Viridis reports progress at Scotia Atlantic plant in Q2 results

By Katie Fletcher | August 20, 2015

Viridis Energy Inc. recently released its financial results for its first half and second quarter ended June 30, reporting a revenue increase of 18 percent to $14.5 million during the six-month period compared to the same period in 2014.

Viridis reported revenue growth for the first half of the year, but the company recorded a decrease in revenue for the quarter of $906,000, or 14 percent, to $5.74 million from the $6.65 million recorded for the comparable period in 2014. Michele Rebiere, the company’s chief financial officer and director, attributed this decrease in sales to lower production due to maintenance at both the company’s Scotia Atlantic and Okanagan Pellet Company Ltd. plants, as well as the weakness in the euro, which resulted in a decreased demand of approximately 15 percent of revenue.

Second quarter revenue also decreased over the first quarter by almost 35 percent, with seasonality also contributing to this reduction. Rebiere stated on the call that overall, sales to the company’s residential sector were $3.2 million compared to $3.1 million for the same period last year. Gross profit for the company as a whole decreased in the quarter due to lower production.

The company incurred a gross profit loss of $313,000 for the six-month period ended June 30, from a profit of $6,000 for the same period in the prior year. This change is primarily attributable to the results from the early operational challenges at the company’s Scotia Atlantic pellet plant transitioning to the new, right-sized operational strategy. Additionally, Viridis’ OPC operations underwent upgrades and improvements, which resulted in lower production levels relative to its fixed cost base.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was a loss of $1.7 million for the six-month period ended June 30 compared to an EBITDA loss of $1.5 million the same period in 2014.

Viridis reported that operating expenses increased by $266,000 to $2.37 million for the first half of the year from $2.11 million for the comparable period in 2014. Operating expenses as a percentage of revenues decreased to 16.3 percent for the six-month period of 2015 from 17.1 percent for the same period last year.  Operating expenses increased by $251,000 to $1.24 million for the three-month period ended June 30 from $990,000 for the comparable period in 2014.

Net loss of $3.19 million was reported for the first half of the year, an increase from $2.54 million for the same six-month period last year. For the second quarter, the company’s net loss increased by $905,000 to $1.87 million from $966,000 in the second quarter last year.

As of June 30, Viridis’ cash position was $658,000 compared to $2.1 million of cash and cash equivalents as of Dec. 31. The decrease in cash is reflected in the increase in both accounts receivable and inventory of approximately $2.4 million. “This increase is consistent with the end of the heating season and inventory build in quarter two,” Rebiere said. “The residential heating sector is still somewhat seasonal, however, due to the success of our brands and increased dealer network our off-season is considerably shorter than the industry and occurs only in quarter two.” Rebiere adds that the company has also been striving to build raw material inventory at Scotia Atlantic during the quarter in order to ready the plant for the new, right-sized model.

“Looking ahead with Scotia contributing in the second half and OPC resuming production the company expects to achieve sufficient margins to generate positive cash flow and positive EBITDA beginning in quarter four with a significant improvement occurring in quarter three,” Rebiere stated on the call.

Christopher Robertson, company CEO, began the call providing an update of activities at Scotia Atlantic and OPC. “Our objective over the last few months was to address the operational challenges at our Scotia Atlantic operation and replicate the success we’ve had at OPC,” he said. “At this point, I can confidently say we are well on our way to achieving economic progress at Scotia. Our management team has worked diligently to establish an economically successful operation at OPC. Yet, as in most developing industries, the hurdles we face extend beyond operational challenges.”

Robertson went on to discuss the improvements the company determined were required for compliance at its OPC plant. “We suspended production and embarked on a three-phase equipment and process improvement project, during the slow season of the residential heating sector,” he said. “While impacting productivity in the short term, our decision will provide a safer, more efficient working environment. We’ll ensure we are in compliance with the rapidly changing regulations for wood processing and once both plants are in top operational form we are confident we can deliver.”

Robertson said during the earnings call that although Viridis is not where they want to be just yet, they now have the building blocks in place to generate the financial results to build shareholder value. “Moving into the busy season of the year for our industry, and our merchants business growing at current pace, the action we are taking to improve operations at OPC and progress at Scotia Atlantic should result in material improvements in the second half of 2015 and beyond,” he stated.

During the company’s quarter one financial results, Robertson outlined Viridis’ turnaround plans for Scotia Atlantic, involving a thorough analysis of fiber in the surrounding region, followed by an economic analysis and right sizing of the plant operation. A five-week shut down ensued during annual road closures. “During this period, we performed extensive maintenance, built up fiber inventory and restructured the staffing model,” Robertson said. “We restarted the plant in late May as a 24/4 operation. As expected, our first full month of operations under the right-sized model resulted in positive EBITDA for Scotia Atlantic.” He adds that this is confirmation that the company has addressed the issues at Scotia, but has to continue to strive for improved cash flow. “Our focus for the second half of the year is clearly improving shareholder value.”

Based on the right sizing at Scotia, Viridis revised its guidance for 2015 to $30 million in revenue and EBITDA and expects to be cash flow positive in quarter four. “Quarterly sales with Scotia are expected to be approximately $3 million per quarter going forward, which is comparable to the average Scotia sales per quarter for the past year,” Robertson said. “This is a further sign of a positive impact of the turnaround plan and the strong pricing for our product. We strongly believe we will deliver significantly improved financial results and increase shareholder value.”