TORONTO, Aug. 11,
2023 /CNW/ - TerraVest Industries Inc., (TSX: TVK)
("TerraVest" or the "Company") announces its results for the third
quarter ended June 30, 2023 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, 2023 and the comparative periods in
fiscal 2022.
|
Third quarters
ended
|
|
Nine months
ended
|
|
June 30,
2023
|
June 30,
2022
|
|
June 30,
2023
|
June 30,
2022
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
150,363
|
145,134
|
|
504,419
|
414,262
|
|
|
|
|
|
|
Net
Income
|
9,576
|
10,105
|
|
34,106
|
29,817
|
|
|
|
|
|
|
Add
(subtract):
|
|
|
|
|
|
Income tax
expense
|
2,048
|
3,470
|
|
11,068
|
9,445
|
Financing
costs
|
4,060
|
2,349
|
|
11,538
|
6,273
|
Depreciation and
amortization
|
10,416
|
8,054
|
|
29,141
|
22,410
|
Change in fair value
of derivative
financial instruments
|
(1,070)
|
452
|
|
(2,350)
|
(841)
|
Change in fair value
of investment in
equity instruments
|
(236)
|
(14)
|
|
68
|
(45)
|
Change in fair value
of investment in a limited
partnership
|
(1,352)
|
-
|
|
(962)
|
-
|
(Gain) loss on foreign
exchange
|
2,305
|
(2,011)
|
|
3,266
|
(892)
|
(Gain) loss on
disposal of other property, plant
and equipment
|
(2,559)
|
(505)
|
|
(2,879)
|
(1,034)
|
(Gain) loss on
disposal of property, plant and
equipment for rental
|
-
|
(248)
|
|
(605)
|
(324)
|
(Gain) loss on
disposal of intangible assets
|
-
|
-
|
|
-
|
7
|
(Gain) loss on lease
modification
|
-
|
-
|
|
19
|
-
|
(Gain) loss on
remeasurement of an
equity interest
|
-
|
-
|
|
-
|
(1,956)
|
Acquisition‑related
cost
|
25
|
28
|
|
179
|
290
|
Other non-recurring
expenses i)
|
-
|
-
|
|
3,084
|
-
|
Adjusted
EBITDA
|
23,213
|
21,680
|
|
85,673
|
63,150
|
i) Settlement of the working capital
adjustment with the prior owner of ECR International Inc.
("ECR").
|
Sales for the third quarter and nine months ended June 30, 2023 were $150,363 and $504,419 versus $145,134 and $414,262 for the prior comparable periods. This
represents increases of 4% and 22% respectively. However, TerraVest
acquired all of the issued and outstanding shares of T.S.X.
Transport Inc. ("TSX") in October
2022, of Mississippi Tank and Manufacturing Company ("MTC")
in March 2022, as well as a
controlling interest of 66.8% in Green Energy Services Inc. ("GES")
in November 2021, of which only GES
and MTC partially contributed to the prior comparable periods. A
subsidiary of TerraVest also acquired assets of Secure Energy
(Drilling Services) Inc. ("SES") in March
2023, which are included in its results.
Excluding GES and MTC (only for the nine months period) as well
as TSX, sales for the third quarter and nine months ended
June 30, 2023 were $149,476
and $363,220 versus $145,134 and $347,871 for the prior comparable periods. This
represents increases of 3% and 4% respectively for TerraVest's
base portfolio (excluding TSX, MTC and GES). The increases in sales
are the result of higher demand for oil and gas processing
equipment and services in Western
Canada, as well as for LPG storage and distribution
equipment, partially offset by decreased sales for the HVAC segment
versus the prior comparable periods.
Net income for the third quarter and nine months ended
June 30, 2023 were $9,576 and $34,106 versus $10,105 and $29,817 for the prior comparable periods.
This represents a decrease of 5% and an increase of 14%
respectively. The variation in net income is a result of higher
sales for TerraVest's base portfolio of businesses, the positive
contribution of GES, MTC and TSX, a favorable change in fair value
of derivative financial instruments and of an investment in a
limited partnership as well as a gain on disposal of property,
plant and equipment upon the disposal of a group of assets. The
increases were partially offset by additional financing costs
incurred as a result of higher interest rates versus the prior
comparable periods and increased debt levels to support working
capital needs and finance business acquisitions. Other
variances are also highlighted in the table above.
Adjusted EBITDA for the third quarter and nine months ended
June 30, 2023 were $23,213 and $85,673 versus $21,680 and $63,150 for the prior comparable periods.
This represents increases of 7% and 36% respectively, which are
primarily the result of the addition of GES, MTC and TSX and 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, 2023 and the
comparative periods in fiscal 2022.
|
Third quarters
ended
|
|
Nine months
ended
|
|
June 30,
2023
|
June 30,
2022
|
|
June 30,
2023
|
June 30,
2022
|
|
$
|
$
|
|
$
|
$
|
Cash Flow from
Operating Activities
|
18,419
|
9,718
|
|
59,466
|
21,606
|
Add
(subtract):
|
|
|
|
|
|
Change in non‑cash
operating working capital items
|
345
|
6,192
|
|
5,306
|
26,630
|
Maintenance capital
expenditures
|
(4,028)
|
(2,030)
|
|
(8,884)
|
(5,225)
|
Repayment of lease
liabilities
|
(1,446)
|
(1,662)
|
|
(4,265)
|
(4,285)
|
Cash Available for
Distribution
|
13,290
|
12,218
|
|
51,623
|
38,726
|
Dividends
Paid
|
2,228
|
1,793
|
|
6,246
|
5,343
|
Dividend Payout
Ratio
|
17 %
|
15 %
|
|
12 %
|
14 %
|
Cash flow from operating activities for the third quarter and
nine months ended June 30, 2023 were
$18,419 and $59,466 versus $9,718 and $21,606
for the prior comparable periods. This represents increases of 90%
and 175% respectively. The increase in cash flow from operating
activities is largely attributable to the increase in net income
and the stabilization of working capital levels compared to the
prior period where working capital levels were increasing, as a
result of increased activity in certain of TerraVest's
businesses combined with significant increases in steel and other
raw materials pricing. The increase in cash flow from operating
activities was partially offset by additional interest paid.
Maintenance capital expenditures were $4,028 for the third quarter ended June 30, 2023 versus $2,030 for the prior comparable period
representing an increase of 98%, which is mainly explained by the
timing of maintenance capital expenditures. During the third
quarter, TerraVest's total purchase of property, plant and
equipment paid was $8,166 of which
$4,138 is considered growth capital.
The growth capital incurred during the third quarter was mainly
used to add to the Company's rental fleet and to expand certain
manufacturing processes in one of TerraVest's subsidiaries. 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, 2023 increased
by 9% and 33% 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 third quarter and nine months
ended June 30, 2023 were 17% and 12%
versus 15% and 14% for the prior comparable periods.
Outlook
The overall business environment continues to present
challenges. Although many travel and workplace restrictions have
been lifted in North America, cost
inflation, supply chain disruption and labour shortages continue to
persist for many of TerraVest's businesses. Rising interest rates
and the threat that brings to the overall economy also pose
potential challenges moving forward. However, TerraVest is
well-positioned for continued growth with its diverse portfolio of
cash generating businesses. The Company continues to make targeted
investments to improve manufacturing efficiency, add complimentary
product lines, and pursue its acquisition strategy.
Business Combinations
On March 1, 2023, a subsidiary of
TerraVest entered into an acquisition agreement to acquire assets
of Secure Energy (Drilling Services) Inc. ("SES"), a subsidiary of
Secure Energy Inc. SES provides integrated fluids solutions such as
on‑site water sourcing, filtration, pumping, storage and heating
services. The business combination has been accounted for using the
acquisition method with the results of operations included in
earnings from the date of acquisition.
On October 2, 2022, a subsidiary
of TerraVest entered into a share purchase agreement to acquire all
the issued and outstanding shares of JCAC Fortin Inc., the holding
company of TSX. TSX is a privately-owned Quebec transport company that provides drop
deck transportation services between Quebec and Eastern
United States. The business combination has been accounted
for using the acquisition method with the results of operations
included in earnings from the date of acquisition.
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, 2023 and the comparative
periods in fiscal 2022.
|
Third quarters
ended
|
|
Nine months
ended
|
|
June 30,
2023
|
June 30,
2022
|
|
June 30,
2023
|
June 30,
2022
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
150,363
|
145,134
|
|
504,419
|
414,262
|
Cost of
sales
|
116,923
|
112,836
|
|
384,625
|
323,307
|
Gross profit
|
33,440
|
32,298
|
|
119,794
|
90,955
|
|
|
|
|
|
|
Administration
expenses
|
15,559
|
13,718
|
|
50,947
|
37,222
|
Selling
expenses
|
5,107
|
5,030
|
|
15,574
|
13,174
|
Financing
costs
|
4,060
|
2,349
|
|
11,538
|
6,273
|
Share of an associate
and a joint venture
net (income) loss
|
2
|
(48)
|
|
4
|
109
|
Other (gains)
losses
|
(2,912)
|
(2,326)
|
|
(3,443)
|
(5,085)
|
|
21,816
|
18,723
|
|
74,620
|
51,693
|
|
|
|
|
|
|
Earnings before income
taxes
|
11,624
|
13,575
|
|
45,174
|
39,262
|
Income tax
expense
|
2,048
|
3,470
|
|
11,068
|
9,445
|
Net Income
|
9,576
|
10,105
|
|
34,106
|
29,817
|
Allocated to
non‐controlling interests
|
1,606
|
415
|
|
5,334
|
1,020
|
Net income attributable
to common shareholders
|
7,970
|
9,690
|
|
28,772
|
28,797
|
|
|
|
|
|
|
Weighted average shares
outstanding – Basic
|
17,907,146
|
17,922,113
|
|
17,865,779
|
17,875,117
|
Weighted average shares
outstanding – Diluted
|
18,081,678
|
18,126,554
|
|
18,075,239
|
18,091,368
|
Net income per share –
Basic
|
$0.45
|
$0.54
|
|
$1.61
|
$1.61
|
Net income per share –
Diluted
|
$0.44
|
$0.53
|
|
$1.59
|
$1.59
|
Sales for the third quarter and nine months ended June 30, 2023 increased by 4% and 22%
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, 2023 increased by 4% and 32%
respectively versus the prior comparable periods. This is primarily
explained by the contribution of GES, MTC and TSX and by increased
sales volumes for most of TerraVest's
base portfolio businesses, partially offset by a less
favorable product mix.
Administration expenses for the third quarter and nine months
ended June 30, 2023 increased by 13%
and 37% respectively compared to the prior comparable periods. The
variation is mainly the result of the addition of GES, MTC and TSX.
TerraVest also recognized an expense of $3,084 in the second quarter of fiscal 2023
following the settlement of the working capital adjustment with the
prior owner of ECR. In addition, in the first quarter of fiscal
2023, one of TerraVest's subsidiaries incurred non-recurring
relocation fees to finalize the retirement of one of its
manufacturing plants and consolidate its activities to one of its
existing facilities.
Selling expenses for the third quarter and nine months ended
June 30, 2023 increased by 2% and 18%
respectively versus the prior comparable periods. The increases are
explained by the hiring of additional sales personnel and
additional commission expense as a result of increased sales in
certain product lines. The addition of GES and MTC also contributed
to the increase in selling expenses for the nine months ended
June 30, 2023 versus the prior
comparable period.
Financing costs for the third quarter and nine months ended
June 30, 2023 increased by 73% and
84% respectively versus the prior comparable periods. The increase
is primarily explained by additional interest expenses as a result
of increased debt balances following recent business acquisitions
and increases in interest rates on floating rate debt versus the
prior comparable periods.
Other (gains) losses variance for the third quarter and nine
months ended June 30, 2023 is a
result of a loss on foreign exchange, partially offset by a
favorable change in fair value of derivative financial instruments
and of an investment in a limited partnership. In addition, the
Service segment sold a group of assets and realized a gain on
disposal of property, plant and equipment.
Income tax expense variance for the third quarter and nine
months ended June 30, 2023 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 decreased by 18% and was similar
for the nine months ended June 30,
2023 versus the prior comparable periods.
DIVIDENDS
TerraVest is pleased to announce that The Board of Directors has
declared its quarterly dividend of $0.125 per common share payable on October 10, 2023 to shareholders of record as at
the close of business on September 30,
2023. 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.
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 other property, plant
and equipment, property, plant and equipment for rental 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 and investment in a limited
partnership, gains or losses on foreign exchange, non-recurring
acquisition‑related costs, impairment charges, gains or losses on
remeasurement of equity interest, gain on bargain purchase 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.
SOURCE TerraVest Industries Inc.