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Burlington, Ontario, August 2, 2023 – 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 (Q2 2023) and six months (YTD 2023) ended June 30, 2023. Financial references are in U.S. dollars unless otherwise indicated.
(Comparison periods in each case are the three months ended June 30, 2022)
- Recorded net sales of $3.0 million, down 29%, compared to the prior period
- Recorded an Adjusted EBITDA1 loss of $0.8 million, an increase in loss of $0.5 million from the prior period
- Maintained a strong balance sheet with cash and term deposits of $35.7 million as at June 30, 2023
- Purchased and cancelled 348,400 common shares in Q2 2023 under the normal course issuer bid for total consideration of $0.7 million
- Internalization of North American production capacity on schedule and budget with an anticipated startup by the end of 2023
- Expanding opportunity pipeline with increased trial activity year-to-date
- Recognized improvements in the availability and pricing of the Company’s primary feedstock, subsequent to the end of the period
“The macro challenges we experienced to start 2023 continued in the second quarter. While the graphic paper market remains depressed, we are seeing positive momentum across other verticals,” said Jeff MacDonald, CEO of EcoSynthetix. “Our key strategic account in wood composites has become more vocal with their suppliers, stakeholders and consumers of their commitment to biobased glues. As a thought leader and major consumer of engineered wood panels, their influence on manufacturers is a key element to broader adoption of our resins for wood composites. We also continue to advance and expand our opportunities for tissue, packaging and pulp with our strength aids that show encouraging signs for stronger volumes in the second half and into 2024. These end markets are the growth drivers of the business moving forward where we bring proprietary applications to our customers with differentiated benefits to conventional petroleum chemistries.”
Net sales were $3.0 million and $6.0 million for Q2 2023 and YTD 2023, respectively, compared to $4.2 million and $8.4 million for the corresponding periods in 2022. The 29% decrease in the quarterly period was primarily due to lower volumes which decreased sales $1.2 million or 30%. The lower volumes were due to a step down in demand due to the macro-economic challenges across many end markets including approximately $0.4 million lower sales due to inventory destocking at a large distributor into the graphic paper market, continued demand deterioration in the graphic paper market, and softer demand due to temporary market related customer mill downtimes. The drivers behind the decrease in the YTD period were consistent with the quarterly period, with lower volumes which led to a decrease in sales of $2.8 million or 33%. A higher average selling price during both periods was due to the offsetting of significant inflationary pressures with price increases and product mix.
Gross profit was $0.5 million and $1.2 million for Q2 2023 and YTD 2023, respectively, compared to $1.1 million and $2.2 million for the corresponding periods in 2022. The change in both periods was primarily due to the decreased sales volumes and higher costs of manufacturing, which were partially offset by a higher average selling price.
Gross profit as a percentage of sales was 18.6% and 19.4% for Q2 2023 and YTD 2023, respectively, compared to 26.8% and 26.1% for the corresponding periods in 2022. The change in both periods is primarily due to higher costs of manufacturing, including $0.3 million in higher depreciation during YTD 2023, partially offset by a higher average selling price. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 25.2% and 29.0% for Q2 2023 and YTD 2023, respectively, compared to 30.8% and 29.8% for the corresponding periods in 2022. The change in both periods is primarily due to higher manufacturing costs, partially offset by a higher average selling price.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $1.2 million and $2.4 million for Q2 2023 and YTD 2023, respectively, compared to $1.4 million and $2.7 million for the corresponding periods in 2022. The improvement in both periods was primarily due to changes in foreign exchange gains and losses and lower compensation expense related to share based awards.
Research and Development
Research and development (R&D) costs were $0.6 million and $1.2 million for Q2 2023 and YTD 2023, respectively, compared to $0.5 million and $0.9 million in the corresponding periods in 2022. The increase during both periods was primarily due to an increase in new product scale up. R&D expense as a percentage of sales was 21% and 20% for each of Q2 2023 and YTD 2023, respectively, compared to 12% and 11% in the corresponding periods in 2022. The Company’s R&D efforts continue to focus on further enhancing value for our existing products and expanding addressable opportunities.
Adjusted EBITDA loss was $0.8 million and $1.4 million for Q2 2023 and YTD 2023, respectively, compared to $0.2 million and $0.4 million for the corresponding periods in 2022. The change in both periods was primarily due to lower gross profit and higher operating costs adjusted for non-cash items when compared to the prior periods.
Net loss was $1.0 million, or $0.02 per common share, and $2.0 million, or $0.03 per common share, for Q2 2023 and YTD 2023, respectively, compared to $0.7 million, or $0.01 per common share, and $1.3 million, or $0.02 per common share, for the corresponding periods in 2022. The change in the quarterly period was due to a $0.5 million higher loss from operations offset by an increase of $0.2 million in net interest income. The change in the YTD period was primarily due to a $1.0 million higher loss from operations offset by an increase of $0.4 million in net interest income. The higher net interest income in both periods was due to an increase in interest rates on cash and term deposits.
Cash on hand and term deposits were $35.7 million as at June 30, 2023 compared to $36.0 million as at December 31, 2022. The $0.3 million change was primarily due to $0.5 million of cash used to purchase property, plant, and equipment primarily related to the Company’s manufacturing capacity realignment strategy and $0.9 million for the purchase of shares through the normal course issuer bid (“NCIB”), partially offset by $1.2 million cash-flow from operations. The Company purchased and cancelled 348,400 and 416,800 common shares under the NCIB during Q2 2023 and YTD 2023, respectively.
Notice of Conference Call
EcoSynthetix will host a conference call Thursday, August 3, 2023, 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 instantly join the call by phone, by following the URL https://emportal.ink/3OfbDT4 to easily register and be connected into the conference call automatically or the conventional method by dialling (416) 764-8659 or (888) 664-6392 with the conference identification of 66265458. 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 or https://app.webinar.net/KOz3YzdZrkm. 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 and six months ended June 30, 2023, and June 30, 2022:
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™, Surflock™, Bioform™, and EcoSphere®, are used to manufacture wood composites, personal care, paper, tissue and packaging products, and enable performance improvements, economic benefits and carbon footprint reduction. 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, 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 2023. 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 28, 2023. 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