Viridis focuses Q3 results on Scotia, Okanagan plant operations
On Nov. 17, Viridis Energy Inc. released financial results for its nine months and third quarter ended Sept. 30, reporting a profitable quarter at Scotia Atlantic Biomass and progress on the Okanagan pellet mill improvement project.
The company reported revenues increased to $22.9 million during the nine-month period ended Sept. 30, an increase of $2.98 million or 15 percent from $19.9 million for the same period in 2014. Viridis attributed the increase in revenue to an increase in sales from Viridis Merchants Inc. and Scotia Atlantic Biomass. This was partially offset by a decrease in sales from Okanagan Pellet Co. Ltd. due to the implementation of the three-phase equipment and process improvement plan.
For the three-month period ended Sept. 30, Viridis recorded revenues of $8.36 million up from $7.6 million in the third quarter of the prior year, an increase of 10 percent. During the quarter, the company sold over 33,000 tons, with an average price of $250 per ton, up from $190 per ton in the comparable period in 2014.
“Our three North American brands have all grown in terms of market share over the past year,” said Christopher Robertson, CEO of Viridis Energy. “We anticipate additional supply of all three brands to be signed over in the next few months. Most of this volume is to Viridis Merchants, which continues to grow at a staggering pace and addresses revenue shortfalls from Okanagan Pellet Co.”
Gross profit increased to $717,000 for the third quarter of 2015 compared to a loss of $556,000 for the same period in the prior year. “The increase in gross profit for the quarter is primarily attributable to a significant improvement at Scotia of approximately $1.2 million,” said Michele Rebiere, chief financial officer for Viridis. “Scotia’s material costs as a percentage of sales dropped from 77 percent in Q3 2014 to 48 percent in Q3 2015.”
Rebiere added that although sales were at a similar level during this period both years, fiber costs and overheads were down by almost $1 million. “This is a further testament to the success of the right-sizing plans,” she said. “Consolidated gross margins for the quarter was 8.6 percent and represents a positive contribution from each operating division. This is the first quarter where every division had a positive contribution.”
Gross profit for the nine-month period was $404,000, compared to a loss of $550,000 in 2014.
In the third quarter, general and administrative costs decreased from $1.03 million to $890,000. Operating expenses increased to $2.03 million in the quarter from $1.12 million for the third quarter in 2014, primarily attributable to the inclusion of $984,000 of expenses related to the temporary suspension of operations at OPC.
During the company’s second quarter results, Robertson reported that due to ever-increasing government regulatory oversight, the company suspended operations at OPC and began its three-phase equipment and process improvement project. Viridis was not operational during Q3, but has completed phase one and two of the project. “During the fourth quarter, we will run the shavings line of business, exclusively, in an effort to clear the back log orders that are close to $1.5 million,” he said. “Our second priority will be designing a process to package and ship third party pellets at OPC. Finally, phase three of our project is scheduled to start in Q1 2016. We expect OPC to return to its historic revenue and profitability levels in 2016.”
Viridis incurred a net loss of $4.9 million for the nine-month period ended Sept. 30 compared to a net loss of $4.4 million for the same nine-month period in the prior year. This change is mainly due to the result of the operational challenges at Scotia experienced earlier in 2015 and the OPC temporary suspension in operations.
Last quarter, it was reported the company was well on its way to achieving economic progress at Scotia. “I am pleased to report that on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis, we’ve had the first profitable quarter at Scotia Atlantic since startup,” Robertson said. “Our right-sizing model worked and we’re pleased with the initial results. As well, the industrial pellets from Scotia continue to be in high demand, and later this week, we will be loading our largest ship to date.”
EBITDA was a loss of $2.6 million for the nine-month period ended Sept. 30, in comparison to an EBITDA loss of $1.5 million for the same period in 2014.
For the nine months ended Sept. 30, the net loss increased to $4.91 million from a loss of $4.41 million for the comparable period in 2014. In the third quarter of this year, Viridis reported a net loss of $1.73 million down from a net loss of $1.87 million in the third quarter of last year.
Robertson shared during the earnings call that the cost of OPC not being operational was almost $1 million during the quarter, with a sizable amount of the expense being raw material that was purchased in accordance with the company’s contract to obligation but not used. Viridis intends to recover some of that material in subsequent quarters, he said.
“Although we’re not happy with the financial results this quarter, it is clear to see that the business is improving,” Robertson said. “If OPC had not been in temporary suspension, the company would experience a positive EBITDA quarter for the first time in its history. We expect that to occur on a run-rate basis by the end of Q4 and for the full quarter in Q1 2016.”
During the earnings call, Robertson said that despite the financial impact at OPC in quarter three, Viridis did see a marked improvement in sales over quarter two. He said sales rebounded to $8.4 million for the quarter and almost $23 million for the nine-month period ended Sept. 30. “This was a result of strong expected sales from VMI and continued consistent production in sales at Scotia.”
Rebiere reported during the earnings calls that cash balances have declined to $590,000, including restrictive cash, a decrease of $1.46 million from the Dec. 31, 2014 balance. Even so, Rebiere said the company has over $6.1 million in accounts receivable and inventory. “We expect to reach positive cash flow in the short term in early 2016,” she said. “We are satisfied we have access to sufficient financial resources.”
Accounts receivable of $1.8 million was reported in the quarter, and inventory increased $2.3 million over last year to $4.3 million as the heating season began. This, Rebiere said, is consistent with the inventory build Viridis achieved going into the fourth quarter in the heating season, and, as of today, a good portion of this inventory has already been sold.
Also, consistent with the prior quarter of 2015, Viridis’ common shares outstanding on Sept. 30, totaled 13,845,190. The company’s fully diluted share totaled 14,510,190, inclusive of all options with an average exercise price of $1.47 and warrants with an average exercise price of $3.50.
Robertson concluded the earnings call by stating that although the time involved in phase one and two upgrades at OPC have taken longer than expected, the company is pleased with the outcome. “Our raw material storage system, one of the largest expenditures in the quarter, is in place and receiving material,” he said. “This could result in increased production of our shavings product line initially and, in the first half of next year, pellets. It also provides for safe handling materials which is now required by our regulators.”
Last quarter, Viridis revised its regulatory guidance to $30 million and Robertson said the company is on track to do this. “We are confident when OPC comes back online, the company will be stronger than ever before and will start to deliver consistent, solid results to shareholders.”