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Burlington, Ontario, March 3, 2020 – 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 (Q4 2019) and twelve months (FY 2019) ended December 31, 2019. Financial references are in U.S. dollars unless otherwise indicated.
Q4 2019 and FY 2019 Financial Highlights
- Recorded net sales of $4.4 million, down 27%, and $18.4 million, down 19%, in Q4 2019 and FY 2019, respectively, compared to the corresponding periods in 2018
- Generated positive cash flow from operations for FY 2019 for the first time in the Company’s history; cash flow from operations in Q4 2019 of $0.1 million was similar to Q4 2018, and $0.7 million for FY 2019, an improvement of $2.6 million, compared to FY 2018
- Recorded Adjusted EBITDA loss of $0.2 million in Q4 2019, an increase of $0.1 million compared to Q4 2018, and $0.4 million in FY 2019, an improvement of $1.0 million, compared to FY 2018
- Purchased and cancelled 710,368 common shares for total consideration of $1.5 million under the normal course issuer bid during 2019
- Maintained a strong balance sheet with cash and short-term investments of $43.7 million as at December 31, 2019
“Our proprietary bio-based platform offers sustainable, all-natural alternatives to conventional petroleum and chemical based technologies. As demand from consumers, retailers and manufacturers increasingly emphasizes sustainability and the environment, our technologies targeting the wood composites, personal care and paper markets are ideally positioned,” said Jeff MacDonald, CEO of EcoSynthetix. “Major strides in the transformation of the business were made in 2019 which resulted in positive cash flow from operations. Our DuraBind™ resin was launched as part of SWISS KRONO’s new BE.YOND particleboard offering and our third product category, personal care, is attracting significant interest from the industry as an all-natural ingredient in hair fixatives. The paper and paperboard market continued to suffer from demand pressure impacting our EcoSphere® volumes which remain the majority of sales at this stage. The changes we made to right-size the cost structure of the business enabled us to manage this impact and still deliver significant improvements to our bottom line. Our focus in 2020 is to support the commercial activities of our partners and customers in the wood composites and personal care markets to deliver topline growth.”
Net sales were $4.4 million and $18.4 million for Q4 2019 and FY 2019, respectively, compared to $6.0 million and $22.8 million in the corresponding periods in 2018. The $1.6 million and $4.4 million respective decreases were primarily due to lower sales volumes caused by continued challenging market dynamics within the paper market. U.S. shipments of coated free sheet papers declined 10% compared to December 2018 as reported by the American Forest & Paper Association. Lower market demand for coated paper impacts demand for the Company’s biopolymers. Also impacting sales in 2019 was the loss of business at a European paperboard mill announced in the first quarter of fiscal 2019 which reduced sales by $1.3 million for FY 2019.
Gross profit was $1.0 million and $4.0 million for Q4 2019 and FY 2019, respectively, compared to $1.2 million and $4.5 million in the corresponding periods in 2018. The 15% and 10% respective decreases were primarily due to lower sales volume partially offset by lower manufacturing costs.
Gross profit as a percentage of sales was 23.0% and 21.8% for Q4 2019 and FY 2019, respectively, compared to 19.9% and 19.7% in the same periods in 2018. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 27.8% and 26.0% for Q4 2019 and FY 2019, respectively, compared to 23.5% and 23.4% in the same periods 2018. The increase in both periods was primarily due to lower manufacturing costs.
Selling, General and Administrative
Selling, General and Administrative (“SG&A”) expenses were $1.4 million in Q4 2019 which is comparable to the same period in 2018. SG&A expenses were $4.8 million in FY 2019 compared to $5.5 million in the same period last year, a decrease of $0.7 million or 12%. The decrease was primarily due to lower people related costs, a change in foreign exchange revaluation gains and losses and lower discretionary expenses. The decrease in people related costs and discretionary spending was primarily due to lower headcount.
Research and Development
Research and Development (“R&D”) expenses were $0.5 million and $1.7 million for Q4 2019 and FY 2019, respectively, compared to $0.4 million and $2.2 million in the corresponding periods in 2018. The change in the quarterly period was primarily due to lower government grants recognized. The change in the annual period was primarily due to lower people related costs and discretionary spend. Rent expense included in R&D was $0.2 million lower and depreciation expense was $0.2 million higher for FY 2019 due to the adoption of IFRS 16, Leases, effective January 1, 2019.
R&D expense as a percentage of sales was 11% and 9% for Q4 2019 and FY 2019, respectively, compared to 7% and 10% in the same periods last year. The Company’s R&D efforts continue to focus on further enhancing value for its existing products and expanding addressable opportunities.
Adjusted EBITDA loss was $0.2 million and $0.4 million in Q4 2019 and FY 2019, respectively, compared to $0.1 million and $1.4 million in the corresponding periods in 2018. The change in the quarterly period was primarily due to lower gross profit while the $1.0 million improvement in the annual period was primarily due to lower operating expenses, partially offset by lower gross profit.
Net loss was $0.6 million, or $0.01 per common share, and $1.4 million, or $0.02 per common share in Q4 2019 and FY 2019, respectively, compared to $0.3 million, or $0.01 net loss per common share, and $2.5 million, or $0.04 net loss per common share, in the corresponding periods in 2018. The $0.2 million change in the quarterly period is primarily due to lower gross profit while the $1.1 million improvement in the annual period is primarily due to lower operating expenses, partially offset by lower gross profit.
Cash on hand and short-term investments were $43.7 million as at December 31, 2019, compared to $44.8 million as at December 31, 2018. Cash on hand at December 31, 2019, excluding the $35.7 million in short-term investments, was $8.0 million. In FY 2019 the Company purchased and cancelled 710,368 common shares for consideration of $1.5 million under the normal course issuer bid.
Notice of Conference Call
EcoSynthetix will host a conference call Wednesday, March 4, 2020 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, 2019 and December 31, 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 2020. 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 2, 2020. 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