Burlington, Ontario, July 28, 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 (Q2 2021) and six months (YTD 2021) ended June 30, 2021. Financial references are in U.S. dollars unless otherwise indicated.
(Comparison periods in each case are the three months ended June 30, 2020)
- Recorded net sales of $4.9 million, up 58%, in Q2 2021, due to higher volumes of 36% and higher average selling price of 22%
- Recorded Adjusted EBITDA loss of $0.2 million in Q2 2021, an improvement of $0.1 million, or 26%, compared to the prior period
- Diversified revenue mix with increased sales of the Company’s bio-based DuraBind™ resin from a leading retailer and manufacturer of wood composites that ran multiple large-scale production runs in support of further end product validation and testing
- Purchased and cancelled 52,000 common shares in Q2 2021, and 109,600 in YTD 2021, under the normal course issuer bid for total consideration of $0.2 million and $0.4 million respectively
- Maintained a strong balance sheet with cash of $41.2 million as at June 30, 2021
“It was a great quarter with a return to topline growth driven by increased volumes and higher pricing. The sales increase was accelerated by the continued diversification of our revenue mix as our high-value strategic accounts in wood composites made a more significant contribution in the quarter. We believe this growth driven by the diversification of the business is the beginning of a sustainable, long-term trend,” said Jeff MacDonald, CEO of EcoSynthetix. “Our primary focus is delivering meaningful growth in the wood composites end market as part of our multiple shots on goal product strategy. As consumers, retailers and manufacturers pursue more sustainable and healthier alternatives to petroleum-based binders, the performance and value of our bio-based resins are attracting increased interest from manufacturers across all three product categories.”
Net sales were $4.9 million and $8.6 million for Q2 2021 and YTD 2021, respectively, compared to $3.1 million and $7.3 million in the corresponding periods in 2020. The increase in the quarterly period was due to higher sales volumes which increased sales $1.1 million, or 36%, and a higher average selling price which increased sales by $0.7 million, or 22%. The increase in the YTD period was due to higher sales volumes which increased sales $0.7 million, or 10%, and a higher average selling price which increased sales by $0.5 million, or 7%.
During the past 24 months, the paper market dynamics have been impacted by decreased macro demand, compounded by the COVID-19 pandemic, which ultimately led to paper mill consolidation in the industry. Third-party research reports manufacturing capacity of coated freesheet, the Company’s primary end market, has declined by 28% in North America. Despite the industry-wide mill consolidation, all of the mills the Company sells to remain operational. This industry-wide consolidation has led to higher manufacturing operating rates at the remaining mills. At the same time, as the recovery from COVID-19 has taken hold, the depressed pricing experienced during the pandemic of petroleum-related products which the Company’s products compete with has reversed. The combination of higher manufacturing operating rates and higher pricing for incumbent chemistries has resulted in improved volumes and pricing dynamics for our products when compared to the prior period.
During Q2 2021 the Company also realized increased sales to strategic accounts using its bio-based Durabind™ resin in wood composites, including sales to a leading retailer and manufacturer of wood composite products. This retailer ran multiple large scale production runs during the quarter in support of further end product validation and testing. These large scale production runs represent a necessary positive step towards ongoing and expanded commercial production.
Gross profit was $1.1 million and $1.9 million for Q2 2021 and YTD 2021, respectively, compared to $0.5 million and $1.6 million in the corresponding periods in 2020. The increase in both periods was primarily due to higher sales volumes and a higher average selling price partly offset by higher manufacturing costs.
Gross profit as a percentage of sales was 22.5% and 21.6% for Q2 2021 and YTD 2021, respectively, compared to 16.6% and 22.1% in the corresponding periods in 2020. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 26.3% and 26.2% for Q2 2021 and YTD 2021, respectively, compared to 23.6% and 27.2% for the corresponding periods in 2020. The increase in gross profit as a percentage of sales adjusted for manufacturing depreciation in the quarter was primarily due to a higher average selling price partly offset by higher manufacturing costs. The decrease in the YTD period was primarily due to higher manufacturing costs partly offset by a higher average selling price.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $1.3 million and $2.5 million for Q2 2021 and YTD 2021, respectively, compared to $0.9 million and $2.2 million for the corresponding periods in 2020. The increase in SG&A in the quarterly period was primarily due to lower payments received under the Canadian Emergency Wage Subsidy program (CEWS) of $0.1 million, a change in foreign exchange gains and losses of $0.1 million and an increase in variable based compensation of $0.2 million. The increase in SG&A in the YTD period was primarily due to a provision for variable based compensation of $0.2 million and other discretionary spend of $0.1 million.
Research and Development
Research and development (R&D) costs were $0.6 million and $0.9 million for Q2 2021 and YTD 2021, respectively, compared to $0.4 million and $0.8 million for the corresponding periods in 2020. R&D expense as a percentage of sales was 11% and 10% for Q2 2021 and YTD 2021, respectively, compared to 14% and 11% in the corresponding periods in 2020. 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 $0.5 million for Q2 2021 and YTD 2021, respectively, compared to $0.2 million and $0.4 million in the corresponding periods in 2020. Adjusted EBITDA loss during both periods remained largely comparable to the prior year as a higher net loss was partially offset by lower interest income. The lower interest income is due to lower interest rates on cash and short-term investments for the three and six months ended June 30, 2021
Net loss was $0.7 million, or $0.01 per common share, and $1.5 million, or $0.03 per common share, for Q2 2021 and YTD 2021, respectively, compared to $0.6 million, or $0.01 per common share, and $1.1 million, or $0.02 per common share, for the corresponding periods in 2020. The increases in both periods were primarily due to lower interest income and a higher loss from operations in the 2021 periods.
Cash on hand was $41.2 million as at June 30, 2021, compared to $42.0 of cash on hand and short-term investments as at December 31, 2020. The Company purchased and cancelled 52,000 common shares for consideration of $0.2 million under the normal course issuer bid in Q2 2021.
Notice of Conference Call
EcoSynthetix will host a conference call Thursday, July 29, 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 (416) 764-8659 or (888) 664-6392 with the conference identification of 59112472. 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 six months ended June 30, 2021 and June 30, 2020:
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, 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 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.