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Select Sands Reports First Quarter 2018 Results

18.05.2018  |  GlobeNewswire

Improved Margins Drove Adjusted EBITDA Higher in Q1 2018 by More than 300% from Q4 2017

Recent Logistics Enhancements Increase Q2 2018 Sales Volumes Guidance to 130,000 to 150,000 Tons

Executing on Plans to Expand Production Capacity by 67% to 1 Million Tons Per Year

VANCOUVER, British Columbia, May 17, 2018 (GLOBE NEWSWIRE) -- Select Sands Corp. (“Select Sands” or the “Company”) (TSXV:SNS) (OTC:SLSDF) today announced operational and financial results for the first quarter of 2018 and the filing of its financial statements and associated management’s discussion and analysis on www.sedar.com. As previously announced, the Company’s financial statements are presented in U.S. dollars to better reflect Select Sands’ operations and to improve investors’ ability to compare the Company’s financial results with other publicly traded silica sand businesses in the United States. Prior to reporting its fourth quarter and full year results, Select Sands’ financial statements were stated in Canadian dollars.

2018 First Quarter and Recent Operational Highlights

  • Sold 92,215 tons of frac sand, which was in-line with Select Sands' guidance;
  • Completed construction of a direct private road from the Sandtown mining operations to the main highway that lowers transportation cost due to reduced mileage to the Company’s processing facilities, while promoting Select Sands’ commitment to safety by preventing loaded trucks from traveling on local streets;
  • Enhanced shipping capabilities through increased barging of frac sand with this mode of delivery representing as much as 40% of outbound volumes in recent months;
  • Increased monthly sales throughout the first quarter of a new 30/50 mesh product introduced to the market during the fourth quarter of 2017;
  • Further bolstered liquidity through an increase in the Company’s line of credit from $2.0 million to $5.0 million;
  • On April 4, exercised option to purchase 223 acres of property in Independence County, Arkansas (the “Independence Property”), to serve as a platform to support Select Sands' expansion initiatives; and
  • On May 3, secured a $3.9 million capital expenditure line of credit to fund the near-term expansion project on the Independence property designed to increase production capacity to 1 million tons per year.

2018 First Quarter Financial Highlights

  • Increased revenue to $5.7 million in the first quarter of 2018 from $1.1 million in the first quarter of 2017 – more than a 400% increase year-over-year. Revenues for the fourth quarter 2017 were $6.5 million;
  • Grew gross profit approximately 10% to $1.3 million from $1.2 million in the fourth quarter of 2017, with first quarter 2018 gross margin of 23.4% representing a 500-basis points improvement from the preceding quarter;
  • Increased operating income to $0.7 million, which was a substantial improvement from the operating loss of $2.4 million for the first quarter of 2017 and $0.0 million for the fourth quarter 2017;
  • Reported net income of $0.6 million, or $0.01 earnings per basic and diluted common share, compared to a net loss of $2.3 million in the first quarter of 2017 and net income of $1.3 million for the preceding quarter;
  • Generated adjusted EBITDA(1) of $0.8 million – a significant increase from the adjusted EBITDA loss of $0.5 million reported for the first quarter of 2017 and almost 320% higher than fourth quarter adjusted EBITDA of $0.2 million; and
  • As of March 31, 2018, cash and cash equivalents were $1.2 million, inventory on hand was $2.1 million, accounts receivable was $4.7 million and working capital was $5.5 million.
    (1) Adjusted EBITDA is a non-IFRS financial measure and is described and reconciled to net loss in the table under “Non-IFRS Financial Measures”.

Zig Vitols, President and Chief Executive Officer, commented, “As previously announced, during the first quarter we experienced widely-reported rail associated logistics issues at transload locations as well as extensive flooding on the Mississippi River that impacted our barge loading activities. Despite these headwinds, during the month of March we recorded the second highest level of monthly sales volumes since the start of operations at the beginning of 2017, which was a direct result of the tireless efforts of our operations and marketing teams. Partially offsetting lower sales volumes for the first quarter was a 14% average increase in pricing that reflected proactive initiatives implemented in late December and throughout the first quarter, as well as further improvements in both our operational and corporate cost structure.”

Sales Volumes

Q1 2018 Q1 2017 Q4 2017
Frac sand 92,191 19,968 113,123
Industrial sand 24 2,720 -
Frac and Industrial sand 92,215 22,688 113,123
Other sand & gravel 8,058 6,801 4,288
100,273 29,489 117,411
  • Supported by recent logistics enhancements, Select Sands expects frac and industrial sales volumes of 130,000 to 150,000 tons for the second quarter of 2018, an increase from its previous guidance of 120,000 to 140,000 tons.

Expansion Initiatives

  • As previously announced, the Company recently exercised its option to purchase the 223 acres comprising the Independence Property. The property is designed to serve as a platform to support Select Sands' near- and long-term operational and capacity expansion initiatives. The Company recently secured $3.9 million financing for a near-term expansion project on the Independence Property to increase production capacity from 600,000 to 1 million tons per year and is positioned for further growth given the property’s unique characteristics.
  • Highlights and features of the Independence Property include:
    • Sufficient acreage to complete the current expansion, with additional acreage available for future expansion of a new-build facility;
    • Well suited for a future potential build of a 110-150 railcar loop track for efficient and economical loading of finished products;
    • Elevated above the floodplain allowing for uninterrupted operations;
    • Access to natural gas, three-phase electricity and water; and
    • Located next to a large coal power plant and adjacent to a state highway.

Financial Summary

The following table includes summarized financial results for the three months ended March 31, 2018, March 31, 2017 and December 31, 2017:

Select Sands Corp.
Summarized Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
(Expressed in United States Dollars)
(Unaudited)
For the Three Months Ended
March 31, March 31, December 31,
2018 2017 2017
Revenue $ 5,655,410 $ 1,101,793 $ 6,548,099
Cost of goods sold (excluding depreciation and depletion) 4,331,344 1,334,134 5,342,336
Gross Profit (Loss) $ 1,324,066 $ (232,341) $ 1,205,763
General and administrative ("G&A") expenses (1) 396,694 2,027,709 906,651
Depreciation and depletion 225,233 91,622 237,954
Interest on long-term debt 32,169 - 61,940
Operating Income (Loss) $ 669,970 $ (2,351,672) $ (782)
Interest income 2,783 7,874 2,542
Foreign exchange (loss) gain (100,866) 129,173 (176,968)
Share of income (loss) in equity investee 2,171 (118,643) (26,139)
Provision for impairment - Investment in affiliate - - (849,289)
Income (Loss) Before Income Taxes $ 574,058 $ (2,333,268) $ (1,050,636)
Deferred income tax recovery - - 2,356,000
Net Income (Loss) $ 574,058 $ (2,333,268) $ 1,305,364
Foreign currency translation adjustment (4,446) (233,220) 1,095,486
Comprehensive Income (Loss) $ 569,612 $ (2,566,488) $ 2,400,850
Basic and Diluted Earnings (Loss) Per Common Share $ 0.01 $ (0.03) $ 0.02
Weighted average number of shares outstanding 88,313,316 85,484,729 87,784,895
Adjusted EBITDA (2) $ 830,478 $ (463,826) $ 198,089
(1) Includes non-cash share-based compensation of $1,189, $1,659,177 and $73,403 for the first quarter 2018, first quarter 2017 and fourth quarter 2017, respectively.
(2) Excludes depreciation and depletion, non-cash share-based compensation, interest on long-term debt, share of (income) loss in equity investee, provision for impairment - investment in affiliate and deferred income tax recovery. See table under "Non-IFRS Financial Measures” for reconciliation to net income (loss).


Outlook

Mr. Vitols concluded, “The significant progress we made during the first quarter in all facets of the business ideally positions us for further growth through the remainder of the 2018. During the second quarter, we expect to produce and deliver product at or near our current capacity rate of approximately 600,000 tons per year and will benefit from a full period of pricing increases that were implemented through the first quarter. We are also making important progress on our adjacent Independence Property, including recently securing financing to support construction of an additional 400,000 tons of production capacity – a 67% increase from current levels. We are now in the process of securing the necessary processing equipment with project completion scheduled for the second half of the year. Our decision to move forward with the expansion is supported by the outlook for continued growing demand for our high-quality silica products and our strategic location within striking distance of key oil and gas basins in the U.S. We look forward to evaluating opportunities for capacity expansion beyond our current plans at the appropriate point in the future.”

Elliott A. Mallard, PG of Kleinfelder is the qualified person as per the NI-43-101 and has reviewed and approved the technical contents of this news release.

Conference Call Information

The Company will host a conference call on May 18, 2018 at 11:00 a.m. Eastern (EDT) to discuss its first quarter 2018 results. To access the conference call, callers in North America may dial toll free 1-855-669-9657 and callers outside North America may dial 1-412-542-4135. Please call ten minutes ahead of the scheduled start time to ensure a proper connection and ask to be joined into the Select Sands call.

A playback of the conference call will be available in MP3 format by contacting investor relations below.

About Select Sands Corp.

Select Sands Corp. is an industrial Silica Product company developing its 100% owned, 520-acre Northern White, Tier-1, silica sands project located in Arkansas, U.S.A. Select Sands’ Arkansas property has a logistical advantage of being significantly closer to oil and gas markets located in Oklahoma, Texas, New Mexico, Colorado and Louisiana than Wisconsin sources. The Tier-1 reference above is a classification of frac sand developed by PropTester, Inc., an independent laboratory specializing in the research and testing of products utilized in hydraulic fracturing & cement operations, following ISO 13503-2:2006/API RP19C:2008 standards.

Select Sands’ Sandtown project has NI 43-101 compliant Indicated Mineral Resources of 42.0MM tons (TetraTech Report; February, 2016) and Bell Farm has Inferred Mineral Resources of 49.6MM tons (Kleinfelder Report; April, 2017). Both deposits are considered Northern White finer-grade sand deposits of 40-70 Mesh and 100 Mesh.

Forward-Looking Statements

This news release includes forward-looking information and statements, which may include, but are not limited to, information and statements regarding or inferring the future business, operations, financial performance, prospects, and other plans, intentions, expectations, estimates, and beliefs of the Company. Information and statements which are not purely historical fact are forward-looking statements. The forward-looking statements in this press release relate to enhancements in logistics capabilities, continued growth in frac sand sales volumes, opportunity for increased shipments by barge, and further capacity expansion. Forward-looking information and statements involve and are subject to assumptions and known and unknown risks, uncertainties, and other factors which may cause actual events, results, performance, or achievements of the Company to be materially different from future events, results, performance, and achievements expressed or implied by forward-looking information and statements herein. Although the Company believes that any forward-looking information and statements herein are reasonable, in light of the use of assumptions and the significant risks and uncertainties inherent in such information and statements, there can be no assurance that any such forward-looking information and statements will prove to be accurate, and accordingly readers are advised to rely on their own evaluation of such risks and uncertainties and should not place undue reliance upon such forward-looking information and statements. Any forward-looking information and statements herein are made as of the date hereof, and except as required by applicable laws, the Company assumes no obligation and disclaims any intention to update or revise any forward-looking information and statements herein or to update the reasons that actual events or results could or do differ from those projected in any forward-looking information and statements herein, whether as a result of new information, future events or results, or otherwise, except as required by applicable laws.

Company Contact

Please visit www.selectsandscorp.com or call:

Zigurds Vitols
President & CEO
Phone: (604) 639-4533

Investor Relations Contact

Arlen Hansen
SNS@kincommunications.com
Phone: (604) 684-6730

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Select Sands Corp.
Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
(Expressed in United States Dollars)
(Unaudited)
For the Three Months Ended
March 31, March 31,
2018 2017
Revenue $ 5,655,410 $ 1,101,793
Cost of Goods Sold (excluding depreciation and depletion) 4,331,344 1,334,134
Gross Profit (Loss) 1,324,066 (232,341)
Operating Expenses
Compensation and consulting 246,786 200,556
Depreciation and depletion 225,233 91,622
Interest on long-term debt 32,169 -
Selling, general and administrative 148,719 167,976
Share-based compensation 1,189 1,659,177
Total Operating Expenses 654,096 2,119,331
Operating Income (Loss) 669,970 (2,351,672)
Other (Expense) Income
Interest income 2,783 7,874
Foreign exchange (loss) gain (100,866) 129,173
Share of income (loss) in equity investee 2,171 (118,643)
Total Other (Expense) Income (95,912) 18,404
Net Income (Loss) 574,058 (2,333,268)
Other Comprehensive (Loss)
Foreign currency translation adjustment (4,446) (233,220)
Comprehensive Income (Loss) $ 569,612 $ (2,566,488)
Basic and Diluted Earnings (Loss) Per Common Share $ 0.01 $ (0.03)
Weighted Average Number of Shares Outstanding 88,313,316 85,484,729

Select Sands Corp.
Consolidated Interim Statements of Financial Position
(Expressed in United States Dollars)
(Unaudited)
As at
March 31, December 31,
2018 2017
ASSETS
Current
Cash and cash equivalents $ 1,171,066 $ 2,047,515
Accounts receivable 4,680,416 3,385,597
Inventory 2,061,645 1,961,573
Prepaid expenses 96,740 83,223
Total Current Assets 8,009,867 7,477,908
Deposits 364,580 364,580
Deferred income taxes 2,300,270 2,356,000
Investment in Affiliate 1,243,017 1,275,409
Property, Plant and Equipment 13,429,964 13,415,238
Total Assets $ 25,347,698 $ 24,889,135
LIABILITIES
Current
Accounts payable and accrued liabilities $ 1,595,895 $ 1,418,182
Short-term loan 200,000 -
Current portion of long-term debt 675,600 778,051
Total Current Liabilities 2,471,495 2,196,233
Long-term Debt 1,896,596 2,284,096
Total Liabilities 4,368,091 4,480,329
EQUITY
Share Capital 34,717,344 34,717,344
Share-based Payment Reserve 4,875,420 4,874,231
Accumulated Other Comprehensive Income 53,092 57,538
Deficit (18,666,249) (19,240,307)
Total Equity 20,979,607 20,408,806
Total Liabilities and Equity $ 25,347,698 $ 24,889,135


Select Sands Corp.
Consolidated Interim Statements of Cash Flows
(Expressed in United States Dollars)
(Unaudited)
For the Three Months Ended
March 31, March 31,
2018 2017
Operating Activities
Net icome (loss) for the period $ 574,058 $ (2,333,268)
Adjustments for non-cash items:
Depreciation and depletion 225,233 91,622
Share-based compensation 1,189 1,659,177
Foreign exchange 85,847 (232,600)
Share of (income) loss in equity investee (2,171) 118,643
Accretion on finance leases 14,694 -
Changes in non-cash operating assets and liabilities:
Accounts receivable (1,294,819) (980,545)
Inventory (100,072) (605,737)
Prepaid expenses (13,517) (7,843)
Accounts payable and accrued liabilities 173,561 198,016
Deferred revenue - 177,237
Total Cash Used in Operating Activities (335,997) (1,915,298)
Investing Activities
Deposits - (181,360)
Property, plant and equipment (343,618) (2,501,289)
Total Cash Used in Investing Activities (343,618) (2,682,649)
Financing Activities
Warrants exercised - 568,566
Options exercised - 294,115
Proceeds from short-term loan 200,000 -
Principal repayments of long-term debt (500,493) -
Total Cash (Used in) Provided by Financing Activities (300,493) 862,681
Effect of Exchange Rate Changes on Cash 103,659 92,681
(Decrease) in Cash and Cash Equivalents (876,449) (3,642,585)
Cash and Cash Equivalents, Beginning of Period 2,047,515 8,770,627
Cash and Cash Equivalents, End of Period $ 1,171,066 $ 5,128,042


Non-IFRS Financial Measures

The following information is included for convenience only. Generally, a non-IFRS financial measure is a numerical measure of a company’s performance, cash flows or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Adjusted EBITDA is not a measure of financial performance (nor does it have a standardized meanings) under IFRS. In evaluating non-IFRS financial measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

The Company uses both IFRS and certain non-IFRS measures to assess operational performance and as a component of employee remuneration. Management believes certain non-IFRS measures provide useful supplemental information to investors in order that they may evaluate Select Sands' financial performance using the same measures as management. Management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the Company. These non-IFRS financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with IFRS.

Reconciliation of Net (Loss) Income to EBITDA to Adjusted EBITDA:
For the Three Months Ended
March 31, March 31, December 31,
2018 2017 2017
Net Income (Loss) $ 574,058 $ (2,333,268) $ 1,305,364
Add Back
Depreciation and depletion 225,233 91,622 237,954
Share-based compensation 1,189 1,659,177 73,403
Interest on long-term debt 32,169 - 61,940
Deferred income tax recovery - - (2,356,000)
EBITDA $ 832,649 $ (582,469) $ (677,339)
Add Back
Share of (income) loss of equity investee (2,171) 118,643 26,139
Provision for impairment in Investment in affiliate - - 849,289
Adjusted EBITDA $ 830,478 $ (463,826) $ 198,089


The Company defines Adjusted EBITDA as net income (loss) before finance costs, income taxes, depreciation and amortization, non-cash share-based compensation, loss from flooding at its plant, and gain on sale of fixed assets. Select Sands uses Adjusted EBITDA as a supplemental financial measure of its operational performance. Management believes Adjusted EBITDA to be an important measure as they exclude the effects of items that primarily reflect the impact of long-term investment and financing decisions, rather than the performance of the Company’s day-to-day operations. As compared to net income according to IFRS, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company's business, the charges associated with impairments, termination costs or Proposed Transaction costs. Management evaluates such items through other financial measures such as capital expenditures and cash flow provided by operating activities. The Company believes that these measurements are useful to measure a company’s ability to service debt and to meet other payment obligations or as a valuation measurement.

Indicated Resources Disclosure

The Company advises that the production decision on the Sandtown deposit (the Company’s current “Sand Operations”) was not based on a Feasibility Study of mineral reserves, demonstrating economic and technical viability, and, as a result, there may be an increased uncertainty of achieving any level of recovery of minerals or the cost of such recovery, including increased risks associated with developing a commercially mineable deposit. Historically, such projects have a much higher risk of economic and technical failure. There is no guarantee that production will occur as anticipated or that anticipated production costs will be achieved.



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