Burlington, Ontario, May 3, 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 (Q1 2023) ended March 31, 2023. Financial references are in U.S. dollars unless otherwise indicated.
Highlights(Comparison periods in each case are the three months ended March 31, 2022)
- Recorded net sales of $3.1 million in Q1 2023, down 28%, due to lower volumes of 37% compared to the prior period, partially offset by a higher average selling price which impacted sales by 9%
- Gross profit of $0.6 million in Q1 2023, down 43%, due to lower volumes and higher manufacturing costs, including $0.2 million higher depreciation, partially offset by a higher average selling price
- Recorded an Adjusted EBITDA1 loss of $0.6 million in Q1 2023, an increase in loss of $0.4 million from the prior period
- Purchased and cancelled 68,400 common shares in Q1 2023 under the normal course issuer bid for total consideration of $0.2 million
- Maintained a strong balance sheet with cash and term deposits of $35.6 million as at March 31, 2023
- A particleboard manufacturer, that is backward integrated into a leading international retailer, identified the use of bio-based glues as a key enabler to achieving their climate targets and committed to a meaningful step in its implementation of DuraBind™ resin
- Announced improvements to the Company’s asset bases in North America and Europe, including internalizing 30 million pounds of annualized nameplate manufacturing capacity at its Centre of Innovation in Burlington, Ontario
- Received the Platinum designation for the second consecutive year from EcoVadis, a globally recognized agency for business sustainability ratings of supply chains, by scoring within the top 1% of the 90,000 companies rated
“Despite disappointing results and challenging market conditions to date this year, our pipeline of prospects continues to expand, particularly in wood composites and our wet end strength aids,” said Jeff MacDonald, CEO of EcoSynthetix. “These opportunities and the size of the markets they serve continue to give us confidence that we are working with the right accounts to achieve our mid-term goal of $100 million in revenue. During the quarter, a key strategic account that manufactures wood composites and is backward integrated into a leading retailer committed to move to bio-based glues in their wood panel production as one of the key drivers to address their carbon footprint goals published in their FY2022 Climate Report. This initiative included a meaningful step in its implementation of our DuraBind™ resin. Expanding with this account and other wood composites manufacturers in their supply chain is a key growth driver. While macro challenges persist with a soft start to Q2, our revenue diversification strategy with a greater focus on wood composites, personal care and strength aids for tissue and paperboard is the right approach to achieving our growth plans.”
Net sales were $3.1 million for Q1 2023, compared to $4.2 million for the same period in 2022. The 28% decrease was due to lower volumes which impacted sales by $1.6 million or 37%, which was partly offset by a higher average selling price which impacted sales by $0.4 million, or 9%. The lower volumes were due to several headwinds in Q1 2023 which resulted in a step down in demand due to the macroeconomic challenges across many end markets, including approximately $0.7 million lower sales due to inventory destocking at a large distributor into the graphic paper end market, continued demand deterioration in the graphic paper end market, and softer demand due to market related customer mill downtimes. The higher average selling price was due to the offsetting of significant inflationary pressures with price increases.
Gross profit was $0.6 million for Q1 2023, compared to $1.1 million for the same period in 2022. The change was primarily due to a decrease in sales volumes and higher costs of manufacturing partially offset by a higher average selling price. Manufacturing costs also included $0.2 million in additional depreciation on certain machinery and equipment due to a change in useful life as a result of the Company’s plans to internalize its North America Manufacturing.
Gross profit as a percentage of sales was 20.1% for Q1 2023, compared to 25.5% for the same period in 2022. The change was primarily due to higher manufacturing costs, partially offset by a higher average selling price. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 32.6% for Q1 2023, compared to 28.9% for the same period in 2022. The improvement was due to a higher average selling price partially offset by higher costs of manufacturing.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $1.3 million, relatively unchanged from the same period in 2022. Lower discretionary spending during the period reduced SG&A expense by 90 thousand in absolute terms.
Research and Development
Research and development (R&D) costs were $0.6 million for Q1 2023, compared to $0.4 million in the same period in 2022. The increase was a result of increased discretionary spending. R&D expense as a percentage of sales was 20% for Q1 2023, compared to 10% for the same period 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 $0.6 million for Q1 2023, compared to $0.2 million in the same period in 2022. The increase in loss was primarily due to lower gross profit and higher operating costs when compared to the prior period.
Net loss was $1.0 million, or $0.02 per common share, for Q1 2023, compared to $0.7 million, or $0.01 per common share, for the same period in 2022. The increase was due to a $0.5 million higher loss from operations partially offset by an increase of $0.2 million in net interest income. The higher net interest income is due to an increase in interest rates on cash and term deposits.
Cash on hand and term deposits were $35.6 million as at March 31, 2023 compared to $36.0 million as at December 31, 2022. The $0.4 million change was primarily due to $0.4 million of cash used to purchase property, plant, and equipment related to the Company’s manufacturing capacity realignment strategy and the $0.2 million for the purchase shares through the normal course issuer bid (“NCIB”), partially offset by $0.3 million cash-flow from operations. The Company purchased and cancelled 68,400 common shares under the NCIB during Q1 2023.
Notice of Conference Call
EcoSynthetix will host a conference call Thursday, May 4, 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/3nWR2Ir 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 18511532. 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/7NXQK4XKxV0. 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.
Non-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 ended March 31, 2023, and March 31, 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