EcoSynthetix Reports Fourth Quarter and Year End 2016 Results

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BURLINGTON, ON, March 7, 2017 /CNW/ – EcoSynthetix Inc. (TSX: ECO) ("EcoSynthetix" or the "Company"), a renewable chemicals company that produces a portfolio of commercially proven bio-based products, today announced its financial and operational results for the three months and twelve months ended December 31, 2016. Financial references are in U.S. dollars unless otherwise indicated.

Q4 2016 Highlights

  • Advanced each of the ongoing late-stage trials for DuraBind™ with 10+ prospects in its wood composite pipeline
  • Recorded net sales of $4.7 million in Q4 2016, up 57% compared to the same period in 2015, and net sales of $13.3 million in 2016, down 9% compared to 2015
  • Reduced adjusted EBITDA loss by 42% to $1.7 million in Q4 2016 and 26% to $7.6 million in 2016, compared to the same periods in 2015
  • Maintained a strong balance sheet with cash and term deposits of $53.6 million as at December 31, 2016

 

"Manufacturers, retailers and consumers increasingly recognize the need to eliminate harmful chemicals from their supply chains, shelves and homes. Our DuraBind technology addresses a multi-billion dollar market opportunity by replacing formaldehyde-based wood composite binders with a No-Added-Formaldehyde alternative," said Jeff MacDonald, CEO of EcoSynthetix. "Our level of trial activity is as high as it has ever been in the wood composite market and is primarily focused on our prospects within the top 15 wood panel producers in the world. Our number one priority today is to successfully close the prospects that are well underway in the industrial trial process."

Financial Summary

Net Sales

Net sales were $4.7 million and $13.3 million for the three months ended December 31, 2016 (Q4 2016) and the twelve months ended December 31, 2016 (FY 2016), respectively, compared to $3.0 million and $14.6 million in the same periods in 2015.  The 57% increase in net sales during the quarter was primarily due to higher sales volume, including an approximately $1.0 million positive impact from the timing of orders by a key distributor.  The 9% decrease in sales during FY 2016 was primarily due to lower volume of $0.8 million or 5% resulting from the closure of a North American paper mill last year and a decrease in average sale prices from the pass-through of lower raw material costs which reduced sales $0.6 million or 4%.

Gross Profit

Gross profit was $0.9 million and $2.2 million for Q4 2016 and FY 2016, respectively, compared to $0.3 million and $2.1 million in the same periods in 2015. The improvement in the quarterly period was due to higher sales volume and lower manufacturing costs partly offset by pricing pressure.  In FY 2016, gross profit was higher due to lower manufacturing costs partly offset by pricing pressure and lower volume. 

Gross profit as a percentage of sales was 18.2% and 16.6% in Q4 2016 and FY 2016, respectively, compared to 10.9% and 14.3% in the same periods in 2015.  Gross profit as a percentage of sales adjusted for manufacturing depreciation was 22.6% and 22.3% for Q4 2016 and FY 2016, respectively, compared to 18.7% and 20.3% for the same periods in 2015. The improvements were primarily due to lower manufacturing production costs partly offset by pricing pressure. 

Selling, General and Administrative

(Excludes share-based compensation, depreciation and amortization, provision for termination benefits, impairment loss on PP&E and foreign exchange gains and losses)

Selling, general and administrative expenses (SG&A) were $1.4 million and $5.8 million in Q4 2016 and FY 2016, respectively, compared to $1.5 million and $6.9 million in the same periods in 2015. The decrease in the quarterly and annual periods was primarily due to lower salaries & benefits and discretionary spending.

Research and Development 
(Excludes share-based compensation, depreciation and amortization, provision for termination benefits, impairment loss on PP&E and foreign exchange gains and losses)

Research and development (R&D) costs were $1.3 million and $4.4 million in Q4 2016 and FY 2016, respectively, compared to $0.9 million and $3.5 million for the same periods in 2015. The increase in both periods was primarily due to higher spending related to commercialization activities for DuraBind in the wood composites market.

Foreign Currency Exchange (Gain) Loss

Foreign exchange (gain) loss was $0.1 million and ($0.1) million in Q4 2016 and FY 2016, respectively, compared to $0.3 million and $0.9 million in the same periods in 2015. The changes were primarily due to the translation of cash balances denominated in Canadian dollars and exchange rate fluctuations between the Canadian dollar versus U.S. dollar.

Adjusted EBITDA

Adjusted EBITDA loss was $1.7 million and $7.6 million in Q4 2016 and FY 2016, respectively, compared to a loss of $2.9 million and $10.4 million in the same periods in 2015. The 42% and 26% improvements in Q4 2016 and FY 2016, respectively, were due to lower operating expenses in Q4 2016 and FY 2016 as well as higher gross profit in Q4 2016.  

Net Loss 

Net loss was $2.4 million, or $0.04 per common share, in Q4 2016 compared to a net loss of $5.9 million, or $0.10 per common share, in the same period in 2015. Net loss was $9.3 million, or $0.16 per common share, in FY 2016, compared to a net loss of $14.4 million, or $0.25 per common share, compared to 2015. The improvements were principally due to lower operating expenses of $3.0 millionand $4.8 million in Q4 2016 and FY 2016, respectively, compared to the same periods in 2015.

Liquidity

Cash on hand and long-term term deposits were $53.6 million as at December 31, 2016, compared to $60.7 million as at December 31, 2015. During the first quarter of 2016, the Company purchased a $15.0 million fixed term deposit maturing on January 8, 2018. Cash on hand at December 31, 2016, excluding the term deposit, was $38.5 million.

Notice of Conference Call

EcoSynthetix will host a conference call on Wednesday, March 8, 2017 at 8:30 AM ET to discuss its financial results.  Jeff MacDonald, CEO, and Robert Haire, CFO, will co-chair the call. All interested parties can join the call by dialling (647) 427-7450 or (888) 231-8191. Please dial in 15 minutes prior to the call to secure a line. A live audio webcast of the conference call will also be available at www.ecosynthetix.com. The presentation will be accompanied by slides, which will be available via the webcast link and the Company's website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.

1Non-IFRS Financial Measures

This press release makes reference to certain non-IFRS measures. These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of results of operations of EcoSynthetix from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the financial information of EcoSynthetix reported under IFRS. The Company uses non-IFRS measures such as Adjusted EBITDA to provide investors with a supplemental measure of operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess the Company's ability to meet its capital expenditure and working capital requirements.

Adjusted EBITDA is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. See "IFRS and Non-IFRS Measures." The Company presents Adjusted EBITDA because the Company believes it facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting relative interest expense), the book amortization of intangibles (affecting relative amortization expense) and the age and book value of property and equipment (affecting relative depreciation expense). The Company also presents Adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. Adjusted EBITDA as presented herein are not recognized measures under IFRS and should not be considered as an alternative to operating income or net income as measures of operating results or an alternative to cash flows as measures of liquidity. Adjusted EBITDA is defined as consolidated net income (loss) before net interest expense, income taxes, depreciation, amortization, other non-cash expenses and charges deducted in determining consolidated net income (loss).

The following table reconciles net loss to Adjusted EBITDA loss for the three months and twelve months ended December 31, 2016 and December 31, 2015:

 

Three months ended
December 31, 2016

Three months ended
December 31, 2015

Twelve months ended
December 31, 2016

Twelve months ended
December 31, 2015

Net Loss

$(2,372,940)

$(5,914,317)

$(9,304,598)

$(14,420,488)

Depreciation, amortization &
impairment loss on PP&E

453,477

2,881,373

1,340,315

3,945,407

Share-based Compensation

350,956

171,696

832,265

413,123

Interest Income

(118,446)

(72,292)

(502,318)

(295,373)

Adjusted EBITDA loss

(1,686,953)

(2,933,540)

(7,634,336)

(10,357,331)

 

About EcoSynthetix Inc. (www.ecosynthetix.com)

EcoSynthetix offers a range of sustainable engineered biopolymers that allow customers to reduce their use of harmful materials, such as formaldehyde and styrene-based chemicals. The Company's flagship products, DuraBind™ and EcoSphere®, are used to manufacture wood composites, paper and packaging, and enable performance improvements, economic benefits and sustainability. The Company is publicly traded on the Toronto Stock Exchange (T:ECO).

Forward-Looking Statements

Certain statements in this Press Release constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of the Company, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward looking statements. The forward-looking statements in this Press Release include, but are not limited to, statements regarding the Company's expected product pipeline, plans to expand the Company's business into new markets, the Company's ability to achieve organizational efficiencies, and other statements regarding the Company's plans and expectations in 2016. These statements reflect our current views regarding future events and operating performance and are based on information currently available to us, and speak only as of the date of this Press Release. These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Those assumptions and risks include, but are not limited to, the Company's ability to successfully allocate capital as needed and to develop new products, as well as the fact that our results of operations and business outlook are subject to significant risk, volatility and uncertainty. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including the factors identified in the "Risk Factors" section of the Company's Annual Information Form dated March 30, 2016. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in this Press Release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, we do not intend and do not assume any obligation to update these forward-looking statements.

EcoSynthetix Inc. 

     

Consolidated Balance Sheets

     

(Unaudited)

     
       

(expressed in US dollars)

     
       
 

December 31,
2016

 

December 31,
2015

Assets

     
       

Current assets

     

Cash

38,517,278

 

60,717,658

Accounts receivable 

2,199,289

 

1,177,719

Inventory

3,216,016

 

3,290,238

Government grants receivable

168,562

 

528,436

Prepaid expenses

165,352

 

242,983

 

44,266,497

 

65,957,034

       

Non-current assets

     

Long-term term deposit

15,043,557

 

Property, plant and equipment 

7,933,584

 

8,746,072

Total assets

67,243,638

 

74,703,106

       
       

Liabilities 

     
       

Current liabilities

     

Trade accounts payable and accrued liabilities 

3,070,203

 

1,262,709

Accrued termination benefits

415,888

 

1,277,755

Total liabilities

3,486,091

 

2,540,464

       

Shareholders' Equity

     

Common shares 

493,359,612

 

493,182,209

Contributed surplus

8,740,007

 

8,017,907

Accumulated deficit

(438,342,072)

 

(429,037,474)

Total shareholders' equity 

63,757,547

 

72,162,642

       

Total liabilities and shareholders' equity 

67,243,638

 

74,703,106

 

EcoSynthetix Inc. 

       

Consolidated Statements of Operations and Comprehensive Loss

       

(Unaudited)

       
               

(expressed in US dollars)

             
               
 

  Three months ended December 31,

 

 Twelve months ended December 31,

 

2016

 

2015

 

2016

 

2015

               

Net sales

4,672,268

 

2,984,351

 

13,277,386

 

14,582,820

               

Cost of sales

3,820,055

 

2,660,013

 

11,076,583

 

12,500,455

               

Gross profit on sales

852,213

 

324,338

 

2,200,803

 

2,082,365

               

Expenses

             

Selling, general and administrative

1,831,850

 

2,121,524

 

6,532,524

 

8,488,594

Provision for termination benefits

 

719,000

 

534,114

 

1,939,080

Research and development

1,511,749

 

970,423

 

4,941,081

 

3,870,552

Impairment loss on property, plant & equipment

 

2,500,000

 

 

2,500,000

               
 

3,343,599

 

6,310,947

 

12,007,719

 

16,798,226

               

Loss from operations

(2,491,386)

 

(5,986,609)

 

(9,806,916)

 

(14,715,861)

               

Interest income

118,446

 

72,292

 

502,318

 

295,373

               

Net loss and comprehensive loss

(2,372,940)

 

(5,914,317)

 

(9,304,598)

 

(14,420,488)

               

Basic and diluted loss per common share 

(0.04)

 

(0.10)

 

(0.16)

 

(0.25)

Weighted average number of common

59,374,714

 

58,607,787

 

59,307,361

 

57,977,096

 

shares outstanding

             

 

EcoSynthetix Inc. 

         

Consolidated Statements of Cash Flows

         

(Unaudited)

         
               

(expressed in US dollars)

  Three months ended December 31,

 

 Twelve months ended December 31,

 

2016

 

2015

 

2016

 

2015

Cash provided by (used in)

             
               

Operating activities

             

Net loss and comprehensive loss

(2,372,940)

 

(5,914,317)

 

(9,304,598)

 

(14,420,488)

Items not affecting cash

             
 

Depreciation, amortization and impairment loss

453,477

 

2,881,373

 

1,340,315

 

3,945,407

   

on property, plant & equipment

             
 

Share-based compensation

350,956

 

171,696

 

832,265

 

413,123

 

Unrealized foreign exchange (gain) loss

18,275

 

(134,210)

 

(219)

 

139,937

 

Other

63,674

 

388,946

 

(228,238)

 

796,115

Changes in non-cash working capital

             
 

Accounts receivable

(408,296)

 

159,204

 

(1,021,570)

 

1,080,432

 

Inventory

(158,479)

 

460,307

 

31,168

 

2,139,842

 

Government grants receivable

(211,900)

 

(149,097)

 

(670,081)

 

(917,228)

 

Prepaid expenses

89,169

 

73,769

 

77,631

 

43,305

 

Trade accounts payable and accrued liabilities

1,067,188

 

168,006

 

1,907,494

 

(409,267)

 

Accrued termination benefits

(152,355)

 

614,291

 

(861,867)

 

1,277,755

 

(1,261,231)

 

(1,280,032)

 

(7,897,700)

 

(5,911,067)

               

Investing activities

             

Purchase of property, plant and equipment

(63,720)

 

(3,140)

 

(584,773)

 

(780,860)

Purchase of long-term term deposit

 

 

(15,000,000)

 

 

(63,720)

 

(3,140)

 

(15,584,773)

 

(780,860)

               

Financing activity

             

Proceeds from government grant

533,138

 

 

1,029,955

 

455,749

Exercise of common share options

6,033

 

70,799

 

67,238

 

643,918

 

539,171

 

70,799

 

1,097,193

 

1,099,667

               
               

Effect of exchange rate changes on cash 

(16,250)

 

(165,557)

 

184,900

 

(936,052)

               

Change in cash during the period 

(802,030)

 

(1,377,930)

 

(22,200,380)

 

(6,528,312)

               

Cash – Beginning of period

39,319,308

 

62,095,588

 

60,717,658

 

67,245,970

               

Cash – End of period 

38,517,278

 

60,717,658

 

38,517,278

 

60,717,658

 

SOURCE EcoSynthetix Inc.  
 

For further information: EcoSynthetix Inc., Steve Snyder, Phone: (289) 245-4017, E-mail: ssnyder@ecosynthetix.com; Investor Relations, Ross Marshall, Phone: (416) 526-1563, E-mail: ross.marshall@loderockadvisors.com