Burlington, Ontario, November 2, 2022 – 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 2022) and nine months (YTD 2022) ended September 30, 2022. Financial references are in U.S. dollars unless otherwise indicated.
Highlights
(Comparison periods in each case are the three months ended September 30, 2021)
- Recorded net sales of $5.0 million in Q3 2022, up 7%, due to higher average selling price of 28%, partly offset by lower volumes of 21%
- Gross profit of $1.0 million in Q3 2022, down 6%, due to lower volumes and higher manufacturing costs which offset higher average selling price
- Recorded an Adjusted EBITDA1 loss of $0.1 million in Q3 2022, unchanged from the prior period
- Purchased and cancelled 133,600 common shares in Q3 2022 under the normal course issuer bid for total consideration of $0.4 million
- Maintained a strong balance sheet with cash and term deposits of $36.9 million as at September 30, 2022
- Won a new account for the Company’s SurfLock™ strength aids in the wet-end vertical with a leading European packaging and paper group, this new account represents the third win and the Company’s largest account in the wet-end vertical during the past 12 months
- The Company’s partner in personal care products, Dow, announced that MaizeCare™ Clarity Polymer, a bio-based and biodegradable polymer with film-forming properties for crystal clear formulations, won two prestigious innovation awards, a 2022 R&D 100 Award from R&D Magazine and named a Sustainability Product of the Year by Business Intelligence Groups (BIG™)
- CEO Jeff MacDonald was named to Canada’s 2023 Clean16 as a leader in clean technology at the Clean50 awards, which recognizes sustainability leaders in Canada for their contributions over the prior two years
“The business continues to demonstrate resiliency, with top-line growth and consistent performance on the bottom line in the face of very challenging macro-economic and supply chain conditions,” said Jeff MacDonald, CEO of EcoSynthetix. “This performance is a result of the continued diversification of our revenue mix, most recently with a new account win in the wet-end strength aids vertical. Our existing account base remains solid as customers continue to recognize the value proposition, performance and carbon footprint benefits of our all-natural, bio-based binders within their production processes, supply chains and end products. Underlying market conditions continue to be challenging; specifically with respect to raw materials availability and the impact of supply chain constraints and inflation on pricing. We are actively managing these conditions by building inventory and broadening our supplier base to ensure our key accounts and long-standing relationships receive adequate supply and, as evidenced by the additional raw materials we secured in the quarter, begin to support important new growth opportunities.”
Financial Summary
Net Sales
Net sales were $5.0 million and $13.4 million for Q3 2022 and YTD 2022, respectively, compared to $4.7 million and $13.3 million for the corresponding periods in 2021. The 7% increase in the quarterly period was due to higher average selling price of $1.3 million, or 28%, which was partly offset by lower volumes which impacted sales by $1.0 million or 21%. Sales volumes were impacted by unfavorable market conditions, primarily in graphic paper, and limited feedstock availability due to challenging supply chain conditions. The drivers behind the increase in the YTD period were consistent with the quarterly period, higher average selling price of $3.8 million, or 29%, partly offset by lower volumes for the same reasons as in the quarter which impacted sales by $3.7 million, or 28%.
Gross Profit
Gross profit was $1.0 million and $3.2 million for Q3 2022 and YTD 2022, respectively, compared to $1.1 million and $3.0 million for the corresponding periods in 2021. During both periods, a higher average selling price was offset by decreases in sales volumes and rising costs of manufacturing.
Gross profit as a percentage of sales was 20.6% and 24.1% for Q3 2022 and YTD 2022, respectively, compared to 23.5% and 22.3% for the corresponding periods in 2021. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 23.0% and 27.3% for Q3 2022 and YTD 2022, respectively, compared to 27.8% and 26.7% for the corresponding periods in 2021. The change in the quarterly periods was due to higher costs of manufacturing partly offset by a higher average selling price. The improvement in the YTD period was primarily due to a higher average selling price partly offset by higher manufacturing costs.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $1.1 million and $3.9 million for Q3 2022 and YTD 2022, respectively, compared to $1.4 million and $3.9 million for the corresponding periods in 2021. The improvement in the quarterly period was primarily due to a reduction in the provision for variable compensation of $0.2 million. The YTD period was in line with the prior period, due to lower provision for variable compensation of $0.4 million which was offset by lower payments received under the Canadian Emergency Wage Subsidy program of $0.1 million, and increased discretionary spend.
Research and Development
Research and development (R&D) costs were $0.4 million and $1.4 million for Q3 2022 and YTD 2022, respectively, which were in line with $0.5 million and $1.4 million in the corresponding periods in 2021. R&D expense as a percentage of sales were 9% and 10% for Q3 2022 and YTD 2022, respectively, compared to 10% for each of the corresponding periods in 2021. The Company’s R&D efforts continue to focus on further enhancing value for our existing products and expanding addressable opportunities.
Adjusted EBITDA1
Adjusted EBITDA loss was $0.1 million and $0.5 million for Q3 2022 and YTD 2022, respectively, which was in line with $0.1 million and $0.6 million during the corresponding periods in 2021. The drivers of Adjusted EBITDA in the quarterly period were lower gross profit offset by lower operating costs compared to the prior year period. The drivers in the YTD period were higher gross profit offset by higher operating costs.
Net Loss
Net loss was $0.4 million, or $0.01 per common share, and $1.7 million, or $0.03 per common share, for Q3 2022 and YTD 2022, respectively, compared to $0.8 million, or $0.01 per common share, and $2.2 million, or $0.04 per common share, for the corresponding periods in 2021. The improvement in the quarterly period was due to a lower loss from operations of $0.2 million and higher interest income of $0.1 million. The improvement in the YTD period was primarily due to lower loss from operations of $0.3 million and higher interest income of $0.2 million. The higher interest income in both periods was due to an increase in interest rates on cash and term deposits.
Liquidity
Cash on hand and term deposits were $36.9 million as at September 30, 2022, compared to $42.2 million as at December 31, 2021. The $5.3 million change was primarily due to an increase in inventory of $2.6 million, an increase in accounts receivable of $0.6 million, and $1.4 million of cash used to purchase shares through the NCIB. The Company purchased and cancelled 133,600 and 361,200 common shares under the normal course issuer bid during the Q3 2022 and YTD 2022 periods, respectively, for consideration of $0.4 million and $1.4 million.
Notice of Conference Call
EcoSynthetix will host a conference call Thursday, November 3, 2022, 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 (416) 764-8659 or (888) 664-6392 with the conference identification of 32926019. 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, 2022 and September 30, 2021:
|
|
Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|
Net Loss |
(388,850) |
(763,892) |
(1,724,570) |
(2,242,873) |
|
Depreciation |
228,313 |
357,902 |
741,172 |
1,056,445 |
|
Share-based Compensation |
186,034 |
300,300 |
709,301 |
647,262 |
|
Interest Income |
(156,968) |
(10,317) |
(271,954) |
(51,927) |
|
Adjusted EBITDA loss |
(131,471) |
(116,007) |
(546,051) |
(591,093) |
About EcoSynthetix Inc. (www.ecosynthetix.com)
EcoSynthetix, a 2022 climate positive company, 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™, Bioform™, and EcoSphere®, are used to manufacture wood composites, personal care, and paper and packaging, and enable performance improvements, economic benefits and carbon footprint reduction. 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 plans to execute its commercial strategy, deliver meaningful growth across all three product categories, convert high-value strategic prospects into customers, and other statements regarding the Company’s plans and expectations in 2022. 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 February 24, 2022. 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:
| Investor RelationsRoss Marshall
Phone: (416) 526-1563 |
