EcoSynthetix Reports Fourth Quarter and Year End 2017 Results

BURLINGTON, ON, March 2, 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 (Q4 2017) and twelve months ended (FY 2017) December 31, 2017. Financial references are in U.S. dollars unless otherwise indicated.

Q4 2017 Highlights

• Recorded net sales of $5.0 million in Q4 2017, up 8% compared to the same period in 2016
• Reduced adjusted EBITDA loss by 34% to $1.1 million in Q4 2017, compared to the same period in 2016
• Won a new European paper mill within an existing account
• Maintained a strong balance sheet with cash and term deposits of $49.3 million as at December 31, 2017

"The improvements in our top and bottom line are clear in our 2017 results. To date, these improvements have primarily been the result of higher volumes and our recent wins in packaging and paperboard," said Jeff MacDonald, CEO of EcoSynthetix. "Our progress in wood composites has been slower than we anticipated due to price increases related to pMDI, the co-binder that works with DuraBind. Within wood composites, the manufacturers showing the greatest interest in today's pricing environment are those already using pMDI. DuraBind offers them an opportunity to reduce their use of pMDI, to lower their costs and retain performance. Delivering on the potential of our DuraBind offering is our number one priority in 2018. We are committed to achieving profitability in the near term, through a combination of new account wins in the wood composites and paper markets, as well as disciplined cost management."

Financial Summary

Net Sales

Net sales were $5.0 million and $17.9 million for Q4 2017 and FY 2017, respectively, compared to $4.7 million and $13.3 million in the corresponding periods in 2016. The 8% increase in the quarter was primarily due to higher average selling prices. Sales during the fourth quarter of 2016 included an approximately $1.0 million positive impact from the timing of orders by a key distributor. Excluding this item, sales increased 35% in the current quarter primarily due to higher volume and higher average selling prices. The 35% increase in the annual period was primarily due to higher sales volume of $3.2 million, or 24%, and higher average selling prices, which improved sales $1.4 million, or 11%.   

Gross Profit

Gross profit was $0.84 million and $3.7 million for Q4 2017 and FY 2017, respectively, compared to $0.85 million and $2.2 million in the corresponding periods in 2016. The increase in the annual period was primarily due to higher average selling prices and higher sales volumes partly offset by an increase in manufacturing costs.

Gross profit as a percentage of sales was 16.7% and 20.5% in Q4 2017 and FY 2017, respectively, compared to 18.2% and 16.6% in the corresponding periods in 2016. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 22.1% and 25.1% for Q4 2017 and FY 2017, respectively compared to 22.6% and 22.3% for the corresponding periods in 2016. The changes in the quarterly period were primarily due to higher manufacturing costs and freight costs partly offset by an increase in average selling prices. The increases in the annual period were primarily due to higher average selling prices partly offset by higher manufacturing costs and freight costs. 

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 and $5.0 million for Q4 2017 and FY 2017, respectively, compared to $1.4 million and $5.8 million for the corresponding periods in 2016. The improvement in the quarterly period was primarily due to lower people related costs partly offset by the unfavourable impact of a stronger Canadian dollar versus U.S. dollar. The improvement in the annual period was primarily due lower people related costs and lower discretionary spending which was also partly offset by a stronger Canadian dollar.

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 $1.0 million and $4.3 million for Q4 2017 and FY 2017, respectively, compared to $1.3 million and $4.4 million for the corresponding periods in 2016. The changes were primarily due to lower third-party development spending and lower people related costs partly offset by lower government grants.

Foreign Exchange

Foreign exchange gain was nominal for Q4 2017, compared to a nominal loss in the same period in 2016.  The Company recognized a nominal loss in FY 2017 compared to a nominal gain of $0.1 million in 2016. The changes were 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 $1.1 million and $4.8 million for Q4 2017 and FY 2017, respectively, compared to a loss of $1.7 million and $7.6 million for the corresponding periods in 2016. The 34% improvement in the quarterly period was primarily due to lower operating expenses.  The 37% improvement in the annual period was primarily due to higher gross profit and lower operating expenses.    

Net Loss

Net loss was $1.4 million, or $0.02 per common share, and $6.4 million, or $0.11 per common share, in Q4 2017 and FY 2017, respectively, compared to $2.4 million, or $0.04 per common share, and $9.3 million, or $0.16 per common share, for the corresponding periods in 2016. The improvements were principally due to lower operating expenses, as well as higher gross profit in FY 2017 compared to the same period in 2016.

Liquidity

Cash on hand and term deposits were $49.3 million as at December 31, 2017, compared to $53.6 million as at December 31, 2016. Cash on hand at December 31, 2017, excluding the $30.2 million in term deposits, was $19.1 million.

Notice of Conference Call

EcoSynthetix will host a conference call Monday, March 5, 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. 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 and twelve months ended December 31, 2017 and December 31, 2016:

	Three months ended December 31, 2017	Three months ended December 31, 2016	Twelve months ended December 31, 2017	Twelve months ended December 31, 2016
Net Loss	$(1,434,280)	$(2,372,940)	$(6,442,284)	$(9,304,598)
Depreciation	376,817	453,477	1,229,121	1,340,315
Share-based Compensation	124,948	350,956	1,034,704	832,265
Interest Income	(181,664)	(118,446)	(667,327)	(502,318)
Adjusted EBITDA loss	$(1,114,179)	$(1,686,953)	$(4,845,786)	$(7,634,336)

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 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.
Consolidated Balance Sheets
(Unaudited)
(expressed in US dollars)
	December 31, 2017	December 31, 2016
Assets
Current assets
Cash	19,116,828	38,517,278
Term deposits	30,171,121	-
Accounts receivable	2,296,255	2,199,289
Inventory	2,535,234	3,216,016
Government grants receivable	-	168,562
Prepaid expenses	153,524	165,352
	54,272,962	44,266,497
Non-current assets
Term deposit	-	15,043,557
Property, plant and equipment	7,115,672	7,933,584
Total assets	61,388,634	67,243,638
Liabilities
Current liabilities
Trade accounts payables and accrued liabilities	2,951,220	3,070,203
Accrued termination benefits	39,830	415,888
Total liabilities	2,991,050	3,486,091
Shareholders' Equity
Common shares	493,631,495	493,359,612
Contributed surplus	9,550,445	8,740,007
Accumulated deficit	(444,784,356)	(438,342,072)
Total shareholders' equity	58,397,584	63,757,547
Total liabilities and shareholders' equity	61,388,634	67,243,638

EcoSynthetix Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the three and twelve months ended December 31, 2017 and 2016
(Unaudited)
(expressed in US dollars)
	Three months ended December 31,			Twelve months ended December 31,
	2017	2016		2017	2016
Net sales	5,029,995	4,672,268		17,885,423	13,277,386
Cost of sales	4,190,723	3,820,055		14,215,080	11,076,583
Gross profit on sales	839,272	852,213		3,670,343	2,200,803
Expenses
Selling, general and administrative	1,339,650	1,831,850		6,004,556	6,532,524
Research and development	1,115,566	1,511,749		4,711,913	4,941,081
Provision for termination benefits	-	-		63,485	534,114
	2,455,216	3,343,599		10,779,954	12,007,719
Loss from operations	(1,615,944)	(2,491,386)		(7,109,611)	(9,806,916)
Interest income	181,664	118,446		667,327	502,318
Net loss and comprehensive loss	(1,434,280)	(2,372,940)		(6,442,284)	(9,304,598)
Basic and diluted loss per common share	(0.02)	(0.04)		(0.11)	(0.16)
Weighted average number of common shares outstanding	59,573,558	59,374,714		59,551,885	59,307,361

EcoSynthetix Inc.
Consolidated Statements of Cash Flows
For the three and twelve months ended December 31, 2017 and 2016
(Unaudited)
(expressed in US dollars)		Three months ended December 31,			Twelve months ended December 31,
		2017	2016		2017	2016
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss		(1,434,280)	(2,372,940)		(6,442,284)	(9,304,598)
Items not affecting cash
	Depreciation	376,817	453,477		1,229,121	1,340,315
	Share-based compensation	124,948	350,956		1,034,704	832,265
	Unrealized foreign exchange loss (gain)	(60,308)	18,275		(60,726)	(219)
	Other	10,096	63,674		(234,891)	(228,238)
Changes in non-cash working capital
	Accounts receivable	(738,943)	(408,296)		(96,966)	(1,021,570)
	Inventory	541,021	(158,479)		629,813	31,168
	Government grants receivable	-	(211,900)		-	(670,081)
	Prepaid expenses	45,140	89,169		11,828	77,631
	Trade accounts payables and accrued liabilities	144,856	1,067,188		(118,983)	1,907,494
	Accrued termination benefits	22,683	(152,355)		(376,058)	(861,867)
		(967,970)	(1,261,231)		(4,424,442)	(7,897,700)
Investing activities
Purchase of property, plant and equipment		(44,367)	(63,720)		(360,240)	(584,773)
Purchase of term deposit		-	-		(15,000,000)	(15,000,000)
		(44,367)	(63,720)		(15,360,240)	(15,584,773)
Financing activities
Proceeds from government grants		-	533,138		168,562	1,029,955
Exercise of common share options		-	6,033		47,617	67,238
		-	539,171		216,179	1,097,193
Effect of exchange rate changes on cash		55,415	(16,250)		168,053	184,900
Decrease in cash during the period		(956,922)	(802,030)		(19,400,450)	(22,200,380)
Cash - Beginning of period		20,073,750	39,319,308		38,517,278	60,717,658
Cash - End of period		19,116,828	38,517,278		19,116,828	38,517,278

SOURCE EcoSynthetix Inc.

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