Mr. Dustin Haw reports

TERRAVEST ANNOUNCES FIRST QUARTER RESULTS FOR FISCAL 2024 AND DIVIDEND DECLARATION

TerraVest Industries Inc. has released its results for the first quarter ended Dec. 31, 2023, and declared its quarterly dividend.

First quarter 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.

Sales for the first quarter ended Dec. 31, 2023, were $228,090 versus $177,198 for the prior comparable quarter. This represents an increase of 29 per cent. However, TerraVest acquired all the operating assets of the subsidiaries of Highland Tank Holdings LLC (HT) in November, 2023, and all of the issued and outstanding shares of LV Energy Services Ltd. and its sister company (together referred to as LV), effective Oct. 1, 2023, all of which did not contribute to the prior comparable period. Excluding HT and LV, sales for the first quarter ended Dec. 31, 2023, were $189,543 versus $177,198 for the prior comparable quarter, representing an increase of 7 per cent for TerraVest's base portfolio (excluding HT and LV). The increases in sales for the first quarter ended Dec. 31, 2023, 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.

Net income for the first quarter ended Dec. 31, 2023, was $19,303 versus $13,086 for the prior comparable quarter. This represents an increase of 48 per cent, which is a result of the positive contributions from HT, LV and from increased sales in TerraVest's base portfolio of businesses. The increase in net income was partially offset by acquisition-related costs, increased financing costs due to higher debt level to finance business acquisitions and increased interest rates versus the prior period, as well as higher income tax expense.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the first quarter ended Dec. 31, 2023, was $49,056 versus $30,238 for the prior comparable quarter. This represents an increase of 62 per cent, which is the result of the reasons explained herein.

Cash flow from operating activities for the first quarter ended Dec. 31, 2023, was $38,553 versus $21,883 for the prior comparable period. This represents an increase of 76 per cent. The increase in cash flow from operating activities is largely attributable to the increase in net income and the reduction of inventory levels for TerraVest's base portfolio businesses compared with the prior period, as the supply chain has greatly improved and is more stable. The increase in cash flow from operating activities was partially offset by additional interest and income taxes paid.

Maintenance capital expenditures were $6,909 for the first quarter ended Dec. 31, 2023, versus $1,539 for the prior comparable period, representing an increase of 349 per cent, which is primarily explained by the timing of such capital expenditures and the growth of TerraVest's portfolio of businesses, as well as the company's decision to consolidate two manufacturing plants into a single facility during the period. During the first quarter ended Dec. 31, 2023, TerraVest's total purchase of PP&E (property, plant and equipment) paid was $13,463, of which $6,554 is considered growth capital. The growth capital incurred during the first quarter was mainly used to add to the company's rental fleet and invest in a new manufacturing product line.

Cash available for distribution for the first quarter ended Dec. 31, 2023, increased by 13 per cent versus the prior comparable quarter. This increase is a result of reasons explained herein.

The dividend payout ratio for the first quarter ended Dec. 31, 2023, was 10 per cent versus 9 per cent for the prior comparable period.

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 current fiscal year across its base portfolio of businesses, as well as a meaningful contribution from its recent acquisitions.

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

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 HT. HT is a leading manufacturer of fuel and chemical storage tanks, waste water storage and treatment tanks, LPG vessels, and other custom-built steel storage products in North America. The acquisition was a business combination and has been accounted for using the acquisition method, with the results of operations included in earnings from the date of acquisition.

Effective on Oct. 1, 2023, a partially owned subsidiary of TerraVest entered into a share purchase agreement to acquire all of the issued and outstanding shares of LV. LV provides water management and other related services in the Western Canadian energy industry. The acquisition was a business combination and 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 first quarter ended Dec. 31, 2023, and the comparative period in fiscal 2023.

Sales for the first quarter ended Dec. 31, 2023, increased by 29 per cent versus the prior comparable period. The reasons have been explained previously in this press release.

Gross profit for the first quarter ended Dec. 31, 2023, increased by 56 per cent versus the prior comparable period. This is primarily explained by the contribution of HT and LV, 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 first quarter ended Dec. 31, 2023, increased by 32 per cent compared with the prior comparable period. The increase in administration expenses is mainly due to the addition of HT and the increase in activity level in certain of TerraVest's subsidiaries, which resulted in additional administrative expenses.

Selling expenses for the first quarter ended Dec. 31, 2023, increased by 33 per cent versus the prior comparable period. The increase in selling expenses for the first quarter is explained by the addition of HT, and increased salary and commission expenses to support sales growth in certain product lines.

Financing costs for the first quarter ended Dec. 31, 2023, increased by 73 per cent versus the prior comparable period. 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 period. In addition, TerraVest incurred more interest on lease liabilities as a result of additional lease liabilities compared with the prior period.

Other (gains) losses variance for the first quarter ended Dec. 31, 2023, is a result of a loss on foreign exchange on amount receivable from TerraVest's subsidiaries denominated in United States dollars, partially offset by a gain on foreign exchange on debt balance in U.S. dollars. In addition, TerraVest realized a less favourable change in fair value of derivative financial instruments, and an unfavourable change in fair value of investment in equity instruments and of an investment in a limited partnership compared with the prior period.

Income tax expense variance for the first quarter ended Dec. 31, 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 first quarter ended Dec. 31, 2023, increased by 46 per cent versus the prior comparable period.

Dividend

TerraVest is pleased to announce that the board of directors has declared a quarterly dividend of 15 cents per common share, payable on April 10, 2024, to shareholders of record as at the close of business on March 31, 2024. 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's discussion and analysis (MD&A), which are available on SEDAR+.

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