Viridis Energy reports continued revenue growth in Q1 results

By Katie Fletcher | May 28, 2015

On May 27, Viridis Energy Inc. released its first quarter 2015 results, reporting a revenue increase of 55 percent to $8.8 million from 2014 quarter one. The increase represents the fifth quarter of sequential growth, up 5 percent from last quarter.

The increase in revenue reported during the quarter from the comparable period in 2014 is primarily attributable to an increase of $3.1 million in recorded sales from Viridis Merchants, which includes intercompany sales of $1.1 million from Okanagan Pellet Company. Viridis Merchants has experienced growth in its sales to the U.S. Northeast market. “The Northeast is our largest market and it continues to grow,” said Michele Rebiere, chief financial officer and director of Viridis. “Earlier this year we did hear of some of our competitors making changes and that created more demand for us. We’re continuing to increase our dealers in the network and then add additional brands as available.”

Christopher Robertson, chief executive officer with Viridis, stated on the call, “We anticipate tremendous growth from Viridis Merchants over last year, which is supported by 300,000 tons of contracted volume.”

Besides the Northeast, market growth is occurring in the U.K. During the investor call, Rebiere attributed the increased demand to the region’s long-term financial support program the renewable heat incentive (RHI). “The U.K. is starting to see some great growth in the residential market, so with respect to the Canadian market we saw great demand,” she said.

Robertson adds, “Although Viridis is shifting more and more of its volume to the growing residential heat market, there is still great demand in industrial power markets in Europe.”

During quarter one, overall demand also led to an increase in sales at Scotia Atlantic Biomass of $1.2 million, or 57 percent in comparison to quarter one of the prior year. Rebiere said the company has been striving to build raw material inventory at Scotia Atlantic during the quarter, and is starting to move product into residential markets in the Northeast and Eastern Canada due to the improved pellet quality they are producing at the facility.

Rebiere added that in Nova Scotia, Viridis had significant pressure by the retail chains to provide pellets even when the company wasn’t certain the quality was at a premium level. “However, the quality has improved and we can take advantage of some of that demand,” she said.

The company discussed a three-step plan to address production challenges experienced at Scotia Atlantic in 2014 during the company’s year-end results reported in April. At that time, Robertson expected Scotia Atlantic to be profitable and right-sized at 80,000 tons per year. The projection of 175,000 tons per year was made for overall production in 2015. Rebiere said, during the quarter one investor call, that the company is maintaining the same 175,000-ton projection, and that they are confident any variance can be made up with Viridis Merchants. “We were just slightly below that in Q1, but significantly higher price per ton than estimated, so we think we are fairly close and tracking well with those numbers,” Rebiere said.

“With the implementation of the right-sizing plan for Scotia Atlantic in Q2, I’m confident we will begin to demonstrate the value to our shareholders during fiscal 2015,” Robertson said.

Right now, the company’s focus is on Scotia. “We spent four to six weeks analyzing the appropriate level of fiber and all of the fixed and variable costs,” Rebiere said. “We did expect to be at the point where we were contributing by Q2, but given that we haven’t operated the full quarter it may drift into the following quarter.”

Even with the focus on Scotia Atlantic, Viridis is still actively looking in more detail at the expansion in OPC. Rebiere said they should have an update to provide the market very soon.

In regards to the financial results, the company’s gross profit improved to $6,000 for the quarter from a loss of $237,000 for the comparable period in the prior year. The improvement is attributed primarily to the increased contribution from Viridis Merchants, the strengthening of the U.S. dollar and increased production at the Scotia facility.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was a loss of $514,000 for quarter one, compared to an EBITDA loss of $1.1 million for quarter one of 2014.

Over the quarter, Viridis incurred a net loss attributable to the shareholders of $1.3 million or a loss of 7 cents per basic share. This compares to a net loss of $1.6 million or 14 cents per basic share for the comparable period in 2014. Robertson said that Scotia’s losses continue to have a significant impact on the company’s results during the current first quarter, prior to the implementation of the right-sizing strategy.

The company reported operating expenses that were virtually flat at $1.1 million for the three-month period ended March 31, and $1.1 million for the comparable period last year. Operating expenses as a percentage of revenues decreased to 12.9 percent for the first quarter of this year from 19.8 percent for the comparable period in 2014.

At the end of the quarter, Viridis had cash and cash equivalents of $849,000, a decrease of $1 million from the balance on Dec. 31, 2014. Also, subsequent to the quarter, the OPC operating line from Royal Bank of Canada was increased to $1 million to fund the inventory build during the residential off-season.

Robertson ended his remarks by stating the company’s guidance for 2015 remains at $36 million, a 28 percent increase over 2014, and quarter one’s results are consistent with that number. “Clearly, the growth in demand for wood pellets in the residential heating market, coupled with the quality of our premium pellets, are positioning Viridis to benefit from this fast developing trend,” Robertson said.