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 [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. 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.

EcoSynthetix Inc., Steve Snyder, Phone: [phone], E-mail: [email protected]; Investor Relations, Ross Marshall, Phone: [phone], E-mail: [email protected]