Burlington, Ontario, February 27, 2024 – 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 2023) and twelve months (FY 2023) ended December 31, 2023. Financial references are in U.S. dollars unless otherwise indicated.
Highlights
(Comparison periods in each case are the three months ended December 31, 2022)
- Recorded net sales of $2.8 million, down 49%, compared to the prior period.
- Recorded an Adjusted EBITDA1 loss of $1.0 million, an increase of $0.6 million from the prior period.
- Shipped $0.3 million of SurfLock™ for an extended trial in pulp applications with a leading paper and pulp producer, subsequent to the end of the quarter.
- Subsequent to the end of the quarter, a backward integrated producer of particleboard and a leading international retailer, identified the use of bio-based glues in one of its particleboard factories in 2023 as a milestone that will impact its future carbon footprint. Today, 5% of the climate footprint of the total value chain of this leading international retailer is connected to the use of glue in its board materials.
- Commissioned the new manufacturing line in Burlington, Ontario, subsequent to the end of the quarter. By internalizing production, the Company improves its ability to launch new products and reduce supply chain management risk.
- Received the Platinum designation for the third consecutive year from EcoVadis, a globally recognized agency for business sustainability ratings of supply chains, by scoring within the top 1% of the 125,000 companies rated.
- Maintained a strong balance sheet with cash and term deposits of $33.3 million as at December 31, 2023.
- Purchased and cancelled 276,500 and 967,900 common shares in Q4 2023 and FY 2023, respectively, under the normal course issuer bid for total consideration of $0.7 million and $2.4 million.
“The steps we have taken and the progress we have made across the wood composites, the paperboard, pulp and tissue and the personal care end markets position us for a stronger 2024 and sustainable, long-term growth.” said Jeff MacDonald, CEO of EcoSynthetix. “Our revenue base is more diversified today than ever before as the three targeted end markets we address constituted the majority of our sales in 2023. The legacy graphic paper market, and the prolonged macro demand challenges manufacturers face in that vertical, have made it relatively immaterial to our go forward sales volumes. However, the relationships we’ve established in that end market are proving beneficial as we go to market with SurfLock™ strength aids. We are seeing strong trial results across multiple prospects, including large global pulp manufacturers. Our key strategic account in wood composites, which is an international retailer that is backward integrated into wood panel manufacturing, continues to raise awareness across its supply chain of the need to move to bio-based glues which plays directly into the advantages offered by DuraBind™. We believe SurfLock™ and DuraBind™ will be the primary drivers of our top line growth in 2024 and beyond.”
Financial Summary
Net Sales
Net sales were $2.8 million and $12.7 million for Q4 2023 and FY 2023, respectively, compared to $5.6 million and $19.0 million for the corresponding periods in 2022. The 49% decrease in the quarterly period was due to lower volumes, which decreased sales $2.9 million, or 51%, partly offset by a higher average selling price which increased sales $0.1 million or 2%. The 33% decrease in the annual period was due to lower volumes, which decreased sales $7.6 million or 40%, partly offset by a higher average selling price which increased sales $1.2 million or 7%. The lower volumes in both periods were primarily due to continued demand deterioration and customer inventory de-stocking in the legacy graphic paper market. The higher average selling price in the quarterly period was primarily due to product mix while in the annual period it was primarily due to product mix as well as the offsetting of inflationary pressure with price increases.
Gross Profit
Gross profit was $0.5 million and $2.8 million for Q4 2023 and FY 2023, respectively, compared to $0.9 million and $4.2 million for the corresponding periods in 2022. The decrease in the quarterly period was primarily due to lower volumes. The change in the annual period was primarily due to lower volumes and higher costs of manufacturing, partially offset by a higher average selling price.
Gross profit as a percentage of sales was 16.3% and 22.0% for Q4 2023 and FY 2023, respectively, and was comparable to 16.4% and 21.8% for the corresponding periods in 2022. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 21.9% and 28.9% for Q4 2023 and FY 2023, respectively, compared to 21.4% and 25.5% for the corresponding periods in 2022. The improvement in the annual period was primarily due to a higher average selling price partly offset by higher costs of manufacturing.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $1.3 million and $5.0 million for Q4 2023 and FY 2023, respectively, which are both in line with $1.3 million and $5.1 million for the corresponding periods in 2022. The nominal change in the annual period was primarily due to changes in foreign exchange gains and losses and lower compensation expense related to share based awards, partly offset by $0.2 million asset relocation costs associated with the Company’s manufacturing realignment strategy announced in early 2023.
Research and Development
Research and development (R&D) costs were $0.6 million and $2.3 million for Q4 2023 and FY 2023, respectively, compared to $0.6 million and $1.9 million in the corresponding periods in 2022. The change in the annual period was primarily due to an increase in new product scale up costs. R&D expense as a percentage of sales was 20% and 18% for Q4 2023 and FY 2023, respectively, compared to 10% in each of 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 EBITDA1
Adjusted EBITDA loss was $1.0 million and $2.5 million for Q4 2023 and YTD 2023, respectively, compared to $0.3 million and $0.9 million in 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 period.
Net Loss
Net loss was $0.6 million, or $0.01 per common share, and $2.8 million, or $0.05 per common share, for Q4 2023 and FY 2023, respectively, compared to $0.7 million, or $0.01 per common share, and $2.4 million, or $0.04 per common share, for the corresponding periods in 2022. The change in the quarterly period was primarily due to a gain on the disposal of PP&E for $0.5 million and $0.1 million in higher net interest income earned during the period, offset by an increase in loss from operations of $0.5 million. The change in the annual period was primarily due to a $1.6 million higher loss from operations offset by an increase of $0.6 million in net interest income earned during the period as well as the gain on disposal of PP&E of $0.5 million. The higher net interest income during both periods is due to an increase in interest rates on cash and term deposits.
Liquidity
Cash on hand and term deposits were $33.3 million as at December 31, 2023 compared to $36.0 million as at December 31, 2022. The $2.7 million change was primarily due to $2.4 million for the purchase of shares through the normal course issuer bid (“NCIB”) and $1.6 million of cash used to purchase property, plant, and equipment primarily related to the Company’s manufacturing capacity realignment strategy, partially offset by $0.3 million cash-flow from operations. The Company purchased and cancelled 276,500 and 967,900 common shares under the NCIB during Q4 2023 and FY 2023, respectively.
Notice of Conference Call
EcoSynthetix will host a conference call Wednesday, February 28, 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/3SregmW 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 13266514. 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/OynYz5Z2ZkX. 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, gain or loss on disposals of property, plant and equipment and 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, 2023, and December 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).
Forward-Looking Statements
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 27, 2024. 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:
| Investor Relations Ross Marshall Phone: (416) 526-1563 E-mail: ross.marshall@loderockadvisors.com |
