Mr. Dustin Haw reports

TERRAVEST ANNOUNCES THIRD QUARTER RESULTS FOR FISCAL 2023 AND DIVIDEND DECLARATION

TerraVest Industries Inc. has released its results for the third quarter ended June 30, 2023, and declared its quarterly dividend.

Third quarter and nine months review and outlook

Business performance

Management believes that there are certain non-IFRS (international financial reporting standards) financial measures that can be used to assist shareholders in analyzing the performance of TerraVest. An attached table 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.

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 per cent and 22 per cent, respectively. However, TerraVest acquired all of the issued and outstanding shares of TSX Transport Inc. in October, 2022, of Mississippi Tank and Manufacturing Company (MTC) in March, 2022, as well as a controlling interest of 66.8 per cent 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-month 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 per cent and 4 per cent, 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 (liquefied petroleum gas) storage and distribution equipment, partially offset by decreased sales for the HVAC (heating, ventilation and air conditioning) 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 per cent and an increase of 14 per cent, 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 favourable 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.

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 per cent and 36 per cent, respectively, which are primarily the result of the addition of GES, MTC and TSX and the reasons highlighted herein.

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 per cent and 175 per cent, 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 with 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 the pricing of steel and other raw materials. 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 per cent, 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 per cent and 33 per cent, respectively, versus the prior comparable periods. These increases are a result of reasons explained herein and previously in this press release.

The dividend payout ratio for the third quarter and nine months ended June 30, 2023, were 17 per cent and 12 per cent versus 15 per cent and 14 per cent 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 complementary 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 Oct. 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

An attached table 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.

Sales for the third quarter and nine months ended June 30, 2023, increased by 4 per cent and 22 per cent, 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 per cent and 32 per cent, 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 favourable product mix.

Administration expenses for the third quarter and nine months ended June 30, 2023, increased by 13 per cent and 37 per cent, respectively, compared with 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 per cent and 18 per cent, 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 per cent and 84 per cent, 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 favourable 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 aforementioned, net income attributable to common shareholders for the third quarter decreased by 18 per cent and was similar for the nine months ended June 30, 2023, versus the prior comparable periods.

Dividends

TerraVest's board of directors has declared its quarterly dividend of 12.5 cents per common share payable on Oct. 10, 2023, to shareholders of record as at the close of business on Sept. 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 management discussion and analysis, which are available on SEDAR+.

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