TerraVest Announces First Quarter Results for Fiscal 2021 and Dividend Declaration 

TORONTO, ONTARIO (February 11th, 2021) TerraVest Industries Inc., (TSX: TVK) (“TerraVest” or the “Company”) announces its results for the first quarter ended December 31, 2020 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, 2020 and the comparative period in fiscal 2020.

Sales for the first quarter ended December 31, 2020 were $82,340 versus $88,252 for the prior comparable quarter. This represents a decrease of 7%. However, TerraVest acquired all of the assets of Argo Sales Inc. (“Argo”) in December 2019 which only partially contributed to the prior comparable quarter. Excluding Argo, sales for the first quarter ended December 31, 2020 were $74,047 versus $87,990 for the prior comparable period. This represents a decrease of 16% for TerraVest’s base portfolio (excluding Argo) which is a result of lower demand for LPG and NGL storage and distribution equipment as well as for oil and gas processing equipment and services in Western Canada. The impact of the COVID-19 pandemic combined with weak commodity pricing continues to be a main factor explaining the decrease in sales for TerraVest’s businesses operating in Western Canada. The decrease in sales for TerraVest’s base portfolio was partially offset by increased demand for home heating products during the first quarter ended December 31, 2020 versus the prior comparable period.

Net income for the first quarter ended December 31, 2020 was $11,952 versus $6,420 for the prior comparable period. This represents an increase of 86%. The increase is a result of a more favourable product mix, the addition of Argo, government wage subsidies to help maintain employment during the COVID-19 pandemic and cost control measures put in place, partially offset by decreased sales activities for TerraVest’s base portfolio as explained above, as well as the variations highlighted in the table above.

Adjusted EBITDA for the first quarter ended December 31, 2020 was $19,088 versus $14,577 for the prior comparable period. This represents an increase of 31%, which is a result of the reasons explained above.

During the first quarter, TerraVest recognized $2,855 in net income 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.

The table below reconciles cash flow from operating activities to cash available for distribution for the first quarter ended December 31, 2020 and the comparative period in fiscal 2020.

Cash flow from operating activities for the first quarter ended December 31, 2020 was $19,037 versus $19,670 for the prior comparable period. This represents a decrease of 3% compared to the prior comparable period. The decrease in cash flow is a result of increased income taxes paid and working capital fluctuations, partially offset by increased net income affecting cash.

Maintenance capital expenditures were $1,112 for the first quarter ended December 31, 2020 versus $1,248 for the prior comparable period representing a decrease of 11%, which is mainly explained by the timing of maintenance capital expenditures and cost control measures. TerraVest’s total purchase of property, plant and equipment paid during the first quarter ended December 31, 2020 was $3,088, of which $1,976 is considered growth capital. The growth capital incurred during the first quarter was used to add to the Company’s equipment rental fleet and to improve and automate some production processes in order to increase capacity and reduce manufacturing costs.

Cash available for distribution for the first quarter ended December 31, 2020 increased by 41% 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, 2020 was 20% versus 26% for the prior comparable period.

Outlook

The current global pandemic has created a challenging business environment for TerraVest on many fronts. TerraVest continues to operate its plants across North America as an essential equipment and service provider to many critical industries, including residential and commercial heating, propane and fertilizer storage and distribution and energy production and processing. Across all of our businesses, we have implemented new operating procedures in effort to keep our employees, customers and vendors safe. Additionally, TerraVest has undertaken significant cost reduction measures in an effort to mitigate the economic slowdown that has resulted from the COVID-19 pandemic, as well as measures to permanently improve its manufacturing efficiency and capacity.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest’s operations for the first quarter ended December 31, 2020 and the comparative period in fiscal 2020.

Sales for the first quarter ended December 31, 2020 decreased by 7% versus the prior comparable period. The reasons have been explained previously in this press release.

Gross profit for the first quarter ended December 31, 2020 increased by 8% versus the prior comparable period. This is primarily explained by the contribution of Argo, a more favourable product mix and government wage subsidies, partially offset by decreased sales volume for some of TerraVest’s base portfolio businesses.

Administration expenses for the first quarter ended December 31, 2020 decreased by 26% versus the prior comparable period. The variation is mainly the result of government wage subsidies, cost control measures and non-recurring acquisition-related expenses incurred in fiscal 2020, offset by the addition of Argo to TerraVest’s results.

Selling expenses for the first quarter ended December 31, 2020 decreased by 6% versus the prior comparable period. This is a result of reduced travelling expenses due to travel restrictions and cost control initiatives, partially offset by the addition Argo to TerraVest’s results.

Financing costs for the first quarter ended December 31, 2020 decreased by 38% versus the prior comparable period. The decrease is primarily explained by lower interest expense because of the prime rate reductions in March 2020 and April 2020 and by reduced debt balances.

Other (gains) losses variance for the first quarter ended December 31, 2020 is a result of favourable changes in fair value of derivative financial instruments and investment in equity instruments, partially offset by an increased loss on foreign exchange.

Income tax expense increased for the first quarter ended December 31, 2020 versus the prior comparable period, which is the result of increased taxable earnings, partially offset by a reduction of the tax rates for certain subsidiaries of TerraVest.

As a result of the above, net income attributable to common shareholders for the first quarter ended December 31, 2020 increased by 86% 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 12, 2021 to shareholders of record as at the close of business on March 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.

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, 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.

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