EcoSynthetix Reports First Quarter 2017 Results

BURLINGTON, ON, May 3, 2017 /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 ended March 31, 2017. Financial references are in U.S. dollars unless otherwise indicated.

Q1 2017 Highlights

  • Advanced each of the ongoing late-stage trials for DuraBind with 10+ prospects in its wood composite pipeline
  • Recorded net sales of $3.6 million in Q1 2017, up 22% compared to the same period in 2016
  • Reduced adjusted EBITDA loss by 30% to $1.5 million in Q1 2017, compared to the same period in 2016
  • Maintained a strong balance sheet with cash and term deposits of $51.2 million as at March 31, 2017
  • Subsequent to the end of the quarter, won a new commercial account for EcoSphere® in a packaging application from Stora Enso, a leading provider of renewable solutions in packaging, biomaterials, wood and paper

"Our No-Added-Formaldehyde product, DuraBind biopolymers, continues to attract a great deal of commercial interest from manufacturers looking to reduce or eliminate the level of formaldehyde-based binders in their wood composite products," said Jeff MacDonald, CEO of EcoSynthetix. "While we have made continuous and consistent shipments to our first wood composite customer for more than seven months, we are also broadening our engagement at individual accounts where industrial trials are being conducted on multiple lines. Our number one priority is to successfully close the prospects that are well underway in the industrial trial process and continue building momentum in the market."

Financial Summary

Net Sales

Net sales were $3.6 million for the three months ended March 31, 2017 (Q1 2017), compared to $3.0 million for the same period in 2016.  The 22% increase was primarily due to higher sales volumes of $0.4 million, or 14%, and an increase in average selling price which positively impacted sales by $0.2 million, or 8%. The increase in sales volumes during the period was principally due to new commercial accounts. The increase in average selling price was primarily due to favorable pricing dynamics.

Gross Profit

Gross profit was $0.8 million for Q1 2017, compared to $0.5 million in the same period in 2016. Gross profit as a percentage of sales was 22.2% for Q1 2017, compared to 16.1% in the same period in 2016.  Gross profit as a percentage of sales adjusted for manufacturing depreciation was 27.1% for Q1 2017, compared to 22.8% for the same period in 2016. The improvement in gross profit was primarily due to higher average selling prices and an increase in sales volume. 

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 $1.2 million for Q1 2017, compared to $1.6 million for the same period in 2016. The 23% decrease was primarily due to lower people related costs and lower discretionary spending.

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 $1.3 million for Q1 2017, compared to $1.1 million for the same period in 2016. The increase was primarily due to lower government grants recognized in the current quarter compared to the same period last year.

Foreign Exchange Gain

Foreign exchange gain was nominal for Q1 2017, compared to $0.2 million for the same period in 2016. 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 $1.5 million for Q1 2017, compared to a loss of $2.1 million for the same period in 2016. The 30% improvement was due to higher gross profit and lower operating expenses in Q1 2017.  

Net Loss

Net loss was $1.9 million, or $0.03 per common share, for Q1 2017 compared to a net loss of $2.4 million, or $0.04 per common share, for the same period in 2016. The improvement was principally due to $0.3 million of higher gross profit and $0.2 million of lower operating expenses, compared to the same period in 2016.

Liquidity

Cash on hand and term deposits were $51.2 million as at March 31, 2017, compared to $53.6 million as at December 31, 2016. Cash on hand at March 31, 2017, excluding the term deposit, was $36.1 million.

Notice of Conference Call

EcoSynthetix will host a conference call on Thursday, May 4, 2017 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, 2017 and March 31, 2016:


Three months ended
March 31, 2017

Three months ended
March 31, 2016

Net Loss

(1,903,638)

(2,369,222)

Depreciation

267,046

292,258

Share-based Compensation

314,021

142,000

Interest Income

(132,166)

(139,236)

Adjusted EBITDA Loss

(1,454,737)

(2,074,200)

 

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 expected product pipeline, plans to expand the Company's business into new markets, the Company's ability to achieve organizational efficiencies, and other statements regarding the Company's plans and expectations in 2017. 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 30, 2017. 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.

EcoSynthetix Inc. 



Interim Consolidated Balance Sheets



(Unaudited)






(expressed in US dollars)







March 31,
2017

December 31,
2016

Assets






Current assets



Cash

36,057,340

38,517,278

Term deposit

15,107,828

-

Accounts receivable 

1,848,360

2,199,289

Inventory

3,329,615

3,216,016

Government grants receivable

162,377

168,562

Prepaid expenses

142,321

165,352


56,647,841

44,266,497




Non-current assets



Term deposit

-

15,043,557

Property, plant and equipment 

7,826,353

7,933,584

Total assets

64,474,194

67,243,638







Liabilities 






Current liabilities



Trade payables and accrued liabilities 

2,152,077

3,070,203

Accrued termination benefits

118,055

415,888

Total liabilities

2,270,132

3,486,091




Shareholders' Equity



Common shares 

493,613,481

493,359,612

Contributed surplus

8,836,291

8,740,007

Accumulated deficit

(440,245,710)

(438,342,072)

Total shareholders' equity 

62,204,062

63,757,547




Total liabilities and shareholders' equity 

64,474,194

67,243,638

 

EcoSynthetix Inc. 



Interim Consolidated Statements of Operations and Comprehensive Loss



For the three months ended March 31, 2017 and March 31, 2016



(Unaudited)






(expressed in US dollars)







2017

2016




Net sales

3,602,129

2,964,470




Cost of sales

2,802,169

2,486,147




Gross profit on sales

799,960

478,323




Expenses



Selling, general and administrative

1,489,666

1,562,241

Research and development

1,346,098

1,224,851

Provision for termination benefits

-

199,689





2,835,764

2,986,781




Loss from operations

(2,035,804)

(2,508,458)




Interest income

132,166

139,236




Net loss and comprehensive loss

(1,903,638)

(2,369,222)




Basic and diluted loss per common share 

(0.03)

(0.04)




Weighted average number of common shares outstanding

59,515,232

59,275,758

 

EcoSynthetix Inc. 



Interim Consolidated Statements of Cash Flows



For the three months ended March 31, 2017 and March 31, 2016



(Unaudited)






(expressed in US dollars)



2017

2016

Cash provided by (used in)






Operating activities



Net loss and comprehensive loss

(1,903,638)

(2,369,222)

Items not affecting cash




Depreciation

267,046

292,258


Share-based compensation

314,021

142,000


Unrealized foreign exchange gain

(8,839)

(161,686)


Other

(108,237)

(111,151)

Changes in non-cash working capital




Accounts receivable

378,352

(322,833)


Inventory

(102,291)

368,255


Government grants receivable

(59,521)

(133,505)


Prepaid expenses

23,031

(57,576)


Trade payables and accrued liabilities

(918,126)

484,382


Accrued termination benefits

(297,833)

108,215


(2,416,035)

(1,760,863)




Investing activities



Purchase of property, plant and equipment

(171,123)

(277,156)

Purchase of term deposit

-

(15,000,000)


(171,123)

(15,277,156)




Financing activity



Exercise of common share options

8,709

-

Proceeds from government grants

65,706

295,831


74,415

295,831







Effect of exchange rate changes on cash 

52,805

213,733




Decrease in cash during the period 

(2,459,938)

(16,528,455)




Cash - Beginning of period

38,517,278

60,717,658




Cash - End of period 

36,057,340

44,189,203

 

SOURCE EcoSynthetix Inc.

For further information: EcoSynthetix Inc., Steve Snyder, Phone: (289) 245-4017, E-mail: ssnyder@ecosynthetix.com; Investor Relations, Ross Marshall, Phone: (416) 526-1563, E-mail: ross.marshall@loderockadvisors.com


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