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EcoSynthetix Reports Third Quarter 2019 Results
Burlington, Ontario, October 28, 2019 – 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 (Q3 2019) and nine months (YTD 2019) ended September 30, 2019. Financial references are in U.S. dollars unless otherwise indicated.
Net sales of $4.5 million in Q3 2019, compared to $5.6 million in Q3 2018
Net loss of $0.3 million in Q3 2019, unchanged from Q3 2018
Adjusted EBITDA loss was $40 thousand in Q3 2019, compared to a nominal loss in Q3 2018
Cash provided by operating activities was $0.3 million in Q3 2019, compared to $0.2 million in Q3 2018
Maintained a strong balance sheet with cash and short-term investments of $44.4 million as at September 30, 2019
“The business continues to demonstrate durable bottom line performance. Coated free sheet paper demand is down nearly 18% year to date which impacted our top line. However, through disciplined cost management we maintained our momentum with a nominal Adjusted EBITDA loss and positive cash flow from operations during the quarter,” said Jeff MacDonald, CEO of EcoSynthetix. “While paper and paperboard remain the majority of our volumes today, our number one priority is delivering on the value proposition our No Added Formaldehyde (NAF) DuraBind resin offers to manufacturers, retailers and end customers of particle board. We remain highly engaged with both our lead commercial account and our key strategic prospects, which represent the leading players in the NAF market. Our DuraBind offering represents a healthier and sustainable alternative to conventional formaldehyde-based binders. We are also excited by the progress and feedback from the exclusive licensee of our all-natural biopolymer binder for use in the personal care market. While it’s still early days, it represents a new market that speaks to the breadth of application of our technology.”
Net sales were $4.5 million and $14.0 million for Q3 2019 and YTD 2019, respectively, compared to $5.6 million and $16.8 million in the corresponding periods in 2018. The decreases were primarily due to lower sales volume as a result of continued challenging market dynamics within the paper market which included the loss of business from a European paperboard mill in the first quarter of 2019 which reduced sales $0.4 million and $1.1 million in the comparative periods, respectively.
Gross profit was $1.0 million and $3.0 million for Q3 2019 and YTD 2019, compared to $1.1 million and $3.3 million in the corresponding periods in 2018. The decreases of $0.1 million and $0.3 million were primarily due to lower sales volume, partially offset by lower manufacturing costs.
Gross profit as a percentage of sales was 22.3% and 21.5% for Q3 2019 and YTD 2019, respectively, compared to 19.0% and 19.6% in the corresponding periods in 2018. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 26.2% and 25.5% for Q3 2019 and YTD 2019, respectively, compared to 22.7% and 23.3% for the corresponding periods in 2018. The increases in gross profit as a percentage of sales and gross profit as a percentage of sales adjusted for manufacturing depreciation in both periods were primarily due to favourable customer mix and lower manufacturing costs.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $1.2 million and $3.4 million for Q3 2019 and YTD 2019, respectively, compared to $1.1 million and $4.1 million for the corresponding periods in 2018. The change in the quarterly period was due to a change in foreign exchange revaluation gains and losses. The change in the YTD period was primarily due to lower people related costs, a change in foreign exchange revaluation gains and losses and lower discretionary expenses.
SG&A includes share-based compensation expense, which was $0.2 million and $0.5 million for Q3 2019 and YTD 2019, respectively, compared to $0.2 million and $0.6 million in the corresponding periods in 2018. SG&A excluding share-based compensation expense was $0.9 million and $2.9 million in Q3 2019 and YTD 2019, respectively, compared to $0.8 million and $3.6 million for the corresponding periods in 2018.
Research and Development
Research and development (R&D) costs were $0.4 million and $1.3 million for Q3 2019 and YTD 2019, respectively, compared to $0.5 million and $1.8 million for the corresponding periods in 2018. The decrease in both periods was primarily due to lower people related expenses, the recognition of government grants and a decrease in rent expense partly offset by an increase in depreciation expense. Rent expense was $0.2 million lower and depreciation expense included in R&D was $0.1 million higher in YTD 2019 due to the adoption of IFRS 16, Leases, which was implemented using the modified retrospective method on January 1, 2019.
Depreciation expense included in R&D was $0.1 million and $0.4 million for Q3 2019 and YTD 2019, respectively, compared to $0.1 million and $0.3 million in the corresponding periods in 2018. R&D excluding depreciation expense was $0.3 million and $0.8 million for Q3 2019 and YTD 2019, respectively, compared to $0.4 million and $1.5 million for the corresponding periods in 2018.
Termination benefits were nil for both Q3 2019 and YTD 2019, compared to nil and $0.2 million in corresponding periods in 2018. Termination benefits recorded in 2018 related to a cost reduction plan implemented in the first quarter of 2018.
Adjusted EBITDA loss was $40 thousand and $0.2 million for Q3 2019 and YTD 2019, respectively, compared to a nominal loss and $1.4 million loss in the corresponding periods in 2018. The change in the quarterly period was due to lower gross profit partly offset by lower operating expenses. The change in the YTD period was primarily due to lower operating expenses partly offset by a decrease in gross profit.
Net loss was $0.3 million, or $0.01 per common share, and $0.9 million, or $0.01 per common share, for Q3 2019 and YTD 2019, respectively, unchanged, in the quarterly period from last year and compared to $2.2 million, or $0.04 per common share, for the YTD period in 2018. The decrease in the YTD period was primarily due to lower operating expenses partly offset by lower gross profit
Cash on hand and short-term investments were $44.4 million as at September 30, 2019, compared to $44.8 million as at December 31, 2018. Cash on hand at September 30, 2019, excluding the $35.6 million in short-term investments, was $8.8 million. During the nine months ended September 30, 2019, the Company repurchased and cancelled 361,168 common shares for total consideration of $0.8 million.
Notice of Conference Call
EcoSynthetix will host a conference call Tuesday, October 29, 2019 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 nine months ended September 30, 2019 and September 30, 2018:
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).
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 plans to execute its commercial strategy, convert late-stage industrial trial prospects into customers and expand the number of lines and the volumes at existing customers, and other statements regarding the Company’s plans and expectations in 2019. 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 4, 2019. 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.
For further information, please contact:
Phone: (416) 526-1563