News

August 10, 2017

POLARIS ANNOUNCES Q2 2017 FINANCIAL RESULTS

VANCOUVER, British Columbia – Polaris Materials Corporation (TSX:PLS) (the “Company”, “we”, or “Polaris”) today reported the financial results for its second quarter ending June 30, 2017. All currencies are US dollars unless otherwise noted.

Q1 2017 HIGHLIGHTS

  • Gross profit year to date of $2.0 million is more than double the $0.7 million gross profit achieved in the prior year period; Q2 2017 gross profit of $1.3 million was #0.3 million or 26% higher than Q2 2016
  • On a per ton basis, gross profit year to date tripled to $1.63/ton versus $0.50/ton last year; Q2 2017 gross profit per ton was $2.02/ton versus $1.10/ton in Q2 2016
  • Reduced net loss of $1.8 million year to date versus a loss of $2.9 million in 2016; Q2 2017 net loss of $0.6 million higher than same period in 2016 due to unrealized FX and higher SG&A
  • YTD Adjusted EBITDA improved 18.5% to $1.5 million versus $1.3 million in 2016; Q2 2017 Adjusted EBITDA in line with Q2 2016
  • Operating cash flow of $2.0 million of cash year to date, versus a use of $3.4 million in 2016; Q2 2017 cash from operations of $0.8 million versus a use of $2.7 million in 2016
  • Our results for Q2 and YTD 2017 reflect improvements in underlying costs, sequential price improvements and strong margin contribution from our new Fine Sand product, which more than offset the impact of lower volumes
  • Margin improvements are expected to continue through the balance of 2017, while business also benefits from higher volumes expected in the second half

The Company’s Q2 2017 financial results reflect significantly improved unit margins versus 2016, offset in part by the impact of unfavourable movements in foreign exchange as well as higher SG&A costs attributable to professional fees. We are particularly pleased that we were able to achieve these results against the as-expected lower first half volumes. That said, we note that volumes in the first half increased by 4% compared with 2016 after adjusting for the impact of the ex-quarry contract which ended on December 31, 2016, and this in spite of the exceptionally heavy rainfall which impacted customer activity throughout the first half.

Favourable changes in mix, the start of fine sand sales, as well as year over year price improvements all contributed to improved average pricing. Cost of Goods Sold per ton increased due to a higher proportion of delivered sales, but the increase was smaller than the increase prices due to lower underlying costs at the Orca Quarry and in our terminal and logistics business. At the quarry, reduced costs of production were partially offset by costs related to the commissioning of our equipment for Fine Sand product sales. In our terminal operations, we achieved significantly higher throughputs, while reducing unit variable costs, and we achieved savings through a coordinated logistics strategy with our customers which helped to reduce third-party barge utilization and minimized demurrage and deadfreight.

The second half of 2017 is expected to be significantly more active than the first half, and as a result our expectations for full year sales volumes has increased to 3.0 to 3.2 million tons; 5-10% higher than our original guidance and 0-5% up from 2016. In July 2017, we shipped 366,000 tons, which supports our view of a strong second half. Improved market share in the east and south San Francisco Bay Area, as well as higher domestic barge sales and growth in Long Beach are expected to more than make up for lower ex-quarry sales. This will occur at what we believe will be significantly improved margins reflecting the premium value of our products as well as favourable market conditions in the Bay Area and Los Angeles. On July 31, it was announced that Los Angeles had reached agreement with the IOC in respect of hosting the 2028 Summer Olympics. While this agreement remains to be ratified in September 2017, we are encouraged that significant progress has been made towards a final decision. The Games are expected to drive significantly increased commercial and infrastructure construction in LA in the coming years. Orca’s high performance concrete aggregates are well positioned to be an essential component of the high specification concrete work that will be required.

At the Orca Quarry, we completed the majority of the work related to the new Fine Sand product, with the remaining work to be completed in in Q3. We recently announced that Tyson Mackay has been promoted to the position of Mine Manager at the Orca Quarry. Tyson has been an integral part of operations at Orca since joining in 2013. His leadership of the Orca safety culture led to the Company’s 5th Stewart/O’Brien Award in 10 years for zero lost time accidents in 2016. As well, Keven Wasylyshyn joined the company as Director, Supply Chain in January and has already provided a significant benefit in improving our logistics efficiency and inventory management practices.

Ken Palko, President and CEO, commented: “The first half of 2017 reflects a great outcome for Polaris, with reduced net loss, improved gross profit and EBITDA, and several capital projects underway as we position ourselves for additional sales of our new Fine Sand product. Volume is expected to increase significantly in the third quarter, while we work to maintain the current underlying cost structure and drive further margin improvements. We have already achieved several price increases for this year and we continue to negotiate actively with our customers to ensure our business reflects the strong market conditions prevailing in California.”

SUMMARY OF QUARTERLY RESULTS

The selected financial information set out below is based on and derived from the unaudited consolidated interim financial statements of the Company. For a more detailed table of quarterly results please refer to our Q2 2017 MD&A, which can be found on SEDAR or the Company’s website.





Three Months
Ended June 30
2017

Three Months
Ended June 30
2016

Consolidated financial information



(unaudited)

($000's, except per share amounts)



Revenue

12,245

13,311

Cost of goods sold

(10,931)

(12,270)

Gross profit

1,314

1,041

Selling, general and administrative expenses

(1,481)

(1,292)

Operating loss

(609)

(370)

Net loss attributable to shareholders

(632)

(429)


per share (basic and diluted)

(0.01)

(0.00)

EBITDA

567

839

Adjusted EBITDA

1,195

1,251

Cash flows from (used in) operating activities

835

(2,728)

Cash and cash equivalents

12,122

6,435

Working capital

15,470

17,283

Total assets

76,606

78,880

Total non-current liabilities

5,278

4,715

Key performance indicators



Sales of aggregates (000's tons)

650

946

Production of aggregates (000's tons)

678

1,000

Average selling price ($/ton)

18.84

14.07

Cost of goods sold ($/ton)

16.82

12.97

Gross profit ($/ton)

2.02

1.10

Gross margin (%)

10.7%

7.8%

EBITDA ($/ton)

0.87

0.89

Adjusted EBITDA ($/ton)

1.84

1.32

Net loss, EBITDA and Adjusted EBITDA

The net loss attributable to shareholders during the quarter ended June 30, 2017 was $0.6 million ($0.01 per share loss) compared to a net loss attributable to shareholders of $0.4 million ($0.00 per share loss) during the quarter ended June 30, 2016.

EBITDA and Adjusted EBITDA for Q2 2017 were roughly in-line with year-on-year comparatives. EBITDA for the second quarter of 2017 of $0.6 million ($0.87 per ton) declined $0.2 million over the prior year comparative of $0.8 million ($0.89 per ton). Adjusted EBITDA of $1.2 million ($1.84 per ton) declined $0.05 million over the prior year comparative of $1.3 million ($1.32 per ton). Commencing the current quarter, the Company has revised its calculation of Adjusted EBITDA by adjusting for unrealized foreign exchange gains and losses incurred on cross-border intercompany receivables, prior year Adjusted EBITDA amounts have been restated to conform to the current period methodology (see Non-IFRS Measures for details).

Revenue and pricing

Revenue for the second quarter of 2017 decreased by 8% to $12.2 million, compared with $13.3 million in Q2 2016. Aggregate sales for the current quarter were lower at 650,000 tons, compared to sales of 946,000 tons in the second quarter of 2016. Sales mix moderated the impact of lower volumes on revenue as Q2 2017 sales were almost completely delivered sales, versus Q2 2016 sales which included a proportion of ex-quarry sales.

Average selling price (“ASP”) during Q2 2017 of $18.84 per ton increased $4.77 per ton from $14.07 per ton in Q2 2016. This was principally due to changes in sales mix, although increased base prices did contribute to the higher ASP. Compared with 2016, price variance was a favorable 4.4% due to base price increases and increased fuel surcharges. The sales mix variance of 19.0% was due to Q2 2017 sales being primarily to customers with delivered pricing; whereas, Q2 2016 included a significant proportion of ex-quarry sales.

Revenue and ASP per ton are influenced on an annual basis by: base pricing, shipping fuel surcharges, the distribution of tonnage to the various California terminals, and the percentage between delivered and ex-quarry sales.

Cost of goods sold

Cost of goods sold in the second quarter of 2017 decreased by 11% to $10.9 million, compared with $12.3 million in Q2 2016, due to lower volumes. However, cost of goods sold per ton in Q2 2017 increased by $3.85 to $16.82 compared to $12.97 in Q2 2016. The higher COGS per ton was expected due to the increased proportion of sales to customers that include freight.

Gross profit and gross margin

The gross profit for second quarter of 2017 increased to $1.3 million versus $1.0 million in Q2 2016, despite lower volumes in the current quarter. The gross profit per ton increased to $2.02, compared to $1.10 in Q2 2016, an improvement of $0.92. Similarly, Q2 2017 gross margin improved to 10.7% from 7.8% in Q2 2016. These improvements are in spite of lower current quarter volumes and attributable to both changes in sales mix to points of sale with higher margins, as well as the commencement of sales of the new Fine Sand product during the current quarter.

Selling, general and administrative costs

During the quarter, selling, general and administrative (“SG&A”) expenses were $1.5 million, including $0.1 million of non-cash stock based compensation, compared with $1.3 million, including $0.1 million of stock based compensation, during Q2 2016. SG&A increased versus the prior year quarter due to increased wages and benefits, as well as higher professional fees relating to permitting and corporate activities. SG&A during Q2 2017 was 12.1% of sales compared to 9.7% of sales during Q2 2016. Net of non-cash charges for stock based compensation, SG&A represented 11.5% of sales compared with 9.2% in Q2 2016.

For more details on our results, including a discussion of year to date results, please refer to our Q2 2016 MD&A, which can be found on SEDAR or the Company’s website.

CONFERENCE CALL AND WEBCAST DETAILS

The Company will host a conference call on Friday, August 11th, 2017 at 8:00 am Pacific Time (11:00am Eastern). Details to access the call live are as follows:

  • • Via telephone, toll free, by calling 1-888-390-0605 in North America, +1-416-764-8609 in Toronto or +1-778-383-7417 in Vancouver.
  • Via webcast at: http://goo.gl/Br9RQ4

The webcast will be archived for 14 days following the call at the above-noted link. The conference call will also be recorded and available for replay until Friday, August 25, 2017. To access the replay, dial 1-888-390-0541 or +1-416-764-8677 and use Playback Passcode 177464# to hear the recording.

About Polaris Materials Corporation:

Polaris Materials Corporation is engaged in the development and operation of construction aggregate quarries in Canada to supply distribution facilities in the United States through coastal shipping. The Company's active construction aggregate interests consist of its Orca Sand and Gravel Quarry in British Columbia and two associated receiving terminals in Richmond and Long Beach, California. The Company also owns the Black Bear Project located in close proximity to the Orca Quarry, and a controlling interest in the Eagle Rock Quarry Project, located on the south coast of Vancouver Island.

For further information, please contact:
Nicholas Van Dyk
Vice President, Investor Relations and Corporate Development
Polaris Materials Corporation
Tel: (604) 915-5000 Ext. 104
info@polarismaterials.com

Cautionary Note Regarding Forward Looking Statements

This press release contains "forward-looking statements" and "forward-looking information" within the meaning of applicable securities laws. These statements and information appear in this document and include estimates, forecasts, information and statements as to management's expectations with respect to, among other things, the future financial or operating performance of the Company, including increases in gross margins, increases in sales volumes (including in the Long Beach market), shipments and selling prices, costs of production, capital and operating expenditures, requirements for additional capital, government regulation of quarrying operations, environmental risks, reclamation expenses, and title disputes, the Canadian dollar compared to the US dollar, increases in Californian construction activity and US infrastructure funding, statements regarding potential new customers and the development of Black Bear. Often, but not always, forward-looking statements and information can be identified by the use of words such as "may", "will", "should", "plans", "expects", "intends", "anticipates", "believes", "budget", and "scheduled" or the negative thereof or variations thereon or similar terminology. Forward-looking statements and information are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Readers are cautioned that any such forward-looking statements and information are not guarantees and there can be no assurance that such statements and information will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed in the Company's continuous disclosure documents which are filed with Canadian regulators on SEDAR (www.sedar.com), including under the heading “Risks and Uncertainties” in the Company’s Annual Report and under the heading “Risk Factors” in the Company’s Annual Information Form. Such factors include, amongst others, the effects of general economic conditions, changing foreign exchange rates and actions by government authorities, uncertainties associated with legal proceedings and negotiations, industry supply levels, competitive pricing pressures, mineral resource and reserve estimates and the timing and development of the Black Bear project. The Company expressly disclaims any intention or obligation to update or revise any forward-looking statements and information whether as a result of new information, future events or otherwise, except as required by applicable law. All written and oral forward-looking statements and information attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.

Non-IFRS Measures

Commencing in the current quarter, the Company has revised its calculation of Adjusted EBITDA by adjusting for unrealized foreign exchange gains and losses incurred on cross-border intercompany receivables. These gains and losses are reflected in the Company’s income statement and add volatility to the Company’s earnings. The Company believes these gains and losses do not reflect its underlying operating performance. All comparative figures have been restated.

EBITDA and Adjusted EBITDA

EBITDA, adjusted EBITDA, EBITDA per share and adjusted EBITDA per share (“EBITDA Metrics”) are non-IFRS financial measures. EBITDA and EBITDA per share represent net income, excluding income tax expense, interest expense and amortization and accretion. Adjusted EBITDA and adjusted EBITDA per share make certain adjustments from to the calculation of EBITDA and EBITDA per share as the Company believes these transactions do not reflect the underlying operating performance of the business and are not necessarily indicative of future operating results. The Company believes that the EBITDA Metrics trends are valuable indicators of whether its operations are generating sufficient operating cash flow to fund working capital needs and to fund capital expenditures. The Company uses the results depicted by the EBITDA Metrics for these purposes, an approach utilized by the majority of public companies in the construction materials sector. The EBITDA Metrics are intended to provide additional information, do not have any standardized meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.

The following table reconciles these non-IFRS measures to the most directly comparable IFRS measure.





Three months ended

Six months ended


June 30,

June 30,

($000's except per share and per ton amounts)

2017

2016

2017

2016

Net loss for the period attributed to shareholders

(632)

(429)

(1,774)

(2,924)

Interest

52

12

77

25

Income tax expense (recovery)

-

-

(1)

-

Amortization, depletion and accretion

1,147

1,256

2,305

2,293

EBITDA

567

839

607

(606)


per share

0.01

0.01

0.01

(0.01)


per ton

0.87

0.89

0.50

(0.41)

Adjustments:






Severance costs

-

-

120

50


Unrealized foreign exchange

563

339

642

1,663


Share-based employee benefits

71

74

174

150


Other (gains) and losses

(6)

(1)

-

45

Adjusted EBITDA

1,195

1,251

1,543

1,302


per share

0.01

0.01

0.02

0.01


per ton

1.84

1.32

1.27

0.89

Polaris Materials Corporation
Condensed Consolidated Interim Statements of Loss
(Unaudited)
(thousands of U.S. dollars, except per share amounts)





Three Months Ended

June 30

Six Months Ended

June 30


2017

2016

2017

2016


$

$

$

$






Sales

12,245

13,311

21,633

21,260






Cost of goods sold

(10,931)

(12,270)

(19,656)

(20,527)

Gross profit

1,314

1,041

1,977

733






Selling, general and administrative expenses

(1,481)

(1,292)

(3,092)

(2,578)

Foreign exchange loss

(448)

(120)

(662)

(1,109)

Other gains (losses)

6

1

-

(134)


(1,923)

(1,411)

(3,754)

(3,821)

Operating loss

(609)

(370)

(1,777)

(3,088)






Finance income

2

8

6

16

Finance expenses

(52)

(31)

(77)

(61)


(50)

(23)

(71)

(45)

Loss before income taxes

(659)

(393)

(1,848)

(3,133)






Income tax recovery

-

-

1

-

Net loss for the period

(659)

(393)

(1,847)

(3,133)






Net loss attributable to:





Shareholders of the Company

(632)

(429)

(1,774)

(2,924)

Non-controlling interest

(27)

36

(73)

(209)


(659)

(393)

(1,847)

(3,133)






Net loss per share:





Basic and diluted loss per common share

(0.01)

(0.00)

(0.02)

(0.03)






Weighted average number of






common shares outstanding






(000s)

88,448

88,335

88,411

88,335






Polaris Materials Corporation
Condensed Consolidated Interim Statements of Financial Position
(Unaudited)
(thousands of U.S. dollars)





June 30

 2017

December 31
2016


$

$




Assets






Current assets



Cash and cash equivalents

12,122

12,863

Trade and other receivables

3,188

5,147

Current tax assets

29

7

Inventories

4,846

4,446

Other current assets

162

558


20,347

23,021

Non-current assets



Security deposits

880

847

Property, plant and equipment

55,379

53,628


76,606

77,496




Liabilities






Current liabilities



Trade and other payables

4,034

5,005

Current tax liabilities

2

2

Current portion of finance leases

462

503

Current portion of other long-term liabilities

379

379


4,877

5,889

Non-current liabilities



Finance leases

806

730

Other long-term liabilities

141

141

Restoration provision

4,331

4,172


10,155

10,932




Equity






Share capital

189,386

189,248

Contributed surplus

25,500

25,377

Accumulated other comprehensive income

(10,346)

(11,736)

Deficit

(133,342)

(131,568)

Equity attributable to shareholders of the Company

71,198

71,321

Non-controlling interest

(4,747)

(4,757)

Total equity

66,451

66,564


76,606

77,496

 

Polaris Materials Corporation
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
(thousands of U.S. dollars)





Three Months Ended
June 30

Six Months Ended
June 30


2017

2016

2017

2016


$

$

$

$






Cash flows from  (used in) operating activities





Net loss

(659)

(393)

(1,847)

(3,133)


Amortization, depletion and accretion

1,147

1,256

2,305

2,293


Share-based employee benefits

73

74

176

150


Unrealized foreign exchange loss

425

138

535

1,091


Restoration provision payments

(23)

-

(23)

-


Other (gains) losses

-

(16)

7

30


963

1,059

1,153

431

Changes in non-cash working capital items

(128)

(3,787)

809

(3,818)


835

(2,728)

1,962

(3,387)






Cash flows used in financing activities





Proceeds from issue of common shares (net of






issue costs)

25

-

85

-

Finance lease payments

(138)

(120)

(270)

(224)


(113)

(120)

(185)

(224)






Cash flows used in investing activities





Property, plant and equipment purchases

(2,082)

(505)

(2,554)

(837)


(2,082)

(505)

(2,554)

(837)






Effect of foreign currency translation on cash

12

36

36

382

Decrease in cash

(1,348)

(3,317)

(741)

(4,066)

Cash and cash equivalents - beginning of period

13,470

9,752

12,863

10,501

Cash and cash equivalents - end of period

12,122

6,435

12,122

6,435