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TSO3 Reports Record Fourth Quarter and Full Year 2016 Results

QUÉBEC CITY, March 21, 2017 /CNW Telbec/ - TSO3 Inc. (TOS.TO) ("TSO3" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported its operating results for the fourth quarter and year ended December 31, 2016. All figures are in US dollars unless otherwise noted.

2016 Fourth Quarter Financial Summary

  • Revenue increased to a record $3.75 million compared to $0.15 million in the same period last year and $3.5 million in the third quarter of 2016. The Company shipped 30 STERIZONE® VP4 Sterilizers, along with associated accessories and consumables, to Getinge Infection Control, its exclusive global distributor, in the fourth quarter of 2016.
  • Gross profit was $1.3 million , or 36% of revenue, excluding a one-time write-down of $0.3 million for obsolete raw materials inventory. This compares to $1.1 million or 32% in the third quarter of 2016, and negative ($0.3) million in the fourth quarter of 2015. Including the inventory write down, fourth quarter 2016 gross profit was $1.0 million , or 28% of revenue.
  • Research and Development (R&D) expense grew to $1.3 million , as compared to $0.8 million in the third quarter of 2016 and $0.7 million in the year-ago quarter.
  • Sales, General and Administrative (SG&A) expense was $1.8 million , which was consistent with the third quarter of 2016 and grew from $1.2 million in the year-ago quarter.
  • The Company's net loss was $(2.1) million or $0.02 per as compared to $(2.2) million or $0.03 per share in the year-ago quarter and ($1.5) million , or $0.02 per share, in the third quarter of 2016. Non-IFRS net loss in the fourth quarter of 2016 was $(1.8) million or $0.02 per share.
  • The Company had $19.3 million in cash, cash equivalents and investments and no debt as at December 31, 2016 , as compared to $20.7 million and no debt at the end of the third quarter of 2016.

2016 Full Year Financial Summary

  • Revenue increased to a record $13.3 million , which included shipments of 110 STERIZONE® VP4 Sterilizers and associated accessories and consumables to Getinge, as compared to $1.2 million in 2015.
  • Gross profit increased to $4.1 million , or 31% of revenue, as compared to negative (26%) in 2015. Excluding a one-time write-down of obsolete raw materials inventory, gross profit would have been $4.4 million , or 33% of revenue, in 2016.
  • R&D expense grew to $3.5 million from $2.2 million in 2015.
  • SG&A expense grew to $6.5 million from $3.9 million in 2015.
  • The Company's net loss was $(4.4) million or $(0.05) per share, vs $(6.3) million or $(0.08) per share in 2015.

 Fourth Quarter 2016 and Subsequent Event Operational Highlights

  • TSO3 secured a purchase order for a significant number of STERIZONE® VP4 Sterilizers for delivery in 2017. This provides the Company with operational and supply chain predictability.
  • The Company improved supply chain financing through an automated receivable factoring program through a joint effort with Getinge and a major financial institution. This program provides a simple and economical instrument for both parties to finance working capital.
  • The Company signed three leading US healthcare institutions in our newly established TSO3 Strategic Partnership Program, which provides an avenue for these institutions to independently study and provide feedback on the impact of TSO3 technology on low temperature sterilization and/or endoscope reprocessing in their hospitals.
  • TSO3 added Dr. Linda Rosenstock and Mr. Jeffrey Pompeo to the Company's board of directors early 2017, adding more than 30 years of public company experience in health and life sciences. These appointments add significant and relevant US medical practice, regulatory and business development skills to the Company independent board.
  • The Company appointed Dr. Mark Pasmore Ph.D. as Vice President of Research and Development. Dr. Pasmore brings extensive experience, having held scientific research positions in biofilms, sterilization, sterility assurance and microbial control for pharmaceuticals and medical devices for leading organizations.

Management Commentary

"We are pleased with TSO3's strong finish to 2016.  In the fourth quarter of 2016 we reached important operational milestones, added strategic key personnel, and made substantial improvement in revenues and gross margins," said TSO3 President and CEO, R.M. (Ric) Rumble . "We continue to invest in our team and our game-changing technology as we look to transform how low temperature sterilization and endoscope reprocessing is performed in healthcare." 

"Looking ahead into 2017," Rumble continued , "We will continue to support Getinge in North America , Europe and other international markets, conduct comprehensive sales training meetings and provide marketing collateral support.  2017 will also see us expand upon the use of our existing laboratories in Québec and South Carolina in an effort to further support device compatibility testing, pursue expanded regulatory claims for duodenoscopes in the United States , and new product development."

Supplemental Non-IFRS Financial Measures

In addition to IFRS financial measures, management uses non-IFRS financial measures to assess the Company's operational performance. It is likely that the non-IFRS financial measures used by the Company will not be comparable to similar measures reported by other issuers or those used by financial analysts as their measures may have different definitions. The measures used by the Company are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial performance measures.

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.

In 2016, management began assessing its operational performance using supplemental non-IFRS statement of income which removes typically one-time unusual items that do not reflect the recurring and ongoing operational results and trends. The results of the associated adjustments in 2016 included the removal of a one-time expense associated with a commitment to purchase of raw materials made in the year but made obsolete by adjustments and improvements in installation alternatives in response to feedback from end customers, which resulted in the calculation of adjusted gross profit, adjusted EBITDA and adjusted net income.

 

Additional Fourth Quarter and Full Year 2016 Financial Information





$000's

Quarterly 2016

Full Year 2016


Q1


Q1

Q2

Q3

Q4


Q4





IFRS

Adjust-

ments(1)

Non-
IFRS

IFRS

IFRS

IFRS

Adjust-
ments(1)

Non-
IFRS

  IFRS

Adjust-
ments

Non-
IFRS

Revenues

3,071

-

3,071

2,977

3,507

3,746

-

3,746

13,301

-

13,301

Cost of Goods Sold

1,961

-

1,961

2,143

2,368

2,716

(312)

2,404

9,188

(312)

8,876

Gross Profit

1,110

-

1,110

834

1,139

1,030

(312)

1,341

4,113

(312)

4,424

Gross Margin

36%

-

36%

28%

32%

28%

(8%)

36%

31%

(2%)

33%













R&D

606

-

606

803

806

1,297

-

1,297

3,512

-

3,512

SGA

1,385

-

1,385

1,529

1,841

1,774

-

1,774

6,529

-

6,529

Financial

(1,588)

1,578

(10)

-

(50)

(21)

-

(21)

(1,658)

1,578

(80)

Net Income (loss) before tax

707

(1,578)

(871)

(1,499)

(1,458)

(2,020)

(312)

(1,708)

(4,270)

1,266

(5,536)

Tax

58

-

58

(12)

15

48

-

48

109

-

109

Net Income (loss)

649

(1,578)

(929)

(1,487)

(1,473)

(2,068)

(312)

(1,756)

(4,379)

1,266

(5,645)

Net Income (loss) per share

0.01

(0.02)

(0.01)

(0.02)

(0.02)

(0.02)

0.00

(0.02)

(0.05)

(0.01)

(0.06)

Adjusted Ebitda

1,000

(1,578)

(578)

(1,128)

(977)

(1,614)

(312)

(1,302)

(2,719)

1,266

(3,985)

 

Non-IFRS cost of goods sold, non-IFRS gross profit and non-IFRS gross margin in Q4-2016 was impacted by a one-time write-off of inventory of $0.3 million associated with a commitment to purchase of raw materials made in the year, but made obsolete by adjustments and improvements in installation alternatives in response to feedback from end customers. The Company plans to sell these materials in 2017, but the amount of potential recovery could not be estimated at the end of 2016.

Non-IFRS financial income in Q1-2016 was impacted by the one-time foreign exchange gain realized of $1 .6 million following the change in functional currency from Canadian dollars to US dollars.

Adjusted EBITDA, is adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA). Adjusted EBITDA adjusts net income for (1) significant 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) one-time write-off of inventory, (6) income taxes, and (7) other significant unusual items.

 

Summary of Results

Periods ended December 31 (Audited, IFRS Basis, in thousands of US dollars, except per share amounts)





2016

Restated
2015


$

$

Revenues

13,301

1,248

Cost of sales

9,188

1,578

Gross profit

4,113

(330)

 

Expenses




Research and development

3,512

2,181


Selling, general and administrative

6,529

3,946


Financial expenses (income)

(1,658)

(121)

Total Expenses

8,383

6,006

Net loss before income taxes

(4,270)

(6,336)

Income taxes

109

-

Net loss

(4,379)

(6,336)

Other comprehensive income (loss) item that will not be reclassified subsequently to net income




Translation adjustments

-

(1,712)

Total comprehensive loss

(4,379)

(8,048)

Weighted average number of outstanding shares (in thousands)

90,810

81,264

Basic and diluted net loss per share (in $)

(0.05)

(0.08)

Basic and diluted net comprehensive loss per share (in $)

(0.05)

(0.10)

 

Fourth Quarter Analysis

(Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts)


Three-month period ended December 31, 2016, compared to the three-month period ended December 31, 2015:





Fourth Quarter

Fourth Quarter

Restated


2016

2015


$

$

Revenues

3,746

151

Cost of sales

2,716

484

Gross profit

1,030

(333)




Expenses




Research and development

1,297

674


Selling, general and administrative

1,774

1,210


Financial expenses (income)

(21)

(57)

Total Expenses

3,050

1,827

Net loss before income taxes

(2,020)

(2,160)

Income taxes

48

-

Net loss

(2,068)

(2,160)

Other comprehensive income (loss) item that will not be reclassified subsequently to net income




Translation adjustments

-

(379)

Total comprehensive loss

(2,068)

(2,539)

Weighted average number of outstanding shares (in thousands)

90,810

81,263

Basic and diluted net loss per share (in $)

(0.02)

(0.03)

Basic and diluted net comprehensive loss per share (in $)

(0.02)

(0.03)

 

Consolidated Statements of Financial Position

As of December 31, 2016 and 2015 (Audited, IFRS Basis, in thousands of US dollars)






Restated


2016

2015


$

$




Current Assets




Cash and Cash Equivalents

2,698

12,654


Short-term Investments

15,064

2,457


Accounts Receivable

2,318

437


Inventories

1,703

1,302


Prepaid Expenses

102

79


21,885

16,929

Non-current Assets




Long-term Investments

1,498

-


Property, Plant and Equipment

2,357

366


Intangible Assets

1,836

1,691


5,691

2,057


27,576

18,986




Current Liabilities




Accounts Payable and Accrued Liabilities

2,272

1,288


Warranty Provision

575

29


Deferred Revenues

1,004

801


3,851

2,118

Non-current Liabilities




Deferred Income Tax Liabilities

109

-


Deferred Revenues

5,945

6,735


9,905

8,853




Equity




Share Capital

110,406

98,817


Reserve – Share-based Compensation

4,709

3,990


Reserve – Warrants

-

493


Deficit

(95,732)

(91,455)


Accumulated Other Comprehensive Loss

(1,712)

(1,712)


17,671

10,133


27,576

18,986

 

Consolidated Statements of Cash Flows

As of December 31, 2016 and 2015 (Audited, IFRS Basis, in thousands of US dollars)






Restated


2016

2015


$

$

Cash flows from operating activities



Net loss

(4,379)

(6,336)

Adjustments for:




Depreciation and amortization

448

407


Write-off of intangible assets

-

173


Deferred income tax liabilities

109

-


Share-based compensation

1,103

476


Investment income

(180)

(87)


(2,899)

(5,367)


Changes in non-cash operating working capital items

(2,597)

7,859


Interest received

106

86

Cash flows generated by (used in) operating activities

(5,390)

2,578

Cash flows from investing activities




Acquisition of investments

(26,195)

(6,939)


Disposal of short-term investments

12,164

4,282


Acquisition of property, plant and equipment

(1,085)

(192)


Acquisition of intangible assets

(314)

(259)

Cash flows used in investing activities

(15,430)

(3,108)

Cash flows from financing activities




Issuance of share capital and warrants

-

9,108


Share capital and warrants issue expenses

-

(912)


Options exercised

719

41


Warrants exercised

10,145

918

Cash flows generated by financing activities

10,864

9,155

Effect of exchange rates on cash and cash equivalents

-

(1,120)

Increase (decrease) in cash and cash equivalents

(9,956)

7,505

Cash and cash equivalents at the beginning

12,654

5,149

Cash and cash equivalents at the end

2,698

12,654




 

Consolidated Statements of Cash Flows

(Unaudited, IFRS Basis, in thousands of US dollars)

Three-month period ended December 31, 2016, compared to the three-month period ended December 31, 2015:






Restated


Q4-2016

Q4-2015


$

$

Cash flows from operating activities



Net Income (loss)

(2,067)

(2,160)

Adjustments for:




Depreciation and amortization

120

106


Deferred income tax liabilities

109

-


Share-based compensation

286

182


Financial income

(49)

(26)


(1,601)

(1,898)


Changes in non-cash operating working capital items

537

8,303


Interest received

11

25

Cash flows used in operating activities

(1,053)

6,430

Cash flows from investing activities




Acquisition of short-term investments

(3,278)

(2,457)


Disposal of short-term investments

3,319

1,734


Acquisition of property, plant and equipment

(450)

(90)


Acquisition of intangible assets

(66)

(107)




Cash flows generated by (used in) investing activities

(475)

(920)

Cash flows from financing activities




Options exercised

47

23

Cash flows generated by financing activities

47

23

Effect of exchange rates on cash and cash equivalents

-

(228)

Increase in cash and cash equivalents

(1,481)

5,305

Cash and cash equivalents at the beginning

4,179

7,349

Cash and cash equivalents at the end

2,698

12,654

 

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: Tuesday, March 21, 2017
Time: 10:30 a.m. Eastern Daylight Time (7:30 a.m. PDT)
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: 1379182

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=1379182&s=1&k=E0EFC15542DE35C9FC078DECC7B0B6F7, which will also be available for replay in the Investors section of the Company's website at www.tso3.com.

Fourth Quarter and Fiscal 2016 Results Disclosure

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

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 terminal sterilization method that is FDA 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 STERIZONE® VP4 Sterilizer is also the only 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.  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).

More information about the STERIZONE® VP4 Sterilizer is available through TSO3's website, under the Products section at 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. TSOalso offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.

For more information about TSO3, visit the Company's website 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. Although TSO3 believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The complete version of the cautionary note regarding forward-looking statements as well as a description of the relevant assumptions and risk factors likely to affect TSO3's actual or projected results are included in the Management's Discussion and Analysis for the year ended December 31, 2016 , which is available on the Company's website. The forward-looking statements contained in this press release are made as of the date hereof and TSO3 does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.

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.


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