TerraVest Announces Second Quarter Results for Fiscal 2020 and Dividend Declaration

TORONTO, ONTARIO (May 6th, 2020) – TerraVest Industries Inc., (TSX: TVK) (“TerraVest” or the “Company”) announces its results for the second quarter ended March 31, 2020 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, 2020 and the comparative periods in fiscal 2019.

Sales for the second quarter ended March 31, 2020 were $86,751 versus $76,159 for the prior comparable quarter. This represents an increase of 14%. 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 second quarter ended March 31, 2020 were $64,830 versus $76,159 for the prior comparable period. This represents a decrease of 15% for TerraVest’s base portfolio (excluding Argo and ISF).

Sales for the six months ended March 31, 2020 were $175,003 versus $155,190 for the prior comparable period, representing an increase of 13%. Excluding Argo and ISF, sales for the six months ended March 31, 2020 were $144,920 versus $155,190 for the prior comparable period. This represents a decrease 7% for TerraVest’s base portfolio (excluding Argo and ISF).

The decrease in sales for TerraVest’s base portfolio for the second quarter and six months is the result of weaker demand for the Company’s NGL storage and distribution equipment and oil and gas processing equipment and service product lines in Western Canada. This was partially offset by increased demand for LPG storage and distribution equipment and home heating product lines.

Net income for the second quarter and six months ended March 31, 2020 were $5,272 and $11,692 versus $5,505 and $11,644 for the prior comparable periods. This represents a decrease of 4% and an increase of less than 1% respectively. The small variations in net income are explained in the table above.

Adjusted EBITDA for the second quarter and six months ended March 31, 2020 were $10,853 and $25,430 versus $10,974 and $25,099 for the prior comparable periods. Compared to prior periods, adjusted EBITDA was relatively flat. This results from the reduced demand for TerraVest’s Western Canadian product lines, offset by the additions of Argo and ISF and the increased demand for LPG equipment and home heating products. 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 $2,330 for the six months ended March 31, 2020.

The table below reconciles cash flow from operating activities to cash available for distribution for the second quarter and six months ended March 31, 2020 and the comparative periods in fiscal 2019.

Cash flow from operating activities for the second quarter and six months ended March 31, 2020 were $11,628 and $31,298 versus $3,277 and $12,243 for the prior comparable periods. This represents increases of 255% and 156% respectively. The increased cash flow is primarily a result of greater emphasis on working capital management, increased sales volumes for LPG equipment and home heating products and a reduction of working capital as a result of reduced business activity in the Western Canadian businesses.

Maintenance capital expenditures were $897 for the second quarter versus $828 for the prior comparable period which are comparable quarter over quarter. During the second quarter, TerraVest’s total purchase of property, plant and equipment was $1,919 of which $1,022 is considered growth capital. This growth capital includes additions to TerraVest’s manufacturing equipment to support capacity expansions and process improvements in several of its businesses.

Cash available for distribution for the second quarter and six months ended March 31, 2020 decreased by 7% and by 10% respectively versus the prior comparable periods. These decreases are a result of reasons explained above.

The dividend payout ratio were 26% for the second quarter and six months ended March 31, 2020 versus 22% and 23% respectively 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. It is our hope that many of these measures are temporary in nature, but the duration of the current economic shutdown is difficult to predict.

Business Combination

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 and 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 second quarter ended March 31, 2020, available on SEDAR.

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, 2020 and the comparative periods in fiscal 2019.

Sales for the second quarter and six months ended March 31, 2020 increased by 14% and 13% respectively over 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, 2020 increased by 9% and 5% respectively versus the prior comparable periods. This is primarily explained by the contribution of ISF and Argo, as well as increased sales volumes in LPG equipment and home heating products, partially offset by decreased sales volume for TerraVest’s base portfolio.

Administration expenses for the second quarter and six months ended March 31, 2020 increased by 38% and by 25% respectively versus the prior comparable periods which are mainly the result of the addition of ISF and Argo to TerraVest’s results and acquisition-related expenses, partly offset by reduced expenses due to the completion of a major project consisting of relocating the production of petroleum tanks to a new facility.

Selling expenses for the second quarter and six months ended March 31, 2020 increased by 37% and by 21% respectively versus the prior comparable periods which are mainly the result of the addition of ISF and Argo to TerraVest’s results.

Financing costs for the second quarter and six months ended March 31, 2020 decreased by 8% and by 2% respectively versus the prior comparable periods. The decreases are primarily explained by lower interest expense because of the prime rate reduction in March 2020 and by reduced interest expense and costs associated with the redemption of all the convertible debentures outstanding during the second quarter ended March 31, 2020, partially offset by interest expense on lease liabilities following the adoption of IFRS 16 “Leases” on October 1, 2019.

Income tax expense for the second quarter and six months ended March 31, 2020 decreased versus the prior comparable periods, which is the result of reduced taxable earnings and the reduction of the tax rates for certain subsidiaries of TerraVest.

As a result of the above, net income attributable to common shareholders for the second quarter and six months ended March 31, 2020 decreased by 3% and increased by 2% 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 July 9, 2020 to shareholders of record as at the close of business on June 30, 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, 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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