TSO3 Reports Second Quarter 2016 Results

Repeats Record Shipments, Re-engineers Facilities and Receives Industry-Changing Regulatory Clearances

QUÉBEC CITY, August 3, 2016 /CNW Telbec/ - TSO3 Inc. (TSX: TOS) ("TSO3" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported its financial and operating results for the second fiscal quarter ended June 30, 2016. All figures are in U.S. dollars unless otherwise noted.

Q2 2016 Highlights and Subsequent Events 

  • Repeated record shipments of 25 STERIZONE® VP4 Sterilizers to Getinge Infection Control, the Company's exclusive global distribution partner, and recorded revenues of $3.0 million, versus $3.1 million in Q1 2016 and $0.1 million in Q2 2015.
  • Announced the receipt of US Food and Drug Administration (FDA) clearance of TSO3's expanded indications for use (IFU's) of its STERIZONE® VP4 Sterilizer relating to certain multi-channel flexible endoscopes of up to 3.5 meters in length and not more than four channels. This represents an entirely new level of patient protection against ineffective device reprocessing of devices such as gastroscopes and colonoscopes – both of which represent tens of millions of procedures each year in the U.S. and Europe, and neither of which are terminally sterilized today.
  • Completed significant process and assembly reengineering, which increased production capacity, when required, to 250 sterilizers annually at its facility in Quebec, Canada.
  • Cash, cash equivalents and short-term investments were $21.3 million at June 30, 2016, as compared to $24.4 million at the end of Q1 2016. The Company had 91.2 million shares outstanding, no outstanding warrants and no debt at the end of the Q2 2016.
  • The Company prepared for its launch into the European market by introducing its FDA-cleared universally designed STERIZONE® VP4 Sterilizer platform and is completing the development of its double-door STERIZONE® VP4 Sterilizer, which is highly desirable in many European markets. 
  • Peer-reviewed paper describing the STERIZONE® VP4 Sterilizer was accepted for publication in an upcoming issue of the Canadian Journal of Infection Control.

Management Commentary

"Q2 was another strong quarter with shipments of our STERIZONE® VP4 Sterilizers, enhanced regulatory claims and a complete redesign of our assembly operations," said TSO3 President and CEO R.M. (Ric) Rumble. "We have made significant improvements in our potential while leading a disciplined core operation."

"We recently announced that we received clearance from the FDA regarding our extended claims relating to multi-channel flexible endoscopes, such as colonoscopes and gastroscopes, as well as the validation of our technology's ability to terminally sterilize multiple, heavy-duty battery-powered orthopedic instrument sets. These achievements have generated tremendous customer interest in our STERIZONE® VP4 Sterilizer and have moved us into a new paradigm – our technology has opened the door to opportunities far beyond the traditional low-temperature sterilizer market.  Millions of procedures previously untouched by low-temperature sterilization are now addressable effectively by our technology."

"As we look ahead this year, we will continue to pursuit a leadership position in healthcare sterile reprocessing of medical devices, including low temperature sterilization, high-level disinfection and steam sterilization applications. In addition, we will continue to focus on our sales and marketing efforts while helping Getinge, our exclusive channel partner, meeting or exceeding their contractual performance objectives."

Q2 2016 Conference Call

TSO3 President and CEO R.M. (Ric) Rumble and CFO Glen Kayll, will host the conference call, followed by a question and answer period.

 

Date:

Wednesday, August 3, 2016

Time:

10:30 a.m. EDT (7:30 a.m. Pacific time)

Toll-free dial-in number:

1-888-231-8191

International dial-in number:

1-514-807-9895 (Montreal); 1-647-427-7450 (Toronto)

Conference ID:

47107175

 

Analysts and institutional investors are invited to participate on the call. Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.   

Other interested parties may listen to the live webcast of the conference call at http://event.on24.com/r.htm?e=1222204&s=1&k=482A5EAB7A3939C1A306FDE6DB0869C5 which will be available for replay in the Investors section of the Company's website at www.tso3.com.

Q2 2016 Results Disclosure

The 2016 Second Quarter Report is available on TSO3's website at the following address http://www.tso3.com/en/investors/financial_reporting/quarterly_reports/ and full Q2 disclosure will shortly be available on SEDAR (www.sedar.com).

Q2 2016 Financial Summary

  • Revenues were $3.0 million in Q2 2016 versus $3.1 million in Q1 2016 and $0.1 million in Q2 2015.
  • Gross profit was 28% of revenues in Q2 2016 vs 36% in Q1-2016, impacted predominantly by foreign currency exchange fluctuations and to a smaller extent, additional investments to support higher future volumes.
  • R&D expense grew to $0.8 million in Q2 2016 as a result of additional material purchases, salary and consultant expenses to work on new project development such as the double door unit as well as extended claims and compatibility studies for the STERIZONE® VP4 Sterilizer.
  • SG&A expenses grew to $1.5 million in Q2 2016 as a result of additional personnel, marketing, professional, training and support costs.
  • Net loss was $1.5 million, or $0.02 per share, in Q2 2016 versus net income of $0.6 million, or $0.01 per share, in Q1 2016. This compares to a net loss of $1.4 million, or $0.02 loss per share, in Q2 2015.
  • Cash used was $1.7 million for working capital, $1.1 million for other operations and $0.3 million for expenditures on intangible and tangible capital assets.  

 

Summary of Results  
Periods ended June 30
(Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts)






SECOND QUARTER

FIRST QUARTER


2016

$

2015

$

2016

$

 

Revenues

 

2,977

 

111

 

3,071

Cost of sales

2,143

272

1,961

Gross profit (loss)

834

(161)

1,110

 

Expenses





Research and development

804

524

606


Selling, general and administrative

1,529

755

1,385


Other income

-

(17)

(1,588)

Total Expenses

2,333

1,262

403

Net income (loss) before income taxes

(1,499)

(1,423)

707

Income taxes

12

-

58

Net income (loss)

(1,487)

(1,423)

649

Weighted Average Number of Outstanding Shares (in thousands)

 

91,036

 

82,611

 

88,552

Basic and diluted net income (loss) per Share (in $)

(0.02)

(0.02)

(0.01)

 

Financial Position Analysis 
(Unaudited, IFRS Basis, in thousands of US dollars)






JUNE 30,
2016
$

MARCH 31,
2016
$

DECEMBER 31,

2015
$

 

Cash, cash equivalents and short-term investments

 

21,338

 

24,385

 

15,111

Accounts receivable

3,516

2,030

437

Inventories

1,974

2,021

1,302

Property, plant and equipment

752

429

366

Intangibles assets

1,750

1,708

1,691

Accounts payable and accrued liabilities

1,876

2,032

1,288

Warranty provision

285

165

29

Deferred revenues (short and long term)

7,228

7,385

7,536

Equity

20,016

21,093

10,133

 

Statement of Cash Flows
(Unaudited, IFRS Basis, in thousands of US dollars)






Q1 2016
$

Q2 2016
$

SIX MONTHS
2016
$

Cash flows from operating activities




Net Income (loss)

649

(1,487)

(838)

Adjustments for:





Depreciation and amortization

77

103

180


Share-based compensation

216

268

484


Investment income

(38)

(28)

(66)


904

(1,144)

(240)


Changes in non-cash operating working capital items

(1,656)

(1,760)

(3,416)


Interest received

29

19

48

Cash flows used in operating activities

(723)

(2,885)

(3,608)

Cash flows from investing activities





Acquisition of short-term investments

(2,000)

(10,121)

(12,121)


Disposal of short-term investments

2,466

(9)

2,457


Acquisition of property, plant and equipment

(102)

(226)

(328)


Acquisition of intangible assets

(55)

(87)

(142)

Cash flows generated (used) in investing activities

309

(10,443)

(10,134)

Cash flows from financing activities





Options exercised

-

142

142


Warrants exercised

10,145

-

10,145

Cash flows generated by financing activities

10,145

142

10,287

Increase (decrease) in cash and cash equivalents

9,731

(13,186)

(3,455)

Cash and cash equivalents at the beginning

12,654

22,385

12,654

Cash and cash equivalents at the end

22,385

9,199

9,199

About Presentation of Adjusted EBITDA

TSO3 reports adjusted EBITDA, a non-IFRS financial measure. Generally, a non-IFRS financial measure is a numerical measure of an entity's historical or future financial performance, financial position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-IFRS financial measures are important as they provide users of the financial statements with a better understanding of the results of the Company's recurring operations and their related trends, while increasing transparency and clarity into its operating results. Management also believes these measures can be useful in assessing the Company's capacity to discharge its financial obligations.

The principal supplemental non-IFRS metric the Company uses to assess its operational performance is adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA).  Adjusted EBITDA adjusts net income for (1) realized and unrealized foreign exchange gains or losses, (2) amortization and depreciation expenses (3) share-based compensation expense, (4) amortization or write-downs of certain tangible and intangible assets, (5) income taxes, and (6) other significant unusual items. 

 

Adjusted EBITDA(1)





IN THOUSANDS OF US DOLLARS


2016

2015


Q2

Q1

Q4

Q3

Q2

Q1

Net income (loss), as reported

(1,487)

649

(2,160)

(1,295)

(1,423)

(1,458)

Adjustments







Income taxes

(12)

58

-

-

-

-

Depreciation and amortization

103

77

106

102

100

99

Share-based compensation 

268

216

182

114

118

62

Write-off of intangible assets

-

-

-

-

-

173

One-time foreign exchange gain on conversion of cash, cash equivalents and short-term investments

 

-

 

(1,578)

 

-

 

-

 

-

 

-

Adjusted EBITDA

(1,128)

(578)

(1,872)

(1,079)

(1,205)

(1,124)

 

(1) Non-GAAP financial measures. Refer to the Non-IFRS financial measures.

About the STERIZONE® VP4 Sterilizer

The STERIZONE® VP4 Sterilizer is a low-temperature sterilization system that utilizes the dual-sterilants of vaporized hydrogen peroxide (H2O2) and ozone (O3) to achieve terminal sterilization of heat and moisture sensitive medical devices. Its single pre-programmed cycle can sterilize a large number and wide range of compatible devices, creating a cost-effective sterilization process with error free cycle selection. The device's unique Dynamic Sterilant Delivery System™ automatically adjusts the quantity of injected sterilant based on the load composition, weight and temperature. This capability removes the guesswork and potential for human error, as there is no need to sort instruments and choose the appropriate cycles as with other machines. 

The STERIZONE® VP4 Sterilizer is the only FDA cleared low temperature sterilizer that can process a mixed load consisting of general instruments, single channel flexible endoscopes, and single or double channel rigid endoscopes in the same cycle with load weights of up to 75 lb. It is also the only terminal sterilization method cleared to sterilize multi-channeled flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length, such as video colonoscopes and gastroscopes - an industry first for any medical device sterilization process. The ability to run mixed loads significantly reduces labor costs by minimizing the amount of instrument sorting required, while maximizing the device turns (more productivity from increased throughput capacity). Other H2O2 sterilizers are limited to load weights of up to only 25 lb and require dedicated fixed cycles for different types of instruments (reducing overall throughput).

More information about the STERIZONE® VP4 Sterilizer is available through TSO3's website, under the Products section: http://www.tso3.com/en/products/sterizone-vp4/

About TSO3

Founded in 1998, TSO3's activities encompass the sale, production, maintenance, research, development and licensing of sterilization processes, related consumable supplies and accessories for heat-sensitive medical devices. The Company designs products for sterile processing areas in the hospital environment that offer an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. It also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.

TSO3 recently announced that it had received U.S. clearance for extended claims relating to the terminal sterilization of multi-channel flexible endoscopes. The FDA clearance of additional claims represents an entirely new level of patient protection against ineffective device reprocessing resulting from the use of less robust systems like high-level disinfection, particularly for video colonoscopes and gastroscopes.

For more information about TSO3, visit the Company's web site at www.tso3.com       

The statements in this release and oral statements made by representatives of TSO3 relating to matters that are not historical facts (including, without limitation, those regarding the timing or outcome of TSO3's sales, business or operations) are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the ability of the Company to obtain the required regulatory clearance to market its products on a worldwide basis;general business and economic conditions, the condition of the financial markets, the ability of TSO3 to obtain financing on favourable terms and other risks and uncertainties. 

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful.

 

SOURCE TSO3 Inc.

For further information: Company Contacts: TSO3 Inc., R.M. (Ric) Rumble, President and CEO, Tel: 418 651-0003, Email: info@tso3.com ; TSO3 Inc., Glen Kayll, CFO, Tel: 418 651-0003, Email: info@tso3.com ; Investor Relations: Liolios Group, Inc., Ron Both, Tel: 949 574-3860, TOS@liolios.com ; Renmark Financial Communications Inc., Barry Mire, Tel: 416 644-2020 or 514 939-3989, bmire@renmarkfinancial.com

RELATED LINKS
http://www.tso3.com

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