Mr. Dustin Haw reports

TERRAVEST ANNOUNCES FOURTH QUARTER AND YEAR END RESULTS FOR FISCAL 2023 AND A 20% DIVIDEND INCREASE

TerraVest Industries Inc. has released its results for the fourth quarter and year ended Sept. 30, 2023, and has declared its quarterly dividend.

Fourth-quarter and year-end 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. The associated table highlights certain financial results and reconciles net income to adjusted earnings before interests, income taxes, depreciation and amortization (adjusted EBITDA (earnings before interest, taxes, depreciation and amortization)) for the fourth quarter and year ended Sept. 30, 2023, and the comparative periods in fiscal 2022.

Sales for the fourth quarter and year ended Sept. 30, 2023, were $173,931 and $678,350, versus $162,442 and $576,704 for the prior comparable periods. This represents increases of 7 per cent and 18 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 12-month period), as well as TSX, sales for the fourth quarter and year ended Sept. 30, 2023, were $173,372 and $483,401, versus $162,442 and $478,336 for the prior comparable periods. This represents increases of 7 per cent and 1 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 fourth quarter and year ended Sept. 30, 2023, was $15,527 and $49,633, versus $16,953 and $46,770 for the prior comparable periods. This represents a decrease of 8 per cent and an increase of 6 per cent, respectively. The decrease for the quarter is a result of higher income tax expenses, as well as a non-recurring gain on bargain purchase in the prior comparable quarter, which was partially offset by higher sales and positive contributions from MTC and GES. Other variances are also highlighted in the associated table.

Adjusted EBITDA for the fourth quarter and year ended Sept. 30, 2023, was $35,892 and $121,565, versus $23,519 and $86,669 for the prior comparable periods. This represents increases of 53 per cent and 40 per cent, respectively, which are primarily the result of higher sales and the addition of GES, MTC and TSX.

The associated table reconciles cash flow from operating activities to cash available for distribution for the fourth quarter and year ended Sept. 30, 2023, and the comparative periods in fiscal 2022.

Cash flow from operating activities for the fourth quarter and year ended Sept. 30, 2023, was $19,776 and $79,242, versus $8,342 and $29,948 for the prior comparable periods. This represents increases of 137 per cent and 165 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 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 $5,985 for the fourth quarter ended Sept. 30, 2023, versus $2,742 for the prior comparable period, representing an increase of 118 per cent, which is mainly explained by the timing of maintenance capital expenditures, and the addition of TSX, MTC and GES. During the fourth quarter, TerraVest's total purchase of property, plant and equipment paid was $10,803, of which $4,818 is considered growth capital. The growth capital incurred during the fourth quarter was mainly used to add to the company's rental fleet.

Cash available for distribution for the fourth quarter and year ended Sept. 30, 2023, increased by 53 per cent and 39 per cent, 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 fourth quarter and year ended Sept. 30, 2023, were 9 per cent and 11 per cent, versus 11 per cent and 13 per cent for the prior comparable periods.

Outlook

The overall business environment continues to present challenges via persistent labour shortages and rising interest rates. However, TerraVest's businesses continue to perform well. Management expects continued growth for the upcoming fiscal year across its base portfolio of businesses, as well as a meaningful contribution from its recently announced acquisitions.

The company continues to make targeted investments to improve its manufacturing efficiency and expand its product lines, and, with the recently announced new credit facility, TerraVest is well positioned to pursue its acquisition strategy.

Business combinations

On March 1, 2023, a subsidiary of TerraVest entered into an acquisition agreement to acquire assets of 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.

Subsequent events

Long-term debt

On Oct. 23, 2023, TerraVest obtained, through certain of its subsidiaries operating in the HVAC and compressed gas equipment segments, a credit facility totalling $310,000 with a syndicate of lenders. This new credit facility is replacing the revolving operating loan of $130,000. The new credit facility expires in October, 2026, and is secured by the assets of the HVAC and compressed gas equipment segments.

Business combinations

On Nov. 1, 2023, a subsidiary of TerraVest entered into an acquisition agreement to acquire all the operating assets of the subsidiaries of Highland Tank Holdings LLC (HT) for a total consideration of $78,000 (U.S.), of which $5,000 (U.S.) was paid with the issuance of TerraVest shares and the remaining was paid in cash using the new credit facility. HT is a leading manufacturer of fuel and chemical storage tanks, LPG vessels and other custom-built steel storage products in North America.

On Nov. 3, 2023, TerraVest's partially owned subsidiary, GES, entered into a share purchase agreement to purchase all of the issued and outstanding shares of LV Energy Services Ltd. (LV) for a total consideration of $25,000, of which $3,000 was paid with the issuance of GES shares and the remaining was paid in cash. LV provides water management and other related services in the Western Canadian energy industry. GES acquired the shares of LV using its existing credit facilities.

Consolidated results of operations

The following section provides the financial results of TerraVest's operations for the fourth quarter and year ended Sept. 30, 2023, and the comparative periods in fiscal 2022.

Sales for the fourth quarter and year ended Sept. 30, 2023, increased by 7 per cent and 18 per cent, respectively, versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the fourth quarter and year ended Sept. 30, 2023, increased by 38 per cent and 33 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 fourth quarter and year ended Sept. 30, 2023, decreased by 10 per cent and increased by 22 per cent, respectively, compared with the prior comparable periods. The decrease in administration expenses for the fourth quarter is mainly due to the recognition of the entire amortization expense in the prior comparable period on the identifiable intangible assets acquired since the ECR and MTC acquisition dates, following the finalization of the purchase price allocation. The increase in administration expenses for the year ended Sept. 30, 2023, 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.

Selling expenses for the fourth quarter and year ended Sept. 30, 2023, decreased by 3 per cent and increased by 12 per cent, respectively, versus the prior comparable periods. The decrease in selling expenses for the fourth quarter is explained by reduced marketing expenses versus the prior comparable period. The increase for the year ended Sept. 30, 2023, is mainly due to the addition of TSX, GES and MTC, and is also explained by the hiring of additional sales personnel and additional commission expense as a result of increased sales in certain product lines.

Financing costs for the fourth quarter and year ended Sept. 30, 2023, increased by 41 per cent and 70 per cent, respectively, versus the prior comparable periods. The increase is primarily explained by additional interest expenses as a result of increases in interest rates on floating rate debt versus the prior comparable periods.

Other (gains) losses variance for the fourth quarter and year ended Sept. 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 during the third quarter of fiscal 2023, and realized a gain on disposal of other property, plant and equipment. In the fourth quarter ended Sept. 30, 2022, TerraVest also realized a non-recurring gain on bargain purchase.

Income tax expense variance for the fourth quarter and year ended Sept. 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 decreased by 19 per cent for the fourth quarter and 7 per cent for the year ended Sept. 30, 2023, versus the prior comparable periods.

Dividends

TerraVest is pleased to announce that the board of directors has declared a quarterly dividend of 15 cents per common share payable on Jan. 10, 2024, to shareholders of record as at the close of business on Dec. 31, 2023. This represents a 20-per-cent increase over the prior quarterly dividend. 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 (management's discussion and analysis), which are available on SEDAR+.

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