TVK TerraVest Industries Inc

TORONTO, May 15, 2019 /CNW/ - TerraVest Industries Inc, (TSX: TVK) ("TerraVest" or the "Company") announces its results for the second quarter ended March 31, 2019.

SECOND QUARTER AND SIX 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 the Company. The table below highlights certain financial results and reconciles net income to adjusted EBITDA for the second quarter and six months ended March 31, 2019 and the comparative periods in fiscal 2018.

Sales for the quarter ended March 31, 2019 were $76,159 versus $62,568 for the prior comparable quarter, an increase of 22%. This increase is purely a result of organic growth across the Company's portfolio of businesses. Sales for the six months ended March 31, 2019 were $155,190 versus $125,171 for the prior comparable period, representing an increase of 24%. This increase was the result of growth through acquisition as MaXfield Group Inc. ("MaXfield") was acquired on January 1, 2018 and only partially contributed to the prior period, as well as organic growth of 13.5%. Organic growth is calculated as the percentage change in sales for the current period compared to the prior period. In calculating organic growth for acquired companies, management estimates the sales achieved for periods prior to the acquisition by TerraVest. The organic growth in both the quarter and six months is primarily a result of recently added and expanded LPG tank manufacturing lines, as well as an increase in the demand for compressed gas storage and distribution equipment in both Canada and the USA, which is being driven by a strong winter heating season and increased capital investment in NGL infrastructure in Western Canada.

Net Income for the second quarter and six months ended March 31, 2019 was $5,505 and $11,644 versus $1,872 and $7,019 for the prior comparable periods. This represents increases of 194% and 66% respectively. For the quarter, these increases are a result of increased sales activity, as described above, as well as a change in the fair value of derivative instruments and ongoing cost control initiatives. For the six-months, acquisition costs in the prior period related to the Maxfield acquisition also contributed to the increase.

Adjusted EBITDA for the second quarter and six months ended March 31, 2019 were $10,769 and $25,567 versus $7,747 and $18,601 for the prior comparable periods. This represents increases of 39% and 37% respectively, which are a result of the reasons highlighted above.

The table below reconciles cash flow from operating activities to cash available for distribution for the second quarter and six months ended March 31, 2019 and the comparative periods in fiscal 2018.

Cash flow from operating activities for the second quarter and six months ended March 31, 2019 were $3,277 and $12,243 versus $227 and $7,693 for the prior comparable periods. This represents increases of 1,344% and 59% respectively. These increases are primarily a result of the reasons explained above.

Maintenance capital expenditures were $828 for the second quarter versus $882 for the prior comparable period. During the second quarter ended March 31, 2019, the Company's total purchase of property, plant and equipment was $4,507 of which $3,679 is considered growth capital. The Company currently has several large growth projects ongoing, including the expansion and optimization of an LPG tank manufacturing line, expanding its desanding equipment fleet and transferring residential oil tank production to a new automated facility. 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 second quarter and six months ended March 31, 2019 increased by 197% and 53% respectively versus the prior comparable periods. These increases are a result of reasons previously explained in this MD&A.

The dividend payout ratio for the second quarter and six month ended March 31, 2019 were 22% and 23% versus 71% and 37% for the prior comparable periods.

Outlook

Year-to-date, the Company has experienced improved results over the prior comparable period. Management expects this trend to continue for the remainder of the fiscal year. The Fuel Containment segment has benefited from a strong winter heating season and continues to see increased demand for its LPG storage and distribution equipment and heating equipment product lines. The situation for the Processing Equipment segment remains mixed as strong demand for NGL storage and distribution equipment is expected to persist throughout the remainder of the fiscal year. However, demand for this segment's oil and gas processing equipment continues to be stable but faces pricing pressure. The outlook for the Service segment remains challenging as pricing pressure continues to persist despite moderately improving commodity prices.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest's operations for the second quarter and six months ended March 31, 2019 and the comparative periods in fiscal 2018.

Sales for the second quarter and six months ended March 31, 2019 increased by 22% and 24% respectively versus the prior comparable periods. The reasons for these increases have been explained previously in this MD&A.

Gross profit for the second quarter and six months ended March 31, 2019 increased 21% and 25% respectively versus the prior comparable periods. These increases are largely attributable to the increases of sales for the periods as well as ongoing cost control efforts.

Administration expenses for the second quarter and six months ended March 31, 2019 decreased 6% and increased 9% respectively versus the prior comparable periods. The increase for the six months is primarily a result of the acquisition of MaXfield, which only partially contributed to the prior six months. The decrease for the second quarter is largely attributable to a reduction of overhead employees versus the prior period, partially offset by increased expenses relating to the transfer of a production line to a new facility. Additionally, expenses were incurred in the second quarter of 2018 related to the acquisition of MaXfield, which did not repeat in the current period.

Selling expenses for the second quarter and six months ended March 31, 2019 decreased 26% and 8% versus the prior comparable periods as a result of staffing reductions and cost control initiatives.

Financing costs for the second quarter and six months ended March 31, 2019 increased 12% and 24% respectively versus the prior comparable periods. This is a result of increased levels of debt as a result of several growth capital projects and recent substantial issuer bids. Rate increases from the Bank of Canada throughout the year also contributed to rising financing costs as TerraVest has floating rate debt facilities.

Income tax expense for the second quarter and six months ended March 31, 2019 increased, which is the result of increased profitability. The Company has tax loss carry-forwards which are available to shelter taxes in certain subsidiaries.

As a result of the above, net income attributable to common shareholders for the second quarter and six months ended March 31, 2019 increased 189% and 63% versus the prior comparable periods.

DIVIDENDS

TerraVest is also pleased to announce that The Board of Directors has declared its quarterly dividend of 10 cents per Common share payable on July 9, 2019 to shareholders of record as at the close of business on June 28, 2019. The dividend is designated an "eligible dividend" for Canadian income tax purposes.

Additional information can be found in TerraVest's interim condensed 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, maintenance capital expenditures, cash available for distribution and dividend payout ratio.

Adjusted EBITDA: is defined as net income adjusted for income tax expense, financing costs, depreciation, amortization, gains or losses on disposal of property, plant and equipment and on disposal of assets held for sale, change in fair value of derivative financial instruments, non-recurring acquisition‑related costs, impairment charges 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 the Company. 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 the Company's performance.

Cash Available for Distribution: is defined as cash flow from operating activities adjusted for changes in non-cash operating working capital and maintenance capital expenditures. 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 the Company's liquidity and cash flows.

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.

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 the Company's ability to sustain its current dividend policy. There is no directly comparable IFRS measure for dividend payout ratio.

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" and similar words or the negative thereof. 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 flow, 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.