EcoSynthetix Reports 2018 Second Quarter Results

BURLINGTON, ON, Aug. 3, 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 (Q2 2018) and six months (YTD 2018) ended June 30, 2018. Financial references are in U.S. dollars unless otherwise indicated.

Q2 2018 Highlights

• Recorded net sales of $5.8 million in Q2 2018, up 22% compared to the same period in 2017
• Reduced adjusted EBITDA loss by 63% to $0.5 million in Q2 2018, compared to the same period in 2017
• Purchased and cancelled 489,900 common shares for total consideration of $0.65 million under the normal course issuer bid
• Maintained a strong balance sheet with cash and term deposits of $46.7 million as at June 30, 2018

"It was a strong quarter as we continue to grow net sales into both the wood composites and paper and paperboard markets. The topline results and our disciplined cost management delivered a 63% improvement in our adjusted EBITDA. We have consistently improved our bottom line while our R&D efforts remain focused on enhancing value for our existing product lines and expanding addressable opportunities. We are well positioned to achieve our commitment of profitability in the near term," said Jeff MacDonald, CEO of EcoSynthetix. "Delivering growth from DuraBind™ in the wood composites market remains our number one priority. Our key targets within the wood composites market are highly engaged and we continue to make progress with our commercialization activities.  At the same time, the recent pricing dynamics within the paper and paperboard markets are driving growth within our existing customers and attracting new interest in our EcoSphere® binder."

Financial Summary

Net Sales

Net sales were $5.8 million and $11.2 million for Q2 2018 and YTD 2018, respectively, compared to $4.8 million and $8.4 million in the corresponding periods in 2017. The 22% increase in the quarter was primarily due to higher sales volume of $0.8 million, or 17%, and higher average selling prices which improved sales $0.2 million, or 5%. The 34% increase in the YTD period was primarily due to higher sales volumes of $2.2 million, or 26%, and an increase in average selling price which positively impacted sales by $0.7 million, or 8%.

Gross Profit

Gross profit was $1.2 million and $2.2 million for Q2 2018 and YTD 2018, respectively, compared to $1.0 million and $1.8 million in the corresponding periods in 2017. The 14% increase in the quarter and the 22% increase in the YTD period were primarily due to higher average selling prices and higher sales volumes, partly offset by increases in manufacturing costs.

Gross profit as a percentage of sales was 20.5% and 19.9% for Q2 2018 and YTD 2018, respectively, compared to 21.8% and 22.0% in the corresponding periods in 2017. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 23.9% and 23.6% for Q2 2018 and YTD 2018, respectively, compared to 25.8% and 26.6% for the corresponding periods in 2017. The change in the quarter was primarily due to higher manufacturing costs, partly offset by an increase in average selling prices. The change in the YTD period was also primarily due to higher manufacturing costs, as well as higher 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 and $2.6 million for Q2 2018 and YTD 2018, respectively, compared to the corresponding periods in 2017. Lower salaries & benefits and lower discretionary spending were offset by foreign exchange pressure resulting from the strengthening of the Canadian dollar relative to the U.S. dollar during both periods.

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 $0.4 million and $1.1 million for Q2 2018 and YTD 2018, respectively, compared to $1.1 million and $2.4 million for the corresponding periods in 2017. The changes were primarily due to lower mill trial related costs, people related expenses and lower third-party development costs.

Adjusted EBITDA¹

Adjusted EBITDA loss was $0.5 million and $1.4 million for Q2 2018 and YTD 2018, respectively, compared to a loss of $1.3 million and $2.7 million for the corresponding periods in 2017. The 63% and 51% improvements for the respective periods were primarily due to lower operating expenses and increased gross profit. 

Net Loss      

Net loss was $0.7 million, or $0.01 per common share, and $1.9 million, or $0.03 per common share, for Q2 2018 and YTD 2018, respectively, compared to $1.7 million, or $0.03 per common share, and $3.6 million, or $0.06 per common share, for the corresponding periods in 2017. The improvements were principally due to lower operating expenses, as well as higher gross profit compared to the same periods in 2017.

Liquidity

Cash on hand and term deposits were $46.7 million as at June 30, 2018, compared to $49.3 million as at December 31, 2017. Cash on hand at June 30, 2018, excluding the $30.3 million in term deposits, was $16.4 million. The Company believes that ongoing operations, working capital and associated cash flow in addition to its cash resources provide sufficient liquidity to support ongoing business operations for the foreseeable future. 

Notice of Conference Call

EcoSynthetix will host a conference call Tuesday, August 7, 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 [phone] or [phone]. 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:

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 interest, income taxes, depreciation, amortization, and other non-cash expenses deducted in determining consolidated net income (loss).

The following table reconciles net loss to Adjusted EBITDA loss for the three months and six months ended June 30, 2018 and June 30, 2017:

	Three months ended June 30, 2018	Three months ended June 30, 2017	Six months ended June 30, 2018	Six months ended June 30, 2017
Net Loss	(709,018)	(1,739,030)	(1,874,225)	(3,642,668)
Depreciation	307,570	304,648	635,541	571,694
Share-based Compensation	148,088	306,566	323,502	620,587
Interest Income	(225,860)	(157,651)	(439,482)	(289,817)
Adjusted EBITDA loss	(479,220)	(1,285,467)	(1,354,664)	(2,740,204)

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.

EcoSynthetix Inc.
Consolidated Balance Sheets
(Unaudited)
(expressed in US dollars)
	June 30, 2018	December 31, 2017
Assets
Current assets
Cash	16,415,766	19,116,828
Term deposits	30,304,200	30,171,121
Accounts receivable	2,424,109	2,296,255
Inventory	2,833,484	2,535,234
Prepaid expenses	161,504	153,524
	52,139,063	54,272,962
Non-current assets
Property, plant and equipment	6,488,043	7,115,672
Total assets	58,627,106	61,388,634
Liabilities
Current liabilities
Trade accounts payables and accrued liabilities	2,145,079	2,951,220
Accrued termination benefits	-	39,830
Total liabilities	2,145,079	2,991,050
Shareholders' Equity
Common shares	493,584,062	493,631,495
Contributed surplus	9,556,546	9,550,445
Accumulated deficit	(446,658,581)	(444,784,356)
Total shareholders' equity	56,482,027	58,397,584
Total liabilities and shareholders' equity	58,627,106	61,388,634

EcoSynthetix Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the three and six months ended June 30, 2018 and 2017
(Unaudited)
(expressed in US dollars)
	Three months ended June 30,			Six months ended June 30,
	2018	2017		2018	2017
Net sales	5,796,669	4,759,213		11,243,743	8,361,342
Cost of sales	4,607,028	3,719,895		9,002,574	6,522,064
Gross profit on sales	1,189,641	1,039,318		2,241,169	1,839,278
Expenses
Selling, general and administrative	1,598,842	1,629,171		3,056,591	3,118,837
Research and development	525,677	1,243,343		1,275,507	2,589,441
Termination benefits	-	63,485		222,778	63,485
	2,124,519	2,935,999		4,554,876	5,771,763
Loss from operations	(934,878)	(1,896,681)		(2,313,707)	(3,932,485)
Interest income	225,860	157,651		439,482	289,817
Net loss and comprehensive loss	(709,018)	(1,739,030)		(1,874,225)	(3,642,668)
Basic and diluted loss per common share	(0.01)	(0.03)		(0.03)	(0.06)
Weighted average number of common shares outstanding	59,701,785	59,563,101		59,690,837	59,536,785

EcoSynthetix Inc.
Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2018 and 2017
(Unaudited)
(expressed in US dollars)		Three months ended June 30,			Six months ended June 30,
		2018	2017		2018	2017
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss		(709,018)	(1,739,030)		(1,874,225)	(3,642,668)
Items not affecting cash
	Depreciation	307,570	304,648		635,541	571,694
	Share-based compensation	148,088	306,566		323,502	620,587
	Unrealized foreign exchange loss (gain)	566	(5,141)		141,268	(13,980)
	Other	(59,604)	92,625		(98,144)	(15,612)
Changes in non-cash working capital
	Accounts receivable	620,487	(258,682)		(127,854)	119,670
	Inventory	(183,574)	(202,059)		(306,162)	(304,350)
	Government grants receivable	-	47,892		-	(11,629)
	Prepaid expenses	(77,399)	(110,351)		(7,980)	(87,320)
	Trade accounts payables and accrued liabilities	(374,544)	703,164		(806,141)	(214,962)
	Accrued termination benefits	-	(87,998)		(39,830)	(385,831)
		(327,428)	(948,366)		(2,160,025)	(3,364,401)
Investing activities
Purchase of property, plant and equipment		-	-		-	(171,123)
Purchase of term deposit		-	(15,000,000)		-	(15,000,000)
		-	(15,000,000)		-	(15,171,123)
Financing activities
Common shares repurchased		(650,017)	-		(650,017)	-
Exercise of common share options		224,723	-		285,183	8,709
Proceeds from government grants		-	-		-	65,706
		(425,294)	-		(364,834)	74,415
Effect of exchange rate changes on cash		(109,262)	(28,476)		(176,203)	24,329
Decrease in cash during the period		(861,984)	(15,976,842)		(2,701,062)	(18,436,780)
Cash - Beginning of period		17,277,750	36,057,340		19,116,828	38,517,278
Cash - End of period		16,415,766	20,080,498		16,415,766	20,080,498

SOURCE EcoSynthetix Inc.

Investor Relations, Ross Marshall, Phone: [phone], E-mail: [email protected]