Polaris Announces Q3 2016 Financial Results

VANCOUVER, Nov. 8, 2016 /CNW/ - Polaris Materials Corporation (TSX:PLS) (the "Company" or "Polaris") today reported the financial results for its third quarter ending September 30, 2016. All currencies are US dollars unless otherwise noted.

Q3 2016 HIGHLIGHTS

• Sales were 810,000 tons, an increase of 11% over Q3 2015, YTD sales increased by 7% to 2.3 million tons versus 2.1 million tons in 2015
• Revenue of $12.2 million in was an increase of 18% over Q3 2015 revenue of $10.4 million
• Adjusted EBITDA of $1.5 million, or $1.90 per ton and gross profit of $1.2 million, or $1.50 per ton, represents our best quarter in 2016
• Maiden Mineral Resource estimate for Black Bear Project released on October 3, 2016; NI 43-101 technical report being finalized

The Company recorded net loss attributable to shareholders of $162,000 ($0.00 per share loss) during the three months ended September 30, 2016, compared to a net income attributable to shareholders of $954,000 ($0.01 income per share) during the three months ended September 30, 2015. Third quarter results reflect improved sales volumes versus 2015 with sales of 810,000 coming in just above the midpoint of our expectations for the quarter. The benefits of the increased volumes were offset by costs related to the ramp-up of the new Long Beach terminal, unfavourable impact of foreign exchange compared with the prior year, and non-cash corporate costs related to stock-based compensation.  We expect gross margins will improve as volumes through Long Beach accelerate and we realize the benefits from our ongoing logistics costs improvement program. Customers and competitors continue to report a healthy construction market outlook in California, with the first signs of the benefits of the 2015 FAST Act now showing up in bid activity for infrastructure projects. 

We continue to achieve sales milestones, as our US terminals recorded a one-day volume record on October 29, including over 9,300 tons supplied from our Long Beach Terminal. In San Francisco, a 10,900 cu yd concrete pour for a marquee mixed-use development, expected to contain up to 17,500 tons of aggregates, is scheduled for early December. The pour will be similar to the recent very successful Salesforce Tower foundation pour and will draw from our Richmond terminal as well as customers' depot inventories. Our terminals continue to demonstrate that they can deliver against demanding large project construction schedules, and feedback from end users of our high performance concrete aggregates continues to be very positive.  

We have initiated discussions with our Bay Area customers in respect of 2017 pricing and volume commitments, and are commencing data preparation for the scheduled 5-year review of our Strategic Alliance agreement with Cemex, due January 1, 2018. This agreement continues to be a cornerstone of our strategy in California, and we look forward to working with Cemex to take this opportunity to ensure that the agreement balances the needs of both parties now and in the future. We have also continued our efforts to identify new markets and new products where our marine delivery capability uniquely positions us to provide added value to our customers. We continue to negotiate with Hanson in respect of an extension to our supply agreement, originally signed in 2012 and currently scheduled to expire at the end of 2016.

We have identified an exciting opportunity that will expand the range of products at the Orca Quarry.  Discussions are advancing regarding potentials sales for a fine sand product that has been exposed by previous mining activity of construction-grade materials.  In support of this opportunity, Polaris recently approved a capital project to expand on our product range and stockpiling capability at the Orca quarry through the expansion of the existing surge tunnel and stacker system. The expanded load-out facility will allow us to stage the fine sand product as well as additional products for loading via our world-class shiploader, including fine sand from Orca as well as fill materials and manufactured sand and stone products from the Black Bear Project. 

At our Black Bear Project, we announced a maiden NI 43-101 Mineral Resource estimate on October 3.  Our current development plans for Black Bear call initially for a small-scale operation which could provide crushed rock and manufactured sand, or could supplement Orca gravel production and assist in product mix optimization. A Technical Report in support of the Mineral Resource Estimate will be filed in the fourth quarter.

Ken Palko, President and CEO, commented: "Sales volumes and revenues in Q3 2016 were robust and represent a solid increase from last year.  We were also excited to announce the maiden Mineral Resource Estimate at Black Bear, which will position us to continue to advance the permitting process in conjunction with our First Nations partners, the provincial government and local stakeholders. We also approved an exciting capital project to expand our product stockpiling capabilities in anticipation of opportunities that we are developing for 2017. Q4 is shaping up to be another solid quarter and we are well on track for our full year operational targets, and we are also looking forward to progressing through the planning process for 2017."

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 2016 MD&A, which can be found on SEDAR or the Company's website.

		Three Months Ended September 30 2016	Three Months Ended September 30 2015
Consolidated financial information
(unaudited) ($000's, except per share amounts)
Revenue		12,272	10,395
Cost of goods sold		11,057	8,837
Gross profit		1,215	1,558
Selling, general and administrative expenses		1,604	1,280
Operating income (loss)		(127)	1,130
Net loss attributable to shareholders		(162)	954
	per share (basic and diluted)	(0.00)	0.01
EBITDA		1,067	1,935
Adjusted EBITDA		1,539	2,041
Cash flows from (used in) operating activities		977	(1,061)
Cash and cash equivalents		6,605	9,019
Working capital		17,546	16,874
Total assets		76,534	78,452
Total non-current liabilities		4,165	4,321
Key performance indicators
Sales of aggregates (000's tons)		810	730
Production of aggregates (000's tons)		795	957
Average selling price ($/ton)		15.15	14.24
Cost of goods sold ($/ton)		13.65	12.11
Gross profit ($/ton)		1.50	2.13
Gross margin (%)		9.9%	15.0%
EBITDA ($/ton)		1.32	2.65
Adjusted EBITDA ($/ton)		1.90	2.80

Selling price and fuel surcharge indices

	2016			2015				2014
	Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
Selling Price Index (Q1 2013=100)	105.8	103.8	107.5	109.0	111.4	110.0	112.2	108.3
Fuel Surcharge Index (Q1 2013=100)	29.7	17.3	46.4	57.6	75.6	65.3	92.3	101.4

In the third quarter of 2016, the quarter-on-quarter average delivered selling price increased by 1.9% as a consequence of passing through higher shipping fuel surcharges from the second quarter of 2016, which reflected the increasing trend in the world crude oil price during the period.

Seasonality

The Company's Orca sand and gravel quarry operates year-round, however, sales demand is seasonal due to the impact of poor weather conditions, particularly in the first (winter) quarter which have an impact on production volumes and demand for the Company's products. As a consequence the Company's financial results for any individual quarter are not necessarily indicative of results to be expected for that year. Sales and earnings are typically sensitive to regional and local weather, market conditions, and, in particular, to cyclical variations in construction spending.

THIRD QUARTER 2016, COMPARED TO 2015

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2016 of $1.5 million ($1.90 per ton) represented a decline of $0.5 million over the prior year comparative of $2.0 million ($2.80 per ton). Volume effects from increased sales were offset by increased terminal costs attributable to the ramp-up of our Long Beach terminal.

Sales of aggregates

Aggregate sales for the current quarter were 810,000 tons, a 11% increase over sales of 730,000 tons in the third quarter of 2015. Sales increased compared to the prior year due to increased delivered shipments into San Francisco and the Long Beach Terminal, which were offset by a decline in ex-quarry sales. 

Revenue and pricing

Revenue for the three months ended September 30, 2016 increased by 18% to $12.3 million, compared with $10.4 million for the three months ended September 30, 2015. Revenue increased due to increased volumes, as well as an increased proportion of sales delivered to San Francisco and Los Angeles, as opposed to volumes sold ex-quarry.

Average selling price ("ASP") during the current quarter of $15.15/ST increased $0.91/ST from $14.24/ST in the same period for 2015. Compared with 2015, price variance was unfavourable by 3% driven by a reduction in fuel surcharges. A favourable sales mix variance of 9% was due to increased sales to customers with delivered pricing, for a total change in ASP of 6%. 

Revenue and ASP per ton are influenced on a quarter by quarter basis by base pricing, shipping fuel surcharges, overall market demand, the distribution of tonnage delivered to the various California terminals, and the varying percentage of delivered versus ex-quarry sales.

Cost of goods sold

Cost of goods sold per ton for the current quarter increased by $1.54 per ton to $13.65 compared to the cost of goods sold per ton for the same period in 2015 of $12.11. Higher delivery costs due to an increased proportion of sales to customers that include freight was the largest contributor to the increase, as well as the addition of higher unit costs for sales via our Long Beach terminal, which is a longer shipping distance and consequently has a higher unit freight cost.

Gross profit

During the third quarter of 2016 the Company's gross profit was $1.2 million or $1.50 per ton, compared with a gross profit of $1.6 million or $2.13 profit per ton in the prior year period. The decline in gross margin was driven primarily by costs attributable to the ramp-up of our Long Beach terminal.

Selling, general and administrative costs

Current quarter selling, general and administrative ("SG&A") expenses of $1.6 million, increased 25%, compared with $1.3 million during the same quarter in 2015. The increase is principally due to higher share-based employee benefits, a non-cash charge, which increased by $353,000 over the prior year due to units and options which fully vested on grant. Total SG&A during the quarter was 13.1% of sales compared to 12.3% of sales during 2015.

Net income (loss)

The Company recorded net loss attributable to shareholders of $162,000 ($0.00 per share loss) during the three months ended September 30, 2016, compared to a net income attributable to shareholders of $954,000 ($0.01 income per share) during the three months ended September 30, 2015.  The decrease in year on year profitability was mainly attributable to a decline in foreign exchange gains.

For more details on our results, including a discussion of year to date results, please refer to our Q3 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 Wednesday, November 9th, 2016 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 or [phone] in Toronto.
• Via webcast at: http://goo.gl/rsxlYD

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 Wednesday, November 23, 2016. To access the replay, dial 1-888-390-0541 or [phone] and use Playback Passcode 576702# 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: [phone] Ext. 111
[email protected]

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

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 better reflects the underlying business performance of the Company by removing certain non-cash adjustments from its calculation of EBITDA and EBITDA per share. 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 September 30
($000's except per share and per ton amounts)		2016	2015
Net income (loss) for the period attributed to shareholders		(162)	954
Interest		11	19
Income tax (recovery)		(44)	-
Amortization, depletion and accretion		1,262	962
EBITDA		1,067	1,935
	per share	0.01	0.02
	per ton	1.32	2.65
Adjustments:
	Share-based employee benefits	459	106
	Other (gains) and losses	13	-
Adjusted EBITDA		1,539	2,041
	per share	0.02	0.02
	per ton	1.90	2.80

Polaris Materials Corporation
Consolidated Interim Condensed Statements of Income (Loss)
(Unaudited)
(thousands of US dollars, except per share amounts)
		Three Months Ended September 30		Nine Months Ended September 30
		2016	2015	2016	2015
		$	$	$	$
Sales		12,272	10,395	33,532	31,237
Cost of goods sold		(11,057)	(8,837)	(31,584)	(27,983)
Gross profit		1,215	1,558	1,948	3,254
Selling, general and administrative expenses		(1,604)	(1,280)	(4,182)	(4,068)
Foreign exchange gain (loss)		275	1,110	(834)	2,055
Property holding costs		-	(258)	(89)	(737)
Other gains (losses)		(13)	-	(58)	9
		(1,342)	(428)	(5,163)	(2,741)
Operating income (loss)		(127)	1,130	(3,215)	513
Finance income		8	14	24	55
Finance expenses		(29)	(38)	(90)	(113)
		(21)	(24)	(66)	(58)
Income (loss) before income taxes		(148)	1,106	(3,281)	455
Income tax recovery		44	-	44	40
Net income (loss) for the period		(104)	1,106	(3,237)	495
Net income (loss) attributable to:
Shareholders of the Company		(162)	954	(3,086)	197
Non-controlling interest		58	152	(151)	298
		(104)	1,106	(3,237)	495
Net income (loss) per share:
Basic and diluted loss per common share		(0.00)	0.01	(0.03)	0.00
Weighted average number of
	common shares outstanding (000s)	88,335	87,725	88,335	87,717

Polaris Materials Corporation
Consolidated Interim Condensed Statements of Financial Position
(Unaudited)
(thousands of US dollars)
	September 30  2016	December 31 2015
	$	$
Assets
Current assets
Cash and cash equivalents	6,605	10,501
Trade and other receivables	10,366	7,072
Current tax assets	9	-
Inventories	4,085	4,563
Other current assets	654	550
	21,719	22,686
Non-current assets
Financial assets	867	821
Property, plant and equipment	53,948	53,994
	76,534	77,501
Liabilities
Current liabilities
Trade and other payables	3,289	4,046
Current tax liabilities	-	72
Current portion of finance leases	505	386
Current portion of other long-term liabilities	379	379
	4,173	4,883
Non-current liabilities
Finance leases	871	811
Other long-term liabilities	141	519
Restoration provision	3,153	2,938
	8,338	9,151
Equity
Share capital	189,248	189,248
Contributed surplus	25,125	24,516
Accumulated other comprehensive income	(10,708)	(13,048)
Deficit	(130,729)	(127,643)
Equity attributable to shareholders of the Company	72,936	73,073
Non-controlling interest	(4,740)	(4,723)
Total equity	68,196	68,350
	76,534	77,501

Polaris Materials Corporation
Consolidated Interim Condensed Statements of Cash Flows
(Unaudited)
(thousands of US dollars)
		Three Months Ended September 30		Nine Months Ended September 30
		2016	2015	2016	2015
		$	$	$	$
Cash flows from  (used in) operating activities
Net income (loss)		(104)	1,106	(3,237)	495
	Amortization, depletion and accretion	1,262	962	3,555	3,111
	Share-based employee benefits	459	106	609	755
	Unrealized foreign exchange (gain) loss	(299)	(950)	792	(1,883)
	Other (gains) losses	(9)	(1)	21	(5)
		1,309	1,223	1,740	2,473
Changes in non-cash working capital items		(332)	(2,284)	(4,150)	(3,475)
		977	(1,061)	(2,410)	(1,002)
Cash flows from (used in) financing activities
Proceeds from issue of common shares (net of issue costs)		-	160	-	294
Finance lease payments		(130)	(122)	(354)	(316)
		(130)	38	(354)	(22)
Cash flows used in investing activities
Property, plant and equipment purchases		(614)	(830)	(1,451)	(3,064)
Proceeds on disposal of property, plant and equipment		-	1	-	5
		(614)	(829)	(1,451)	(3,059)
Effect of foreign currency translation on cash		(63)	(472)	319	(1,129)
Increase (decrease) in cash		170	(2,324)	(3,896)	(5,212)
Cash and cash equivalents - beginning of period		6,435	11,343	10,501	14,231
Cash and cash equivalents - end of period		6,605	9,019	6,605	9,019

SOURCE Polaris Materials Corporation