TVK TerraVest Industries Inc

TORONTO, Aug. 14, 2024 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the third quarter ended June 30, 2024 and the declaration of its quarterly dividend.

THIRD QUARTER AND NINE 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 third quarter and nine months ended June 30, 2024 and the comparative periods in fiscal 2023.

Sales for the third quarter and nine months ended June 30, 2024 were $238,129 and $681,162 versus $150,363 and $504,419 for the prior comparable periods. This represents increases of 58% and 35% respectively. However, TerraVest acquired all of the issued and outstanding shares of Advance Engineered Products Ltd. ("AEPL") in April 2024, all the operating assets of the subsidiaries of Highland Tank Holdings, LLC ("HT") in November 2023 and all of the issued and outstanding shares of LV Energy Services Ltd. and its sister company (together referred as "LV") effective in October 2023, all of which did not contribute to the prior comparable periods. Excluding AEPL, HT and LV, sales for the third quarter and nine months ended June 30, 2024 were $171,193 and $530,605 versus $150,363 and $504,419 for the prior comparable periods. This represents increases of 14% and 5% respectively for TerraVest's base portfolio (excluding AEPL, HT and LV). The variations in sales are the result of higher demand in the Service segment, as well as for compressed gas distribution equipment and for residential and commercial petroleum tanks; partially offset by lower sales for furnaces and boilers, and oil and gas processing equipment compared to prior periods.

Net income for the third quarter and nine months ended June 30, 2024 were $14,387 and $59,419 versus $9,576 and $34,106 for the prior comparable periods. This represents increases of 50% and 74% respectively, which are the result of the positive contributions from HT, LV and AEPL, a gain on disposal of other property, plant and equipment ("PP&E") and from increased sales in some of TerraVest's base portfolio of businesses. The increases in net income were partially offset by acquisition–related costs, increased financing costs due to higher debt levels to finance business acquisitions and increased interest rates versus the prior periods as well as higher income tax expense. TerraVest also incurred additional expenses in the development of a new product line. Other variances are also highlighted in the table above.

Adjusted EBITDA for the third quarter and nine months ended June 30, 2024 were $49,062 and $142,052 versus $23,213 and $85,673 for the prior comparable periods. This represents increases of 111% and 66% respectively, which is the result of the reasons explained above.

The table below reconciles cash flow from operating activities to Cash Available for Distribution for the third quarter and nine months ended June 30, 2024 and the comparative periods in fiscal 2023.

Cash flow from operating activities for the third quarter and nine months ended June 30, 2024 were $45,303 and $127,022 versus $18,419 and $59,466 for the prior comparable periods. This represents increases of 146% and 114% respectively. The increases in cash flow from operating activities are largely attributable to the increases in net income and the reduction of inventory levels for TerraVest's base portfolio businesses compared to the prior periods as the supply chain has greatly improved and is more stable. The increases in cash flow from operating activities were partially offset by additional interest and income taxes paid.

Maintenance Capital Expenditures were $5,953 for the third quarter ended June 30, 2024 versus $4,028 for the prior comparable period representing an increase of 48%, which is primarily explained by the timing of such capital expenditures, the growth of TerraVest's portfolio of businesses, as well as the Company's decision to consolidate two manufacturing plants into a single facility during the period. During the third quarter ended June 30, 2024, TerraVest's total purchase of PP&E paid was $9,548 of which $3,595 is considered growth capital. The growth capital incurred during the third quarter was mainly used to add to the Company's rental fleet and invest in a new manufacturing product line.

Cash Available for Distribution for the third quarter and nine months ended June 30, 2024 increased by 141% and 51% respectively versus the prior comparable periods. These increases are a result of reasons explained above and elsewhere in this press release.

The Dividend Payout Ratio for the third quarter and nine months ended June 30, 2024 were 9% and 10% versus 17% and 12% for the prior comparable periods.

Outlook

TerraVest's businesses continue to perform well. We have seen meaningful contribution from recent acquisitions to date, and expect that to continue for the remainder of the year. Opportunities to enhance performance through synergies between recent acquisitions and the base portfolio of businesses exist and are a focus for management.

The Company continues to make targeted investments to improve its manufacturing efficiency and expand its product lines, particularly in end-markets where it has a meaningful presence. With the new credit facility obtained in the fall and the more recent equity offering, TerraVest is very well-positioned to pursue its acquisition strategy.

Business Combinations

On April 1, 2024, a subsidiary of TerraVest entered into an agreement to acquire all the issued and outstanding shares of AEPL. AEPL is a leading Canadian manufacturer and service provider in the tank trailer industry in Canada.

On November 1, 2023, a subsidiary of TerraVest entered into an acquisition agreement to acquire all the operating assets of the subsidiaries of HT. HT is a leading manufacturer of fuel and chemical storage tanks, wastewater storage and treatment tanks, LPG vessels and other custom built steel storage products in North America.

On October 1, 2023, TerraVest's partially owned subsidiary, Green Energy Services Inc. ("GES"), entered into a share purchase agreement to acquire all the issued and outstanding shares of LV. LV provides water management and other related services in the Western Canadian energy industry.

As contemplated in the initial acquisition of LV, the sister company of LV was sold during the second quarter ended March 31, 2024.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest's operations for the third quarter and nine months ended June 30, 2024 and the comparative periods in fiscal 2023.

Sales for the third quarter and nine months ended June 30, 2024 increased by 58% and 35% respectively versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the third quarter and nine months ended June 30, 2024 increased by 107% and 65% respectively versus the prior comparable periods. This is primarily explained by the contribution of HT, LV and AEPL, a more favorable product mix and tighter cost control in the HVAC and Containment Equipment segment, partially offset by reduced activity levels in some of TerraVest's base portfolio businesses.

Administration expenses for the third quarter and nine months ended June 30, 2024 increased by 141% and 60% respectively compared to the prior comparable periods. Administration expenses include amortization of intangible assets expense of $14,923 and $18,128 for the third quarter and nine months ended June 30, 2024 ($1,841 and $5,522 for the third quarter and nine months ended June 30, 2023). The increases in administration expenses are mainly due to the addition of HT LV, and AEPL and the increase in activity level in certain of TerraVest' subsidiaries which resulted in additional administrative expenses. TerraVest also incurred business acquisition expenses as well as relocation fees related to the retirement of one of its manufacturing plants to consolidate its activities into one of its existing facilities. In addition, in the second quarter of fiscal 2023, TerraVest recognized a non–recurring expense of $3,084 following the settlement of the working capital adjustment with the prior owner of ECR International Inc.

Selling expenses for the third quarter and nine months ended June 30, 2024 increased by 60% and 48% respectively versus the prior comparable periods. The increases in selling expenses are explained by the addition of HT, LV and AEPL and by increased salary and commission expenses to support sales growth in certain product lines.

Financing costs for the third quarter and nine months ended June 30, 2024 increased by 57% and 70% respectively versus the prior comparable periods. The increases are primarily explained by additional interest expenses as a result of increased debt balances following recent business acquisitions and higher interest rates on floating rate debt versus the prior comparable periods. In addition, TerraVest incurred more interest on lease liabilities as a result of additional lease liabilities compared to the prior periods.

Other (gains) losses variance for the third quarter and nine months ended June 30, 2024 are a result of a gain on foreign exchange and an unfavorable change in fair value of derivative financial instruments, of investment in equity instruments and of investment in a limited partnership. In addition, TerraVest realized a lesser gain on disposal of other PP&E compared to the prior periods and a gain on the sale of LV's sister company.

Income tax expense variance for the third quarter and nine months ended June 30, 2024 is the result of the variation in taxable earnings and the timing of income tax expense adjustments.

As a result of the above, net income attributable to common shareholders for the third quarter and nine months ended June 30, 2024 increased by 50% and 80% respectively versus the prior comparable periods.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared a quarterly dividend of $0.15 per common share payable on October 10, 2024 to shareholders of record as at the close of business on September 30, 2024. 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.sedarplus.ca.

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, change in fair value of derivative financial instruments, change in fair value of investment in equity instruments and investment in a limited partnership, gains or losses on foreign exchange, gains or losses on disposal of other property, plant and equipment and property, plant and equipment for rental, gains or losses on disposal of intangible assets, gains or losses on lease modification, gains or losses on remeasurement of equity interest, gain on bargain purchase, gains or losses on sale of business, 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.

Working Capital: is calculated by subtracting current liabilities from current assets. Management uses Working Capital as a measure for assessing overall liquidity. There is no directly comparable IFRS measure for Working Capital.

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.