Polaris Materials Corp. reported financial results for its fourth quarter and full year ending Dec. 31, 2016. The company reported:
- Net loss in 2016 of $4.0 million ($0.04/share loss) versus net income of $0.9 million ($0.01/share gain) in 2015.
- 2016 revenue increased 5 percent to $45.2 million versus $43.1 million in 2015, driven by changes in mix, including the start-up of a Long Beach terminal.
- Net increase in cash of $2.4 million and free cash flow of $2.6 million, versus a net decrease in cash of $3.7 million and free cash flow usage of $2.7 million in 2015.
- Successful start-up of Long Beach terminal servicing prestigious major contracts in Los Angeles; higher unit costs during start-up of this operation impacted overall gross profit, which declined to $2.9 million from $4.9 million in 2015.
- Adjusted EBITDA of $2.4 million in 2016 versus $5.7 million in 2015 was impacted by Long Beach start-up, cost of management transition at Orca, other non-recurring charges as well as unrealized foreign exchange.
The company's annual and fourth quarter results for 2016 reflect solid underlying operating performance, with unit costs at the Orca Quarry and for northern California sales comparing favorably to 2015. Improvements in these areas were offset by costs related to the start-up of its Long Beach terminal, foreign exchange headwinds, non-recurring items including costs related to the management transition at Orca, resulting in a net loss for the year.
Gross profit for 2016 declined approximately $2 million versus 2015, with the start-up of Long Beach adding fixed costs that were not fully recovered by sales at this terminal in 2016. Gross margins at Long Beach were also impacted by higher logistics costs which resulted from the deferral of certain customer projects in Los Angeles into 2017 and the resulting need to adapt its" shipping schedule to meet customer requirements.
"As we continue to increase throughput at this terminal, we expect the increased volumes to dilute unit operating costs and to provide significant shipping cost savings, resulting in a significant improvement in gross margin contribution," the company said. "While construction activity in 2016 was softer than originally expected, resulting in a modest decline in activity in the San Francisco Bay Area, the start-up of Long Beach allowed us to achieve a 3 percent increase in sales volumes versus 2015.
"Looking forward to 2017, while we currently expect volumes could decline modestly due to non-renewal of an ex-quarry supply contract, increased same-site pricing with certain customers, increased volumes through our Richmond and Long Beach terminals, and the commencement of sales of our fine sand product by mid-year should result in an improvement in profitability versus 2016," the company continued. "We continue to be well-funded to pursue growth opportunities, including Black Bear and potential new market developments, with more than $12.9 million on our balance sheet as of Dec. 31, 2016 and no long-term debt."
"We maintain our position of strength with superior aggregate quality, consistent and reliable operations, and proven logistics to several buoyant markets which continue to face a variety of supply issues," the company concluded. "We are well positioned to capitalize on material shortages in the near-term on quality and longer term on availability in construction markets that continue to show signs of improvement. The Orca Quarry has substantial additional available production capacity that provides us the opportunity to achieve significant unit cost savings as we grow sales volumes past 4 million tons per annum in the coming years. Polaris' operating expertise and differentiated product has enabled a marketing strategy that captures the value of our high-quality aggregates for both ourselves and the end-users while providing attractive opportunities for increased unit profitability. The ongoing diversification of our product offerings and renewed management focus at the quarry, as well as our strong balance sheet positions the company to pursue attractive bolt-on opportunities, which can provide increased flexibility in product mix and market potential."