Burlington, Ontario, March 3, 2021 – 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 2020) and twelve months (FY 2020) ended December 31, 2020. Financial references are in U.S. dollars unless otherwise indicated.
(Comparison periods in each case are the three months ended and twelve months ended December 31, 2019)
- Recorded net sales of $3.3 million, down 24%, and $13.7 million, down 26%, in Q4 2020 and FY 2020 respectively, primarily due to lower volumes of 18% in Q4 2020 and 19% in FY 2020 which is consistent with declines highlighted by industry reports in coated paper demand as a result of the COVID-19 pandemic
- Generated positive cash flow from operations for the second year in a row in FY 2020; cash used in operations of $0.5 million in Q4 2020, and cash from operations of $0.2 million for FY 2020, a decline of $0.5 million in each period compared to the prior periods
- Recorded Adjusted EBITDA loss of $0.1 million, an improvement of $0.1 million, and $0.8 million, an increase in loss of $0.4 million, in Q4 2020 and FY 2020, respectively
- Purchased and cancelled 1,392,000 common shares for total consideration of $2.0 million under the normal course issuer bid during 2020
- Maintained a strong balance sheet with cash and short-term investments of $42.0 million as at December 31, 2020
“Our commercial technologies in the paper, wood composites and personal care markets are all-natural alternatives to conventional fossil-fuel based technologies. As consumers and retailers increasingly adopt sustainable and all-natural solutions, EcoSynthetix is in a great position to capitalize on demand for healthier alternatives that are used in the home and workplace,” said Jeff MacDonald, CEO of EcoSynthetix. “Our key strategic prospects and customers in the wood composites and personal care markets remain highly engaged and continue to advance their commercial strategies using our solutions. Our number one priority is delivering on the wood composites opportunity with the right strategic customers to drive meaningful penetration in the global wood composites market. The demand challenges in the paper market have impacted our financial results with lower volumes and selling price, however all of our paper customers continue to use EcoSphere®, albeit at lower levels due to the end market demand. Despite this challenge and the ongoing pandemic, strict financial discipline and cost controls enabled us to achieve positive cash flow from operations for the second consecutive year. Our strong balance sheet and stable bottom line de-risk the business as we continue our efforts to drive penetration in the wood composites and personal care markets.”
Net sales were $3.3 million and $13.7 million for Q4 2020 and FY 2020, respectively, compared to $4.4 million and $18.4 million in the corresponding periods in 2019. The decrease in the quarterly period was due to lower sales volumes which reduced sales $0.8 million, or 18%, and a lower average selling price which reduced sales by $0.3 million, or 6%. The decrease in FY 2020 was due to lower sales volume which reduced sales $3.6 million, or 19%, and a lower average selling price which reduced sales by $1.2 million, or 7%. The decreases in volume and average selling price were primarily due to unfavorable market conditions brought on by the COVID-19 pandemic which reduced the global demand for paper and paperboard products and created adverse market pricing dynamics.
Gross profit was $0.7 million and $2.7 million for Q4 2020 and FY 2020, respectively, compared to $1.0 million and $4.0 million in the corresponding periods in 2019. The 33% and 32% respective decreases were primarily due to lower sales volume and lower average selling price partially offset by lower manufacturing costs.
Gross profit as a percentage of sales was 20.3% and 20.0% for Q4 2020 and FY 2020, respectively, compared to 23.0% and 21.8% in the same periods in 2019. The decrease was primarily due to a lower average selling price partially offset by lower manufacturing costs. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 27.2% and 26.0% for Q4 2020 and FY 2020, respectively, which is consistent with the 27.8% and 26.0% margin in the same periods 2019.
Selling, General and Administrative
Selling, General and Administrative (“SG&A”) expenses were $1.2 million and $4.3 million in Q4 2020 and FY 2020, respectively, compared $1.4 million and $4.8 million in the same periods in 2019. The 14% and 11% respective decreases were primarily due to payments received under the Canadian Emergency Wage Subsidy program (CEWS) and lower discretionary spend. The Company received $0.1 million and $0.3 million in CEWS payments in the respective periods in 2020.
Research and Development
Research and Development (“R&D”) expenses were $0.3 million and $1.4 million for Q4 2020 and FY 2020, respectively, compared to $0.5 million and $1.7 million in the corresponding periods in 2019. The changes were primarily due to CEWS payments received as well as lower discretionary spend.
R&D expense as a percentage of sales was 8% and 10% for Q4 2020 and FY 2020, respectively, compared to 11% and 9% in the same periods in 2019. 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 $0.1 million and $0.8 million in Q4 2020 and FY 2020, respectively, compared to $0.2 million and $0.4 million in the corresponding periods in 2019. The improvement in the quarterly period was primarily due to lower operating expenses partially offset by lower gross profit. The change in the annual period was primarily due to lower gross profit partially offset by lower operating expenses.
Net loss was $0.7 million, or $0.01 per common share, and $2.4 million, or $0.04 per common share in Q4 2020 and FY 2020, respectively, compared to $0.6 million, or $0.01 net loss per common share, and $1.5 million, or $0.02 net loss per common share, in the corresponding periods in 2019. The change in the annual period is primarily due to lower gross profit as a result of lower volumes and lower average selling price partially offset by lower operating expenses.
Cash on hand and short-term investments were $42.0 million as at December 31, 2020, compared to $43.7 million as at December 31, 2019. Cash on hand at December 31, 2020, excluding the $25.3 million in short-term investments, was $16.6 million. In FY 2020, the Company purchased and cancelled 1,392,000 common shares for consideration of $2.0 million under the normal course issuer bid.
Notice of Conference Call
EcoSynthetix will host a conference call Thursday, March 4, 2021 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 with the conference identification of 6441579. 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 and twelve months ended December 31, 2020 and December 31, 2019:
Three months ended
December 31, 2020
Three months ended
December 31, 2019
Twelve months ended
December 31, 2020
Twelve months ended
Decemer 31, 2019
|Adjusted EBITDA loss||(123,634)||(237,330)||(784,265)||(397,020)|
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 2021. 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, 2021. 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.
Impact of COVID-19
The recent outbreak of the novel coronavirus (COVID-19 and its variants), which has been declared by the World Health Organization to be a “pandemic”, has spread across the globe and is impacting worldwide economic activity. The governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and temporary closures of businesses. In addition, numerous other businesses have temporarily closed voluntarily. Such actions are creating disruption in global supply chains, increasing rates of unemployment and adversely impacting many industries. During the twelve months ended December 31, 2020, the impact of COVID-19 has caused both the global demand for paper products to decrease and a decrease in the pricing of petroleum-related products with which the Company’s products compete with. This has resulted in reduced sales volume, lower pricing and reduced gross profit for the Company. COVID-19 has reduced the Company’s ability to effectively market and trial its products with customers where on-site collaboration is preferred. COVID-19 has also caused a decline in interest rates reducing interest income earned on cash deposits and short-term investments. During the twelve months ended December 31, 2020, the Company also applied for and received government assistance under the Canadian Emergency Wage Subsidy (CEWS) program and the Canadian Emergency Rent Subsidy (CERS) program. No other COVID-19 related risks identified below have materialized during the period and there has been no other direct impact on operating results. The global impact of COVID-19 continues to evolve rapidly, and in 2021, COVID-19 will likely continue to have negative material impacts on the global economy and our relevant markets. For the Company, this outbreak might materially impact the Company’s ability to manufacture, source (including the delivery of raw materials to its facilities) or distribute its products both domestically and internationally; reduce our ability to effectively market and sell our products; reduce demand for our products; result in labor shortages or social unrest; cause a significant decrease in the market price for petroleum related feedstocks which our products compete with, and cause increased credit risk. Any of these additional risks factors could have a significant negative impact on the Company’s financial results. Given the dynamic nature of this outbreak, the extent to which the COVID-19 virus impacts the Company’s operational results and financial performance will depend on future developments, which remain highly uncertain and cannot be accurately predicted at this time, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others.
For further information, please contact:
Phone: (416) 526-1563