Foremost Income Fund Reports Q2 2022 Results

Calgary, Alberta–(Newsfile Corp. – August 10, 2022) – Foremost Income Fund (“Foremost” or the “Fund“) announces the financial results for the three- and six-month periods ended June 30, 2022.

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 delivered a profitable quarter despite supply chain disruptions and labour challenges that affected operations across the company. Revenue and EBITDA were lower compared to Q1 2022, but gross margin improved as price increases were implemented. Demand remains strong for the Fund’s product lines that focus on the mining and construction sectors with current production backlogs higher than historical averages. Demand for product lines focused on the Western Canadian energy sector showed some recovery and growth over the previous quarters.

The Fund’s balance sheet remains healthy with a cash balance of $38.8 million. The Fund has accelerated the procurement of materials for its forecasted production plan in a concerted effort to mitigate the effects of the supply chain disruptions; this has resulted in increased inventory values compared with previous quarters.

Foremost Mobile Equipment (FME) produced revenues of $22.3 million vs $27.0 million in Q2 2021, a 17% decrease. Gross margin was $4.3 million vs $5.4 million in Q2 2021, a 20% decrease. Revenue and gross margins in FME were negatively impacted by supply shortages of chassis for hydrovacs and major components for dual rotary rigs.

Foremost Energy Equipment (FEE) produced revenues of $12.3 million vs $5.7 million in Q2 2021, a 115% increase. Gross margin was $0.1 million vs negative $0.6 million in Q2 2021. Sales in all FEE product categories increased when compared to the same quarter in 2021, as strong commodity prices increased activity in Western Canada.

Foremost is facing broad supply chain challenges related to factors outside its control, including COVID shutdowns and the Ukraine war. Management, operations, and supply chain teams are engaged in proactive initiatives to reduce the impact of these supply issues. Rising input costs and a tight labour market are expected to continue tempering the forecasted outlook for the remainder of 2022.

The safety of everyone who works at Foremost remains the highest priority for management. Foremost remains fully compliant with all provincial and municipal mandates and laws related to workplace and public safety instituted due to the COVID-19 pandemic.

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The overview: key measurements for Q2 2022 compared to Q1 2022

Revenue is $34.5 million, a decrease of 2.3% from $35.3 million.
Gross margin is $4.5 million, which represents 13% of revenue, up from $4.4 million and 12%.
SG&A expenses are 12% of revenue, up from 10%. Total spend is $4.0 million compared to $3.7 million.
EBITDA is $1.2 million, a decrease from $1.8 million in the previous quarter.

2022 outlook

Markets remain unpredictable, as the response to the novel COVID-19 virus and the global effects from the war in Ukraine continue to evolve. Foremost is actively monitoring the latest developments and assessing the effect these situations are having on global economic activity. Significant uncertainty remains around the spread of the COVID-19 virus, the fallout of the war, and the impact they will have on the Fund’s operations, demand for the Fund’s products, global supply chains, and economic activity in general.

Kevin Johnson, President

Q2 2022 VS Q2 2021 Highlights

• Revenue for the second three months of 2022 was $34.5 million, compared to $32.6 million for the same period in 2021. More information is in the Segmented Results of Operations section of the MD&A.

• Gross profit for the second quarter of 2022 was $4.5 million and 13% of revenue, compared to $4.8 million and 15% of revenue in Q2 2021. More information is in the Segmented Results of Operations section of the MD&A.

• Administration costs increased to $4.0 million and 12% of revenue in 2022, up from $3.5 million recognized in the second quarter of 2021. The majority of this increase was from legal costs incurred as part of an ongoing litigation.

• Adjusted EBITDA (defined on page 13 of the MD&A) was $1.2 million for Q2 2022 compared to $2.3 million in Q2 2021.

• The stated redemption price at August 10, 2022, remains at $6.40.

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 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.

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

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To view the source version of this press release, please visit https://www.newsfilecorp.com/release/133441