Mr. R.M. Rumble reports
TSO3 REPORTS FOURTH QUARTER AND FULL YEAR 2018 RESULTS
TSO3 Inc. has released financial results for the fourth quarter and year ended Dec. 31, 2018.
Business Highlights
In the fourth quarter of 2018, TSO3 received purchase orders for a record 21 units of its industry-leading STERIZONEtrademark VP4 Sterilizer and shipped nine sterilizers to end users.
The Company continues to aggressively uncover new opportunities and now has over 450 sterilizers in its qualified sales pipeline. The Company expects to achieve purchase orders and commitment indications for more than 10 sterilizers in the first quarter of 2019 and currently has 75 STERIZONEtrademark VP4 Sterilizers installed at end customer locations.
"In 2018, TSO3 pivoted from a third-party distribution model to that of a direct sales strategy. This action was taken to increase the pace of deployment of our propriety STERIZONEtrademark VP4 Sterilizer," stated R.M. (Ric) Rumble, president and CEO of TSO3. "Since taking these actions, we are experiencing end customer adoption at rates in excess of past performance, which gives us an early indication that we are on the right path."
2018 Fourth Quarter Financial Summary
- Revenues equaled $1.1 million, as compared to $0.8 million in the third quarter of 2018 and $5.8 million in the fourth quarter of 2017. TSO3 revenues in the fourth quarter of 2018 reflect sales of sterilizers and related accessories, service and $0.4 million of consumables directly to end customers. The Company shipped nine sterilizers to hospitals in the fourth quarter of 2018 as opposed to four sterilizers to hospitals in the third quarter of 2018 and 50 sterilizers to its former distributor in the fourth quarter of 2017.
- Gross profit was $0.04 million on an IFRS basis ($0.6 million, or 52% of revenues, on a non-IFRS basis after excluding a non-recurring write-down of $0.5 million of raw material inventories), as compared to $1.2 million, or 150% of revenues, in the third quarter of 2018 and $2.3 million, or 40% of revenues, in the fourth quarter of 2017.
- Research and Development (R&D) expenses amounted to $1.1 million on an IFRS basis ($0.7 million on a non-IFRS basis after excluding a non-recurring write-down of $0.4 million on sterilizers developed internally that will not be commercialized in the upcoming year), as compared to $1.3 million in the third quarter of 2018 and $1.8 million in the fourth quarter of 2017.
- Sales, General and Administrative (SG&A) expenses were $2.7 million, as compared to $2.6 million in the third quarter of 2018 and $2.0 million in the fourth quarter of 2017.
- Financial income was $1.1 million, as compared to $0.6 million in the third quarter of 2018 and an immaterial amount in the fourth quarter of 2017. The Company recorded $0.8 million of accrued interest expense in the fourth quarter of 2018 related to a $20.0 million debt financing it obtained in August 2018 and a non-cash gain of $1.8 million on the revaluation of the embedded derivative within the Convertible Note associated with this financing.
- The Company's net loss was $(2.7) million, or $(0.03) per share, as compared to $(2.1) million, or $(0.02) per share, in the third quarter of 2018 and to $(1.4) million, or $(0.02) per share in the fourth quarter of 2017.
- The Company had $13.0 million in cash, cash equivalents and investments and $18.0 million of debt as of December 31, 2018, as compared to $16.1 million in cash, cash equivalents and investments and $19.1 million of debt at the end of the third quarter of 2018.
- Cash used by the operating activities was $3.0 million, $0.9 million of which was used in working capital items.
2018 Full Year Financial Summary
- Revenues equaled $2.5 million in 2018, which includes shipments of 13 sterilizers to medical facilities end customers and associated accessories, consumables and service, as compared to $19.7 million in 2017 which included shipments of 170 sterilizers to our former distributor along with accessories, consumables, service and license fee revenue recognition.
- Gross profit was $1.0 million, or 39% of revenues in 2018, as compared to $7.7 million, or 39% of revenues, in 2017.
- R&D expenses were $5.5 million in 2018, as compared to $6.2 million in 2017. The Company reduced its research and development expenditures as it focused more of its expenditures on selling and marketing activities.
- SG&A expenses were $10.3 million in 2018, as compared to $8.7 million in 2017 as the Company grew its sales and marketing team members and activities while decreasing general and administrative expenditures.
- Financial income was $1.7 million, as compared to a financial expense of $0.1 million in 2017. The Company recorded $1.2 million of accrued interest expense related to a $20.0 million debt financing it obtained on August 1, 2018 and a non-cash gain of $2.9 million on the revaluation of the embedded derivative within the Convertible Note associated with this financing.
- The Company net loss and comprehensive loss totaled $(13.2) million or $(0.14) per share, as compared to $(7.5) million or $(0.08) per share of net loss and comprehensive loss in 2017.
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.
Management is assessing its operational performance using supplemental non-IFRS measures which removes significant unusual items that do not reflect the recurring and ongoing operational results and trends.
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) financial expenses (income), (3) amortization and depreciation expenses (4) share-based compensation expense, (5) write-downs of certain tangible and intangible assets, (6) one-time write-off of inventory, (7) income taxes, and (8) other significant unusual items.
Summary of Results Year ended December 31 (Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts) 2018 2017 $ $ Revenues 2,532 19,726 Cost of sales 1,534 12,068 Gross profit 998 7,658 Expenses Research and development 5,547 6,222 Selling, general and administrative 10,348 8,728 Financial (income) expenses (1,678) 132 Total Expenses 14,217 15,082 Net loss before income taxes (13,219) (7,424) Income taxes 25 30 Net loss and comprehensive loss (13,244) (7,454) Weighted average number of outstanding shares (in thousands) 93,108 92,508 Basic and diluted net loss per share (0.14) (0.08) Basic and diluted net comprehensive loss per share (0.14) (0.08)
Fourth Quarter Analysis (Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts) Three-month period ended December 31, 2018, compared to the three-month period ended December 31, 2017: Fourth Quarter 2018Fourth Quarter 2017 $ $ Revenues 1,122 5,780 Cost of sales 1,083 3,455 Gross profit 39 2,325 Expenses Research and development 1,095 1,766 Selling, general and administrative 2,667 1,993 Financial (income) expenses (1,054) 74 Total Expenses 2,708 3,833 Net loss before income taxes (2,669) (1,508) Income taxes 7 (59) Net loss and comprehensive loss (2,676) (1,449) Weighted average number of outstanding shares (in thousands) 93,108 92,508 Basic and diluted net loss per share (0.03) (0.02) Basic and diluted net comprehensive loss per share (0.03) (0.02)
Conference call