Foremost Income Fund Reports Q3 2021 Results

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Calgary, Alberta–(Newsfile Corp. – November 12, 2021) – Foremost Income Fund (“Foremost” or the “Fund“) announces the financial results for the three and nine-month period ended September 30, 2021.

Overview

The Fund is an unincorporated open end mutual fund trust conducting its business through three operating segments, Foremost Energy Equipment (FEE), Foremost Mobile Equipment (FME), and Corporate. FEE, with its focus on the oil and gas industry in Western Canada, consists of three active manufacturing and service locations across Alberta. The locations manufacture oil-treating systems, shop tanks, field tanks, agriculture equipment, oil and gas process-treating equipment, and gas separators. FME manufactures and services hydrovac and vacuum trucks and equipment; off-highway, large-wheeled and tracked vehicles; and equipment for the custom drilling, construction, water well, and mining sectors. FME focuses on custom-built vehicles for its global clientele whom it serves through two manufacturing and service locations across Alberta.

Message to Unitholders

Foremost grew revenues as it recovers from the effects of the pandemic-related business slowdown. Revenue and gross margin improved in both Foremost Mobile Equipment (FME) and Foremost Energy Equipment (FEE), driving positive EBITDA and Net income. Revenue for the Fund was at the highest level since the pandemic started in Q1 2020. Despite challenges in procurement of major components for all of its products, Foremost executed its production plans in line with expectations and maintained good product delivery flow to its customers across the world.

Foremost Mobile Equipment (FME) produced revenues of $25.8 million versus $20.5 million in Q3 2020, a 25% increase. Gross margin was $5.5 million vs $3.8 million in Q3 2020, a 45% increase. Continued strong demand in the key regions of Canada, USA, and South America drove revenue growth in the Vacuum Trucks, Drills, and Parts categories. This continued an upward trend for FME revenues and gross margin from the previous quarters.

Foremost Energy Equipment (FEE) revenue showed improvement over the previous quarters as stronger commodity prices drove more business activity in Western Canada. Agriculture bins provided revenue growth with $6.0 million in revenue year to date compared to $1.6 million in 2020, though drought conditions in Western Canada dampened demand. FEE revenue for the third quarter of 2021 was $9.5 million versus $5.1 million in Q3 2020, an increase of 85%, and gross margin was negative $0.1 million compared to negative $1.3 million in Q3 2020.

At the time of this release, the pandemic restrictions have been reinstated in the Province of Alberta. While Foremost is able to continue normal business operations, management is monitoring the situation and is prepared to take necessary steps to ensure the safety of our employees.

The overview: key measurements for Q3 2021

Revenue was $35.1 million, an increase from the previous quarter of 7.7% or $2.5 million and a 37.3% increase from the Q3 2020 revenue of $25.6 million.

Gross margin increased 13.6% to $5.4 million, up from $4.8 million in Q2 2021 and a 114.1% increase from the Q3 2020 value of $2.5 million.

SG&A expenses decreased from 11% of revenue in Q2 2021 to 9% of revenue in Q3 2021 and decreased 1% compared to Q3 2020. Total spend in Q3 2021 in this category was $3.2 million, compared to $3.5 million in Q2 2021 and $2.6 million in Q3 2020.

Adjusted EBIDTA was $3.2 million, an increase from the Q2 2021 value of $2.3 million and an increase from the Q3 2020 value of $0.9 million.

Re-classification-During the first quarter of 2021, certain costs were re-classified to better align with their function. This included moving (i) depreciation and amortization expense between cost of goods sold (for plant-level assets) and SG&A (for corporate-level assets) and (ii) office-related occupancy costs out of cost of sales and into administrative expenses. This results in reporting lower gross margin and higher SG&A expenses while removing the Fund-wide amortization and depreciation expense from the statement of net income. The total amortization and depreciation continues to be shown on the statement of cash flows. These changes have been reflected in all comparative data in this quarter’s reports and will be followed for future reporting periods. Refer to note 3 of the Financial Statements for more information.

2021 outlook

While many Foremost markets are showing recovery trends from the depths of the COVID-19 pandemic, there remains significant uncertainty around the spread of the virus and the ongoing economic impact it is having. In particular, the supply chain disruptions are expected to put pressure on the Fund’s ability to deliver its products on time over the next several months, slowing the growing revenue trend we have seen the last 3 quarters.

Kevin Johnson, President

Q3 2021 vs Q3 2020 Highlights

  • The mining industry has seen a surge in demand with increases in commodity prices and the ability for companies to resume operations safely during the pandemic. However, while the oil and gas industry experienced increases in commodity prices, this has not yet been reflected in the return of capital spend by our customers. At Foremost, this contributed to an increase in revenue of $9.5 million when compared to 2020. The FME segment recognized $5.2 million more revenue in 2021 over 2020, while the FEE segment recognized a $4.4 million increase in revenue. More information is in the Segmented Results of Operations section of the MD&A.
  • Gross profit for Q3 2021 was $5.4 million and 15% of revenue. More information is in the Segmented Results of Operations section of the MD&A.
  • Administration costs increased to $3.2 million or 9% of revenue, up from $2.6 million in Q3 2020. The majority of spend in this category is related to personnel costs.
  • Adjusted EBITDA (defined on page 12 of the MD&A) was $3.2 million for Q3 2021 compared to $0.9 million in Q3 2020.
  • In the first quarter of 2021, certain costs were reclassified, which will result in a lower gross margin and higher SG&A expenses going forward. Refer to note 3 of the Financial Statements for more information.
  • The Trustees have determined that, as of November 10, 2021, the Fund will redeem tendered Trust Units at tangible book value of $6.50 per unit.

FORWARD-LOOKING STATEMENT

Certain statements in this news release may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this news release, such statements use words such as “may”, “will”, “expect”, “believe”, “plan” and other similar terminology. These statements include statements the Fund’s intention to proceed with a Unitholders’ meeting and information regarding the Trustees’ views of the future prospects and tax treatment of the Fund and tax treatment of the Special Redemption, the Fund’s expectations regarding the future availability of cash to meet redemption requests and the Trustee’s expectations for redemption prices in December 2011 and January 2012. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this news release. These forward-looking statements involve a number of risks and uncertainties, including: the impact of general economic conditions, industry conditions, changes in laws and regulations, increased competition, fluctuations in commodity prices and foreign exchange, and interest rates and stock market volatility.

For further Investor Relations information please contact:

Jackie Schenn, CA

Tel: (403) 295-5800 or toll free 1-800-661-9190 (Canada/US) – Fax: (403) 295-5832
E-mail: investorrelations@foremost.ca – Website: www.foremost.ca

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/103412