TerraVest Announces Third Quarter Results for Fiscal 2019 and Executive Appointment

TORONTO, Aug. 14, 2019 /CNW/ - TerraVest Industries Inc, (TSX: TVK) ("TerraVest" or the "Company") announces its results for the third quarter ended June 30, 2019.

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 the Company. The table below highlights certain financial results and reconciles net income to adjusted EBITDA for the third quarter and nine months ended June 30, 2019 and the comparative periods in fiscal 2018.

Sales for the quarter ended June 30, 2019 were $70,751 versus $65,459 for the prior comparable quarter. This represents an increase of 8%. The Company's portfolio of businesses for the three-month periods ending June 30, 2019 and 2018 were the same. The increase in sales is attributable to increased demand for LPG storage and distribution equipment, as well as timing of deliveries for oil and gas process equipment, as spring break-up occurred earlier than usual this year. Sales for the nine months ended June 30, 2019 were $225,941 versus $190,630 for the prior comparable period, representing an increase of 19%. However, MaXfield Group Inc. ("MaXfield") was acquired on January 1, 2018 and only partially contributed to the prior comparable period. Excluding MaXfield, sales for the nine months ended June 30, 2019 were $176,313 versus $169,927 for the prior comparable period. This represents an increase of 4%. The growth in sales of TerraVest's base portfolio (excluding MaXfield) is a result of stronger demand for LPG storage and distribution equipment as well as home heating products in both Canada and the United States, partially offset by weaker demand for oil and gas process equipment and services in Western Canada.

Net Income for the third quarter and nine months ended June 30, 2019 was $4,603 and $16,247 versus $1,867 and $8,886 for the prior comparable periods. This represents increases of 147% and 83% respectively. The increases are a result of increased sales activity, as described above, as well as a change in the fair value of derivative financial instruments and ongoing cost control initiatives. Additionally, acquisition costs in the prior periods related to the MaXfield acquisition did not repeat in the current periods.

Adjusted EBITDA for the third quarter and nine months ended June 30, 2019 were $10,437 and $36,004 versus $8,299 and $26,900 for the prior comparable periods. This represents increases of 26% and 34% respectively, which are a result of the reasons highlighted 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, 2019 and the comparative periods in fiscal 2018.

Cash flow from operating activities for the third quarter and nine months ended June 30, 2019 were $6,486 and $18,729 versus $7,484 and $15,177 for the prior comparable periods. This represents a decrease of 13% for the third quarter and is attributable to changes in working capital levels. The increase of 23% for the nine months is primarily a result of increased profitability from operations.

Maintenance capital expenditures were $997 for the third quarter versus $762 for the prior comparable period. During the third quarter ended June 30, 2019, the Company's total purchases of property, plant and equipment was $3,119 of which $2,122 is considered growth capital. During the third quarter, the Company completed a major capital project that involved transferring petroleum tank production to a new facility. Additionally, the Company expanded its desanding rental fleet. These growth projects are expected to result in increased capacity and greater efficiencies in several of TerraVest's businesses.

Cash available for distribution for the third quarter and nine months ended June 30, 2019 increased by 23% and 43% respectively versus the prior comparable periods. The increases are a result of reasons explained above.

The dividend payout ratio for the third quarter and nine months ended June 30, 2019 were 27% and 24% versus 35% and 36% for the prior comparable periods.

Outlook

Year-to-date, the Company continues to experience improved results over the prior year. Management expects this trend to continue for the remainder of the fiscal year. The Fuel Containment segment has benefited from a strong winter heating season and is still experiencing increased demand for its LPG storage and distribution equipment product lines. The situation for the Processing Equipment segment remains mixed as strong demand for NGL storage and distribution equipment is expected to persist throughout the remainder of the fiscal year. However, demand for this segment's oil and gas processing equipment is stable but faces pricing pressure. The outlook for the Service segment remains challenging as pricing pressure continues to persist despite moderately improving commodity prices.

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, 2019 and the comparative periods in fiscal 2018.

Sales for the third quarter and nine months ended June 30, 2019 increased by 8% and 19% respectively versus the prior comparable periods. The reasons for these increases have been explained previously in this MD&A.

Gross profit for the third quarter and nine months ended June 30, 2019 increased by 20% and 23% respectively versus the prior comparable periods. These increases are largely attributable to the increases of sales for the periods as well as ongoing cost control efforts.

Administration expenses for the third quarter and nine months ended June 30, 2019 increased by 6% and 8% respectively versus the prior comparable periods. The increase for the third quarter is attributable to increased expenses associated with the transfer of petroleum tank production into a new facility. The increase for the nine months is a result of the transfer to a new facility as well as MaXfield only partially contributing to the prior period.

Selling expenses for the third quarter and nine months ended June 30, 2019 decreased by 31% and 17% respectively versus the prior comparable periods as a result of staffing reductions and cost control initiatives.

Financing costs for the third quarter and nine months ended June 30, 2019 decreased by 8% and increased by 13% respectively versus the prior comparable periods. The decrease is primarily a result of non-repeating debenture retirement costs in the third quarter of 2018, partially offset by higher interest rates. The increase for the nine months is a result of increased levels of debt as a result of several growth capital projects and increased levels of working capital.

Income tax expense for the third quarter and nine months ended June 30, 2019 increased, which is the result of increased profitability. The Company has tax loss carry-forwards which are available to shelter taxes in certain subsidiaries.

As a result of the above, net income attributable to common shareholders for the third quarter and nine months ended June 30, 2019 increased 143% and 80% respectively versus the prior comparable periods.

DIVIDENDS

TerraVest is also pleased to announce that The Board of Directors has declared its quarterly dividend of 10 cents per Common share payable on October 10, 2019 to shareholders of record as at the close of business on September 30, 2019. The dividend is designated an "eligible dividend" for Canadian income tax purposes.

EXECUTIVE APPOINTMENT

The Board of Directors is pleased to appoint Marilyn Boucher as Chief Financial Officer of TerraVest.  Ms. Boucher has been with the company since 2017 and has played a major role in supporting the growth of the Company.  "Ms. Boucher is a talented executive who will continue to contribute to TerraVest on many levels.  I am very pleased to welcome Ms. Boucher in her new role as CFO and I look forward to continuing to work alongside as the Company grows." Said Dustin Haw, CEO of TerraVest.

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.

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, 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 the Company. 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 the Company'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 the Company'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 the Company'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.

SOURCE TerraVest Industries Inc.

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