TerraVest Announces First Quarter Results for Fiscal 2020

TORONTO, ONTARIO (February 11, 2020) – TerraVest Industries Inc., (TSX: TVK) (“TerraVest” or the “Company”) announces its results for the first quarter ended December 31, 2019 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, 2019 and the comparative period in fiscal 2019.

Sales for the quarter ended December 31, 2019 were $88,252 versus $79,031 for the prior comparable quarter. This represents an increase of 12%. However, TerraVest acquired all of the assets of Argo Sales Inc. (“Argo”) and Iowa Steel Fabrication, LLC (“ISF”), neither of which contributed to the prior comparable period. Excluding Argo and ISF, sales for the first quarter ended December 31, 2019 were $80,090 versus $79,031 for the prior comparable period. This represents an increase of 1% for TerraVest’s base portfolio (excluding Argo and ISF) which is a result of stronger demand for LPG storage and distribution equipment in both Canada and the United States, offset by weaker demand for home heating products and oil and gas process equipment and services in Western Canada.

Net income for the first quarter ended December 31, 2019 was $6,420 versus $6,139 for the prior comparable period. This represents an increase of 5%. The increase is primarily the result of the addition of ISF contributing to TerraVest’s results for the current period and a positive change in fair value of derivative financial instruments. The increase in net income is partially offset by negative results in Argo mainly due to the timing of the acquisition, a shift in product mix resulting in lower margin compared to prior period results, and a loss on foreign exchange versus a gain in the prior comparable quarter.

Adjusted EBITDA for the first quarter ended December 31, 2019 were $14,577 versus $14,125 for the prior comparable period. This represents an increase of 3%, which is a result of the reasons explained above. In addition, as a result of the adoption on IFRS 16 “Leases” on October 1, 2019, rent is no longer included in adjusted EBITDA. Instead, an interest expense is recognized on lease liabilities and a depreciation expense is recognized on right-of-use assets. Rent payments were $1,044 for the quarter ended December 31, 2019.

The table below reconciles cash flow from operating activities to cash available for distribution for the first quarter ended December 31, 2019 and the comparative period in fiscal 2019.

Cash flow from operating activities for the first quarter ended December 31, 2019 were $19,670 versus $8,966 for the prior comparable period. This represents an increase of 119% quarter over quarter. The increased cash flow is primarily a result of greater emphasis on working capital management following the elimination of North American steel tariffs.

Maintenance capital expenditures were $1,248 for the quarter versus $1,551 for the prior comparable period. The difference is related to timing of capital expenditures during the year. During the period, TerraVest’s total purchase of property, plant and equipment was $2,385 of which $1,137 is considered growth capital. This growth capital includes additions to TerraVest’s desanding rental equipment fleet, as well as manufacturing equipment to support capacity expansions and process improvements in several of its businesses.

Cash available for distribution decreased by 2% quarter over quarter. This decrease is a result of reasons explained above and previously in this press release.

The dividend payout ratio for the first quarter ended December 31, 2019 was 24% versus 23% for the prior comparable period.

Outlook

The first quarter of fiscal 2020 carried mixed results as TerraVest experienced strong demand for its LPG storage and distribution equipment, but reduced demand for its home heating product lines and oil and gas processing equipment and services, which had a negative effect on margins. During the first quarter, TerraVest closed the acquisition of Argo, which is expected to bring positive contribution throughout the remainder of the year, however the initial impact of the acquisition on results was negative as a result of the timing of the acquisition and a change in Argo’s accounting policy. Management expects an incremental improvement in results for the remainder of the year compared to the prior year, as a result of the acquisitions of Argo and ISF, as well as the realization of certain manufacturing efficiencies stemming from the transfer of residential oil tank production to a new facility. Quoting activity has increased for TerraVest’s oil and gas processing equipment businesses, however this has yet to translate into increased orders. Management is not anticipating a reversal in activity for its oil and gas related businesses for the remainder of the year.

Business Combinations

On December 13, 2019, a subsidiary of TerraVest acquired all the assets of Argo, a privately‑owned Alberta based company primarily focused on manufacturing wellhead processing and production equipment for the Canadian Oil & Gas market. The business combination has been accounted for using the purchase method with the results of operations included in earnings from the date of acquisition. 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 6 of the interim condensed consolidated financial statements for the first quarter ended December 31, 2019, available on SEDAR

Subsequent event

On December 11, 2019, TerraVest issued a notice of redemption to redeem all of its outstanding convertible debentures. From January 1 until January 13, 2020, convertible debentures with an aggregate principal amount of $3,634 were converted into shares resulting in the issuance of 440,480 common shares. On January 13, 2020, TerraVest redeemed the remaining outstanding convertible debentures with a principal amount of $1,093 for total consideration of $1,096, including accrued and unpaid interest.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest’s operations for the first quarter ended December 31, 2019 and the comparative period in fiscal 2019.

Sales for the first quarter ended December 31, 2019 increased by 12% over the prior comparable period. The reasons have been explained previously in this press release.

Gross profit for the first quarter ended December 31, 2019 increased by 2% versus the prior comparable period. This is primarily explained by the contribution of ISF, and increased sales volume for TerraVest’s LPG storage and distribution equipment, offset by weaker demand for home heating products and oil and gas processing equipment and the initial impact of the acquisition of Argo.

Administration expenses and selling expenses for the first quarter ended December 31, 2019 increased by 13% and by 8%, respectively, quarter over quarter, which are mainly the result of the addition of ISF and Argo’s to TerraVest’s results and acquisition‑related expenses.

Financing costs for the first quarter ended December 31, 2019 increased by 4% versus the prior comparable period. The increase is primarily a result of additional interest expense on lease liabilities following the adoption of IFRS 16 “Leases” on October 1, 2019, partially offset by reduced interest expense and costs associated with the reduction of the convertible debentures outstanding.

Income tax expense for the first quarter ended December 31, 2019 increased marginally versus comparable period, which is the result of slightly increased profitability.

As a result of the above, net income attributable to common shareholders for the first quarter ended December 31, 2019 increased by 6% 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 10, 2020 to shareholders of record as at the close of business on March 31, 2020. The dividend is designated an “eligible dividend” for Canadian income tax purposes.

Additional information can be found in TerraVest’s interim condensed consolidated financial statements and MD&A which are available on SEDAR at www.sedar.com.

FOR FURTHER INFORMATION PLEASE CONTACT:
Dustin Haw
TerraVest Industries Inc.
Chief Executive Officer
(416) 855-1928
dhaw@terravestindustries.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, 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 and maintenance capital expenditures. 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.

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