TerraVest Announces Fourth Quarter and Year End Results for Fiscal 2020 and Dividend Declaration

TORONTO, ONTARIO (December 16th, 2020) TerraVest Industries Inc., (TSX: TVK) (“TerraVest” or the “Company”) announces its results for the fourth quarter and year ended September 30, 2020 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, 2020 and the comparative periods in fiscal 2019.

Sales for the fourth quarter ended September 30, 2020 were $68,231 versus $80,345 for the prior comparable quarter. This represents a decrease of 15%. However, TerraVest acquired all of the assets of Argo Sales Inc. (“Argo”) and Iowa Steel Fabrication, LLC (“ISF”) of which only ISF partially contributed to the prior comparable quarter. Excluding Argo and ISF, sales for the fourth quarter ended September 30, 2020 were $54,293 versus $78,590 for the prior comparable period. This represents a decrease of 31% for TerraVest’s base portfolio (excluding Argo and ISF).

Sales for the year ended September 30, 2020 were $304,253 versus $306,286 for the prior comparable period. This represents a decrease of less than 1%. Excluding Argo and ISF, sales for the year ended September 30, 2020 were $245,291 versus $304,531 for the prior comparable period. This represents a decrease of 19% for TerraVest’s base portfolio (excluding Argo and ISF).

The decrease in sales for TerraVest’s base portfolio for the fourth quarter ended September 30, 2020 continues to be explained by lower demand for TerraVest’s NGL storage and distribution equipment, oil and gas processing equipment and well service product lines in Western Canada, which is the result of the impact of the COVID-19 pandemic and commodity prices on an already challenged industry. The decrease in sales for TerraVest’s base portfolio for the fourth quarter was partially offset by increased sales in the fuel containment segment.

The decrease in sales for TerraVest’s base portfolio for the year ended September 30, 2020 is a result of the reasons explained above, partially offset by increased demand for LPG storage and distribution equipment and home heating product lines during the fiscal year.

Net income for the fourth quarter and year ended September 30, 2020 was $11,082 and $26,628 versus $6,308 and $22,555 for the prior comparable periods. This represents increases of 76% and of 18% respectively. The increases are a result of more favourable product mix, 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 fourth quarter and year ended September 30, 2020 were $17,448 and $54,732 versus $13,294 and $48,992 for the prior comparable periods. This represents increases of 31% and of 12% respectively, which are primarily the result of the additions of Argo and ISF, more favourable product mix, government wage subsidies, as well as the adoption on IFRS 16 Leases on October 1, 2019, for which 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 $5,058 for the year ended September 30, 2020. During the fiscal year, TerraVest received $13,393, of which $12,553 has been recognized 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 fourth quarter and year ended September 30, 2020 and the comparative periods in fiscal 2019.

Cash flow from operating activities for the fourth quarter and year ended September 30, 2020 were $16,657 and $64,876 versus $12,248 and $30,977 for the prior comparable periods. This represents increases of 36% quarter over quarter and 109% year over year. The increased cash flow is a result of a reduction of working capital as a result of reduced business activity in the Western Canadian businesses, deferred tax installments throughout the year and government wage subsidies.

Maintenance capital expenditures were $581 for the fourth quarter versus $1,082 for the prior comparable period representing a decrease of 46%, which is mainly explained by the timing of maintenance capital expenditures. During the fourth quarter ended September 30, 2020, TerraVest’s total purchases of property, plant and equipment were $3,362 of which $2,781 are considered growth capital. The growth capital incurred during the fourth quarter was used to add to the Company’s equipment rental fleet and to improve some production process in order to be more efficient and increase capacity.

Cash available for distribution for the fourth quarter and year ended September 30, 2020 increased by 27% and by 19% 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 fourth quarter and year ended September 30, 2020 were 16% and 20% versus 19% and 23% for the prior comparable periods.

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 fourth quarter and year ended September 30, 2020 and the comparative periods in fiscal 2019.

Sales for the fourth quarter decreased by 15% quarter over quarter, while sales for the year ended September 30, 2020 were relatively flat year over year. The reasons for the variations have been explained previously in this press release.

Gross profit for the fourth quarter and year ended September 30, 2020 increased by 3% and by 2% respectively versus the prior comparable periods. This is primarily explained by the contribution of ISF and Argo, more favourable product mix, as well as government wage subsidies and cost control measures, partially offset by decreased sales volume for TerraVest’s base portfolio.

Administration expenses for the fourth quarter and year ended September 30, 2020 decreased by 13% quarter over quarter and increased by 11% year over year. The variations are mainly the result of government wage subsidies combined with the effect of non-recurring expenses incurred in fiscal 2019 associated to the transfer of petroleum tank production into a new facility, offset by the addition of ISF and Argo to TerraVest’s results and acquisition-related expenses incurred in fiscal 2020.

Selling expenses for the fourth quarter and year ended September 30, 2020 decreased by 10% quarter over quarter but remained relatively flat year over year. This is a result of reduced travelling expenses during the last six months of the fiscal year due to travel restrictions and cost control initiatives partially offset by the addition of ISF and Argo to TerraVest’s results.

Financing costs for the fourth quarter and year ended September 30, 2020 decreased by 23% and by 9% respectively versus the prior comparable periods. The decreases are primarily explained by lower interest expense because of the prime rate reductions in March 2020 and April 2020 and by reduced debt balances, partially offset by interest expense on lease liabilities following the adoption of IFRS 16 “Leases” on October 1, 2019.

Other (gains) losses variance for the fourth quarter and year ended September 30, 2020 is a result of favourable changes in fair value of derivative financial instruments and investment in equity instruments, as well as a gain on contingent considerations.

Income tax expense for the fourth quarter and year ended September 30, 2020 increased versus the prior comparable periods, which is the result of increased taxable earnings partially offset by a reduction of the tax rates for certain subsidiaries of TerraVest. TerraVest has income tax loss carry-forward which are available to shelter income taxes in certain subsidiaries.

As a result of the above, net income attributable to common shareholders for the fourth quarter and year ended September 30, 2020 increased by 77% and by 19% 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 11, 2021 to shareholders of record as at the close of business on December 31, 2020. 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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