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EcoSynthetix Reports Fourth Quarter and Year End 2019 Results

BURLINGTON, ON , March 3, 2020 /CNW/ - EcoSynthetix Inc. (ECO.TO) ("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 2019) and twelve months (FY 2019) ended December 31, 2019 . Financial references are in U.S. dollars unless otherwise indicated.

Q4 2019 and FY 2019 Financial Highlights

  • Recorded net sales of $4.4 million , down 27%, and $18.4 million , down 19%, in Q4 2019 and FY 2019, respectively, compared to the corresponding periods in 2018
  • Generated positive cash flow from operations for FY 2019 for the first time in the Company's history; cash flow from operations in Q4 2019 of $0.1 million was similar to Q4 2018, and $0.7 million for FY 2019, an improvement of $2.6 million , compared to FY 2018   
  • Recorded Adjusted EBITDA loss of $0.2 million in Q4 2019, an increase of $0.1 million compared to Q4 2018, and $0.4 million in FY 2019, an improvement of $1.0 million , compared to FY 2018
  • Purchased and cancelled 710,368 common shares for total consideration of $1.5 million under the normal course issuer bid during 2019
  • Maintained a strong balance sheet with cash and short-term investments of $43.7 million as at December 31, 2019


"Our proprietary bio-based platform offers sustainable, all-natural alternatives to conventional petroleum and chemical based technologies. As demand from consumers, retailers and manufacturers increasingly emphasizes sustainability and the environment, our technologies targeting the wood composites, personal care and paper markets are ideally positioned," said Jeff MacDonald , CEO of EcoSynthetix. "Major strides in the transformation of the business were made in 2019 which resulted in positive cash flow from operations. Our DuraBind™ resin was launched as part of SWISS KRONO's new BE.YOND particleboard offering and our third product category, personal care, is attracting significant interest from the industry as an all-natural ingredient in hair fixatives. The paper and paperboard market continued to suffer from demand pressure impacting our EcoSphere® volumes which remain the majority of sales at this stage. The changes we made to right-size the cost structure of the business enabled us to manage this impact and still deliver significant improvements to our bottom line. Our focus in 2020 is to support the commercial activities of our partners and customers in the wood composites and personal care markets to deliver topline growth."  

Financial Summary

Net Sales

Net sales were $4.4 million and $18.4 million for Q4 2019 and FY 2019, respectively, compared to $6.0 million and $22.8 million in the corresponding periods in 2018. The $1.6 million and $4.4 million respective decreases were primarily due to lower sales volumes caused by continued challenging market dynamics within the paper market. U.S. shipments of coated free sheet papers declined 10% compared to December 2018 as reported by the American Forest & Paper Association. Lower market demand for coated paper impacts demand for the Company's biopolymers.  Also impacting sales in 2019 was the loss of business at a European paperboard mill announced in the first quarter of fiscal 2019 which reduced sales by $1.3 million for FY 2019.

Gross Profit

Gross profit was $1.0 million and $4.0 million for Q4 2019 and FY 2019, respectively, compared to $1.2 million and $4.5 million in the corresponding periods in 2018. The 15% and 10% respective decreases were primarily due to lower sales volume partially offset by lower manufacturing costs.

Gross profit as a percentage of sales was 23.0% and 21.8% for Q4 2019 and FY 2019, respectively, compared to 19.9% and 19.7% in the same periods in 2018. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 27.8% and 26.0% for Q4 2019 and FY 2019, respectively, compared to 23.5% and 23.4% in the same periods 2018. The increase in both periods was primarily due to lower manufacturing costs. 

Selling, General and Administrative

Selling, General and Administrative ("SG&A") expenses were $1.4 million in Q4 2019 which is comparable to the same period in 2018. SG&A expenses were $4.8 million in FY 2019 compared to $5.5 million in the same period last year, a decrease of $0.7 million or 12%. The decrease was primarily due to lower people related costs, a change in foreign exchange revaluation gains and losses and lower discretionary expenses. The decrease in people related costs and discretionary spending was primarily due to lower headcount.

Research and Development

Research and Development ("R&D") expenses were $0.5 million and $1.7 million for Q4 2019 and FY 2019, respectively, compared to $0.4 million and $2.2 million in the corresponding periods in 2018. The change in the quarterly period was primarily due to lower government grants recognized. The change in the annual period was primarily due to lower people related costs and discretionary spend. Rent expense included in R&D was $0.2 million lower and depreciation expense was $0.2 million higher for FY 2019 due to the adoption of IFRS 16, Leases, effective January 1, 2019 .

R&D expense as a percentage of sales was 11% and 9% for Q4 2019 and FY 2019, respectively, compared to 7% and 10% in the same periods last year. The Company's R&D efforts continue to focus on further enhancing value for its existing products and expanding addressable opportunities.

Adjusted EBITDA1

Adjusted EBITDA loss was $0.2 million and $0.4 million in Q4 2019 and FY 2019, respectively, compared to $0.1 million and $1.4 million in the corresponding periods in 2018. The change in the quarterly period was primarily due to lower gross profit while the $1.0 million improvement in the annual period was primarily due to lower operating expenses, partially offset by lower gross profit.

Net Loss 

Net loss was $0.6 million , or $0.01 per common share, and $1.4 million , or $0.02 per common share in Q4 2019 and FY 2019, respectively, compared to $0.3 million , or $0.01 net loss per common share, and $2.5 million , or $0.04 net loss per common share, in the corresponding periods in 2018. The $0.2 million change in the quarterly period is primarily due to lower gross profit while the $1.1 million improvement in the annual period is primarily due to lower operating expenses, partially offset by lower gross profit.

Liquidity

Cash on hand and short-term investments were $43.7 million as at December 31, 2019 , compared to $44.8 million as at December 31, 2018 . Cash on hand at December 31, 2019 , excluding the $35.7 million in short-term investments, was $8.0 million .  In FY 2019 the Company purchased and cancelled 710,368 common shares for consideration of $1.5 million under the normal course issuer bid.

Notice of Conference Call

EcoSynthetix will host a conference call Wednesday, March 4, 2020 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 (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 loss for the three months and twelve months ended December 31, 2019 and December 31, 2018 :


Three months ended
December 31, 2019
(unaudited)

Three months ended
December 31, 2018
(unaudited)

Twelve months ended
December 31, 2019
(unaudited)

Twelve months ended
December 31, 2018
(unaudited)

Net Loss 

(587,793)

(348,951)

(1,454,058)

(2,530,758)

Depreciation 

363,391

312,908

1,381,061

1,248,946

Share-based Compensation

263,506

225,357

784,623

780,395

Interest Income

(276,434)

(258,904)

(1,108,646)

(926,884)

Adjusted EBITDA (loss)

(237,330)

(69,590)

(397,020)

(1,428,301)

 

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 (ECO.TO).

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 2020. 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 2, 2020 . 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



(expressed in US dollars)










December 31,
2019

December 31,
2018

Assets






Current assets



Cash

7,975,713

14,207,342

Short-term investments

35,720,548

30,635,400

Accounts receivable 

1,824,581

2,347,622

Inventory

2,268,961

2,722,742

Government grants receivable

114,956

140,000

Prepaid expenses

75,973

129,240


47,980,732

50,182,346




Non-current assets



Property, plant and equipment 

6,729,371

6,174,898

Total assets

54,710,103

56,357,244







Liabilities 






Current liabilities



Trade accounts payables and accrued liabilities 

1,360,568

2,255,430




Non-current liabilities 



Lease liability

1,176,643

-

Total liabilities

2,537,211

2,255,430




Shareholders' Equity



Common shares 

490,590,406

491,618,125

Contributed surplus

10,351,658

9,798,803

Accumulated deficit

(448,769,172)

(447,315,114)

Total shareholders' equity 

52,172,892

54,101,814




Total liabilities and shareholders' equity 

54,710,103

56,357,244

 

EcoSynthetix Inc. 






Consolidated Statements of Operations and Comprehensive Loss





For the three and twelve months ended December 31, 2019 and 2018





(expressed in US dollars)












 (Unaudited) 





 Three months ended December 31, 


 Twelve months ended December 31, 


2019

2018


2019

2018







Net sales

4,398,305

5,989,317


18,446,922

22,799,329







Cost of sales

3,385,369

4,794,498


14,417,197

18,302,982







Gross profit on sales

1,012,936

1,194,819


4,029,725

4,496,347







Expenses






Selling, general and administrative

1,408,141

1,391,958


4,849,977

5,511,936

Research and development

469,022

410,716


1,742,452

2,219,275

Termination benefits

-

-


-

222,778


1,877,163

1,802,674


6,592,429

7,953,989







Loss from operations

(864,227)

(607,855)


(2,562,704)

(3,457,642)







Net interest income

276,434

258,904


1,108,646

926,884

Net loss and comprehensive loss

(587,793)

(348,951)


(1,454,058)

(2,530,758)







Basic and diluted loss per common share 

(0.01)

(0.01)


(0.02)

(0.04)

Weighted average number of common shares outstanding

58,101,864

59,032,951


58,297,045

59,498,498

 

EcoSynthetix Inc. 






Consolidated Statements of Cash Flows






For the three and twelve months ended December 31, 2019 and 2018





(expressed in US dollars)













 (Unaudited) 





 Three months ended December 31, 


 Twelve months ended December 31, 


2019

2018


2019

2018

Cash provided by (used in)












Operating activities






Net loss and comprehensive loss

(587,793)

(348,951)


(1,454,058)

(2,530,758)

Items not affecting cash






     Depreciation

363,391

312,908


1,381,061

1,248,946

     Share-based compensation 

263,506

225,357


784,623

780,395

     Other 

(23,849)

128,491


65,527

227,814

Changes in non-cash working capital






     Accounts receivable

(92,366)

(513,133)


523,041

(51,367)

     Inventory

485,114

117,790


458,881

(211,982)

     Government grants receivable

(6,878)

(140,000)


25,044

(140,000)

     Prepaid expenses

67,531

39,328


23,585

24,284

     Trade accounts payables and accrued liabilities

(252,735)

402,528


(1,016,944)

(774,477)

     Accrued termination benefits

-

-


-

(39,830)

Interest on short-term investments






    Interest received on short-term investments

151,232

-


892,733

187,318

    Accrued interest on short-term investments

(252,054)

(165,600)


(977,881)

(651,597)


115,099

58,718


705,612

(1,931,254)







Investing activities






Purchase of property, plant and equipment

(251,898)

(201,302)


(458,172)

(218,865)

Receipts on mature short-term investments

-

-


30,000,000

30,000,000

Purchase of short-term investments

-

-


(35,000,000)

(30,000,000)


(251,898)

(201,302)


(5,458,172)

(218,865)







Financing activities






Principal payments made on lease liability

(46,100)

-


(187,427)

-

Common shares repurchased

(721,115)

(1,952,047)


(1,475,307)

(2,932,983)

Exercise of common share options

45,466

853


215,820

387,576


(721,749)

(1,951,194)


(1,446,914)

(2,545,407)













Effect of exchange rate changes on cash 

47,483

(124,190)


(32,155)

(213,960)







Change in cash during the period 

(811,065)

(2,217,968)


(6,231,629)

(4,909,486)







Cash - Beginning of period

8,786,778

16,425,310


14,207,342

19,116,828







Cash - End of period 

7,975,713

14,207,342


7,975,713

14,207,342

 

SOURCE EcoSynthetix Inc.


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