerraVest's base portfolio decreased slightly versus the prior year. This decrease was a result of weaker sales in the first half of the year versus the prior period, partially offset by stronger sales in the second half of the year versus the prior period. During the year, TerraVest experienced weaker demand for LPG and NGL storage and distribution equipment partially offset by higher demand for most of TerraVest's other products lines.

Net income for the fourth quarter and year ended September 30, 2021 were $9,388 and $36,410 versus $11,082 and $26,628 for the prior comparable periods. This represents a decrease of 15% and an increase 37% respectively. The decrease for the fourth quarter is the result of increased raw material costs, reduced government subsidies versus comparable quarter, additional financing costs following the acquisition of ECR and an unfavorable change in the fair value of derivative financial instruments, partially offset by the addition of ECR. In addition, in the fourth quarter of fiscal 2020, TerraVest had benefited from a non-recurring gain on contingent consideration and a favorable change in the fair value of investment in equity instrument which was subsequently sold during the second quarter of fiscal 2021.

The increase in net income for the year ended September 30, 2021 is a result of a more favorable product mix, government wage subsidies to help maintain employment during the COVID–19 pandemic and other government subsidies available for entities experiencing significant revenue decreases as well as cost control measures put in place and a favorable change in the fair value of derivative financial instruments. The changes in net income are also a result of the variations highlighted in the table above.

Adjusted EBITDA for the fourth quarter and year ended September 30, 2021 were $17,174 and $65,736 versus $17,448 and $54,732 for the prior comparable periods. This represents a decrease of 2% and an increase of 20% respectively, which are a result of the reasons explained above.

During the year, TerraVest recognized $12,988 in net income ($12,553 for the year ended September 30, 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 $5,107 in net income during the year 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 fourth quarter and year ended September 30, 2021 and the comparative periods in fiscal 2020.

Cash flow from (used in) operating activities for the fourth quarter and year ended September 30, 2021 were $(1,481) and $23,064 versus $16,657 and $64,876 for the prior comparable periods. This represents decreases of 109% and 64% respectively. The decreases in cash flow from operating activities is largely attributable to increased working capital as activity levels increased throughout the year. The significant increase in steel and other raw materials pricing has also had a noticeable effect on working capital levels.

Maintenance capital expenditures were $1,353 for the fourth quarter ended September 30, 2021 versus $581 for the prior comparable period representing an increase of 133%. This variation is due to the timing of certain larger capital projects that fell within the period. During the fourth quarter, TerraVest's total purchase of property, plant and equipment paid was $4,845 of which $3,492 is considered growth capital. The growth capital incurred during the fourth quarter consisted of additions to the Company's rental fleet and deposits on new robotic equipment to automate certain production lines. 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 fourth quarter and year ended September 30, 2021 decreased by 12% and had a negligeable change respectively versus the prior comparable periods. The variations are a result of reasons explained above and previously in this press release.

The dividend payout ratio for the fourth quarter and year ended September 30, 2021 were 17% and 20% versus 16% and 20% respectively for the prior comparable periods.

Outlook

The current global pandemic continues to create a challenging business environment for TerraVest on many fronts. 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. However, new challenges continue to present themselves, as a result of the COVID–19 pandemic, such as disrupted global supply chains resulting in rising raw material prices and, in many cases, supply shortages. Navigating these challenges, while continuing to keep our employees, our customers and our vendors safe will be the primary focus for the Company for the remainder of the year. Additionally, TerraVest will remain vigilant in managing its cost structure and will make targeted investments in manufacturing efficiency improvements as well as continue to pursue its acquisition strategy. During the year, TerraVest entered the renewable natural gas equipment market and to date as been awarded three contracts to supply renewable natural gas equipment to customers in Canada. While these contracts do not represent a meaningful amount of revenue to TerraVest today, management is optimistic about the future of this business line.

Business Combinations

On August 19, 2021, a subsidiary of TerraVest entered into an acquisition agreement to acquire all the issued and outstanding shares of ECR, a privately-owned manufacturing company head-quartered in Utica, New York that produces heating and cooling products under a family of brand names in North America, including the Dunkirk, Utica and Olsen brands, among others. The business combination has been accounted for using the acquisition method with the results of operations included in earnings from the date of acquisition. TerraVest acquired the shares of ECR using its existing cash and credit facilities. For information regarding the fair value of the consideration transferred, the assets acquired and the liabilities assumed at the acquisition date, please refer to Note 4 of the audited consolidated financial statements for the year ended September 30, 2021, available on SEDAR.

Effective November 1, 2021, TerraVest acquired an additional 6,202,740 shares in Green Energy Services ("GES") and now owns 66.8% of the outstanding shares of GES. GES, operating under the name Fraction Energy Services, is an industry leader in water management and environmental solutions. TerraVest acquired the shares of GES using its existing credit facilities and the issuance of TerraVest common shares. For further information on the subsequent event, please refer to note 31 of TerraVest's audited consolidated financial statements for the year ended September 30, 2021.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest's operations for the fourth quarter and year ended September 30, 2021 and the comparative periods in fiscal 2020.

Sales for the fourth quarter and year ended September 30, 2021 increased by 18% and 1% respectively versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the fourth quarter and year ended September 30, 2021 increased by 12% versus the prior comparable periods. This is primarily explained by the addition of ECR, a more favorable product mix and increased government subsidies versus last fiscal year, partially offset by significant increase in raw material prices and decreased sales volume for some of

TerraVest's base portfolio businesses. The amount of government subsidies recognized during the fourth quarter ended September 30, 2021 is also less than the prior comparable period.

Administration expenses for the fourth quarter and year ended September 30, 2021 increased by 18% and decreased by 14% respectively versus the prior comparable periods. The variation is mainly the result of the addition of ECR in the fourth quarter and non-recurring acquisition–related expenses mitigated by cost control measures during the year.

Selling expenses for the fourth quarter and year ended September 30, 2021 increased by 134% and 36% respectively versus the prior comparable periods. The increase over the prior comparable periods is primarily a result of increased commissions due to increased sales and the addition of ECR during the fourth quarter.

Financing costs for the fourth quarter and year ended September 30, 2021 increased by 59% and decreased by 14% respectively versus the prior comparable periods. The increase in the fourth quarter is mainly a result of the interest expense on the additional debt incurred to purchase ECR. The financing cost decrease for the year is primarily explained by lower interest expense because of the prime rate reductions in March 2020 and April 2020 and by reduced debt balances for the first nine month of the fiscal year, partially offset by additional debt incurred in the fourth quarter.

Other (gains) losses variance for the fourth quarter and year ended September 30, 2021 is a result of favorable changes in the fair value of derivative financial instruments and investment in equity instruments (both unfavorable for the fourth quarter) as well as a gain on disposal of property, plant and equipment which were partially offset by a loss on foreign exchange (gain in the fourth quarter). In addition, TerraVest had recognized a non-recurring gain on contingent consideration in the fourth quarter ended September 30, 2020.

Income tax expense decreased for the fourth quarter and increased for the year ended September 30, 2021 versus the prior comparable periods. The decrease for the fourth quarter ended September 30, 2021 is mainly explained by decreased taxable earnings and the timing of income tax expense adjustments while the increase for the year ended September 30, 2021 is the result of increased taxable earnings, partially offset by a reduction of the tax rates for certain subsidiaries of TerraVest and the use of available carry-forward capital losses to offset current year capital gains.

As a result of the above, net income attributable to common shareholders for the fourth quarter and year ended September 30, 2021 decreased by 16% and increased by 36% respectively 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 January 10, 2022 to shareholders of record as at the close of business on December 31, 2021. 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 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.