TGH Tornado Infrastructure Equipment Ltd

Tornado Global Hydrovacs Ltd. (“Tornado” or the “Company”) (TGH: TSX-V) today reported its unaudited condensed consolidated financial results for the Three and Nine Months ended September 30, 2021. The unaudited condensed consolidated financial statements and MD&A have been filed on SEDAR and can be reviewed at www.sedar.com and on the Company’s web site www.tornadotrucks.com.

Financial and Operating Highlights (in CAD $000’s except per share data)

	Three months ended September 30							Nine Months ended September 30
		2021			2020				2021			2020
Revenue (1)	$	8,355		$	7,404			$	23,404		$	25,647
Cost of sales (1)		6,291			5,772				17,253			21,053
Gross Profit		2,064			1,632				6,151			4,594
Gross Profit %		24.7	%		22.0	%			26.3	%		17.9	%
Selling and general administrative expenses		1,463			832				3,773			2,882
Depreciation and amortization		312			461				1,211			1,308
Finance expense		68			45				141			118
Impairment write-down (reversal)		764			(174	)			764			(174	)
Stock-based compensation		131			-				269			-
Loss on disposal of fixed assets		14			-				77			-
Accretion expense		-			50				75			50
Income (loss) before tax		(688	)		418				(159	)		410
Income tax recovery (expense)		37			(69	)			(215	)		(42	)
Net income (loss)	$	(651	)	$	349			$	(374	)	$	368
Net income (loss) per share - basic and diluted	$	(0.005	)	$	0.003			$	(0.003	)	$	0.003
EBITDAS (2)	$	601		$	800			$	2,378		$	1,712
EBIT (2)	$	(620	)	$	513			$	1,585		$	230
Total assets	$	28,158		$	28,747			$	28,158		$	28,747
Shareholders Equity	$	15,020		$	15,805			$	15,020		$	15,805

1 As described in the Financial Statements and MDA for the three and nine months ended September 30, 2021, the 2020 comparative figures presented have been restated, with a reduction to both revenue and cost of sales of $2.7 million and $5.5 million respectively. There was no effect on basic or diluted net income (loss) per share and did not have any effect on the Company’s condensed consolidated statement of financial position or condensed consolidated statement of cash flows.2 Earnings (loss) before interest, tax, depreciation, amortization, impairment write-down and stock-based compensation (“EBITDAS”) and earnings (loss) before interest and tax (“EBIT”) are not defined by IFRS. The definition of EBITDAS does not consider gains and losses on the disposal of assets, fair value changes in foreign currency forward contracts and non-cash components of stock-based compensation. While not an IFRS measure, EBITDAS is used by management, creditors, analysts, investors and other financial stakeholders to assess the Company’s performance and management from a financial and operational perspective.

Third Quarter 2021 Overview and Recent Developments

All amounts are in thousands ($000’s CAD)

• On July 14, 2021, the Company entered into a $4,875 term loan and a $3,000 revolving operating line of credit (together the “Credit Facility”). The term loan was used to repay the balance of the non-interest bearing vendor take-back mortgage secured against the Company’s Red Deer Facility and the balance of the Credit Facility will be used for general working capital purposes.
• The $1.2 USD trillion infrastructure bill (the “Infrastructure Bill”), previously ratified by US Congress and passed by US Senate, was signed by the US President on November 15, 2021, is expected to create a significant number of jobs in the US to improve broadband, water suppliers and other public works and to increase the demand for hydrovac trucks in US.
• The market environment continued to improve during the third quarter. The Company’s North American Operations continued to be affected by COVID-19 in Q3/2021, although to a lesser extent than during the past year. All key operating financial metrics improved compared to a year ago. Sales increased compared to Q2/21, however the Company’s supply chain was impacted by a shortage of chassis driven by chip issues and other components at the manufacturer level.
• Revenue of $8,355 increased 12.8% compared to $7,404 in Q3/2020 as customer demand continued to recover.
• Gross Profit of $2,064 increased by $432 compared to $1,632 in Q3/2020 due to increased revenue and production efficiencies, including labour utilization, at the Company’s Red Deer Facility, and recoveries from the Canada Emergency Wage Subsidy (the “wage subsidy”). Gross Profit was also positively impacted by the increased benefits from cost savings on parts sourced from China during the quarter.
• General and administrative expense of $1,463 increased by $631 compared to $832 in Q3/2020. Included in Q3/21 were one-time employee costs of $52. Other increases were due to general increased employee costs in North America to handle present and anticipated growth. The wage subsidy was less in Q3/21 compared to Q3/20. Also in Q3/2020 the Company had temporarily laid off 40% of its employees and senior management and head office employees had taken significant salary reductions.
• EBITDAS of $601 decreased by $199 compared to $800 in Q3/2020, due to the factors discussed above.
• In Q3/2021 the Company recorded an impairment write-down of $764 related to certain non-core hydrovac equipment in North America which was disposed of in November 2021.
• The Company incurred a net loss of $651 in Q3/2021, which represents an income decrease of $1,000 compared to net income of $349 in Q3/2020. This was due to the factors discussed above, plus stock based compensation expense of $131.

Segmented information (in CAD $000’s)

Three months ended September 30, 2021	North America		China			Corporate			Total
Revenue	$	8,355	$	-		$	-		$	8,355
Cost of sales		6,291		-			-			6,291
Selling and general administrative		1,125		78			260			1,463
EBITDAS	$	939	$	(78	)	$	(260	)	$	601
Three months ended September 30, 2020	North America		China			Corporate			Total
Revenue	$	7,230	$	174		$	-		$	7,404
Cost of sales		5,598		174			-			5,772
Selling and general administrative		655		97			80			832
EBITDAS	$	977	$	(97	)	$	(80	)	$	800
Nine months ended September 30, 2021	North America		China			Corporate			Total
Revenue	$	23,404	$	-		$	-		$	23,404
Cost of sales		17,253		-			-			17,253
Selling and general administrative		2,840		208			724			3,773
EBITDAS	$	3,311	$	(208	)	$	(724	)	$	2,378
Nine months ended September 30, 2020	North America		China			Corporate			Total
Revenue	$	25,473	$	174		$	-		$	25,647
Cost of sales		20,879		174			-			21,053
Selling and general administrative		2,199		335			348			2,882
EBITDAS	$	2,395	$	(335	)	$	(348	)	$	1,712

Outlook

The Company implemented two strategic actions during the second quarter of 2021:

• In June 2021, the Company moved all production into the Red Deer Facility, effectively tripling its monthly production capacity.

• To capitalize on the expected massive increase in infrastructure spending in North America and the impact that this will have on construction in general and hydrovac excavation in particular, the Company strengthened its executive management team with the appointment of Brett Newton as President and Chief Operating Officer.

The approval the Infrastructure Bill in the US is expected to validate the steps made by Tornado to triple its manufacturing capacity with the purchase of a state of the art, 57,000 square foot facility on 17 acres of land in Alberta, Canada in 2020. The investment by Tornado in additional manufacturing capacity is expected to assist Tornado in capitalizing on the increasing demand for hydrovac trucks, parts and services by our U.S. dealer and customers. The Company anticipates that the outlook for hydrovac demand throughout North America will remain strong over the next year.

The improving market environment experienced during the third quarter is expected to continue through the remainder of 2021 as customer confidence and spending levels continue to recover.

With the possibility of an adverse impact arising from the spread of COVID-19 variants in all relevant jurisdictions to the Company’s supply chain and customer base and the impact of the roll out of vaccinations in the US and Canada, management recognizes that the situation continues to evolve. The Company continues to evaluate its business operations with a focus on health and safety of its employees, current company operations, business continuity and managing liquidity.

To manage such adverse impacts of COVID-19, the Company has access to its unused line of credit and may have access to other forms of government support available to businesses impacted by the pandemic. As the Company’s production and revenue increase, the Company will add staff as needed. As a result of an increase in production and a corresponding increase in revenue, the Company expects that the Company’s access to government support currently available will be reduced or eliminated. The previous Canadian federal wage subsidy program ended on October 23, 2021 and although a replacement program may be introduced, details have not yet been announced.

Limiting factors on the Company’s ability to meet increased demand include the possibility of chassis supply chain interruption due to chip shortages at the chassis manufacturer level and other supply chain issues related to other key components.

Overall, management believes the underlying fundamentals of the Company’s business remain strong and expects its production and sales of hydrovac trucks in North America to recover and return to, and eventually exceed, the record pre-COVID levels achieved in 2019 over the long term for the following reasons:

• Expanded capacity and manufacturing and production efficiencies from the Red Deer Facility, which is fully operational.
• A strengthened senior executive management team.
• Expected increased spending on infrastructure in North America, particularly in the US as a result of the Infrastructure Bill.
• The Company’s commitment to continuous improvement of its hydrovac truck design which in the Company’s view has compelling advantages over hydrovac trucks currently offered in the market.
• The continued expansion of parts and services business in the Red Deer Facility.

About Tornado Global Hydrovacs Ltd.

The Company designs and manufactures hydrovac trucks as well as provides heavy duty truck maintenance operations in central Alberta. It sells hydrovac trucks to excavation service providers in the infrastructure and industrial construction and oil and gas markets. Hydrovac trucks use high pressure water and vacuum to safely penetrate and cut soil to expose critical infrastructure for repair and installation without damage. Hydrovac excavation methods are quickly becoming a standard in the North America to safely excavate in urban areas and around critical infrastructure greatly reducing infrastructure damage and related fatalities. In China, the Company’s subsidiary is used principally to source certain parts to the Company’s North America operations.

For more information about Tornado Global Hydrovacs Ltd., visit www.tornadotrucks.com or contact:

Bill Rollins	Brett Newton
Chief Executive Officer	President & Chief Operating Officer
Phone: (403) 204-6333	Phone: (416) 522-6390
Email: brollins@tghl.ca	Email: bnewton@tghl.ca

Advisory

Certain statements contained in this news release constitute forward-looking statements. These statements relate to future events. All statements other than statements of historical fact are forward-looking statements. The use of the words “anticipates”, “should”, ‘‘may”, “expected”, “expects”, “believes” and other words of a similar nature are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although Tornado believes these statements to be reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. Such statements include those with respect to: (i) the expectation that the Infrastructure Bill will lead to an increase in infrastructure spending and result in job creations and increased demand for hydrovac trucks; (ii) the Company’s outlook for the 2021 fiscal year; (iii) the expectation that the improving market environment is expected to continue through the remainder of 2021; (iv) the anticipation that the outlook for hydrovac demand throughout North America will remain bullish for years to come; (v) the expectation that the Company’s access to government support currently available will be reduced or eliminated as the Company’s production and revenue increases; (vi) the Company’s ability to meet increased demand may be limited by factors including chassis supply chain interruption due to chip shortages at the chassis manufacturer level and other supply chain issues related to other key components; (vii) management’s belief that the underlying fundamentals of the Company’s business will remain strong over the long term; (viii) the expectation that long term production and sales of hydrovac in North America will recover and eventually exceed the record pre-COVID levels achieved in 2019; (ix) the expectation that spending on infrastructure in North America will increase; (x) management’s belief that the Company’s commitment to continuous improvement of its hydrovac truck design will continue to provide compelling advantages over hydrovac trucks currently offered in the market; (xi) the anticipated manufacturing and production efficiencies from the Red Deer Facility; and (xii) management’s anticipation of continued expansion of parts and services business in the Red Deer Facility. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements as a result of prevailing economic conditions, and other factors, many of which are beyond the control of Tornado. Although Tornado believes these statements to be reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. The forward-looking statements contained in this news release represent Tornado’s expectations as of the date hereof and are subject to change after such date. Tornado disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable securities regulations.

Neither the Exchange nor its Regulation Service Provider (as that term is defined in policies of the Exchange) accepts responsibility for the adequacy or accuracy of this news release.