EcoSynthetix Reports 2018 First Quarter Results

BURLINGTON, ON, May 9, 2018 /CNW/ - 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 2018) ended March 31, 2018. Financial references are in U.S. dollars unless otherwise indicated.

Q1 2018 Highlights

• Recorded net sales of $5.4 million in Q1 2018, up 51% compared to the same period in 2017
• Reduced adjusted EBITDA loss by 40% to $0.9 million in Q1 2018, compared to the same period in 2017
• Won a new commercial account with DuraBind™ in the oriented strand board (OSB) market at a top 10 global manufacturer of wood-based panels
• Maintained a strong balance sheet with cash and term deposits of $47.4 million as at March 31, 2018

"We continue to deliver improvements in our top and bottom lines driven by sales growth and disciplined cost management. Delivering on the potential of our DuraBind offering is our number one priority in 2018," said Jeff MacDonald, CEO of EcoSynthetix. "Our recent commercial win for Durabind in OSB with a global top 10 producer of wood-based panels demonstrates the progress we are making in the wood composite market. In today's pricing environment, the manufacturers showing the greatest interest are those already using pMDI resins. DuraBind offers them an opportunity to reduce their use of pMDI, which lowers their costs while still retaining performance. We are committed to achieving profitability in the near-term through a combination of new account wins in the wood composites and paper markets and through continued focus on cost management."

Financial Summary

Net Sales

Net sales were $5.4 million for Q1 2018, compared to $3.6 million in the corresponding period in 2017. The 51% increase was primarily due to higher sales volume of $1.3 million, or 38%, and higher average selling prices which improved sales $0.5 million, or 13%.

Gross Profit

Gross profit was $1.1 million for Q1 2018, compared to $0.8 million in the corresponding period in 2017. The 31% increase was primarily due to higher average selling prices and higher sales volumes, partly offset by increases in manufacturing and freight costs.

Gross profit as a percentage of sales was 19.3% for Q1 2018, compared to 22.2% in the corresponding period in 2017. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 23.4% for Q1 2018, compared to 27.1% for the corresponding period in 2017. The changes were primarily due to higher manufacturing costs and freight costs, partly offset by an increase in average selling prices.

Selling, General and Administrative
(Excludes share-based compensation, depreciation, provision for termination benefits, and foreign exchange gains and losses)

Selling, general and administrative expenses (SG&A) were essentially unchanged at $1.3 million for Q1 2018, a $0.05 million increase compared to the corresponding period in 2017. The slight increase was primarily due to higher people related costs.

Research and Development
(Excludes share-based compensation, depreciation, provision for termination benefits, and foreign exchange gains and losses)

Research and development (R&D) costs were $0.6 million for Q1 2018, compared to $1.3 million for the corresponding period in 2017. The change was primarily due to lower people related expenses, lower third-party development costs and lower mill trial related costs.

Termination benefits

Termination benefits were $0.2 million for Q1 2018, which related to a cost reduction plan implemented during the period.  There were no termination benefits recognized in the same period in 2017.

Foreign Exchange

Foreign exchange was a nominal loss for Q1 2018, compared to a nominal gain in the same period in 2017.  The change was primarily due to the translation of cash balances denominated in Canadian dollars and exchange rate fluctuations between the Canadian dollar versus U.S. dollar.

Adjusted EBITDA

Adjusted EBITDA loss was $0.9 million for Q1 2018, compared to a loss of $1.5 million for the corresponding period in 2017. The 40% improvement was primarily due to an increase in gross profit, principally due to higher sales volume and lower operating expenses. 

Net Loss

Net loss was $1.2 million, or $0.02 per common share, for Q1 2018, compared to $1.9 million, or $0.03 per common share, for the corresponding period in 2017. The improvement was principally due to lower operating expenses, as well as higher gross profit compared to the same period in 2017.

Liquidity

Cash on hand and term deposits were $47.4 million as at March 31, 2018, compared to $49.3 million as at December 31, 2017. Cash on hand at March 31, 2018, excluding the $30.1 million in term deposits, was $17.3 million.

Notice of Conference Call

EcoSynthetix will host a conference call Thursday, May 10, 2018 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 ended March 31, 2018 and March 31, 2017:

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).

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, 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 2018. 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 6, 2018. 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.

SOURCE EcoSynthetix Inc.