EcoSynthetix Reports Fourth Quarter and Fiscal 2014 Results

- Outlines disciplined growth plan for 2015 -

BURLINGTON, ON, March 10, 2015 /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 results for the three and 12 months ended December 31, 2014. Financial references are in U.S. dollars unless otherwise indicated.

Fiscal 2014 Highlights

  • Net sales of $4.5 million and $18.8 million for the fourth quarter and fiscal 2014, respectively, compared to $5.2 million and $22.2 million for the same periods last year;
  • In April 2014, appointed Jeff MacDonald as Chief Operating Officer to lead business development, sales, operations and product development activities;
  • Introduced expanded product range of EcoSphere® biolatex paper coatings formulated for paperboard, lightweight coated paper and high-speed inkjet printing;
  • Announced $2 million grant from the Bioproducts cluster program, developed by Bioindustrial Innovation Canada, to accelerate the commercialization of new bio-based technology platforms;
  • Retired 406,840 common shares ($0.8 million) in fiscal 2014 through its normal course issuer bid; and,
  • Reported cash on hand of $67.2 million as at the end of December 31, 2014.

Events Subsequent to Year-End

  • Jeff MacDonald appointed Interim CEO following the announcement that John van Leeuwen, Co-founder and CEO, would be taking a leave of absence for personal reasons; and,
  • Total workforce reduced by 15 employees resulting in approximately $0.4 million of related severance costs.  This change allows the Company to align and strengthen its focus on high-priority projects that can create meaningful revenue over the next year. The Company expects to realize approximately $2.0 million in savings on an annualized basis as a result of this change.

"Despite the headwinds we faced in 2014, we remain excited about the opportunities ahead of us in paper and wood composites," stated Jeff MacDonald, Interim CEO of EcoSynthetix. "In 2015, we will continue to focus on building our foundation in paper, where we have demonstrated that we can yield a positive return for our customers in spite of the current challenging and volatile market dynamics.  We also intend to diversify our portfolio, in a targeted, disciplined manner, into additional verticals that can benefit from our commercially proven, bio-based products."  

Outlook and Growth Plan for 2015

In 2015, EcoSynthetix will focus on three key areas of the business in order to return to a growth trajectory:

1. Defined product pipeline

Over the next 12 months, the Company expects to commercialize new products in paper and wood composites. To achieve this, the Company is allocating capital and prioritizing resources on select projects that can demonstrate both technical feasibility and commercial value in the short- and long-term.

Today, key wood composite accounts are running advanced-stage, industrial-scale trials, a strong indication that the Company remains on track for commercial success in the near term.

The Company will also continue to invest in a smaller number of longer-term development opportunities, including those in conjunction with their university partners.

2. Diversified business verticals

EcoSynthetix will focus on expanding its foundation in paper and commercializing products in new markets, including building products.

The Company has prioritized two specific opportunities that could drive sales over the next 12 months, namely the commercialization of: (1) bio-based paper solutions with improved performance for latex coatings and beyond; and (2) formaldehyde-free solutions to meet regulatory reform in the building products space.

3. Disciplined organizational growth

Achieving greater organizational efficiency remains a top priority in 2015 and beyond. This means redeploying human and financial resources and in some cases even scaling back infrastructure.

EcoSynthetix recently reduced its workforce by 15 positions across the business. These changes will allow the Company to focus on high-priority projects that can create meaningful revenue over the next year and into the future.

Going forward, prudent resource allocation will be closely tied to the Company's innovation engine and sales cycle; this approach will ensure that EcoSynthetix remains product and bottom-line driven.

The Company's renewed focus on diversification, product innovation, and disciplined organizational growth provides it with a strong foundation to return to its growth trajectory.

The Company remains highly confident about the opportunities ahead.

Financial Summary

Net Sales

Net sales for the three months ended December 31, 2014 were $4.5 million compared to $5.2 million for the fourth quarter 2013, a decrease of $0.7 million or 13%. The decrease was primarily due to lower sales volume as a result of the announced closure of the FutureMark Paper mill last quarter.

Net sales for fiscal 2014 were $18.8 million compared to $22.2 million in fiscal 2013, a decrease of $3.4 million or 15%.  The reduction in volume was primarily due to lower sales volume as a result of the closure of the FutureMark Paper mill last quarter, in addition to the closure of a customer's coated paper production line in EMEA, which was announced in 2013.

Gross Profit

Gross profit was $0.7 million or 16.6% of sales in Q4 2014 compared to $0.9 million or 17.4% in the same period last year. The decrease was primarily due to lower sales volume.

Gross profit as a percentage of sales adjusted for manufacturing depreciation decreased from 22.9% to 21.6% primarily due to lower average selling prices partly offset by lower product costs.

For fiscal 2014, gross profit was $3.2 million or 16.8% of sales compared to $3.6 million or 16.2% in fiscal 2013. The decrease was primarily due to lower sales volume, a $0.3 million charge to cost of sales related to FutureMark Paper and lower average selling prices partially offset by lower product costs.

Gross profit as a percentage of sales adjusted for manufacturing depreciation and the $0.3 million charge, increased from 21.3% to 24.1% during the same period primarily due to lower product costs partially offset by lower average selling price.

Selling, General and Administrative
(Excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Selling, general and administrative (SG&A) costs were $2.4 million and $11.4 million for the fourth quarter and fiscal 2014, respectively. This is compared to $2.7 million and $11.6 million in the corresponding periods last year.

For the quarter, the decrease was principally due to lower variable incentive costs and the favourable impact of a weaker Canadian dollar relative to the US dollar. On a year-to-date basis, the decrease was principally due to lower variable incentive costs and the favourable impact of a weaker Canadian dollar relative to the US dollar partly offset by bad debt expense, severance costs and a tax charge related to a payroll audit.

Research and Development
(Excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Research and development (R&D) costs were $1.3 million in the fourth quarter of 2014, compared to $1.8 million in the same period last year. For fiscal 2014, R&D costs were $5.3 million compared to $5.5 million in fiscal 2013.

The decrease in R&D was primarily the result of the favourable impact of a weaker Canadian dollar relative to the US dollar and lower discretionary expenses.

Adjusted EBITDA1

Adjusted EBITDA for the three months ended December 31, 2014 was $(2.9) million compared to $(3.3) million for the same period last year, a decrease of $0.4 million or 11%. The decrease was due to lower operating expenses partly offset by lower gross profit.

For fiscal 2014, adjusted EBITDA was $(12.6) million compared to $(12.4) million during the fiscal year ended December 31, 2013. The increase was due to lower gross profit partly offset by lower operating expenses.

Net Loss

Net loss in Q4 2014 was $3.5 million, or $0.06 per common share compared to a net loss of $3.6 million or $0.07 per common share for the same period in the previous year.

In fiscal 2014, net loss was $14.5 million, or $0.26 per share compared to $14.8 million or $0.26 per share in fiscal 2013.

Liquidity

Cash on hand was $67.2 million at December 31, 2014, compared to $80.5 million at December 31, 2013. The decrease was principally due to cash utilized in operating and investing activities.

Notice of Conference Call

EcoSynthetix will host a conference call on Wednesday, March 11, 2015, at 8:30 AM ET to discuss its financial results.  Jeff MacDonald, Interim 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 for the three months ended December 31, 2014 and December 31, 2013:

    December 31, 2014   December 31, 2013
Net loss - 3,450,295 - 3,636,080
Depreciation and amortization   523,855   596,824
Share-based compensation   90,000 - 137,754
Interest income - 77,806 - 87,611
Adjusted EBITDA1 - 2,914,246 - 3,264,621

 

About EcoSynthetix Inc. (www.ecosynthetix.com)

EcoSynthetix Inc. is a renewable chemicals company specializing in bio-based products that can be used as inputs in industrial manufacturing for a wide range of consumer products. The Company's products offer a reduced carbon footprint and are marketed primarily on the basis of lower cost, stable pricing and equal or superior performance. EcoSynthetix's lead product, EcoSphere® biolatex® binders, is used commercially by a number of the global top 20 manufacturers in the coated paper and paperboard industry.

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 2015. 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 31, 2014. 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)    
     
  December 31,
2014
December 31,
2013
Assets    
     
Current assets    
Cash 67,245,970 80,506,957
Accounts receivable  2,258,151 3,691,791
Inventory 5,497,944 6,470,410
Government grants receivable 66,957 261,648
Prepaid expenses 286,288 276,856
  75,355,310 91,207,662
     
Non-current assets    
Intangible assets 52,683 124,009
Property, plant and equipment  11,690,072 12,775,188
Total assets 87,098,065 104,106,859
     
     
Liabilities     
     
Current liabilities    
Accounts payable and accrued liabilities  1,571,976 3,947,385
     
Total liabilities 1,571,976 3,947,385
     
Shareholders' Equity    
Common shares  492,041,244 492,600,022
Contributed surplus 8,101,831 7,661,849
Accumulated deficit (414,616,986) (400,102,397)
Total shareholders' equity  85,526,089 100,159,474
     
Total liabilities and shareholders' equity  87,098,065 104,106,859


 

EcoSynthetix Inc.           
Interim Consolidated Statements of Operations and Comprehensive Loss          
(Unaudited)          
For the three and twelve months ended December 31, 2014 and 2013          
           
(expressed in US dollars)          
           
   Three months ended December 31,     Twelve months ended December 31, 
  2014 2013   2014 2013
           
Net sales 4,464,141 5,159,069   18,841,745 22,229,846
           
Cost of sales 3,723,639 4,263,475   15,671,096 18,620,771
           
Gross profit on sales 740,502 895,594   3,170,649 3,609,075
           
Expenses          
Selling, general and administrative 2,853,825 2,741,474   12,446,687 12,916,606
Research and development 1,414,778 1,877,811   5,569,632 5,814,787
  4,268,603 4,619,285   18,016,319 18,731,393
Loss from operations (3,528,101) (3,723,691)   (14,845,670) (15,122,318)
           
Interest income 77,806 87,611   331,081 357,514
           
Net loss and comprehensive loss (3,450,295) (3,636,080)   (14,514,589) (14,764,804)
           
Basic and diluted loss per common share  (0.06) (0.07)   (0.26) (0.26)
           
Weighted average number of common shares outstanding 56,580,168 55,802,382   56,656,036 56,113,610



EcoSynthetix Inc.           
Interim Consolidated Statements of Cash Flows          
(Unaudited)          
For the three and twelve months ended December 31, 2014 and 2013          
(expressed in US dollars)  Three months ended December 31,     Twelve months ended December 31, 
  2014 2013   2014 2013
Cash provided by (used in)          
           
Operating activities          
Net loss and comprehensive loss (3,450,295) (3,636,080)   (14,514,589) (14,764,804)
Items not affecting cash          
  Depreciation and amortization  523,855 596,824   1,767,366 1,731,765
  Share-based compensation  90,000 (137,754)   456,000 956,225
Changes in non-cash working capital          
  Accounts receivable 507,939 149,210   1,433,640 617,564
  Inventory 808,680 819,974   787,338 490,539
  Government grants receivable 356,798 (80,699)   194,691 (77,530)
  Prepaid expenses 7,910 77,185   (9,432) (122,364)
  Accounts payable and accrued liabilities (1,627,672) (1,066,391)   (2,375,409) 123,088
  Deferred government assistance - -   - (226,920)
  (2,782,785) (3,277,731)   (12,260,395) (11,272,437)
           
Investing activities          
Purchase of intangible assets and
property, plant and equipment
(145,803) (161,302)   (425,796) (1,889,374)
           
Financing activities          
Exercise of common share options - 7,887   27,930 283,844
Exercise of warrants - 29,329   160,058 124,628
Repurchase of common shares (68,013) -   (762,784) -
Cash provided by financing activities (68,013) 37,216   (574,796) 408,472
           
Change in cash during the period  (2,996,601) (3,401,817)   (13,260,987) (12,753,339)
           
Cash - Beginning of period 70,242,571 83,908,774   80,506,957 93,260,296
           
Cash - End of period  67,245,970 80,506,957   67,245,970 80,506,957

 

 

 

 

 

SOURCE EcoSynthetix Inc.

For further information:

EcoSynthetix Inc.
Steve Snyder
Phone: (289) 245-4017
E-mail: ssnyder@ecosynthetix.com

Investor Relations | TMX Equicom
Marina Proskurovsky
Phone: (416) 815-0700 Ext. 288
E-mail: mproskurovsky@tmxequicom.com


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